TAX 4001
Concepts of Federal Income Taxation
FALL 2013
USF St. Petersburg
Prerequisites: ACG 3103 and ACG 3341 with a grade of "C" or better (not C-) in each course.
Instructor:
James A. Fellows, Ph.D, CPA
Professor of Accounting
USF-St. Petersburg
Office:
Davis Hall 223
Wednesday: 1:00-1:45pm
And by appointment
Phone:
Fax:
Virtual Office:
My Virtual Office is open 24/7. You may contact me at any time. I will respond in a reasonably prompt
manner, unless there are unforeseen events, such as email shut-downs and other unknown factors. E-mail
is the preferred and best way to contact me, other than during my office hours. I am very good about
giving a quick turn-around to your email questions. When contacting me via email please use your
USF email account. Other personal email accounts are not always accepted by the USF email system.
Taxation of Individuals: 2014 Edition (5th edition)
Spilker, Ayers, Robinson et. al.
Customized Paper-Bound Edition
Publisher: McGraw-Hill
Available ONLY at the USFSP Book Store [Cost is about $110]
---------------------------------------------------------------------------------------------------------------------------Catalogue course description: Major concepts used in taxation of income by the federal government,
including enactment of tax laws, basic tax research, preparation of basic tax returns and exploration of tax
policy issues.
Text:
Instructor course description: This course is a conceptual overview of the fundamental tax rules that affect
individual taxpayers. Topics include the concepts of gross income, capital gains and losses, non-taxable
exchanges, business income and expenses, tax credits and deductions. As a background for the discussion
the policy implications for various income, deduction, or credit rules are discussed. The goal of the course
is not to make the student an “expert” in taxation. Rather, the focus of this course is to make the student
knowledgeable in the subject of taxation, someone familiar with the general concepts, who then knows
how to seek answers to a difficult question. Also, please keep in mind that this course in not a course in
“how to prep tax returns.” Reference is often made to tax forms throughout the course, as it is valuable to
see how the concepts are applied to the compliance forms. Your required tax project may also involve the
preparation of a tax return. Furthermore, there may be some fairly basic questions about the tax forms on
each exam. But this is not an in-depth course on how to “fill out tax returns.”
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The USFSP Program Accountancy has as one of its learning goals that “students completing the
bachelor’s degree majoring in Accounting will demonstrate knowledge of business and personal income
taxes.” In meeting this learning goal various learning objectives are covered in TAX 4001.
Course Goals and Objectives: At the end of this course the student should be able to:
a)
Understand the concept of gross income and which items of income are taxable;
b)
Distinguish between deductions for and deductions from adjusted gross income;
c)
Compute income tax liabilities for taxpayers based on filing status;
d)
Determine allowed tax deductions for individual taxpayers;
e)
Compute a capital gains tax.
f)
Analyze the tax consequences of tax-deferred property exchanges;
g)
Comprehend the various tax credits that are allowed to individuals, and distinguish
between refundable and non-refundable credits;
h)
Understand basic principles of business taxation;
i)
Understand basic income tax preparation principles; and
j)
Understand the basic IRS audit process and relevant tax authorities.
In a more global sense, the objectives of this course also seek to expose the student to broader issues in
their profession and community, as well as to have the student become proficient in communicative and
technical skills. This is accomplished in the following manner:
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Key leadership skills and perspectives addressed in this course: the numbers, ranging from
0 – 5, indicates the amount of emphasis placed on this particular goal or objective. A
description of how these goals and objectives are applied follows the table.
Interpersonal and
Communication
Skills
Analytical and
Critical Thinking
Skills
Information
Technology
Skills
Reflective
Thinking
and
Experiential
Learning
Ethical and
Social
Consciousness
Multicultural
Competence
2
5
3
5
4
2
INTERPERSONAL AND COMMUNICATIVE SKILLS
Each student is expected to participate in class discussion about various tax issues related to individuals
and business entities. The in-class problems and discussion of these are integral parts of the course.
ANALYTICAL AND CRITICAL THINKING SKILLS
These skills will be used throughout the course, from the first day of class to the last. Each student is
expected to understand, and critically apply their knowledge of tax law to solve intricate tax problems
facing hypothetical clients. The problems assigned at the end of each chapter are especially valuable in
this context.
