Post on 12-Mar-2016
description
805
INDEX
A
Above the line deductions, 442 Accelerated cost recovery system (ACRS), 436
Acceptance of offer, 156 Accident benefits, taxability of, 418 Accommodation party, 242 Accounting methods
Tax, 427 Accrual basis, 428 Accumulated adjustments account, 651
Accumulated earnings and profits, 642, 651
Accumulated earnings tax, 645 Acquisition indebtedness, 450
Stock purchase treated as, 644 Active income, 435 Active participation, 436 Actual (compensatory) damages, 175 Adjusted gross income, 442, 447 Adjustments to AMTI, 462, 631 Adoption expenses
Credit for, 468 Paid by employer, 419
Adverse possession, 393 Affiliated corporations, 640 Age Discrimination in Employment Act, 352
Agency Agent
Characteristics of, 329 Obligations of, 331
Coupled with an interest, 330 Creation of, 331 Employer/employee relationships, 329, 347
Independent contractor, 329 Partnership relationships, 108, 112 Principal
Obligations of, 332 Termination of, 335
Notice of termination, 335 AICPA Content and Skills Specification Outlines, 27
Alcohol fuels credit, 464 Alimony recapture, 423 Alimony, tax treatment
Payments, 446 Receipts, 423
Alternate valuation date, 718 Alternative depreciation system (ADS), 437
Alternative minimum tax, 461, 631 Americans with Disabilities Act of 1990, 352, 465
Amortization, tax purposes, 440 Annuities
Taxability of, 417, 424 Antecedent debt, 289 Anticipatory breach, 174
Anticybersquatting Consumer Protection Act, 387
Arbitration, 176 Articles of copartnership, 109 Articles of Incorporation, 124 Artisan’s lien, 309 Assessments, tax, 449, 473 Assignment
For benefit of creditors, 310 Of contracts, 170 Of income, 417 Of negotiable instruments, 233 Of partnership interests, 112, 116
Assumption of liabilities Partnerships, 591 Sales and exchanges, 552
At-risk limitation, 434, 588, 650 Attachment
Of security interests, 267 Perfection by, 268 Writ of, 309
Auctions, 158 Audit and appeal procedures, 472, 729
Authorized stock, 124 Automatic expulsion from AICPA, 38 Automatic perfection, 268 Averaging convention, 437 Awards, taxability of, 425
B
Bad debt, deductibility of Business, 432, 637 Nonbusiness, 432
Bailment, 381 Banker’s acceptance, 243 Bankruptcy, 238, 284
Administration costs, 292 Alternatives to, 284 Assignment for benefit of creditors, 310
Automatic stay of other legal proceedings, 287
Chapter 7, 285, 287 Chapter 11, 295 Chapter 13, 296 Claims to debtor’s estate, 291
Filing of, 291 Priority of, 291 Proof of, 291
Discharge, 293 Nondischargeable debts, 293 Reaffirmation of, 294 Revocation of, 294
Equity sense vs. bankruptcy sense, 287
Exempt entities, 287 Involuntary bankruptcy petitions, 286 Preferential transfers, 290 Priority of claims, 291 Proceedings, 287 Receiverships, 284
Trustee in bankruptcy, 287 As a lien creditor, 272 Duties and powers of, 287, 288 Exceptions to trustee’s power to avoid preferential transfers, 290
Types of proceedings Business reorganizations, 295 Debt adjustment plans, 296 Liquidation, 287
Voluntary bankruptcy petitions, 285 Banks, 244 Bargain and sale deeds, 391 Basis
Nonliquidating distributions, 596 Basis of accounting
Accrual, 428 Cash, 427, 594
Basis of partnership interests, 590 Basis of property
Carryover, 643 Estate, 719 Exchanges, 551 Gifts, 548, 717 In general, 548 In liquidation, 643 Partnership, 587, 598
Battle of forms, 197 Bearer paper, 232, 234 Beneficiaries, tax treatment of, 721 Bequest, 420 Bill of lading, 200, 246 Blank endorsement, 233 Blue-sky laws, 91 Bonds
Corporate, 126 Surety, 319
Bonds, market discount, 556 Boot, 552, 628 Breach of contract, 39, 174, 237 Brother-sister corporations, 640 Business energy credit, 464 Business expenses, deductibility of
By employees, 442, 456 By proprietor, 430
Business gifts, 432 Business income, tax purposes, 422, 430
Business property, gains and losses on, 562, 565
Capital gains treatment, 562, 565 Classification of, 565 Ordinary, 562, 565 Recapture rules
Section 291, 565 Section 1245, 563 Section 1250, 564
Section 1231, 562, 565 Business reorganizations, 295 Business use of home, 434 Buyers in the ordinary course of business, 271
COPYRIG
HTED M
ATERIAL
806 Index
C
Callable (or redeemable) stock, 126 Canceled stock, 124 Capital assets, 559 Capital expenditures, 448 Capital gains and losses, 559
Carryovers, 560, 637 Corporate, 561, 637 Holding period, 559 Individual, 422, 454, 560 Netting of, 560 Rollover of capital gain
On securities, 556 Capital gains exclusion for small business stock, 556
Capital surplus, 125 Capitalization of interest, tax purposes, 431
Capitalization of interest cost Tax purposes, 431
Carryforwards/carrybacks Of capital gains and losses, 561, 637 Of net operating losses, 433, 637
Cash basis, 427, 594 Casualty gains and losses, 454, 561, 637
Charitable gifts, 717 Checks, 228
Types of, 244 Child support, tax treatment
Payments, 424 Receipts, 417, 424
Child tax credit, 468 Civil liability, 84, 88 Civil Rights Act, 351 Claims for refund, 473 Claims to debtor’s estate, 291 Clean Air Act, 356 Clean Water Act, 357 Closely held C corporation, 435, 436 Closing agreement, 473 Collateral, 266
