Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
, 2018
CORPORATIONS,
PARTNERSHIPS,
ESTATES & TRUSTS
General Editors
William H. Hoffman, Jr. William A. Raabe James C. Young
J.D., Ph.D., CPA Ph.D., CPA Ph.D., CPA
Annette Nellen David M. Maloney
J.D., CPA, CGMA Ph.D., CPA
Contributing Authors
James H. Boyd Steven L. Gill Mark B. Persellin W. Eugene Seago
Ph.D., CPA Ph.D., CPA Ph.D., CPA, CFP J.D., Ph.D., CPA
Arizona State University San Diego State University St. Mary’s University Virginia Polytechnic Institute
Gregory Carnes William H. Hoffman, Jr. William A. Raabe and State University
Ph.D., CPA J.D., Ph.D., CPA Ph.D., CPA James C. Young
University of North Alabama University of Houston Milton, Wisconsin Ph.D., CPA
D. Larry Crumbley David M. Maloney Debra L. Sanders Northern Illinois University
Ph.D., CPA Ph.D., CPA Ph.D., CPA Kristina Zvinakis
Louisiana State University University of Virginia Washington State Ph.D.
Steven C. Dilley Annette Nellen University, Vancouver The University of Texas
J.D., Ph.D., CPA J.D., CPA, CGMA at Austin
Michigan State University San Jose State University
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
, ª 2018, 2017 Cengage Learning
South-Western Federal Taxation:
Corporations, Partnerships, Estates and Unless otherwise noted, all content is ª Cengage
Trusts, 2018 Edition
ALL RIGHTS RESERVED. No part of this work covered by the copyright herein
William H. Hoffman, Jr., William A. Raabe, may be reproduced or distributed in any form or by any means, except as
James C. Young, Annette Nellen, permitted by U.S. copyright law, without the prior written permission of the
David M. Maloney copyright owner.
SVP, General Manager: Social Sciences,
Humanities and Business: Erin Joyner For product information and technology assistance, contact us at
Exec. Product Director: Mike Schenk Cengage Learning Customer & Sales Support, 1-800-354-9706
Product Director: Jason Fremder For permission to use material from this text or product,
submit all requests online at www.cengage.com/permissions
Sr. Product Manager: John Barans
Further permissions questions can be emailed to
Content Developer: Jonathan Gross
Product Assistant: Aiyana Moore
Sr. Marketing Manager: Nathan Anderson All tax forms within the text are: Source: Internal Revenue Service.
Content Project Manager: Nadia Saloom Tax software: Source: H&R Block
Roger CPA Review: Source: Roger CPA
Manufacturing Planner: Doug Wilke
Integrated Campaigns Project Manager, ISSN: 0270-5265
Marketing: Sarah Greber 2018 Annual Edition
Production Service: Cenveo Publisher Services Student Edition ISBN: 978-1-337-38595-4
Student Edition with H&R Block and RIA Checkpoint ISBN: 978-1-337-38594-7
Sr. Art Director: Michelle Kunkler
Text and Cover Designer: Red Hangar Design Cengage Learning
Cover Image: John Lund/Getty Images 20 Channel Center Street
Intellectual Property: Boston, MA 02210
Analyst: Brittani Morgan USA
Project Manager: Carly Belcher
Cengage Learning is a leading provider of customized learning solutions with
Design Images:
employees residing in nearly 40 different countries and sales in more than
Concept Summary: iStockphoto.com/ 125 countries around the world. Find your local representative at
Andrey Prokhorov www.cengage.com.
Global Tax Issues: Andrey Prokhorov/
Getty Images Cengage Learning products are represented in Canada by Nelson
Bridge Discipline: iStockphoto.com/ Education, Ltd.
Andrey Prokhorov To learn more about Cengage Learning Solutions, visit www.cengage.com
Ethics & Equity: iStockphoto.com/LdF
Cumulative Problems/Tax Return Problems: Purchase any of our products at your local college store or at our preferred
iStockphoto.com/Pali Rao online store www.cengagebrain.com
Financial Disclosure Insights: Vyaseleva
Elena/Shutterstock.com
Tax Planning Strategies: Sergey Nivens/
Shutterstock.com
Tax Fact: carroteater/Shutterstock.com
Framework 1040: Tomas Urbelionis/
Shutterstock.com
Printed in the United States of America
Print Number: 01 Print Year: 2017
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
, Preface
COMMITTED TO EDUCATIONAL SUCCESS
S outh-Western Federal Taxation (SWFT) is the
most trusted and best-selling series in college
taxation. We are focused exclusively on providing the
they revised for the 2018 edition. Coverage has
been streamlined to make it more accessible to
students, and difficult concepts have been clari-
most useful, comprehensive, and up-to-date tax texts, fied, all without losing the substance that makes
online study aids, tax preparation tools, and research up the South-Western Federal Taxation series.
