Principles of Federal Income Taxation
Authors:
Posin Jr., Daniel Q. / Tobin, Donald B.
Edition:
7th
Copyright Date:
2005
29 chapters
have results for Principles of Federal Income Taxation
Chapter 6. Business Deductions Part 2 288 results (showing 5 best matches)
- may also be seen as great big commuting cases. It is well established that the cost of commuting is not deductible. Most commentators regard nondeductibility of commuting expenses as an appropriate result. Commuting expenses are seen as inherently personal and barring their deduction is a fundamental principle of federal income taxation.
- Structure of Federal Income Taxation
- Keep in mind as we go along where in the deep structure we are. Keep in mind as we are going along whether the particular deduction violates the deep structure of federal income taxation.
- But, the “origin of the claim” theory cannot be defended as logical or consistent with the “deep structure” of federal income taxation (see the beginning of this Chapter, ¶ 6.01). Rather, it should be clear that if substantial assets are held, they are going to on occasion have to be defended against the claims of estranged spouses and others. The cost of that defense is properly deductible as a cost of holding that property. To fail to allow the deduction is to fail to accurately reflect the true cost of holding the asset.
- Now even though the statute is always going to be complicated, there is some simplification we can do. We can look at the “deep structure” of the Internal Revenue Code. We’ve talked about this before. And we have our diagram that attempts to depict the field on one page that appears at the beginning of this book, at the beginning of this chapter, and other chapters in this book. There’s a deep structure to the field of federal income taxation. It does not change, though some individual provisions change. Understanding that deep structure will help you.
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Appendix 1. The Miraculous Effects of the Time Value of Money 146 results (showing 5 best matches)
- So this particular OID game is no longer available. But the analysis is still there. It was the enactment of the OID rules in 1982 that ushered in the time value of money era in federal income taxation. Once the analysis was made there, and people began to understand the enormous implications of timing in taxation, the analysis began to be applied widely in other areas of federal income taxation. This type of analysis will stand us in good stead as we examine a variety of other transactions in this field.
- One of the most fundamental concepts in the field of federal income taxation is the time value of money. The question in the field is not only how much is income or how much is deductible, the question is also when is the item income or deductible. To the student first approaching the field, it would not seem to matter especially much in what year something is income or deductible. But, as the discussion below will show, the timing of an item of income or deduction can have an astonishing impact.
- This is the biggest stunt of all. It is of major importance in the field of federal income tax. This stunt has got it all. It deals with the subject of “original issue discount” (whatever that is, don’t worry, we’ll talk), which is the leading subject in the time value of money area. And the time value of money is the most important topic in the field of federal income tax. So you see the importance there. Original issue discount also is a marvelous illustration of time value of money and deferral principles, what deferral really means and why it is so important. Original issue discount also is a topic of importance in advanced corporate financial transactions.
- It will surprise you how often time value of money comes up in taxation. When it comes up, the foregoing analysis always tells you what is going on. For example, taking a deduction is better sooner than later. This is because it saves you taxes sooner rather than later, and you therefore get your hands on the tax money saved sooner rather than later. You can then earn (compound) interest on your money sooner rather than later and it will grow to more. Paying tax on an income item is better later rather than sooner, because you have to part with your money later rather than sooner. Keeping the money allows you to earn (compound of course) interest on the money and it will grow to more. Another way of looking at it is to say that if you are paying later, you need to set aside less than the full amount of the tax due and the amount set aside will grow in time to the amount actually due.
- With the second asset T did not take a deduction for his investment at the beginning and therefore of course did not take the amount of his investment back into income at the end. So as a net matter there was no deduction for the investment. T also paid tax on his income from the investment but did so every year rather than at the end. These apparently innocuous timing differences led to the amazing differences in results.
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Chapter 9. Tax Accounting 177 results (showing 5 best matches)
- The tax benefit rule is one of the venerated principles in the field of federal income taxation. In the early controversies on the matter, the Service took the hard-nosed position that the recovery of previously deductible items gave rise to income, and the recovery did so regardless of whether the earlier deduction had produced a tax benefit. Section 111, however, whose predecessor was enacted in 1942, has now pre-empted the field and takes the more reasonable view that recovery of such deductible items gives rise to income only to the extent that the earlier deduction produced a tax benefit for the taxpayer. This is the essence of the tax benefit rule: that recovery of a previously deductible item gives rise to income only to the extent the previous deduction produced a tax benefit.
- something is included in income or deductible is no big deal. But you know much better than that. As you know, timing in federal income taxation can be of immense significance, particularly where long periods of time are involved. Since this chapter’s focus is on timing. it should be considered to be closely related to the Appendix. The difference is that in this chapter we focus on the particular statutory and case law rules regarding timing. In the Appendix we focused on the broader economic significance of timing and the time value of money.