Types, 266 Collection from transferees and fiduciaries, 473
Combined corporations, 641 Common stock, 125 Compensation, taxability of, 422 Compensatory (actual) damages, 175 Composition agreement, 284, 310 Comprehensive Environmental, Compensation, and Liability Act, 358
Compromise, 473 Computer Matching and Privacy Act, 387
Computer technology rights, 382 Concurrent interest in real property, 389
Conduit, 585, 720 Consent dividends, 645 Consequential damages, 207 Consideration for contract, 160, 237 Consignments, 200, 270 Consolidations, 131 Consolidations, tax treatment, 653
Construction bonds, 319 Constructive eviction, 397 Constructive fraud, 41 Constructive receipt, 428 Constructive stock ownership, 557 Contingent expenses, deductibility of, 429
Contract price, 429 Contracts, 153
Acceptance of offer, 156 Against public policy, 164 Assignment of, 170 Battle of forms problem, 197 Consideration for, 160, 237 Delegation of, 170 Discharge of, 173 Essential elements of, 153, 154 Legal capacity, 163 Legality of, 164 Modification of, 162, 167, 198 Offer, 154
Auctions, 158 Termination of, 155
Online, 169 Parol evidence rule, 168 Performance, 173 Remedies for breach of contract, 175 Statute of Frauds, 165 Statute of limitations, 208 Types of, 154
Third-party beneficiary contracts, 171, 313
Uniform Commercial Code Rules, 195
Void/voidable contracts, 154, 163 Contribution, right of, 318 Contributions
Deductibility of Charitable
Corporate, 634 Individual, 452, 456 Nondeductible, 452 Qualified organizations, 452
To retirement plans By employer, 637 By self, 444
Contributory negligence, 41, 205 Controlled corporations, 640
Transfers to, 628 Controlled group, 558, 640 Controlled partnerships, transactions with, 592
Convertible stock, 126 Copyright law, 382 Copyrights, amortization of, 440 Corporate reorganizations, 653 Corporate taxation, 628, 725
Accumulated earnings tax, 645 Affiliated corporations, 640 Alternative minimum tax, 631 Calculation of tax, 637 Capital gains and losses, 559, 561, 637
Controlled corporations, 640 Transfers to, 628
Deductions, 633 Dividends and distributions, 641, 643
Dividends received deduction, 635 Earnings and profits, 642 Exempt organizations, 722 Filing and payment of tax, 630 Form 1120, 414, 630, 639 Individual taxation, variations from, 630
Liquidations, 643 Losses
Capital, 637 Net operating, 637 Ordinary, 636
Personal holding companies, 645 Reconciling book and tax income, 638
Reorganization, 653 Small business corporation stock (Sec. 1244), 629
Stock redemptions, 643 Tax rates, 630
Corporations Advantages of, 121 Articles of Incorporation, 123 Characteristics of, 121 Corporate structure
Substantial change in, 131 Directors, 127 Financial structure, 124 Formation of, 123 Officers, 127, 129 Promoters, 123 Stock
Classes of, 125 Definitions, 124 Marketing of, 126
Stockholders’ liability, 121, 131 Stockholders’ rights, 129 Types of, 122 Ultra vires acts, 127, 128
Cosureties, 318 Credit for the elderly and the disabled, 465
Creditor beneficiary, 171 Creditors’ agreement, 310 Credits, tax, 417, 463 Criminal liability, 48, 85, 88 Crummey trust, 716 Current earnings and profits, 642
D
Damages, 41, 45, 46, 175, 206 Mitigation of, 175, 207
Damages, taxability of, 419 De facto corporations, 123 De jure corporations, 123 De minimis fringes, 419 Death benefits, taxability of, 418 Debt
Discharge of Taxability of, 421
Discharge of indebtness, taxability, 421
Debt adjustment plans, 296 Debt-financed portfolio stock, 635 Debtor-creditor relationships, 309
Attachment, 309 Composition agreements, 310
Index 807
Construction bonds, 319 Contracts, surety and guaranty, 312 Cosureties, 318
Contribution, right of, 318 Discharge or release of, 319 Joint and several liability, 318
Creditors Assignment for the benefit of, 310 Composition agreement with, 310 Rights and remedies of, 314
Equal Credit Opportunity Act, 311 Exoneration, right of, 315, 319 Fair Credit Billing Act, 311 Fair Credit Reporting Act, 311 Fair Debt Collection Practices Act, 311
Fidelity bonds, 320 Garnishment, 310 Guarantor, 312
Capacity to act as, 314 Defenses, 315 Rights and remedies of, 315
Guaranty, 312 Contracts, 312
Homestead exemption, 311 Liens, 309 Performance bonds, 319 Reimbursement, right of, 315, 319 Rights and duties of, 309 Subrogation, right of, 315, 319 Surety, 312
Bonds, 319 Defenses of, 315 Rights and remedies of, 315
Truth-in-Lending Act, 311 Debts not discharged in bankruptcy, 293
Decedent, 425 Deductions from gross income
Corporate taxation, 633 Individual taxation, 417
Above the line, 442 Business, 430 Itemized, 447 Standard, 447
Partnership taxation, 587 Deed of trust, 396 Deeds, 391 Default, 272 Defined benefit pension plan, 637 Defined contribution pension plan, 637
Del credere, 330 Delegation of contracts, 170 Dental expenses, deductibility of, 447 Dependent care assistance, 419 Depletion, income tax purposes, 436, 440, 637
Depreciation Accelerated cost recovery system (ACRS), 436
Recapture, 430, 563 Depreciation, income tax purposes, 436, 637