INFORMATION TECHNOLOGY SKILLS
Each student will be required to use the Internet, especially USF Blackboard, as part of this course. In
addition, use of the IRS website may be required to complete a tax return of an individual taxpayer.
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REFLECTIVE THINKING AND EXPERIENTIAL LEARNING
Throughout the class, there will be discussion of actual “real world” examples, e.g., recent court cases,
which are based on the Federal tax law being discussed. The student is expected to offer commentary on
such contemporary issues. In addition, the course emphasizes that decisions should not be solely “taxdriven.” In other words, the taxpayer should not have as her main purpose the minimization of her tax
liability. Each student should clearly understand by the end of this course that sound economic reasoning
should dictate the maximization of the taxpayer’s welfare; however she may wish to define it. This does
not necessarily imply maximizing monetary worth.
ETHICS AND SOCIAL CONSCIOUSNESS
Throughout this course there is a discussion of the ethical responsibilities of taxpayers, both individuals
and business entities, to comply with the letter and spirit of the law. There will be discussions of penalties
involved for misconduct and malfeasance of Federal tax laws. Taxpayers have an obligation to obey the
laws of the United States. Title 26 of the U.S. Code of Laws is the Internal Revenue Code. A willful
intent to evade tax is a crime, punishable by fines and imprisonment. The instructor places great emphasis
on proper compliance with the tax laws. This is not to say that taxpayers can not practice legitimate tax
avoidance, which is a legal attempt to lower one’s tax liability. This is different than tax evasion, which is
tax fraud and a criminal offense.
There are also ethical standards for tax practice that any tax preparer must adhere to. These ethical
standards are discussed in Chapter 2 of the text, as well as throughout the course.
MULTICULTURAL COMPETENCE
Students should be aware of the impact of global issues. Individuals and businesses earn income and
conduct commercial activity in foreign locations. There will be discussions in this class of Federal tax law
as it applies to foreign income, as well as the Federal tax law surrounding the taxation of foreign citizens
and entities doing business within the United States.
Attendance
Attendance is not mandatory in this class, other than on the first day of class, and at the exams of course.
You are not “docked” points for missing class. However, you “cut” class at your own peril. Class
discussion and review of the course material is a primary ingredient for doing well in this class.
Disabilities
Please let the instructor know if you have any disabilities that need to be considered. All reasonable
accommodations will be made. The student must have verification of the disability, which requires a
written statement of the disability from the Office of Disabled Student Services.
Religious Holidays
Please let the instructor know if you need to miss class, especially an exam date, for observance of a
religious holiday. Reasonable accommodations will be made.
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Audio and Video Recording: Use of Cell Phone Visual Recording
You may audio-record the class. However, video-recording and the taking of photos or other visual
images with a cell phone is not allowed. Please respect the privacy of your classmates and your instructor.
Academic Dishonesty
The University’s policy on academic dishonesty and disruption of the academic process is clearly set
forth in the Undergraduate catalogue. This policy will be strictly enforced. Please be advised that
punishment for academic dishonesty may result in an automatic “F” in the course, maybe even an “FF,”
or action taken that may result in suspension or expulsion from the university.
Grade Forgiveness
Grade forgiveness allows a student to repeat a course, with the higher grade on the repeat performance
completely replacing the earlier grade. This earlier grade is deleted from the GPA calculation. Accounting
majors can use the forgiveness policy only once in upper level accounting courses (those numbered 3000
and above).
Incomplete Grades
An Incomplete, a grade of “I”, can only be given if the student has substantially completed the course, but
due to events beyond their control, is unable to complete the course. In all cases, no grade of “I” can be
given unless the student has taken all exams except the final exam. Even in that case, the “events beyond
their control” criteria must be met by the student. An Incomplete grade cannot be given simply because
the student has not prepared adequately for the last exam, and just needs more time to study, nor can an
“I” grade be given just so the student can avoid being given a low grade for the course.
Cell Phone Usage
All cell phones MUST be turned off before coming to class. Exceptions will only be made for practicing
physicians who are in the class, because they are the only ones who deal with REAL life and death
situations, as opposed to imaginary ones. Failure to abide by this obvious rule of courtesy to one’s fellow
classmates (not to mention the instructor) will subject the student to disciplinary action, as outlined under
Disruptions of the Academic Process in the University catalogue. When taking your exams, your cell
phones must be OFF your table desk. Place them in your purse, book-bags, travel bags, back-packs, on
the floor, anywhere but on the table desks.
