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INTRODUCTION TO TAX SCHOOL Topics Slides Introduction to Tax Issues © Steven J. Willis 2006 1 Introduction to Tax Issues Most, if not all, tax matters involve five issues: © Steven J. Willis 2006 2 Introduction to Tax Issues Most, if not all, tax matters involve five issues: Issues © Steven J. Willis 2006 3 Introduction to Tax Issues Most, if not all, tax matters involve five issues: Whether Issues © Steven J. Willis 2006 4 Introduction to Tax Issues Most, if not all, tax matters involve five issues: Whether When Issues © Steven J. Willis 2006 5 Introduction to Tax Issues Most, if not all, tax matters involve five issues: Whether When Issues © Steven J. Willis 2006 Who 6 Introduction to Tax Issues Most, if not all, tax matters involve five issues: Whether When Issues Who How Much © Steven J. Willis 2006 7 Introduction to Tax Issues Most, if not all, tax matters involve five issues: Whether When Issues Who How Much Character © Steven J. Willis 2006 8 Introduction to Tax Issues Whether When Issues Who How Much Each issue applies both to income and deductions. Character © Steven J. Willis 2006 9 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 income income income Each issue applies both to income and deductions. income 10 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 income income income Each issue applies both to income and deductions. income 11 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income Each issue applies both to income and deductions. deduction income deduction 12 Introduction to Tax Issues Whether Whether a particular transaction or event is sufficient to produce income or a deduction. When Issues Who How Much Character © Steven J. Willis 2006 13 Introduction to Tax Issues Whether When Issues When (which year) is the income to be reported or the deduction taken? Who How Much Character © Steven J. Willis 2006 14 Introduction to Tax Issues Whether When Issues Who Who’s income or deduction is it? How Much Character © Steven J. Willis 2006 15 Introduction to Tax Issues Whether When Issues Who How Much How much income or deduction is involved? Character © Steven J. Willis 2006 16 Introduction to Tax Issues Whether When Issues Who How Much Character © Steven J. Willis 2006 What is the character of the income or deduction? 17 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction Each issue has sub-issues. income deduction income deduction 18 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 19 Introduction to Tax Issues income Whether © Steven J. Willis 2006 deduction 20 Introduction to Tax Issues Recognized income Whether © Steven J. Willis 2006 deduction 21 Introduction to Tax Issues Recognized Not Recognized income Whether © Steven J. Willis 2006 deduction 22 Introduction to Tax Issues Recognized Not Recognized income Whether © Steven J. Willis 2006 deduction Excluded 23 Introduction to Tax Issues Recognized Not Recognized income Whether © Steven J. Willis 2006 deduction Excluded 24 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed © Steven J. Willis 2006 25 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed © Steven J. Willis 2006 26 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 27 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Each issue has sub-issues. Allowed Disallowed Deferred © Steven J. Willis 2006 28 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 29 Introduction to Tax Issues § 61 Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 30 Introduction to Tax Issues § 61 Recognized § 1001(c) Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 31 Introduction to Tax Issues You should know these code sections.The following slides briefly discuss them. Each section is on the Top 100 List. income Whether deduction § 61 Recognized § 1001(c) Not Recognized Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 32 Introduction to Tax Issues § 61 Recognized § 1001(c) Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 33 Introduction to Tax Issues § 61 Recognized § 1001(c) Not Recognized income Whether deduction Excluded “Gross income means all income from whatever source derived.” Allowed Disallowed Deferred © Steven J. Willis 2006 34 Introduction to Tax Issues § 61 Recognized § 1001(c) Not Recognized income Whether deduction Excluded “Gross income means all income from whatever source derived.” Allowed Disallowed Deferred © Steven J. Willis 2006 See, Eisner v. Macomber, 252 U.S. 189 (1920) and Glenshaw Glass, 348 U.S. 426 (1955) for the meaning of this phrase. 35 Introduction to Tax Issues § 61 Recognized § 1001(c) Not Recognized income Whether deduction Excluded “Gross income means all income from whatever source derived.” Allowed Disallowed These cases are on the top 100 list. © Steven J. Willis 2006 Deferred See, Eisner v. Macomber, 252 U.S. 189 (1920) and Glenshaw Glass, 348 U.S. 426 (1955) for the meaning of this phrase. 36 Introduction to Tax Issues § 61 Recognized § 1001(c) Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 37 Introduction to Tax Issues § 61 Recognized § 1001(c) Not Recognized income Whether deduction Excluded Allowed “The entire amount of the gain or loss . . . on the sale or exchange of property shall be recognized.” Disallowed Deferred © Steven J. Willis 2006 38 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 39 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 40 Introduction to Tax Issues § 351 Recognized § 721 Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 41 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction § 721 § 1031 Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 42 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction § 721 § 1031 § 1033 Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 43 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction § 721 § 1031 § 1033 Excluded § 1041 Allowed Disallowed Deferred © Steven J. Willis 2006 44 Introduction to Tax Issues You should know these code sections.The following slides briefly discuss them. Each section is on the Top 100 List. income Whether deduction § 351 Recognized Not Recognized § 721 § 1031 § 1033 Excluded § 1041 Allowed Disallowed Deferred © Steven J. Willis 2006 45 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction “No gain or loss shall be recognized if property is transferred to a corporation . . . solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control.” © Steven J. Willis 2006 § 721 § 1031 § 1033 Excluded § 1041 Allowed Disallowed Deferred 46 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction “No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.” § 721 § 1031 § 1033 Excluded § 1041 Allowed Disallowed Deferred © Steven J. Willis 2006 47 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” © Steven J. Willis 2006 § 721 § 1031 § 1033 Excluded § 1041 Allowed Disallowed Deferred 48 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction This section provides for non-recognition of gain on the involuntary conversion of property into similar use property. © Steven J. Willis 2006 § 721 § 1031 § 1033 Excluded § 1041 Allowed Disallowed Deferred 49 Introduction to Tax Issues § 351 Recognized Not Recognized income Whether deduction This section provides for non-recognition of gain or loss on the transfer of property between spouses or incident to divorce. © Steven J. Willis 2006 § 721 § 1031 § 1033 Excluded § 1041 Allowed Disallowed Deferred 50 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 51 Introduction to Tax Issues Recognized § 71(c) Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 52 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 53 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized income Whether deduction § 103 Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 54 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 55 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 Allowed Disallowed Deferred © Steven J. Willis 2006 56 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Allowed Disallowed Deferred © Steven J. Willis 2006 57 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Allowed § 115 Disallowed Deferred © Steven J. Willis 2006 58 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Allowed § 115 § 117 Disallowed Deferred © Steven J. Willis 2006 59 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Allowed § 115 § 117 