- The case of also offered some ideas on the related subject of “constructive payment.” It quoted with approval a passage from the highly regarded Mertens, Law of Federal Income Taxation which said in substance that a payment which is found to be constructively received in an earlier year than it actually was may not actually also be constructively paid in that same earlier year. The jurisprudence of the statute is that it tries to reach all income, whereas deductions are a matter of legislative grace. Thus, it could occur that a payment would be constructively received in an earlier year but not be regarded as constructively paid in that earlier year.
- 1) A transaction which returns to a taxpayer his own property cannot be said to give rise to income. 2) But the principle is well-engrained in our tax law that the return of property which has been the subject of a deduction must be treated as income in the year of recovery. 3) This latter principle is limited by the “tax benefit rule,” which holds that the returned item may be excluded from income to the extent that the initial use as a deduction did not actually provide a tax saving. 4) But where the full use of a deduction was made, giving rise to a tax saving, then the amount of the saving is immaterial. The recovery is viewed as income to the full extent of the deduction previously allowed, basing the opinion on § 111 and the regulations thereto, which have broadened the tax benefit concept beyond the statutory limitations. Using the annual accounting concept of (see above), the taxpayer takes the full amount of the deduction back into income at the higher current rate.
- Hornung argued that he should have the value of the car as income in 1961, under the doctrine of constructive receipt. He was in a lower tax bracket in 1961. The doctrine of constructive receipt is ordinarily asserted by the Commissioner against the taxpayer to accelerate income into an earlier year. Thus it was somewhat unusual for a taxpayer to assert it in order to change the year that he himself had earlier reported income. Indeed one would think the doctrine should be unavailable to the taxpayer on some grounds of estoppel. However, the court held that the doctrine could, in principle, be asserted by the taxpayer.
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Introduction 30 results (showing 5 best matches)
- First, because of all the debate recently about tax cuts, we know that our federal income tax system is and based on a principle of ability to pay. A progressive system is one in which the tax rates rise as income increases. A is one in which the tax burden on lower income individuals as a percentage of their income is higher than it is on higher income individuals. In order to achieve a progressive system of taxation, we utilize The marginal rate of tax refers to the tax on the last dollar of income that the taxpayer earns. That means that as income rises the percentage of income that must be paid in tax increases. For example, in 2004, if you are single and had taxable income of $50,000 a year, the first $7,150 would be subject to tax at 10%, the next $21,900 would be subject to tax at 15%, and the next 20,950 would be subject to tax at 25%. Thus, a taxpayer’s , the proportion of total income that he has to pay in tax, would not be his highest marginal tax rate, but would be...
- For a detailed description of the structure of federal income taxation see ¶ 6.01.
- Another intuitive principle in taxation is the
- There is one last issue that we need to cover before we send you on your way. It is easy to determine income when it is earned as salary, but what if it is derived from the sale of property? Suppose in addition to receiving a salary, you also sell an investment property. If you sell the property for $100,000 and paid $50,000 for the property, you intuitively know that you should have $50,000 of income and not $100,000. Why? Because you did not make $100,000 on the sale, you made $50,000. In tax terminology, your cost in the property is called inventory, depreciable or real property used in his trade or business, certain copyrights and artistic compositions, accounts receivable and certain other types of property, then the gain from the sale of the capital asset is referred to as . Capital gain is taxed at a lower rate of taxation then other income.
- The basic concepts of federal income tax have been covered in the above brief description. Everything else is merely perfecting these basic concepts. If you hang on to your common sense, at least most of the time, the complexity of the Code will fall into place, and you too will enjoy the adventure of working with the Internal Revenue Code.
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Chapter 8. Tax Planning 247 results (showing 5 best matches)
- While the subject of estate planning is beyond the scope of the basic course in federal income taxation as it is usually conceived, it seems that it is useful to convey to beginning students some of the sophisticated techniques that are employed in the estate planning area. These are matters that the student is likely to run into with respect to parents or other relatives. Also, the tax avoidance in this area raises policy questions of interest to a student of the field of federal taxation. An informed attorney should have some knowledge of the basic principles of estate planning (or as the late Professor David Kadane used to say “never let your client get out the door without asking if he has a will.”)
- In addition to tax shelters, there are other methods that corporations and individuals use to avoid paying tax. Corporations have started to change their place of incorporation to foreign countries, thus avoiding tax on their income outside the United States. This has been referred to lately as corporate inversion. While an in depth discussion of corporate inversion is outside the scope of this book, a very basic summary is provided here. Under the United States system of taxation, a corporation is taxable on its world wide income, not just the income it earns in the United States. If a company reincorporates in another country, the other country’s tax rules, not ours apply. So if a corporation reincorporates in a foreign country that does not tax world wide income, the The company would still be required to pay tax on income earned in the United States, but if it is a large multinational corporation with significant income outside the United States, reincorporating in another...
