Part 10 contains the citations of authority for the text and material in Parts 1–7. You may use the Chapter Contents starting on page v or the Index starting on page 971 to locate the tax topic you are interested in researching. After locating the topic, authority for the discussion can be found by locating the same number in this part. Regardless of where you find the number of your topic—from the text, the index, or the checklists—you will find the citation of authority under that number in this part. The tax information in the text of Parts 1–7 is identified further by the use of italics under the identical number in this Part 10. For example, if you are interested in the tax law authorities for the discussion of tax‐free employer accident and health plans at 3.1 on page 54 of the text, these may be found under 3.1 in Part 10 on page 822.

The references to law reviews, tax journal articles, and private letter rulings in this section are not cited as authority for any position taken in Your Income Tax. They are provided as a reference for your further study of the topics under which they are cited.

KEY TO CITATIONS

FILING BASICS

FILING TESTS

Income limits

• IRC §6012
• IRC §6017 (self‐employed)

Filing for dependents

• IRC §6012(a)(1)(c)

Joint posts

• IRC §6013

File jointly even though spouse had no earnings

• IRC §6013(a)
• Reg. §1.6013‐1(a)(1)

Determination of marital status

• IRC §7703

Qualifying widow/widower

• IRC §2(a)
• Reg. §1.2‐2

Spouse missing in action

• IRC §2(a)(3)

Head of household

• IRC §2(b)

Self‐employment income

• IRC §6017

Married, living apart

• IRC §2(c)
• IRC §7703(b)

Different tax years bar joint return

• IRC §6013(a)(2)
• Reg. §1.6013‐1(c)

Different tax years before marriage

• Frank E. Bertucci, 146 F. Supp. 949 (Ct. Cl. 1957)

Dependent

• IRC §6012(a)(1)(C)(iv)

Nonresident alien

• IRC §6012(a)(2)(C)(i)(ii)

Tax year of less than 12 months because of accounting period change

• IRC §6012(a)(2)(C)(ii)
• IRC §63(c)(6)(c)(1)

Gross income

• IRC §61

WHERE TO FILE

• IRC §6091
• Reg. §1.6091‐2

Armed Forces

• * IRS Publication 3

FILING DEADLINES

April 15 due date for individuals

• IRC §6072(a)
• Reg. §1.6072‐1

Due date falls on weekend or holiday

• IRC §7503

Patriots’ day

• News Release IR‐2006‐37
• Notice 2006‐23, 2006‐11 IRB 594

Timely mailing is timely filing

• IRC §7502
• Reg. §301.7502‐1

Automatic six‐month extension

• Reg. §1.6081‐4T

Citizens/residents with tax home outside or in military outside U.S. and Puerto Rico

• Reg. §1.6081‐5(a)(5) and (6) (automatic two‐month extension)
• Reg. §1.6081‐4T and ‐5T (may file for additional four‐month extension)

Postage meter date ignored

• Irving Fishman, 51 TC 869 (1969), aff’d per curiam, 420 F.2d 491 (2d Cir. 1970)

Combat zone

• IRC §7508
• IRC §112

Spouse traveling outside U.S.

• Rev. Rul. 82‐161, 1982‐2 CB 379

1 FILING STATUS

1.1 WHICH FILING STATUS SHOULD YOU USE?

• * IRS Publication 501

DOMA’s denial of tax benefits for gay and lesbian partners held unconstitutional

• Edith Schlain Windsor, 2013‐2 USTC ¶50,400 (Sup. Ct. 2013)

IRS guidance for same‐sex married couples

• Notice 2015‐86, 2015‐52 IRB 887
• Rev. Rul. 2013‐17, 2013‐38 IRB 201

Joint returns

• IRC §6013

Qualifying widow/widower

• IRC §2(a)
• Reg. §1.2‐2

Head of household

• IRC §2(b)

Unmarried individuals

• IRC §1(c)

1.2 TAX RATES BASED ON FILING STATUS

• IRC §1(a)–1(d)

1.3 FILING SEPARATELY INSTEAD OF JOINTLY

• IRC §1(d)

Non‐community‐property states; joint accounts

• Rev. Rul. 59‐66, 1959‐1 CB 60

Three years to elect joint return after separate returns

• Reg. §1.6013‐2

Alternative minimum tax exemption

• IRC §55(d)

Standard deduction restriction

• IRC §63(c)(6)(A)

Reduction of itemized deductions

• IRC §68

Phaseout of exemptions on separate return

• IRC §151(d)(3)(B)
• IRC §151(d)(3)(C)(iv)

1.4 FILING A JOINT RETURN

* “Joint Tax Returns Offer Distinct Advantages—Generally,” Steven C. Thompson and Randall K. Serrett, 68 Tax Strategies 158 (March 2002)

Joint return requires two signatures

• Bradley Reifler, TC Memo 2015‐199

Unmarried couple can’t file joint return

• *Gabriel Mora, TC Summary Opinion 2010‐60

IRS guidance for same‐sex married couples

• Notice 2015‐86, 2015‐52 IRB 887 Rev. Rul. 2013‐17, 2013‐38 IRB 201

Joint return with new spouse denied when state law invalidates prior Mexican divorce

• A. Gersten, 267 F.2d 195 (9th Cir. 1957), aff’g in part 28 TC 756 (1957)
• H.K. Lee, 64 TC 552, aff’d, 550 F.2d 1201 (9th Cir. 1977)

Interlocutory divorce decree

• William F. Holcomb, 237 F.2d 502 (9th Cir. 1956)
• J. R. Calhoun, Jr., 27 TC 115 (1956) (Acq.)
• Joyce P. Lane, 26 TC 405 (1956) (Acq.)
• Rev. Rul. 57‐368, 1957‐2 CB 896

Joint return with new spouse allowed although prior divorce decree declared invalid by state law

• Harold E. Wondsel, 350 F.2d 339 (2d Cir. 1965), cert. denied, 383 U.S. 935
• Herman Borax Est., 349 F.2d 666 (2d Cir. 1965), rev’g 40 TC 1001 (1963), cert. denied, 383 U.S. 935
• Rev. Rul. 67‐442, 1967‐2 CB 65 (IRS will not follow Wondsel or Borax decisions)

No consent to file joint return disallowed

• *Laura A. Brady, TC Summary Opinion 2010‐107

Each spouse liable for tax

• IRC §6013(d)(3)
• Reg. §1.6013‐4(b)
• Vaughn C. Payne, 247 F.2d 481 (8th Cir. 1957), cert. denied, 355 U.S. 923
• W. L. Kann, 210 F.2d 247 (3d Cir. 1954), cert. denied, 347 U.S. 967
• Myrna S. Howell, 175 F.2d 240 (6th Cir. 1949)
• Alma Helfrich, 25 TC 404 (1955) (Acq.)
• Virginia M. Wilkins, 19 TC 752 (1953) (Acq.)
• Eva M. Manton, 11 TC 831 (1948) (Acq.)
• William W. Kellet, 5 TC 608 (1945) (Acq.)

Spouse relieved of joint return liability

• IRC §6015
• Notice 98‐61, 1998‐51 IRB 13

Divorce or legal separation

• IRC §143(a)(2)
• IRC §6013(d)
• Reg. §1.6013‐4(a)
• Kenneth T. Sullivan, 256 F.2d 664 (4th Cir. 1958), aff’g 29 TC 71 (1957)

Executor disaffirms

• IRC §6013(a)(3)
• Reg. §1.6013‐1(d)(5)

Dependent’s joint return used as refund claim

• Rev. Rul. 54‐567, 1954‐2 CB 108, affirmed by Rev. Rul. 65‐34, 1965‐1 CB 86

Sign as spouse’s agent

• Reg. §1.6013‐1(a)(2)
• Reg. §1.6012‐1(a)(5)

Sick spouse

• Rev. Rul. 70‐216, 1970‐1 CB 265

Intended joint return

• Walter M. Ferguson, Jr., 14 TC 846 (1950) (Acq.)
• Alfred E. Whitehouse Est., 14 TCM 501 (1955)
• John Young, 11 TCM 239 (1952)
• Jeremy H. Peirce, 43 TCM 400 (1982)
• Frank Boyle, 67 TCM 294 (1994)

One spouse agreed to have other spouse handle tax matters

• Muriel Heim, 251 F.2d 44 (8th Cir. 1958)
• Myrna S. Howell, 10 TC 859 (1948), aff’d, 175 F.2d 240 (6th Cir. 1949)

Answers indicate intent

• W. L. Kann, 210 F.2d 247 (3d Cir. 1954), cert. denied, 347 U.S. 967

Explain spouse’s failure

• Joyce P. Lane, 26 TC 405 (1956) (Acq.)

May elect joint return after separate return was filed

• IRC §6013(b)(2)

After joint return filed may not elect separate returns after due date

• Reg. §1.6013‐1(a)(1)
• Matthew L. Ladden, 38 TC 530 (1962) (Acq.)
• Thomas J. Leger, 29 TCM 101 (1970)

IRS settlement with bankrupt husband does not protect wife

• Carolyn S. Kroh, 98 TC 29 (1992)

1.5 NONRESIDENT ALIEN SPOUSE

Nonresident alien spouse generally bars joint return

• IRC §6013(a)(1)
• Reg. §1.6013‐1(b)

Claim nonresident alien spouse as exemption

• IRC §151
• Reg. §1.151‐1

Joint return under election

• IRC §6013(g)

Special election where nonresident alien spouse becomes a resident during the year

• IRC §6013(h)

1.6 COMMUNITY PROPERTY RULES

• * IRS Publication 555

Community property rules do not apply where couple does not elect joint return

• IRC §879

One‐half vested interest

• Aimee D. Bagur, 66 TC 817 (1976), rem’d, 603 F.2d 491 (5th Cir. 1979)

Community rules inapplicable to certain separated couples

• IRC §66(a)

Community property rules for earned income disregarded—spouse not notified of income

• IRC §66(b)

Community property rules disregarded—innocent spouse

• IRC §66(c)

California registered domestic partners must split income

• * Chief Counsel Memorandum 201021050

Spouse receiving temporary alimony

• Charlotte J. Kimes, 55 TC 774 (1971)

Renunciation of interest

• Anne G. Mitchell, 403 U.S. 190 (1971)

Self‐employment tax for spouses

• Rev. Rul. 82‐39, 1982‐1 CB 119

Intention to move to a community property state

• George D. Hampton, Jr., 38 TC 131 (1962)

Dependency exemption on joint return

• Thomas R. Jones, 38 TCM 599 (1977)

1.7 INNOCENT SPOUSE RULES

• IRC §6015(b) (basic innocent spouse relief)
• IRC §6015(c) (separate liability relief)
• IRC §6015(f) (equitable relief)
• Reg. §§ 1.6015‐1 through 1.6015‐9 (final regulations, T.D. 9003, 7/17/02)
• Rev. Proc. 2013‐34, 2013‐43 IRB 397
• * IRS Publication 971

