THE TOOLS AND TECHNIQUES OF INCOME
TAX PLANNING
(3rd Edition)
College Course Materials
Educational Objectives
Chapter 1: Income Tax Law Fundamentals
Upon completion of this chapter, the student should be able to:
1. state the four sources of federal law
2. distinguish between primary and secondary authorities of law
3. discuss the relative importance of IRS regulations and various IRS rulings and other guidance
4. explain the advantages and disadvantages of the Tax Court and the United States District Courts as venues for solving taxpayer disputes
5. understand the hierarchical importance of the various courts and the appellate process in general
Chapter 2: Compliance
Upon completion of this chapter, the student should be able to:
1. explain who is required to file an income tax return and when
2. briefly discuss the requirements for filing joint returns and returns for surviving spouses and heads of households
3. explain the various ways in which audits may come about and the different ways in which audits may be conducted
4. identify those parties who may represent clients before the IRS
5. generally describe the civil and criminal penalties relating to the filing and paying of federal income taxes
Chapter 3: Income
Upon completion of this chapter, the student should be able to:
1. broadly define what constitutes gross income
2. distinguish between earned income and investment income
3. list items that are specifically excluded from gross income
4. explain the constructive receipt of income doctrine and other income timing issues
Chapter 4: Deductions
Upon completion of this chapter, the student should be able to:
1. distinguish between above-the-line deductions and below-the-line deductions
2. explain the rules regarding the standard deduction and itemized deductions
3. describe the limitations on itemized deductions and on miscellaneous itemized deductions
4. discuss personal and dependency exemptions and the phase-out of personal exemptions for high-income earners
Chapter 5: Credits
Upon completion of this chapter, the student should be able to:
1. distinguish between refundable and nonrefundable credits
2. describe the three main categories of credits
3. briefly discuss the child tax credit, the child and dependent care credit, the credit for the elderly and disabled
Chapter 6: Calculation of Tax
Upon completion of this chapter, the student should be able to:
1. describe the basic steps taken to compute an individual's federal income tax liability
2. distinguish between adjusted gross income and taxable income
3. explain how tax payments are collected
4. briefly discuss estimated tax payments
Chapter 7: Grantor Trusts
Upon completion of this chapter, the student should be able to:
1. discuss what a trust is and the differences between a grantor trust and a non-grantor trust
2. briefly explain the various powers that can lead to grantor trust status
3. describe the tax treatment of grantor trusts
4. discuss the various uses for grantor trusts
Chapter 8: Simple vs. Complex Trusts
Upon completion of this chapter, the student should be able to:
1. distinguish between simple and complex trusts
2. describe how taxable income is calculated for trusts
3. briefly discuss how parties to trusts use trusts to their advantage considering the high tax rates that apply to trusts
4. explain who is responsible for filing the tax return for the trust and for paying any tax on trust income
Chapter 9: Income Taxation of Estates
Upon completion of this chapter, the student should be able to:
1. briefly describe what an estate is
2. discuss the taxation of an estate
3. explain what income in respect of a decedent is
Chapter 10: Accounting Methods
Upon completion of this chapter, the student should be able to:
1. distinguish between the two basic accounting methods ð cash and accrual
2. describe when a particular method is indicated
3. discuss the advantages and disadvantages of each method
4. explain the requirements for each method
Chapter 11: Sole Proprietorships
Upon completion of this chapter, the student should be able to:
1. define what a sole proprietorship is
2. describe when the use of a sole proprietorship is indicated
3. discuss the advantages and disadvantages of a sole proprietorship
4. explain the requirements for a sole proprietorship
5. discuss the tax implications of a sole proprietorship
Chapter 12: Partnerships
Upon completion of this chapter, the student should be able to:
1. define what a partnership is
2. describe when the use of a partnership is indicated
3. discuss the advantages and disadvantages of a partnership
4. explain the requirements for a partnership
5. discuss the tax implications of a partnership
Chapter 13: Corporations
Upon completion of this chapter, the student should be able to:
1. define what a corporation is
2. describe when the use of a corporation is indicated
3. discuss the advantages and disadvantages of a corporation
4. explain the requirements for a corporation
5. discuss the tax implications of a corporation
Chapter 14: S Corporations
Upon completion of this chapter, the student should be able to:
1. define what an S corporation is
2. describe when the use of an S corporation is indicated
3. discuss the advantages and disadvantages of an S corporation
4. explain the requirements for an S corporation
5. discuss the tax implications of an S corporation
Chapter 15: Limited Liability Companies & Limited Liability Partnerships
Upon completion of this chapter, the student should be able to:
1. define what a limited liability company and a limited liability partnership are
2. describe when the use of a limited liability company and a limited liability partnership are indicated
3. discuss the advantages and disadvantages of a limited liability company and a limited liability partnership
4. explain the requirements for a limited liability company and a limited liability partnership
5. discuss the tax implications of a limited liability company and a limited liability partnership
Chapter 16: Cost Recovery Concepts
Upon completion of this chapter, the student should be able to:
1. define what cost recovery methods are
2. describe the various accelerated cost recovery systems