tools to help instructors and students succeed in their
• Developing professional skills. SWFT excels
tax courses and beyond.
in bringing students to a professional level in
SWFT is a comprehensive package of teaching and
their tax knowledge and skills, to prepare them
learning materials, significantly enhanced with each
for immediate success in their careers. In this
edition to meet instructor and student needs and to add
regard, we include development of speaking
overall value to learning taxation.
and writing communications skills, the use of
Corporations, Partnerships, Estates & Trusts, 2018
tax preparation and tax research software, ori-
Edition provides a dynamic learning experience inside
entation toward success on the CPA exam, con-
and outside of the classroom. Built with resources and
sideration of the time value of money in the tax
tools that have been identified as the most important,
planning process, and facility with advanced
our complete learning system provides options for stu-
applications of spreadsheet construction.
dents to achieve success.
Corporations, Partnerships, Estates & Trusts, 2018 • CengageNOWv2 as a complete learning
Edition covers tax concepts as they affect corporations, system. Cengage Learning understands that
partnerships, estates, and trusts. The authors provide digital learning solutions are central to the class-
accessible, comprehensive, and authoritative cover- room. Through sustained research, we continually
age of relevant tax code and regulations, as well as all refine our learning solutions in CengageNOWv2
major developments in Federal income taxation. This to meet evolving student and instructor needs.
market-leading text is intended for students who have CengageNOWv2 fulfills learning and course man-
had a previous course in taxation. agement needs by offering a personalized study
plan, video lectures, auto-graded homework,
In revising the 2018 Edition, we focused on: auto-graded tests, and a full eBook with features
and advantages that address common challenges.
• Accessibility. Clarity. Substance. The text
authors and editors made this their mantra as
iii
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
BK-CHE-SWFT_2018_V2-160410-FM_IND.indd 3 07/03/17 1:57
, 2018
CORPORATIONS,
PARTNERSHIPS,
ESTATES & TRUSTS
General Editors
William H. Hoffman, Jr. William A. Raabe James C. Young
J.D., Ph.D., CPA Ph.D., CPA Ph.D., CPA
Annette Nellen David M. Maloney
J.D., CPA, CGMA Ph.D., CPA
Contributing Authors
James H. Boyd Steven L. Gill Mark B. Persellin W. Eugene Seago
Ph.D., CPA Ph.D., CPA Ph.D., CPA, CFP J.D., Ph.D., CPA
Arizona State University San Diego State University St. Mary’s University Virginia Polytechnic Institute
Gregory Carnes William H. Hoffman, Jr. William A. Raabe and State University
Ph.D., CPA J.D., Ph.D., CPA Ph.D., CPA James C. Young
University of North Alabama University of Houston Milton, Wisconsin Ph.D., CPA
D. Larry Crumbley David M. Maloney Debra L. Sanders Northern Illinois University
Ph.D., CPA Ph.D., CPA Ph.D., CPA Kristina Zvinakis
Louisiana State University University of Virginia Washington State Ph.D.
Steven C. Dilley Annette Nellen University, Vancouver The University of Texas
J.D., Ph.D., CPA J.D., CPA, CGMA at Austin
Michigan State University San Jose State University
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
, ª 2018, 2017 Cengage Learning
South-Western Federal Taxation:
Corporations, Partnerships, Estates and Unless otherwise noted, all content is ª Cengage
Trusts, 2018 Edition
ALL RIGHTS RESERVED. No part of this work covered by the copyright herein
William H. Hoffman, Jr., William A. Raabe, may be reproduced or distributed in any form or by any means, except as
James C. Young, Annette Nellen, permitted by U.S. copyright law, without the prior written permission of the
David M. Maloney copyright owner.
SVP, General Manager: Social Sciences,
Humanities and Business: Erin Joyner For product information and technology assistance, contact us at
Exec. Product Director: Mike Schenk Cengage Learning Customer & Sales Support, 1-800-354-9706
Product Director: Jason Fremder For permission to use material from this text or product,
submit all requests online at www.cengage.com/permissions
Sr. Product Manager: John Barans
Further permissions questions can be emailed to
Content Developer: Jonathan Gross
Product Assistant: Aiyana Moore
Sr. Marketing Manager: Nathan Anderson All tax forms within the text are: Source: Internal Revenue Service.