Innocent spouse election

• IRC §6015(b)
• Reg. §1.6015‐2

Tax Court appeal

• IRC §6015(e)

Shielding of battered spouse who files for relief

• IRS News Release IR‐2001‐23

Appeals rights for nonrequesting spouses

• Andrew J. Young, TC Memo 2012‐255
• Rev. Proc. 2003‐19, 2003‐5 IRB 371

Knowledge or reason to know standard

• IRC §6015(b)(1)(C)
• Reg. §1.6015‐2(c) (reason to know)
• Reg. §1.6015‐3(c)(2) (actual knowledge)
• Kathryn Cheshire, 282 F.3d 326 (5th Cir. 2002), aff’g 115 TC 183 (2000) (knowledge of omitted income bars relief)

Knowledge of omitted income bars innocent spouse relief

• Adetutu Canty, TC Memo 2016‐169
• *Joe Stewart, TC Summary Opinion 2010‐31

Lack of knowledge standard — Pre‐1998 Act

• Bokum II, 94 TC 126 (1990), aff’d, 922 F.2d 1132 (1993)
• Gwen Erdahl, 58 TCM 1532 (1990), rev’d and rem’d, 930 F.2d 585 (8th Cir. 1991)
• Patricia A. Price, 887 F.2d 959 (9th Cir. 1989)
• Janet Bliss, 59 F. 3d 374 (2d Cir., 1995), aff’g 66
• TCM 522 (1993) (attorney’s knowledge imputed to spouse)
• Lucille E. Kistner, 18 F.3d 1521 (11th Cir. 1994)

1.8 SEPARATE LIABILITY RELIEF FOR FORMER SPOUSES

• IRC §6015(c)
• * IRS Publication 971

Innocent spouse allowed to introduce evidence outside administrative record

• AOD‐2012‐07, June 4, 2013, in Karen Marie Wilson, 2013‐1 USTC ¶50,147 (9th Cir. 2013)

Innocent spouse can recover attorneys’ fees

• Barbara A. Owen, TC Memo 2005‐115
• Helen E. Foy, TC Memo 2005‐116

Separate liability election

• IRC §6015(c)
• Reg. §1.6015‐3

Spouse’s knowledge of omitted income

• IRC §6015(c)
• Reg. §1.6015‐3(c)(2)(A)
• Kathryn Cheshire, 282 F.3d 326 (5th Cir. 2002), aff’g 115 TC 183 (2000) (knowledge of omitted income bars relief)
• Herbert L. Mitchell, 2002‐2 USTC ¶50,475 (D.C. Cir. 2002) (follows Fifth Circuit’s knowledge test analysis in Cheshire above)
• Fredie Lynn Charlton, 114 TC 333 (2000) (relief where spouse does not know amount of omitted income)

Innocent spouse relief granted despite access to joint account

• * Songie S. Milhouse, TC Summary Opinion 2011‐12

Spouse’s knowledge of erroneous deduction

• Reg. §1.6015‐3(c)(2)(B)
• Isaac Baranowicz, TC Memo 2003‐274
• Patricia M. Mora, 117 TC 279 (2002)
• Kathy A. King, 116 TC 198 (2001)

Tax Court appeal

• IRC §6015(e)

Relief denied under tax benefit rule

• Patricia M. Mora, 117 TC 279 (2002)

1.9 EQUITABLE RELIEF

Equitable relief allowed for penalties/interest on own income where misled by spouse

• Joseph Patrick Boyle, TC Memo 2016‐87

Requesting innocent spouse relief

• Reg. § 1.6014‐1.6015

Equitable relief

• IRC §6015(f)
• Reg. §1.6015‐4
• Rev. Proc. 2003‐61, 2003‐32 IRB 296 (criteria for relief)

IRS eases requirements for innocent spouse equitable relief

• Notice 2012‐8, 2012‐4 IRB 309

IRS eliminates its two‐year deadline for requesting relief

• Notice 2011‐70, 2011‐32 IRB 135

Appellate courts uphold two‐year rule

• Denise Mannella, 631 F.3d 115 (3d Cir. 2011)
• Cathy Marie Lantz, 2010‐1 USTC ¶50,446 (7th Cir. 2010), rev’g 132 TC 131 (2009)

Tax Court remains opposed to two‐year rule

• Audrey Marie Hall, 135 TC 374 (2010)

Relief where other spouse fails to remit tax payment

• Mitchell S. Wiest, TC Memo 2003‐91

No relief for spouse with reason to know of income omission

• Michael B. Butler, 114 TC 276 (2000)

Equitable relief granted for former spouse’s theft of tax money

• * Robby Goodale Gilbert, TC Summary Opinion 2007‐16

Equitable relief denied to financially inexperienced spouse

• Nancy A. Sjodin, TC Memo 2004‐205

1.10 DEATH OF YOUR SPOUSE IN 2017

Joint return for decedent and survivor

• IRC §6013(a)(3)
• Reg. §1.6013‐1(d)‐3, ‐4

Remarriage

• Reg. §1.6013‐1(d)(2)

Change in accounting period

• IRC §6013(a)(2)
• IRC §443(a)(1)
• Reg. §1.6013‐1(d)(2)

Nonresident alien

• IRC §6013(a)(1) and (g)(4)(B)
• Reg. §1.6013‐1(b)

Disaffirmance by executor

• Reg. §1.6013‐1(d)(5) and (6)

Co‐executrix could not disaffirm

• Frank J. Floyd Est., 51‐2 USTC ¶9415 (Orphans’ Ct., Del. County, Pa. 1951)

Treat as late return

• Reg. §1.6013‐1(d)(5) and (6)

Signing

• IRC §6061
• Reg. §1.6061‐1
• Reg. §1.6012‐2(b)(1)
• Reg. §1.6013‐1(a)(2)

Privilege of treating survivor’s return as joint return

• IRC §2
• Reg. §1.2‐2
• Reg. §1.6013‐1(e)

Survivor bound to joint return liability

• Maxine Ruzich, 47 TC 380 (1967)

1.11 QUALIFYING WIDOW/WIDOWER STATUS FOR 2017 IF YOUR SPOUSE DIED IN 2016 OR 2015

Qualifying widows or widowers

• IRC §2(a)(1)(B)

1.12 QUALIFYING AS HEAD OF HOUSEHOLD

Head of household defined

• IRC §2(b)

Qualifying children for tax years starting after 2004

• IRC §2(b)(1)(A)(i)

Nonqualifying child or dependent

• Jean Cowan, TC Memo 2015‐85
• * Edwin Davila Jr., TC Summary Opinion 2012‐6

Special rule for parents

• IRC §2(b)(1)(B)
• Reg. §1.2‐2(c)(2)

Maintaining household

• IRC §2(b)(1)
• IRC §1.2‐2(c) and (d)

Interlocutory decree

• Carole F. Brown, 31 TCM 194 (1972)

Support order pendente lite as interlocutory decree

• Walter G. Brusey, 41 TCM 1223 (1981)

Separated spouse must live apart for last six months

• Laurel Hopkins, 63 TCM 3113 (1992)

Status denied when children change residence after separation agreement

• Fred J. Stanback, Jr., 77‐1 USTC ¶9181
• (D.N.C. 1977)

Parent in rest home

• Rev. Rul. 70‐279, 1970‐1 CB 1

Taxpayer must reside in same home as dependent for substantial period

• John C. Muse, 434 F.2d 349 (4th Cir. 1970)
• Levon P. Biolchin, 433 F.2d 301 (7th Cir. 1970)

Relative resides in your household

• IRC §2(b)(1)
• Reg. §1.2‐2(b)

Same residence for taxpayer and dependent

• Reg. §1.2‐2(c)
• Rev. Rul. 72‐43, 1972‐1 CB 4
• Sharon Stanford, 69 TCM 78 (1995)

Husband living in separate residence not head of household

• W. E. Grace, 51 TC 685 (1969), aff’d per curiam, 421 F.2d 165 (5th Cir. 170)
• James A. Petrie, IV, 70 TCM 1566 (1995)

Old‐age home

• Rev. Rul. 57‐307, 1957‐2 CB 12
• John Robinson, 51 TC 520 (1968) (Acq.), vacated and rem’d, 442 F.2d 873 (9th Cir. 1970)

Nonresident alien not a dependent

• Rev. Rul. 55‐711, 1955‐2 CB 13, amplified by Rev. Rul. 74‐370, 1974‐2 CB 7

Two‐family house

• Jean F. Fleming Est., 33 TMC 619 (1974)

Mother is head of household for child living in different states

• Clair Smith, 332 F.2d 671 (9th Cir. 1964)
• Rev. Rul. 72‐43, 1972‐1 CB 4 (IRS nonacq. to Smith)

Can still get dependency credit

• Katherine Atchison, 17 TCM 718 (1958)

Same person can qualify only once

• Reg. §1.2‐2(b)(2)

Illegitimate child

• Rev. Rul. 54‐498, 1954‐2 CB 107

Can move household

• Reg. §1.2‐2(c)

Dependent confined in hospital

• Reg. §1.2‐2(c)
• Abbie D. Reardon, 158 F. Supp. 745 (D.S. Dak. 1958)

Father’s absence because of marital dispute

• Walter Petlow, 34 TCM 51 (1975)

Probably never return

• Harold K. Brehmer, 191 F. Supp. 421 (D. Minn. 1961)
• Walter J. Hein, 28 TC 826 (1957) (Acq.)
• Rev. Rul. 66‐28, 1966‐1 CB 31

Pay more than one‐half of household costs

• IRC §2(b)
• Reg. §1.2‐2(d)

Figuring household costs

• Donald G. Teeling, 42 TC 671 (1964) (Acq.)