- ? We don’t know, but we doubt it. We have only been applying sophisticated time value of money techniques to taxation from the last decade or so. was decided in 1931. Probably what the taxpayer and the Service did was to divide the $100,000 that was reported as income from these payments in the year of sale by 45, yielding $2,222. Then they would have said that $2,222 was the basis of each payment as it came in. That would then give income in each year of $9,000 − $2,222, or $6,778. 45 years of income of $6,778 gives us $305,000. So this straight-line method also gives us a total of $305,000 income reported as the payments come in. But we know from the Appendix and other areas where we have discussed time value of money that the straight-line method is the wrong way to do it.
- It should be noted that because these are nonqualified plans, as discussed above, the setting aside of this money for deferred taxation to the executive does not result in deferred taxation to the employer. The corporate employer and its shareholders pay taxes on the money and thus the employer and it shareholders are subsidizing the executive’s tax deferral.
- Because it is difficult to estimate the useful life of a film, the normal method for calculating depreciation was not applied. Rather, the “income forecast” method was used. Under the “income forecast” method, depreciation was calculated for a particular year as follows: The cost of the film is multiplied by the income received in the year and divided by the total estimated income of the film. Since a great percentage of the total estimated income of the film is assumed to be received in the first year or two of the film’s life, this method results in a rapid write-off of the cost of the film. Rev.Rul. 60–538, 1960–2 C.B. 68; Rev.Rul. 64–273, 1964–2 C.B. 62.
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Chapter 4. Income from Dispositions of Property Part 3 491 results (showing 5 best matches)
- Comment, relevance for partnership taxation
- case was interesting, although a little turgid. But what makes it such an important case? It would indeed be hard to overstate the importance of the case to the field of federal income taxation. If Helen of Troy had the face that launched a thousand ships, Beulah Crane had the case that launched a thousand tax shelters. The case paved the way for tax shelters, and the massive arsenal of legislation later arrayed against them. By winning the case and causing Mrs. Crane’s nonrecourse debt to be included in her basis, the government gave birth to the tax shelter industry. This is an example of tunnel vision litigation strategy on the part of the Government. The Government has obviously lost far more money in tax shelters over the decades than they ever won in the for discussion of tax shelters. principles are still widely used not only in taxation of individuals but also in the fields of corporate and partnership taxation, where mortgages are involved. If you wish to pursue those...
- is one of the most famous cases in the history of federal income taxation, then footnote 37 of that case is one of the most famous footnote in the history of federal income taxation. , as discussed above, held that acquisition nonrecourse indebtedness is included in basis and in amount realized. In footnote 37 of that opinion, the Court declined to consider what would happen if at the time of the sale of the property, the property had a fair market value of less than the amount of the mortgage. Obviously this can only happen if the property has declined in value after the mortgage has been put on it, since no lender would lend more than the fair market value on property.
- This analysis may be boiled down to a series of questions that should be answered, in order, when analyzing the taxation of any disposition of property. These questions, and the related issues they spawn, are represented in the accompanying graphic. The issues mentioned in this graphic are the subject of the ensuing discussion. Bear in mind that this graphic is an elaboration of the subroutine on gains and losses from dealings in property which is given in the graphic on the structure of federal income taxation that appears at the beginning of this chapter and at various points in the book.
- is the most famous tax case ever decided, then footnote 37 of the decision is the most famous footnote in the field of federal income taxation. You can go up to a tax lawyer at a cocktail party and out of the blue you can say “I’ve been thinking about the footnote 37 problem,” and he will know what you mean.
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Chapter 1. History, Policy and Structure 239 results (showing 5 best matches)
- Our system of “progressive taxation,” as described above, can be usefully compared with “proportional taxation.” Under “proportional taxation,” everyone would pay the same proportion of his income, say 10%. In a 10% proportional system obviously an individual with $1 million of taxable income pays more ($100,000) than a person with $30,000 of taxable income ($3,000). But in this proportional system both of these taxpayers have a marginal and an effective rate of 10%.
- One of the major problems running throughout the field of federal income taxation is the problem of allowing a taxpayer to recover his initial investment in an enterprise before taxing him on the profits from it. This sounds like a simple problem, but in fact it is of immense dimension. If you can see it whole and recognize the problem every time it crops up, that will help you a great deal.
- You will see these methods used (except for the Economically Accurate Treatment) throughout the field of federal income taxation. Note that Stupid Treatment is notable for grossly discouraging investment in this transaction.
