Individual Taxation
Edition: 9
Copyright: 2021
Edition: 9
Copyright: 2021
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The study of tax law can be an intimidating task. Nevertheless, students wil find that being proficient in tax law can be very rewarding and prepares students for valuable career opportunities as accounting, tax advisors, and business consultants. Once a student understands the organization of the Internal Revenue Code and the overall method of determining an individual taxpayer's tax liability, learning the more complex parts of the tax law can be put in perspective and approached in a more structured manner.
Individual Taxation is designed for undergraduate students engaged in their initial study of the taxation of individuals. The text is intended for use in a single semester course. The purpose of this text is to present the fundamentals of determining gross income, exclusions, deductions, credits, etc. To accomplish this purpose, the text does not contain a comprehensive coverage of all possible unique exceptions and transactional variations. As a result, students can better understand the core important concepts rather than focusing on memorizing never-ending rules that often change. Straight-forward
examples illustrate the impact of tax laws on common situations. Being proficient with the material contained in this text is essential for accounting students looking to advance their careers.
The following features highlight the approach of this text:
• Reader-friendly language
• Simple math so the student can focus on the concept, not the math
• Shorter chapters to enhance retention and minimize reader fatigue
• Direct quotations from the Internal Revenue Code so the student becomes familiar with it
• Practical questions and problems
• Straightforward tax return problems
• Affordable text that provides enough material to cover a semester of study, but not so much
that the instructor cannot effectively cover it all
Preface
About the Author
PART 1 INTRODUCTION TO INDIVIDUAL TAXATION
Chapter 1 Tax Law in General
A. Constitutional Authority of Congress to Impose a Tax
B. Organization of the Internal Revenue Code
C. Other Sources of Tax Law
D. Types of Taxes
E. The IRS
Chapter 2 Individual Income Tax Formula and Tax Rates
A. Individual Income Tax Formula
1. Income from Whatever Source Derived
2. Exclusions
3. Gross Income
4. Deductions “for” Adjusted Gross Income
5. Adjusted Gross Income
6. Deductions “from” Adjusted Gross Income
7. Taxable Income
8. Tax Rate
9. Gross Tax Liability
10. Tax Credits and Prepaid Taxes
11. Net Tax Liability or Refund
B. Income Tax Rates for Individuals
C. IRS Form 1040
PART 2 FILING STATUS, PERSONAL AND DEPENDENCY EXEMPTIONS STANDARD DEDUCTION, AND FILING REQUIREMENTS
Chapter 3 Filing Status
A. Single
B. Head of Household
C. Married Filing Jointly and Married Filing Separately
D. Surviving Spouse
E. Tax Rate Schedules Based on Filing Status
1. Single
2. Head of Household
3. Married Filing Jointly and Surviving Spouses (Qualifying Widow(er))
4. Married Filing Separately
F. “Kiddie” Tax
Chapter 4 Exemptions and the Standard Deduction
A. Personal Exemption
B. Dependency Exemption
1. Qualifying Child
i. Relationship Test
ii. Principal Place of Abode Test
iii. Age Test
iv. Support Test
2. Qualifying Relative
i. Relationship Test
ii. Gross Income Test
iii. Support Test
C. Standard Deduction
Chapter 5 Filing Requirements, Interest and Penalties
A. Filing Requirements
1. Who Must File?
2. What Form Is Filed?
3. When Is the Tax Return Due?
B. Interest
C. Civil Penalties
1. Failure to File and Failure to Pay Penalties
2. Accuracy-Related Penalties
3. Other Civil Penalties
D. Criminal Penalties
