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Guide to Federal Corporate & Individual Taxation By Danny C. Santucci Learning Assignments & Objectives As a result of studying each assignment, you should be able to meet the objectives listed below each assignment. ASSIGNMENT SUBJECT Chapter 1 Individual Tax Elements At the start of Chapter 1, participants should identify the following topics for study: * Tax rates and tables * Filing status * Gross income * Dividends and distributions * Discharge of debt income * Exclusions from income * Nonbusiness and personal deductions * Education and medical expenses * Casualty and theft losses * Tax credits Learning Objectives After reading Chapter 1, participants will be able to: 1. Identify federal revenue tax sources noting how gross income is reduced by certain credits, exclusions, and deductions, recognize current schedules, tables, and statutory amounts, and select withholding and/or estimated tax responsibility. 2. Specify the various filing statuses and their filing requirements noting the advantages and disadvantages of each. 3. Determine what constitutes gross income under §61 noting the tax treatment of compensation, fringe benefits, rental income, Social Security benefits, alimony, prizes and awards, identify dividend and distribution types and their tax differences, and specify how debt discharge can result in taxable income. 4. Identify the mechanics of income exclusions such as education-related exclusions, gift and inheritance exclusions, insurance, personal injury awards, interest on state and local obligations, and the foreign earned income exclusion. 5. Recognize income tax deductions and their use to reduce tax liability by: a. Identifying personal, spousal and dependency exemptions and reporting requirements including pre-2005 dependency rules; b. Specifying the five fundamental categories of interest expense noting whether they are deductible; c. Recognizing which education expenses are deductible and nondeductible; d. Determining what constitutes Medicare and whether medical care expenses including medical insurance premiums, costs for meals and lodging, transportation expenses, expenditures for making permanent improvements to a home and lifetime care advance payments are deductible or nondeductible; e. Specifying variables that impact the deductibility of charitable contributions, identifying qualified organizations and limitations for these purposes, and identifying the types of contributions that can be made, their tax treatment, and substantiation requirements; f. Identifying the taxes that individuals may deduct under §164 and specifying the differences between casualty and theft noting the rules for taking a deduction for all or part of each loss; g. Specifying deductions that are subject to the 2% of AGI limitation, deductions not subject to the 2% limit, and nondeductible expenses; and h. Determining whether a taxpayer meets distance and time tests for deductible moving expenses under §217. 6. Determine distinctions among several types of tax credits identifying the eligibility requirements and changes created by recent tax legislation to individual tax returns. ASSIGNMENT SUBJECT Chapter 2 Property Transfers & Retirement Plans At the start of Chapter 2, participants should identify the following topics for study: * Capital gains & losses * Installment sales * Repossession * Involuntary conversions * At-risk rules * Like-kind exchanges * Qualified deferred compensation * Basic requirements of a qualified pension plan * Basic types of corporate plans * IRAs and SIMPLE plans Learning Objectives After reading Chapter 2, participants will be able to: 1. Specify the differences among property sales, exchanges of property and sales of easements, and determine capital gain and ordinary income tax treatment in property sales. 2. Identify the application elements of the §121 home sale exclusion noting associated safe harbor regulations. 3. Recognize the importance of the installment method and §453 requirements, and specify the §453 basic terminology. 4. Identify the variables that determine which §1038 rules apply noting distinctions among the rules, calculations, and effects of repossessions of personal property and repossessions of real property, and recognize when a bad debt deduction may be taken on a repossession. 5. Specify the tax treatment of a §1033 involuntary conversion by: a. Determining related terminology and the tax consequences of receiving a condemnation award or severance damages; b. Identifying gain or loss from condemnations noting the reporting of payments associated with involuntary conversions; and c. Determining whether clients can postpone gain on condemned, damaged, destroyed, or stolen property and specifying the related party rule. 6. Recognize the scope of the §465 at-risk rules and their effect on property depreciation, and identify the requirements, mechanics, and types of §1031 like-kind exchange. 7. Identify qualified deferred compensation plans and nonqualified plans by: a. Determining the major benefit of the qualified deferred plans and the calculation basis of benefits and contributions; and b. Recognizing the current and deferred advantages and the disadvantages of corporate plans noting fiduciary responsibilities and prohibited transactions. 8. Identify the requirements of the basic forms of qualified pension plans permitting clients to compare and contrast such plans. 9. Determine the distinctions between defined contribution and defined benefit plans, specify the types of defined contribution plans, and identify their effect on retirement benefits. 10. Identify how self-employed plans differ from qualified plans for other business types and owners, and specify the requirements of IRAs and the special requirements of Roth IRAs. 11. Determine what constitutes SEPs and SIMPLEs noting the mechanics and eligibility requirements of each type of plan. ASSIGNMENT SUBJECT Chapter 3 Losses, AMT & Compliance At the start of Chapter 3, participants should identify the following topics for study: * Passive loss rules * Suspension of disallowed losses under §469 * Computing the alternative minimum tax * Minimum AMT tax credit * Reporting compliance rules and provisions * Accuracy related penalties * Information reporting penalty final regulations * Penalty for unrealistic position * Statute of limitations for assessments * Examination of returns Learning Objectives After reading Chapter 3, participants will be able to: 1. Identify basic income types and the “buckets” of income and loss under §469 that can influence what can be deducted, determine the suspension of disallowed passive losses, and recognize the special rules for transfers deemed not to be fully taxable dispositions. 2. Specify differences between the regular and alternative minimum tax noting the application tax preferences and adjustments, and determine the life of assets under ADS, alternative minimum taxable income, passive losses under the AMT, and what constitutes ACE. 3. Identify the reporting requirements for real estate transactions, independent contractors, and cash reporting. 4. Recognize types of accuracy related and unrealistic position penalties, and specify the IRS's examination of returns policy and assessment process including applicable statute of limitations. ASSIGNMENT SUBJECT Chapter 4 Business Forms & Characteristics At the start of Chapter 4, participants should identify the following topics for study: * Sole proprietorships * Partnerships * Estates & trusts * Unincorporated associations * Corporation defined * Subchapter S corporations * Ordinary “C” corporations * Personal service corporations * Corporate tax rates * Alternative minimum tax Learning Objectives After reading Chapter 4, participants will be able to: 1. Specify the advantages and disadvantages of sole proprietorships including self-employed taxes and payment requirements and identify the characterization of sole proprietorship assets upon disposition. 2. Recognize partnerships identifying the advantages and disadvantages, recall partnerships taxation particularly the application of the passive loss (§469) and at-risk rules (§465), and choose correct partnership income or loss reporting noting husband and wife partnerships and limited partnerships. 3. Identify the reporting requirements of estates, trusts and unincorporated associations, determine what constitutes a “corporation” from a subchapter S or regular corporation, specify the characteristics of a personal service corporation noting the alternative minimum tax for such corporations, and identify preferences and adjustments that apply to different types of taxpayers. ASSIGNMENT SUBJECT Chapter 5 Corporate Formation & Capitalization At the start of Chapter 5, participants should identify the following topics for study: * Incorporation * Start-up & organizational expenses * Tax recognition of the corporate entity * Capital gains & losses * Dividends received deduction * Charitable contributions * Accumulated earnings tax trap * Accounting periods & methods * Inventories * Multiple corporations Learning Objectives After reading Chapter 5, participants will be able to: 1. Identify the transfer of money, property or both by prospective shareholders and the basic requirements associated with §351. 2. Recognize the requirements of §1244 and the small business stock exclusion, determine the differences between start-up and organizational expenses and, identify the elements of corporate tax recognition including the dangers of corporate ownership and capital gains and losses noting dividends received treatment. 3. Specify the requirements for corporate charitable contributions, identify former §341 collapsible corporations, and determine how to avoid §541 status particularly as to personal service contracts. 4. Identify §531 status and determine accounting periods and methods available to corporations. 5. Specify methods for identifying inventory items including common methods of valuing inventory and, identify multiple corporation tax advantages, and the tax consequences of corporate liquidations and distributions. ASSIGNMENT SUBJECT Chapter 6 Corporate Principals & Employees At the start of Chapter 6, participants should identify the following topics for study: * Payroll taxes * FICA & FUTA * Employee labor laws * Employee v. contractor status * Unreasonable compensation * Income splitting * Buy sell agreements * Entity & cross purchase agreements * Sole shareholder planning * Recapitalization Learning Objectives After reading Chapter 6, participants will be able to: 1. Determine payroll taxes noting the uses of Form 941, Form W-4, Form W-2, and Form W-3, specify the application of FICA and FUTA taxes and how to report them, and identify major employee labor laws. 2. Recognize common-law rules used to determine employee status for FICA and federal income tax withholding, specify the dangers of unreasonable compensation noting how to avoid them, and determine how a corporation can be a valuable income-splitting device. 3. Identify a buy-sell agreement distinguishing an entity purchase from a cross purchase agreement and recognize business recapitalizations and their potential uses. ASSIGNMENT SUBJECT Chapter 7 Basic Fringe Benefits At the start of Chapter 7, participants should identify the following topics for study: * Statutory v. nonstatutory benefits * No-additional-cost services & qualified employee discounts * Working condition fringes * Employee achievement awards * Dependent care assistance * Cafeteria plans * Self-insured medical reimbursement plans * Employer provided automobile * Interest-free & below-market loans * Fringe benefit plans for S corporations Learning Objectives After reading Chapter 7, participants will be able to: 1. Identify basic fringe benefit planning by determining “income” under §61 and specifying the differences between former nonstatutory and current statutory fringe benefits. 2. Determine “no-additional-cost services” and identify what property or services are excludable from income as qualified employee discounts under §132(c), specify exceptions to working condition fringes and de minimis fringes, recognize a §74 “employee achievement award,” and cite the §79 group term life insurance rules. 3. Recognize the requirements and limits of §129 dependent care assistance, identify §125 “cafeteria plans” noting how they function, specify the §119 meals and lodging exclusion, cite the mechanics of §105 self-insured medical reimbursement plans, and determine the requirements and limits of §127 programs. 4. Identify employer-provided automobiles valuation methods, determine what constitutes interest-free and below-market loans, specify the requirements and limitations of fringe benefits under §§217, 132, 67 212, 132(h)(5) and 280A, cite S corporation fringe benefits, and specify ERISA compliance requirements. ASSIGNMENT SUBJECT Chapter 8 Business Entertainment At the start of Chapter 8, participants should identify the following topics for study: * Tests for entertainment expenses * Statutory exceptions * Quiet business meals & drinks * Ticket purchases * Percentage reduction for meals & entertainment * Entertainment facilities * Substantiation & record keeping * Employee expense reimbursement & reporting * Self-employed persons * Employers Learning Objectives After reading Chapter 8, participants will be able to: 1. Recognize the key tax terms “entertainment”, “lavish” and “extravagant” and, identify the required §162 & §274 tests noting the importance of statutory exceptions. 2. Determine the treatment of ticket purchases including the percentage reduction restriction for meals and entertainment, specify the application of the 2% deduction limit particularly as to business entertainment deductions and determine an “entertainment facility” noting deductible costs. 3. Identify substantiation, recordkeeping, reimbursement, and reporting requirements noting variations in methods and determine how to itemize non-reimbursed employee expenses and specify the special reporting rules for self-employed persons and employers. ASSIGNMENT SUBJECT Chapter 9 Insurance At the start of Chapter 9, participants should identify the following topics for study: * Company paid insurance * Group term life insurance * Regulations * Retired lives reserve * Split dollar life insurance * Medical & dental insurance * Interest limitation on policy loans * Key person life insurance * COBRA * VEBAs - §501(c)(9) Trusts Learning Objectives After reading Chapter 9, participants will be able to: 1. Recognize the importance and variety of business insurance by: a. Identifying the popularity and application of business life insurance plans noting common coverage and premiums; b. Determining corporate uses for life insurance including estate, travel and accident uses and specifying the tax treatment, reporting requirements, and discrimination rules for business insurance particularly the §79 requirements for group insurance; c. Identifying the benefit of not needing a medical examination as a prerequisite to purchasing a plan; d. Recognizing retired lives reserve and split-dollar life insurance noting their mechanics, taxation regulation, and advantages and disadvantages; e. Specifying the mechanics of employer paid health, medical and disability income insurance including the impact of medical examination requirements. 2. Identify the impact of the disallowance of the interest deduction on purchasers and the insurance industry noting the §264 interest limitation on policy loans, specify the benefit of corporate key person life insurance, cite the requirements of COBRA, and determine what constitutes a Voluntary Employee Benefit Association under §501(c)(9). ASSIGNMENT SUBJECT Chapter 10 Nonqualified Deferred Compensation At the start of Chapter 10, participants should identify the following topics for study: * Postponement of income * Purposes & benefits * Constructive receipt * Economic benefit * Funded company account plan * Segregated asset plan * Tax consequences * Accounting * Estate planning considerations * Withholding, Social Security & IRAs Learning Objectives After reading Chapter 10, participants will be able to: 1. Recognize the postponement of income with a nonqualified plan by: a. Identifying nonqualified plan advantages including ways to design the plans and specifying the IRS’s position on such arrangements noting the impact of constructive receipt and economic benefit concepts; b. Specifying deferred compensation patterns set forth in R.R. 60-31 noting the taxability of each; and c. Determining unfunded and funded plans noting the use of company assets or bookkeeping accounts to avoid employee taxation. 2. Identify the set up of a segregated asset plan where the account is not subject to the claims of the employer’s creditors and still avoids employee taxation and specify the tax consequences of establishing a nonqualified plan. ASSIGNMENT SUBJECT Chapter 11 S Corporations At the start of Chapter 11, participants should identify the following topics for study: * Advantages & disadvantages * S corporation status * Termination * Income & expense * Built-in gain * Passive income * Basis of stocks & debts * Distributions * Form 1120S * Fringe benefits Learning Objectives After reading Chapter 11, participants will be able to: 1. Determine what constitutes a S corporation and specify the advantages and list disadvantages associated with them. 2. Identify variables that impact whether a business can choose S corporation status. 3. Cite ways an S corporation may be terminated noting related procedures to be followed. 4. Recognize the taxation and fringe benefits of S corporations as compared to other entity formats by: a. Determining the tax treatment of S corporation income and expenses, pass-through items, built-in gain, passive income, tax preference items, LIFO recapture tax and capital gains tax and their impact on the taxation of S corporations; and b. Identifying the benefits available to other entity formats, determining S corporation owner compensation and distribution options noting reasonable compensation requirements, related party rules, S corporation distribution taxation, tax year choices, fringe benefits, and specifying when the Form 1120S must be filed. ASSIGNMENT SUBJECT Chapter 12 Business Dispositions & Reorganizations At the start of Chapter 12, participants should identify the following topics for study: * Starting a new business * Buying an existing business * Type 1 reorganization * Type 2 reorganization * Type 3 reorganization * Type 4 reorganization * Type 5 reorganization * Type 6 reorganization * Type 7 reorganization * Carryover of corporate tax attributes Learning Objectives After reading Chapter 12, participants will be able to: 1. Recognize various business disposition and reorganization possibilities by: a. Determining how organizational costs, start-up costs and syndication costs are incurred and specifying what expenditures they include and how they are treated; b. Identifying advantages of purchasing an existing business over starting a new business, citing ways to find a business that is for sale, and specifying the tax considerations of such an acquisition; c. Specifying a reorganization under §368(a)(1) noting the types of transactions that qualify as non-taxable reorganizations; and d. Identifying the factors that determine the corporate tax attributes of an acquired corporation that carry over to the acquiring or successor corporation. Table of Contents Chapter 1- Individual Tax Elements – Section 1.......................................................................................................................... Error! Bookmark not defined. Federal Income Taxes: A Description ................................................................................................................................................. Error! Bookmark not defined. Rates, Tables, & Statutory Amounts ..................................................................................................................................................... Error! Bookmark not defined. Income Tax Rates §1 .......................................................................................................................................................... Error! Bookmark not defined. Marriage Penalty ........................................................................................................................................... Error! Bookmark not defined. Standard Deduction §63 ........................................................................................................................................................ Error! Bookmark not defined. Dependent Limit §63(c)(5) ........................................................................................................................................ Error! Bookmark not defined. Personal Exemptions & Phaseout (Expired & Reinstated) §151 ...................................................................................................................................................... Error! Bookmark not defined. Limitation on Itemized Deductions (Expired & Reinstated) §68 ........................................................................................................................................................ Error! Bookmark not defined. Earned Income Tax Credit §32 ........................................................................................................................................................ Error! Bookmark not defined. Disqualified Income ........................................................................................................................................... Error! Bookmark not defined. Means-Tested Programs ........................................................................................................................................ Error! Bookmark not defined. Social Security & Self-Employment Earnings Base ...................................................................................................................................................... Error! Bookmark not defined. Standard Mileage Rate ....................................................................................................................................................... Error! Bookmark not defined. Qualified Transportation Fringes .................................................................................................................................................. Error! Bookmark not defined. Passenger Automobile Depreciation Limits (“CAPS”) .............................................................................................................................................. Error! Bookmark not defined. Expensing Deduction §179 ...................................................................................................................................................... Error! Bookmark not defined. Self-Employed Health Insurance Deduction ............................................................................................................................................. Error! Bookmark not defined. Corporate Income Tax Rates ..................................................................................................................................................... Error! Bookmark not defined. Chapter 1- Individual Tax Elements – Section 2.......................................................................................................................... Error! Bookmark not defined. Withholding & Estimated Tax ............................................................................................................................................................. Error! Bookmark not defined. Estimated Tax §6654 .................................................................................................................................................... Error! Bookmark not defined. Social Security, Medicare & FUTA (or Payroll) Taxes .................................................................................................................................................... Error! Bookmark not defined. FICA - §3111 & §3121 ............................................................................................................................................. Error! Bookmark not defined. Temporary Employee OASDI Cut ........................................................................................................................................... Error! Bookmark not defined. SECA §1401 ............................................................................................................................................. Error! Bookmark not defined. Temporary Sole Employer OASDI Cut ........................................................................................................................................... Error! Bookmark not defined. Wage Base ............................................................................................................................................... Error! Bookmark not defined. Additional Hospital Insurance Tax On Certain High-Income Individuals ..................................................................................................................................... Error! Bookmark not defined. Final Regulations – TD 9645 ......................................................................................................................................... Error! Bookmark not defined. FUTA - §3301 & §3306 ............................................................................................................................................. Error! Bookmark not defined. Filing Status .......................................................................................................................................................... Error! Bookmark not defined. Marital Status .................................................................................................................................................... Error! Bookmark not defined. Single Taxpayers ...................................................................................................................................... Error! Bookmark not defined. Divorced Persons ..................................................................................................................................... Error! Bookmark not defined. Sham Divorce .................................................................................................................................... Error! Bookmark not defined. Annulled Marriages ................................................................................................................................. Error! Bookmark not defined. Married Taxpayers ...................................................................................................................................... Error! Bookmark not defined. Same-Sex Marriage................................................................................................................................... Error! Bookmark not defined. Marriage Penalty ..................................................................................................................................... Error! Bookmark not defined. Spouse’s Death ........................................................................................................................................ Error! Bookmark not defined. Married Persons Living Apart ........................................................................................................................................ Error! Bookmark not defined. Filing Jointly ...................................................................................................................................... Error! Bookmark not defined. Joint Liability ............................................................................................................................... Error! Bookmark not defined. Innocent Spouse Exception ........................................................................................................................ Error! Bookmark not defined. Nonresident Alien .................................................................................................................................... Error! Bookmark not defined. Filing Separately ................................................................................................................................ Error! Bookmark not defined. Special Rules .................................................................................................................................... Error! Bookmark not defined. Joint Return after Separate Returns ................................................................................................................................ Error! Bookmark not defined. Separate Returns after Joint Return .................................................................................................................................. Error! Bookmark not defined. Exception ........................................................................................................................ Error! Bookmark not defined. Chapter 1- Individual Tax Elements – Section 3.......................................................................................................................... Error! Bookmark not defined. Head of Household ...................................................................................................................................... Error! Bookmark not defined. Advantages .............................................................................................................................. Error! Bookmark not defined. Requirements of §2(b) ........................................................................................................................................ Error! Bookmark not defined. Considered Unmarried ............................................................................................................................ Error! Bookmark not defined. Keeping Up a Home ................................................................................................................................... Error! Bookmark not defined. Qualifying Person .................................................................................................................................. Error! Bookmark not defined. Summary .................................................................................................................................. Error! Bookmark not defined. Qualifying Widow(er) With Dependent Child .............................................................................................................................................. Error! Bookmark not defined. Gross Income ........................................................................................................................................................ Error! Bookmark not defined. Compensation ....................................................................................................................................... Error! Bookmark not defined. Fringe Benefits ................................................................................................................................................. Error! Bookmark not defined. Rental Income .................................................................................................................................................. Error! Bookmark not defined. Advance Rent ............................................................................................................................................... Error! Bookmark not defined. Security Deposits ......................................................................................................................................... Error! Bookmark not defined. Payment for Canceling a Lease.............................................................................................................................................. Error! Bookmark not defined. Social Security Benefits ................................................................................................................................................. Error! Bookmark not defined. Taxability of Benefits.......................................................................................................................................... Error! Bookmark not defined. Chapter 1- Individual Tax Elements – Section 4.......................................................................................................................... Error! Bookmark not defined. Alimony & Spousal Support ................................................................................................................................................. Error! Bookmark not defined. Requirements ................................................................................................................................. Error! Bookmark not defined. Recapture ....................................................................................................................................... Error! Bookmark not defined. Child Support .......................................................................................................................................... Error! Bookmark not defined. Prizes & Awards - §74 & §274 ...................................................................................................................................................... Error! Bookmark not defined. Dividends & Distributions ......................................................................................................................................... Error! Bookmark not defined. Ordinary Dividends ...................................................................................................................................... Error! Bookmark not defined. Money Market Funds ....................................................................................................................................... Error! Bookmark not defined. Dividends on Capital Stock ........................................................................................................................................ Error! Bookmark not defined. Dividends Used to Buy More Stock ........................................................................................................................................ Error! Bookmark not defined. Qualified Dividends ...................................................................................................................................... Error! Bookmark not defined. Capital Gain Distributions .................................................................................................................................. Error! Bookmark not defined. Undistributed Capital Gains ........................................................................................................................................ Error! Bookmark not defined. Form 2439 ..................................................................................................................................... Error! Bookmark not defined. Basis Adjustment............................................................................................................................... Error! Bookmark not defined. Real Estate Investment Trusts (REITs) .................................................................................................................................... Error! Bookmark not defined. Nontaxable Distributions .................................................................................................................................. Error! Bookmark not defined. Return of Capital ...................................................................................................................................... Error! Bookmark not defined. Basis Adjustment............................................................................................................................... Error! Bookmark not defined. Liquidating Distributions .................................................................................................................................. Error! Bookmark not defined. Distributions of Stock and Stock Rights ............................................................................................................................................ Error! Bookmark not defined. Taxable Stock Dividends and Stock Rights ....................................................................................................................................... Error! Bookmark not defined. Discharge of Debt Income .................................................................................................................................................. Error! Bookmark not defined. Exceptions from Income Inclusion ........................................................................................................................................ Error! Bookmark not defined. Reduction of Tax Attributes ....................................................................................................................................... Error! Bookmark not defined. Order of Reductions ............................................................................................................................... Error! Bookmark not defined. Foreclosure .................................................................................................................................... Error! Bookmark not defined. Nonrecourse Indebtedness ............................................................................................................................ Error! Bookmark not defined. Recourse Indebtedness ............................................................................................................................ Error! Bookmark not defined. Mortgage Relief Act of 2007 ......................................................................................................................................... Error! Bookmark not defined. Principal Residence............................................................................................................................. Error! Bookmark not defined. Qualified Principal Residence Indebtedness ........................................................................................................................ Error! Bookmark not defined. Acquisition Indebtedness ........................................................................................................................ Error! Bookmark not defined. American Recovery & Reinvestment Act of 2009 Deferral Expired..................................................................................................................................... Error! Bookmark not defined. Bartering ............................................................................................................................................... Error! Bookmark not defined. Barter Exchange ....................................................................................................................................... Error! Bookmark not defined. Backup Withholding ............................................................................................................................. Error! Bookmark not defined. Recoveries ............................................................................................................................................ Error! Bookmark not defined. Itemized Deduction Recoveries ..................................................................................................................................... Error! Bookmark not defined. Recovery Limited to Deduction................................................................................................................................. Error! Bookmark not defined. Recoveries Included in