- Except as otherwise indicated this discussion of the history of the American income tax is based on the following materials: Myers, A Financial History of the United States, (1970); Bureau of Internal Revenue, History of the Internal Revenue Service, 1791–1929 (1930); Ratner, American Taxation, Its History as a Social Force in Democracy (2d 1967); Blakely, The Federal Income Tax (1940); Paul, Taxation in the United States (1954); Annual Reports of the Commissioner of Internal Revenue.
- It is also relatively reasonable to argue that the graduated rate structure is fair, that people with higher incomes should pay a greater percentage of that income to support the government. There are those, however, who would strongly disagree, see Friedman, Capitalism and Freedom 174 (1962). Cf. Blum and Kalven, The Uneasy Case for Progressive Taxation (1953); Steurle and Hartzmark, “Individual Income Taxation 1947–1979,” 34 Nat’l Tax J. 145 (1981); Blum, “Revisiting the Uneasy Case for Progressive Taxation,” 60 Taxes 16 (1982).
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Chapter 6. Business Deductions 368 results (showing 5 best matches)
- Prior to JGTRRA, dividends were taxed as ordinary income. This produced an even larger amount of income subject to double taxation. The reduction in the amount of taxation of dividends reduces the incentive to treat dividends as compensation. As is clear from the above diagram, the problem still exists because even after JGTRRA dividends are still subject to tax.
- Richard Schmalbeck and Lawrence Zelenak, Federal Income Taxation 203 (2003) (treasure troves should be taxed when sold, not when they are found).
- This argument is made and developed in Klein, Bankman, Shaviro, Federal Income Taxation 628 (Aspen 2000).
- For a review of this issue see, John Lee, Transaction Costs Relating to Acquisition or Enhancement of Intangible Property: A Populist, Political, but Practical Perspective, Va. Tax. Rev. 273, 278 (2002). But see, Richard Schmalbeck & Lawrence Zelenak, Federal Income Taxation 595–596 (Aspen 2004) arguing that IRS did not take an overly aggressive position with regard to INDOPCO.
- See Burke & Bowhay, Income Taxation of Natural Resources (1983).
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Chapter 4. Income from Dispositions of Property Part 2 249 results (showing 5 best matches)
- See Surrey, “The Supreme Court and the Federal Income Tax: Some Implications of the Recent Decisions” 35 Ill.L.Rev. 779 (1941); Fellows, A Comprehensive Attack on Tax Deferral, 88 Mich. L. Rev. 722 (1990); Jeff Strnad, Periodicity and Accretion Taxation: Norms and Implementation, 99 Yale L. J. 1817 (1990); Shakow, Taxation Without Realization: A Proposal for Accrual Taxation, 134 U. Pa. L. Rev. 1111 (1986). See also IRC § 951, which provides for the taxation of undistributed income of controlled foreign corporations. Compare the “mark-to-market” rule for certain tax straddles as a result of the Economic Recovery Tax Act of 1981. See ¶ 4.06(2)(c)(vi).
- A similar carryover basis rule is used for transfers of property in corporate organizations and reorganizations. See IRC §§ 362(a) and (b) and see, Bittker and Eustice, Federal Income Taxation of Corporations and Shareholders (1987) § 14.33. The same rule is also used in the formation of partnerships, ¶ 723.
- Section 1239. For further background on § 267, see Cavagna, “Related-party Rule of § 267 Can, But Need Not, Upset a Client’s Tax Planning,” 15 Taxation for Accountants 368 (1975). See also generally Bittker, “Federal Income Taxation and the Family,” 27 Stan.L.Rev. 1389 (1975).
- The property may, of course, be subject to estate tax, but that is not relevant to the question of what is the proper treatment for purposes of income taxation. Many taxes—sales taxes, property taxes,—are imposed in the society, but their imposition does not properly excuse not imposing an income tax on the same property or transaction.
- See James Edward Maule, Re–Use Gain Taxation Relief Keys: Unlock Section 1245(a)(5) Ordinary Income, 77 Tax Notes 733 (November 10, 1997), observing that the failure to provide relief on the taxation of this gain is probably a drafting error. However, it may not be a drafting error in that the 25 percent rate on unrecaptured depreciation with respect to real estate represents a rate increase compared to the 20 percent rate that was otherwise available for gain on assets held longer than 12 months. To provide a 25 percent rate to depreciable real estate placed in service after 1980 and before 1987 would constitute generally a rate cut to this property, which might be inconsistent with the approach of the statute of raising, if ever so slightly, the rate on depreciation recapture.