Accelerated cost recovery system (ACRS), 436
Alternative depreciation system, 437
Modified accelerated cost recovery system (MACRS), 436
Derivative lawsuit, 130 Devises, 420 Digital Millennium Copyright Act, 387
Direct Public Offerings (DPO), 91 Disabled, credit for elderly and, 465 Disabled access credit, 464 Discharge
Of bankrupt, 293 Of contractual obligation, 173 Of liability on negotiable instrument, 242
Discharge of indebtedness, 421 Disciplinary systems, 38 Disclaimer of warranty, 204 Distributable net income, 721 Distributions, income tax purposes
From corporations, 641 Liquidations, 643 Stock redemptions, 643
From estates/trusts, 720 From partnerships, 595
Dividends, 130 Tax treatment
Payment of, 641 Receipt of
By corporations, 635 By individuals, 418, 420, 422, 429
By partnerships, 587 Doctrine of substantial performance, 173
Domestic corporation, 122 Donee beneficiary, 172 Drafts, 228, 243 Due diligence, 85 Due negotiation, 246 Dues, 432 Duress, 160
E
Earned income, 445 Earned income credit, 467 Earnings and profits, 643 Easement by prescription, 393 Economic effect, 589 Education expenses, tax treatment
Paid by self, 456 Paid via assistance, 419, 420, 717 Savings bonds for, 420
Education IRA, 445 Education loans
Deduction for interest on, 446 Embezzlement income, 426 Emergency Planning, and Community Right-to-Know Act, 359
Employee achievement awards, 426 Employee benefits, 350, 353 Employee benefits, taxability of, 418, 419
Employee business expenses, deductibility of, 442, 456
Employee discount, 419
Employee Retirement Income Security Act (ERISA), 354
Employee safety, 351 Employee stock purchase plan, 425 Employer social security credit, 465 Employer supplemental unemployment benefits, 425
Employer/employee relationships, 329, 347
Employer-provided child care credit, 465
Employment discrimination, 351 Empowerment zone employment credit, 465
Endangered Species Act, 359 Endorsement of negotiable instruments, 233
Entertainment expenses, deductibility of, 431
Environmental Compliance Audits, 359
Environmental liability, 355 Environmental Protection Agency (EPA), 356
Environmental regulation, 355 Clean Air Act, 356 Clean Water Act, 357 Comprehensive Environmental, Compensation, and Liability Act (CERCLA), 358
Emergency Planning, and Community Right-to-Know Act, 359
Endangered Species Act, 359 Federal Environmental Pesticide Control Act, 358
Federal Insecticide, Fungicide, and Rodenticide Act, 358
International protection of ozone layer, 359
Marine Protection, Research, and Sanctuaries Act, 359
National Environmental Policy Act, 356
Noise Control Act, 358 Nuclear Waste Policy Act, 359 Oil Pollution Act, 357 Pollution Prevention Act, 359 Resource Conservation and Recovery Act, 358
Safe Drinking Water Act, 357 Toxic Substance Control Act, 358
Equal Credit Opportunity Act, 311 Equal Employment Opportunity Commission, 353
Equal Pay Act, 352 Error, knowledge of, 54 E-SIGN Act, 169 Estate tax, 719
Alternate valuation date, 718 Basis of property, 719 Computation of, 718 Deductions, 719 Generation-skipping tax, 720 Gross estate, 718 Income in respect of a decedent, 425
808 Index
Property acquired from a decedent, 549
Estates Intestate succession, 380
Estates and trusts, taxation of Beneficiaries, 720 Computation of tax, 718 Termination of, 722
Estimated tax payments, 470 Estoppel
Promissory, 162 Exchanges, taxability of, 551 Exclusions from gross income, 417 Exculpatory clause, 165 Exempt organization, 722 Exempt securities, 82, 86 Exemptions, 457 Exoneration, right of, 315, 319 Expenses of Elementary and Secondary Teachers, 447
Express warranties, 203 Expulsion from AICPA, 38 Extraordinary dividend, 636
F
Fair Credit Billing Act, 311 Fair Credit Reporting Act, 311 Fair Debt Collection Practices Act, 311
Fair Labor Standards Act, 465 Family and Medical Leave Act, 353 Family Educational Rights and Privacy Act, 387
Family partnerships, 590 Federal Consolidated Budget Reconciliation Act, 354
Federal Counterfeit Access Device and Computer Fraud and Abuse Act, 385
Federal Employee Polygraph Protection Act, 355
Federal Environmental Pesticide Control Act, 358
Federal Fair Labor Standards Act, 353
Federal Insecticide, Fungicide, and Rodenticide Act, 358
Federal Insurance Contributions Act (FICA), 346
Federal Social Security Act, 345 Federal Unemployment Tax Act (FUTA), 346, 462
Fee simple, 388 Fellowships, taxability of, 421 FICA tax, 462 Fictitious name statutes, 109 Fictitious payee rule, 243 Fidelity bonds, 320 Fiduciary duty, 111, 128, 130 Field warehousing, 270 Fifty percent (50%) reduction rule, 431
Filing requirements Corporate taxation, 628 Estate tax, 718 Gift tax, 716
Individual taxation, 470 Filing status, 460 Financing statement, filing, 268 Fines, 430 Fitness for a particular purpose, warranty of, 204
Fixed amount, 230 Fixtures, 380 Foreign corporations, 122 Foreign Corrupt Practices Act, 89 Foreign earned income exclusion, 422 Foreign tax credit, 467 Foreseeable third party, 43 Foreseen third party, 43 Forgery, 238
