Principals of Federal Income TaxJoshua D. Rosenberg
Summer, 2017
415 422 6413
Introduction and Syllabus
I hope that you will learn a lot in this course and that you will enjoy the experience. If you have any questions, problems, concerns or any suggestions that would enhance your experience, please let me know asap. I will do all I can to help you and I will promptly respond to any questions or concerns that you have. I also want to warn you: this class will require a lot of work every week for the next 7 weeks.
Learning Outcomes:
1.Understanding of the basics of Federal Income Taxation (substance and procedure).
2. Ability to read, understand and analyze the Internal Revenue Code and Regulations
3.Ability to identify tax issues that arise in business and personal situations
4. Ability to apply the IRC and regulations to identified issues.
5.Ability to undertake legal research in taxation.
6.Efficacy in problem-solving.
7.Knowledge of (and commitment to) professional and ethical responsibility.
8.Understanding of tax policy concerns.
ABA Requirements:
According to ABA Standard 310(b)(1), “a ‘credit hour’ is an amount of work that reasonably approximates: (1) not less than one hour of classroom or direct faculty instruction and two hours of out-of-class student work per week for fifteen weeks (45 hours per unit), or the equivalent amount of work over a different amount of time.” This is a 3-credit class, meaning that you should spend a minimum of 135 hours on the class over the next seven weeks (about 20 hours per week).
Course Requirements:
Below, you will see what you need to do for the course. In order to ensure that everyone has a basic understanding of what to do and how to access all of the materials,we will have a required video-conference on Monday, June 5, at 9:00 am PST. Access the video-conference here:
If you cannot attend this conference, please notify me immediately and we can arrange a substitute conference.
Assignments:
As explained below, assignments include weekly reading from the text and Internal Revenue Code, videos, problems from the text, and Review problems (20% of your grade). There are also biweekly quizzes (45% of your grade) and a final exam (65% of your grade).
Videos:
There are videosfor every topic we will cover, and the videosinclude virtually everything I would say in an in-person class. They cover everything that I think is important for you to know (and everything that will be on the final). In addition, I answer all of the problems in the text in the relevant videos.
Transcripts of the videos and copies of the slides used in the videos are available on Canvas, so you need not take a lot of notes. It will help to have a copy of the Internal Revenue Code with you when you watch, so that you can follow along. I suggest jotting down the important concepts and any questions that you have about the videos. If there is anything that you are unclear about, go through those parts of the video a second time. If you are still unclear, jot down a note about it and ask me to explain. You can either wait for the weekly video-conference (see below) to ask me or just send me a message on Canvas.
Two alerts for the videos:
(1) studies have consistently shown that people can take in information from a video for a period of somewhere between 5 and 10 minutes. Some of the videosare longer than that. I urge you to take a break every 5-10 minutes if you are watching a videothat goes beyond 10 minutes. Otherwise you will likely just get bored and not learn;
(2) some references to specific pages may be off due to changing editions.
Video-conferences:
I will hold online meetings through Zoom every week. In these, I will briefly summarize the week’s material and then ask for questions or concerns. You may ask or comment about anything (about the material or about the way the course is being taught). I welcome all questions at all levels, as well as any suggestions you have that would help you succeed in the course. These video-conferences will last until all participants have had their questions answered or their concerns addressed. You can attend a session by simply clicking where it says “ZOOM session” in the week's module.In the past, some video-conferences have been brief, so please log into the session at the beginning.
Weekly Review Problems
For each of the first six weeks there are Review problems. Your scores on these count for 20% of your grade (each weekly set of Review problems counts for 3.33 points). There is a weekly video-conference before your answers to the review problems are due, so you may ask for clarification of anything. Once you submit your answers, you can view the correct answers.
For anything you missed in your original attempt, you can still receive credit by submitting a written explanation sufficient to show me that now that you have seen the correct answers, you know why they are correct and that you understand the concepts and how they apply.