Need not be head of family

• Rev. Rul. 57‐415, 1957‐2 CB 13

Custody decree has no effect where son in boarding school

• Allan L. Blair, 63 TC 214 (1974) (Acq.), aff’d, 538 F.2d 155 (7th Cir. 1976)

Mother keeps separate house for mentally ill son

• Lillie B. McDonald, 61 TCM 2764 (1991)

1.13 FILING FOR YOUR CHILD

Minor’s earnings and deductions

• IRC §73
• Reg. §1.73‐1

Filing requirement for dependent child

• IRC §6012(a)(1)(C)
• IRC §63(c)(5)
• Reg. §1.73‐1
• Reg. §1.6012‐1(a)(4)

Signing return

• Rev. Rul. 82‐206, 1982‐2 CB 356

Social Security number of dependent

• IRC §6109(e)
• IRC §6724(d)(3)(D)
• IRC §6723 ($50 penalty)

Exemptions for dependent children

• IRC §151(e)
• Reg. §1.151‐1
• Reg. §1.151‐2
• Reg. §1.151‐3

Deduction for pay to minor

• Zeno J. Pucci, 10 TCM 529 (1951)
• Samuel Rottenberg, 20 BTA 589 (Acq.)
• Rev. Rul. 73‐393, 1973‐2 CB 33

Salary to young children

• Nathaniel A. Denman, 48 TC 439 (1967)

Filing for Social Security self‐employment tax

• IRC §1401
• IRC §1402
• IRC §6017

Parental responsibility

• IRC §6201(c)

Minors under age 18

• IRC §1(g)

Child must pay penalties for parents’ failure to file

• Skye Bassett, 100 TC 41 (1993)

1.14 RETURN FOR DECEASED

• * IRS Publication 559

Responsibility for filing

• IRC §6012(b)
• Reg. §1.6012‐3(b)(1)
• Reg. §1.6012‐1(a)(2)(ii)

How reported

• IRC §443
• Reg. §1.443‐1(a)(2)
• IRC §451(b)

U.S. Savings Bonds—jointly owned

• Rev. Rul. 58‐435, 1958‐2 CB 370, distinguished by Rev. Rul. 68‐145, 1968‐1 CB 203

Community property

• R. D. Merrill, 211 F.2d 297 (9th Cir. 1954)
• Hunt Henderson Est., 155 F.2d 310 (5th Cir. 1946)
• Stella W. Bishop, 152 F.2d 389 (9th Cir. 1946)
• Rev. Rul. 55‐726, 1955‐2 CB 24

Income received after death

• IRC §691
• Reg. §1.691(a)‐1

Income accrued

• IRC §451(b)
• Reg. §1.451‐1(b)

Returns

• IRC §6012(b)(1) and (4)
• Reg. §1.6012‐3

Deduction for estate tax

• IRC §691(b)
• Reg. §1.691(a)‐4
• Reg. §1.691(c)‐1

Marital status

• IRC §143
• Reg. §1.143‐1

Exemptions

• IRC §153
• Reg. §1.153‐1

No estimated tax for years ending before 2 years after decedent’s death

• IRC §6654(1)(2)

Due date

• IRC §6072
• Reg. §1.6071‐1(b)
• Reg. §1.6072‐1(b)

Refund

• Reg. §301.6402‐2

Death before return filed for previous year

• Reg. §1.6013‐1(d)(3)

Request for prompt assessment

• IRC §6501(d)

1.15 RETURN FOR AN INCOMPETENT PERSON

Guardian files

• IRC §6012(b)(2)
• Reg. §1.6012‐3(b)(3)
• Rev. Rul. 55‐387, 1955‐1 CB 131

Incompetency bars joint return

• David Herman, 38 TCM 119, aff’d in unpublished opinion (3d Cir. Dec. 13, 1979)

Spouse may file

• Rev. Rul. 55‐387, 1955‐1 CB 131 (joint return for missing spouse)
• Rev. Rul. 56‐22, 1956‐1 CB 558, modified by Rev. Rul. 58‐267, 1958‐1 CB 327 (return for incompetent spouse)

1.16 HOW A NONRESIDENT ALIEN IS TAXED

• IRC §871
• * IRS Publication 519

Portion of non‐resident golfer’s endorsements taxable in U.S.

• Sergio Garcia, 140 TC No. 6 (2013)

Resident taxed as U.S. citizen

• Reg. §1.871‐1
• Prop. Reg. §1.871‐1(a)

Tax on nonresident golfer’s endorsements

• Retief Goosen, 136 TC 574 (2011)

Nonresident subject to 30% tax

• IRC §871(a)
• Capital gains
• IRC §871(a)(2)

Doing business

• IRC §871(b)

1.17 HOW A RESIDENT ALIEN IS TAXED

• * IRS Publication 519

Same as U.S. citizen

• Reg. §1.871‐1
• Prop. Reg. §1.871‐1(a)

Work for foreign government

• IRC §893
• Reg. §1.893‐1

Joint return

• IRC §6013(a)(1)
• IRC §6013(g) and (h)

1.18 WHO IS A RESIDENT ALIEN?

• * IRS Publication 519
• IRC §7701(b)

Foreign students

• U.S. Treasury Doc. No. 5588
• Rev. Rul. 54‐87, 1954‐1 CB 155, amplified by Rev. Rul. 67‐159, 1967‐1 CB 280

1.19 CERTIFICATE OF TAX COMPLIANCE FOR ALIEN LEAVING THE UNITED STATES

• * IRS Publication 519

1.20 EXPATRIATION TAX

• IRC §877 (expatriation before June 17, 2008)
• IRC §877 (expatriation on or after June 17, 2008)

Notification and reporting requirements

• IRC §7701(n)
• IRC §6039G
• Notice 2005‐36, 2005‐19 IRB 1007 (Form 8854 required)
• * IRS Publication 519

2 WAGES, SALARY, AND OTHER COMPENSATION

2.1 SALARY AND WAGE INCOME

• IRC §61
• Reg. §1.61‐2
• Mose Duberstein, 363 U.S. 278 (1960)
• Lloyd M. Joshel, 296 F.2d 645 (10th Cir. 1962), aff’g 19 TCM 1349 (1960)
• Thomas L. Johnson, 48 TC 636 (1967) (Acq.)
• Hugh A. Brimm, 27 TCM 1148 (1968)
• Abe A. Danish, 19 TCM 1349 (1960)

Leave‐based donation programs for Louisiana flood victims

• Notice 2016‐55,2016‐40 IRB 432

Reasonableness of CEO’s compensation

• Menard, Inc. and John R. Menard, Jr., 2009‐1 USTC ¶50,270 (7th Cir. 2009)

City’s moral obligation to disabled employee

• Rev. Rul. 73‐346, 1973‐2 CB 24

Gift of stock

• Rev. Rul. 69‐140, 1969‐1 CB 46

Employee gifts and awards

• IRC §274(b)
• Ann. 82‐7, 1982‐3 IRB 48

NASA employee taxed

• Robert Jones, 79 TC 1008 (1982)

Taxable severance pay sent by certified mail

• Rev. Rul. 76‐3, 1976‐1 CB 114

Employee waiver does not make severance payment tax‐free

• Albert Taggi, 35 F.3d 93 (1994)
• Chris Galligan, U.S. Dist. Ct. (E. Dist. of Pa. 1994)

Fees paid to controlled company

• Terry Hardtke, 71 TCM 3220 (1996)

Contingent fee transfer

• Richard Kochansky, 92 F.3d 357 (9th Cir. 1996)

Tip sharing

• Kathleen Brown, 72 TCM 59 (1996)

Fee income held by a professional corporation

• Carnation Y. L. Correa, D.C. Cir. (10/13/96)

Employee exclusion for donation to major disaster leave‐sharing program

• Notice 2006‐59, 2006‐28 IRB 60

Veteran not taxed on payments from compensated work therapy program

• Roosevelt Wallace, 128 TC 132 (2007); Acq. IRB 2007‐44

2.2 CONSTRUCTIVE RECEIPT OF YEAR‐END PAYCHECKS

Employee not taxed on check received until following year

• Beatrice Davis, 37 TCM 42 (1978)

Check received after bank closes on last day of year

• C. F. Kahler, 18 TC 31 (1952)

Refused back pay check delivered by courier taxable when delivered

• Diane Visco, TC Memo 2000‐77

2.3 PAY RECEIVED IN PROPERTY IS TAXED

• Reg. §1.61‐1(a)
• Reg. §1.61‐2(d)(2)

Employer’s note

• Reg. §1.61‐2(d)(4)
• Samuel Segel, 24 TCM 1131 (1965)
• Paul M. Potter, 5 TCM 116 (1946)

Debt cancelled by employer

• Fred E. Werner, 21 TCM 1435 (1962)

Prize points

• Rev. Rul. 70‐331, 1970‐1 CB 14

Frequent flyer miles

• Philip Charley, 91 F.3d 72 (9th Cir. 1996)
• * Letter Ruling 9340007

2.4 COMMISSIONS TAXABLE WHEN CREDITED

Unearned commissions taxable when credited to account

• Mary Rosenberg, 295 F. Supp. 820 (E.D. Mo. 1969), aff’d per curiam, 422 F.2d 341 (8th Cir. 1970)
• Ada E. Sivley, 75 F.2d 916 (9th Cir. 1935)
• C. E. Shockley, 6 TCM 1092 (1947)

Unearned commissions—income in year of advance despite repayment obligation

• Rev. Rul. 79‐311, 1979‐2 CB 25
• Rev. Proc. 83‐4, 1983‐1 CB 577
• George Blood Enterprises, Inc., 35 TCM 436 (1976)
• * Letter Ruling 9519002

Unearned commissions—no repayment required

• James v. United States, 366 U.S. 213 (1961)
• James J. Gales, 77 TCM 1316 (1999)

Write‐off of advances

• Rev. Rul. 69‐465, 1969‐2 CB 27

Repayment of commission when customer defaults

• Rev. Rul. 72‐78, 1972‐1 CB 45

Commission on own purchase taxable

• Kenneth W. Daehler, 281 F.2d 823 (5th Cir. 1960), rev’g 31 TC 722 (1959) (Nonacq.)
• Sol Minzer, 279 F.2d 338 (5th Cir. 1960), rev’g 31 TC 1130 (1959) (Nonacq.)
• J. E. Ostheimer, 264 F.2d 789 (3d Cir. 1959), cert. denied, 361 U.S. 818
• Jack Williams, 64 TC 1085 (1975)

Commissions waived on policies sold to friends still taxed

• Charles O. Mensik, 37 TC 703 (1962), aff’d, 328 F.2d 147 (7th Cir. 1964), cert. denied, 379 U.S. 827

Agent not taxed on rebated commissions

• Mickey L. Worden, 2 F.3d 359 (10th Cir. 1993), rev’g 64 TCM 408 (1992)

Agent taxed on illegal rebate of commission

• James Alex, 70 TC 322 (1978)

2.5 UNEMPLOYMENT BENEFITS

• IRC §85

Contribution from unemployment benefits

• Donald Russell, 71 TCM 3184 (1996)

2.6 STRIKE PAY BENEFITS AND PENALTIES

Emergency benefits funded by federal government

• Rev. Rul. 73‐154, 1973‐1 CB 40

Supplemental payments

• News Release IR‐156, May 29, 1956

Unemployment benefits from union fund

• Halsey L. Williams, 37 TC 1099 (1962) (Acq.)