W grade
A “W” grade is given to students who have formally withdrawn from the course before the official drop
date. The student must complete the withdrawal process through the Office of Admissions and Records,
i.e., the Registrar. A “W” grade is not given just because the student stops coming to class, under the
false assumption that the instructor will automatically “drop” them from the rolls. The official drop date
for this semester is November 2. Students can drop the class any time on or before this date without any
academic penalty, i.e., no letter grade other than a “W” is assigned. After that date, the instructor cannot
give a grade of “W”. This is university policy.
Note that it is the student’s responsibility to officially drop the class. The instructor can NOT drop
students from the class. Please consult your advisor if there is any question about proper drop
procedures.
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Examinations
There will be three (3) exams during the course. None of the exams are comprehensive. The instructor
does NOT drop the lowest grade. These exams will be worth a total of 135 points [Exam 1 = 50, Exam 2
= 40 and Exam 3 = 45]. These exams constitute 135 out of a possible 150 points for the course, or 90%
of your grade. There is a class project that counts 15 points, which is 10% of your final grade. Also,
please note that the instructor does NOT give any “extra credit” assignments. Please do not ask for any.
Format of exams
Each of the three (3) exams is a multiple-choice exam, with the vast majority of the questions being
problem solving, in which you must derive a correct numerical answer. Each question will be worth one
point. No partial credit is given for multiple-choice exams, as you have the possibility of guessing
answers correctly.
-------------------------------------------------------------------------------------------------------------------The 76 Percent Solution: At the end of the semester, after all exams and projects for all sections of the
class have been graded, I will ensure that the overall average is a minimum of 114 out of 150 [76%]. If
the overall average is less than 114, points will be added to ALL students’ point totals, so that the class
average is at a minimum of 114. If the overall class average is 110, and your point total is 118, I will add
4 points to all student scores, including yours, so that you now have a 122. This increases your final letter
grade from C+ to B. When there is more than one section of the class in a semester, the 76 Percent
Solution is implemented using the average of all sections combined.
--------------------------------------------------------------------------------------------------------------------Each student is allowed to bring into the exam four (4) pages of “information pages,” on which can be
written helpful notes and hints. You may write on the front and back of these pages, but you can NOT
bring in 8 pages with writing on just one side of each page. Four pages, with notes on front and back
allowed. If necessary, staple together two separate pages front to back of each other so that is in effect just
one page. However, you cannot attach to any of the four pages what I call “flappers.” These are smaller
pages attached to four main pages that “flap” loosely from the page. Penalties will be assessed for not
following these instructions.
You may of course “word process” these pages, using as small a font as possible. The page sizes can
be no larger than 8½” x 11". NO SCRATCH PAPER IS ALLOWED. You may only use your information
pages. There is plenty of space on the exam for “scratch work.” Each student must turn in these
information pages with the exam. Please put your name on each page. If you wish make copies of the
information pages, please do so before the exam and retain the copy.
PLEASE BRING NUMBER 2 PENCILS TO THE EXAM. THE EXAMS ARE SCANTRON
GRADED. THANK YOU.
Exam Period with Multiple Sections of TAX 4001
Students are required to take exams with the section in which they have enrolled. It is not permissible to
take the exam in the later section of TAX 4001 simply because more time is needed to study for the exam.
This is unfair to the other students in the earlier section and thus will not be allowed.
Cell Phones and Headsets
All cell phones must be turned off and off your desk when taking the exams. In addition you are not
allowed to wear any headsets or other listening devices while taking the exam. You can NOT use your
cell phone or smart phone as a calculator.
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Calculators
Calculators may be used during the exam. Calculators that store formulas or text in memory are not
allowed on accounting examinations. This is Program of Accountancy policy. Violation of this policy
subjects the student to the university rules on academic dishonesty, as discussed above. Violation of this
rule subjects the student to academic penalties.
Review and Retention of Exams
Exams will be reviewed during the LAST HOUR of the class following the exam date. I will retain the
exams in my office until the end of the following semester. I do post grades on Blackboard. Exam scores
are usually posted within a few days of the exam. Please be patient.