Bi-weekly Quizzes
After weeks 2, 4 and 6 there will be a quiz on the material covered during that two week period. These quizzes will count for 45% of your grade (each of the three quizzes is worth 15% of your grade). Unlike the weekly review problems, the biweekly quizzes require written answers. When taking the quizzes, please keep in mind the following:
A. Keep your answers short. You need not answer in complete paragraphs, or complete sentences or words. Feel free to use abbreviations, so long as I can know what you mean (like “AB=10;” or “gn realized=12,” or “no gn rec,” etc)
B. Cite authority for your answers. Typically a Code section or regulation section will be sufficient.
C. Unless otherwise specified, if a question asks about more than one transaction, provide the tax results for each separate transaction.
D. If a question asks for tax consequences, please include all relevant consequences, including gain/loss realized and recognized, basis consequences, and timing.
E. If you need more facts, or the answer depends on facts not provided (for example, whether a taxpayer makes a certain election), explain what else you would need to know and how it could impact the result.
Final Exam
The final exam, administered by the registrar, counts for 35% of your grade.
Your questions and suggestions:
If you have any questions about anything to do with this course—substance or process, basic or advanced, or if you are having trouble or getting frustrated with any part of the course, please let me know! If you want, you canwait for the weekly video-conference (see above) to ask me your questions or give me your comments or concerns (or complaints), but I encourage you to just send me a message on Canvas whenever anything comes up for you. I will reply to your Canvas message as soon as possible. I will reply by email unless you request either a phone call or an individual video-conference, andplease don’t hesitate to ask for the type of reply you want (email, phone, or individual video-conference. I am happy to accommodate using the kind of communication that works best for you.
Please remember that I would really like to know how I can improve the course or help you in any way, so don’t hesitate to let me know what I can do. You will receive more formal course evaluation forms towards the end of the class, but please do not wait till then to make suggestions (or to complain) to me.
Assignments by Week:
All the reading and problem assignments in this syllabus refer to readings in Fundamentals of Federal Income Taxation by Freeland, Lathrope, Lind, and Stephens, 18th edition(Assignments pegged to the 17th edition begin at p. 17 of this Introduction and Syllabus. The videos refer to pages in the 17th edition.)
The assignments include IRC sections and Treas. Reg. sections. These are listed before the reading, and are usually the same ones referred to in the text at the beginning of the reading. Some of these are very long and very complicated. I suggest that initially you briefly look at these to get an idea of what they are about. Then look more closely at them when they are discussed in the reading or if/when you do assigned problems and they may be helpful in answering the problems.
Week 1
Unit 1. Introduction
Orientation (Ch. 1A-D)
Read: pages 3-19 (just carryover paragraph). None of this is on the final, but it is helpful background.
The Tax Practitioner’s Tools (pp. 19-24 [skip the Mayo case], then 31 (last paragraph)-38)
Watch: Videos 1-3
Tax Rates and Introduction to Tax Calculations
Read: pp. 993-1001; 1003 Top)-1004 (carryover paragraph); 1006 (first full paragraph)-1007 through first full paragraph) (Ch. 27A)
Note, p. 600-601; 620 beginning at part E) 623 (carryover paragraph); 626 (beginning at part F)-629 (carryover par.) (Ch. 18A and F)
Watch: Videos 2-4
Video-conference
Review problem set 1 due
Week 2
Unit 2. Gross Income: Inclusions and Exclusions
The Scope of Section 61 (Ch. 2A)
Read: pp. 45-40
IRC Section 61
Equivocal Receipt of Financial Benefit (Ch. 2B)
Read: IRC Section 61
Treas. Reg. 1.61-1, -2(a)(1), -14(a)
Cesarini v. US, (p. 46-51)
Watch: Video 5a
Read: Old Colony Trust Co. v. CIR (p. 51-53)
Excerpt from Glenshaw Glass, p. 55 (middle of page)-56 (carryover par.)