Strike benefits

• Richard Osborne, 69 TCM 1895 (1995) (pilot’s strike benefits taxable)
• Allen Kaiser, 363 U.S. 299 (1960), aff’g 262 F.2d 367 (7th Cir. 1959)
• James W. Godwin, 65‐1 USTC ¶9121 (D. Tenn. 1965)
• William A. Brown, 47 TC 399 (1967) (Acq.), aff’d per curiam, 398 F.2d 832 (6th Cir. 1968), cert. denied, 393 U.S. 1065
• John N. Hagar, 43 TC 468 (1965)
• Rev. Rul. 58‐139, 1958‐1 CB 14, modified by Rev. Rul. 61‐136, 1961‐2 CB 20
• Rev. Rul. 57‐1, 1957‐1 CB 15

Pay penalty

• Rev. Rul. 72‐130, 1976‐1 CB 16

2.7 NONQUALIFIED DEFERRED COMPENSATION

• * “Deferred Compensation Revolution—Tough Transition to a Statutory System,” Joni L. Andrioff, 83 Taxes 65 (May 2005)

Deferrals to nonqualified plans

• IRC §409A
• Final Regulations: TD 9321, 2007‐19 IRB 1123
• Notice 2007‐86, 2007‐46 IRB 990 (transition relief generally extended through 2008), modifying Notice 2006‐79, 2006‐43 IRB 763

Divorce transfer of deferred compensation

• Rev. Rul. 2002‐22, 2002‐19 IRB 849
• Notice 2002‐31, 2002‐19 IRB 908

State or local government deferred pay plan

• IRC §457

Qualified cash or deferred arrangement

• IRC §401
• IRC §401(k)

Model rabbi trust

• Rev. Proc. 92‐64, 1992‐2 CB 214

2.8 DID YOU RETURN WAGES RECEIVED IN A PRIOR YEAR?

• IRC §1341
• Reg. §1.1341‐1

Return of embezzled funds — no claim of right computation

• Rev. Rul. 65‐254, 1965‐2 CB 50

Return of unreasonable salary under agreement deductible

• Rev. Rul. 69‐115, 1969‐1 CB 50

Author lacked unrestricted right to advanced royalties

• Stewart H. Holbrook, 194 F. Supp. 252 (U.S. Dist. Ct. Ore. 1961)

No deduction where repayment not required

• John G. Pahl, 67 TC 286 (1976)

Repayment of supplemental unemployment benefits—above‐the‐line deduction

• IRC §62(a)(12)

Restitution payments may be deductible

• Jess Kraft, et ux., 114 S. Ct. 467, cert. denied, 991 F.2d 292 (6th Cir. 1993)

Hedge agreement allows Section 1341 recalculation

• Eugene Van Cleave, 718 F.2d 193 (6th Cir. 1983)

Escrow payment for contested liability deductible

• Warnock Davies, 101 TC 282 (1993)

2.9 WAIVER OF EXECUTOR’S AND TRUSTEE’S COMMISSIONS

• George M. Breidert, 50 TC 844 (1968) (Acq.)
• Rev. Rul. 66‐167, 1966‐1 CB 20
• Rev. Rul. 64‐225, 1964‐2 CB 15
• Rev. Rul. 56‐472, 1956‐2 CB 21

2.10 LIFE INSURANCE BENEFITS

Final split‐dollar insurance regulations

• T.D. 9092, 2003‐46 IRB 1055 (effective for split‐dollar arrangements entered into or materially modified by September 17, 2003 and not materially modified thereafter)
• Notice 2002‐8, 2002‐4 IRB 398 (guidance for split‐dollar arrangements entered into before September 18, 2003)
• * “The Effects of Notice 2002‐8 on Split‐Dollar Life Insurance Arrangements and Business Planning,” Jeffrey J. Bryant and Richard Alltizer, 80 Taxes 25 (July 2002)

Effect of Sect. 409A deferred compensation rules on split‐dollar insurance

• Notice 2007‐34, 2007‐17 IRB 996

Assignment of group policy

• Rev. Rul. 76‐490, 1976‐2 CB 300
• Rev. Rul. 68‐334, 1968‐1 CB 403

Permanent and paid‐up insurance—taxed to employee

• Reg. §1.61‐2(d)(2)
• * Letter Ruling 9604001
• Frank D. Yuengling, 69 F.2d 971 (3d Cir. 1934)
• W. F. Parker, 38 BTA 989
• Rev. Rul. 56‐400, 1956‐2 CB 116
• Rev. Rul. 78‐420, 1978‐2 CB 67
• Rev. Rul. 64‐328, 1964‐2 CB 11, amplified by Rev. Rul. 66‐110, 1966‐1 CB 112

2.11 EDUCATIONAL BENEFITS FOR EMPLOYEES’ CHILDREN

Grants by private foundations

• Rev. Proc. 76‐47, 1976‐2 CB 670, amplified by Rev. Proc. 77‐32, 1977‐2 CB 541
• * Letter Ruling 9018068 (scholarship plan approved)

Educational benefit trusts

• Rev. Rul. 75‐448, 1975‐2 CB 55
• Richard T. Armantrout, 67 TC 996 (1977), aff’d per curiam, 570 F.2d 210 (7th Cir. 1978)
• Grant‐Jacoby, Inc., 73 TC 700 (1980)
• John C. Saunders, 720 F.2d 871 (5th Cir. 1983), aff’g 45 TCM 82 (1982)
• Reg. §1.677(b)‐1(f)

2.12 SICK PAY IS TAXABLE

• IRC §61

Tax‐free benefits from private insurance

• IRC §104(a)(3)

2.13 WORKERS’ COMPENSATION IS TAX FREE

• IRC §104(a)(1)

Police officer’s leave payments not excludable

• Clarence William Speer, 144 TC No. 14 (2015)

Lump‐sum settlement not treated as worker’s compensation

• Kathleen S. Simpson, 141 TC No. 10

Workers’ compensation

• IRC §104(a)(1)
• Reg. §1.104‐1(b)

Given to employer

• Rev. Rul. 56‐83, 1956‐1 CB 79

N.Y.C. teacher under Board of Ed. regulations

• Madeline G. Dyer, 71 TC 560 (1979) (Acq. in result only)

N.Y.C. retirees may exclude job‐related disability pay

• Rev. Rul. 83‐91, 1983‐1 CB 38

Civil Service Retirement Act payments not workers’ compensation

• Daniel S. Haar, 78 TC 864 (1982), aff’d per curiam, 709 F.2d 1207 (8th Cir. 1983)

Policeman’s sick leave under labor contract not workers’ compensation

• William Rutter, 48 TCM 1269 (1984), aff’d per curiam, 760 F.2d 466 (2d Cir. 1985)

Los Angeles Sheriff’s sick leave elected under workers’ compensation statute is tax free

• Donald Givens, 90 TC 1145 (1988)
• (Nonacq.; 89‐1 CB 1)

Policeman’s disability amounts under state law not affected by PBA contract

• James Fotis, 57 TCM 697 (1989)

Police officer’s disability retirement pay partly taxable

• Jay Sewards, 138 TC No.15 (2012)

Judge’s medical disability tax free although same amount as regular retirement

• Raymond J. Byrne, TC Memo 2002‐319

New York City law change allows tax‐free sick leave for police and firefighters

• Local Law 87, 12/29/88
• Local Law 78, 10/25/89

2.14 DISABILITY PAY AND PENSIONS

Military disability generally taxable

• IRC §104(a)(4)
• IRC §104(b)

Law allows refunds of improper withholding to disabled combat veterans

• Combat‐Injured Veterans Tax Fairness Act of 2016, P.L. 114‐292, 12/16/16

Benefits to public safety officers’ survivors tax free

• P.L. 114‐14, adding Code Section 104(a)(6), signed into law 5/22/15

Combat‐related injuries

• IRC §104(b)(2)(C)
• IRC §104(b)(3)

Injuries from terroristic or military actions

• IRC §104(a)(5)

Social Security disability benefits taxable

• William D. Reimels, 123 TC 243 aff’d 2006‐1 USTC ¶50,147 (2d Cir. 2006) (Vietnam veteran)
• Will L. Thomas, TC Memo 2001‐120

Meat cutter taxed on disability pension from union plan

• Roger W. Zardo, TC Memo 2011‐7

2.15 STOCK APPRECIATION RIGHTS (SARS)

SARs subject to post‐2004 nonqualified deferred compensation regulations

• Prop. Reg. §1.409A‐1(b)(5)
• Notice 2005‐1, 2005‐2 IRB 274 (initial guidance preceding proposed regulations to IRC §409A)

Pre‐AJCA 2004: No tax on receipt of SARs

• Rev. Rul. 80‐300, 1980‐2 CB 165

Pre‐AJCA 2004: Tax on expiration of SARs

• * Letter Ruling 8120103

Pre‐AJCA 2004: No constructive receipt on SAR tied to stock option

• Rev. Rul. 82‐121, 1982‐1 CB 79

2.16 STOCK OPTIONS

• * “Tax‐Efficient Strategies for Exercising Compensatory Stock Options,” Sidney R. Finkel and Kelly G. Besaw, 71 Practical Tax Strategies 15 (July 2003)

Qualified statutory stock options

• IRC §421

Incentive stock options

• IRC §422
• Temp. Reg. §14a.422A‐1

Employee stock purchase plans

• IRC §423

Nonqualified stock options

• IRC §83
• Reg. §1.83‐7
• Pagel, Inc., 91 TC 200 (1988) (upholding Reg. §1.83‐7)

Mandatory W‐2 reporting on exercising nonqualified option

• Announcement 2002‐108; 2002‐49 IRB 952

Divorce transfer of nonqualified options

• Rev. Rul. 2004‐60, 2004‐24 IRB 1051
• Rev. Rul. 2002‐22, 2002‐19 IRB 849
• Notice 2002‐31, 2002‐19 IRB 908

2.17 RESTRICTED STOCK

Stock not substantially vested under an employment agreement

• Larry E. Austin, 141 TC No. 18 (2013)

Sale treated as option

• Reg. §1.83‐3(a)(2)

Restricted stock

• IRC §83(c)

Executive cannot deduct loss on sale of restricted stock to key employees

• Henry C. Tilford, Jr., 75 TC 134 (1980), rev’d, 705 F.2d 828 (6th Cir. 1983)

Section 83(b) election—electing tax on unrestricted value within 30 days

• Prop. Reg. Sec. 1.83‐2(c), REG‐135524‐14, 7/7/15
• IRC §83(b)

Making a Section 83(b) election for restricted stock(sample election language)

• Rev. Proc. 2012‐29, 2012‐28 IRB 49

Revoking Section 83(b) election

• Rev. Proc. 2006‐31, 2006‐27 IRB 32

Attorney taxed on income remitted to firm

• * Letter Ruling 9514008

Lapsed restrictions disregarded

• IRC §422A(e)(10)

3 FRINGE BENEFITS

3.1 TAX‐FREE HEALTH AND ACCIDENT COVERAGE UNDER EMPLOYER PLANS

Wellness program payment taxable

• Chief Counsel Memorandum 201622031

Identity theft protection following data breach is tax free

• Announcement 2015‐22, 2015‐35 IRB 288

Health coverage election in cafeteria plans

• Notice 2014‐55, 2014‐41 IRB

Employer‐paid premiums not taxable

• IRC §106(a)
• Rev. Rul. 82‐196, 1982‐2 CB 53 (retired employee not taxed and deceased employee’s survivors not taxed)
• Rev. Rul. 85‐121, 1985‐2 CB 57 (laid‐off employee not taxed)
• * Letter Ruling 9409006
• Rugby Productions, 100 TC 35 (1993)
• Notice 94‐103, 1994‐51 IRB 10

