THE TOOLS AND TECHNIQUES OF INCOME
TAX PLANNING
(3rd Edition)
College Course Materials
Course Outline
CHAPTER 1: INCOME TAX LAW FUNDAMENTALS
A. The Internal Revenue Code
B. Treasury Regulations
1. Relative Importance
C. IRS Rulings and Guidance
1. Revenue Rulings
2. Revenue Procedures
3. Private Letter Rulings
4. Technical Advice Memoranda
5. Announcements
6. Notices
D. The Courts
1. United States Tax Court
2. United States District Court
3. United States Court of Federal Claims
a. Pre-1982
b. 1982-1992
c. Post-1992
4. The Supreme Court of the United States
5. Legislative History and Other Secondary Authority
E. Where Can I Find Out More About It?
F. Questions and Answers
CHAPTER 2: COMPLIANCE
A. Filing Requirements
1. Who Must File
2. Filing Status
3. When to File
B. Audits
1. Appeals
C. Representing Clients Before the IRS
D. Where Can I Find Out More About It?
E. Questions and Answers
CHAPTER 3: INCOME
A. What Is Income?
1. Income Distinctions
2. Selected Employee Compensation Issues
B. What Is Not Income?
1. Other Non-Income Items
C. Income Timing Issues
1. Constructive Receipt of Income
2. Imputed Income
3. Prepaid Income
4. Recovery of Previously Deducted Items
5. Restoration of Income Previously Taxed
D. Where Can I Find Out More About It?
E. Questions and Answers
CHAPTER 4: DEDUCTIONS
A. General
B. How Does It Work?
C. What Are “About-the-Line” Deductions?
D. What Are “Below-the-Line” Deductions?
1. Limitations on Itemized Deductions
2. Miscellaneous Itemized Deductions
E. What Is Not Deductible?
F. What Is the Standard Deduction?
G. What Are Personal and Dependency Exemptions?
1. “Phase-Out” of Exemptions
2. Dependency Exemptions
H. Where Can I Find Out More About It?
I. Questions and Answers
CHAPTER 5: CREDITS
A. General
B. Child Tax Credit?
1. Limitations
C. Child and Dependent Care Credit
1. Limitations
D. Credit for the Elderly and Disabled
1. Limitations
E. Other Personal Credits
F. Where Can I Find Out More About It?
CHAPTER 6: CALCULATION OF TAX
A. Overview
B. What Is Adjusted Gross Income (AGI)?
C. What Is Taxable Income?
D. How Are Tax Payments Collected?
1. Wage Withholding
2. Withholding on Pensions and Annuities
3. Estimated Tax Payments
E. Where Can I Find Out More About It?
CHAPTER 7: GRANTOR TRUSTS
A. What Is A Trust?
B. Two Types of Trusts
C. What Powers Lead to Grantor Trust Status?
1. Section 673 – Reversionary Interests
2. Section 675 – Administrative Powers
3. Section 676 – Power to Revoke
4. Section 677 – Income Used For the Benefit of the Grantor
5. Section 674 – The Power to Control Beneficial Enjoyment
6. Section 678 – Person Other than the Grantor Treated as the Owner of the Trust
D. Tax Treatment of Trusts
1. Reporting Trust Taxes
E. How Are Grantor Trusts Used?
1. Probate Avoidance
2. Intentionally Defective Irrevocable Trust (IDIT)
3. Private Annuity Payments
4. Trust-Leasebacks
F. Questions and Answers
CHAPTER 8: SIMPLE VS. COMPLEX TRUSTS
A. What Is the Difference Between Simple and Complex Trusts?
B. Computing Tax on Trusts
1. Gross Income
2. Distributable Net Income
C. Other Trust Deductions
D. Tax Rates for Trusts
1. Filing Returns for Trusts
E. Sixty-Five Day Rule
F. What Happens When the Trust Distributes Property?
G. Questions and Answers
CHAPTER 9: INCOME TAXATION OF ESTATES
A. General
1. Income in Respect of a Decedent
B. Questions and Answers