Income ..................................................................................................................................... Error! Bookmark not defined. Non-Itemized Deduction Recoveries ..................................................................................................................................... Error! Bookmark not defined. Amounts Recovered for Credits ........................................................................................................................................... Error! Bookmark not defined. Tax Benefit Rule ............................................................................................................................................... Error! Bookmark not defined. Chapter 1- Individual Tax Elements – Section 5.......................................................................................................................... Error! Bookmark not defined. Income Earned by Children §73 ........................................................................................................................................................ Error! Bookmark not defined. “Kiddie” Tax on Unearned (Investment) Income - §1(g)(1) [Form 8615].............................................................................................................................................. Error! Bookmark not defined. Application, Threshold & Impact ...................................................................................................................................... Error! Bookmark not defined. Definitions ............................................................................................................................... Error! Bookmark not defined. AMT Exemption for Children §59(j) ....................................................................................................................................... Error! Bookmark not defined. Election to Report on Parents’ Return - §1(g)(7)(A) [Form 8814].............................................................................................................................................. Error! Bookmark not defined. Election Situations ................................................................................................................................. Error! Bookmark not defined. Exclusions from Income ........................................................................................................................................................ Error! Bookmark not defined. Educational Savings Bonds §135 ...................................................................................................................................................... Error! Bookmark not defined. Income Exclusion ....................................................................................................................................... Error! Bookmark not defined. Limitation ...................................................................................................................................... Error! Bookmark not defined. MAGI....................................................................................................................................... Error! Bookmark not defined. Notice 907 ..................................................................................................................................................... Error! Bookmark not defined. Education Expenses .................................................................................................................................. Error! Bookmark not defined. Excludable Interest ..................................................................................................................................... Error! Bookmark not defined. Forms 8818 & 8815 ......................................................................................................................................... Error! Bookmark not defined. Scholarships & Fellowships §117 ...................................................................................................................................................... Error! Bookmark not defined. Definitions ..................................................................................................................................... Error! Bookmark not defined. Scholarship Prizes ............................................................................................................................................. Error! Bookmark not defined. Education Expenses ........................................................................................................................................ Error! Bookmark not defined. Education Assistance Programs §127 ......................................................................................................................................... Error! Bookmark not defined. Employer Educational Trusts §83 ........................................................................................................................................... Error! Bookmark not defined. Qualified Tuition Programs (QTP) §529 ...................................................................................................................................................... Error! Bookmark not defined. Gift & Inheritance Exclusion .............................................................................................................................................. Error! Bookmark not defined. Subsequent Income ........................................................................................................................................... Error! Bookmark not defined. Divorce .......................................................................................................................................... Error! Bookmark not defined. Business Gifts ............................................................................................................................................... Error! Bookmark not defined. Employees ..................................................................................................................................... Error! Bookmark not defined. Insurance............................................................................................................................................... Error! Bookmark not defined. Exceptions ..................................................................................................................................... Error! Bookmark not defined. Purchase for Value ........................................................................................................................................ Error! Bookmark not defined. Installment Payments .................................................................................................................................. Error! Bookmark not defined. Specified Number of Installments ......................................................................................................................... Error! Bookmark not defined. Specified Amount Payable ................................................................................................................................ Error! Bookmark not defined. Installments for Life ...................................................................................................................................... Error! Bookmark not defined. Chapter 1- Individual Tax Elements – Section 6.......................................................................................................................... Error! Bookmark not defined. Personal Injury Awards §104 ...................................................................................................................................................... Error! Bookmark not defined. Personal Injury ............................................................................................................................................. Error! Bookmark not defined. Emotional Distress .................................................................................................................................... Error! Bookmark not defined. Punitive Damages ........................................................................................................................................ Error! Bookmark not defined. Tax Benefit Rule §111 ...................................................................................................................................................... Error! Bookmark not defined. Interest State & Local Obligations §103 ...................................................................................................................................................... Error! Bookmark not defined. Foreign Earned Income Exclusion §911 ...................................................................................................................................................... Error! Bookmark not defined. Nonbusiness & Personal Deductions.................................................................................................................................................. Error! Bookmark not defined. Itemized Deductions ............................................................................................................................................ Error! Bookmark not defined. Limitation on Itemized Deductions §68 ................................................................................................................................................. Error! Bookmark not defined. Personal & Dependency Exemptions ........................................................................................................................................... Error! Bookmark not defined. Personal Exemptions .................................................................................................................................... Error! Bookmark not defined. Dependency Exemptions .................................................................................................................................... Error! Bookmark not defined. Before 2005 ......................................................................................................................................... Error! Bookmark not defined. After 2004 ......................................................................................................................................... Error! Bookmark not defined. Residency Test ...................................................................................................................................... Error! Bookmark not defined. Citizenship ...................................................................................................................... Error! Bookmark not defined. Relationship Test ...................................................................................................................................... Error! Bookmark not defined. Age Test ...................................................................................................................................... Error! Bookmark not defined. Joint Return Prohibition ........................................................................................................................... Error! Bookmark not defined. Exception ........................................................................................................................ Error! Bookmark not defined. Phaseout of Exemptions .............................................................................................................................. Error! Bookmark not defined. Interest Expense §163 ...................................................................................................................................................... Error! Bookmark not defined. Personal Interest §163(h)(1)...................................................................................................................................... Error! Bookmark not defined. Definition ................................................................................................................................. Error! Bookmark not defined. Deductibility ............................................................................................................................ Error! Bookmark not defined. Investment Interest Expense §163(d) .......................................................................................................................................... Error! Bookmark not defined. Definitions ............................................................................................................................... Error! Bookmark not defined. Net Investment Income Limitation ................................................................................................................................ Error! Bookmark not defined. Qualified Residence Interest - §163(h)(3) [Form 8598].............................................................................................................................................. Error! Bookmark not defined. Definitions ............................................................................................................................... Error! Bookmark not defined. Limitations ............................................................................................................................... Error! Bookmark not defined. Acquisition Indebtedness ........................................................................................................................ Error! Bookmark not defined. Home Equity Indebtedness ........................................................................................................................ Error! Bookmark not defined. Refinancing .............................................................................................................................. Error! Bookmark not defined. Home Improvements .......................................................................................................................... Error! Bookmark not defined. Timing ................................................................................................................................. Error! Bookmark not defined. Alternative Minimum Tax Coordination ................................................................................................................................. Error! Bookmark not defined. Chapter 1- Individual Tax Elements – Section 7.......................................................................................................................... Error! Bookmark not defined. Points ............................................................................................................................................. Error! Bookmark not defined. Home Purchase & Improvement Exception ................................................................................................................................. Error! Bookmark not defined. Refinancing ......................................................................................................................... Error! Bookmark not defined. Huntsman Case ................................................................................................................................. Error! Bookmark not defined. Mortgage Interest Statement - R.P. 9211 ............................................................................................................................................. Error! Bookmark not defined. Allocation of Interest Expense ......................................................................................................................................... Error! Bookmark not defined. Education Expenses ............................................................................................................................................... Error! Bookmark not defined. Educational Transportation ............................................................................................................................... Error! Bookmark not defined. Educational Travel ............................................................................................................................................ Error! Bookmark not defined. Meal Expenses ........................................................................................................................................ Error! Bookmark not defined. Investment Seminars ........................................................................................................................................ Error! Bookmark not defined. Higher Education Expense Deduction §222 ............................................................................................................................................... Error! Bookmark not defined. Dollar Limitation & Phase Out ................................................................................................................................................. Error! Bookmark not defined. Educator Expenses §62 ................................................................................................................................................. Error! Bookmark not defined. Medical Expense Deductions - §213 [Schedule A] .......................................................................................................................................................... Error! Bookmark not defined. Items Deductible ..................................................................................................................................... Error! Bookmark not defined. Items Not Deductible ..................................................................................................................................... Error! Bookmark not defined. Medical Insurance Premiums ....................................................................................................................................... Error! Bookmark not defined. Medicare A .............................................................................................................................................. Error! Bookmark not defined. Medicare B .............................................................................................................................................. Error! Bookmark not defined. Prepaid Insurance Premiums ................................................................................................................................. Error! Bookmark not defined. Meals & Lodging ......................................................................................................................................... Error! Bookmark not defined. Expenses of Transportation ............................................................................................................................... Error! Bookmark not defined. Permanent Improvements ................................................................................................................................ Error! Bookmark not defined. Spouses, Dependents & Others ............................................................................................................................................ Error! Bookmark not defined. Reimbursement of Expenses ........................................................................................................................................ Error! Bookmark not defined. Long-Term Care Provisions ...................................................................................................................................... Error! Bookmark not defined. Long-Term Care Payments §7702B(d)(4) ........................................................................................................................... Error! Bookmark not defined. Long-Term Care Premiums §213(d)(10) .............................................................................................................................. Error! Bookmark not defined. IRA Withdrawals for Certain Medical Expenses ........................................................................................................................................ Error! Bookmark not defined. Charitable Contributions - §170 [Schedule A] .......................................................................................................................................................... Error! Bookmark not defined. Requirements for Deductibility .................................................................................................................................. Error! Bookmark not defined. Qualified Organizations................................................................................................................................. Error! Bookmark not defined. Limitations on Contributions ................................................................................................................................. Error! Bookmark not defined. Five-year Carryover ................................................................................................................................. Error! Bookmark not defined. Contributions of Cash ............................................................................................................................................... Error! Bookmark not defined. Benefits Received .................................................................................................................................. Error! Bookmark not defined. Benefit Performances ........................................................................................................................... Error! Bookmark not defined. Athletic Events ...................................................................................................................................... Error! Bookmark not defined. Raffle Tickets, Bingo, Etc. ........................................................................................................................................... Error! Bookmark not defined. Dues, Fees, or Assessments ............................................................................................................................. Error! Bookmark not defined. Contribution of Property ......................................................................................................................................... Error! Bookmark not defined. Clothing & Household Goods ....................................................................................................................................... Error! Bookmark not defined. Ordinary Income or Short-Term Capital Gain Type Property ................................................................................................................................... Error! Bookmark not defined. Exception ............................................................................................................................. Error! Bookmark not defined. Capital Gain Type Property ................................................................................................................................... Error! Bookmark not defined. Exceptions ........................................................................................................................... Error! Bookmark not defined. Conservation Easements ............................................................................................................................ Error! Bookmark not defined. Loss Type Property ................................................................................................................................... Error! Bookmark not defined. Vehicle Donations ................................................................................................................................. Error! Bookmark not defined. Fractional Interests .................................................................................................................................... Error! Bookmark not defined. Other Types of Contributions ................................................................................................................................. Error! Bookmark not defined. Charitable Distributions from IRAs §408 ......................................................................................................................................... Error! Bookmark not defined. Substantiation ................................................................................................................................ Error! Bookmark not defined. Cash Contributions ........................................................................................................................... Error! Bookmark not defined. Contributions Less Than $250 ..................................................................................................................................... Error! Bookmark not defined. Contributions of $250 or More .................................................................................................................................... Error! Bookmark not defined. Payroll Deduction Records............................................................................................................................ Error! Bookmark not defined. Noncash Contributions ........................................................................................................................... Error! Bookmark not defined. Deductions of Less Than $250 ..................................................................................................................................... Error! Bookmark not defined. Additional Records............................................................................................................................ Error! Bookmark not defined. Deductions of At Least $250 But Not More Than $500 ..................................................................................................................................... Error! Bookmark not defined. Deductions Over $500 But Not Over $5,000 .................................................................................................................................. Error! Bookmark not defined. Deductions over $5,000 .................................................................................................................................. Error! Bookmark not defined. Contributions over $75 Made Partly for Goods or Services .................................................................................................................................... Error! Bookmark not defined. Deduction for Taxes - §164 [Schedule A] .......................................................................................................................................................... Error! Bookmark not defined. Income Taxes ............................................................................................................................................. Error! Bookmark not defined. Real Property Tax................................................................................................................................................. Error! Bookmark not defined. Accrual Method Taxpayers................................................................................................................................. Error! Bookmark not defined. Standard Deduction for Real Property Taxes (Expired) §63(c)(1) .................................................................................................................................. Error! Bookmark not defined. State & Local Sales Tax Deduction §164 ............................................................................................................................................... Error! Bookmark not defined. Sales Tax Deduction for Qualified Vehicles (Expired) §164 ............................................................................................................................................... Error! Bookmark not defined. Personal Property Tax................................................................................................................................................. Error! Bookmark not defined. Other Deductible Taxes ............................................................................................................................................. Error! Bookmark not defined. Examples of Non-Deductible Taxes ............................................................................................................................................. Error! Bookmark not defined. Chapter 1- Individual Tax Elements – Section 8.......................................................................................................................... Error! Bookmark not defined. Casualty & Theft Losses - §165 [Schedule A] .......................................................................................................................................................... Error! Bookmark not defined. Definitions ..................................................................................................................................... Error! Bookmark not defined. Proof of Loss ............................................................................................................................................... Error! Bookmark not defined. Amount of Loss ............................................................................................................................................... Error! Bookmark not defined. Insurance & Other Reimbursements ............................................................................................................................ Error! Bookmark not defined. Limitations..................................................................................................................................... Error! Bookmark not defined. Allocation for Mixed Use Property ......................................................................................................................................... Error! Bookmark not defined. Standard Deduction for Disaster Losses (Expired) – §63(c) ............................................................................................................................................ Error! Bookmark not defined. Miscellaneous Deductions - §67 [Schedule A] .......................................................................................................................................................... Error! Bookmark not defined. Deductions - Subject to 2% Limit .............................................................................................................................................. Error! Bookmark not defined. Deductions Not Subject To 2% Limit .............................................................................................................................................. Error! Bookmark not defined. Nondeductible Expenses ........................................................................................................................................ Error! Bookmark not defined. Moving Expenses §217 ...................................................................................................................................................... Error! Bookmark not defined. Distance Test ................................................................................................................................................ Error! Bookmark not defined. Time Test ................................................................................................................................................ Error! Bookmark not defined. Time Test for Employees ............................................................................................................................... Error! Bookmark not defined. Time Test for Selfemployment ............................................................................................................................. Error! Bookmark not defined. Deductible Expenses ........................................................................................................................................ Error! Bookmark not defined. Travel Expenses .................................................................................................................................. Error! Bookmark not defined. Travel by Car ........................................................................................................................................... Error! Bookmark not defined. Location of Move.............................................................................................................................................. Error! Bookmark not defined. Reporting ....................................................................................................................................... Error! Bookmark not defined. Reimbursements ...................................................................................................................... Error! Bookmark not defined. Credits ........................................................................................................................................................ Error! Bookmark not defined. Dependent Care Tax Credit - §21 [Form 2441] ..................................................................................................................................................... Error! Bookmark not defined. Eligibility ....................................................................................................................................... Error! Bookmark not defined. Employment Related Expenses ........................................................................................................................................ Error! Bookmark not defined. Qualifying Out-of-the-home Expenses .................................................................................................................................. Error! Bookmark not defined. Payments to Relatives .................................................................................................................................. Error! Bookmark not defined. Allowable Amount .......................................................................................................................................... Error! Bookmark not defined. Dependent Care Assistance §129 ......................................................................................................................................... Error! Bookmark not defined. Reporting ....................................................................................................................................... Error! Bookmark not defined. Earned Income Credit - §32 [Form 1040] ..................................................................................................................................................... Error! Bookmark not defined. Persons with One or More Qualifying Children ......................................................................................................................................... Error! Bookmark not defined. Persons without a Qualifying Child .............................................................................................................................................. Error! Bookmark not defined. Computation .................................................................................................................................. Error! Bookmark not defined. Phaseout ........................................................................................................................................ Error! Bookmark not defined. Advance Payment of Earned Income Credit (Expired) §3507(b)(2).................................................................................................................................... Error! Bookmark not defined. Chapter 1- Individual Tax Elements – Section 9.......................................................................................................................... Error! Bookmark not defined. Adoption Credit - §23 & §137 ...................................................................................................................................................... Error! Bookmark not defined. Qualified Adoption Expenses ........................................................................................................................................ Error! Bookmark not defined. Exclusion from Income for Employer Reimbursements §137 ............................................................................................................................................... Error! Bookmark not defined. Child Tax Credit §24 ........................................................................................................................................................ Error! Bookmark not defined. Credit Amount .......................................................................................................................................... Error! Bookmark not defined. Qualifying Child ........................................................................................................................................ Error! Bookmark not defined. Phase out .................................................................................................................................................. Error! Bookmark not defined. Refundable Child Care Credit Amount .......................................................................................................................................... Error! Bookmark not defined. AMT & Child Tax Credit ............................................................................................................................................. Error! Bookmark not defined. Hope & Lifetime Learning Credits §25A ........................................................................................................................................................... Error! Bookmark not defined. Lifetime Learning Credit .................................................................................................................................................... Error! Bookmark not defined. Phase Out ................................................................................................................................................. Error! Bookmark not defined. Hope (American Opportunity) Credit .................................................................................................................................................... Error! Bookmark not defined. Phase Out ................................................................................................................................................. Error! Bookmark not defined. Refundable..................................................................................................................................... Error! Bookmark not defined. Ministers & Military §107 ............................................................................................................................................................ Error! Bookmark not defined. Clergy ................................................................................................................................................... Error! Bookmark not defined. Rental Value of a Home ............................................................................................................................................. Error! Bookmark not defined. Members of Religious Orders ............................................................................................................................................ Error! Bookmark not defined. Military & Veterans ................................................................................................................................................ Error! Bookmark not defined. Wages §61 ................................................................................................................................................. Error! Bookmark not defined. Nontaxable Income §134 ......................................................................................................................................... Error! Bookmark not defined. Veterans’ Benefits §134 ............................................................................................................................................... Error! Bookmark not defined.Chapter 2- Property Transfers & Retirement Plans – Section 10 ................................................................................................................................................... Error! Bookmark not defined. Sales & Exchanges of Property ...................................................................................................................................................... Error! Bookmark not defined. Sale or Lease ..................................................................................................................................................... Error! Bookmark not defined. Easements ............................................................................................................................................. Error! Bookmark not defined. Capital Gains & Losses ................................................................................................................................................... Error! Bookmark not defined. Capital Assets §1221 ............................................................................................................................................. Error! Bookmark not defined. Capital Gains & Qualified Dividends Rate – §1(h) .............................................................................................................................................. Error! Bookmark not defined. Holding Periods - (§1222 & §1223)............................................................................................................................................ Error! Bookmark not defined. Capital Losses §1211 ............................................................................................................................................. Error! Bookmark not defined. Business Property ......................................................................................................................................... Error! Bookmark not defined. Basis of Property ......................................................................................................................................... Error! Bookmark not defined. Basis Adjustments ............................................................................................................................. Error! Bookmark not defined. Property Received as a Gift ........................................................................................................................................... Error! Bookmark not defined. Property Received by Inheritance ............................................................................................................................... Error! Bookmark not defined. Changes in Property Usage ....................................................................................................................................... Error! Bookmark not defined. Stocks & Bonds ....................................................................................................................................... Error! Bookmark not defined. Chapter 2- Property Transfers & Retirement Plans – Section 11........................................................................................................................ Error! Bookmark not defined. Sale of Personal Residence §121 ...................................................................................................................................................... Error! Bookmark not defined. Two-Year Ownership & Use Requirements ................................................................................................................................. Error! Bookmark not defined. Tacking of Prior Holding Period ....................................................................................................................................... Error! Bookmark not defined. Prorata Exception ................................................................................................................................. Error! Bookmark not defined. Limitations on Exclusion ....................................................................................................................................... Error! Bookmark not defined. Reduced Home Sale Exclusion for Periods of Nonqualified Use ........................................................................................................................................... Error! Bookmark not defined. Computation ........................................................................................................................ Error! Bookmark not defined. Nonqualified Use ....................................................................................................................................... Error! Bookmark not defined. Post-May 6, 1997 Depreciation ........................................................................................................................ Error! Bookmark not defined. Surviving Spouse Home Sale Exclusion ....................................................................................................................................... Error! Bookmark not defined. Installment Sales §453 ...................................................................................................................................................... Error! Bookmark not defined. General Rules .............................................................................................................................................. Error! Bookmark not defined. Dealer Sales .............................................................................................................................................. Error! Bookmark not defined. Unstated Interest ........................................................................................................................................... Error! Bookmark not defined. Related Parties §453(e) .......................................................................................................................................... Error! Bookmark not defined. Disposition of Installment Notes §453B ............................................................................................................................................ Error! Bookmark not defined. Determining Installment Income ........................................................................................................................................... Error! Bookmark not defined. Pledge Rule ............................................................................................................................................... Error! Bookmark not defined. Escrow Account ......................................................................................................................................... Error! Bookmark not defined. Depreciation Recapture ....................................................................................................................................... Error! Bookmark not defined. Like Kind Exchange ....................................................................................................................................... Error! Bookmark not defined. Chapter 2- Property Transfers & Retirement Plans – Section 12........................................................................................................................ Error! Bookmark not defined. Repossessions §1038 .................................................................................................................................................... Error! Bookmark not defined. Personal Property ......................................................................................................................................... Error! Bookmark not defined. Non- Installment Method Sales ......................................................................................................................................... Error! Bookmark not defined. Basis of Installment Obligation ............................................................................................................................ Error! Bookmark not defined. Gain or Loss on Repossession ....................................................................................................................... Error! Bookmark not defined. Installment Method Sales ......................................................................................................................................... Error! Bookmark not defined. Basis of Installment Obligation ............................................................................................................................ Error! Bookmark not defined. Gain or Loss on Repossession ....................................................................................................................... Error! Bookmark not defined. Basis of Repossessed Personal Property ................................................................................................................................... Error! Bookmark not defined. Bad Debt ......................................................................................................................................... Error! Bookmark not defined. Real Property ......................................................................................................................................... Error! Bookmark not defined. Conditions ................................................................................................................................ Error! Bookmark not defined. Figuring Gain on Repossession ................................................................................................................................. Error! Bookmark not defined. Limit on Taxable Gain ......................................................................................................................................... Error! Bookmark not defined. Repossession Costs .................................................................................................................................... Error! Bookmark not defined. Indefinite Selling Price ................................................................................................................................ Error! Bookmark not defined. Character of Gain ..................................................................................................................................... Error! Bookmark not defined. Basis of Repossessed Real Property ................................................................................................................................... Error! Bookmark not defined. Holding Period for Resales ..................................................................................................................................... Error! Bookmark not defined. Bad Debt ......................................................................................................................................... Error! Bookmark not defined. Seller’s Former Home Exception ....................................................................................................................................... Error! Bookmark not defined. Chapter 2- Property Transfers & Retirement Plans – Section 13........................................................................................................................ Error! Bookmark not defined. Involuntary Conversions §1033 .................................................................................................................................................... Error! Bookmark not defined. Condemnations .............................................................................................................................. Error! Bookmark not defined. Threat of Condemnation .......................................................................................................................... Error! Bookmark not defined. Reports of Condemnation ..................................................................................................................... Error! Bookmark not defined. Property Voluntarily Sold .......................................................................................................................................... Error! Bookmark not defined. Easements ................................................................................................................................ Error! Bookmark not defined. Condemnation Award ...................................................................................................................................... Error! Bookmark not defined. Amounts Withheld From Award .................................................................................................................................. Error! Bookmark not defined. Net Condemnation Award .................................................................................................................................. Error! Bookmark not defined. Interest on Award .................................................................................................................................. Error! Bookmark not defined. Payments to Relocate ............................................................................................................................... Error! Bookmark not defined. Severance Damages .................................................................................................................................. Error! Bookmark not defined. Treatment of Severance Damages .............................................................................................................................. Error! Bookmark not defined. Expenses of Obtaining an Award ...................................................................................................................................... Error! Bookmark not defined. Special Assessment Withheld from Award ...................................................................................................................................... Error! Bookmark not defined. Severance Damages Included in Award ...................................................................................................................................... Error! Bookmark not defined. Gain or Loss from Condemnations .............................................................................................................................. Error! Bookmark not defined. How to Figure Gain or Loss .......................................................................................................................................... Error! Bookmark not defined. Part Business or Part Rental .................................................................................................................................. Error! Bookmark not defined. Postponement of Gain ............................................................................................................................................... Error! Bookmark not defined. Choosing to Postpone Gain ......................................................................................................................................... Error! Bookmark not defined. Cost Test .......................................................................................................................................... Error! Bookmark not defined. Replacement Period ....................................................................................................................................... Error! Bookmark not defined. Condemnation ..................................................................................................................... Error! Bookmark not defined. Replacement Property Acquired Before the Condemnation ..................................................................................................................... Error! Bookmark not defined. Extension ............................................................................................................................. Error! Bookmark not defined. Time for assessing a deficiency ............................................................................................................................ Error! Bookmark not defined. CHAPTER 1 - Chapter 2- Property Transfers & Retirement Plans – Section 14 Error! Bookmark not defined. At Risk Limits for Real Estate §465 ...................................................................................................................................................... Error! Bookmark not defined. Amount At Risk................................................................................................................................................ Error! Bookmark not defined. Qualified Nonrecourse Financing ................................................................................................................................. Error! Bookmark not defined. Section 1031 Like Kind Exchanges ............................................................................................................................................. Error! Bookmark not defined. Statutory Requirements & Definitions ..................................................................................................................................... Error! Bookmark not defined. Qualified Transaction - Exchanges v. Sales ......................................................................................................................................... Error! Bookmark not defined. Held for Productive Use or investment ................................................................................................................................ Error! Bookmark not defined. Investment Purpose ................................................................................................................................ Error! Bookmark not defined. Statutory Exclusions from §1031 ................................................................................................................................... Error! Bookmark not defined. Like Kind Property ................................................................................................................................... Error! Bookmark not defined. Nature or Quality of Property ............................................................................................................................... Error! Bookmark not defined. Real v. Personal Property ............................................................................................................................... Error! Bookmark not defined. The Concept of “Boot”............................................................................................................................................ Error! Bookmark not defined. Realized Gain ......................................................................................................................................... Error! Bookmark not defined. Recognized Gain ......................................................................................................................................... Error! Bookmark not defined. Limitation on Recognition of Gain under §1031 ....................................................................................................................................... Error! Bookmark not defined. The Definition of “Boot” ...................................................................................................................................... Error! Bookmark not defined. The Rules of “Boot”............................................................................................................................................ Error! Bookmark not defined. Property Boot ......................................................................................................................................... Error! Bookmark not defined. Mortgage Boot ......................................................................................................................................... Error! Bookmark not defined. Netting “Boot” - The Rules of Offset ....................................................................................................................................... Error! Bookmark not defined. Property Boot Given Offsets Any Boot Received .............................................................................................................................. Error! Bookmark not defined. Mortgage Boot Given Offsets Mortgage Boot Received .............................................................................................................................. Error! Bookmark not defined. Mortgage Boot Given Does Not Offset Property Boot Received .............................................................................................................................. Error! Bookmark not defined. Revenue Ruling 72-456 & Commissions ....................................................................................................................... Error! Bookmark not defined. Gain or Loss on Boot ......................................................................................................................................... Error! Bookmark not defined. Basis on Tax-Deferred Exchange ....................................................................................................................................... Error! Bookmark not defined. Allocation of Basis ........................................................................................................................................ Error! Bookmark not defined. Installment Reporting of Boot ......................................................................................................................................... Error! Bookmark not defined. Exchanges Between Related Parties ...................................................................................................................................... Error! Bookmark not defined. Reporting an Exchange ................................................................................................................................. Error! Bookmark not defined. Types of Exchanges ...................................................................................................................................... Error! Bookmark not defined. Two-Party Exchanges ................................................................................................................................ Error! Bookmark not defined. Three-Party “Alderson” Exchange ................................................................................................................................. Error! Bookmark not defined. Three-Party “Baird Publishing” Exchange ................................................................................................................................. Error! Bookmark not defined. Delayed Exchanges ................................................................................................................................ Error! Bookmark not defined. 45-Day Rule ..................................................................................................................................... Error! Bookmark not defined. Method of Identification ................................................................................................................... Error! Bookmark not defined. 180-Day Rule ..................................................................................................................................... Error! Bookmark not defined. Final Regulations for Delayed (Deferred) Exchanges ...................................................................................................................................... Error! Bookmark not defined. Deferred (Delayed) Exchange Definition ................................................................................................................................. Error! Bookmark not defined. Identification Requirements ........................................................................................................................... Error! Bookmark not defined. Identification & Exchange Periods ................................................................................................................................. Error! Bookmark not defined. Method of Identification ....................................................................................................................... Error! Bookmark not defined. Property Description ...................................................................................................................... Error! Bookmark not defined. Revocation ........................................................................................................................... Error! Bookmark not defined. Substantial Receipt ................................................................................................................................. Error! Bookmark not defined. Multiple Replacement Properties ............................................................................................................................. Error! Bookmark not defined. Actual & Constructive Receipt Rule .......................................................................................................................................... Error! Bookmark not defined. Four Safe Harbors ................................................................................................................................ Error! Bookmark not defined. Safe Harbor #1 Security ........................................................................................................................... Error! Bookmark not defined. Safe Harbor #2 - Escrow Accounts & Trusts............................................................................................................................... Error! Bookmark not defined. Safe Harbor #3 - Qualified Intermediary .................................................................................................................... Error! Bookmark not defined. Safe Harbor #4 Interest ............................................................................................................................. Error! Bookmark not defined. Exchanges of Partnership Interests .................................................................................................................................... Error! Bookmark not defined. Chapter 2- Property Transfers & Retirement Plans – Section 15........................................................................................................................ Error! Bookmark not defined. Retirement Plans ........................................................................................................................................................... Error! Bookmark not defined. Qualified Deferred Compensation ....................................................................................................................................... Error! Bookmark not defined. Qualified v. Nonqualified Plans .............................................................................................................................................. Error! Bookmark not defined. Major Benefit ........................................................................................................................................... Error! Bookmark not defined. Current Deduction................................................................................................................................. Error! Bookmark not defined. Timing of Deductions ............................................................................................................................... Error! Bookmark not defined. Part of Total Compensation .......................................................................................................................... Error! Bookmark not defined. Compensation Base ............................................................................................................................................... Error! Bookmark not defined. Salary Reduction Amounts................................................................................................................................... Error! Bookmark not defined. Benefit Planning ......................................................................................................................................... Error! Bookmark not defined. Pension Protection Act of 2006 ............................................................................................................................................... Error! Bookmark not defined. Corporate Plans .............................................................................................................................................. Error! Bookmark not defined. Advantages .............................................................................................................................. Error! Bookmark not defined. Current ................................................................................................................................. Error! Bookmark not defined. Deferred ............................................................................................................................... Error! Bookmark not defined. Disadvantages .......................................................................................................................... Error! Bookmark not defined. Employee Costs .................................................................................................................................... Error! Bookmark not defined. Comparison with IRAs & Keoghs ................................................................................................................................. Error! Bookmark not defined. Basic ERISA Provisions ...................................................................................................................................... Error! Bookmark not defined. ERISA Reporting Requirements ........................................................................................................................... Error! Bookmark not defined. Fiduciary Responsibilities ........................................................................................................................ Error! Bookmark not defined. Bonding Requirement ........................................................................................................................ Error! Bookmark not defined. Prohibited Transactions ............................................................................................................................. Error! Bookmark not defined. Additional Restrictions .......................................................................................................................... Error! Bookmark not defined. Fiduciary Exceptions ........................................................................................................................... Error! Bookmark not defined. Loans ................................................................................................................................... Error! Bookmark not defined. Employer Securities ................................................................................................................................. Error! Bookmark not defined. Excise Penalty Tax ........................................................................................................................................... Error! Bookmark not defined. PBGC Insurance .................................................................................................................................. Error! Bookmark not defined. Sixty-Month Requirement ........................................................................................................................ Error! Bookmark not defined. Recovery Against Employer ............................................................................................................................. Error! Bookmark not defined. Termination Proceedings .............................................................................................................................. Error! Bookmark not defined. Plans Exempt from PBGC Coverage .................................................................................................................................. Error! Bookmark not defined. Basic Requirements of a Qualified Pension Plan ....................................................................................................................................................... Error! Bookmark not defined. Written Plan ................................................................................................................................................ Error! Bookmark not defined. Communication........................................................................................................................ Error! Bookmark not defined. Trust .............................................................................................................................................. Error! Bookmark not defined. Requirements ........................................................................................................................... Error! Bookmark not defined. Permanency ................................................................................................................................... Error! Bookmark not defined. Exclusive Benefit of Employees ..................................................................................................................................... Error! Bookmark not defined. Highly Compensated Employees ............................................................................................................................... Error! Bookmark not defined. Reversion of Trust Assets to Employer ................................................................................................................................. Error! Bookmark not defined. Participation & Coverage ........................................................................................................................................ Error! Bookmark not defined. Age & Service ..................................................................................................................................... Error! Bookmark not defined. Coverage .................................................................................................................................. Error! Bookmark not defined. Percentage Test ...................................................................................................................................... Error! Bookmark not defined. Ratio Test ...................................................................................................................................... Error! Bookmark not defined. Average Benefits Test ...................................................................................................................................... Error! Bookmark not defined. Numerical Coverage .............................................................................................................................. Error! Bookmark not defined. Related Employers ............................................................................................................................ Error! Bookmark not defined. Chapter 2- Property Transfers & Retirement Plans – Section 16........................................................................................................................ Error! Bookmark not defined. Vesting .......................................................................................................................................... Error! Bookmark not defined. Full & Immediate Vesting ..................................................................................................................................... Error! Bookmark not defined. Minimum Vesting ..................................................................................................................................... Error! Bookmark not defined. Diversification Rights ....................................................................................................................................... Error! Bookmark not defined. Nondiscrimination Compliance .............................................................................................................................. Error! Bookmark not defined. Contribution & Benefit Limits ............................................................................................................................................ Error! Bookmark not defined. Defined Benefit Plans (Annual Benefits Limitation) §415 ......................................................................................................................................... Error! Bookmark not defined. Defined Contribution Plans (Annual Addition Limitation) §415 ......................................................................................................................................... Error! Bookmark not defined. Limits on Deductible Contributions §404 ......................................................................................................................................... Error! Bookmark not defined. Assignment & Alienation ...................................................................................................................................... Error! Bookmark not defined. Miscellaneous Requirements ................................................................................................................................. Error! Bookmark not defined. Basic Types of Corporate Plans ..................................................................................................................................................... Error! Bookmark not defined. Defined Benefit ........................................................................................................................................... Error! Bookmark not defined. Mechanics ................................................................................................................................ Error! Bookmark not defined. Defined Benefit Pension..................................................................................................................................... Error! Bookmark not defined. Defined Contribution................................................................................................................................... Error! Bookmark not defined. Mechanics ................................................................................................................................ Error! Bookmark not defined. Discretion................................................................................................................................. Error! Bookmark not defined. Favorable Circumstances .......................................................................................................................... Error! Bookmark not defined. Types of Defined Contribution Plans .............................................................................................................................................. Error! Bookmark not defined. Profit Sharing ..................................................................................................................................... Error! Bookmark not defined. Requirements for a Qualified Profit Sharing Plan ...................................................................................................................................... Error! Bookmark not defined. Written Plan ................................................................................................................................. Error! Bookmark not defined. Eligibility ........................................................................................................................ Error! Bookmark not defined. Deductible Contribution Limit ................................................................................................................................ Error! Bookmark not defined. Substantial & Recurrent Rule ................................................................................................................................. Error! Bookmark not defined. Money Purchase Pension..................................................................................................................................... Error! Bookmark not defined. Cafeteria Compensation Plan .......................................................................................................................................... Error! Bookmark not defined. Thrift Plan .......................................................................................................................................... Error! Bookmark not defined. Section 401(k) Plans ........................................................................................................................................ Error! Bookmark not defined. Death Benefits.......................................................................................................................................... Error! Bookmark not defined. Defined Benefit Plans ........................................................................................................................................ Error! Bookmark not defined. Money Purchase Pension & Target Benefit Plans ........................................................................................................................................ Error! Bookmark not defined. Employee Contributions ................................................................................................................................. Error! Bookmark not defined. NonDeductible ................................................................................................................................ Error! Bookmark not defined. Life Insurance in the Qualified Plan ................................................................................................................................................ Error! Bookmark not defined. Return ...................................................................................................................................... Error! Bookmark not defined. Universal Life .......................................................................................................................................... Error! Bookmark not defined. Compare................................................................................................................................... Error! Bookmark not defined. Plan Terminations & Corporate Liquidations ................................................................................................................................... Error! Bookmark not defined. 