Fictitious payee rule, 243 Imposter rule, 242
Fraud, 39, 158, 238 Fringe benefits, taxability of, 419, 652 Future interest in real property, 389
G
Gains and losses, tax treatment Between related parties, 557, 592, 636
Personal casualty and theft, 454, 561, 637
Gambling winnings/losses, tax treatment, 426, 457
Garnishment, 310 General business credit, 463 Generation-skipping tax, 720 Gift tax
Annual exclusion, 716 Basis of property, 717 Computation of, 716 Exclusions, 717 Generation-skipping tax, 720
Gifts Basis of, 548 Deductibility of, 453
Business gifts, 432 Exempt organizations, 722 Taxability of, 420
Nontaxable gifts, 716 Gifts of property, 380 Gift-splitting, 717 Good faith, 173, 198, 236 Grant deeds, 391 Gross income
Individual, 417, 422 Of business, 430
Gross negligence, 41 Group-term life insurance, 418 Guaranteed payments, 590 Guarantor of debt, 432 Guaranty contracts, 166, 312
H
Head of household status, 461 Health benefits, taxability of, 418 Health Insurance Portability and Accountability Act, 353
Hobby-loss rules, 432 Holder in due course, 235
Rights of, 237
Holder through a holder in due course, 239
Holding period, 559, 586 Home equity indebtedness, 450 Homestead exemption, 311 Hope Scholarship credit, 468
I
Identification of goods, 207 Illegal income, taxability of, 426 Illegality
Of commercial paper, 238 Of contracts, 164
Implied warranties, 203 Imposter rule, 242 Imputed interest, 422 Incentive stock option, 425 Incidental beneficiary, 172 Income distribution deduction, 721 Income in respect of a decedent, 425 Income tax deductibility, 449 Income tax return preparers, 53 Income tax returns
Form 1040 (Individuals), 412 Form 1065 (Partnerships), 413, 585 Form 1120 (Corporations), 414, 630
Income taxes Corporate, 630 Estate, 718 Gift, 716 Individual, 417 Partnerships, 587 Property transactions, 548 Trusts, 720
Incompetence, 163 Indemnity contract, 314 Independent contractor, 329, 347 Individual Retirement Account (IRA), 444
Individual taxation, 417 Alternative minimum tax, 461 Calculation of tax, 459 Deductions, 417
Above the line, 442 Business, 430
At-risk limitation, 434 Itemized, 447 Standard, 447
Depreciation, depletion, and amortization, 436
Estimated tax payments, 470 Exclusions, 417 Exemptions, 457 Filing requirements, 470 Filing status, 460 Gross income, 417, 422
Of a business, 430 Passive activities, 435 Tax accounting methods, 427 Tax procedures, 472 Tax rate schedules, 459 Tax tables, 459
Infancy, 238 Inheritances
Basis of, 549 Holding period of, 560 Taxability of, 420
Index 809
Injunction, 175 Innkeeper’s lien, 309 Innocent misrepresentation, 159 Insiders, 80
Preferential transfers to, 289 Reporting requirements of, 89
Insolvency, bankruptcy vs. equity sense, 287
Insolvent financial institutions, 557 Installment sales method
Tax reporting, 429 Insurable interest, 208 Insurance
Insurable interest, 208 Malpractice insurance, 48
Insurance policies, exchange of, 555 Insurance premiums, tax treatment
Paid by employer, 418 Paid by self-employed individual, 443
Insurance proceeds, taxability of, 418 Intangible assets
Section 197, 441 Tax treatment, 441
Intellectual property rights, 382 Interest expense, deductibility of
Education loan, 446 Investment interest, 451 Personal interest, 450 Qualified residence interest, 450
Acquisition indebtedness, 450 Home equity indebtedness, 450
Interest income Nontaxable, 420 Taxable, 422
Interest on overpayment of tax, 473 Interests in real property, 388 Internal Revenue Code
Section 179, expense deduction, 438, 563, 587
Section 197 intangibles, 441 Section 267, related taxpayers, 553 Section 291 recapture, preference items, 430, 565
Section 332, liquidations of subsidiaries, 644
Section 338, stock purchases treated as acquisitions, 644, 649
Section 351 transfers to controlled corporations, 628, 643
Section 381, NOL carryovers in acquisitions, 654
Section 382, NOL carryforwards and built-in losses after ownership change, 655
Section 465, at-risk limitations, 588, 650
Section 469, passive activity loss limitations, 589, 650
Section 751, unrealized receivables or inventory items, 595
Section 1231, business assets, 454, 560, 562, 563, 565, 587, 642
Section 1244, small business stock, 629
Section 1245 recapture, depreciable property, 430, 563, 565, 586, 595
Section 1250 recapture, depreciable realty, 430, 562, 564, 586
Section 1252 recapture, farm land, 595
Section 1366, pass-through to shareholders, 650
Section 2503(c), trusts for minors, 716
International protection of ozone layer, 359
Intestate succession, 380 Inurement, 723 Invasion of privacy, 387 Inventory, 430 Investment interest, 451 Involuntary bankruptcy, 286 Involuntary conversions
Tax treatment, 553 Itemized deductions, 447
Casualty and theft losses, 454 Charitable contributions, 452 Interest expense, 450 Medical and dental expenses, 447 Miscellaneous, 456 Taxes, 449
J
Joint and several liability, 113, 358 Joint return, 458, 460 Joint tenancy, 389 Joint venture, 117, 585 Judgment lien, 310 Jury duty pay, deductibility of, 446
K
Keogh plans, 444 Kickbacks, 430
L