Make-Up Exams
Make-up exams can only be given if the student has made every effort to meet the exam date, but due to
unforeseen circumstances, is unable to be there. Work commitments that require you to be out of town are
an acceptable excuse, as is of course an illness. But make-up exams cannot be given just to give a student
more time to study for the test. This includes students in the earlier section of the class taking the exam
with the later section of that same week.
Also, the student cannot delay taking the exam because he or she has another exam on the same day. The
instructor has sole authority for determining what an acceptable excuse for taking a make-up exam is.
Also, the instructor reserves the right to prepare a make-up exam that is different in style and manner than
the regular exam.
ALL MAKE-UP EXAMS ARE GIVEN DURING THE WEEK BEFORE FINAL EXAM WEEK.
THE MAKE-UP WEEK IS THE WEEK OF DECEMBER 2-6. THERE IS NO EXCEPTION.
Course Project: Each student must complete and turn in a course project. The course project and
requirements can be found under “Course Documents” in Blackboard. This project is worth a maximum
of 15 points. There is a power point narration in “Course Documents” that also explains the project. The
project must be submitted through the “Assignments” section of Blackboard by the due date.
Homework Problems:
Each chapter has assigned homework problems. You should work these out after reading the chapter, and
before coming to class. I do not collect homework or grade it, but without a proper study of the chapter, to
include effort on the homework problems, the class lecture could be a “great fog” to you. I will review
assigned problems on occasion, typically by special requests. Solutions to all the assigned problems will
be posted at the course site on Blackboard. Look under Course Documents.
---------------------------------------------------------------------------------------------------------------------------
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Additional Assignments outside of text and in-class lectures:
There is some additional material posted on Blackboard. Others may be posted as needed. I will inform
you if I do so. These are required study. All of these are Power Point Lecture Narrations at the
Blackboard course site. Except for the Overview of Form 1040 and the explanation of Problem 54 in
Chapter 6, they are also available just in readable Word format at Course Documents at the Blackboard
course site, if you prefer this method of “silent” study.
1.
2.
3.
4.
5.
6.
7.
8.
Overview of Form 1040 (Power Point Narration only)
Tax computations to supplement Chapter 4
Dependents and Head of Household Filing Status: Chapter 4
Explanation of Problem 56 in Chapter 6 (Power Point Narration only)
Earned income credit problems to supplement Chapter 7
Additional depreciation problems to supplement Chapter 9
Additional problems to supplement Chapter 10
Additional capital gain and loss netting problems to supplement Chapter 11
Grading Policy
Final course letter grades will be distributed as follows, based on your final course point totals. Please
note that I give “plus” and “minus” grades.
Quality Points Awarded
A+
=
144 - 150
4.00
A
=
137 - 143
4.00
A=
134 - 136
3.67
B+
=
130 - 133
3.33
B
=
121 - 129
3.00
B=
119 - 120
2.67
C+
=
115 - 118
2.33
C
=
105 - 114
2.00
C=
100 - 104
1.67
D+
=
96 - 99
1.33
D
=
90 - 95
1.00
F
=
Below 90
0.00
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COURSE OUTLINE
Topical Coverage for Each Chapter: Note that page numbers cited refer to the smaller hyphenated
page numbers in the upper left and right corners of the book pages, closest to the binding.
---------------------------------------------------------------------------------------------------------------------------August 29:
Course Introduction
Chapter 2: Tax Compliance and the IRS
Omit discussion of Tax Research on pp. 2-17 through 2-23.
Assigned Problems: 43-49, 53-55, 76-77
Additional Assignment-Power Point Narration: Overview of Form 1040
---------------------------------------------------------------------------------------------------------------------------September 5: Chapter 4: The Individual Tax Formula
Omit Example 4-8 on p. 4-14. Omit discussion of Multiple Support Agreements at the
bottom of page 4-15. Omit the “What if” scenario at the top of page 4-17 that deals with
multiple support agreements and Anita’s grandfather Juan.