10-Year Rule .......................................................................................................................................... Error! Bookmark not defined. Lump-Sum Distributions ............................................................................................................................ Error! Bookmark not defined. Asset Dispositions ............................................................................................................................. Error! Bookmark not defined. IRA Limitations ............................................................................................................................... Error! Bookmark not defined. Chapter 2- Property Transfers & Retirement Plans – Section 17........................................................................................................................ Error! Bookmark not defined. Self-Employed Plans Keogh ................................................................................................................................................... Error! Bookmark not defined. Contribution Timing ........................................................................................................................................... Error! Bookmark not defined. Controlled Business ......................................................................................................................................... Error! Bookmark not defined. General Limitations ............................................................................................................................... Error! Bookmark not defined. Effect of Incorporation ................................................................................................................................. Error! Bookmark not defined. Mechanics ................................................................................................................................ Error! Bookmark not defined. Parity with Corporate Plans .................................................................................................................................... Error! Bookmark not defined. Figuring Retirement Plan Deductions For SelfEmployed ............................................................................................................................ Error! Bookmark not defined. Self-Employed Rate ................................................................................................................................. Error! Bookmark not defined. Determining the Deduction ............................................................................................................................................. Error! Bookmark not defined. Individual Plans IRA’s .................................................................................................................................................... Error! Bookmark not defined. Deemed IRA ................................................................................................................................................ Error! Bookmark not defined. Mechanics ...................................................................................................................................... Error! Bookmark not defined. Phaseout ............................................................................................................................................ Error! Bookmark not defined. Special Spousal Participation Rule §219(g)(1) ................................................................................................................................ Error! Bookmark not defined. Spousal IRA .......................................................................................................................................... Error! Bookmark not defined. Eligibility ....................................................................................................................................... Error! Bookmark not defined. Contributions & Deductions ..................................................................................................................................... Error! Bookmark not defined. Employer Contributions ........................................................................................................................... Error! Bookmark not defined. Retirement Vehicles ......................................................................................................................................... Error! Bookmark not defined. Distribution & Settlement Options .......................................................................................................................................... Error! Bookmark not defined. Life Annuity Exemption ................................................................................................................................ Error! Bookmark not defined. Minimum Distributions ............................................................................................................................ Error! Bookmark not defined. Required Minimum Distribution .......................................................................................................................... Error! Bookmark not defined. Definitions ....................................................................................................................... Error! Bookmark not defined. Distributions during Owner’s Lifetime & Year of Death after RBD ................................................................................................................................ Error! Bookmark not defined. Sole Beneficiary Spouse Who Is More Than 10 Years Younger ........................................................................................................................... Error! Bookmark not defined. Distributions after Owner’s Death ............................................................................................................................... Error! Bookmark not defined. Inherited IRAs ......................................................................................................................................... Error! Bookmark not defined. Estate Tax Deduction ............................................................................................................................ Error! Bookmark not defined. Charitable Distributions from IRAs §408 ..................................................................................................................................... Error! Bookmark not defined. Post-Retirement Tax Treatment of IRA Distributions .................................................................................................................................. Error! Bookmark not defined. Income In Respect of a Decedent .................................................................................................................................. Error! Bookmark not defined. Estate Tax Consequences .......................................................................................................................... Error! Bookmark not defined. Losses on IRA Investments .............................................................................................................................. Error! Bookmark not defined. Prohibited Transactions................................................................................................................................... Error! Bookmark not defined. Effect of Disqualification........................................................................................................................ Error! Bookmark not defined. Penalties ................................................................................................................................... Error! Bookmark not defined. Borrowing on an Annuity Contract ......................................................................................................................................... Error! Bookmark not defined. Tax-Free Rollovers ....................................................................................................................................... Error! Bookmark not defined. Rollover from One IRA to Another .................................................................................................................................... Error! Bookmark not defined. Waiting Period between Rollovers ............................................................................................................................. Error! Bookmark not defined. Partial Rollovers ............................................................................................................................. Error! Bookmark not defined. Rollovers from Traditional IRAs into Qualified Plans ........................................................................................................................................ Error! Bookmark not defined. Rollovers of Distributions from Employer Plans ........................................................................................................................................ Error! Bookmark not defined. Withholding Requirement ........................................................................................................................ Error! Bookmark not defined. Waiting Period between Rollovers ............................................................................................................................. Error! Bookmark not defined. Conduit IRAs .................................................................................................................................... Error! Bookmark not defined. Keogh Rollovers ............................................................................................................................. Error! Bookmark not defined. Direct Rollovers from Retirement Plans to Roth IRAs .................................................................................................................................... Error! Bookmark not defined. Rollovers of §457 Plans into Traditional IRAs ......................................................................................................................................... Error! Bookmark not defined. Rollovers of Traditional IRAs into §457 Plans ........................................................................................................................................ Error! Bookmark not defined. Rollovers of Traditional IRAs into §403(B) Plans ........................................................................................................................................ Error! Bookmark not defined. Rollovers from SIMPLE IRAs ......................................................................................................................................... Error! Bookmark not defined. Nonspouse Rollovers .................................................................................................................................. Error! Bookmark not defined. Roth IRA §408A ............................................................................................................................................ Error! Bookmark not defined. Eligibility ................................................................................................................................. Error! Bookmark not defined. Contribution Limitation ................................................................................................................................ Error! Bookmark not defined. Roth IRAs Only ..................................................................................................................................... Error! Bookmark not defined. Roth IRAs & Traditional IRAs .................................................................................................................................... Error! Bookmark not defined. Conversions ............................................................................................................................. Error! Bookmark not defined. AGI Limit Exception Repealed .............................................................................................................................. Error! Bookmark not defined. Recharacterizations .................................................................................................................. Error! Bookmark not defined. Reconversions .......................................................................................................................... Error! Bookmark not defined. Taxation of Distributions ............................................................................................................................ Error! Bookmark not defined. No Required Minimum Distributions ........................................................................................................................ Error! Bookmark not defined. Simplified Employee Pension Plans (SEPs) ................................................................................................................................................... Error! Bookmark not defined. Contribution Limits & Taxation ................................................................................................................................... Error! Bookmark not defined. SIMPLE Plans ..................................................................................................................................................... Error! Bookmark not defined. SIMPLE IRA Plan ................................................................................................................................................ Error! Bookmark not defined. Employee Limit ........................................................................................................................................ Error! Bookmark not defined. Other Qualified Plan .......................................................................................................................................... Error! Bookmark not defined. Set up ............................................................................................................................................. Error! Bookmark not defined. Contribution Limits ....................................................................................................................................... Error! Bookmark not defined. Salary Reduction Contributions ....................................................................................................................... Error! Bookmark not defined. Employer Matching Contributions ....................................................................................................................... Error! Bookmark not defined. Deduction of Contributions ........................................................................................................................... Error! Bookmark not defined. Distributions ............................................................................................................................ Error! Bookmark not defined. SIMPLE §401(k) Plan ................................................................................................................................................ Error! Bookmark not defined. Chapter 3 - Losses, AMT & Compliance – Section 18........................................................................................................................ Error! Bookmark not defined. Passive Losses ......................................................................................................................................................... Error! Bookmark not defined. Prior Law ....................................................................................................................................................... Error! Bookmark not defined. Passive Loss Rules ..................................................................................................................................................... Error! Bookmark not defined. Application .................................................................................................................................... Error! Bookmark not defined. Active Losses ............................................................................................................................................ Error! Bookmark not defined. Credits ........................................................................................................................................... Error! Bookmark not defined. Calculating Passive Loss ...................................................................................................................................................... Error! Bookmark not defined. Categories of Income & Loss ...................................................................................................................................................... Error! Bookmark not defined. Passive ........................................................................................................................................... Error! Bookmark not defined. Portfolio ......................................................................................................................................... Error! Bookmark not defined. Material Participation................................................................................................................................... Error! Bookmark not defined. Self-Charged Interest Regulations .................................................................................................................................... Error! Bookmark not defined. Passive Deduction - Portfolio Income ..................................................................................................................................... Error! Bookmark not defined. Regulations .............................................................................................................................. Error! Bookmark not defined. Suspension of Disallowed Losses ................................................................................................................................................... Error! Bookmark not defined. Fully Taxable Disposition..................................................................................................................................... Error! Bookmark not defined. Abandonment & Worthlessness .......................................................................................................................... Error! Bookmark not defined. Related Party Transactions ............................................................................................................................. Error! Bookmark not defined. Credits ...................................................................................................................................... Error! Bookmark not defined. Disallowance ....................................................................................................................... Error! Bookmark not defined. Increase Basis Election................................................................................................................................ Error! Bookmark not defined. Entire Interest ........................................................................................................................................... Error! Bookmark not defined. Partnership ............................................................................................................................... Error! Bookmark not defined. Grantor Trust ......................................................................................................................................... Error! Bookmark not defined. Other Transfers ........................................................................................................................................ Error! Bookmark not defined. Transfer By Reason Of Death §469(g)(2) ................................................................................................................................ Error! Bookmark not defined. Transfer by Gift §469(j)(6) ................................................................................................................................. Error! Bookmark not defined. Installment Sale §469(g)(3) ................................................................................................................................ Error! Bookmark not defined. Activity No Longer Treated As Passive Activity §469(f)(1)................................................................................................................................. Error! Bookmark not defined. Closely Held To Nonclosely Held Corporation§469(f)(2)................................................................................................................................. Error! Bookmark not defined. Nontaxable Transfer .................................................................................................................................... Error! Bookmark not defined. Ordering of Losses ............................................................................................................................................ Error! Bookmark not defined. Capital Loss Limitation ................................................................................................................................ Error! Bookmark not defined. Carryforwards ................................................................................................................................ Error! Bookmark not defined. Allocation of Suspended Losses ............................................................................................................................................ Error! Bookmark not defined. Taxpayers Affected ................................................................................................................................................ Error! Bookmark not defined. Noncorporate Taxpayers ...................................................................................................................................... Error! Bookmark not defined. Regular Closely Held Corporations .................................................................................................................................. Error! Bookmark not defined. Personal Service Corporations .................................................................................................................................. Error! Bookmark not defined. Definition ................................................................................................................................. Error! Bookmark not defined. Real Estate Professionals .................................................................................................................................. Error! Bookmark not defined. Chapter 3 - Losses, AMT & Compliance – Section 19........................................................................................................................ Error! Bookmark not defined. Activities............................................................................................................................................... Error! Bookmark not defined. Facts & Circumstances Test ................................................................................................................................................ Error! Bookmark not defined. Relevant Factors ..................................................................................................................................... Error! Bookmark not defined. Rental Activities .................................................................................................................................. Error! Bookmark not defined. Limited Partnership Activities .................................................................................................................................. Error! Bookmark not defined. Partnership & S Corporation Activities .................................................................................................................................. Error! Bookmark not defined. Consistency ................................................................................................................................... Error! Bookmark not defined. Regrouping .................................................................................................................................... Error! Bookmark not defined. Partial Dispositions ................................................................................................................................... Error! Bookmark not defined. Alternative Minimum Tax §55 .............................................................................................................................................................. Error! Bookmark not defined. Computation ......................................................................................................................................... Error! Bookmark not defined. Exemption Amount §55(d) ............................................................................................................................................ Error! Bookmark not defined. AMT Exemption Phaseout ................................................................................................................................... Error! Bookmark not defined. Regular Tax Deduction §55(c) ............................................................................................................................................ Error! Bookmark not defined. Tax Preferences & Adjustments ................................................................................................................................... Error! Bookmark not defined. Preferences & Adjustments for All Taxpayers................................................................................................................................. Error! Bookmark not defined. Preferences & Adjustments for Noncorporate Taxpayers Only ......................................................................................................................................... Error! Bookmark not defined. Preferences & Adjustments for Corporations Only ............................................................................................................................................... Error! Bookmark not defined. Adjustments §56 ................................................................................................................................................. Error! Bookmark not defined. Itemized Deductions ............................................................................................................................... Error! Bookmark not defined. Standard Deduction ............................................................................................................................ Error! Bookmark not defined. Medical Expenses .............................................................................................................................. Error! Bookmark not defined. Taxes ................................................................................................................................... Error! Bookmark not defined. Interest ................................................................................................................................. Error! Bookmark not defined. Personal Exemptions .............................................................................................................................. Error! Bookmark not defined. Depreciation............................................................................................................................. Error! Bookmark not defined. Alternative Depreciation System (ADS) .................................................................................................................................. Error! Bookmark not defined. ADS Recovery Periods ................................................................................................................................. Error! Bookmark not defined. Asset Placed in Service After 1998 ..................................................................................................................................... Error! Bookmark not defined. Mining Exploration and Development Costs ........................................................................................................................................ Error! Bookmark not defined. Basis .................................................................................................................................... Error! Bookmark not defined. Election................................................................................................................................ Error! Bookmark not defined. Long-Term Contracts .................................................................................................................................. Error! Bookmark not defined. Home Construction Contracts .............................................................................................................................. Error! Bookmark not defined. Pollution Control Facilities................................................................................................................................... Error! Bookmark not defined. Installment Sales ......................................................................................................................................... Error! Bookmark not defined. Circulation Expenditures ............................................................................................................................ Error! Bookmark not defined. Incentive Stock Options..................................................................................................................................... Error! Bookmark not defined. Credit for Prior Year Minimum Tax & ISOs ..................................................................................................................................... Error! Bookmark not defined. Research & Experimental Expenditures ............................................................................................................................ Error! Bookmark not defined. Passive Farm Losses ...................................................................................................................................... Error! Bookmark not defined. Definition ............................................................................................................................ Error! Bookmark not defined. Loss Disallowance ....................................................................................................................... Error! Bookmark not defined. Allocation ............................................................................................................................ Error! Bookmark not defined. Same Activity Suspension ........................................................................................................................... Error! Bookmark not defined. Passive Activity Losses ...................................................................................................................................... Error! Bookmark not defined. Business Untaxed Reported Profits (Pre1990) ........................................................................................................................................ Error! Bookmark not defined. ACE Adjustment (Post1989) ........................................................................................................................................ Error! Bookmark not defined. Adjusted Current Earnings Regulations .............................................................................................................................. Error! Bookmark not defined. Tax Preferences §57 ................................................................................................................................................. Error! Bookmark not defined. Depletion ................................................................................................................................. Error! Bookmark not defined. Intangible Drilling Costs ........................................................................................................................................ Error! Bookmark not defined. Excess Drilling Costs .................................................................................................................................... Error! Bookmark not defined. Accelerated Depreciation............................................................................................................................. Error! Bookmark not defined. Real Property ............................................................................................................................... Error! Bookmark not defined. Personal Property ............................................................................................................................... Error! Bookmark not defined. Private Activity Bond Interest ..................................................................................................................................... Error! Bookmark not defined. Alternative Tax NOL Deduction ...................................................................................................................................... Error! Bookmark not defined. Carrybacks & Carryovers ............................................................................................................................... Error! Bookmark not defined. Alternative Minimum Foreign Tax Credit ............................................................................................................................................. Error! Bookmark not defined. Foreign Tax Credit Carryback or Carryover ................................................................................................................................. Error! Bookmark not defined. Tentative Minimum Tax................................................................................................................................................. Error! Bookmark not defined. Minimum Tax Credit .................................................................................................................................................... Error! Bookmark not defined. Regular Income Tax Reduced ......................................................................................................................................... Error! Bookmark not defined. Carryforward of Credit ............................................................................................................................................. Error! Bookmark not defined. Other Credits ........................................................................................................................................... Error! Bookmark not defined. Chapter 3 - Losses, AMT & Compliance – Section 20........................................................................................................................ Error! Bookmark not defined. Compliance ................................................................................................................................................ Error! Bookmark