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Chapter 5. Assignment of Income: Who is Taxed and the Nature of the Tax 124 results (showing 5 best matches)
- Both of these types of assignments—the gratuitous assignment and the assignment for consideration—raise far-reaching questions in the tax law. Almost all types of income can be subject to them. Many of the areas are now covered by statute. There are, however, hoary cases, whose principles still bite. The doctrine of assignment of income spills out into many fields, including the taxation of trusts, family partnerships, and collapsible corporations. A classic case like is fundamental to the field; ultimately the assignment of income area is a child of the great case of and the doctrine of substance-over-form.
- See discussion of Poe v. Seaborn, ¶ 5.02 supra. See also Bittker, “Federal Income Taxation and the Family,” 27 Stanford Law Review 1389 (1975).
- In the oil and gas field the typical arrangement is that the owner of land will convey an oil and gas lease—the right to develop and sell the oil and gas reserves over a term of years—to the lessee. The consideration to the lessor is usually a royalty or fraction of the gross revenues produced (often one-eighth). See K. Miller, Oil and Gas Federal Income Taxation, (1982) Ch. 13.
- These principles have further found their modern incarnation in such diverse fields as income from a business, compensation for personal services, dividend income, income from property, royalty income, and income from sale of crops.
- The trouble with assignment of income doctrine is that it is a song without end. The whole area of capital gains can be looked on as an application of assignment of income doctrine. That is, most any asset has value because it is capable of producing a stream of ordinary income either at the present or in the future. Hence the proceeds from the sale of that asset are in some sense a substitute for ordinary income, conceivably triggering -type discussions of “carve-outs,” “vertical and horizontal cuts,” “fruit and tree,” etc. Similarly, where the assignment of income is gratuitous, the problem that is raised is what is the appropriate family unit on which to impose a tax. Indeed, as discussed above, the joint return is a congressionally-sanctioned assignment of income from the wage earner to his spouse. Family partnerships present assignment of income problems. The field of corporate taxation is rife with assignment of income issues ranging from the viability of the corporation as a...
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Table of Illustrations 20 results (showing 5 best matches)
Appendix 2. Capital Gains Rates 2 results
- For a similar chart involving pre-EGTRRA tax years, see Borris I. Bittker, Martin J. McMahon, Jr., Lawrence A. Zelenak, Federal Income Taxation of Individuals (3d Edition) ¶ 31.02[2][d]. A special thanks to Martin J. McMahon for his helpful comments on this table.
- This appears to be the technically correct answer, but it substantively makes no sense. Section 1202 was adopted to provide a preferred rate for small business stock. But due to JGTRRA, capital gains on other property is taxed at only 5% if the taxpayer has a marginal rate of 15%. Thus, after JGTRRA there appears to be an absurd result that qualified small business stock is taxed at a higher rate than nonqualified small business stock. It is our view that either through regulation or administrative interpretation, nonqualified small business stock will be taxed at the lower 5% rate.
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Chapter 3. Other Items of Income and Exclusions from Income 367 results (showing 5 best matches)
- The principle that the includibility in income of business damages received depends on to what the damages are attributable has been used to ascertain the treatment of damages for a number of other types of claims, including patent infringement (ordinary income or return of capital), breach of employment contract (ordinary income), and breach of contract to purchase property (ordinary income).
- Under general income tax principles, both these elements of the $40,000 profit, the mortality gain and the interest, would be income, as constituting net increases to wealth. However, it might be argued as a matter of tax policy that these two elements should be treated differently. It could be asserted, for example, that the death of the insured is a time of economic and emotional hardship for the family, and is therefore not an appropriate time to levy a tax. However, a number of other taxes, including federal estate taxes, can be levied at the time of the death of the family breadwinner.
- Instead of making an outright gift of property, the donor may confer the income from property as a gift. In such an event, the income from the property is taxable to the donee, notwithstanding that the transaction is indisputably a gift by the standards discussed above. While this may seem inconsistent with the exclusion from income of the outright gift of property, discussed above, this statutory scheme makes sense. In the case of the excludible outright gift of property, there is no doubt that income subsequently derived from the property given (i.e. rent from given real estate or interest from given money) is income to the donee. That being the case, it would be consistent to say that where only the income is given, it will be taxed to the recipient. Without such a rule, of course, great amounts of income would be lost from taxation because they had once been the subject of a gift.
- One of the most significant changes in the JGTRA of 2003 was the treatment of stock dividends. Section 61(a)(7) provides that gross income includes income from dividends. Prior to 2003, dividends from stocks were taxed as ordinary income. Opponents of the taxation of dividends argued that these dividends should not be taxed at all since they are the proceeds of corporate profits that had already been taxed. This is referred to as the double taxation of corporate profits. Although thorough discussion of this topic is saved for corporate tax, the basic complaint was that a corporation was required to pay tax on its profits (the first incidence of tax), and the shareholders who received those profits as dividends were also required to pay tax on those profits (the second incidence of tax). Some commentators argued that this “double tax” was unfair and that dividends should not be taxed.