Employee taxed on employer’s reimbursement of premiums financed by pre‐tax salary reduction

• Rev. Rul. 2002‐3, 2002‐3 IRB 316, amplified by Rev. Rul. 2002‐80, 2002‐49 IRB 925

Employee taxed on “advance reimbursement” or “loan” intended to offset salary reduction

• Rev. Rul. 2002‐80, 2002‐49 IRB 925, amplifying Rev. Rul. 2002‐3, 2002‐3 IRB 316

New dependent definition doesn’t affect medical exclusion

• Notice 2004‐79, 2004‐49 IRB 898

Employee taxed on coverage for domestic partner

• * Letter Ruling 9717018
• * Letter Ruling 9603011
• * Letter Ruling 200108010

DOMA’s denial of tax benefits for gay and lesbian partners held unconstitutional

• Edith Schlain Windsor, 2013‐2 USTC ¶50,400 (Sup. Ct. 2013)

Long‐term‐care coverage

• IRC §7702(B) (generally tax‐free)
• IRC §106(c) (taxable if provided through FSA)

Archer MSA coverage not taxed to employee

• IRC §106(b) (contributions up to deductible limit of IRC §220(b)(1))

Access and portability rules for group health plans

• IRC §4980D (daily penalties on employers)
• IRC §9801 (pre‐existing condition exclusions)
• IRC §9802 (health status discrimination prohibited)
• IRC §9811 (mothers and newborns)
• IRC §9812 (mental health benefits)

Continuing coverage required (COBRA)

• IRC §4980B
• Rev. Rul. 96‐8, 1996‐1 CB 286

COBRA coverage for spouse dropped before divorce

• Rev. Rul. 2002‐88, 2002‐52 IRB 995

3.2 HEALTH SAVINGS ACCOUNTS (HSAS) AND ARCHER MSAS

HSA and HDHP inflation adjustment

• Rev. Proc. 2017‐37, 2017‐21 IRB 1252 (2018 rules)
• Rev. Proc. 2016‐28, 2016‐20 IRB 852 (2017 rules)
• Rev. Proc. 2015‐30, 2015‐20 IRB 970 (2016 rules)
• Rev. Proc. 2014‐30, 2014‐20 IRB 1009 (for 2015)
• Rev. Proc. 2013‐25, 2013‐21 IRB 1110 (for 2014)
• Rev. Proc. 2012‐26, 2012‐20 IRB 933
  (for 2013)

Employer contributions to employee’s health savings accounts (HSAs)

• IRC §106(d) (contributions up to deductible limit of IRC §223(b))
• Notice 2004‐2, 2004‐2 IRB 269

IRS guidelines for HSAs

• *Chief Counsel INFO Letter 2016‐0014 (contribution limit for individual enrolling in Medicare)
• *Chief Counsel INFO Letter 2016‐0003 (husband and wife both enroll in Medicare in same year)
• Notice 2004‐50, 2004‐33 IRB 196 (Q&A)
• Rev. Rul. 2004‐38, 2004‐15 IRB 717 (prescription drug coverage)
• Rev. Proc. 2004‐22, 2004‐15 IRB 727 (transition for prescription drugs)
• Notice 2004‐23, 2004‐15 IRB 725 (preventive care)
• Notice 2004‐25, 2004‐15 IRB 727 (transition for 2004 expenses)
• Notice 2004‐43, 2004‐27 IRB 10 (state law mandates)

High‐deductible health plan

• IRC §223(c)(2)

HSA catch‐up contribution limit

• IRC §223(b)(3)

Limited use of FSA and HRA with HSAs

• Rev. Rul. 2004‐45, 2004‐22 IRB 971

HSA contributions during FSA grace period

• Notice 2005‐86; 2005‐49 IRB 1075

Medicare Advantage MSA

• IRC §138

Employer contribution limit to Archer MSA

• IRC §106(b) (contributions up to deductible limit of IRC §220(b)(1))

3.3 REIMBURSEMENTS AND OTHER TAX‐FREE PAYMENTS FROM EMPLOYER HEALTH AND ACCIDENT PLANS

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)

• IRC §9831(d), as added by P.L. 114‐255, 12/13/2016

Specific reimbursements of medical expenses

• IRC §105(b)
• Reg. §1.105‐2
• Rev. Rul. 63‐181, 1963‐2 CB 74

Reimbursement of dependent’s expenses

• IRC §105(b)

Health reimbursement arrangements

• Rev. Rul. 2002‐41, 2002‐28 IRB 75
• Notice 2002‐45, 2002‐28 IRB 93

Direct transfer from HRA to HSA

• IRC §106(e)

Limited use of FSA and HRA with HSAs

• Rev. Rul. 2004‐45, 2004‐22 IRB 971

Cash option renders HRA taxable

• Rev. Rul. 2005‐24, 2005‐16 IRB 892

Reimbursements taxed if beneficiaries could receive unreimbursed amounts

• Rev. Rul. 2006‐36, 2006‐36 IRB 353

Medical costs reimbursed with debit, credit, or stored value cards

• Notice 2006‐69, 2006‐31 IRB 107 Rev. Rul. 2003‐43, 2003‐21 IRB 935 (debit card)

Sole proprietor reimbursement plan covering spouse

• Darwin J. Albers, TC Memo 2007‐144 (spouse was bona fide employee but plan was not bona fide)
• *Peter Speltz, TC Summary Opinion 2006‐25 (spouse is bona fide employee)
• Richard Haeder, TC Memo 2001‐17 (spouse not a bona fide employee)
• * James A. Poyda, TC Summary Opinion 2001‐91 (spouse not a bona fide employee)

Self‐insured medical reimbursement plans

• IRC §105(h)
• Reg. §1.105‐11

Highly compensated under medical self‐insured plans

• IRC §105(h)(5)
• IRC §401(k)(12)

Physicals may be given to executives only

• Reg. §1.105‐11(g)(1)

Permanent loss of use of part of body

• IRC §105(c)
• Reg. §1.105‐3

Benefit must be based on injury

• Randall Beisler, 814 F.2d 1304 (9th Cir. 1987)
• Kenneth Rosen, 829 F.2d 506 (4th Cir. 1987)

Hypertension not loss of body function

• Frank S. Watts, 82‐1 USTC ¶9226 (D. Cal. 1982), aff’d, 83‐1 USTC ¶9286 (9th Cir. 1983)

Pilot’s heart attack not loss of body function

• Oscar J. Hines, 72 TC 715 (1979)

Surgeon’s nerve damage is loss of body function

• Jon L. Stolte, TC Memo 1999‐271

Meat cutter taxed on disability pension from union plan

• Roger W. Zardo, TC Memo 2011‐7

Taxable benefits under employer‐paid coverage

• IRC §105(a)
• Reg. §1.105‐1

Tax‐free benefits under private policy

• IRC §104(a)(3)
• Reg. §1.104‐1(d)

Disability payments from profit‐sharing plan taxed

• George H. Gordon, 88 TC 630 (1987)
• Michael J. Berman, 58 TCM 919 (1989)

Close corporations

• Alan B. Larkin, 48 TC 629 (1967), aff’d, 394 F.2d 494 (1st Cir. 1968)
• Arthur R. Seidel, 30 TCM 1021 (1971)
• Sanders & Sons, Inc., 26 TCM 671 (1967)

3.4 GROUP‐TERM LIFE INSURANCE PREMIUMS

• IRC §79
• Reg. §1.79‐0 through 3
• Temp. Reg. §1.79‐4T

IRS rate table

• Temp. Reg. §1.79‐3(d)(2)

Assignment of policy

• Rev. Rul. 73‐174, 1973‐1 CB 43

Combination policies

• Reg. §1.79‐1(b)

Former employees

• IRC §79(e)

Retire on disability

• IRC §79(b)(1)

Key employees taxed under discriminatory plans

• IRC §79(d)
• Temp. Reg. §1.79‐4T, question 6

Key employees defined

• IRC §416(i)
• IRC §79(d)(6) (includes retirees)

Separate discriminatory testing of active and retired employees

• Reg. §1.79‐4T, questions 7 and 8

Group‐term insurance for dependents

• Notice 89‐110, 1989‐49 IRB 17

3.5 DEPENDENT CARE ASSISTANCE

Dependent care services

• IRC §129

Identify employer provider of child care on return

• IRC §129(e)(9)

3.6 ADOPTION BENEFITS

Exclusion for employer benefits

• IRC §137
• * IRS Publication 968

Safe harbor for determining finality of foreign adoptions

• Rev. Proc. 2010‐31, 2010‐40 IRB 413 (Hague convention countries)
• Rev. Proc. 2005‐31, 2005‐1 CB 1374 (non‐Hague convention countries)

3.7 EDUCATION ASSISTANCE PLANS

Education assistance exclusion

• IRC §127

Tuition reductions

• IRC §117(c) and (d)
• * Letter Ruling 9040045 (faculty and staff)
• Daniel Wolpaw, 47 F.3d 787 (6th Cir. 1995)

Working condition benefit

• IRC §132(h)(9)

3.8 COMPANY CARS, PARKING, AND TRANSIT PASSES

• IRC §132(a)(3)

Permanent parity for transit benefits exclusion with parking

• IRC §132(a)(3), as amended by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act)
• Rev. Proc. 2016‐14, 2016‐9 IRB 365

Bike share program is not excludable transportation benefit

• * Chief Counsel Information Letter 2013‐0032

Valuation of benefits

• Reg. §1.61‐21
• Excludable non‐personal‐use vehicles
• Temp. Reg. §1.274‐5T(k)

Chauffeur bodyguard

• Reg. §1.132‐5(m)

100% inclusion rule for cars

• Reg. §1.274‐6T(c)

Transit passes, parking benefits, and bicycle commuting reimbursements

• IRC §132(f)
• Reg. §1.132‐9

Parking at non‐temporary location

• * IRS Legal Memorandum 200105007

3.9 WORKING CONDITION FRINGE BENEFITS

• IRC §132(d)
• Reg. §1.132‐5
• * “Tax Consequences of Employer‐Provided Computers,” John C. Zimmerman, 78 Taxes 43 (October 2000)

Local lodging provided by employer may be excludable benefit

• REG‐137589‐07 (Proposed Regulation Sections 1.162‐31, 1.262‐1(2012))

Employees not taxed on employer‐provided cell phones

• Notice 2011‐72, 2011‐38 IRB 407

Job‐placement assistance

• Rev. Rul. 92‐69, 1992‐2 CB 51

Employee personal use of company airplane

• IRC §274(e)(2) (overturning Sutherland decision below)
• Sutherland Lumber‐Southwest Inc., 255 F.3d 495 (8th Cir. 2001) (Acq.)