3. discuss the election to expense the cost of certain property under Section 179
4. explain recapture and how it works
5. describe amortization for intangible property
Chapter 17: Passive Activities and At-Risk Rules
Upon completion of this chapter, the student should be able to:
1. explain the purpose behind the passive activities and at-risk rules
2. briefly discuss how the passive activities and at-risk loss limitations are applied
3. describe how disallowed losses are treated
4. understand the real estate exceptions to the passive activity and at-risk rules
Chapter 18: Alternative Minimum Tax
Upon completion of this chapter, the student should be able to:
1. define what the alternative minimum tax is
2. describe how the alternative minimum tax is determined for both individuals and corporations
3. explain what are adjustments and preferences for purposes of the alternative minimum tax and their impact on the taxpayer's tax liability
4. distinguish between exclusion items versus deferral items for purposes of the alternative minimum tax
5. describe the impact of credits with respect to the alternative minimum tax
6. discuss the alternative minimum tax exemption for small corporations
Chapter 19: Charitable Contributions and Deductions
Upon completion of this chapter, the student should be able to:
1. define what qualified charities are and distinguish between private and public charities
2. discuss the different deduction limits for the different types of charities and the different types of property donated
3. describe the various carryover periods for contributions to different types of charities
4. explain the substantiation requirements for claiming a charitable deduction
Chapter 20: Basis
Upon completion of this chapter, the student should be able to:
1. define what basis is
2. describe the various methods of determining basis
3. discuss which method of determining basis applies in which situations
Chapter 21: Capital Gains and Losses
Upon completion of this chapter, the student should be able to:
1. define what a capital asset is
2. explain what Section 1231 assets are
3. discuss holding periods for purposes of determining long or short term gain or loss
4. describe the taxation of capital gains and losses
5. discuss the depreciation recapture of capital gains on certain assets
Chapter 22: Marriage and Divorce
Upon completion of this chapter, the student should be able to:
1. discuss the tax implications of marriage
2. describe the tax implications of divorce including child support and alimony, property division, and retirement plans
Chapter 23: Income in Respect of a Decedent – and Related Deductions
Upon completion of this chapter, the student should be able to:
1. define what income in respect of a decedent is
2. discuss the double taxation of income in respect of a decedent and the deduction available to mitigate the double taxation
3. describe various types of income commonly subject to income in respect of a decedent rules
Chapter 24: Timing of Income and Deductions
Upon completion of this chapter, the student should be able to:
1. describe the concept of the timing of income and deductions
2. discuss when the use of this device is indicated
3. explain the requirements for shifting income and deductions into earlier or later years as needed
4. describe the tax implications of such shifting of income and deductions
Chapter 25: Conversion of Income
Upon completion of this chapter, the student should be able to:
1. define what conversion of income is
2. discuss how to convert ordinary income into capital gain income
3. describe how and why to use retirement plans to hold ordinary income or tax inefficient investments
4. explain how to convert interest income into qualifying dividends
5. discuss how to convert compensation that would otherwise be taxed as ordinary income into capital gain
Chapter 26: Alternative Minimum Tax Planning
Upon completion of this chapter, the student should be able to:
1. define what alternative minimum tax planning is
2. identify alternative minimum tax traps
3. discuss the alternative minimum tax planning techniques
Chapter 27: Stock Option Planning
Upon completion of this chapter, the student should be able to:
1. define what stock options are
2. distinguish between incentive stock options and nonqualified stock options
3. discuss the different strategies for exercising incentive stock options and nonqualified stock options
Chapter 28: Charitable Planning
Upon completion of this chapter, the student should be able to:
1. briefly discuss the various types of charitable gifts
2. describe the rules for partial interest gifts to charities
Chapter 29: Changing Accounting Methods
Upon completion of this chapter, the student should be able to:
1. discuss when a change in accounting methods may be indicated
2. describe what the requirements are for changing accounting methods
Chapter 30: Like-Kind Exchanges
Upon completion of this chapter, the student should be able to:
1. define what like-kind exchanges are
2. describe the general rules applicable to like-kind exchanges
3. discuss the requirements for a like-kind exchange
4. identify non-qualifying property vs. like-kind property
5. explain what ``boot'' is and what tax implications of ``boot''
6. describe the limitation placed on transactions between related parties
7. briefly discuss multiparty exchanges, forward exchanges and reverse exchanges
Chapter 31: Planning for Sale or Exchange of Assets
Upon completion of this chapter, the student should be able to:
1. discuss several techniques for deferring gain on the sale or exchange of assets
2. describe several techniques for excluding gain on the sale or exchange of assets
3. explain several techniques for protecting the deductibility of losses on the sale or exchange of assets
Chapter 32: Retirement Income Planning
Upon completion of this chapter, the student should be able to:
1. briefly describe the various types of retirement plans
2. discuss the tax implications of distributions from a retirement plan
3. discuss the various penalty taxes that may affect the timing of taking distributions from retirement plans