Disallowed § 121 Deferred © Steven J. Willis 2006 60 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Allowed § 115 § 117 © Steven J. Willis 2006 Disallowed § 121 Deferred § 125 61 Introduction to Tax Issues You should know these code sections.The following slides briefly discuss them. Each section is on the Top 100 List. income Whether deduction Recognized § 71(c) § 102 Not Recognized § 103 § 104 Excluded § 106 § 108 Allowed § 115 § 117 © Steven J. Willis 2006 Disallowed § 121 Deferred § 125 62 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes child support receipts and alimony (in some cases). © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 63 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes gifts and inheritance. © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 64 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes interest on state and local bonds. © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 65 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes personal physical injury awards © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 66 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes employer provided health insurance. © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 67 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes income from some discharges of indebtedness. © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 68 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes income of state and local governments. © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 69 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes qualified scholarships. © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 70 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes gain on the sale of a principal residence (with limitations). © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 71 Introduction to Tax Issues Recognized § 71(c) § 102 Not Recognized § 103 § 104 income Whether deduction Excluded § 106 § 108 Excludes service income contributed to flexible employee benefit plans [cafeteria plans]. © Steven J. Willis 2006 Allowed § 115 § 117 Disallowed § 121 Deferred § 125 72 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 73 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 74 § 151 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 75 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 76 § 151 Introduction to Tax Issues § 162 Recognized § 163 Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 77 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 78 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 79 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 80 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 Allowed Disallowed Deferred © Steven J. Willis 2006 81 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed Deferred © Steven J. Willis 2006 82 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed § 197 Disallowed Deferred © Steven J. Willis 2006 83 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 Deferred © Steven J. Willis 2006 84 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 85 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 86 § 151 Introduction to Tax Issues § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 87 Introduction to Tax Issues § 151 You should know these code sections.The following slides briefly discuss them. § 162 Each section is on the Top 100 List. income Whether deduction Recognized Not Recognized § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 88 § 151 Introduction to Tax Issues Allows deductions for dependants and personal exemptions. § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 89 § 151 Introduction to Tax Issues Allows deductions for ordinary and necessary business expenses. § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 90 § 151 Introduction to Tax Issues Allows deductions for interest (with limitations). § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 91 § 151 Introduction to Tax Issues Allows deductions for some state and local taxes. § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 92 § 151 Introduction to Tax Issues Allows deductions for depreciation on property used in a trade or business or for the production of income . income Whether deduction § 162 Recognized Not Recognized § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 93 § 151 Introduction to Tax Issues Allows deductions for charitable contributions (with significant limitations). income Whether deduction § 162 Recognized Not Recognized § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 94 § 151 Introduction to Tax Issues Allows election of an expense to deduct rather than capitalize certain tangible business property. income Whether deduction § 162 Recognized Not Recognized § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 95 § 151 Introduction to Tax Issues Allows amortization of “active business” startup expenditures over a 60-month period.. income Whether deduction § 162 Recognized Not Recognized § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 96 § 151 Introduction to Tax Issues Allows amortization of goodwill and certain other intangibles over a 15-year period. income Whether deduction § 162 Recognized Not Recognized § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 97 § 151 Introduction to Tax Issues Allows deductions for production of income expenses and for tax advice. income Whether deduction § 162 Recognized Not Recognized § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 98 § 151 Introduction to Tax Issues Allows deductions for alimony payments (with limitations). § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 99 § 151 Introduction to Tax Issues Allows deductions for job-related moving expenses (with distance limitations). income Whether deduction § 162 Recognized Not Recognized § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 100 § 151 Introduction to Tax Issues Allows deductions for contributions to certain retirement accounts. § 162 Recognized Not Recognized income Whether deduction § 163 § 164 § 167 § 170 Excluded § 179 § 195 Allowed Disallowed § 197 § 212 § 215 Deferred © Steven J. Willis 2006 § 217 § 219 101 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 102 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded § 262 Allowed Disallowed Deferred © Steven J. Willis 2006 103 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded § 262 § 265 Allowed Disallowed Deferred © Steven J. Willis 2006 104 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded § 262 § 265 Allowed § 267 Disallowed Deferred © Steven J. Willis 2006 105 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded § 262 § 265 Allowed Disallowed § 267 § 274 Deferred © Steven J. Willis 2006 106 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded § 262 § 265 Allowed Disallowed Deferred © Steven J. Willis 2006 § 267 § 274 § 280A 107 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded § 262 § 265 Allowed Disallowed Deferred § 267 § 274 § 280A § 183 © Steven J. Willis 2006 108 Introduction to Tax Issues You should know these code sections.The following slides briefly discuss them. Each section is on the Top 100 List. income Whether deduction Recognized Not Recognized Excluded § 262 § 265 Allowed Disallowed Deferred § 267 § 274 § 280A § 183 © Steven J. Willis 2006 109 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Disallows deductions for personal expenses. Excluded § 262 § 265 Allowed Disallowed Deferred § 267 § 274 § 280A § 183 © Steven J. Willis 2006 110 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Disallows deductions for interest and expenses related to tax exempt income. Excluded § 262 § 265 Allowed Disallowed Deferred § 267 § 274 § 280A § 183 © Steven J. Willis 2006 111 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Disallows deductions for losses and expenses in transactions between related persons. Excluded § 262 § 265 Allowed Disallowed Deferred § 267 § 274 § 280A § 183 © Steven J. Willis 2006 112 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Disallows deductions for certain entertainment expenses. Excluded § 262 § 265 Allowed Disallowed Deferred § 267 § 274 § 280A § 183 © Steven J. Willis 2006 113 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Disallows deductions for expenses in connection with the business use of a