- Where gifts of income from property or gifts of the underlying property itself are made, a more profound question can be raised: whether any gift was made at all. When, for example, a high-bracket taxpayer purports to make a gift of income or property and income to a low bracket taxpayer, the Service may attack the transaction on “assignment of income” principles and attempt to tax the income to the donor. This topic is discussed in Chapter 5.
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Chapter 2. Income in General; Compensation for Services 149 results (showing 5 best matches)
- shows, taxpayer cannot exclude from income his employer’s payment of his taxes. It is also the case that the taxpayer cannot deduct payment of his own income taxes. § 275. He can deduct the payment of his state income taxes against his income as computed for federal purposes, § 164.
- In addition to paying money wages or salaries, the employer may provide fringe benefits to the employee as compensation for services rendered. Under the general broad principles of § 61, the presumption is that such benefits are income. Thus, the employee has the burden of presenting some authority or other reason why any of these benefits should be excluded from income.
- : This $680,000 of federal income taxes for 1918 would, of course, be paid in 1919, and the 1919 taxes would be paid in 1920. Under the Court’s holding, this creates further taxable income to Wood of $680,000 in 1919 (in addition to his regular salary and commissions). This additional $680,000 of income in 1919 would generate further tax to Wood of $462,400 (assuming the same effective rate of 1918). The Company would then, under its agreement with Wood, pay this additional $462,400 of income taxes for 1919 in 1920, generating additional income to Wood of $462,400 in 1920. This would generate additional tax liability for 1920 of $314,432, which would be payable in 1921 and so forth. Is this a problem? No.
- : Was the payment by American Woolen of Wood’s federal income taxes income to Wood?
- Under general principles the employer’s payment of premiums on a life insurance policy of the employee will generally constitute income to the employee. However, as an encouragement to the provision of life insurance, the Code provides that payment by the employer of premiums on an employee life insurance policy for up to $50,000 of life insurance will not constitute income to the employee. Unlike the case of meals and lodging, supra, where the exclusion seemed grounded to a large extent on fairness, this exclusion is a clear example of using the Internal Revenue Code to encourage socially desirable behavior. (Treatment of the receipt of proceeds of life insurance—as opposed to the payment of the premium—is discussed at ¶ 3.06 infra.)
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Chapter 7. Itemized Deductions and Personal Exemptions 291 results (showing 5 best matches)
- The allowance of a deduction for losses incurred in a trade or business or incurred in profit-seeking activity is consistent with the general theory of income taxation that a taxpayer should be allowed to deduct losses arising out of his business or investment activities.
- In the leading case of taxpayer obtained an interest-free loan from a corporation he controlled. The Government’s theory of taxation is that the taxpayer has enjoyed an economic benefit from the free use of borrowed funds (which could after all be invested to earn interest). The taxpayer’s alternative to the interest-free loan was of course to borrow money at interest. By giving the taxpayer an interest free loan the controlled corporation would have to forego earning interest on the money itself. Thus it looks like income. However, the court held the arrangement was not income because had the taxpayer borrowed the funds elsewhere he would have 1) had income from investing the funds and 2) had an offsetting deduction of the interest he paid on the borrowed funds. Since the deduction for interest paid offsets the interest earned on the borrowed funds, the court held that the taxpayer has no income on the receipt of an interest-free loan from his controlled corporation. (In this...
- As the Seventh Circuit noted in one of the lower court cases, “[a]s an original matter, in taxation’s Garden of Eden, it would indeed be difficult to think of a reason why Kenseth should have been denied the normal privilege of deducting from his gross income 100 percent of an expense reasonably incurred for the production of income.” But Congress has made the decision that miscellaneous itemized deductions are not deductible for purposes of the AMT, and there appears to be no reason to distinguish contingent attorney’s fees from other miscellaneous itemized deductions.
- : In our view, lower courts struggled to find some tax theory that would exclude the fees. Including them in income appears to be particularly harsh. But it is not the tax doctrine causing the problem, it is the statute passed by Congress. Why should contingent fees be treated any differently then non-contingent fees? The basic idea is that taxpayer receives an award and then uses the award to pay the attorney. Under tax principles, this should be included in income and then be deductible. The result may be different when the attorney has a statutory right to fees from the defendant. In such a case, there is a stronger argument that the attorney had an independent right to the fee. The Supreme Court declined to reach this issue because the fees paid in this case were not pursuant to a federal statute that authorized fee awards.
- The advantage to deducting interest on the home mortgage is even greater when it is recalled that home ownership produces major amounts of imputed income (see Chapters 1, 2, and 6.03(6)). To review the concept of imputed income briefly: if you buy a bond, it produces taxable interest income. If you buy a house it produces in-kind income—namely shelter. However, the shelter income the house produces is not taxable. We call this income “imputed income.” We could also call it “in-kind income from the house the taxpayer owns.”