Assigned Problems: 26-27, 32-35, 40, 43-46, 47(a)(b)(c)(d), 48, 49
Additional Assignment-Power Point Narrations: Tax Computation-Ch. 4 supplement;
And Dependents and Head of Household Filing Status
--------------------------------------------------------------------------------------------------------------------------September 12: Chapter 5: Gross Income and Exclusions
Omit Claim of Right doctrine on page 5-7. Omit Community Property Systems on
pp. 5-8 and 5-9. Omit discussion of Social Security computations on pp. 5-18 and 5-19.
Just study the power point slide on this topic. Omit Imputed Income on pp. 5-19 and 5-20.
Omit Gain on Sale of a Personal Residence on pages 5-22. We will discuss this issue in
detail in Chapter 14. Omit Other Educational Subsidies on pp. 5-25 and 5-26.
In the discussion on Foreign Earned Income you can omit the discussion of
foreign housing costs provided by the employer. This is on page 5-28.
Assigned Problems:38, 42(a)(c)(d), 45-48, 50-51, 55(a)-e), 60, 62 (omit housing costs
issue), 63, 65(a)(b),66, 67(a)(b)(c),69, and 70.
-----------------------------------------------------------------------------------------------------------------------------September 19: Chapter 6: Individual Deductions
Omit discussion of Deduction for Qualified Education Expenses on pp. 6-11 and 6-12.
Omit discussion at the top of page 6-21 and related Example 6-20 on donations of
tangible personal property used for unrelated purposes. Omit discussion of Private Nonoperating Foundations on page 6-22. In Exhibit 6-9 ignore the third column, and Step 3
in the discussion above Exhibit 6-9 is not required.
Assigned Problems: 36-39, 41,44,46-47, 50, 52-53, 56(a)(c)(e), 58, 60,61,63
Additional Assignment: Power Point Narration: Chapter 6-Problem 56
------------------------------------------------------------------------------------------------------------------------------September 26: Chapter 7: Computation of Tax and Tax Credits
Omit Example 7-5 on page 7-6. Omit discussion of the Kiddie Tax on pp. 7-7 to 7-9;
Omit discussion on page 7-20 of the 8-step process for the Medicare tax that begins with
the first full paragraph. Omit Example 7-18 related to this discussion. For this chapter
the self-employment earnings will always be less than $200,000.Omit Example 7-24 on
pages 7-31 and 7-32.Omit discussion of Prepayments and Filing on pages 7-37 to 7-41.
Assigned Problems: 49(a)(b)(d), 52, 53, 56-57,63,66,67,72-74,76-78
Additional Assignment: Power Point Narration-EIC Problems
--------------------------------------------------------------------------------------------------------------------------October 3:
EXAM 1: Chapters 2, 4-7 [50 points]
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October 10:
Chapter 8: Business Income and Deductions
Omit the discussion of foreign travel at top of page 8-9 and the What if scenario to
Example 8-8 on page 8-10.Omit discussion of Domestic Manufacturing Deduction on
pages 8-11 to 8-13. Omit discussion of Accounting Periods on pp. 8-15 to 8-16. We
assume in this course that all taxpayers, including business entities, use the calendar year
for tax reporting. Omit the discussion of Advanced Payment of Goods and Inventories on
pages 8-20 through 8-23. For the discussion of Payment Liabilities on page 8-26, omit all
items from Exhibit 8-4 except Worker’s compensation, torts, breach of contract,
violations of law and taxes. Omit the discussion of the Recurring item exception on page
8-27 up to Exhibit 8-5.Omit discussion of Changing Accounting Methods on page 8-33.
Assigned Problems: 45-49, 57, 60, 62, 64, 65(a)(b), 69, 70, 72, 75, 76 (a)-(d),
77, 79
---------------------------------------------------------------------------------------------------------------------------October 17: Chapter 9: Property Acquisition and Cost Recovery
Omit discussion of Mid-Quarter Convention on pp. 9-10 to 9-14. We assume this
convention does not apply in this course. Omit the discussion on pages 9-23 and 9-24 on
when Listed Property falls below 50% business use in subsequent years. Omit
depreciation for the AMT on page 9-27. In the discussion of Patents and Copyrights on
page 9-34, omit any reference to copyrights. Just concentrate on the discussion of
Patents. Omit Depletion on pp. 9-36 to 9-38.