Note (pp. 60-62)
p. 54, problems 1, 2, 6(a), (b), (e)
Watch: Video 5b
Income Without Receipt of Cash or Property (Ch. 2C)
Read: IRC Section 61
Treas. Reg. Secs. 1.61-2(a)(1), -2(d)(1).
Rev. Rul. 79-24, (p. 64)
Problem 2, p. 66
Extra Problem: Owner and Renter each have $2,000,000 cash on January 1, 2005. Owner buys a house for $2,000,000 cash on January 1, 2005, and lives in the house for one year. The house is worth the same $2,000,000 at the end of the year. Renter puts her $2,000,000 in the bank. She earns Interest of $80,000. She uses this interest to pay rent ($6,750 per month) on a $2,000,000 house, in which she lives for the year. What are the tax consequences to Owner and Renter?
Watch: Videos 5a and 5b again if you want
The Exclusion of Gifts and Inheritances
Rules of Inclusion and Exclusion (Ch. 3A)
Read: pp. 67-68
IRC Section 102(a) and (b) first sentence
Treas. Reg. Sec. 1.102-1(a) and (b)
Gifts (Ch. 3B): The Income Tax Meaning of Gift (3B1)
Read: CIR v. Duberstein (pp. 68-77) (carryover par. Only. Skip Frankfurter’s concurrence)
Note (pp. 77-78)
Problem 2, p. 78
Employee Gifts
Read: pp. 78-80
IRC Sections 102(c); 274(b); 74(c)
Problems 1, 3, p. 80
Watch: Video 6 until Bequests
Bequests, Devises, and Inheritances (Ch. 3C)
Read: IRC Section 102(a), (b) first sentence, (c)
Lyeth v. Hoey (pp. 80-85)
Problems 1(a)-(f), p. 89
Watch: Video 6
Employee Benefits
Exclusions for Fringe Benefits (Ch. 4A)
Read: pp. 91-99 (carryover par. only))
IRC Section 132(a)(1)-(4), (b), (c), (d), (e)(1), (h), (i), (j)(1)
Treas. Reg. Sec. 1.61-21(a)(1) and (2), (b)(1) and (2)
Problems 1(a)-(i), (k)-(m), pp. 101-2
Watch: Video 7
Exclusions for Meals and Lodging (Ch. 4B)
Read: IRC Section 119(a) and (b)
Hatt, (pp. 102-105)
Note (pp. 105-6)
Problems 1(a)-(c), 4, p. 106
Watch: Video 8
Health Insurance—skim IRC Section 105(b), read pp. 199 (last par. only)-200 (through first full par. on p. 200)
Scholarships and Fellowships (Ch. 5B)
Read: pp. 114-117
IRC Sections 117(a)-(d), 127(a), (b)(1), (c)(1)
Problem 1(a), (c), 2(a), (b), p. 117
Life Insurance Proceeds (Ch. 7A)
Read: pp. 161-164
IRC Sections 101(a), (c), (d), and (g)
Treas. Reg. Sec. 1.101-1(a)(1), (b)(1)
Problem 1, p. 164. Instead of problem 3(a) and (b) on p. 165, answer the following: What result to Insured if Insured bought a $100,000 life insurance policy for $40,000, and when the policy was worth $60,000 Insured sold it to Insurancebuyer for $60,000? What result 10 years later when Insured dies and Insurancebuyer collects $100,000? Then do problem 3(c) on p. 165.