Leasehold improvements Cost recovery of, 438 Taxability of, 422
Leases, 208, 396 Legal capacity to contract, 163 Legality
Of commercial paper, 238 Of contracts, 164
Liabilities Assumption of
Partnerships, 591 Sales and exchanges, 551, 552
Liability of parties of negotiable instruments, 240
Liens, 272, 289, 309, 394 Life insurance proceeds, taxability of, 418
Life interest, 389 Lifetime learning credit, 468 LIFO recapture, 647 Like-kind exchange, 551, 560 Limited liability, 121 Limited liability companies (LLC), 118
Limited liability partnerships (LLP), 120
Limited partnerships, 115
Liquidated damage clause, 175 Liquidation (Chapter 7), 287 Liquidations, corporate, 643
Of subsidiary, 644 Long-term construction contracts
Tax rules, 430 Losses
Tax treatment Between related parties, 557, 592, 636
Net operating losses Corporate, 637 Individual, 433
On deposits in insolvent financial institutions, 557
Passive activity, 435 Personal casualty and theft, 454, 561, 637
Low-income housing credit, 464
M
Making work pay credit, 470 Malpractice, 48 Marine Protection, Research, and Sanctuaries Act, 359
Market discount bonds, 556 Material alteration of negotiable instruments, 238
Material participation, 435 Materialman’s lien, 309 Meals and lodging provided by employer, taxability of, 419
Meals expense, deductibility of, 431 Mechanic’s lien, 309 Medical expenses, deductibility of, 447
Medical savings account (MSA), 419 Merchant, 196 Merchantability, warranty of, 203 Mergers, 131
Tax treatment, 653 Midquarter convention, 437 Minimum tax credit, 462, 632 Minority, 163, 238 Miscellaneous itemized deductions, 456
Misrepresentation, 158 Mistake, 155, 160 Mitigation of damages, 175, 207 Model Business Corporation Act, 126 Modified Accelerated Cost Recovery System (MACRS), 436
Money order, 243 Mortgages, 394 Moving expenses, tax treatment
Paid by employer, 419 Paid by self, 443
Multiple support agreement, 458 Municipal bonds, 420 Mutual mistake, 160
N
National Environmental Policy Act, 356
National Labor Relations Act, 353 Negligence, 40, 204
810 Index
Negotiable instruments, 228 Ambiguities in, 232 Assignment of, 233 Banks, 244 Bearer paper, 232, 234 Certificates of deposit, 229 Checks, 228
Types of, 244 Discharge of parties, 242 Documents of title, 245, 247 Drafts, 228
Types of, 243 Endorsements, 233 Forgery, 238
Fictitious payee rule, 242 Imposter rule, 242
General concepts, 227 Holder in due course, 235, 239
Holder through a holder in due course, 239
Rights of, 237 Liability of parties, 240
Accommodation party, 242 Contractual liability, 240 For forged instruments, 242 Primary and secondary, 240 Warranty liability, 240
Material alteration of, 238 Negotiability, requirements of, 229 Negotiation, 233
By agent, 241 By endorsement, 233
Notes, 228 Order paper, 232, 233 Personal defenses, 237 Presentment, 241 Promissory notes, 228 Real defenses, 237, 238 Securities law and, 82 Shelter provision, 239 Stop payment orders, 245 Types of, 228 UCC Article 3, 228 Warranties, 241 Warranty liability, 241
Net operating losses Corporate, 637
Ninety (90)-day letter, 472 No additional-cost services, 419 Noise Control Act, 357 Nonbusiness bad debt, 432 Nonpossessory interests in land, 390 Non-pro-rata distributions, 597 Nonqualified stock option, 425 Nonrecourse financing, 434 Nontaxable exchanges, 551, 560 Novation, 123, 173, 395 Nuclear Waste Policy Act, 359
O
Occupational Safety and Health Act (OSHA), 351
Offer to contract, 154 Oil Pollution Act, 357 Online contracts, 169 Order paper, 232, 233 Ordinary and necessary expenses, 430
Outside salesman expenses, deductibility of, 456
P
Parent-subsidiary relationship, 640 Parol evidence rule, 168 Partnership agreement, 110 Partnership taxation, 585
Cash method, use of, 594 Continuation of partnership, 594 Controlled partnerships, transactions with, 592
Form 1065, 585 Partnership agreements, 589 Partnership distributions, 588, 595 Partnership formation, 586 Partnership income/loss, 587
At-risk limitations, 588 Calculation of, 588
Partnership interest Basis of, 590 Sale of, 595
Partnership property, basis of, 586, 598 Optional adjustment to, 598 Passive activities, 589
Taxable year, 593 Termination of partnership, 594
Partnerships, 108, 121, 122, 132 Admission of partners, 111, 112, 116 Agency relationship, 109 Characteristics of, 109 Fiduciary duty, 108, 111 Formation of, 109 Interests in, 110
Assignment of, 110 Joint and several liability, 113 Joint ventures, 117 Limited, 109, 115
Assignment of interest, 116 Creation of, 115 Termination of, 117
Limited liability companies, 118 Limited liability partnerships, 120 Nature of, 108 Partners
Capacity to be, 109 General
Authority of, 111 Liability of, 113 Rights of, 110, 116
Limited, 115 Liability of, 115 Rights of, 116
Partnership property, 110 Profits and losses, 111, 116 Relationship to third parties, 112 Termination of
Dissolution, 114, 117 Notice of, 115
Distribution of property, 114 Winding up, 117
Withdrawal of partner, 113 Passive activities, 435, 589, 650, 653
Credits, 435 Limitation rules, 436 Losses, 435 Rental, 436