S Corp owners may deduct personally used plane

• * Chief Counsel Advice 200344008

Unused commuting salary reductions cannot be refunded

• * Chief Counsel Information Letter 2003‐0244

Financial counseling

• * Letter Ruling 199929043

Mandatory employer‐provided tax‐preparation services

• * IRS Field Service Advice 200137039

Appeals court finds business purpose for fishing trips

• Townsend Industries, Inc., 2003‐2 ¶50,666 (8th Cir. 2003)

3.10 DE MINIMIS FRINGE BENEFITS

• IRC §132(e)
• Reg. §1.132‐6

Occasional overtime meal money or cab fare

• Reg. §1.132‐6(d)(2)(i)

Commuting under unsafe circumstances

• Reg. §1.132‐6(d)(2)(iii) (outside normal hours)
• Reg. §1.61‐21(k) ($1.50 valuation rule for hourly employees)

3.11 EMPLOYER‐PROVIDED RETIREMENT ADVICE

• IRC §132(m)

3.12 EMPLOYEE ACHIEVEMENT AWARDS

• IRC §74(c)

Taxable amount

• Prop. Reg. §1.74‐2

3.13 EMPLOYER‐FURNISHED MEALS OR LODGING

Meals and lodging

• IRC §119
• Reg. §1.119‐1
• Maschmeyer’s Nursery, Inc., 71 TMC 2188 (1996)
• Boyd Gaming Corp., 117 F.3d 1096 (9th Cir. 1999)

Meals treated as furnished for employer’s convenience

• IRC §119(b)(4)

Remote camp in foreign country

• * James A. Nielson, TC Summary Opinion 2007‐53
• IRC §119(c)(2)

Company cafeteria

• Reg. §1.119‐1(d)

Hotel manager or executive

• Charles N. Anderson, 371 F.2d 59 (6th Cir. 1967), cert. denied, 387 U.S. 906
• Jack B. Lindeman, 60 TC 609 (1973) (Acq.)
• Atlanta Biltmore Hotel Corp., 22 TCM 1266 (1963), mod’d and aff’d, 349 F.2d 677 (5th Cir. 1965)
• Adolph Coors Co., 27 TCM 1351 (1968)

State civil service employee

• Reg. §1.119‐1(d)

No exclusion for purchases at commissary

• Michael A. Tougher, Jr., 51 TC 737 (1969), aff’d per curiam, 441 F.2d 1148 (9th Cir. 1971), cert. denied, 404 U.S. 856

Executive luncheon

• Carlton R. Mabley, 24 TCM 1794 (1965)

Casino employees

• Boyd Gaming Corp., 117 F.3d 1096 (9th Cir. 1999)

Waitress’s day off

• Reg. §1.119‐1(d)

Restaurant employees

• Reg. §1.119‐1(d)

Emergency

• Reg. §1.119‐1(a)(2)(ii)(a)
• Reg. §1.119‐1(d)

Bank teller

• Reg. §1.119‐1(f)

School superintendent one block away

• Virgil L. Erdelt, 715 F. Supp. 278 (D.C. N. Dak. 1989), aff’d, 909 F.2d 510 (8th Cir. 1990), IRS Action on Decision 1992‐001

Short meal period

• Reg. §1.119‐1(a)(2)(ii)(A) and (d)
• * Letter Ruling 9602001

Lodging off premises

• Charles Anderson, 371 F.2d 59 (6th Cir. 1967), rev’g 42 TC 410 (1964), cert. denied, 387 U.S. 906
• Gordon S. Dole, 351 F.2d 308 (1st Cir. 1965), aff’g per curiam 43 TC 697 (1964) (Acq.)
• Harold T. Giesinger, 66 TC 6 (1976) (Acq.)
• Jack B. Lindeman, 60 TC 609 (1973) (Acq.)

College president taxed on lodging four miles away

• Richard D. Winchell, 564 F. Supp. 131 (D. C. Neb. 1983), aff’d without opinion, 725 F.2d 689 (8th Cir. 1983)
• * Letter Ruling 9404005

Faculty housing

• IRC §119(d)

Lodging for dorm parents and evening house is tax free

• * Letter Ruling 9404005

Hospital lodging not a condition of employment where others live in apartments

• * Letter Ruling 8938014

Employer gives cash allowance

• Reg. §1.119‐1

Employer deducts fixed amount from pay

• IRC §119(b)
• Reg. §1.119‐1(a)(3)(ii)
• Melvin J. Boykin, 260 F.2d 249 (8th Cir. 1958)
• Rev. Rul. 59‐307, 1959‐2 CB 48

Utilities

• Charles R. Considine, 68 TC 52 (1977)
• Rev. Rul. 68‐579, 1968‐2 CB 61

Workers in remote area

• Reg. §1.119‐1(d)
• William L. Olkjer, 32 TC 464 (1959) (Acq.)

Farm supervision

• M. Caratan, 442 F.2d 606 (9th Cir. 1971)

Other employees

• Lloyd N. Farnham, 6 TCM 1049 (1947)
• Special Ruling, December 3, 1950

Insufficient eating facilities

• Reg. §1.119‐1(a)(2)(ii)(c)

Park employee

• Robert L. Coyner, 344 F.2d 736 (3d Cir. 1965)

Partnerships

• C. C. Wilson 376 F.2d 280 (Court of Claims 1967) (reimbursed food taxed)
• Ann L. Armstrong, 394 F.2d 661 (5th Cir. 1968) (meals and lodging excludable)

Unprepared food

• Walter Jacob, 493 F.2d 1294 (3d Cir. 1974)
• Michael A. Tougher, Jr., 441 F.2d 1148 (9th Cir. 1971), cert. denied, 404 U.S. 856

Hotel partnership deductions

• George A. Papineau, 16 TC 130 (1952) (Nonacq.)

Peace Corps volunteer

• IRC §912

VISTA volunteer

• Carol Goldstein, 73 TC 164 (1979)

3.14 MINISTER’S HOUSING OR HOUSING ALLOWANCE

• IRC §107

Cash housing allowance (IRC §107(2))held unconstitutional

• Ann Laurie Gaylor, No.16‐CV‐215 (W.D. WI. 2017)

Foundation lacks standing to challenge constitutionality of parsonage exclusion

• Freedom From Religion Foundation, No. 14‐1152 ( 7th Cir.,11/13/2014), rev’g. Freedom From Religion Foundation Inc.(D.C., Western Wisconsin, 11/21/13)

Tax free allowance limited to fair rental value of house

• IRC §107(2), as amended by the Clergy Housing Allowance Clarification Act of 2002, effectively reversing the holding in Richard D. Warren, 114 TC 343 (2000)

Appeals court disallows tax‐free allowance for minister’s second home

• Philip A. Driscoll, 2012‐1 USTC ¶50,187(11th Cir. 2012), rev’g 135 TC 557 (2010); cert. denied

Services performed by minister

• Reg. §1.1402(c)‐5

Allocation for minister with salary and self‐employment income to determine deductible expenses

• * Johnny J. Young, TC Summary Opinion 2005‐76

Exclusion allowed for ordained executive directors of parochial schools

• Rev. Rul. 62‐171, 1962‐2 CB 39

No deduction for ordained minister working for a nonreligious organization

• Rev. Rul. 68‐68, 1968‐1 CB 51

Not allowed for unordained ministers

• Rev. Rul. 59‐270, 1959‐2 CB 44

Unordained educational director

• Robert D. Lawrence, 50 TC 494 (1968)

Cantors

• Abraham A. Salkov, 46 TC 190 (1966) (Nonacq.)
• Max Silverman, 253 F.2d 849 (8th Cir. 1958)
• Rev. Rul. 78‐301, 1978‐2 CB 103

Traveling evangelist

• Rev. Rul. 64‐326, 1964‐2 CB 37

Retired minister

• Rev. Rul. 63‐156, 1963‐2 CB 79

Widow not entitled to exclusion

• Rev. Rul. 72‐249, 1972‐1 CB 36

Anti‐communist crusade

• James D. Colbert, 61 TC 449 (1974)

Priest living as layman

• Francis E. Kelley, 62 TC 131 (1974)

Not allowed for unordained executive of tax‐exempt nonreligious organization

• W. Astor Kirk, 425 F.2d 492 (D.C. Cir. 1970), cert. denied, 400 U.S. 853

Civilian chaplain at VA hospital

• Rev. Rul. 72‐462, 1972‐2 CB 76

Administrator of nonreligious old‐age home

• Jesse A. Toavs, 67 TC 897 (1977)
• Rev. Rul. 72‐606, 1972‐2 CB 78

No exclusion for rabbi as director of interreligious affairs

• Marc H. Tanenbaum, 58 TC 1 (1972)

Exclusion for rabbi as UJA director

• Melvin Libman, 44 TCM 371 (1982)

Minister teaching at church‐related college

• * Letter Ruling 9144047

3.15 CAFETERIA PLANS PROVIDE CHOICE OF BENEFITS

• Notice 2014‐55, 2014‐41 IRB 672
• IRC §125
• Reg. §1.125‐3 (effect of Family and Medical Leave Act)
• Reg. §1.125‐4 (permitted election changes)
• Prop. Reg. §1.125‐2 (general questions and answers)

IRS guidance on employee benefit plans for same‐sex couples

• Notice 2015‐86, 2015‐52 IRB 887

Key employees

• IRC §125(b)(2)

3.16 FLEXIBLE SPENDING ARRANGEMENTS

• IRC §125
• Prop. Reg. §1.125‐2 (general questions and answers)

Limited carryover for unused FSA contributions

• Notice 2013‐71, 2013‐47 IRB 532

Health flexible spending arrangements

• IRC §106 (f) (prescription needed for reimbursement of over‐the‐counter medications after 2010)
• Reg. §1.125‐3 (effect of Family and Medical Leave Act)
• Reg. §1.125‐4 (permitted election changes)
• Prop. Reg. §1.125‐2

One‐time FSA‐to‐HSA transfer

• IRC §106(e)

Employer option to allow up to $500 carryover for health care FSA

• Notice 2013‐71, 2013‐47 IRB 532

Employer option to allow grace period extension to use‐it‐or‐lose‐it deadline Notice 2005‐42, 2005‐23 IRB 1204

Medical costs reimbursed with debit, credit, or stored value cards

• Notice 2006‐69, 2006‐31 IRB 107

Cost of doctor‐prescribed herb can be reimbursed by FSA

• * Chief Counsel Letter, INFO 2010‐0080

Breastfeeding equipment is medical expense

• Announcement 2011‐14, 2011‐9 IRB 532

3.17 COMPANY SERVICES PROVIDED AT NO ADDITIONAL COST

• IRC §132(b)
• Reg. §1.132‐2

Highly compensated employees

• IRC §132(j)(6) (defined)
• IRC §132(j)(1) (non‐discrimination rule)