Assigned Problems: 38-39, 41-44, 46, 52(a)-(d), 53, 63(a)(b), 64, 66(a)(b),
67(a)(b)(d),68-69
Additional Assignment: Power Point Narration: Ch. 9 Additional Depreciation Probs
----------------------------------------------------------------------------------------------------------------------------October 24: Chapter 10: Property Dispositions
In the discussion of Section 1245 Property on pp. 10-8 through 10-11 just read and study
Scenarios 1 and 3. Omit Scenario 2. Omit Examples 10-6 and 10-8, which are connected
with the omitted Scenario 2.
Omit discussion of §1250 Recapture for Real Property on pp. 10-11 and 10-12 and
Example 10-9. Omit discussion of Characterizing Gains on the Sale of Depreciable
Property to Related Parties on page 10-14. Omit Example 10-11.
Omit Gains Ineligible for Installment Reporting on pp. 10-32.
Assigned Problems: 32-35, 37(a)(c), 40, 50-52, 56, 58-59, 63
Additional Assignment: Power Point Narration: Additional Section 1231 Problems
----------------------------------------------------------------------------------------------------------------------------October 31: EXAM 2: Chapters 8-10 [40 points]
---------------------------------------------------------------------------------------------------------------------------
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November 7:
Chapter 11 and 14 (partial): Investments
Chapter 11: Omit discussion of Corporate and U.S. Treasury Bonds and U.S. Savings
Bonds on pages 11-4 through 11-7. Omit discussion of Qualified Small Business Stock on
page 11-12. The only “28% capital gain” we will discuss are Collectibles, e.g., works of
art, gold coins, etc.
Omit discussion relating to Example 11-10 beginning on page 11-19 [right after Example
11-9] and on pages 11-20 and 11-21. We assume in this chapter that all taxpayers are in
the 33% tax bracket or higher.
Omit discussion of Life Insurance and Educational Savings Plans on pp. 11-26 to 11-29.
Omit discussion of Portfolio Investment Expenses on pp.11-31 to 11-35.
Chapter 14: Loss rules for rental property. Read and study only Passive activity loss rules
on pages 14-24 to 14-26. Omit Exhibit 14-6 on page 14-25.
Assigned Problems-Chapter 11: 56,59, 65-68, 81-82, 84.
Assigned Problems-Chapter 14: 67-68
Additional Assignment: Power Point Narration:
Additional Capital Gain Netting Problems
-------------------------------------------------------------------------------------------------------------------------November 14: Chapter 12: Compensation
Omit Tax Planning with Fringe Benefits on pp. 12-31 and 12-32
Assigned Problems: 27, 28, 32, 35, 36(a)(b), 38-41, 48-50, 53-55
-------------------------------------------------------------------------------------------------------------------------November 21: Chapter 13: Retirement Savings and Deferred Compensation
Omit pp. 13-3 to 13-6 on Defined Benefit Plans. Omit pp. 13-15 to 13-19 on Nonqualified
Deferred Compensation. Omit discussion of traditional IRAs and married taxpayers who
file separately at the bottom of page 13-21. Omit discussion of Nondeductible IRA
contributions on pages 13-22 and 13-23. Omit the discussion of Roth IRAs and married
taxpayers filing separately at the bottom of page 13-23.
Assigned Problems: 52(a)-(c), 53, 61, 62, 63(a)-(c), 65, 66(a), 67(a), 69(a)(b), 72, 80,
81(a)-(d)
----------------------------------------------------------------------------------------------------------------------------November 28: NO CLASS. THANKSGIVING HOLIDAY
-----------------------------------------------------------------------------------------------------------------------------December 5: Chapter 14: Tax Consequences of Home Ownership
Omit the discussion of the “break-even” analysis for points and its accompanying
Examples 14-10 and 14-11 on pages 14-14 and 14-15.
Omit Rental Use of the Home on pp. 14-18 to 14-24. However, study the section on
Losses on Rental Property. ( This was also assigned with the Chapter 11 material).
Assigned Problems: 40-44, 47-48, 52, 56, 61-62, 67-68, 71,72(a)(b)(d), 73.
TAX PROJECT IS DUE by 10pm [15 points]
Submit completed project through Assignments module in Blackboard
Review Power Point Narration at Blackboard on the Tax Project
------------------------------------------------------------------------------------------------------------------------------
December 12: EXAM
3: Chapters 11-14 [45 points]
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