Pass-through entity, 585, 648 Past consideration, 162 Patent law, 383 Patents, amortization of, 440 Penalties
Imposed on tax preparers, 56 On premature withdrawals, 446 Taxpayer, 473
Pensions, 354 Benefits, taxability of, 424 Employer’s contribution to, 637 Taxability of, 424
Percentage-of-completion method Tax reporting, 430
Perfecting a security interest, 267 By attachment, 268
Purchase money security interest in consumer goods, 268
By control of collateral, 268 By filing a financing statement, 268
Performance bonds, 319 Performance of contract, 173 Periodic tenancy, 396 Personal casualty and theft losses, 454, 561, 637
Personal defenses, 237 Personal exemptions, 458 Personal holding companies, 645 Personal interest, 450 Personal property, 437 Personal property taxes deductibility, 449
Piercing the corporate veil, 131 Political contributions, taxability of, 421
Political gifts, 717 Pollution control facilities cost, amortization of, 440
Pollution Prevention Act, 359 Portfolio income, 435 Preemptive right, 130 Preferences, tax, 462, 631 Preferential transfers in bankruptcy proceedings, 290
Preferred stock, 125 Pregnancy Discrimination Act, 352 Premature withdrawals, 446 Preparer (income tax), 53 Present interest, 716 Presentment warranty, 241 Principal (in agency relationship), 329
Obligations of, 331 Privacy Acts, 387 Private activity bonds, 420 Privileged communication, 46 Privity of contract, 39, 42, 205 Prizes, taxability of, 425 Pro rata distributions, 595 Product liability, 203
Negligance, 204 Strict liability, 205 Warranty liability, 203
Disclaimers, 204 Professional corporations, 122 Professional responsibilities, 37
Accountant’s legal liability, 39
Index 811
Common law liability To clients, 39 To nonclients, 42
Criminal liability, 48 Statutory liability to third parties
Securities Act of 1933, 44 Securities Exchange Act of 1934, 45
Disciplinary systems, 38 Legal considerations, 46 Standards for tax services, 53
Promissory estoppel, 162 Promissory notes, 228 Promoters of corporation, 123 Property, 379
Acquired by Finding, 380 Gift, 380 Intestate succession, 380 Will, 380
Adverse possession, 393 Bailment, 381 Concurrent interests, 389
Joint tenancy, 389 Tenancy by the entirety, 390 Tenancy in common, 389
Contracts for sale of land, 390 Copyright law, 382 Deeds
Executing, 391 Recording of, 392 Types of, 391
Easement by prescription, 393 Fixtures, 380 Future interests, 389
Remainder, 389 Reversion, 389
Intellectual, 382 Interests in real property, 388 Leases, 396
Lessee’s/lessor’s duties and rights, 396
Sublease, 397 Termination of, 397 Type of leaseholds, 396
Mortgages, 394 Patent law, 383 Personal property, 379, 380 Present interests, 388
Fee simple, 388 Life interest, 389
Real property, 379, 388 Semiconductor Chip Protection Act, 384
Title insurance, 392 Trade fixtures, 380 Trade Secrets Law, 384 Trademarks, 385
Property settlement, taxability of, 417 Property transactions, tax treatment
Basis computation, 548 Exchanges, 551 Gifts, 548 Inheritances, 549 Stock dividends, 550 Stock rights, 550
Gains and losses Business property, 562
Capital, 559 Capital GL treatment of business property, 562
Corporate, 561, 637 Individual, 560
On sale, 551 On taxable exchanges, 551 Personal casualty and theft, 454, 561, 637
Losses on deposits in insolvent financial institutions, 557
Nontaxable exchanges, 551, 560 Involuntary conversions, 553, 560 Like-kind exchange, 551, 560 Principal residence, 554 Transfers between spouses, 559
Related-party transactions, 557, 559 Sale or exchange, 422, 548
Prospectus, 81 Proxy solicitation, 87 Publicly traded securities
Rollover of capital gain on, 556 Punitive damages, 41, 42, 175 Purchase money security interest, 268 Purchase-money mortgage, 394
Q
Qualified adoption expenses, 419 Qualified charitable organizations, 452
Qualified domestic trust (QDT), 719 Qualified endorsement, 234 Qualified moving expense reimbursement, 419
Qualified organizations, 452 Qualified residence interest, 450 Qualified Subchapter S trust (QSST), 646
Qualified terminable interest property, 717, 719
Qualified transportation fringes, 419 Qualified tuition and related expenses, deductibility of, 446
Qualifying widow(er), 460 Quitclaim deeds, 391
R
Ratification Of contract by minor, 163
Reaffirmation of dischargeable debts, 294
Real defenses against a holder in due course, 237, 238
Real property, 379, 388, 437 Real property taxes deductibility, 449 Realistic possibility standard, 53 Reasonableness of compensation, 431 Recapture rules, 563, 647 Reconcile book and taxable income, 638
Recovery property, 436, 563 Refund claims, 473 Registration statement, 80 Regulation of employment, 345
Age discrimination, 352 Civil Rights Act, 351
Employee safety, 351 Employment discrimination, 351 Environmental regulation, 355 Equal Pay Act, 352 Family and Medical Leave Act, 353 Federal Consolidated Budget Reconciliation Act, 354
Federal Employee Polygraph Protection Act, 355
Federal Fair Labor Standards Act, 353
Federal Insurance Contributions Act (FICA), 346