not defined. Reporting Requirements ........................................................................................................................................ Error! Bookmark not defined. Real Estate Transactions [Form 1099S] ........................................................................................................................................... Error! Bookmark not defined. Independent Contractors .................................................................................................................................... Error! Bookmark not defined. Cash Reporting [Form 8300].............................................................................................................................................. Error! Bookmark not defined. Exceptions ............................................................................................................................... Error! Bookmark not defined. Recipient’s Knowledge ............................................................................................................................... Error! Bookmark not defined. Cash Reporting Rules Attorneys ................................................................................................................................. Error! Bookmark not defined. Sale of Certain Partnership Interests (Form 8308).............................................................................................................................................. Error! Bookmark not defined. Tax Shelter Registration Number [Form 8271].............................................................................................................................................. Error! Bookmark not defined. Asset Acquisition Statement [Form 8594].............................................................................................................................................. Error! Bookmark not defined. Chapter 3 - Losses, AMT & Compliance – Section 21........................................................................................................................ Error! Bookmark not defined. Accuracy-Related Penalties ..................................................................................................................................................... Error! Bookmark not defined. Negligence ............................................................................................................................................ Error! Bookmark not defined. Substantial Understatement of Income Tax................................................................................................................................................. Error! Bookmark not defined. Penalty on Carryover Year Return ...................................................................................................................................... Error! Bookmark not defined. Substantial Valuation Overstatements .............................................................................................................................. Error! Bookmark not defined. Substantial Estate & Gift Tax Valuation Understatements ............................................................................................................................ Error! Bookmark not defined. Final Regulations ........................................................................................................................................... Error! Bookmark not defined. Negligence or Disregard of Rules .............................................................................................................................................. Error! Bookmark not defined. Substantial Understatement Penalty ........................................................................................................................................... Error! Bookmark not defined. Adequate Disclosure ...................................................................................................................................... Error! Bookmark not defined. Information Reporting Penalty Final Regulations ................................................................................................................................................. Error! Bookmark not defined. Penalty for Unrealistic Position ....................................................................................................................................................... Error! Bookmark not defined. Realistic Possibility Standard ................................................................................................................................................ Error! Bookmark not defined. Adequate Disclosure ............................................................................................................................................. Error! Bookmark not defined. Form 8275R ........................................................................................................................................................... Error! Bookmark not defined. Statute of Limitations for Assessments ............................................................................................................................................... Error! Bookmark not defined. Three Year Assessment Periods .................................................................................................................................................. Error! Bookmark not defined. Six Year Assessment Period.................................................................................................................................................... Error! Bookmark not defined. No Statute Of Limitations ............................................................................................................................................ Error! Bookmark not defined. Extension of Statute Of Limitations ............................................................................................................................................ Error! Bookmark not defined. Examination of Returns ....................................................................................................................................................... Error! Bookmark not defined. How Returns Are Selected................................................................................................................................................. Error! Bookmark not defined. Arranging the Examination .......................................................................................................................................... Error! Bookmark not defined. Transfers ........................................................................................................................................ Error! Bookmark not defined. Representation ............................................................................................................................... Error! Bookmark not defined. Recordings ..................................................................................................................................... Error! Bookmark not defined. Repeat Examinations ........................................................................................................................................ Error! Bookmark not defined. Changes to Return ................................................................................................................................................... Error! Bookmark not defined. Appealing Examination Findings ................................................................................................................................................ Error! Bookmark not defined. Appeals Office ............................................................................................................................................. Error! Bookmark not defined. Appeals to the Courts ............................................................................................................................................ Error! Bookmark not defined. Court Decisions ................................................................................................................................. Error! Bookmark not defined. Recovering Litigation Expenses .................................................................................................................................. Error! Bookmark not defined. Other Remedies .............................................................................................................................................. Error! Bookmark not defined. Claims for Refund ........................................................................................................................................... Error! Bookmark not defined. Cancellation of Penalties ........................................................................................................................................ Error! Bookmark not defined. Reduction of Interest ........................................................................................................................................... Error! Bookmark not defined. Chapter 4 - Business Forms & Characteristics – Section 22........................................................................................................................ Error! Bookmark not defined. Sole Proprietorships ........................................................................................................................................... Error! Bookmark not defined. Advantages ........................................................................................................................................... Error! Bookmark not defined. Disadvantages ....................................................................................................................................... Error! Bookmark not defined. Self-Employment Taxes .................................................................................................................................................... Error! Bookmark not defined. Incorporation ................................................................................................................................. Error! Bookmark not defined. “S” Solution .................................................................................................................................... Error! Bookmark not defined. Estimated Tax Payments............................................................................................................................................... Error! Bookmark not defined. Partnerships ................................................................................................................................................ Error! Bookmark not defined. Conduit Entity .................................................................................................................................................... Error! Bookmark not defined. Advantages ........................................................................................................................................... Error! Bookmark not defined. Disadvantages ....................................................................................................................................... Error! Bookmark not defined. Husband-Wife Partnerships .......................................................................................................................................... Error! Bookmark not defined. General Tax Aspects ................................................................................................................................................. Error! Bookmark not defined. Limited Partnerships .......................................................................................................................................... Error! Bookmark not defined. Passive Presumption ................................................................................................................................... Error! Bookmark not defined. At Risk Rules §465 ...................................................................................................................................................... Error! Bookmark not defined. Financing ....................................................................................................................................... Error! Bookmark not defined. Chapter 4 - Business Forms & Characteristics – Section 23........................................................................................................................ Error! Bookmark not defined. Passive Loss Limitations §469 ...................................................................................................................................................... Error! Bookmark not defined. Active/Passive Determination ................................................................................................................................ Error! Bookmark not defined. Triggering Suspended Losses ............................................................................................................................................ Error! Bookmark not defined. Limited Liability Companies ............................................................................................................................................ Error! Bookmark not defined. Estates & Trusts .......................................................................................................................................................... Error! Bookmark not defined. Income Distribution ........................................................................................................................................... Error! Bookmark not defined. Business Trusts .................................................................................................................................................... Error! Bookmark not defined. Unincorporated Associations ............................................................................................................................................... Error! Bookmark not defined. Corporate Treatment .............................................................................................................................................. Error! Bookmark not defined. Corporation Defined ....................................................................................................................................................... Error! Bookmark not defined. Effect of State Laws ..................................................................................................................................................... Error! Bookmark not defined. Corporate Characteristics ...................................................................................................................................... Error! Bookmark not defined. Partnership Determinations .............................................................................................................................. Error! Bookmark not defined. Trust Determinations .............................................................................................................................. Error! Bookmark not defined. Professional Associations................................................................................................................................... Error! Bookmark not defined. Check-The-Box Regulations ........................................................................................................................................... Error! Bookmark not defined. Subchapter S Corporations ............................................................................................................................................... Error! Bookmark not defined. Ordinary “C” Corporations ............................................................................................................................................... Error! Bookmark not defined. Advantages ........................................................................................................................................... Error! Bookmark not defined. Disadvantages ....................................................................................................................................... Error! Bookmark not defined. Personal Service Corporations ............................................................................................................................................... Error! Bookmark not defined. Testing Period.................................................................................................................................................... Error! Bookmark not defined. Personal Services................................................................................................................................................. Error! Bookmark not defined. Principal Activity ................................................................................................................................................. Error! Bookmark not defined. EmployeeOwner ................................................................................................................................................... Error! Bookmark not defined. Independent Contractor ...................................................................................................................................... Error! Bookmark not defined. Passive Loss Limitations ............................................................................................................................................ Error! Bookmark not defined. Qualified Personal Service Corporation ........................................................................................................................................... Error! Bookmark not defined. Federal Corporate Income Taxation Overview .................................................................................................................................................... Error! Bookmark not defined. Corporate Tax Rates ........................................................................................................................................................... Error! Bookmark not defined. Tax Tables ................................................................................................................................................... Error! Bookmark not defined. Old Law ................................................................................................................................................ Error! Bookmark not defined. Surtax ............................................................................................................................................ Error! Bookmark not defined. Reform Act of 1986 ...................................................................................................................................................... Error! Bookmark not defined. Phantom Bracket .......................................................................................................................................... Error! Bookmark not defined. Current Rates ..................................................................................................................................................... Error! Bookmark not defined. Tax Return & Filing ............................................................................................................................................. Error! Bookmark not defined. Alternative Minimum Tax ............................................................................................................................................................. Error! Bookmark not defined. Computation ......................................................................................................................................... Error! Bookmark not defined. Regular Tax Deduction §55(c).................................................................................................................................................... Error! Bookmark not defined. Tax Preferences & Adjustments .......................................................................................................................................... Error! Bookmark not defined. Preferences & Adjustments for All Taxpayers ...................................................................................................................................... Error! Bookmark not defined. Preferences & Adjustments for Noncorporate Taxpayers & Some Corporations .................................................................................................................................. Error! Bookmark not defined. Preferences & Adjustments for Corporations Only ............................................................................................................................................... Error! Bookmark not defined. Adjustments §56 ........................................................................................................................................................ Error! Bookmark not defined. Business Untaxed Reported Profits (Pre1990).............................................................................................................................................. Error! Bookmark not defined. ACE Adjustment (Post1989).............................................................................................................................................. Error! Bookmark not defined. Small Businesses AMT Exclusion .............................................................................................................................................. Error! Bookmark not defined. Small Business Corporation.................................................................................................................................... Error! Bookmark not defined. Transition Rule ............................................................................................................................................... Error! Bookmark not defined. Chapter 5 - Corporate Formation & Capitalization – Section 24........................................................................................................................ Error! Bookmark not defined. Incorporation §351 ............................................................................................................................................................ Error! Bookmark not defined. Basic Requirements ........................................................................................................................................ Error! Bookmark not defined. Corporate Nonrecognition .............................................................................................................................. Error! Bookmark not defined. Property ................................................................................................................................................ Error! Bookmark not defined. Stock Solely For Services ......................................................................................................................................... Error! Bookmark not defined. Impact on Recipient .................................................................................................................................. Error! Bookmark not defined. Impact on Other Shareholders ............................................................................................................................ Error! Bookmark not defined. Stock for Debt ............................................................................................................................................... Error! Bookmark not defined. Stock ..................................................................................................................................................... Error! Bookmark not defined. Notes.............................................................................................................................................. Error! Bookmark not defined. Control .................................................................................................................................................. Error! Bookmark not defined. Property Basis ..................................................................................................................................................... Error! Bookmark not defined. Stock Basis ..................................................................................................................................................... Error! Bookmark not defined. Liabilities .............................................................................................................................................. Error! Bookmark not defined. Miscellaneous Trade & Technical Corrections Act §351 ............................................................................................................................................... Error! Bookmark not defined. Recourse Liability ................................................................................................................................... Error! Bookmark not defined. Nonrecourse Liability ................................................................................................................................... Error! Bookmark not defined. Basis ........................................................................................................................................ Error! Bookmark not defined. Incorporation of a Partnership ............................................................................................................................................ Error! Bookmark not defined. Alternative #1 ................................................................................................................................................... Error! Bookmark not defined. Alternative #2 ................................................................................................................................................... Error! Bookmark not defined. Alternative #3 ................................................................................................................................................... Error! Bookmark not defined. Tax Consequences - Alternative #1 ................................................................................................................................................... Error! Bookmark not defined. Tax Consequences - Alternative #2 ................................................................................................................................................... Error! Bookmark not defined. Tax Consequences - Alternative #3 ................................................................................................................................................... Error! Bookmark not defined. Accounts Receivable ............................................................................................................................................ Error! Bookmark not defined. Continuing Partnership ..................................................................................................................................... Error! Bookmark not defined. Chapter 5 - Corporate Formation & Capitalization – Section 25........................................................................................................................ Error! Bookmark not defined. Section 1244 Stock ........................................................................................................................................................... Error! Bookmark not defined. Maximum Ordinary Loss ...................................................................................................................................................... Error! Bookmark not defined. Original Issuance ................................................................................................................................................ Error! Bookmark not defined. Distributed Stock .............................................................................................................................................. Error! Bookmark not defined. General Requirements ........................................................................................................................................ Error! Bookmark not defined. Start-Up Expenses ..................................................................................................................................................... Error! Bookmark not defined. Covered Expenses ............................................................................................................................................... Error! Bookmark not defined. Amortization .................................................................................................................................. Error! Bookmark not defined. Organizational Expenses ..................................................................................................................................................... Error! Bookmark not defined. Definition .............................................................................................................................................. Error! Bookmark not defined. Stock Issuance & Syndication Expenses ............................................................................................................................................... Error! Bookmark not defined. Amortization ......................................................................................................................................... Error! Bookmark not defined. Start of Business ......................................................................................................................................... Error! Bookmark not defined. Tax Recognition of the Corporate Entity .......................................................................................................................................................... Error! Bookmark not defined. Tax Criteria .................................................................................................................................................. Error! Bookmark not defined. Nominee & Agency Corporations .................................................................................................................................. Error! Bookmark not defined. Having Income Attributed to the Corporation ........................................................................................................................................... Error! Bookmark not defined. Section 482 Reallocation ................................................................................................................................... Error! Bookmark not defined. Corporation & Shareholder .............................................................................................................................. Error! Bookmark not defined. Goodwill .................................................................................................................................. Error! Bookmark not defined. Interest Free Loans ....................................................................................................................................... Error! Bookmark not defined. Section 269A ..................................................................................................................................................... Error! Bookmark not defined. Capital Gains & Losses ......................................................................................................................................................... Error! Bookmark not defined. Net Capital Loss Carryovers & Carrybacks §1212 .................................................................................................................................................... Error! Bookmark not defined. S Corporation Status ............................................................................................................................................. Error! Bookmark not defined. Asset Types .................................................................................................................................................... Error! Bookmark not defined. Five-Step Characterization Process .................................................................................................................................................. Error! Bookmark not defined. Netting Capital Gains ..................................................................................................................................................... Error! Bookmark not defined. Netting Section 1231 Gains (Losses)................................................................................................................................................. Error! Bookmark not defined. Character of Section 1231 Gains (Losses) ......................................................................................................................................... Error! Bookmark not defined. 5 Year Averaging ...................................................................................................................................... Error! Bookmark not defined. NOL Carryback & Carryover .............................................................................................................................................. Error! Bookmark not defined. Temporary Extension of Carryback Period ............................................................................................................................................ Error! Bookmark not defined. Loss Computation .................................................................................................................................. Error! Bookmark not defined. Deduction Computation .................................................................................................................................. Error! Bookmark not defined. Dividends Received Deduction ................................................................................................................................................... Error! Bookmark not defined. Dividends from Domestic Corporations ......................................................................................................................................... Error! Bookmark not defined. 80% Exception ....................................................................................................................................... Error! Bookmark not defined. Ownership............................................................................................................................................. Error! Bookmark not defined. Limitation ............................................................................................................................................. Error! Bookmark not defined. Denial of Deduction ............................................................................................................................................. Error! Bookmark not defined. Debt-Financed Portfolio Stock ..................................................................................................................................................... Error! Bookmark not defined. Property Dividends .............................................................................................................................................. Error! Bookmark not defined. Change to Holding Period.................................................................................................................................................... Error! Bookmark not defined. Chapter 5 - Corporate Formation & Capitalization – Section 26........................................................................................................................ Error! Bookmark not defined. Charitable Contributions .............................................................................................................................................. Error! Bookmark not defined. Timing of Deduction ............................................................................................................................................. Error! Bookmark not defined. Limitation ............................................................................................................................................. Error! Bookmark not defined. Carryover of Excess Contribution .......................................................................................................................................... Error! Bookmark not defined. Charitable Contributions of Computer Equipment Expired ................................................................................................................................................. Error! Bookmark not defined. Collapsible Corporations - §341 (Repealed) .................................................................................................................................................. Error! Bookmark not defined. Definition .............................................................................................................................................. Error! Bookmark not defined. Presumption ................................................................................................................................... Error! Bookmark not defined. Covered Transactions .......................................................................................................................................... Error! Bookmark not defined. Personal Holding Companies §541 ............................................................................................................................................................ Error! Bookmark not defined. Penalty Tax ........................................................................................................................................................ Error! Bookmark not defined. Professional Corporations .................................................................................................................................. Error! Bookmark not defined. Named Professionals .................................................................................................................................. Error! Bookmark not defined. Avoidance of PHC Status ............................................................................................................................................. Error! Bookmark not defined. Accumulated Earnings Tax Trap §531 ............................................................................................................................................................ Error! Bookmark not defined. Imposition of Penalty Tax ........................................................................................................................................................ Error! Bookmark not defined. Computation .................................................................................................................................. Error! Bookmark not defined. Accumulated Earnings Credit ............................................................................................................................................. Error! Bookmark not defined. Application of Credit to Controlled Groups ..................................................................................................................................... Error! Bookmark not defined. Reasonable Accumulations ...................................................................................................................................... Error! Bookmark not defined. Working Capital ........................................................................................................................................... Error! Bookmark not defined. Service Corporations ............................................................................................................................ Error! Bookmark not defined. Minority Stock Redemptions .................................................................................................................................. Error! Bookmark not defined. Majority Stock Redemptions .................................................................................................................................. Error! Bookmark not defined. Stockholder Harmony .................................................................................................................................. Error! Bookmark not defined. Tax Exempt Income ........................................................................................................................................................ Error! Bookmark not defined. Chapter 5 - Corporate Formation & Capitalization – Section 27........................................................................................................................ Error! Bookmark not defined. Accounting Periods & Methods ...................................................................................................................................................... Error! Bookmark not defined. Accounting Periods .................................................................................................................................................. Error! Bookmark not defined. Section 444 Election.......................................................................................................................................... Error! Bookmark not defined. Business Purpose Tax Year ............................................................................................................................................... Error! Bookmark not defined. 