dwelling unit. Excluded § 262 § 265 Allowed Disallowed Deferred § 267 § 274 § 280A § 183 © Steven J. Willis 2006 114 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Disallows deductions for expenses in connection with activities not engaged in for profit. Excluded § 262 § 265 Allowed Disallowed Deferred § 267 § 274 § 280A § 183 © Steven J. Willis 2006 115 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 116 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed § 263 Disallowed Deferred © Steven J. Willis 2006 117 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed § 263 § 280F Deferred © Steven J. Willis 2006 118 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred © Steven J. Willis 2006 § 263 § 280F § 465 119 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Excluded Allowed Disallowed Deferred § 263 § 280F § 465 § 469 © Steven J. Willis 2006 120 Introduction to Tax Issues You should know these code sections.The following slides briefly discuss them. Each section is on the Top 100 List. income Whether deduction Recognized Not Recognized Excluded Allowed Disallowed Deferred § 263 § 280F § 465 § 469 © Steven J. Willis 2006 121 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Requires capitalization of various expenditures that improve property. A result of “capitalization” is that recovery of the costs is deferred. Excluded Allowed Disallowed Deferred § 263 § 280F § 465 § 469 © Steven J. Willis 2006 122 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Limits (and thus defers) depreciation deductions for luxury automobiles and other listed property. Excluded Allowed Disallowed Deferred § 263 § 280F § 465 § 469 © Steven J. Willis 2006 123 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Limits deductions from non “at risk” activities to the amount of income from such activities. Any excess deductions are deferred until the taxpayer has is at risk. © Steven J. Willis 2006 Excluded Allowed Disallowed Deferred § 263 § 280F § 465 § 469 124 Introduction to Tax Issues Recognized Not Recognized income Whether deduction Limits deductions from passive activities to the amount of income from such activities. Any excess deductions are deferred until the taxpayer has passive income. © Steven J. Willis 2006 Excluded Allowed Disallowed Deferred § 263 § 280F § 465 § 469 125 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 126 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 127 Introduction to Tax Issues income When © Steven J. Willis 2006 deduction 128 Introduction to Tax Issues Cash Method income When © Steven J. Willis 2006 deduction 129 Introduction to Tax Issues Cash Method Accrual Method income When © Steven J. Willis 2006 deduction 130 Introduction to Tax Issues Cash Method Accrual Method Other Methods income When © Steven J. Willis 2006 deduction 131 Introduction to Tax Issues Cash Method Accrual Method Inventory Other Methods income When © Steven J. Willis 2006 deduction 132 Introduction to Tax Issues Cash Method Accrual Method Inventory Other Methods Installment income When © Steven J. Willis 2006 deduction 133 Introduction to Tax Issues Cash Method income When © Steven J. Willis 2006 Accrual Method Inventory Other Methods Installment Percentage Completion deduction 134 Introduction to Tax Issues Cash Method income When Accrual Method Inventory Other Methods Installment Percentage Completion deduction Hybrid © Steven J. Willis 2006 135 Introduction to Tax Issues Cash Method income When Accrual Method Inventory Other Methods Installment 453 Percentage Completion deduction Hybrid © Steven J. Willis 2006 136 Introduction to Tax Issues You should know this code section, which is on the Top 100 List. income When Cash Method Accrual Method Inventory Other Methods Installment 453 Percentage Completion deduction Hybrid © Steven J. Willis 2006 137 Introduction to Tax Issues You should know this code section, which is on the Top 100 List. Cash Method Accrual Method Inventory Other Methods Installment income When 453 Percentage Completion deduction Hybrid It provides for the installment method of accounting. Unless taxpayers elect otherwise, gain on property sold on the installment method is reported as the funds are received. © Steven J. Willis 2006 138 Introduction to Tax Issues The essence of the cash method of income involves receipt. Cash Method Accrual Method Other Methods income When © Steven J. Willis 2006 deduction 139 Introduction to Tax Issues The essence of the cash method of income involves receipt. Cash Method receipt Accrual Method Other Methods income When © Steven J. Willis 2006 deduction 140 Introduction to Tax Issues The essence of the cash method of income involves receipt. Cash Method receipt Accrual Method Other Methods income When deduction Cash Method The essence of the cash method of deductions involves receipt. © Steven J. Willis 2006 141 Introduction to Tax Issues The essence of the cash method of income involves receipt. Cash Method receipt Accrual Method Other Methods income When deduction Cash Method payment The essence of the cash method of deductions involves payment. © Steven J. Willis 2006 142 Introduction to Tax Issues The Cash Method of Accounting for income involves the study of four doctrines. Cash Method Accrual Method Other Methods income When © Steven J. Willis 2006 deduction 143 Introduction to Tax Issues Actual receipt The Cash Method of Accounting for income involves the study of four doctrines. Cash Method Accrual Method Other Methods income When © Steven J. Willis 2006 deduction 144 Introduction to Tax Issues Actual receipt The Cash Method of Accounting for income involves the study of four doctrines. Cash Method constructive receipt Accrual Method Other Methods income When © Steven J. Willis 2006 deduction 145 Introduction to Tax Issues Actual receipt The Cash Method of Accounting for income involves the study of four doctrines. Cash Method constructive receipt Accrual Method Other Methods Receipt of a cash equivalent income When © Steven J. Willis 2006 deduction 146 Introduction to Tax Issues Actual receipt The Cash Method of Accounting for income involves the study of four doctrines. income When © Steven J. Willis 2006 deduction Cash Method constructive receipt Accrual Method Other Methods Receipt of a cash equivalent Receipt of an economic benefit 147 Introduction to Tax Issues Actual receipt The Cash Method of Accounting for income involves the study of four doctrines. Cash Method Accrual Method Other Methods income When constructive receipt deduction Receipt of a cash equivalent Receipt of an economic benefit Cash Method taxpayers who wish to defer recognition of income must avoid application of these doctrines. © Steven J. Willis 2006 148 Introduction to Tax Issues Actual receipt The Cash Method of Accounting for income involves the study of four doctrines. income When deduction Cash Method constructive receipt Accrual Method Other Methods Receipt of a cash equivalent Receipt of an economic benefit Cash Method taxpayers who wish to defer recognition of income must avoid application of these doctrines. A course in tax school will cover how and when this is possible. © Steven J. Willis 2006 149 Introduction to Tax Issues The essence of the accrual method of income involves the “earlier of” test. Cash Method receipt Accrual Method Other Methods income When deduction Cash Method payment The essence of the cash method of income involves receipt. © Steven J. Willis 2006 150 Introduction to Tax Issues The essence of the accrual method of income involves the “earlier of” test. Cash Method receipt Accrual Method Earlier of Other Methods income When deduction Cash Method payment The essence of the cash method of income involves receipt. © Steven J. Willis 2006 151 Introduction to Tax Issues The essence of the accrual method of income involves the “earlier of” test. Cash Method receipt Accrual Method Earlier of Other Methods income When deduction Cash Method The essence of the accrual method of deductions involves the “later of” test. © Steven J. Willis 2006 payment Accrual Method Other Methods 152 Introduction to Tax Issues The essence of the accrual method of income involves the “earlier of” test. Cash Method receipt Accrual Method Earlier of Other Methods income When deduction The essence of the accrual method of deductions involves the “later of” test. © Steven J. Willis 2006 Cash