CHAPTER 10: ACCOUNTING METHODS
A. What Is It?
B. When Is a Particular Method Indicated?
C. What Are the Advantages of the Cash Method?
D. What Are the Advantages of the Accrual Method?
E. What Are the Requirements?
1. Cash Method
2. Accrual Method
F. How Is It Done?
1. Cash Method
2. Accrual Method
G. Where Can I Find Out More About It?
H. Questions and Answers
CHAPTER 11: SOLE PROPRIETORSHIPS
A. What Is It?
B. When Is It Indicated?
C. Advantages
D. Disadvantages
E. What Are the Requirements?
F. Tax Implications
G. How Is It Done – An Example
H. Where Can I Find Out More About It?
I. Questions and Answers
CHAPTER 12: PARTNERSHIPS
A. What Is It?
B. When Is It Indicated?
C. Advantages
D. Disadvantages
E. What Are the Requirements?
F. How Is It Done – An Example
G. Tax Implications
H. Where Can I Find Out More About It?
I. Questions and Answers
CHAPTER 13: CORPORATIONS
A. What Is It?
B. When Is It Indicated?
C. Advantages
D. Disadvantages
E. What Are the Requirements?
F. Tax Implications
1. Income Tax Rates
2. Personal Service Corporations
3. Distributions from the Corporation
4. Capital Gains of a Corporation
5. Alternative Minimum Tax
6. Accumulated Earnings Tax (AET)
7. Personal Holding Company Tax
G. Where Can I Find Out More About It?
H. Questions and Answers
CHAPTER 14: S CORPORATIONS
A. What Is It?
B. When Is It Indicated?
C. Advantages
D. Disadvantages
E. What Are the Requirements?
F. How Is It Done – An Example
G. Tax Implications
H. Where Can I Find Out More About It?
I. Questions and Answers
CHAPTER 15: LIMITED LIABILITY COMPANIES AND LIMITED LIABILITY PARTNERSHIPS
A. What Is It?
B. When Is It Indicated?
C. Advantages
D. Disadvantages
E. What Are the Requirements?
F. How Is It Done – An Example
G. Tax Implications
H. Where Can I Find Out More About It?
I. Questions and Answers
CHAPTER 16: COST RECOVERY CONCEPTS
A. What Is It?
B. When Is It Indicated?
C. Tax Implications
1. Property Placed in Service Before 1981
2. Accelerated Cost Recovery System
3. Modified Accelerated Cost Recovery System
4. Alternative Depreciation System
5. Other Limitations
6. Depreciation Recapture
7. Cost Recovery For Intangible Assets
8. Section 179 Expensing
D. Where Can I Find Out More About It?
E. Questions and Answers
CHAPTER 17: PASSIVE ACTIVITIES AND AT-RISK RULES
A. What Is It?
B. Introduction to the At-Risk Limitation Rules
C. Introduction to the Passive Activity Loss Limitation Rules
D. Tax Implications
1. At-Risk Rules
2. Passive Activity Rules
E. Determining the “Activity”
1. At-Risk Activities
2. Passive Activities
F. Questions and Answers
1. At-Risk Limitations
2. Passive Activity Loss Limitations
CHAPTER 18: ALTERNATIVE MINIMUM TAX
A. What Is It?
B. How AMT Is Determined for Individuals
C. How AMT Is Determined for Corporations
D. Adjustments and Preferences
1. Adjustments for Individuals and Corporations
2. Adjustments for Individuals
3. Corporate Adjustments
4. Preferences
E. AMT Exemption for Small Corporations
F. The Adjusted Current Earnings Adjustment for Corporations
G. Foreign Tax Credit
H. Credits Against Regular Tax
I. Minimum Tax Credit
CHAPTER 19: CHARITABLE CONTRIBUTIONS AND DEDUCTIONS
A. What Is a “Qualified Charity”?
B. Deductible Contributions
C. Deduction Limits
1. Limits Based on Type of Charity
a. 50% Limit Charities (“Public” Charities)
b. 30% Limit Charities (“Private” Charities)