Content Project Manager: Nadia Saloom Tax software: Source: H&R Block
Roger CPA Review: Source: Roger CPA
Manufacturing Planner: Doug Wilke
Integrated Campaigns Project Manager, ISSN: 0270-5265
Marketing: Sarah Greber 2018 Annual Edition
Production Service: Cenveo Publisher Services Student Edition ISBN: 978-1-337-38595-4
Student Edition with H&R Block and RIA Checkpoint ISBN: 978-1-337-38594-7
Sr. Art Director: Michelle Kunkler
Text and Cover Designer: Red Hangar Design Cengage Learning
Cover Image: John Lund/Getty Images 20 Channel Center Street
Intellectual Property: Boston, MA 02210
Analyst: Brittani Morgan USA
Project Manager: Carly Belcher
Cengage Learning is a leading provider of customized learning solutions with
Design Images:
employees residing in nearly 40 different countries and sales in more than
Concept Summary: iStockphoto.com/ 125 countries around the world. Find your local representative at
Andrey Prokhorov www.cengage.com.
Global Tax Issues: Andrey Prokhorov/
Getty Images Cengage Learning products are represented in Canada by Nelson
Bridge Discipline: iStockphoto.com/ Education, Ltd.
Andrey Prokhorov To learn more about Cengage Learning Solutions, visit www.cengage.com
Ethics & Equity: iStockphoto.com/LdF
Cumulative Problems/Tax Return Problems: Purchase any of our products at your local college store or at our preferred
iStockphoto.com/Pali Rao online store www.cengagebrain.com
Financial Disclosure Insights: Vyaseleva
Elena/Shutterstock.com
Tax Planning Strategies: Sergey Nivens/
Shutterstock.com
Tax Fact: carroteater/Shutterstock.com
Framework 1040: Tomas Urbelionis/
Shutterstock.com
Printed in the United States of America
Print Number: 01 Print Year: 2017
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
, Preface
COMMITTED TO EDUCATIONAL SUCCESS
S outh-Western Federal Taxation (SWFT) is the
most trusted and best-selling series in college
taxation. We are focused exclusively on providing the
they revised for the 2018 edition. Coverage has
been streamlined to make it more accessible to
students, and difficult concepts have been clari-
most useful, comprehensive, and up-to-date tax texts, fied, all without losing the substance that makes
online study aids, tax preparation tools, and research up the South-Western Federal Taxation series.
tools to help instructors and students succeed in their
• Developing professional skills. SWFT excels
tax courses and beyond.
in bringing students to a professional level in
SWFT is a comprehensive package of teaching and
their tax knowledge and skills, to prepare them
learning materials, significantly enhanced with each
for immediate success in their careers. In this
edition to meet instructor and student needs and to add
regard, we include development of speaking
overall value to learning taxation.
and writing communications skills, the use of
Corporations, Partnerships, Estates & Trusts, 2018
tax preparation and tax research software, ori-
Edition provides a dynamic learning experience inside
entation toward success on the CPA exam, con-
and outside of the classroom. Built with resources and
sideration of the time value of money in the tax
tools that have been identified as the most important,
planning process, and facility with advanced
our complete learning system provides options for stu-
applications of spreadsheet construction.
dents to achieve success.
Corporations, Partnerships, Estates & Trusts, 2018 • CengageNOWv2 as a complete learning
Edition covers tax concepts as they affect corporations, system. Cengage Learning understands that
partnerships, estates, and trusts. The authors provide digital learning solutions are central to the class-
accessible, comprehensive, and authoritative cover- room. Through sustained research, we continually
age of relevant tax code and regulations, as well as all refine our learning solutions in CengageNOWv2
major developments in Federal income taxation. This to meet evolving student and instructor needs.
market-leading text is intended for students who have CengageNOWv2 fulfills learning and course man-
had a previous course in taxation. agement needs by offering a personalized study
plan, video lectures, auto-graded homework,
In revising the 2018 Edition, we focused on: auto-graded tests, and a full eBook with features
and advantages that address common challenges.
• Accessibility. Clarity. Substance. The text
authors and editors made this their mantra as
iii
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
BK-CHE-SWFT_2018_V2-160410-FM_IND.indd 3 07/03/17 1:57