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Index 276 results (showing 5 best matches)
Chapter 10. Credits 75 results (showing 5 best matches)
- The EIC has become THE major income support program in this country. It shows the power of the tax system to reach out and control behavior and deal with issues far beyond what one would normally consider to be taxation.
- Modified adjusted gross income is adjusted gross income increased by any amount excluded under the following: § 911 (exclusion of income of U.S. citizens or residents living abroad); § 931 (exclusion for bona fide residents of Guam, American Samoa, and the Northern Mariana Islands), or § 933 (exclusion of income of residents of Puerto Rico), § 24(b)(2)(A).
- The Revenue Reconciliation Act of 1993 greatly enlarged the Earned Income Tax Credit (now referred to as the Earned Income Credit.) The thrust of the EIC is to help lower income working people. The EIC provides for a credit against taxes owed. The maximum amount of the credit is $4,140 (in 2002). If on the taxpayer’s particular numbers the credit exceeds the taxes owed, the balance is paid to the taxpayer as, in effect, an income subsidy. The amount of the credit depends on the amount of income earned and the number of children in the household.
- The amount of the employment-related expenses incurred during any taxable year which may be taken into account in making this computation cannot exceed, in the case of an unmarried taxpayer, the taxpayer’s earned income; or in the case of a married couple, the earned income of the spouse with the lesser amount of earned income. This rule is relaxed where one spouse is a student or incapable of caring for himself. In either of those events, such spouse shall be deemed to be gainfully employed and to have earned income of not less than $250 per month, where there is one qualifying individual in the household; or $500 a month where there are two or more qualifying individuals in the household. Thus, for example, if one spouse is working and earning $25,000 a year and the other spouse is incapable of caring for himself, and they have two ten-year-old children in a day care center, the spouse incapable of caring for himself will be deemed to have earned income of $500 per month for the...of
- Since Congress, after some debate, decided to also help lower income families as well, the Child Credit as ultimately enacted, also provided, through some fairly complex calculations, benefits to low income families. The result is that the Child Credit is also a refundable credit (remember this means you get the credit or a portion of the credit even if you have no taxable income). The refundability of the Child Credit was increased as part of the Working Families Tax Relief Act. For 2004 through 2010, the Child Credit is refundable to the extent of 15 percent of taxpayer’s income that exceeds $10,750 (this amount is adjusted for inflation). So if the taxpayer makes $11,700, and is not subject to income tax, the Child Credit is refundable up to 150 (15% of $1,000 (the amount of taxpayer’s income that exceeds $10,750)).
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Table of Contents 90 results (showing 5 best matches)
Chapter 4. Income from Dispositions of Property 213 results (showing 5 best matches)
- The bunching of income.
- This illustrates a cause of complexity in the federal income tax. A new tax avoidance technique is found. It is exploited to a fare-thee-well. Then a new provision is enacted to stop it.
- While there is certainly merit to this idea, an even better idea is not to sell the appreciated asset at all and incur no tax on it whatsoever. The extreme version of this approach involves the taxpayer never selling the asset and dying holding it, at which point the basis of the asset is adjusted to its fair market value in the hands of the taxpayer’s heirs. a taxpayer may be very well advised to hold an appreciated asset well beyond 12 months or one year in order to defer payment of tax as long as possible. These techniques, of course, derive not from the capital gains taxation rules but from the more fundamental principle that unrealized appreciation in the value of assets held is not taxed.
- As the preceding discussion has indicated, the capital gains rules are far-reaching indeed. Capital gains taxation can have significant planning impact on major transactions, such as sale of a going business, choice of the form of doing business, and on a number of corporate transactions. Problems are particularly acute where a going business is sold.
- Finally, of course, it might be pointed out that what really brings out all these techniques is the realization requirement for triggering taxation. If investors simply had to pay tax every year on accrued gains, see ¶ 4.02, none of these other maneuvers would have occurred.
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Highlights 5 results
- The book includes analysis of cases and concepts in the leading casebooks, and provides easy to understand explanations of all the major topics in the field of Federal Income Tax. The Hornbook also includes graphs and drawings to help people weave their way through the intricacies of the Internal Revenue Code and associated authorities.
- • Taxation of home-run baseballs
- • Updates in light of The American Jobs Creation Act of 2004 (AJCA), and the Working Families Tax Relief Act of 2004 (WFTR), including: Marginal rate changes, phase-out of the estate tax, changes to the step-up in basis rules, new IRA limits, education deductions and much more.
- • Up to date discussion of important tax topics, including the American Jobs Creation Act of 2004 and the Working Families Tax Relief Act of 2004.