Line of business limitation

• Reg. §1.132‐4
• Temp. Reg. §54.4977‐1T (1985 election)

3.18 DISCOUNTS ON COMPANY PRODUCTS OR SERVICES

• IRC §132(c)
• Reg. §1.132‐3
• * Letter Ruling 9328016

4 DIVIDEND AND INTEREST INCOME

4.1 REPORTING DIVIDENDS AND MUTUAL‐FUND DISTRIBUTIONS

• * IRS Publication 564

Ordinary dividend portion

• IRC §854(b)(2)
• Reg. §1.854‐2
• Rev. Rul. 77‐149, 1977‐1 CB 82

Long‐term capital gain

• IRC §852(b)(3)(B)

Exempt‐interest dividend

• IRC §852(b)(5)(B)

Undistributed capital gain

• IRC §852(b)(3)(D)

Deferred annuities

• Rev. Rul. 81‐220, 1981‐2 CB 175
• Rev. Rul. 82‐54, 1982‐1 CB 11

Dividend declared in October, November, or December paid by following February

• IRC §852(b)(7)

4.2 QUALIFIED CORPORATE DIVIDENDS TAXED AT FAVORABLE CAPITAL GAIN RATES

• IRC §301
• IRC §305

Qualified dividends taxed at capital gain rates

• IRC §1(h)(11)
• * “Not All Dividends Qualify for the Reduced Tax Rate,” James G. S. Yang, 72 Practical Tax Strategies 171 (March 2004)

Qualified dividends from foreign corporations

• Notice 2003‐71, 2003‐43 IRB 922 (readily tradable on securities market in U.S.)
• Notice 2003‐69, 2003‐42 IRB 851 (qualifying tax treaties)

4.3 DIVIDENDS FROM A PARTNERSHIP, S CORPORATION, ESTATE, OR TRUST

Partners

• IRC §702(a)(5)
• IRC §702(b)

S corporations

• IRC §1368(c)(2)

Trusts

• IRC §652(b)

4.4 REAL ESTATE INVESTMENT TRUST (REIT) DIVIDENDS

• IRC §857

Shares held six months or less

• IRC §857(b)(7)

Dividend declared in October, November, or December

• IRC §857(b)(8)

4.5 TAXABLE DIVIDENDS OF EARNINGS AND PROFITS

• IRC §301

Definition of dividend

• IRC §316

Dividend reinvestment plan

• Rev. Rul. 79‐42, 179‐1 CB 130
• Rev. Rul. 78‐375, 1978‐2 CB 130
• Rev. Rul. 77‐749, 1977‐1 CB 82
• Rev. Rul. 76‐33, 1976‐1 CB 87

4.6 STOCK DIVIDENDS ON COMMON STOCK

Stock dividends and rights

• IRC §305
• Reg. §1.305‐1
• Reg. §1.61‐9(b)

Cash in lieu of fractional share

• Reg. §1.305‐3(c)

Shareholder approved sale plan

• Rev. Rul. 69‐15, 1969‐1 CB 95
• Rev. Rul. 69‐202, 1967‐1 CB 576

Elective dividend taxable

• IRC §305(b)(1)
• Reg. §1.305‐2

4.7 DIVIDENDS PAID IN PROPERTY

Dividend in kind

• Reg. §1.61‐9(b)
• IRC §301
• Reg. §1.301‐1
• IRC §317(a)
• Reg. §1.317‐1

Corporate benefits

• James B. Munson, 40 TCM 173 (1980)
• B. Morgan Heglin Inc., 38 TCM 255 (1979)
• Richard F. Tyson, 38 TCM 557 (1979)

Company payments for shareholder are loans

• Bradley K. Morrison, TC Memo 2005‐53

4.8 TAXABLE STOCK DIVIDENDS

• IRC §305

Option to redeem stock dividend

• Rev. Rul. 76‐258, 1976‐2 CB 95

Constructive dividends

• Roy J. Champayne, 26 TC 634 (1956) (Acq.)
• Charles Dreifus Co., 140 F. Supp. 499 (E.D. Pa. 1956)

4.9 WHO REPORTS THE DIVIDENDS

Dividends on stock sold

• Reg. §1.61‐9(c)

4.10 YEAR DIVIDENDS ARE REPORTED

• IRC §451(a)
• Reg. §1.451‐1
• Reg. §1.301‐1(b)

Dividend payable 12/31

• Sewell Lee Avery, 292 U.S. 210 (1934)
• George E. Rex, 3 TCM 1260 (1944)
• Harkness, 31 BTA 1100 (Acq.)
• A. S. Eldridge, 30 BTA 1322, aff’d, 79 F.2d 629 (9th Cir. 1935)

Dividend checks mailed by savings and loan association

• Maurice Fox, 218 F.2d 347 (3d Cir. 1955), aff’g 20 TC 1094 (1953) (Acq.)

Reasonable action could get dividend

• Frank W. Kunze, 203 F.2d 957 (2d Cir. 1953), aff’g 19 TC 29 (1952)

Dividends received year after year declared

• F. H. Mason, 275 U.S. 175 (1927)

Dividend taxed to seller retaining life income rights to stock

• Willard S. Heminway, 44 TC 96 (1965) (Acq.)

4.11 DISTRIBUTION NOT OUT OF EARNINGS: RETURN OF CAPITAL

• IRC §301(c)(2) and (3)
• IRC §316(a)

“Dividends” on paid‐up life insurance

• Reg. §1.72‐11(b)

4.12 REPORTING INTEREST ON YOUR TAX RETURN

• * IRS Publication 550

Reporting offshore accounts

• News Release IR‐2014‐73

Summary of interest income rules

• IRC §61(a)(4)
• Reg. §1.61‐7(a)

Year received

• Reg. §1.446‐1(c)(1)(i)

U.S. obligations

• IRC §103

Interest available

• Reg. §1.451‐2

Tax sale certificates

• Charles H. Wiltsie, 3 F. Supp. 743 (Ct. Cl. 1933), cert. denied, 291 U.S. 664

Open accounts without specific agreement

• Kurtz Bros., 42 BTA 561

Usurious interest

• Reg. §1.61‐7(a)

Discount on notes

• Reg. §1.61‐7(a)
• Reg. §1.61‐7(c)

Interest received in form of property

• Reg. §1.61‐1

Autos, boats received for long‐term deposits

• I.R. News Release 1032, April 14, 1970

Coupons from tax‐exempt bonds

• H. Gates Lloyd, 154 F.2d 643 (3d Cir. 1946), cert. denied, 329 U.S. 717
• Rev. Rul. 55‐73, 1955‐1 CB 236

Note with accrued interest

• Missouri State Life Insurance Co., 78 F.2d 778 (8th Cir. 1935)
• Pontiac Commercial and Savings Bank, 41 F.2d 602 (6th Cir. 1930)

Wrap‐around annuities

• Rev. Rul. 80‐274, 1980‐2 CB 27

Saving certificates, deferred interest plans

• Reg. §1.232
• Rev. Rul. 73‐220, 1973‐1 CB 297

Deferred interest as original issue discount

• News Release 1215, March 13, 1972

Six‐month certificates

• Reg. §1.451‐2(a)(2)
• Reg. §1.232‐3(b)
• Rev. Rul. 80‐157, 1980‐1 CB 186

Interest penalty bars constructive receipt on CD of one year or less

• Reg. §1.451‐2

Serviceman’s interest

• Rev. Rul. 67‐450, 1967‐2 CB 174

Interest on loan arrangement

• Rev. Rul. 81‐148, 1981‐1 CB 207

4.13 INTEREST ON FROZEN ACCOUNTS NOT TAXED

• IRC §451(g)
• IRC §165(1)

4.14 INTEREST INCOME ON DEBTS OWED TO YOU

Interest uncollectible

• Corn Exchange Bank, 37 F.2d 34 (2d Cir. 1930)
• Atlantic Coast Line RR Co., 31 BTA 730 (Acq.), aff’d, 81 F.2d 309 (4th Cir. 1936), cert. denied, 298 U.S. 656

Four restrictions on withdrawal of interest not considered substantial; bonus interest; closing agreements

• Reg. §1.451‐2(a)
• Rev. Proc. 64‐24, 1964‐1 CB 693

Agreement with debtor

• Annie B. Smith, 12 TCM 131 (1953)
• W. H. Hughes, 11 TCM 797 (1952)
• Rev. Rul. 63‐57, 1963‐1 CB 103

Debtor gives new note

• George J. Mellinger, 21 F. Supp. 964 (Ct. Cl. 1938)

Interest in advance

• Reg. §1.61‐7(a)

Obligations given away

• Ida S. Austin, 161 F.2d 666 (6th Cir. 1947), cert. denied, 332 U.S. 767

4.15 REPORTING INTEREST ON BONDS BOUGHT OR SOLD

Redemption

• Special Ruling, February 7, 1949

Included in sales price

• Reg. §1.61‐7(d)

Included in purchase price

• Reg. §1.61‐7(c)

Tax‐free covenant bond

• IRC §32(2)

Guarantor pays interest

• Rev. Rul. 54‐563, 1954‐2 CB 50

Accrued interest in reorganization exchange

• IRC §354(a)(2)(B)

Flat price

• Reg. §1.61‐7(c)

4.16 FORFEITURE OF INTEREST ON PREMATURE WITHDRAWALS

• IRC §62(a)(9)

Deductible amount on Form 1099‐INT

• Rev. Rul. 75‐20, 1975‐1 CB 29
• Rev. Rul. 73‐511, 1973‐2 CB 402, clarified by Rev. Rul. 75‐21, 1975‐1 CB 367

Forfeited principal

• Rev. Rul. 82‐27, 1982‐1 CB 32

4.17 AMORTIZATION OF BOND PREMIUM

• * IRS Publication 550

Election

• IRC §171
• Reg. §1.171‐1
• Reg. §1.171‐3

Premium treated as offset to interest

• IRC §171(e)

Computing amortization

• IRC §171(b)(3)
• Rev. Rul. 82‐10, 1982‐1 CB 46

Elect on return

• IRC §171(c)(2)
• Reg. §1.171‐3(a)

Straight‐line method

• Reg. §1.171‐2(f)

Yield‐to‐maturity method

• IRC §171(b)(3)

Effect on other bonds

• Reg. §1.171‐3(a)

Sale and purchase of similar bonds

• Rev. Rul. 55‐353, 1955‐1 CB 381

Premium amortization reduces OID

• IRC §1272(a)(7)

Allocate premium for conversions

• Reg. §1.171‐2(c)

4.18 DISCOUNT ON BONDS

• IRC §1271 (retirement or sale of debt instruments)
• IRC §1272 (current income treatment of OID)
• IRC §1273 (what is OID)
• IRC §1281 (short‐term debt)
• * IRS Publication 550

4.19 REPORTING ORIGINAL ISSUE DISCOUNT ON YOUR RETURN

• * IRS Publication 1212

4.20 REPORTING INCOME ON MARKET DISCOUNT BONDS

• IRC §1276

Deferral of interest deduction

• IRC §1277

Deferral of interest does not apply to tax‐exempt obligations

• IRC §1278(a)(1)(C)

Election to currently report discount

• IRC §1278(b)

Partial principal payments

• IRC §1276(a)(3)

4.21 DISCOUNT ON SHORT‐TERM OBLIGATIONS

Current inclusion required

• IRC §1281

Tax‐exempts excluded from inclusion rule

• IRC §1283(a)(1)(B)

Deferred interest deduction

• IRC §1282

4.22 STRIPPED COUPON BONDS AND STOCK

• IRC §1286

Zero coupon bond (OID reported annually)

• IRC §1272

Market discount bonds

• IRC §1276

OID treatment for stripped preferred stock

• IRC §305(e)
• * IRS Publication 1212

4.23 SALE OR RETIREMENT OF BONDS AND NOTES

• IRC §1271
• IRC §1272
• * IRS Publication 550
• * IRS Publication 1212

Registered form

• IRC §1287

Retirement defined

• Donald S. McClain, 311 U.S. 527 (1941)

Unearned original issue discount is capital gain

• Ted Bolnick, 44 TC 245 (1965) (Acq.)