Watch: Video 9
Damages and Other Recoveries for Personal Injuries (Ch. 9C)
Read: pp. 195-199 (throughcarryover par. on p. 199)
Rev Rul. 79-313 (pp. 201-203)
IRC Section 104(a) and (c)
Problems 1(a)-(f), 3(a), (c), p. 203-4
Watch: Video 10
Video-conference
Review problem set 2
Biweekly Quiz #1
Week 3
Unit 3. Introduction to Property transactions
Factors in the Determination of Gain (Ch. 6A)
Read: pp. 119-120
IRC Sections 1001(a), (b) first sentence, (c); 1011(a); 1012
Determination of Basis (Ch. 6B)
Cost as Basis (Ch. 6B1)
Read: pp. 123-124
IRC Sections 1011(a); 1012; 1016(a)(1)
Treas. Reg. Secs. 1.61-2(d)(2)(i); 1.1012-1(a)
Problems 1(a), (d), (e), pp. 124-25
Property Acquired by Gift (Ch. 6B2)
Read: IRC Section 1015(a)
Treas. Reg. Sec. 1.1015-1(a)
Problem 1 (pp. 132)
Watch: Video 11
Property Acquired Between Spouses (Ch. 6B2)
Read: pp. 133-134
IRC Section 1041(a) and (b)
Treas. Reg. Sec. 1.1041-1T(a) and (d)
Property Acquired from a Decedent (Ch. 6B4)
Read: pp. 135-137
IRC Section 1014(a), (b)(1) and (6), (e)
Problem: Joe is his mother's sole heir. When Mom is on her deathbed, Joe gives her stock (AB=$10,000, fmv=$280,000. The next day, Mom dies and Joe inherits everything including the stock. What is Joe's basis in the stock?
Watch: Video 12
The Amount Realized (Ch. 6C)
Read: IRC Section 1001(b)
Treas. Reg. Sec. 1.1001-1(a)
International Freighting Corporation, Inc. v. CIR (pp. 138-140)
CIR v. Tufts (pp. 150-155, majority opinion only); Note (p. 157)
Problem 1(a)-(e),(h), (i), p. 158
Watch: Video 13
Gain from Damages to property and Related Receipts (Ch. 9A and B)
Read: pp. 191-192
Raytheon Production Corporation v. CIR (pp. 192-193)
Note (pp. 193-194)
Problem 1(a)-(c) (p. 194)
Problem: T owns a car (fmv=$17,000, ab=$21,000). The car incurs $7,000 of damage in an accident. T recovers $7,000 from X, and she puts the money in the bank and drives a dented car.
(a) What tax consequences for T? (gain? loss? ab in car?).
(b) Is the result different if T recovers from her own insurance company? Does it matter whether the recovery comes after trial, before trial, or before any case is filed?
(c) What result if T uses the $7,000 to repair the car?
(d) What result in (a)-(c) above if T had a basis of $2,000 in the car and received $11,000 for damage to the car.
Watch: Video 14
Exclusions from Gross Income of income from property, p. 237
Gain From the Sale of a Principal Residence (Ch. 11A)
Read: IRC Section 121 (omit (d)-(g))
Treas. Reg. Sec. 1.121-1(a), (b)(1), (2) and (4) Example 1, (c)(1), -2(a)(1)-(4) Example 2, -3(b), (c)(1)-(4) Example 1, (d)(1)-(3) Example 1, (e)(1) and (2), (f), (g)(1)-(2) Example 1
"Senate Report..." pp. 236-240; Note, pp. 240-242
p. 243 Problems 1(a)-(c),(e), 2, 3
Watch: Video 15
Tax Exempt Bonds (Ch. 11D)
Read: pp. 253-258
Watch: Video 16
Unit 4. Timing
Introduction (Ch. 19A)
Read: pp. 641-646 (carryover par.)