25% Test .......................................................................................................................................... Error! Bookmark not defined. Length of Accounting Period ............................................................................................................................................ Error! Bookmark not defined. Short Tax Year ......................................................................................................................................... Error! Bookmark not defined. Not in Existence Entire Year ..................................................................................................................................... Error! Bookmark not defined. Change in Accounting Period .................................................................................................................................. Error! Bookmark not defined. Election of Accounting Period ............................................................................................................................................ Error! Bookmark not defined. Changing Accounting Periods ........................................................................................................................................... Error! Bookmark not defined. Changes Without IRS Consent .......................................................................................................................................... Error! Bookmark not defined. Accounting Methods ................................................................................................................................................ Error! Bookmark not defined. Methods Available ....................................................................................................................................... Error! Bookmark not defined. Cash Method ..................................................................................................................................... Error! Bookmark not defined. Limitation ............................................................................................................................ Error! Bookmark not defined. R.P. 201114 ......................................................................................................................................... Error! Bookmark not defined. Accrual Method ..................................................................................................................................... Error! Bookmark not defined. Economic Performance Rule ..................................................................................................................................... Error! Bookmark not defined. Special Methods ................................................................................................................................... Error! Bookmark not defined. Combination (Hybrid) Method ..................................................................................................................................... Error! Bookmark not defined. Changing the Accounting Method .......................................................................................................................................... Error! Bookmark not defined. Inventories .................................................................................................................................................. Error! Bookmark not defined. Identification Methods ................................................................................................................................................ Error! Bookmark not defined. Specific Identification Method .......................................................................................................................................... Error! Bookmark not defined. FIFO Method .......................................................................................................................................... Error! Bookmark not defined. LIFO Method .......................................................................................................................................... Error! Bookmark not defined. Valuation Methods ................................................................................................................................................ Error! Bookmark not defined. Cost Method .......................................................................................................................................... Error! Bookmark not defined. Uniform Capitalization Rules §263A ...................................................................................................................................... Error! Bookmark not defined. Lower of Cost or Market Method .......................................................................................................................................... Error! Bookmark not defined. Multiple Corporations ............................................................................................................................................... Error! Bookmark not defined. Controlled Group Restrictions ........................................................................................................................................... Error! Bookmark not defined. Definition ...................................................................................................................................... Error! Bookmark not defined. Parent-Subsidiary Groups ..................................................................................................................................... Error! Bookmark not defined. Brother-Sister Groups ..................................................................................................................................... Error! Bookmark not defined. Consolidated Returns .................................................................................................................................................. Error! Bookmark not defined. Definition ...................................................................................................................................... Error! Bookmark not defined. Corporate Liquidations & Distributions ............................................................................................................................................... Error! Bookmark not defined. The Old General Utilities Doctrine ................................................................................................................................................ Error! Bookmark not defined. Loss Limitations..................................................................................................................................... Error! Bookmark not defined. Chapter 6 - Corporate Principals & Employees – Section 28........................................................................................................................ Error! Bookmark not defined. Employee Status of Active Shareholders ............................................................................................................................................... Error! Bookmark not defined. Payroll Taxes .................................................................................................................................................... Error! Bookmark not defined. Form 941 ................................................................................................................................................. Error! Bookmark not defined. Deposit Rules ........................................................................................................................................ Error! Bookmark not defined. Lookback Period .................................................................................................................................. Error! Bookmark not defined. Monthly Depositor ......................................................................................................................... Error! Bookmark not defined. Semi-Weekly Depositor ......................................................................................................................... Error! Bookmark not defined. One-Day Rule ................................................................................................................................. Error! Bookmark not defined. De Minimis Rule ................................................................................................................................. Error! Bookmark not defined. Form W4 ..................................................................................................................................................... Error! Bookmark not defined. WhistleBlowing ................................................................................................................................... Error! Bookmark not defined. Form W2 ..................................................................................................................................................... Error! Bookmark not defined. Form W3 ..................................................................................................................................................... Error! Bookmark not defined. Social Security’s Payroll Tax or FICA - §3111 & §3121 .................................................................................................................................................... Error! Bookmark not defined. Rates .............................................................................................................................................. Error! Bookmark not defined. Deduction ...................................................................................................................................... Error! Bookmark not defined. Federal Unemployment (FUTA) Tax §3302 .................................................................................................................................................... Error! Bookmark not defined. Form 940 ................................................................................................................................................. Error! Bookmark not defined. Employee Labor Laws ..................................................................................................................................................... Error! Bookmark not defined. Minimum Wage Requirement .................................................................................................................................. Error! Bookmark not defined. Overtime ........................................................................................................................................ Error! Bookmark not defined. Fair Employment Laws .............................................................................................................................................. Error! Bookmark not defined. Child Labor Laws .............................................................................................................................................. Error! Bookmark not defined. Immigration Law ................................................................................................................................................ Error! Bookmark not defined. Workers’ Compensation Insurance ....................................................................................................................................... Error! Bookmark not defined. State Disability Insurance (SDI) .............................................................................................................................................. Error! Bookmark not defined. OSHA ............................................................................................................................................ Error! Bookmark not defined. Employee vs. Contractor Status .......................................................................................................................................................... Error! Bookmark not defined. Factors .................................................................................................................................................. Error! Bookmark not defined. Unreasonable Compensation ............................................................................................................................................. Error! Bookmark not defined. Overall Limitation ............................................................................................................................................. Error! Bookmark not defined. Allowance of Deduction ...................................................................................................................................... Error! Bookmark not defined. Limitation on Accrual Deduction ...................................................................................................................................... Error! Bookmark not defined. Employment Contracts ........................................................................................................................................ Error! Bookmark not defined. Scope of Examination .......................................................................................................................................... Error! Bookmark not defined. Factors .................................................................................................................................................. Error! Bookmark not defined. Employee’s Qualifications ................................................................................................................................ Error! Bookmark not defined. Size of the Business ......................................................................................................................................... Error! Bookmark not defined. Employee’s Compensation History ........................................................................................................................................... Error! Bookmark not defined. Unreasonably Low Salaries..................................................................................................................................... Error! Bookmark not defined. Services Performed by the Employee ....................................................................................................................................... Error! Bookmark not defined. Past Service ........................................................................................................................................... Error! Bookmark not defined. Reasonable Dividends ...................................................................................................................................... Error! Bookmark not defined. Bonuses as Constituting Dividends ................................................................................................................................. Error! Bookmark not defined. Payback Agreements .................................................................................................................................... Error! Bookmark not defined. Miscellaneous Factors ........................................................................................................................................... Error! Bookmark not defined. Income Splitting ...................................................................................................................................................... Error! Bookmark not defined. Gift & Redemption........................................................................................................................................... Error! Bookmark not defined. Hire the Kids ...................................................................................................................................................... Error! Bookmark not defined. Chapter 6 - Corporate Principals & Employees – Section 29........................................................................................................................ Error! Bookmark not defined. Buy Sell Agreements ................................................................................................................................................ Error! Bookmark not defined. Definition .............................................................................................................................................. Error! Bookmark not defined. Professional Corporations ......................................................................................................................................... Error! Bookmark not defined. Marketability Problems ............................................................................................................................................... Error! Bookmark not defined. Controlled Disposition ............................................................................................................................................ Error! Bookmark not defined. Entity & Cross Purchase Agreements ........................................................................................................................................... Error! Bookmark not defined. Stepped-Up Basis .............................................................................................................................................. Error! Bookmark not defined. Resulting Equity Ownership ..................................................................................................................................... Error! Bookmark not defined. Attribution & Constructive Ownership Rules .............................................................................................................................................. Error! Bookmark not defined. Estate Tax Valuation ....................................................................................................................................... Error! Bookmark not defined. Using the Buy Sell Agreement to Set Value ........................................................................................................................................ Error! Bookmark not defined. Section 2703 Restrictions .......................................................................................................................... Error! Bookmark not defined. Exceptions to §2703............................................................................................................................... Error! Bookmark not defined. Arm’s Length Bargain ............................................................................................................................ Error! Bookmark not defined. Enforcement of Contract Price............................................................................................................................................... Error! Bookmark not defined. Joint Ownership ..................................................................................................................................... Error! Bookmark not defined. Funding the Buy-Sell Agreement ............................................................................................................................................ Error! Bookmark not defined. Term vs. Whole Life ................................................................................................................................................ Error! Bookmark not defined. Policy Ownership ..................................................................................................................................... Error! Bookmark not defined. Premium Payment ......................................................................................................................................... Error! Bookmark not defined. Purchase Price ...................................................................................................................................................... Error! Bookmark not defined. S Corporations ......................................................................................................................................... Error! Bookmark not defined. Sole Shareholder Planning ................................................................................................................................................ Error! Bookmark not defined. Complete Liquidations ................................................................................................................................... Error! Bookmark not defined. Alternative Dispositions ............................................................................................................................. Error! Bookmark not defined. Use of Life Insurance .................................................................................................................................. Error! Bookmark not defined. Estate Valuation ................................................................................................................................. Error! Bookmark not defined. One-Way BuyOuts ............................................................................................................................................... Error! Bookmark not defined. Recapitalization .......................................................................................................................................... Error! Bookmark not defined. In General ................................................................................................................................................. Error! Bookmark not defined. Valuation of Stock ..................................................................................................................................................... Error! Bookmark not defined. Estate Freeze Provisions ............................................................................................................................................. Error! Bookmark not defined. Stock Dividends .............................................................................................................................................. Error! Bookmark not defined. Section 306 Tainted Stocks ................................................................................................................................................... Error! Bookmark not defined. §306 Exceptions ..................................................................................................................................... Error! Bookmark not defined. Chapter 7 - Basic Fringe Benefits - Section 30........................................................................................................................ Error! Bookmark not defined. Concept ...................................................................................................................................................... Error! Bookmark not defined. Definition of Income §61 ........................................................................................................................................................ Error! Bookmark not defined. Deductions without Taxable Income .................................................................................................................................................. Error! Bookmark not defined. Types of Benefits ...................................................................................................................................................... Error! Bookmark not defined. Old Dichotomy - Statutory v. Nonstatutory ......................................................................................................................................... Error! Bookmark not defined. Fringe Benefit Provisions ...................................................................................................................................... Error! Bookmark not defined. TRA ‘84 §132 ......................................................................................................................................... Error! Bookmark not defined. Discrimination ......................................................................................................................... Error! Bookmark not defined. Only Statutory Benefits .................................................................................................................................... Error! Bookmark not defined. No-Additional-Cost Services §132(b) ................................................................................................................................................. Error! Bookmark not defined. Covered Employees ..................................................................................................................................... Error! Bookmark not defined. Line of Business Requirement .................................................................................................................................. Error! Bookmark not defined. Definition ................................................................................................................................. Error! Bookmark not defined. Qualified Employee Discounts §132(c).................................................................................................................................................. Error! Bookmark not defined. Manner of Discount ........................................................................................................................................ Error! Bookmark not defined. Real Estate & Investment Property Exclusion ................................................................................................................................. Error! Bookmark not defined. Amount of Discount ........................................................................................................................................ Error! Bookmark not defined. Working Condition Fringes §132(d) ................................................................................................................................................. Error! Bookmark not defined. Covered Employees ..................................................................................................................................... Error! Bookmark not defined. Exceptions ..................................................................................................................................... Error! Bookmark not defined. Substantiation ................................................................................................................................ Error! Bookmark not defined. De Minimis Fringes §132(e).................................................................................................................................................. Error! Bookmark not defined. Subsidized Eating Facilities ........................................................................................................................................ Error! Bookmark not defined. Employee Achievement Awards - §74(c) & §274(j) .................................................................................................................................................. Error! Bookmark not defined. Exclusion ....................................................................................................................................... Error! Bookmark not defined. Definition of Employee Achievement Awards .......................................................................................................................................... Error! Bookmark not defined. Qualified Plan Award ............................................................................................................................................ Error! Bookmark not defined. Employer Deduction Limits ............................................................................................................................................ Error! Bookmark not defined. Aggregation Limit ........................................................................................................................................ Error! Bookmark not defined. Special Partnership Rule .......................................................................................................................................... Error! Bookmark not defined. Employee Impact ...................................................................................................................................... Error! Bookmark not defined. Group Term Life Insurance §79 ........................................................................................................................................................ Error! Bookmark not defined. Chapter 7 - Basic Fringe Benefits - Section 31........................................................................................................................ Error! Bookmark not defined. Dependent Care Assistance §129 ...................................................................................................................................................... Error! Bookmark not defined. Amount of Assistance ...................................................................................................................................... Error! Bookmark not defined. Requirements ................................................................................................................................. Error! Bookmark not defined. Conflict with Dependent Care ............................................................................................................................................... Error! Bookmark not defined. Cafeteria Plans §125 ...................................................................................................................................................... Error! Bookmark not defined. Definition ...................................................................................................................................... Error! Bookmark not defined. Qualified Benefits.......................................................................................................................................... Error! Bookmark not defined. Non-Qualified Benefits .................................................................................................................................... Error! Bookmark not defined. Controlled Group Rules .............................................................................................................................................. Error! Bookmark not defined. Salary Reduction Plans .............................................................................................................................................. Error! Bookmark not defined. Nondiscrimination ......................................................................................................................... Error! Bookmark not defined. Meals & Lodging §119 ...................................................................................................................................................... Error! Bookmark not defined. Income Exclusion ....................................................................................................................................... Error! Bookmark not defined. Convenience of Employer ................................................................................................................................. Error! Bookmark not defined. Self-Insured Medical Reimbursement Plans §105 ...................................................................................................................................................... Error! Bookmark not defined. Allowable Expenses ........................................................................................................................................ Error! Bookmark not defined. Requirements ................................................................................................................................. Error! Bookmark not defined. Benefits.......................................................................................................................................... Error! Bookmark not defined. Exposure ........................................................................................................................................ Error! Bookmark not defined. Employee Educational Assistance Programs §127 ...................................................................................................................................................... Error! Bookmark not defined. Employer Provided Automobile - §61 & §132 ...................................................................................................................................................... Error! Bookmark not defined. General Valuation Method .......................................................................................................................................... Error! Bookmark not defined. Annual Lease Value Method .......................................................................................................................................... Error! Bookmark not defined. Computation ............................................................................................................................ Error! Bookmark not defined. Cents Per Mile Method .......................................................................................................................................... Error! Bookmark not defined. Commuting Value Method .......................................................................................................................................... Error! Bookmark not defined. Interest Free & Below-Market Loans §7872 .................................................................................................................................................... Error! Bookmark not defined. Permissible Discrimination ......................................................................................................................... Error! Bookmark not defined. Employee Needs ....................................................................................................................................... Error! Bookmark not defined. Imputed Interest ........................................................................................................................................... Error! Bookmark not defined. Types of Loans ............................................................................................................................................. Error! Bookmark not defined. Demand Loans ....................................................................................................................................... Error! Bookmark not defined. Term Loans ....................................................................................................................................... Error! Bookmark not defined. Application of §7872 and Rate Determinations .............................................................................................................................. Error! Bookmark not defined. Summary ....................................................................................................................................... Error! Bookmark not defined. Moving Expenses §217 ...................................................................................................................................................... Error! Bookmark not defined. Employer-Provided Retirement Advice & Planning §132 ...................................................................................................................................................... Error! Bookmark not defined. Financial Planning - §67 & §212 ...................................................................................................................................................... Error! Bookmark not defined. Popularity ...................................................................................................................................... Error! Bookmark not defined. Taxation ......................................................................................................................................... Error! Bookmark not defined. Tax Planning - §67 & §212 ...................................................................................................................................................... Error! Bookmark not defined. Taxation ......................................................................................................................................... Error! Bookmark not defined. Estate Planning - §67 & §212 ...................................................................................................................................................... Error! Bookmark not defined. Death Benefit Payment - §101(b) Repealed ............................................................................................................................................... Error! Bookmark