Method payment Accrual Method Later of Other Methods 153 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of Other Methods income When deduction Cash Method payment Accrual Method Later of Other Methods © Steven J. Willis 2006 154 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due Other Methods income When deduction Cash Method payment Accrual Method Later of Other Methods © Steven J. Willis 2006 155 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid Other Methods income When deduction Cash Method payment Accrual Method Later of Other Methods © Steven J. Willis 2006 156 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid earned Other Methods income When deduction Cash Method payment Accrual Method Later of Other Methods © Steven J. Willis 2006 157 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid earned Other Methods income When deduction This test arises from a trilogy of Supreme Court decisions which culminated in the case of Schlude v. Comm’r, 372 U.S. 128 (1963). © Steven J. Willis 2006 Cash Method payment Accrual Method Later of Other Methods 158 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid earned Other Methods income When deduction This test arises from a trilogy of Supreme Court decisions which culminated in the case of Schlude v. Comm’r, 372 U.S. 128 (1963). © Steven J. Willis 2006 Cash Method payment Accrual Method Later of Other Methods This case is on the Top 100 list. 159 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid earned Other Methods income When deduction The “later of” test defers deductions until the latest of two events. © Steven J. Willis 2006 Cash Method payment Accrual Method Later of Other Methods 160 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid earned Other Methods income When deduction Cash Method The “later of” test defers deductions until the latest of two events. © Steven J. Willis 2006 payment All events Accrual Method Later of Other Methods 161 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid earned Other Methods income When deduction Cash Method The “later of” test defers deductions until the latest of two events. © Steven J. Willis 2006 payment All events Accrual Method Later of Economic performance Other Methods 162 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid earned Other Methods income When deduction Cash Method The “later of” test defers deductions until the latest of two events. payment All events Accrual Method Later of Economic performance Other Methods This test arises from section 461(h). © Steven J. Willis 2006 163 Introduction to Tax Issues The “earlier of” test requires inclusion at the earliest of three events. Cash Method receipt Accrual Method Earlier of due paid earned Other Methods income When deduction Cash Method The “later of” test defers deductions until the latest of two events. You should know this code section, which is on the Top 100 List. © Steven J. Willis 2006 payment All events Accrual Method Later of Economic performance Other Methods This test arises from section 461(h). 164 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 165 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 166 Introduction to Tax Issues income Who © Steven J. Willis 2006 deduction 167 Introduction to Tax Issues Assignment of Income Doctrine income Who © Steven J. Willis 2006 deduction 168 Introduction to Tax Issues Assignment of Income Doctrine income Who © Steven J. Willis 2006 deduction This doctrine applies both to income and deductions. 169 Introduction to Tax Issues Assignment of Income Doctrine income Who deduction Code Sections © Steven J. Willis 2006 170 Introduction to Tax Issues Assignment of Income Doctrine income Who deduction These sections apply both to income and deductions. Code Sections © Steven J. Willis 2006 171 Introduction to Tax Issues The Doctrine covers evolved from six seminal cases, which are on the Top 100 List. Assignment of Income Doctrine income Who deduction Code Sections © Steven J. Willis 2006 172 Introduction to Tax Issues The Doctrine covers evolved from six seminal cases, which are on the Top 100 List. income Who deduction Assignment of Income Doctrine Each case and the Doctrine is covered more thoroughly through the Top Topics list. Code Sections © Steven J. Willis 2006 173 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine income Who deduction Code Sections © Steven J. Willis 2006 174 Introduction to Tax Issues The person who performs services is taxed on the income from the services. Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine income Who deduction Code Sections © Steven J. Willis 2006 175 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Poe v. Seaborn, 282 U.S. 101 (1930) income Who deduction Code Sections © Steven J. Willis 2006 176 Introduction to Tax Issues The person who performs services is taxed on the income from the services; however, in a community property state, spouses may assign income by operation of law. Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Poe v. Seaborn, 282 U.S. 101 (1930) income Who deduction Code Sections © Steven J. Willis 2006 177 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Poe v. Seaborn, 282 U.S. 101 (1930) Blair v. Comm’r, 300 U.S. 5 (1937) income Who deduction Code Sections © Steven J. Willis 2006 178 Introduction to Tax Issues A transfer of an entire interest in property – including an income stream – is a successful assignment of income. Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Poe v. Seaborn, 282 U.S. 101 (1930) Blair v. Comm’r, 300 U.S. 5 (1937) income Who deduction Code Sections © Steven J. Willis 2006 179 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) deduction Code Sections © Steven J. Willis 2006 180 Introduction to Tax Issues The person who owns property is taxed on the income from the property. Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) deduction Code Sections © Steven J. Willis 2006 181 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Code Sections © Steven J. Willis 2006 182 Introduction to Tax Issues This case helps distinguish property from services: in this case, a stream of income was from services. Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Code Sections © Steven J. Willis 2006 183 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Harrison v. Schaffner, 312 U.S. 579 (1941) Code Sections © Steven J. Willis 2006 184 Introduction to Tax Issues This case refined the Blair rules involving permissible assignments of a part of a stream of income. Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Harrison v. Schaffner, 312 U.S. 579 (1941) Code Sections © Steven J. Willis 2006 185 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Harrison v. Schaffner, 312 U.S. 579 (1941) The Who issue involves many code sections. Four examples are on the Top 100 List. © Steven J. Willis 2006 Code Sections 186 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Harrison v. Schaffner, 312 U.S. 579 (1941) 482 Code Sections © Steven J. Willis 2006 187 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine © Steven J. Willis 2006 Helvering v. Eubank, 311 U.S. 122 (1940) deduction This section allows the government to reallocate income and deductions, credits, and allowances among commonly controlled businesses. Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Harrison v. Schaffner, 312 U.S. 579 (1941) 482 Code Sections 188 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Harrison v. Schaffner, 312 U.S. 579 (1941) 482 Code Sections © Steven J. Willis 2006 704(b) 189 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine © Steven J. Willis 2006 Helvering v. Eubank, 311 U.S. 122 (1940) deduction This section allows partnerships to specially allocate income, gains, deductions, losses, and credits among partners (with significant limitations and restrictions). Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Harrison v. Schaffner, 312 U.S. 579 (1941) 482 Code Sections 704(b) 190 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Harrison v. Schaffner, 312 U.S. 579 (1941) 482 Code Sections 704(b) 1041 © Steven J. Willis 2006 191 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine © Steven J. Willis 2006 Helvering v. Eubank, 311 U.S. 122 (1940) deduction This section provides for the tax-free transfer of property between spouses (including incident to divorce). Because the property’s basis transfers, gains and losses can be effectively assigned. Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Harrison v. Schaffner, 312 U.S. 579 (1941) 482 Code Sections 704(b) 1041 192 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Helvering v. Eubank, 311 U.S. 122 (1940) deduction Harrison v. Schaffner, 312 U.S. 579 (1941) 482 Code Sections 704(b) 1041 7872 © Steven J. Willis 2006 193 Introduction to Tax Issues Lucas v. Earl, 281 U.S. 111 (1930) Assignment of Income Doctrine Helvering v. Eubank, 311 U.S. 122 (1940) deduction This section imputes interest on below market loans. Essentially, it prevents the assignment of interest income through the lending of money. Blair v. Comm’r, 300 U.S. 5 (1937) Helvering v. Horst, 311 U.S. 112 (1940) income Who Poe v. Seaborn, 282 U.S. 101 (1930) Harrison v. Schaffner, 312 U.S. 579 (1941) 482 Code Sections 704(b) 1041 7872 © Steven J. Willis 2006 194 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 195 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 196 Introduction to Tax Issues income How Much © Steven J. Willis 2006 deduction 197 Introduction to Tax Issues Amount Realized income How Much © Steven J. Willis 2006 deduction 198 Introduction to Tax Issues Amount Realized income How Much deduction Basis © Steven J. Willis 2006 199 Introduction to Tax Issues Amount Realized These concepts apply both to gain and loss or income and deductions. income How Much deduction Basis © Steven J. Willis 2006 200 Introduction to Tax Issues Amount Realized income How Much deduction Basis The fundamental formula for gain or loss is: Amount realized minus basis = gain (loss) © Steven J. Willis 2006 201 Introduction to Tax Issues Amount Realized income How Much deduction For example: If Amount realized = $1,000 Basis = Gain (income) = $ 300 700 Basis The fundamental formula for gain or loss is: Amount realized minus basis = gain (loss) © Steven J. Willis 2006 202 Introduction to Tax Issues Amount Realized income How Much deduction For example: If Amount realized = $1,000 Basis = Gain (income) = $ 300 700 Basis The fundamental formula for gain or loss is: Amount realized minus basis = gain (loss) © Steven J. Willis 2006 203 Introduction to Tax Issues Amount Realized income How Much deduction For example: If Amount realized = $1,000 Basis = Gain (income) = $ 300 700 Basis The fundamental formula for gain or loss is: Amount realized minus basis = gain (loss) © Steven J. Willis 2006 204 Introduction to Tax Issues Amount Realized income How Much deduction For example: If Amount realized = $1,000 Basis = 1,800 loss (deduction) = $ 800 Basis The fundamental formula for gain or loss is: Amount realized minus basis = gain (loss) © Steven J. Willis 2006 205 Introduction to Tax Issues Amount Realized income How Much deduction For example: If Amount realized = $1,000 Basis = 1,800 loss (deduction) = $ 800 Basis The fundamental formula for gain or loss is: Amount realized minus basis = gain (loss) © Steven J. Willis 2006 206 Introduction to Tax Issues Amount Realized income How Much deduction For example: If Amount realized = $1,000 Basis = 1,800 loss (deduction) = $ 800 Basis The fundamental formula for gain or loss is: Amount realized minus basis = gain (loss) © Steven J. Willis 2006 207 Introduction to Tax Issues Amount Realized equals the amount of money plus the fair market value of property received in a taxable event. Amount Realized income How Much deduction Basis © Steven J. Willis 2006 208 Introduction to Tax Issues Amount Realized equals the amount of money plus the fair market value of property received in a taxable event. Amount Realized income How Much deduction Basis © Steven J. Willis 2006 209 Introduction to Tax Issues Amount Realized equals the amount of money plus the fair market value of property received in a taxable event. Amount Realized income How Much deduction Basis © Steven J. Willis 2006 210 Introduction to Tax Issues Amount Realized equals the amount of money plus the fair market value of property received in a taxable event. Amount Realized income How Much deduction Basis Fair market value is generally the amount a willing buyer would pay to a willing seller in an arm’s length transaction – with neither under a compulsion to buy or to sell. © Steven J. Willis 2006 211 Introduction to Tax Issues Amount Realized equals the amount of money plus the fair market value of property received in a taxable event. Amount Realized income How Much deduction Basis Fair market value is generally the amount a willing buyer would pay to a willing seller in an arm’s length transaction – with neither under a compulsion to buy or to sell. © Steven J. Willis 2006 Reginald Turner, 13 T.C.M.462 (CCH) (1954) found that fair market value could have an element to it unique to the taxpayer. 212 Introduction to Tax Issues Amount Realized equals the amount of money plus the fair market value of property received in a taxable event. Amount Realized income How Much deduction This case is on the Top 100 list. Basis Fair market value is generally the amount a willing buyer would pay to a willing seller in an arm’s length transaction – with neither under a compulsion to buy or to sell. © Steven J. Willis 2006 Reginald Turner, 13 T.C.M.462 (CCH) (1954) found that fair market value could have an element to it unique to the taxpayer. 213 Introduction to Tax Issues Amount Realized equals the amount of money plus the fair market value of property received in a taxable event. This is a paraphrase of section 1001 (which strictly applies to property dispositions). Amount Realized 1001 income How Much deduction Basis © Steven J. Willis 2006 214 Introduction to Tax Issues Amount Realized 1001 income How Much deduction Basis is an accounting measure of a taxpayer’s tax cost in property. © Steven J. Willis 2006 Basis 215 Introduction to Tax Issues Amount Realized 1001 income How Much deduction Seven fundamental code sections describe and define basis. You should be familiar with these. Basis Each section is on the Top 100 List. © Steven J. Willis 2006 216 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction Basis © Steven J. Willis 2006 217 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction Basis Section 1011 is mostly a cross reference to other basis provisions. © Steven J. Willis 2006 218 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis © Steven J. Willis 2006 219 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1012 provides that “cost” is a taxpayer’s initial basis. © Steven J. Willis 2006 220 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1012 provides that “cost” is a taxpayer’s initial basis. © Steven J. Willis 2006 The Philadelphia Park Amusement Co. v. United States, 126 F.Supp. 184 (Cl. Ct. 1954), decision provides interesting gloss on the meaning of “cost.” Essentially,it provides that cost = the amount received (not paid) in a taxable exchange. 221 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1012 provides that “cost” is a taxpayer’s initial basis. © Steven J. Willis 2006 The Philadelphia Park Amusement Co. v. United States, 126 F.Supp. 184 (Cl. Ct. 1954), decision provides interesting gloss on the meaning of “cost.” Essentially,it provides that cost = the amount received (not paid) in a taxable exchange. 222 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1012 provides that “cost” is a taxpayer’s initial basis. © Steven J. Willis 2006 The Philadelphia Park Amusement Co. v. United States, 126 F.Supp. 184 (Cl. Ct. 1954), decision provides interesting gloss on the meaning of “cost.” Essentially,it provides that cost = the amount received (not paid) in a taxable exchange. 223 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1012 provides that “cost” is a taxpayer’s initial basis. This case is on the Top 100 list. © Steven J. Willis 2006 The Philadelphia Park Amusement Co. v. United States, 126 F.Supp. 184 (Cl. Ct. 1954), decision provides interesting gloss on the meaning of “cost.” Essentially,it provides that cost = the amount received (not paid) in a taxable exchange. 