IRC Sections 441(a)-(e); 442; 446(a)-(c); 451(a); 461(a)
The Cash Receipts and Disbursements Method (Ch. 19B)
Receipts
Read: IRC Sections 446(a)-(c); 451(a)
Cowden v. CIR (pp. 650-655)
Rev. Rul. 60-31 (pp. 724--732) (Ch. 20C2)
Note, pp. 732-733
Section 83 (Ch. 24D)
Read: pp. 931-938
Annuity Payments (Ch. 7B)
Read: pp. 165-169)
Problem 1(a)-(c) (p. 170)
Watch: Video 17
Pensions and IRA’s (Ch. 20C3)
Read: pp. 733-738
Watch: Video 18
Disbursements
Read: IRC Section 461(a) and (g)
Treas. Reg. Sec. 1.461-1(a)(1)
Rev. Rul. 54-465 (p. 660)
Note, pp. 660-662
Vander Poel, Francis & Co., Inc. v. CIR (pp. 662-664 )
Note (pp. 666-667)
Rev Rul 87-22 (pp. 669)
Problem 1(a), (c) (p. 672)
Video-conference
Review problems for week 3
Week 4
The Accrual Method
Income Items (Ch. 19C1)
Read: IRC Sections 451(a); 455
Treas. Reg. Sec. 1.451-1(a)
New Capital Hotel, Inc. v. CIR (pp. 680-682)
Artnell Co. v. CIR (pp. 682-686)
Note (pp. 687-693)
Deduction Items (Ch. 19C2)
Read: IRC Section 461(a), (f), and (h)
Treas. Reg. Secs. 1.461-1(a)(2), -4(a), -5(a) and (b)(1)
Note (pp. 699-704)
Problems 1 and 3 (pp. 704-705)
Watch: Video 19
Nonrecognition Provisions
Introduction (Ch. 26A)
Read: pp. 953-955
Like Kind Exchange Requirements (Ch. 26B1)
Read: IRC Sections 1001(c); 1031; 1223(1)
Note (p. 958-959)
Note (pp. 966-967)
Three-Cornered Exchanges (Ch. 26B2)
Read: IRC Sections 1031(k)-1(a), (b), (c)(1) and (4)(i), (f)
Pp. 969-974
Problem 2(a), (b) (skip (b)(4)), 4(c), (d)), p. 974-976
Watch: Videos 20, 21
Involuntary Conversions (Ch. 26C)
Read: pp. 976-977
IRC Sections 1001(c); 1033; 1223(1)
Rev Rul 76-319 (pp. 982-983)
Watch: Video 22
Unit 5. Assignment of Income—Who is taxed
Basics of Assignment
Introduction (Ch. 12A)
Read: pp. 261-263
IRC Section 1(a)-(e), (h)
Income from Services (Ch. 12B)
Read: Lucas v. Earl (pp. 263-264)
Rev. Rul. 74-581 (pp. 272-274)
Watch: Video 23
Income from Property (Ch. 12C)
Read: Helvering v. Horst (pp. 274-278)
Estate of Stranahan v. CIR (pp. 281-285)
Salvatore v. CIR (285-288)
Note (pp. 290-294)
Problem 1, (skip. (d)); 2(a) and (b), pp. 294-295
Watch: Video 24
Indirect Assignment of Income: Imputed Interest (Ch. 16B)
Read: pp. 515 (start with last paragraph)-522
IRC Sections 163(a); Code section 7872(a); (b)(1); (c); (d); (e); (f)(3)
Problem: Law Student borrows $100,000 (over 3 years of school) from Grandma to finance her law school education. Grandma does not charge Law Student interest. What result to Grandma? What result if Grandma lent Student only $80,000? $8,000 (assume Law student begins work at a firm right after school, but has no investment income)
Watch: Video 25
Separation and Divorce
Alimony and Separate Maintenance Payments (Ch. 10A)
Read: pp. 205-213
IRC Sections 71(a), (b), (c)(1); 215(a) and (b); 7701(a)(17)
Problem 1(a)-(d), (f), (g), p. 213-214
Note (pp. 216-217)
Property Settlements (Ch. 10B)
Read: pp. 218-222
IRC Sections 1041; 1015(e)
Treas. Reg. Sec. 1.1041-1T(b)