- • Tax ethics and the ethical responsibilities of tax lawyers
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Special Note and Acknowledgments 2 results
- For grammatical convenience, we have frequently referred to taxpayers in the book as “he.” This obviously ignores the fact that the overwhelming majority of tax returns filed are husband and wife joint returns. Rather than trying to cover all the possibilities by continually using the phrase “he, she, or they,” through out this book, we have stayed with the grammatically simpler “he.” No offense is intended to the many women who pay substantial amounts of federal income taxes.
- We would like to thank our families, colleagues and students who have been extremely helpful in completing this project. A special thanks to Leigh Tobin, who read several drafts of the book, Elizabeth Pennock, who provided research assistance, and Anthony Clayman, for his technical assistance. We would also like to thank Professors Allan Samansky and Michael Rose, at the Moritz College of Law, The Ohio State University, for their extremely helpful comments on this book.
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Chapter 11. Ethics 66 results (showing 5 best matches)
- See ABA Section of Taxation Proposed Revision to Formal Opinion 314, May 21, 1984, reprinted in Wolfman and Holden, Ethical Problems in Federal Tax Practice 71–73 (2d Ed. 1985). The Tax Section proposal also argued, unlike the ABA final opinion, that a tax return is not a submission in an adversary proceeding. See Wolfman and Holden, at 71. See also Theodore C. Faulk, Tax Ethics, Legal Ethics, and Real Ethics: A critique of ABA Formal Opinion 85–352, 39 Tax. Law 643, 644 (1986).
- The ABA Section of Taxation proposed a stricter version of the ethics rule to the ABA. The Tax Section proposed that attorneys not advise taxpayers to take a position unless it was meritorious. Does this difference between “meritorious” and “some realistic possibility of success” make any difference?
- In many ways, a tax lawyer’s role is unique in our legal system. Because we have a system of taxation that is based on voluntary compliance, and because audit rates are so low (around 1 to 2 percent), the system itself depends on honest reporting by taxpayers.
- Under the regulations, an income tax preparer is anyone fitting the definition contained in § 7701(a)(36). Under this definition, a return preparer is a person who prepares a substantial portion of an income tax return for compensation, or a person who provides advice about “the existence, characterization or amount” of any entry on a return, if the entry constitutes a substantial portion of the return. But the regulations also make clear that providing tax planning advice about a future activity does not make a tax advisor a preparer.
- Compare Standards of Tax Practice Statement, Committee on Standards of Tax Practice of the Section of Taxation of the American Bar Association, 54 Tax Law. 185,187 (2000)(believing it is ethical to do so as long as it is disclosed and not frivolous), with Frank J. Gould, Giving Tax Advice–Some Ethical, Professional, and Legal Considerations, 97 Tax Notes 593 (2002)(noting that the Report of the Special Task Force states that an attorney cannot advise taxpayer to take a position that does not meet the realistic possibility of success standard even if the taxpayer’s position is adequately disclosed); Report of the Special Task Force, 39 Tax Law. at 639.
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Dedication Part 2 1 result
Advisory Board 10 results (showing 5 best matches)
- Professor of Law, University of San Diego Professor of Law, University of Michigan
- Chancellor, Dean and Distinguished Professor of Law, University of California, Hastings College of the Law
- Professor of Law, University of California, Berkeley
- Professor of Law, University of Chicago
- Professor of Law, University of Illinois
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Recent Tax Changes 1 result
- This book includes the recent changes made by the American Jobs Creation Act of 2004 (AJCA), and the Working Families Tax Relief Act of 2004 (WFTR). Because Congress appears bent on amending the tax code several times a year, we will attempt to provide updates of major tax changes on the world wide web. Updates will be available at www.federalincometaxation.com.
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Title Page 3 results
Copyright Page 2 results
- Thomson/West have created this publication to provide you with accurate and authoritative information West, a Thomson business, has created this publication to provide you with accurate and authoritative information concerning the subject matter covered. However, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdiction. Thomson/West are not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
- Printed in the United States of America
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Half Title 1 result
- Publication Date: July 26th, 2005
- ISBN: 9780314161468
- Subject: Taxation
- Series: Concise Hornbook Series
- Type: Hornbook Treatises
- Description: In clear language, Posin and Tobin’s Principles of Federal Income Taxation explores exotic Wall Street techniques employed to avoid capital gains. It includes analysis of cases and concepts of the leading casebooks, explanations with amplified diagrams and flow charts, and extensive treatment of the time value of money issues. This book explains equity swaps, shorting against the box, swap funds, and DECS. It presents, among other high-profile situations, a case study of how former Treasury Secretary William Simon and his partners made $700 million in profits on the sale of the Avis car rental agency less than two years after they bought it and paid no taxes.