224 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis © Steven J. Willis 2006 1014 225 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis 1014 Section 1014 provides that a taxpayer’s basis in property received from a decedent equals the property’s fair market value on the date of death (or up to six months later). © Steven J. Willis 2006 226 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis 1014 1015 © Steven J. Willis 2006 227 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1015 provides that a taxpayer’s basis in property received by gift equals the basis of the donor. © Steven J. Willis 2006 1014 1015 228 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis 1014 1015 1016 © Steven J. Willis 2006 229 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1016 provides that a taxpayer’s basis adjusts upward or downward over time. © Steven J. Willis 2006 1014 1015 1016 230 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis 1014 1015 1016 1017 © Steven J. Willis 2006 231 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1017 provides that a taxpayer’s basis may drop as a result of “discharge of indebtedness” income excluded under section 108. © Steven J. Willis 2006 1014 1015 1016 1017 232 Introduction to Tax Issues Section 108, which excludes some income from the discharge of debt, causes the taxpayer to lose various “tax attributes” as a result. These may include basis, a net operating loss carryover, a capital loss carryover, or various credits. Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1017 provides that a taxpayer’s basis may drop as a result of “discharge of indebtedness” income excluded under section 108. © Steven J. Willis 2006 1014 1015 1016 1017 233 Introduction to Tax Issues Section 108, which excludes some income from the discharge of debt, causes the taxpayer to lose various “tax attributes” as a result. These may include basis, a net operating loss carryover, a capital loss carryover, or various credits. Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1017 provides that a taxpayer’s basis may drop as a result of “discharge of indebtedness” income excluded under section 108. © Steven J. Willis 2006 1014 1015 1016 1017 234 Introduction to Tax Issues Section 108, which excludes some income from the discharge of debt, causes the taxpayer to lose various “tax attributes” as a result. These may include basis, a net operating loss carryover, a capital loss carryover, or various credits. Be careful about the order in which tax attributes are reduced under 108(b). Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1017 provides that a taxpayer’s basis may drop as a result of “discharge of indebtedness” income excluded under section 108. © Steven J. Willis 2006 1014 1015 1016 1017 235 Introduction to Tax Issues Section 108, which excludes some income from the discharge of debt, causes the taxpayer to lose various “tax attributes” as a result. These may include basis, a net operating loss carryover, a capital loss carryover, or various credits. © Steven J. Willis 2006 Be careful about the order in which tax attributes are reduced under 108(b). Recall: We discussed section 108 in relation to the Whether issue: 236 Introduction to Tax Issues Be careful about the order in which tax attributes are reduced under 108(b). Section 108, which excludes some income from the discharge of debt, causes the taxpayer to lose various “tax attributes” as a result. Recall: These may include basis, a net operating loss carryover, a capital loss carryover, or various credits. We discussed section 108 in relation to the Whether issue: Introduction to Tax Issues Recognized §§ 71(c) §§ 102 Not Recognized §§ 103 §§ 104 income Whether deduction Excluded §§ 106 §§ 108 Excludes income from some discharges of indebtedness. © Steven J. Willis 2006 © Steven J. Willis 2006 Allowed §§ 115 §§ 117 Disallowed §§ 121 Deferred §§ 125 237 68 Introduction to Tax Issues Be careful about the order in which tax attributes are reduced under 108(b). Section 108, which excludes some income from the discharge of debt, causes the taxpayer to lose various “tax attributes” as a result. Recall: These may include basis, a net operating loss carryover, a capital loss carryover, or various credits. We discussed section 108 in relation to the Whether issue: Introduction Introduction to to Tax Tax Issues Issues Recognized §§ 71(c) 71(c) §§ 102 102 The tax price of this exclusion is the loss of attributes, which include the possible section 1017 basis reduction. © Steven J. Willis 2006 Not Recognized §§ 103 103 §§ 104 104 income income Whether deduction deduction Excluded §§ 106 106 §§ 108 108 Excludes Excludes income income from from some some discharges discharges of of indebtedness. indebtedness. © Steven J. Willis 2006 Allowed §§ 115 115 §§ 117 117 Disallowed §§ 121 121 Deferred §§ 125 125 68 238 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1017 provides that a taxpayer’s basis may drop as a result of “discharge of indebtedness” income excluded under section 108. © Steven J. Willis 2006 1014 1015 1016 1017 239 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1017 provides that a taxpayer’s basis may drop as a result of “discharge of indebtedness” income excluded under section 108. © Steven J. Willis 2006 “Discharge of indebtedness” is on the Top Topics list. 1014 1015 1016 1017 240 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1017 provides that a taxpayer’s basis or other “tax attributes” drop as a result of “discharge of indebtedness” income excluded under section 108. © Steven J. Willis 2006 Section 108 is one of the Top 100 Code Sections. 1014 1015 1016 1017 241 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis 1014 1015 1016 1017 1041 © Steven J. Willis 2006 242 Introduction to Tax Issues Amount Realized income How Much 1001 1011 deduction 1012 Basis Section 1041 provides that a taxpayer’s basis in property received from a spouse (or former spouse incident to divorce) equals the transferor’s basis (even if it is purchased for a greater or lesser amount). © Steven J. Willis 2006 1014 1015 1016 1017 1041 243 Introduction to Tax Issues Amount Realized income How Much deduction Basis In addition to issues involving amount realized and basis, many deductions are subject to limitations. © Steven J. Willis 2006 Limitations 244 Introduction to Tax Issues Amount Realized income How Much deduction Basis The following slides have examples of deduction Limitations with which you should be familiar. Limitations Some are on the Top 100 List. © Steven J. Willis 2006 245 Introduction to Tax Issues Amount Realized income How Much 63 deduction Basis Limitations © Steven J. Willis 2006 246 Introduction to Tax Issues Amount Realized income How Much 63 deduction Basis Section 63 defines taxable income. It limits a taxpayer to the greater of the itemized deductions or standard deduction. © Steven J. Willis 2006 Limitations 247 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis Limitations © Steven J. Willis 2006 248 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis Section 67 provides a 2% floor on excess itemized deductions: amounts below the floor are not deductible. © Steven J. Willis 2006 Limitations 249 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis 68 Limitations © Steven J. Willis 2006 250 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis 68 Section 68 limits or “phases out” some itemized deductions for higher income taxpayers. © Steven J. Willis 2006 Limitations 251 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis 68 Limitations © Steven J. Willis 2006 213 252 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis 68 Section 213 limits medical deductions to the amounts in excess of 7.5% of adjusted gross income. © Steven J. Willis 2006 Limitations 213 253 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis 68 Limitations 213 221 © Steven J. Willis 2006 254 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis 68 Section 221 limits the deductibility of interest on education loans. © Steven J. Willis 2006 Limitations 213 221 255 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis 68 Limitations 213 221 222 © Steven J. Willis 2006 256 Introduction to Tax Issues Amount Realized income How Much 63 deduction 67 Basis 68 Section 222 limits the deductibility of qualified tuition and related expenses. Limitations 213 221 222 © Steven J. Willis 2006 257 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 258 Introduction to Tax Issues income Whether When Issues Who How Much Character © Steven J. Willis 2006 deduction income deduction income deduction income deduction income deduction 259 Introduction