not defined. Physical Fitness Programs §132(h)(5) ............................................................................................................................................. Error! Bookmark not defined. Home Office §280A ................................................................................................................................................... Error! Bookmark not defined. Carryforward ................................................................................................................................. Error! Bookmark not defined. Renting Space to Employer ....................................................................................................................................... Error! Bookmark not defined. Fringe Benefit Plans for S Corporations ............................................................................................................................................... Error! Bookmark not defined. Insurance............................................................................................................................................... Error! Bookmark not defined. Basis .............................................................................................................................................. Error! Bookmark not defined. Permanent Policies .......................................................................................................................................... Error! Bookmark not defined. Effect of Premium Payment ................................................................................................................................... Error! Bookmark not defined. Key Employee Insurance ....................................................................................................................................... Error! Bookmark not defined. Medical Insurance ....................................................................................................................................... Error! Bookmark not defined. Retirement Plans .............................................................................................................................................. Error! Bookmark not defined. Summary ....................................................................................................................................... Error! Bookmark not defined. ERISA Compliance ................................................................................................................................................ Error! Bookmark not defined. Welfare Plans ..................................................................................................................................................... Error! Bookmark not defined. Additional Requirements ................................................................................................................................. Error! Bookmark not defined. Chapter 8 - Business Entertainment - Section 32........................................................................................................................ Error! Bookmark not defined. Definition ................................................................................................................................................... Error! Bookmark not defined. Lavish or Extravagant Restriction .................................................................................................................................................. Error! Bookmark not defined. Ordinary & Necessary Requirement ............................................................................................................................................... Error! Bookmark not defined. Directly Related Test ....................................................................................................................................................... Error! Bookmark not defined. Clear Business Setting Presumption ................................................................................................................................... Error! Bookmark not defined. Associated Test ....................................................................................................................................................... Error! Bookmark not defined. Substantial Business Discussion ..................................................................................................................................... Error! Bookmark not defined. Timing ........................................................................................................................................... Error! Bookmark not defined. Conventions ................................................................................................................................... Error! Bookmark not defined. Statutory Exceptions ............................................................................................................................................ Error! Bookmark not defined. Food and Beverages for Employees ..................................................................................................................................... Error! Bookmark not defined. Expenses Treated as Compensation ................................................................................................................................ Error! Bookmark not defined. Reimbursed Expenses ........................................................................................................................................ Error! Bookmark not defined. Recreational Expenses for Employees ..................................................................................................................................... Error! Bookmark not defined. Employee, Stockholder and Business Meetings ........................................................................................................................................ Error! Bookmark not defined. Trade Association Meetings ........................................................................................................................................ Error! Bookmark not defined. Items Available to Public ............................................................................................................................................. Error! Bookmark not defined. Entertainment Sold to Customers ...................................................................................................................................... Error! Bookmark not defined. Expenses Includible in Income of Nonemployees ...................................................................................................................................... Error! Bookmark not defined. Quiet Business Meals & Drinks ................................................................................................................................................... Error! Bookmark not defined. Taxpayer's (or Employee) Presence ......................................................................................................................................... Error! Bookmark not defined. Section 212 Meals Not Deductible ..................................................................................................................................... Error! Bookmark not defined. Home Entertainment ....................................................................................................................................... Error! Bookmark not defined. Ticket Purchases .................................................................................................................................................... Error! Bookmark not defined. Exception for Charitable Sports Events ................................................................................................................................................... Error! Bookmark not defined. Special Limitation for Skyboxes............................................................................................................................................... Error! Bookmark not defined. Percentage Reduction for Meals & Entertainment ............................................................................................................................................. Error! Bookmark not defined. Related Expenses ............................................................................................................................................... Error! Bookmark not defined. Application of Reduction Rule ...................................................................................................................................................... Error! Bookmark not defined. Exceptions ............................................................................................................................................ Error! Bookmark not defined. 2% Floor on Employee Business Expenses ..................................................................................................................................................... Error! Bookmark not defined. Miscellaneous Itemized Deductions ............................................................................................................................................ Error! Bookmark not defined. Entertainment Facilities ..................................................................................................................................................... Error! Bookmark not defined. Exceptions ............................................................................................................................................ Error! Bookmark not defined. Covered Expenses ............................................................................................................................................... Error! Bookmark not defined. Club Dues ...................................................................................................................................................... Error! Bookmark not defined. OBRA '93 .................................................................................................................................................. Error! Bookmark not defined. Sales Incentive Awards .................................................................................................................................................. Error! Bookmark not defined. Chapter 8 - Business Entertainment - Section 33........................................................................................................................ Error! Bookmark not defined. Substantiation & Record Keeping ...................................................................................................................................................... Error! Bookmark not defined. Documentation ..................................................................................................................................... Error! Bookmark not defined. Contemporaneous Records ................................................................................................................................................. Error! Bookmark not defined. Payback Agreements ........................................................................................................................................... Error! Bookmark not defined. Employee Expense Reimbursement & Reporting .................................................................................................................................................... Error! Bookmark not defined. Family Support Act of 1988 ...................................................................................................................................................... Error! Bookmark not defined. Remaining Above-The-Line Deductions ............................................................................................................................................ Error! Bookmark not defined. Accountable Plans .............................................................................................................................................. Error! Bookmark not defined. Reasonable Period of Time ......................................................................................................................................... Error! Bookmark not defined. Fixed Date Safe Harbor.................................................................................................................................. Error! Bookmark not defined. Period Statement Safe Harbor.................................................................................................................................. Error! Bookmark not defined. Adequate Accounting............................................................................................................................... Error! Bookmark not defined. Per Diem Allowance Arrangements ...................................................................................................................... Error! Bookmark not defined. Federal Per Diem Rate ................................................................................................................................. Error! Bookmark not defined. Related Employer ......................................................................................................................... Error! Bookmark not defined. Meal Break Out................................................................................................................................... Error! Bookmark not defined. Partial Days of Travel .............................................................................................................................. Error! Bookmark not defined. Usage & Consistency ..................................................................................................................... Error! Bookmark not defined. Unproven or Unspent Per Diem Allowances ...................................................................................................................... Error! Bookmark not defined. Travel Advance .......................................................................................................................... Error! Bookmark not defined. Reporting Per Diem Allowances .............................................................................................................................. Error! Bookmark not defined. Reimbursement Not More Than Federal Rate...................................................................................................................................... Error! Bookmark not defined. Reimbursement More Than Federal Rate...................................................................................................................................... Error! Bookmark not defined. Nonaccountable Plans ........................................................................................................................................ Error! Bookmark not defined. Non-Reimbursed Employee Expenses ..................................................................................................................................................... Error! Bookmark not defined. When an Employee Needs to File Form 2106 ...................................................................................................................................................... Error! Bookmark not defined. Self-Employed Persons ....................................................................................................................................................... Error! Bookmark not defined. Expenses Related to Taxpayer's Business ................................................................................................................................................ Error! Bookmark not defined. Expenses Incurred on Behalf of a Client & Reimbursed ........................................................................................................................................... Error! Bookmark not defined. Meal & Entertainment Expenses ........................................................................................................................................ Error! Bookmark not defined. With Adequate Accounting............................................................................................................................... Error! Bookmark not defined. Without Adequate Accounting............................................................................................................................... Error! Bookmark not defined. Non-Entertainment Expense Deduction ...................................................................................................................................... Error! Bookmark not defined. Employers .................................................................................................................................................. Error! Bookmark not defined. When Can an Expense Be Deducted? ............................................................................................................................................. Error! Bookmark not defined. Economic Performance Rule ............................................................................................................................................... Error! Bookmark not defined. Corporation ........................................................................................................................................... Error! Bookmark not defined. Nondeductible Meals .................................................................................................................................................... Error! Bookmark not defined. Employer Provided Auto ...................................................................................................................................................... Error! Bookmark not defined. Chapter 9 – Insurance – Section 34........................................................................................................................ Error! Bookmark not defined. Company Paid Insurance .................................................................................................................................................... Error! Bookmark not defined. Popularity ............................................................................................................................................. Error! Bookmark not defined. Types of Life Insurance .................................................................................................................................................... Error! Bookmark not defined. Group Term Life ....................................................................................................................................................... Error! Bookmark not defined. Requirements ................................................................................................................................. Error! Bookmark not defined. “Key Employee” Defined .......................................................................................................................................... Error! Bookmark not defined. Popularity and Application ........................................................................................................................................... Error! Bookmark not defined. Coverage & Premiums .............................................................................................................................................. Error! Bookmark not defined. Medical Examination .......................................................................................................................................... Error! Bookmark not defined. Regulations ........................................................................................................................................... Error! Bookmark not defined. Spouse & Dependent Insurance .................................................................................................................................. Error! Bookmark not defined. Computation .................................................................................................................................. Error! Bookmark not defined. Tax Liability ......................................................................................................................................... Error! Bookmark not defined. Reporting ....................................................................................................................................... Error! Bookmark not defined. Discrimination ............................................................................................................................... Error! Bookmark not defined. Eligibility & Benefits .................................................................................................................................... Error! Bookmark not defined. Excluded Employees ............................................................................................................................... Error! Bookmark not defined. Policy Requirements ................................................................................................................................. Error! Bookmark not defined. Ten Employee Rule ............................................................................................................................................... Error! Bookmark not defined. Less Than Ten Employees ............................................................................................................................... Error! Bookmark not defined. Permanent Benefits.......................................................................................................................................... Error! Bookmark not defined. Nondiscrimination Requirements ................................................................................................................................. Error! Bookmark not defined. Retired Lives Reserve ................................................................................................................................................. Error! Bookmark not defined. Revenue Ruling 68577 ................................................................................................................................................. Error! Bookmark not defined. Taxation ......................................................................................................................................... Error! Bookmark not defined. Advantages .................................................................................................................................... Error! Bookmark not defined. Comparison With Other Programs ........................................................................................................................................ Error! Bookmark not defined. Executive Bonus ....................................................................................................................................... Error! Bookmark not defined. Split Dollar ....................................................................................................................................... Error! Bookmark not defined. Disadvantages ................................................................................................................................ Error! Bookmark not defined. Reserve Account ......................................................................................................................................... Error! Bookmark not defined. Revenue Rulings .......................................................................................................................................... Error! Bookmark not defined. Qualified Trusts ............................................................................................................................................. Error! Bookmark not defined. Nonqualified Trusts ....................................................................................................................................... Error! Bookmark not defined. Deductibility of Contributions ................................................................................................................................. Error! Bookmark not defined. Separate Account for Key Employees ..................................................................................................................................... Error! Bookmark not defined. Disqualified Benefit ..................................................................................................................................... Error! Bookmark not defined. Effective Date.......................................................................................................................................... Error! Bookmark not defined. Revenue Procedure 933 ..................................................................................................................................................... Error! Bookmark not defined. Estate Planning Considerations ...................................................................................................................................... Error! Bookmark not defined. Policy Assignments .................................................................................................................................. Error! Bookmark not defined. Chapter 9 – Insurance – Section 35........................................................................................................................ Error! Bookmark not defined. Split Dollar Life ....................................................................................................................................................... Error! Bookmark not defined. Low Cost Term Insurance ....................................................................................................................................... Error! Bookmark not defined. Regulatory Requirements ................................................................................................................................. Error! Bookmark not defined. Taxation ......................................................................................................................................... Error! Bookmark not defined. Revenue Ruling 64328 ................................................................................................................................................. Error! Bookmark not defined. Johnson Case ............................................................................................................................................... Error! Bookmark not defined. Business Travel Accident Insurance............................................................................................................................................... Error! Bookmark not defined. Medical & Dental Insurance............................................................................................................................................... Error! Bookmark not defined. Premiums ....................................................................................................................................... Error! Bookmark not defined. Disability Income Insurance............................................................................................................................................... Error! Bookmark not defined. Interest Limitation on Policy Loans §264A ......................................................................................................................................................... Error! Bookmark not defined. Disallowance of Interest Deduction ............................................................................................................................................. Error! Bookmark not defined. Impact ................................................................................................................................................... Error! Bookmark not defined. Limit on Deductibility of Premiums & Interest .................................................................................................................................................. Error! Bookmark not defined. Key Person Life Insurance .................................................................................................................................................... Error! Bookmark not defined. Closely Held Corporations ......................................................................................................................................... Error! Bookmark not defined. Sole Shareholder Applications .......................................................................................................................................... Error! Bookmark not defined. Application of AMT ..................................................................................................................................................... Error! Bookmark not defined. COBRA ...................................................................................................................................................... Error! Bookmark not defined. Affected Employers ...................................................................................................................................... Error! Bookmark not defined. VEBAs - §501(c)(9) Trusts .......................................................................................................................................................... Error! Bookmark not defined. Section 419 ........................................................................................................................................................ Error! Bookmark not defined. Self Insurance............................................................................................................................................... Error! Bookmark not defined. Severance Pay ........................................................................................................................................................ Error! Bookmark not defined. Post-Retirement Medical Benefits ................................................................................................................................................. Error! Bookmark not defined. VEBA Taxation on Earnings ................................................................................................................................................ Error! Bookmark not defined. Nondiscrimination Rules Applied ................................................................................................................................................. Error! Bookmark not defined. Uniform Application .................................................................................................................................... Error! Bookmark not defined. Controlled Groups .................................................................................................................................................. Error! Bookmark not defined. Termination .......................................................................................................................................... Error! Bookmark not defined. Disqualified Benefits ................................................................................................................................................. Error! Bookmark not defined. Conclusion ............................................................................................................................................ Error! Bookmark not defined. Chapter 10 - Nonqualified Deferred Compensation – Section 36........................................................................................................................ Error! Bookmark not defined. Postponement of Income ........................................................................................................................................................ Error! Bookmark not defined. Advantages ........................................................................................................................................... Error! Bookmark not defined. IRS Scrutiny & Approval ........................................................................................................................................ Error! Bookmark not defined. Nondiscrimination ......................................................................................................................... Error! Bookmark not defined. ERISA...................................................................................................................................... Error! Bookmark not defined. Funding.......................................................................................................................................... Error! Bookmark not defined. No Immediate Cash Outlay ...................................................................................................................................... Error! Bookmark not defined. Annual Report ............................................................................................................................................ Error! Bookmark not defined. Notice Requirement ............................................................................................................................. Error! Bookmark not defined. Purposes & Benefits ...................................................................................................................................................... Error! Bookmark not defined. Benefit Formula................................................................................................................................................. Error! Bookmark not defined. Incentive ........................................................................................................................................ Error! Bookmark not defined. Deferred Bonuses ......................................................................................................................................... Error! Bookmark not defined. Contractual Arrangement ......................................................................................................................................... Error! Bookmark not defined. Necessary Provisions ...................................................................................................................................... Error! Bookmark not defined. Tax Status .................................................................................................................................................... Error! Bookmark not defined. Service’s Position .......................................................................................................................................... Error! Bookmark not defined. Rationale .................................................................................................................................. Error! Bookmark not defined. Congressional Moratorium.................................................................................................................................... Error! Bookmark not defined. No Ruling or Regulation Policy ....................................................................................................................................... Error! Bookmark not defined. Constructive Receipt .................................................................................................................................................. Error! Bookmark not defined. Beyond Actual Receipt ........................................................................................................................................... Error! Bookmark not defined. Simple Set-Asides Are Not Possible .................................................................................................................................... Error! Bookmark not defined. Revenue Ruling 6031 ......................................................................................................................................... Error! Bookmark not defined. Regulations .......................................................................................................................... Error! Bookmark not defined. Time & Control Concept.......................................................................................................................................... Error! Bookmark not defined. Control ..................................................................................................................................... Error! Bookmark not defined. Timing ..................................................................................................................................... Error! Bookmark not defined. After-the-Fact Contract ................................................................................................................................... Error! Bookmark not defined. Amendment to Existing Contract ................................................................................................................................... Error! Bookmark not defined. Economic Benefit .................................................................................................................................................. Error! Bookmark not defined. Has Something of Value Been Transferred?................................................................................................................................... Error! Bookmark not defined. Insurance Coverage Has a Calculable Value ........................................................................................................................................ Error! Bookmark not defined. Segregated Funds Have Immediate Economic Value ........................................................................................................................................ Error! Bookmark not defined. Value v. Control ........................................................................................................................................... Error! Bookmark not defined. Revenue Ruling 6031 ................................................................................................................................................... Error! Bookmark not defined. Situation 1 ............................................................................................................................................... Error! Bookmark not defined. Situation 2 ............................................................................................................................................... Error! Bookmark not defined. Situation 3 ............................................................................................................................................... Error! Bookmark not defined. Situation 4 ............................................................................................................................................... Error! Bookmark not defined. Situation 5 ............................................................................................................................................... Error! Bookmark not defined. General Principles ....................................................................................................................................... Error! Bookmark not defined. Chapter 10 - Nonqualified Deferred Compensation – Section 37........................................................................................................................ Error! Bookmark not defined. Unfunded Bare Contractual Promise Plan - Type I............................................................................................................................................................. Error! Bookmark not defined. Risk................................................................................................................................................ Error! Bookmark not defined. Funded Company Account Plan - Type II ........................................................................................................................................................... Error! Bookmark not defined. Ownership & Segregation .................................................................................................................................... Error! Bookmark not defined. Bookkeeping Reserve or Separate Account ......................................................................................................................................... Error! Bookmark not defined. Employee Still Bears Economic Risk................................................................................................................................................ Error! Bookmark not defined. Limited Protection ................................................................................................................................. Error! Bookmark not defined. Investment of Deferred Amounts .............................................................................................................................. Error! Bookmark not defined. Life Insurance ............................................................................................................................. Error! Bookmark not defined. Premiums ............................................................................................................................. Error! Bookmark not defined. Third Party Guarantees ........................................................................................................................... Error! Bookmark not defined. Segregated Asset Plan - Type III .......................................................................................................................................................... Error! Bookmark not defined. Section 83 Approach ....................................................................................................................................... Error! Bookmark not defined. Tight Rope Format ........................................................................................................................................... Error! Bookmark not defined. Transferable or Not Subject To A Risk of Substantial Forfeiture ....................................................................................................................................... Error! Bookmark not defined. Substantial Restrictions .............................................................................................................................. Error! Bookmark not defined. Redemption or Forfeiture ............................................................................................................................. Error! Bookmark not defined. Condition Related to a Purpose of the Transfer ............................................................................................................................... Error! Bookmark not defined. Noncompetition ................................................................................................................... Error! Bookmark not defined. Consultation......................................................................................................................... Error! Bookmark not defined. Time Alone is Not Enough ................................................................................................................................ Error! Bookmark not defined. Realization & Taxation ......................................................................................................................................... Error! Bookmark not defined. 