PART 3 INCLUSIONS IN GROSS INCOME
Chapter 6 Gross Income Defined, Wages, Salaries, Tips, Business Income, Unemployment Compensation, and Social Security Benefits
A. Assignment of Income Doctrine and Wherewithal to Pay Concept
1. Assignment of Income Doctrine
2. Wherewithal-to-Pay Concept
B. Gross Income Defined
C. Wages, Salaries, Tips, and Business Income
1. Employee v. Independent Contractor
2. Reporting Requirements
D. Unemployment Compensation
E. Social Security Benefits
Chapter 7 Interest, Dividends, Capital Gains, Rental, and Royalty Income
A. Interest
B. Dividends
C. Capital Gains and Losses
D. Rental Income
E. Royalty Income
F. Medicare Tax on Net Investment Income
Chapter 8 Prizes, Awards, Tax Refunds, Alimony, and Other Income
A. Prizes and Awards
B. Income Tax Refunds
C. Alimony
D. Gambling and Lottery Winnings
E. Cancellation of Indebtedness
F. Income From Pass-Through Entities
G. Treasure Finds
Chapter 9 Transactions in Property
A. Terminology
B. Classification of Assets
1. Capital Assets
2. Ordinary Assets
3. Section 1231 Assets
PART 4 EXCLUSIONS FROM GROSS INCOME
Chapter 10 Common Exclusions from Gross Income
A. Gifts and Inheritances
B. Life Insurance Proceeds
C. Tax-Exempt Interest
D. Scholarships
E. Payment on Account of Injury and Sickness
1. Workers’ Compensation
2. Other Payments on Account of Personal Injury or Sickness
F. Income from the Discharge of Debt
1. Bankruptcy
2. Insolvency
3. Student Loans
4. Principal Residence Indebtedness
G. Foreign Earned Income Exclusion
H. Sale of a Personal Residence
Chapter 11 Exclusion of Employer-Provided Employee Benefits
A. Accident and Health Plans
B. Cafeteria Plans
C. Dependent Care Assistance
D. Educational Assistance
E. Adoption Assistance
F. Retirement Plan Contributions
G. Meals and Lodging
H. Section 132 Fringe Benefits
1. No-Additional-Cost Service
2. Qualified Employee Discount
3. Working Condition Fringe
4. De Minimis Fringe
5. Qualified Transportation Fringe
6. Qualified Moving Expense Reimbursement
7. Qualified Retirement Planning Services
I. Employee Achievement Awards
J. Group Term Life Insurance Premiums
PART 5 DEDUCTIONS IN ARRIVING AT ADJUSTED GROSS INCOME (DEDUCTIONS “FOR” AGI)
Chapter 12 Common Business Deductions
A. Ordinary and Necessary Business Expenses
B. Travel and Transportation Expenses
1. Travel
2. Transportation
C. Depreciation and Amortization
1. Depreciation Methods
i. Tangible Personal Property
ii. Real Property
2. Recovery Periods
i. Tangible Personal Property
ii. Real Property
3. Conventions
i. Tangible Personal Property
ii. Real Property
4. Other Depreciation Issues
i. Property That Cannot Be Depreciated
ii. The Section 179 Election
iii. Bonus Depreciation
iv. Listed Property
v. Other Terminology and Special Rules
5. Amortization
6. IRS Form 4562
D. Other Common Business Expenses
E. Home Office Expenses
1. In General
2. Safe Harbor
Chapter 13 Losses and Bad Debts
A. Losses on Personal-Use Assets
B. Net Operating Losses
C. Bad Debts
D. Hobby Losses
E. At-Risk Losses
F. Passive Losses
G. Losses on Transactions with a Related Party
H. Other Losses
Chapter 14 Alimony, Moving Expenses, Educational Expenses, Student Loan Interest, and Tuition and Fees
A. Alimony
B. Moving Expenses
C. Educational Expenses
D. Student Loan Interest Deduction
Chapter 15 Individual Retirement Account Contributions, One-Half Self-Employment Tax, and Other “For” AGI Deductions
A. Individual Retirement Account Contributions
B. Health Savings Accounts
C. Certain Retirement Plans for Self-Employed Individuals
D. One-Half of Self-Employment Tax
E. Penalty on Early Withdrawal of Savings
F. Teachers’ Classroom Expenses
PART 6 ITEMIZED DEDUCTIONS (DEDUCTIONS “FROM” AGI)