to Tax Issues income Character © Steven J. Willis 2006 deduction 260 Introduction to Tax Issues Ordinary income Character © Steven J. Willis 2006 deduction 261 Introduction to Tax Issues Ordinary income Character deduction Capital © Steven J. Willis 2006 262 Introduction to Tax Issues 64 Ordinary 65 income Character deduction Capital Sections 64 and 65 very generally define ordinary income and ordinary deductions. Essentially, ordinary income and deductions are simply income and deductions taxed at regular rates under section 1. They are the default character – but with many subcategories, as we shall see later. © Steven J. Willis 2006 263 Introduction to Tax Issues 64 Ordinary 65 income Character deduction Capital Sections 64 and 65 very generally define ordinary income and ordinary deductions. Essentially, ordinary income and deductions are simply income and deductions taxed at regular rates under section 1. They are the default character – but with many subcategories, as we shall see later. © Steven J. Willis 2006 264 Introduction to Tax Issues 64 Ordinary 65 income Character deduction Capital Sections 64 and 65 very generally define ordinary income and ordinary deductions. Essentially, ordinary income and deductions are simply income and deductions taxed at regular rates under section 1. They are the default character – but with many subcategories, as we shall see later. © Steven J. Willis 2006 265 Introduction to Tax Issues 64 Ordinary 65 income Character deduction Capital Sections 64 and 65 very generally define ordinary income and ordinary deductions. Essentially, ordinary income and deductions are simply income and deductions taxed at regular rates under section 1. They are the default character – but with many subcategories, as we shall see later. © Steven J. Willis 2006 266 Introduction to Tax Issues 64 Ordinary 65 income Character deduction Capital 1(h) Section 1(h) subjects some capital gains to lower tax rates than those to which ordinary income is subject. Other sections, as we shall see limit the deductibility of capital losses. © Steven J. Willis 2006 267 Introduction to Tax Issues 64 Ordinary 65 income Character deduction Capital 1(h) Section 1(h) subjects some capital gains to lower tax rates than those to which ordinary income is subject. Other sections, as we shall see limit the deductibility of capital losses. © Steven J. Willis 2006 268 Introduction to Tax Issues Ordinary income Character deduction Capital © Steven J. Willis 2006 These are the two basic characters of income and deductions, gains and losses. 269 Introduction to Tax Issues Ordinary income Character deduction Capital These are the two basic characters of income and deductions, gains and losses. Each, as we shall see, divides into several sub-categories. © Steven J. Willis 2006 270 Introduction to Tax Issues Ordinary income Character deduction Capital © Steven J. Willis 2006 A third fundamental character fits in between ordinary and capital. 271 Introduction to Tax Issues Ordinary income Character deduction 1231 Capital © Steven J. Willis 2006 A third fundamental character fits in between ordinary and capital. 272 Introduction to Tax Issues Ordinary income Character deduction 1231 Capital A third fundamental character fits in between ordinary and capital. Section 1231 gains and losses are sometimes Ordinary and sometimes Capital. © Steven J. Willis 2006 273 Introduction to Tax Issues Ordinary income Character deduction 1231 Capital A third fundamental character fits in between ordinary and capital. Section 1231 gains and losses are sometimes Ordinary and sometimes Capital. © Steven J. Willis 2006 274 Introduction to Tax Issues Ordinary income Character deduction 1231 Capital Section 1231 applies, in general, to depreciable trade or business property. © Steven J. Willis 2006 A third fundamental character fits in between ordinary and capital. Section 1231 gains and losses are sometimes Ordinary and sometimes Capital. 275 Introduction to Tax Issues Section 1231 is on the Top 100 Sections List. 1231 Property is also a Top Topic. income Character deduction Ordinary 1231 Capital Section 1231 applies, in general, to depreciable trade or business property. © Steven J. Willis 2006 A third fundamental character fits in between ordinary and capital. Section 1231 gains and losses are sometimes Ordinary and sometimes Capital. 276 Introduction to Tax Issues Ordinary Income and Deductions fall into many categories. Ordinary income Character deduction Capital © Steven J. Willis 2006 277 Introduction to Tax Issues Passive Ordinary income Character deduction Capital © Steven J. Willis 2006 278 Introduction to Tax Issues Passive 469 Ordinary income Character deduction Capital © Steven J. Willis 2006 279 Introduction to Tax Issues Passive 469 Ordinary income Character deduction Capital Section 469 defines passive activities. It generally limits passive deductions to the amount of income from passive activities. © Steven J. Willis 2006 280 Introduction to Tax Issues Passive 469 Ordinary income Character deduction Capital A course in tax school will cover this complicated section. © Steven J. Willis 2006 Section 469 defines passive activities. It generally limits passive deductions to the amount of income from passive activities. 281 Introduction to Tax Issues Passive Investment Ordinary income Character deduction Capital © Steven J. Willis 2006 282 Introduction to Tax Issues Passive Investment 163(d) Ordinary income Character deduction Capital © Steven J. Willis 2006 283 Introduction to Tax Issues Passive Investment 163(d) Ordinary income Character deduction Capital Section 163(d) defines investment income. It generally limits investment interest deductions to the amount of net investment income. © Steven J. Willis 2006 284 Introduction to Tax Issues Passive Investment 163(d) Ordinary income Character deduction Capital A course in tax school will cover this complicated section. © Steven J. Willis 2006 Section 163(d) defines investment income. It generally limits investment interest deductions to the amount of net investment income. 285 Introduction to Tax Issues Passive Investment Ordinary Wagering income Character deduction Capital © Steven J. Willis 2006 286 Introduction to Tax Issues Passive Investment Ordinary Wagering 165(d) income Character deduction Capital © Steven J. Willis 2006 287 Introduction to Tax Issues Passive Investment Ordinary Wagering 165(d) income Character deduction Capital Section 165(d) limits wagering losses to the amount of wagering winnings. © Steven J. Willis 2006 288 Introduction to Tax Issues Most “ordinary” income is just that: ordinary . . . it is not classified in a subcategory. Passive Investment Ordinary Wagering income Character deduction Capital © Steven J. Willis 2006 289 Introduction to Tax Issues Passive Investment Ordinary Wagering income Character deduction Short Term Capital © Steven J. Willis 2006 290 Introduction to Tax Issues Passive Investment Ordinary Wagering income Character deduction Short Term Capital Per section 1222, short term gains and losses result from the sale or exchange of capital assets held for one year or less. © Steven J. Willis 2006 291 Introduction to Tax Issues Passive Investment Ordinary Wagering income Character deduction Short Term Capital © Steven J. Willis 2006 Long Term 292 Introduction to Tax Issues Passive Investment Ordinary Wagering income Character deduction Short Term Capital Long Term Per section 1222, long term gains and losses result from the sale or exchange of capital assets held for more than one year. © Steven J. Willis 2006 293 Introduction to Tax Issues Passive Investment Ordinary Wagering income Character deduction Short Term Capital Long Term Collectibles © Steven J. Willis 2006 294 Introduction to Tax Issues Passive Investment Ordinary Wagering income Character deduction Short Term Capital Per sections 1(h)(6) and 408(m), collectibles gains and losses result from the sale or exchange of “collectibles” held for more than one year. © Steven J. Willis 2006 Long Term Collectibles 295 Introduction to Tax Issues Passive Investment Ordinary Wagering income Character deduction Capital Many important code sections affect Capital Gains and Losses. © Steven J. Willis 2006 296 Introduction to Tax Issues You should know these code sections.The following slides briefly discuss them. Each section is on the Top 100 List. Passive Investment Ordinary Wagering income Character deduction Capital Many important code sections affect Capital Gains and Losses. © Steven J. Willis 2006 297 Introduction to Tax Issues Passive Investment Ordinary income Character Wagering 1221 deduction Capital © Steven J. Willis 2006 298 Introduction to Tax Issues Passive Investment Ordinary income Character Wagering 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 299 Introduction to Tax Issues Passive Investment Ordinary income Character Wagering 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 The Corn Products Refining Co. v. Comm'r, 350 U.S. 46 (1955) and Arkansas Best v. Comm'r, 485 U.S. 212 (1988) cases discussed whether this list is exclusive or illustrative. 