2. Limits Based on Type of Property
a. Long-Term Capital Gain Property
3. Ordinary Income Property
4. Other Property Requiring Reduction in Value
5. Special Rules for Donated Property
D. Partial Interests
E. Corporate Charitable Deductions
F. Recordkeeping, Appraisals and Reporting
1. Contributions of $250 or More
2. Contributions Exceeding $5,000
a. Penalties for Overvaluing Donated Property
G. Where Can I Find Out More About It?
H. Questions and Answers
CHAPTER 20: BASIS
A. What Is It?
B. A Starting Point
C. Basis Variations
D. Basis for Alternative Minimum Tax Purposes
E. Using Basis to Determine Deductible Losses
F. Basis of Property Acquired from a Decedent
G. Property Acquired by Gift
H. Allocation of Basis
CHAPTER 21: CAPITAL GAINS AND LOSSES
A. What Is It?
B. What Is – And What Is Not – A Capital Asset
1. Section 1231 Assets
C. Amount of Gains and Losses
D. Holding Periods
E. Tax Implications
1. Categories
2. Tax Rates
3. Netting Capital Gains and Losses
4. Capital Losses
5. Recapture
a. Section 1245 Gains
b. Section 1250 Gains
F. Questions and Answers
CHAPTER 22: MARRIAGE AND DIVORCE
A. Marriage Penalty
1. Standard Deduction
2. Tax Rates
3. Dependent Exemption
4. Child Tax Credit
5. Itemized Deductions
6. Married Filing Separately
B. Tax Implications of Divorce
1. Child Support and Alimony
2. Property Division
4. Home
5. Retirement Plans
6. Filing Status
7. Child Custody
8. Payments for Tax-Related Legal Advice
C. Questions and Answers
CHAPTER 23: INCOME IN RESPECT OF A DECEDENT – AND RELATED DEDUCTIONS
A. What Is It?
B. Deduction for Income In Respect of a Decedent
C. IRD Defined
D. Double Taxation of IRD
E. Who Pays the Tax on IRD?
F. Character of IRD
G. Special Issues of Income Commonly Subject to IRD Rules
1. Employee Compensation and Business Income
2. Dividend Income
3. Interest Income
4. Life Insurance Proceeds and the Transfer for Value Rules
H. Special Issues of Income Commonly Subject to IRD Rules (cont’d)
1. Income from Pass-through Entities
2. Retirement Plan Distributions
I. Deductions In Respect of a Decedent
J. How Is It Done?
CHAPTER 24: TIMING OF INCOME AND DEDUCTIONS
A. What Is It?
B. When Is the Use of Such a Device Indicated?
C. What Are the Requirements?
D. How It Is Done – Examples
E. What Are the Tax Implications?
F. Questions and Answers
CHAPTER 25: CONVERSION OF INCOME
A. What Is It?
B. Converting Ordinary Income Into Capital Gain Income
1. Holding Securities for the Required Period to Qualify as Long-Term Capital Gains
2. Using Retirement Plans to Hold Ordinary Income or Tax Inefficient Investments
3. Converting Interest Income Into Qualifying Dividends
4. Structuring Compensation Packages
C. Converting Capital Losses Into Ordinary Losses
D. Ordinary Losses for Small Business Stock
E. Investor vs. Trader Status
CHAPTER 26: ALTERNATIVE MINIMUM TAX PLANNING
A. What Is It?
B. Brief Overview of the AMT
C. Identifying the AMT Traps
D. AMT Planning Techniques
1. Moving Income Into an AMT Year
2. Moving Deductions Into a Non-AMT Year
3. Timing of Adjustments and Preferences
4. Making Elections to Minimize the AMT
5. Utilizing Alternative Tax Net Operating Losses
E. Questions and Answers
CHAPTER 27: STOCK OPTION PLANNING
A. What Is It?
B. Nonqualified Stock Options
1. Strategies for Exercising Nonqualified Stock Options
C. Incentive Stock Options
1. ISOs and the AMT
2. Strategies for Exercising Incentive Stock Options
D. Questions and Answers
CHAPTER 28: CHARITABLE PLANNING
A. What Are Outright Gifts?
B. What Are Charitable Bequests?
C. What Are Charitable Gift Annuities?
D. What Are “Split Interest” Gifts?
1. Charitable Remainder Trusts
a. Charitable Remainder Annuity Trusts
b. Charitable Remainder Unitrusts
2. Charitable Lead Trusts
E. What Are Private Foundations?
F. What Are Supporting Organizations?
G. What Are Community Foundations?
H. What Are Donor Advised Funds?
I. What Are Pooled Income Funds?
J. What Are Charitable Gifts of Life Insurance?
K. Where Can I Find Out More About It?
L. Questions and Answers
CHAPTER 29: CHANGING ACCOUNTING METHODS
A. What Is It?
B. When Is It Indicated?
C. What Are the Requirements?
D. How Is It Done – An Example
E. Where Can I Find Out More About It?
F. Questions and Answers
CHAPTER 30: LIKE-KIND EXCHANGES
A. What Is It?
B. General Rule for Like-Kind Exchanges
1. Non-Qualifying Property
2. Like-Kind Property
3. Property Held for Productive Use in Trade or Business or for Investment
C. Receipt of Boot
D. Basis Rules
E. Exchanges Between Related Persons
F. Multiparty Exchanges
G. Forward (Deferred) Exchanges
H. Reverse Exchanges
I. Questions and Answers
CHAPTER 31: PLANNING FOR THE SALE OR EXCHANGE OF ASSETS
A. What Is It?
B. Planning for Gain Deferral
C. Planning for Gain Exclusion
D. Planning for Loss Recognition
E. Questions and Answers
CHAPTER 32: RETIREMENT INCOME PLANNING
A. What Is It?
B. Types of Retirement Plans
C. Retirement Plan Distribution Options
D. Tax Implications
1. Retirement Plan Distributions
2. Taxation of Annuities
3. Minimum Required Distributions
a. During Owner’s Lifetime
b. Designated Beneficiaries
c. After the Owner’s Death
d. Penalty for Failure to Make Minimum Required Distributions
4. Premature Distributions
5. Substantially Equal Periodic Payments
6. Lump Sum Distributions
7. Rollovers
8. Distributions of Employer Securities
9. Roth IRAs
a. Contributions and Conversions
b. Distributions
E. Questions and Answers
APPENDIX A: AFTER-TAX EQUIVALENTS OF TAX-EXEMPT YIELDS
APPENDIX B: SUGGESTED CHARITABLE GIFT ANNUITY RATES–SINGLE LIFE
APPENDIX C: GROUP TERM LIFE INSURANCE
APPENDIX D: INCOME TAX RATE SCHEDULES
A. Taxable Years Beginning in 2009
1. Schedule X—Single Individuals
2. Schedule Y-1—Joint Returns and Surviving Spouses
3. Schedule Y-2—Married Filing Separate
4. Schedule Z—Head of Household
5. Estates and Trusts
B. Taxable Years Beginning in 2008
1. Schedule X—Single Individuals
2. Schedule Y-1—Joint Returns and Surviving Spouses
3. Schedule Y-2—Married Filing Separate
4. Schedule Z—Head of Household
5. Estates and Trusts
C. Who Must File a Return in 2009?
APPENDIX E: INNOCENT SPOUSE RULES