Other Tax Aspects of Divorce (Ch. 10C)
Read: pp. 228-229
Problem 1(a), p. 229
Watch: Video 26
Income Producing Entities (No reading)
Video-conference
Review problem set for week 4
Biweekly Quiz #2
Week 5
Unit 6. Business (and investment) Deductions
Introduction (Ch. 14A)
Read: pp. 335-337
The Anatomy of the Business Deduction Workhorse: Section 162 (Ch. 14B)
Ordinary and Necessary (Ch. 14B1)
Read: IRC Section 162(a)
Treas. Reg. Sec. 1.162-1(a)
Expenses (Ch. 14B2)
Read: pp. 340-343
IRC Sections 162(a); 263(a)
Treas. Reg. Sec. 1.162-4
Midland Empire Packing Co. v. CIR (pp. 344-347)
Note (pp. 347-351)
Problem 1, p. 360, but use the following numbers: (a) $1,700; (b) $14,000; (d) $41,000
Starr’s Estate v. CIR (pp. 403-406)
Watch: Video 28
Carrying on Business (Ch. 14B3)
Read: IRC Sections 162(a); 195; 262
Morton Frank v. CIR (pp. 361-363)
Note (pp. 363-368)
Problem 1(a), (b); 2(a)-(d) (p. 368)
Specific Business Deduction(s)
Salaries (Ch. 14C1)
Read: IRC Sections 162(a)(1), (m); 280G
Treas. Reg. Sec. 1.162-7, -8, -9
Note (pp. 381-383)
Watch: Video 29
Travel Away From Home
Read: IRC Sections 162(a)(2), 162(a) second to last sentence; 274(n)
Treas. Reg. Sec. 1.162-2 (omit -2(c))
Rev. Rul. 99-7 (pp. 398-401)
Problems 1, 2(a), (c), 3, 4(a), (c), 5(a), (b), (c), pp. 402-403
Watch: Video 30
Expenses for Education (14C4)
Read: IRC Sections 162(a); 262; 274(m)(2)
Treas. Reg. Sec. 1.162-5(a), (b)(1), (2)(i), (3)(i), (c), (e)(i)
Problems 1-4, pp. 416-417
Problem 5, p. 463
Watch: Video 31
Miscellaneous Business Deductions (14D)
Introduction (14D1)
Read: pp. 417-424
IRC Sections 162(a); 274(a), (d), (e), (k), (l) and (n)
Treas. Regs. Secs. 1.162-20(a)(2); 1.274-2(a)(1), (c)-(d)
Problems 1(a)-(b), pp. 424)
Watch: Video 32
Business Losses (Ch. 14D2)
Read: pp. 425-427
IRC Sections 165(c); 280B
Problem 1, p. 427
Watch: Video 33
Depreciation (Ch. 14E)
Introduction (14E1)
Read: pp. 428-437 (through “conventions”)
Depletion (p. 438)
IRC Sections 167(a), (c); 168(a)-(c), (e)(1) and (2), (f)(1) and (5), (g)(1), (2), and (7), (i)(1); 1016(a)(2)
Treas. Regs. Secs. 1.162-4; 1.167(a)-1(a), -10; 1.167(b)-1(a), -2(a)
Simon v. CIR (pp. 444-452)
Depreciation Rules for Personal Property (Ch. 14E2)
Read: pp. 453-462
IRC Sections 167(a), (c)(1); 168(a)-(c), (d)(1), (3) and (4)(A) and (C), (e)(1) and (3), (f)(1) and (5), (g)(1)(E), (2), (3)(D), and (7), (i)(1), (k)(1), (2)(A) and (F), (6); 179 (omit (b)(6), (d)(4)-(9)); 280F(a), (b), (d) (omit (b)(6), (d)(6)(C) and (D) and (9) and (10))
Problems 1(b), (d), 2(a), (3)(a), p. 462-463
Watch: Videos 34 and 35 (watch the last part of 35 (regarding peal property) after the assignment below)
Special Rules on Realty (Ch. 14E3)
Read: pp. 463-466
IRC Sections 168(a), (b)(3)(A) and (B) and (4), (c)(1), (d)(2) and (4)(B), (e)(2), (f)(5)(B)(i), (g)(1)(E), (2), and (7)
Problem 1(a), (b) (p. 467)
Watch: the rest of tape 35 if you have not already seen it
Video-conference
Review problem set for week 5