300 Introduction to Tax Issues Passive Investment Ordinary income Character Wagering 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 The Corn Products Refining Co. v. Comm'r, 350 U.S. 46 (1955) and Arkansas Best v. Comm'r, 485 U.S. 212 (1988) cases discussed whether this list is exclusive or illustrative. 301 Introduction to Tax Issues Passive Investment Ordinary income Character 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 Wagering These cases are on the top 100 list. The Corn Products Refining Co. v. Comm'r, 350 U.S. 46 (1955) and Arkansas Best v. Comm'r, 485 U.S. 212 (1988) cases discussed whether this list is exclusive or illustrative. 302 Introduction to Tax Issues Passive Investment Ordinary income Character Wagering 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 303 Introduction to Tax Issues Passive Investment Ordinary income Character Wagering 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 The definition of property for tax purposes is not entirely clear. It does not, according to many cases, include ordinary income streams or rights. 304 Introduction to Tax Issues Passive Investment Ordinary income Character Wagering 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 The definition of property for tax purposes is not entirely clear. It does not, according to many cases, include ordinary income streams or rights. 305 Introduction to Tax Issues The case of Comm’r v. P.G. Lake Inc., 356 U.S. 260 (1958) refined the acceleration of income doctrine. A taxpayer who separates and sells or exchanges the income element of property rights separate from the underlying property accelerates income as ordinary into the current year. Passive Investment Ordinary income Character Wagering 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 The definition of property for tax purposes is not entirely clear. It does not, according to many cases, include ordinary income streams or rights. 306 Introduction to Tax Issues The case of Comm’r v. P.G. Lake Inc., 356 U.S. 260 (1958) refined the acceleration of income doctrine. A taxpayer who separates and sells or exchanges the income element of property rights separate from the underlying property accelerates income as ordinary into the current year. This case is on the top 100 list. Investment Ordinary income Character Passive Wagering 1221 deduction Capital Section 1221 defines a capital asset as all property other than 8 listed types of property. © Steven J. Willis 2006 The definition of property for tax purposes is not entirely clear. It does not, according to many cases, include ordinary income streams or rights. 307 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital © Steven J. Willis 2006 308 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital Section 1222 defines long and short term gains. © Steven J. Willis 2006 309 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital The critical factors are: Section 1222 defines long and short term gains. 1. 2. © Steven J. Willis 2006 long-term gains and losses result from capital assets held more than one year; and Capital gains and losses result from the sale or exchange of capital assets. 310 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital The critical factors are: Section 1222 defines long and short term gains. 1. 2. © Steven J. Willis 2006 long-term gains and losses result from capital assets held more than one year; and Capital gains and losses result from the sale or exchange of capital assets. 311 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital The critical factors are: Section 1222 defines long and short term gains. 1. 2. © Steven J. Willis 2006 long-term gains and losses result from capital assets held more than one year; and Capital gains and losses result from the sale or exchange of capital assets. 312 Introduction to Tax Issues Passive Investment Ordinary Character income 1221 deduction 1222 Capital © Steven J. Willis 2006 Wagering 1223 313 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 Section 1223 defines the holding period of capital assets. © Steven J. Willis 2006 314 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 Some critical examples are: Section 1223 defines the holding period of capital assets. 1. 2. 3. © Steven J. Willis 2006 Per 1223(1), property includes the holding period of other property transferred in a taxfree exchange; and Per 1223(2), property includes the holding period of the donor of the property. Per 1223(11), property received from a decedent with a section 1015 stepped-up basis is automatically long-term. 315 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 Some critical examples are: Section 1223 defines the holding period of capital assets. 1. 2. 3. © Steven J. Willis 2006 Per 1223(1), property includes the holding period of other property transferred in a taxfree exchange; and Per 1223(2), property includes the holding period of the donor of the property. Per 1223(11), property received from a decedent with a section 1015 stepped-up basis is automatically long-term. 316 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 Some critical examples are: Section 1223 defines the holding period of capital assets. 1. 2. 3. © Steven J. Willis 2006 Per 1223(1), property includes the holding period of other property transferred in a taxfree exchange; and Per 1223(2), property includes the holding period of the donor of the property. Per 1223(11), property received from a decedent with a section 1015 stepped-up basis is automatically long-term. 317 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 © Steven J. Willis 2006 318 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 Section 1211 limits the deductibility of capital losses to the extent of capital gains plus $3000. © Steven J. Willis 2006 319 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 1212 © Steven J. Willis 2006 320 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 Section 1212 provides for capital loss carryovers. © Steven J. Willis 2006 1212 321 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 1212 1235 © Steven J. Willis 2006 322 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 Section 1235 provides for longterm capital gain treatment on many transfers of an interest in a patent. © Steven J. Willis 2006 1212 1235 323 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 1212 1235 1237 © Steven J. Willis 2006 324 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 Section 1237 provides a limited safe-harbor resulting in capital gain treatment for some property subdivided for sale. © Steven J. Willis 2006 1212 1235 1237 325 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 1212 1235 1237 1239 © Steven J. Willis 2006 326 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 Section 1239 forces ordinary treatment for gain on the sale of depreciable property between related taxpayers. © Steven J. Willis 2006 1212 1235 1237 1239 327 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 1212 1235 1237 1239 © Steven J. Willis 2006 1244 328 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 Section 1244 provides for ordinary loss treatment on the sale of some small business stock. © Steven J. Willis 2006 1212 1235 1237 1239 1244 329 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 1271 1212 1235 1237 1239 © Steven J. Willis 2006 1244 330 Introduction to Tax Issues Passive Investment Ordinary Character Wagering income 1221 deduction 1222 Capital 1223 1211 Section 1271 imputes sale or exchange treatment for the collection or retirement of some obligations. © Steven J. Willis 2006 1271 1212 1235 1237 1239 1244 331