Federal Social Security Act, 345 Federal Unemployment Tax Act (FUTA), 346
Health Insurance Portability and Accountability Act, 353
National Labor Relations Act, 353 Occupational Safety and Health Act (OSHA), 351
Pensions, 354 Pregnancy Discrimination Act, 352 Self-Employment Contributions Act, 346
Title VII, 351 Unemployment benefits, 348 Unemployment insurance (FUTA), 346, 348
Vietnam Era Veterans Readjustment Assistance Act, 352
Vocational Rehabilitation Act, 352 Wages, 347 Wagner Act, 353 Whistle-blower Protection Act, 353 Worker Adjustment and Retraining Notification Act, 355
Workers’ compensation, 349 Rehabilitation expense credit, 464 Reimbursed employee business expenses, 442
Reimbursement Right of, 315, 319
Rejection of offer Effectiveness of, 157
Related-party transactions Tax treatment
Constructive stock ownership rules, 557, 559
Corporations Distributions to related persons, 643
Sales and exchanges, 636 Losses, expenses, and interest between related parties, 557, 636
Partnerships, 592 Spouses, 559
Gift tax, 717 Remainder, 389 Remedies for breach of contract, 175, 206
Removal of structural barriers, 448 Rent
Tax treatment Expense, 442 Income, 422, 429 Passive activity rules, 436
Rental of vacation home, 442
812 Index
Reorganization, corporate, 653 Replacement property, 553 Replevin, 208 Rescission of contract, 175 Research and development costs, deductibility of, 441, 637
Residence, tax treatment Interest on, 450 Sale or exchange of, 422, 554
Resource Conservation and Recovery Act, 358
Restitution, 175 Restrictive endorsement, 234 Retained earnings, 125 Retirement plans
Education IRA, 445 Individual retirement accounts (IRA), 444
Keogh plans, 444 Roth IRA, 445 Savings incentive match plan for employees (SIMPLE), 446
Simplified employee pension (SEP) plan, 445
Return of capital, 417 Reversion, 389 Revised uniform limited partnership act (RULPA), 115
Revised uniform partnership act (RUPA), 113
Revocation of discharge, 294 Revocation of offer, 155
Effectiveness of, 156 RICO, 49 Right to Financial Privacy Act, 387 Rights of a holder in due course, 237 Rights of parties upon default of secured interests, 272
Rollover of capital gain On securities, 556
Roth IRA, 445 Royalties, taxability of, 422, 429
S
S corporations, 646 Basis of stock, 650 Distributions, 422, 651 Election, 646
Built-in gain, 652 Eligibility requirements, 646 LIFO recapture, 647 Losses, deductibility of, 650 Passive income, 653 Taxability of, 647 Termination of, 647
Safe Drinking Water Act, 357 Sales
Bailments, 381 Battle of forms, 197 Buyer’s remedies for breach of contract, 207
Consignment, 200, 270 Contracts
For sale of goods, 166, 195 For sale of land, 165
Documents of title, 200 Bill of lading, 200
Transfer of, 245 Warehouse receipt, 200
Express warranties, 203 Identification, 207 Implied warranties, 203 Merchant, 196 Product liability, 203
Negligence, 204 Strict liability, 205 Warranty liability, 203
Remedies, 206 Buyer’s, 207 Seller’s, 206
Seller’s remedies for breach of contract, 206
Statute of Frauds, 154, 165 Statute of limitations, 208 Strict liability, 205 UCC Article 2, 195 Warranty liability, 203
Disclaimers, 204 Express warranties, 203 Implied warranties, 203 Warranty of title, 203
Sales and exchanges, tax treatment Of property, 422, 548 Of residence, 422, 554 Of securities, 422, 556
Sarbanes-Oxley Act, 50, 89, 129 Savings bonds, taxability of, 420 Savings incentive match plan for employees (SIMPLE), 446
Schedules Tax purposes
Schedule A, 413 Schedules K and K-1, 413
Scholarships and fellowships, taxability of, 421
Scienter, 41, 45, 159 Secured transactions, 266
Attachment of security interests, 267 Consignments, 270 Perfecting a security interest, 267
By attachment, 268 Purchase money security interest in consumer goods, 268
By filing, 268 By possession, 268
Field warehousing, 270 Priority of claims, 270 Rights of parties upon default, 272
Securities Sale or exchange of, 556 Tax treatment
Passive income from, 435, 589, 650
Sale or exchange of, 422, 556 Securities Act of 1933
Intrastate issues, 82 Liability under, 84, 85 Rule 506, 84
Securities Exchange Act of 1934 Auditors’ defenses, 46 Foreign Corrupt Practices Act, 89 Private Securities Litigation Reform Act, 49, 50
Tender offers, 87 Securities law, 78
Blue-sky laws (state), 91 Securities Act of 1933, 44, 78
Antifraud provisions, 84 Auditors’ defenses, 46 Civil liability, 84 Controlling person, 79 Criminal liability, 85 Exempt securities, 82 Exempt transactions, 83 Insiders, 80 Postregistration transactions, 84 Prospectus, 81 Purposes of, 78 Registration requirements, 81 Registration statement, 80 Regulation D, 83 Securities
Definition of, 79 Sale of, 80
Small issues (Regulation A), 83 Underwriter, 80
Securities Exchange Act of 1934, 45, 46, 86 Antifraud provisions, 87 Exempt securities, 86 Liability under, 88 Proxy solicitation, 87 Purposes of, 86 Registration under, 87 Reporting requirements of insiders, 89
Required disclosures, 86 Sanctions available, 86
Security deposits, taxability of, 429 Self-employed individuals, tax treatment