Chapter 16 Medical Expenses, Taxes, and Interest Expense
A. Medical Expenses
B. Taxes
C. Interest Expenses
1. Personal Residence Interest
2. Investment Interest
3. Personal Interest
Chapter 17 Charitable Contributions
A. Charitable Contributions in General
B. Public Charities and Private Foundations
C. Limitations on Deductibility of Donations to Public Charities
D. Limitations on Deductibility of Donations to Private Foundations
E. Reporting, Documentation, and Other Special Rules
1. Reporting and Documentation
2. Other Special Rules
PART 7 TAX CREDITS
Chapter 18 Common Tax Credits for Individuals
A. Earned Income Credit
B. Child Tax Credit
C. American Opportunity Credit and Lifetime Learning Credit
1. American Opportunity Tax Credit
2. Lifetime Learning Credit
D. Credit for Child and Dependent Care Expenses
E. Adoption Credit
F. Foreign Tax Credit
Chapter 19 Prepayments of Tax and Other Tax Credits
A. Prepayment of Taxes
B. Business Credits
C. Residential Energy Efficient Property Credit
D. Qualified Retirement Savings Contributions Credit (“Saver’s Credit”)
E. Other Credits
PART 8 TIMING OF RECOGNIZING INCOME AND DEDUCTIONS
Chapter 20 Taxable Year and Accounting Methods
A. Taxable Year
B. Accounting Methods
1. Cash Method
2. Accrual Method
3. Inventories
4. Other Accounting Method and Timing Issues
PART 9 SPECIAL TOPICS
Chapter 21 Special Issues in Property Transactions
A. Depreciation Recapture
1. Depreciation Recapture on Sale of Depreciable Personal Property
2. Depreciation Recapture on Sale of Depreciable Real Property
B. Like-Kind Exchanges
C. Involuntary Conversions
Chapter 22 Qualified Retirement Plans and Deferred Compensation Arrangements
A. Qualified Retirement Plans
1. Pension Plans
i. Defined Benefit
ii. Defined Contribution
2. Profit-sharing Plans, Stock Bonus Plans, etc.
B. Deferred Compensation Arrangements
1. Restricted Stock
2. Stock Options
i. Incentive Stock Option Plans
ii. Nonqualified Stock Option Plans
3. Other Arrangements
Chapter 23 Vacation Homes and Sale of a Principal Residence
A. Vacation Homes
B. Sale of a Principal Residence
1. Ownership and Use Requirements
2. Exceptions to Ownership and Use Requirements
3. Gain Due to Depreciation
Chapter 24 Alternative Minimum Tax
A. Imposition of the AMT
B. Preference Items
C. Adjustments
D. Exemption Amount
Chapter 25 Overview of Partnership Taxation
A. Partnerships and Limited Liability Companies in General
B. The “Check-the-Box” Rules
C. Transfers of Property to Partnerships and LLCs
D. Separately Stated Items
E. Guaranteed Payments
F. Qualified Business Income Deduction
G. Reporting
H. Distributions
I. Sale of a Partnership Interest
J. Conclusion
Chapter 26 Overview of Corporate Taxation
A. C Corporations
1. Imposition of Income Tax
2. Transfers of Property to a C Corporation
3. Specific Items of Income and Deduction
i. Capital Gains and Losses
ii. Dividends Received Deduction
iii. Net Operating Losses
iv. Charitable Contributions
4. Distributions
5. Mergers, Acquisitions, and Consolidations
i. Mergers and Acquisitions
ii. Consolidations
6. Reporting
7. Sale of C Corporation Stock
8. Liquidation
B. S Corporations
1. Qualifying for S Status
2. Transfers of Property to an S Corporation
3. Separately Stated Items
4. Reporting
5. Distributions
6. Sale of S Corporation Stock
C. Conclusion
Chapter 27 Overview of Other Taxes
A. Gift Taxes
B. Estate Taxes
C. Payroll Taxes
D. Income Taxation of Trusts and Estates
E. International Taxation
F. Excise Taxes
G. State and Local Taxation
Chapter 28 Tax Audits and Appeals
A. IRS Audits and Appeals
B. Statute of Limitations
C. Burden of Proof
D. Privileged Communications
E. Regulation of Tax Return Preparers
Chapter 29 Overview of Tax Research
A. Legislative Branch
B. Executive Branch
1. Treasury Regulations
2. Revenue Rulings, Revenue Procedures
3. Private Letter Rulings
4. Determination Letters
5. Technical Advice Memoranda
C. Judicial Branch
D. Tax Research Resources
E. Common Forms of Citation
1. Internal Revenue Code
2. Treasury Regulations
3. Revenue Rulings and Revenue Procedures
4. Private Letter Rulings and Technical Advice Memoranda
5. Court Cases
i. Tax Court
ii. U.S. District Court
iii. U.S. Court of Federal Claims
iv. U.S. Circuit Court of Appeals
v. United States Supreme Court
Appendix of Forms
Index
Ryan H. Pace, M.Tax, J.D., LL.M., is currently a professor of taxation at Weber State University. He
teaches graduate and undergraduate courses in taxation and business law, including:
- Advanced Corporate Taxation
- Advanced Partnership Taxation
- Mergers, Acquisitions & Consolidations
- Advanced Individual Taxation
- International Taxation
- Tax Research & Communication
- Business Entity Taxation
- Legal Environment of Business
Mr. Pace also serves as the Director of both the Master of Accounting program and the Master of
Taxation program at Weber State. Prior to his teaching career, Mr. Pace was a full-time tax attorney
at large law firms in Arizona and Utah. Mr. Pace graduated from New York University with a Master
of Laws degree in taxation after receiving his Juris Doctor with honors from Washburn University
School of Law. He also received a Master of Taxation degree from Arizona State University and his
Bachelor of Science degree from the University of Utah. He is admitted to practice law before the
United States Supreme Court, The United States Tax Court, and is a member of the Utah State Bar
and State Bar of Arizona (inactive).
Mr. Pace has written several articles in the area of taxation including in the following journals:
- Journal of Legal Tax Research
- Tax Notes
- The Tax Adviser
- Business Entities
- The CPA Journal
In addition to this textbook, Mr. Pace has authored two other textbooks—Business Entity Taxation
and Legal Environment of Business, both published by Kendall Hunt Publishing. Mr. Pace
has also participated in many continuing education programs and academic conferences. He currently
lives in Morgan, Utah, with his wife and three children and enjoys reading and playing
basketball.