30-Day Election Period ............................................................................................................................................ Error! Bookmark not defined. Deduction Allowed ......................................................................................................................................... Error! Bookmark not defined. Timing ........................................................................................................................................... Error! Bookmark not defined. Withholding ............................................................................................................................. Error! Bookmark not defined. Tax Consequences ............................................................................................................................................. Error! Bookmark not defined. Reciprocal Taxation/Deduction Rule ............................................................................................................................................... Error! Bookmark not defined. No Difference for Cash or Accrual..................................................................................................................................... Error! Bookmark not defined. Separate Accounts for Two or More Participants .................................................................................................................................... Error! Bookmark not defined. Employer Deduction Traps .............................................................................................................................................. Error! Bookmark not defined. Income Tax on Employer Held Assets ............................................................................................................................................ Error! Bookmark not defined. Inclusion in Income Under §409A ............................................................................................................................................ Error! Bookmark not defined. State Tax Issues ............................................................................................................................................. Error! Bookmark not defined. Accounting ........................................................................................................................................... Error! Bookmark not defined. Two Sets of Rules .............................................................................................................................................. Error! Bookmark not defined. Financial Accounting Rules ........................................................................................................................................ Error! Bookmark not defined. IRS Rules ........................................................................................................................................ Error! Bookmark not defined. Estate Planning Considerations ...................................................................................................................................... Error! Bookmark not defined. Death During Deferral.......................................................................................................................................... Error! Bookmark not defined. Income Tax Consequences .......................................................................................................................... Error! Bookmark not defined. Estate Tax Consequences .......................................................................................................................... Error! Bookmark not defined. Gift Tax Consequences .......................................................................................................................... Error! Bookmark not defined. Withholding, Social Security & IRA’s .................................................................................................................................................... Error! Bookmark not defined. Other Payroll Taxes ............................................................................................................................................. Error! Bookmark not defined. Social Security Benefits.......................................................................................................................................... Error! Bookmark not defined. IRA’s ............................................................................................................................................. Error! Bookmark not defined. Chapter 11 - S Corporations – Section 38........................................................................................................................ Error! Bookmark not defined. Introduction ................................................................................................................................................ Error! Bookmark not defined. Advantages ........................................................................................................................................... Error! Bookmark not defined. Planning ......................................................................................................................................... Error! Bookmark not defined. Disadvantages ....................................................................................................................................... Error! Bookmark not defined. Becoming an S Corporation ................................................................................................................................................ Error! Bookmark not defined. S Corporation Status .................................................................................................................................................... Error! Bookmark not defined. Number of Shareholders .................................................................................................................................. Error! Bookmark not defined. Individuals Only ............................................................................................................................................... Error! Bookmark not defined. Estates ...................................................................................................................................... Error! Bookmark not defined. Grantor Trusts ....................................................................................................................................... Error! Bookmark not defined. Voting Trusts ....................................................................................................................................... Error! Bookmark not defined. Testamentary Trust ......................................................................................................................................... Error! Bookmark not defined. Qualifying Simple Trusts ....................................................................................................................................... Error! Bookmark not defined. Electing Small Business Trusts ....................................................................................................................................... Error! Bookmark not defined. Aliens ....................................................................................................................................... Error! Bookmark not defined. C Corporations ............................................................................................................................ Error! Bookmark not defined. Tax-Exempt Entities ..................................................................................................................................... Error! Bookmark not defined. Exception for S Corporation ESOP §512 ..................................................................................................................................... Error! Bookmark not defined. One Class of Stock .............................................................................................................................................. Error! Bookmark not defined. Affiliated Groups & Subsidiaries ................................................................................................................................... Error! Bookmark not defined. Prior Law .......................................................................................................................................... Error! Bookmark not defined. Current Law .......................................................................................................................................... Error! Bookmark not defined. Domestic Corporation.................................................................................................................................... Error! Bookmark not defined. Election Requirement ......................................................................................................................................... Error! Bookmark not defined. Making the Election.......................................................................................................................................... Error! Bookmark not defined. Form 2553 ......................................................................................................................................... Error! Bookmark not defined. Invalid S Elections .............................................................................................................................. Error! Bookmark not defined. Extension ............................................................................................................................. Error! Bookmark not defined. Chapter 11 - S Corporations – Section 39........................................................................................................................ Error! Bookmark not defined. S Corporation Termination ................................................................................................................................................ Error! Bookmark not defined. Revoking the Election ................................................................................................................................................. Error! Bookmark not defined. Procedure ....................................................................................................................................... Error! Bookmark not defined. Effective Date ............................................................................................................................................... Error! Bookmark not defined. Ceasing to Qualify .................................................................................................................................................. Error! Bookmark not defined. Effective Date ............................................................................................................................................... Error! Bookmark not defined. Passive Income §1362 .................................................................................................................................................... Error! Bookmark not defined. Effective Date ............................................................................................................................................... Error! Bookmark not defined. S Termination Year ...................................................................................................................................................... Error! Bookmark not defined. Pro Rata Allocation ...................................................................................................................................... Error! Bookmark not defined. Allocation Based On Normal Accounting Rules .............................................................................................................................................. Error! Bookmark not defined. Annualization of 1120 Short Year ............................................................................................................................................... Error! Bookmark not defined. Taxation of S Corporations ............................................................................................................................................... Error! Bookmark not defined. S Corporation Income & Expense................................................................................................................................................. Error! Bookmark not defined. Separately Stated Items .............................................................................................................................................. Error! Bookmark not defined. Nonseparately Stated Items .............................................................................................................................................. Error! Bookmark not defined. Interest Expense on Debt-Financed Distributions .................................................................................................................................. Error! Bookmark not defined. Tax Exempt Income ........................................................................................................................................... Error! Bookmark not defined. Net Operation Losses ............................................................................................................................................ Error! Bookmark not defined. Carryover of C Corporation NOLs ............................................................................................................................................. Error! Bookmark not defined. Reduction of Pass-Thru Items ..................................................................................................................................................... Error! Bookmark not defined. Built-In Gain §1374 .................................................................................................................................................... Error! Bookmark not defined. Net Recognized Built-In Gain ............................................................................................................................................... Error! Bookmark not defined. Recognized Built-In Gains ........................................................................................................................................ Error! Bookmark not defined. Recognized Built-In Loss .......................................................................................................................................... Error! Bookmark not defined. Deduction Items .................................................................................................................................... Error! Bookmark not defined. Amount of Tax................................................................................................................................................. Error! Bookmark not defined. Credits ...................................................................................................................................... Error! Bookmark not defined. Net Operating Loss Carryovers ............................................................................................................................... Error! Bookmark not defined. Treatment of Certain Property ......................................................................................................................................... Error! Bookmark not defined. Transfer of Assets ............................................................................................................................................ Error! Bookmark not defined. Passive Income §1375 .................................................................................................................................................... Error! Bookmark not defined. Gross Receipts ......................................................................................................................................... Error! Bookmark not defined. Sales or Exchanges of Stock or Securities ................................................................................................................................. Error! Bookmark not defined. Passive Investment Income ........................................................................................................................................... Error! Bookmark not defined. Royalties .................................................................................................................................. Error! Bookmark not defined. Rents ........................................................................................................................................ Error! Bookmark not defined. Interest ..................................................................................................................................... Error! Bookmark not defined. Figuring the Tax on Excess Net Passive Income ........................................................................................................................................... Error! Bookmark not defined. Net Passive Income ..................................................................................................................................... Error! Bookmark not defined. Excess Net Passive Income ..................................................................................................................................... Error! Bookmark not defined. Special Provisions ................................................................................................................................ Error! Bookmark not defined. Waiver of Tax................................................................................................................................................. Error! Bookmark not defined. Tax Preference Items ..................................................................................................................................................... Error! Bookmark not defined. LIFO Recapture Tax ........................................................................................................................................................ Error! Bookmark not defined. Capital Gains Tax ........................................................................................................................................................ Error! Bookmark not defined. Reducing Corporate Capital Gains.............................................................................................................................................. Error! Bookmark not defined. Figuring Corporate Taxable Income ........................................................................................................................................... Error! Bookmark not defined. Recapture of Investment Credit .................................................................................................................................................... Error! Bookmark not defined. Estimated Corporate Tax Payments............................................................................................................................................... Error! Bookmark not defined. Chapter 11 - S Corporations – Section 40........................................................................................................................ Error! Bookmark not defined. Basis of Stock & Debts ..................................................................................................................................................... Error! Bookmark not defined. Adjustments to Basis .............................................................................................................................................. Error! Bookmark not defined. Limitation on Loss Deductions ..................................................................................................................................... Error! Bookmark not defined. Basis Limit ........................................................................................................................................ Error! Bookmark not defined. Adjustments to Stock Basis .................................................................................................................................... Error! Bookmark not defined. Increases .......................................................................................................................... Error! Bookmark not defined. Decreases ........................................................................................................................ Error! Bookmark not defined. Adjustments to Debt Basis .................................................................................................................................... Error! Bookmark not defined. Restoring Basis of Loans ............................................................................................................................... Error! Bookmark not defined. Loan Repayments ..................................................................................................................... Error! Bookmark not defined. Guarantees ............................................................................................................................... Error! Bookmark not defined. At-Risk Rules §465 ......................................................................................................................................... Error! Bookmark not defined. Reasonable Compensation ....................................................................................................................................... Error! Bookmark not defined. Related Party Rules ..................................................................................................................................................... Error! Bookmark not defined. Definition of Related Party .............................................................................................................................................. Error! Bookmark not defined. Stock Attribution Rules .............................................................................................................................................. Error! Bookmark not defined. Business Expenses & Interest ........................................................................................................................................... Error! Bookmark not defined. Distributions ......................................................................................................................................... Error! Bookmark not defined. Earnings & Profits ............................................................................................................................................ Error! Bookmark not defined. Accumulated Adjustments Account (AAA) ...................................................................................................................................... Error! Bookmark not defined. Dividend Election................................................................................................................................ Error! Bookmark not defined. Post-Termination Distributions ........................................................................................................................ Error! Bookmark not defined. Transition Period .............................................................................................................................. Error! Bookmark not defined. Order of Distribution .............................................................................................................................. Error! Bookmark not defined. No Earnings & Profits ............................................................................................................................................ Error! Bookmark not defined. Appreciated Property Distributions .................................................................................................................................. Error! Bookmark not defined. Taxable Year ...................................................................................................................................................... Error! Bookmark not defined. Business Purpose .......................................................................................................................................... Error! Bookmark not defined. Change of Tax Year ............................................................................................................................................... Error! Bookmark not defined. Form 1120S .................................................................................................................................................... Error! Bookmark not defined. Extension ....................................................................................................................................... Error! Bookmark not defined. Late Filing ............................................................................................................................................. Error! Bookmark not defined. Reasonable Cause ....................................................................................................................................... Error! Bookmark not defined. Schedule K1 ..................................................................................................................................................... Error! Bookmark not defined. Shareholder’s Treatment Of S Corporation Items ........................................................................................................................................ Error! Bookmark not defined. Pro Rata Share ........................................................................................................................................ Error! Bookmark not defined. Optional 10-year Write-Off of Tax Preferences............................................................................................................................... Error! Bookmark not defined. Fringe Benefits ...................................................................................................................................................... Error! Bookmark not defined. Health Insurance Premiums .............................................................................................................................................. Error! Bookmark not defined. Reporting Requirements ................................................................................................................................. Error! Bookmark not defined. Medical Deduction ...................................................................................................................................... Error! Bookmark not defined. Entity Tax Comparison ................................................................................................................................................ Error! Bookmark not defined. Chapter 12 - Business Dispositions & Reorganizations – Section 41........................................................................................................................ Error! Bookmark not defined. Starting a New Business...................................................................................................................................................... Error! Bookmark not defined. Organization Costs ..................................................................................................................................................... Error! Bookmark not defined. Start-up Costs ..................................................................................................................................................... Error! Bookmark not defined. Syndication Costs ..................................................................................................................................................... Error! Bookmark not defined. Buying an Existing Business...................................................................................................................................................... Error! Bookmark not defined. Finding a Business for Sale ....................................................................................................................................................... Error! Bookmark not defined. Tax Considerations ...................................................................................................................................... Error! Bookmark not defined. Stock Acquisitions ................................................................................................................................... Error! Bookmark not defined. Section 338 Election .................................................................................................................................... Error! Bookmark not defined. Asset Acquisitions ................................................................................................................................... Error! Bookmark not defined. Allocation of Purchase Price to Assets ............................................................................................................................................ Error! Bookmark not defined. Allocation Regulations .............................................................................................................................. Error! Bookmark not defined. Practical Considerations ...................................................................................................................................... Error! Bookmark not defined. Reorganizations §368 ............................................................................................................................................................ Error! Bookmark not defined. Types of Reorganizations .................................................................................................................................... Error! Bookmark not defined. Type 1 Reorganizations .................................................................................................................................... Error! Bookmark not defined. Benefits and Considerations ............................................................................................................................... Error! Bookmark not defined. Boot ......................................................................................................................................... Error! Bookmark not defined. Limitation ................................................................................................................................ Error! Bookmark not defined. Type 2 Reorganizations .................................................................................................................................... Error! Bookmark not defined. 80% Control Requirement .................................................................................................................................. Error! Bookmark not defined. Voting Stock as Sole Consideration................................................................................................................................. Error! Bookmark not defined. Shareholder Action ............................................................................................................................................ Error! Bookmark not defined. Type 3 Reorganizations .................................................................................................................................... Error! Bookmark not defined. Consideration................................................................................................................................. Error! Bookmark not defined. Transfer of Assets ............................................................................................................................................ Error! Bookmark not defined. 90/70 Test .......................................................................................................................................... Error! Bookmark not defined. Liquidation of Acquired Corporation .............................................................................................................................. Error! Bookmark not defined. Type 4 Reorganizations .................................................................................................................................... Error! Bookmark not defined. Asset Distributions .................................................................................................................................. Error! Bookmark not defined. Continuity of Business ......................................................................................................................................... Error! Bookmark not defined. Boot ......................................................................................................................................... Error! Bookmark not defined. Type 5 Reorganizations .................................................................................................................................... Error! Bookmark not defined. Type 6 Reorganizations .................................................................................................................................... Error! Bookmark not defined. Type 7 Reorganizations .................................................................................................................................... Error! Bookmark not defined. Bona Fide Business Purpose ................................................................................................................................................. Error! Bookmark not defined. Test ................................................................................................................................................ Error! Bookmark not defined. Carryover of Corporate Tax Attributes .................................................................................................................................................... Error! Bookmark not defined. Mandatory CarryOver ...................................................................................................................................................... Error! Bookmark not defined. Effect of Carry-Over on Acquisition .................................................................................................................................... Error! Bookmark not defined. Application of Rules to Subsidiary Liquidations ................................................................................................................................... Error! Bookmark not defined. Loss or Tax Credit Carryovers ..................................................................................................................................... Error! Bookmark not defined. Review Questions Feedback………………………………………………………… 12-17 Glossary……………………………………………………………………………. 12-140 Index of Keyword & Phrases…………………………………………………….…… 12-a Exam Score Sheet…………………………………………………………………….. 12-n CPE Exam…………………………………………………………………………….. 12-p