Deductions, 443 Keogh plans, 444
Self-Employment Contributions Act, 346
Self-employment tax, 443, 463 Semiconductor Chip Protection Act, 384
Separate maintenance payments, 423, 446
Shelf registration, 82 Shelter provision, 239 Short-swing profits, 87 Sight draft, 243 Simplified employee pension (SEP) plan, 445
Small business corporation stock, 629 Capital gains exclusion, 556
Social security benefits, taxability of, 424
Social security taxes, 462 Sole proprietorships, 108 Special endorsement, 234 Specific performance, 175 Standard deduction, 447 State “blue-sky” laws, 91, 361 Statute of Frauds, 165
Agreements that cannot be performed within one year, 165
Promise to pay the debt of another, 166
Required writing, 167, 198
Index 813
Sales of goods, 166, 198 Sales of interests in land, 165
Statute of limitations for breach of contract, 208
Statutory liability to third parties, 44, 45
Stock Classes of, 125 Definitions, 124 Marketing of, 126
Stock dividends Basis of, 550 Taxability of, 420
Stock options Taxability of, 425
Stock purchase treated as an acquisition (tax), 644
Stock redemptions, tax treatment, 643
Stock rights Basis of, 550 Taxability of, 420
Stock subscriptions, 126 Stockholders’ equity
Common stock, 125 Preferred stock, 125
Stockholders’ liability, 121, 131 Stockholders’ rights, 129, 130 Stop payment orders, 245 Strict liability, 205, 349, 358 Strike benefits, 425 Subchapter C corporations, 121 Subchapter S corporation, 132 Subpart E trust, 646 Subrogation
Surety’s/guarantor’s right of, 315 Subsequent bona fide purchaser, 272 Subsidiaries
Liquidation of, 644 Substantial performance, 173 Superfund, 358 Surety bonds, 319 Suretyship contracts, 312 Surviving spouse, 460 Syndicate, 585
T
Tax accounting methods, 427, 594 Tax benefit rule, 426 Tax computation
Corporate, 637 Estate tax, 718 Estates and trusts, 720 Gift tax, 716 Individual, 459
Tax credits, 417, 463 Adoption credit, 468 Alcohol fuels credit, 464 Business energy credit, 464 Child care credit, 466 Child tax credit, 468 Credit for rehabilitation expenditures, 464
Credit for the elderly and disabled, 465
Disabled access credit, 464 Earned income credit, 467
Employer social security credit, 465 Empowerment zone employment credit, 465
Foreign tax credit, 467 General business credit, 463 Hope Scholarship credit, 468 Lifetime learning credit, 468 Low-income housing credit, 464 Minimum tax credit, 462 Passive activity credits, 435 Unified transfer tax credit, 715 Work opportunity credit, 463, 464
Tax preference items, 462, 631 Tax procedures, 472, 729 Tax rate schedules, 459, 630 Tax return preparers, 53 Tax tables, 459 Taxable exchanges, 551 Taxes, deductibility of, 448 Tax-exempt organizations, 722 Taxpayer penalties, 473 Telephone Consumer Protection Act, 360
Telephone line, 431 Tenancy
At sufferance, 396 At will, 396 By the entirety, 390 For a term, 396 In common, 389 Joint tenancy, 389 Periodic tenancy, 396
Tender offer, 87 Termination of offer, 155 Theft gains and losses, 454, 561, 636 Third-party beneficiary contracts, 171, 313
Thirty (30)-day letter, 472 Time deposits, 446 Time draft, 243 Tips, taxability of, 422 Title
Documents of, 200, 245 Insurance, 392 Marketable title, 391 Transfer of, 245 Warranty of, 203
Torts, 127 Toxic Substance Control Act, 358 Trade acceptance, 243 Trade fixtures, 380 Trade Secrets Law, 384 Trademarks, 385 Transfer of negotiable documents of title, 245
Transfer warranty, 241 Transportation fringes, 419 Travel expenses, deductibility of
Business, 431 For medical care, 448
Treasury stock, 124 Trustee
In bankruptcy, 272, 287 Truth-in-Lending Act, 311
U
Ultra vires, 127
Ultra vires acts, 127, 128 Ultramares Corp. vs. Touche, 42 Underwriters, 80 Undue influence, 160 Unearned income of children, 460 Unemployment benefits, taxability of, 426
Unemployment insurance (FUTA), 346, 348
Unemployment tax (FUTA), 462 Unified transfer tax credit, 715 Uniform capitalization rules, 431 Uniform Commercial Code
Commercial paper, 228 Contract rules, 195 Leases, 208 Sales of goods, 166, 195 Secured transactions, 266
Unilateral mistake, 160 Unliquidated debt, 161 Unreimbursed employee expenses, 457
Unrelated business income of exempt organizations, 724
Usury, 164
V
Vacation home, 442 Vietnam Era Veterans Readjustment Assistance Act, 352
Vocational Rehabilitation Act, 352 Void/voidable contracts, 154, 163 Voluntary bankruptcy, 285
W
Wagner Act, 353 Warehouse receipt, 200, 246 Warranties
Compared to guaranty, 314 Disclaimers, 204 In contract for sale of goods, 203
Express, 203 Implied, 203
Liability for, 203, 240 On negotiable instruments, 241
Warranty deeds, 391 Warranty of fitness for a particular purpose, 204
Warranty of merchantability, 203 Warranty of title, 203 Wash sales, 556 Watered stock, 126 Whistle-blower Protection Act, 353 Wills, 380 Work opportunity credit, 464 Worker Adjustment and Retraining Notification Act, 355
Workers’ Compensation Act, 349 Workers’ compensation, taxability of, 419
Working condition fringes, 419 Worthless securities, 557 Writ of attachment, 309 Writ of garnishment, 310