4.24 STATE AND CITY INTEREST GENERALLY TAX EXEMPT

• * IRS Publication 550

State, city obligations

• IRC §103(a)
• Reg. §1.103‐1
• Rhode Island Hospital Trust Co., 8 BTA 555, vacated and remanded, 29 F.2d 339 (1st Cir. 1929)

Agreement of purchase and sale

• Newlin Machinery Corp., 28 TC 837 (1957) (Acq.)

Sale of municipal certificates of indebtedness to municipality

• Palm Beach Trust Co., 9 TC 1060 (1947), aff’d per curiam, 174 F.2d 527 (D.C. Cir. 1949), cert. denied, 338 U.S. 825

Qualified private activity bonds not taxed

• IRC §141(e)

AMT exception for 2009/2010 private activity bonds

• IRC §47(a)(5)(C)(vi)

4.25 TAXABLE STATE AND CITY INTEREST

• IRC §103(e)

Qualified private activity bonds not taxed

• IRC §141(e)

Community open account purchases

• Kurtz Bros., 42 BTA 561

Volunteer fire companies

• Seagrave Corp., 38 TC 247 (1962)

Tax sale certificates

• Charles H. Wiltsie, 3 F. Supp. 743 (Ct. Cl. 1933), cert. denied, 291 U.S. 664

Municipal bond in open market

• Rev. Rul. 57‐49, 1957‐1 CB 62
• Rev. Rul. 60‐210, 1960‐1 CB 38, modified by Rev. Rul. 60‐376, 1960‐2 CB 38

4.26 TAX‐EXEMPT BONDS BOUGHT AT A DISCOUNT

• IRC §1288

Bond bought at discount

• Rev. Rul. 73‐112, 1973‐1 CB 47
• Rev. Rul. 57‐49, 1957‐1 CB 62
• Rev. Rul. 60‐210, 1960‐1 CB 38

Redeemed old bond at premium

• Rev. Rul. 72‐587, 1972‐2 CB 74
• District Bond Co., 1 TC 837 (1943)

Redemption of bonds issued after June 8, 1980

• Rev. Rul. 80‐143, 1980‐1 CB 89, modifying Rev. Rul. 72‐587, 1972‐2 CB 74

Market discount rules do not apply to tax‐exempt bonds

• IRC §1278

Stripped tax‐exempt obligations

• IRC §1286(d)

4.27 TREASURY BILLS, NOTES, AND BONDS

Taxable interest

• Reg. §1.61‐7

Taxed at maturity

• IRC §454(b)

Gain on sale of short‐term obligations (ratable share of discount)

• IRC §1271(a)(3)(D)

Acquisition discount currently taxed to accrual‐basis taxpayers and dealers

• IRC §1281

Interest deduction limitation

• IRC §1281
• IRC §1282

4.28 INTEREST ON UNITED STATES SAVINGS BONDS

• * IRS Publication 550

Annual increase in value

• IRC §454
• Reg. §1.454‐1(c) (taxed in year of redemption or final maturity)

Election to report interest annually on timely return

• Rev. Rul. 55‐655, 1955‐2 CB 253

Change in taxpayer’s reporting method

• Rev. Proc. 89‐46, 1989‐2 CB 597

4.29 DEFERRING UNITED STATES SAVINGS BOND INTEREST

• * IRS Publication 550

Transferring to a revoable trust

• *Chief Counsel Information Letter 2015‐0027

Changing from annual reporting to deferral

• Rev. Proc. 2002‐9, 2002‐3 IRB 327

Postpone tax during extended maturity period

• IRC §454(c)
• Reg. §1.454‐1

Change form of registration of E bond

• IRC §454(c)
• Reg. §1.454‐1
• Rev. Rul. 55‐278, 1955‐1 CB 471
• Rev. Rul. 54‐327, 1954‐2 CB 50

Correction of error in registration

• Rev. Rul. 70‐428, 1970‐2 CB 5

Co‐owners

• Rev. Rul. 54‐143, 1954‐1 CB 12
• Rev. Rul. 55‐278, 1955‐1 CB 471
• Rev. Rul. 58‐435, 1958‐2 CB 370, distinguished by Rev. Rul. 68‐145, 1968‐1 CB 203

Transfer to charity

• * Letter Ruling 8010082

Bonds transferred by gift without reissue

• Edward G. Chandler, 410 U.S. 257 (1973), rev’g 460 F.2d 1281 (9th Cir. 1972)
• Mae Elliott Est., 57 TC 152 (1971), aff’d per curiam, 474 F.2d 1008 (5th Cir. 1973)
• Lyla C. Curry Est., 409 F.2d 671 (6th Cir. 1969)
• Alice H. Silverman, 259 F.2d 731 (3d Cir. 1958)
• Helen K. Chambless, 1970 WL 319 (DCSC) (1970)

Death of owner

• Rev. Rul. 64‐104, 1964‐1 CB 223, distinguished by Rev. Rul. 68‐145, 1968‐1 CB 203

Election on decedent’s return

• Rev. Rul. 68‐145, 1968‐1 CB 203

4.30 MINIMUM INTEREST RULES

• IRC §7872 (loans)
• IRC §1274 and §483 (seller financing)

4.31 INTEREST‐FREE OR BELOW‐MARKET‐INTEREST LOANS

• IRC §7872
• Prop. Reg. §1.7872‐1 through §1.7872‐14

Blended annual rate for demand loans

• Rev. Rul. 2017‐14, 2017‐27 IRB 2
  (blended rate for 2017)
• Rev. Rul. 2016‐17, 2016‐27 IRB 1 (blended rate for 2016)
• Rev. Rul. 2015‐15, 2015‐27 IRB 1 (blended rate for 2015)
• Rev. Rul. 2014‐20, 2014‐28 IRB 101 (blended rate for 2014)
• Rev. Rul. 2013‐15, 2013‐28 IRB 47 (blended rate for 2013)
• Rev. Rul. 86‐17, 1986‐1 CB 377 (IRS authorizes blended rate)

$10,000 gift loan exception

• IRC §7872 (c)(2)
• Prop. Reg. §1.7872‐8(b)

$100,000 gift loan exception

• IRC §7872(d)
• Prop. Reg. §1.7872‐8(c)

4.32 MINIMUM INTEREST ON SELLER‐FINANCED SALES

• IRC §1274
• IRC §1275
• IRC §483
• Reg. §1.1274‐1 through §1.1274.7
• Reg. §1.483‐1 through §1.483‐5
• * IRS Publication 537

General rate required

• IRC §1274A

Definitions and special rules

• IRC §1275

Minimum interest rules not applicable to buyer of personal‐use property

• IRC §1275(b)

Which AFR rate applies to sales

• Reg. §1.1274‐6(e)
• Reg. §1.483‐4(d)

Timing of reporting under §483

• Reg. §1.483‐2(a)(ii)

Cash method election

• IRC §1274A(C)
• Rev. Rul. 2015‐24, 2015‐48 IRB 687 (inflation adjusted amount for 2016 and prior years)

6% rate for land sales between related parties

• IRC §483(e)

9% safe harbor

• IRC §1274A(b)
• Reg. §1.1274A‐1

Inflation adjustment to seller‐financed amount for safe harbor

• IRC §1274A(d)(2)
• Rev. Rul. 2015‐24, 2015‐48 IRB 687 (inflation adjusted amount for 2016 and prior years)

5 REPORTING PROPERTY SALES

5.1 GENERAL TAX RULES FOR PROPERTY SALES

• IRC §1(h)
• * IRS Publication 544

Bitcoin treated like property

• Notice 2014‐21,2014‐16 IRB 938

5.2 HOW PROPERTY SALES ARE CLASSIFIED AND TAXED

• IRC §1(h)
• IRC §1221( capital asset defined)
• IRC §1222 (short‐term, long‐term, net capital gain defined)
• * IRS Publication 544

Down payment’s tax treatment when a sale falls through

• CRI‐Leslie, LLC, 147 TC No. 8 (2016)

Self‐created musical works

• IRC §1221(b)(3)

5.3 CAPITAL GAINS RATES AND HOLDING PERIODS

• IRC §1(h)
• IRC §1222 (long‐term, short‐term net capital gain defined)
• IRC §1223 (holding period)

Zero rate starting in 2008

• IRC §1(h)(1)(B)

5.4 CAPITAL LOSSES AND CARRYOVERS

• IRC §1211
• IRC §1212
• IRC §1222(10)
• Reg. §1.1222‐1

Taking a capital loss on property you don’t own

• Pamela Lynn Brooks, TC Memo 2013‐141

Carryover loss if taxable income is negative

• IRC §1212(b)(2)(B)

Loss must be considered even if no tax benefit is realized

• Rev. Rul. 76‐177, 1976‐1 CB 224

Not deductible as a business expense

• Frank Lester, 70 TMC 77 (1995)

5.5 CAPITAL LOSSES OF MARRIED COUPLES

One capital loss deduction on joint return

• John E. Ross, 37 TC 445 (1961)
• Reg. §1.1211‐1(d)
• Reg. §1.1211‐1(c)

Surviving spouse may not use deceased spouse’s loss carryover

• * Letter Ruling 8510053

5.6 LOSSES MAY BE DISALLOWED ON SALES TO RELATED PERSONS

• * “Related‐Party Sales Can Produce Unexpected Tax Results,” Monica Brown Gianni, 59 Taxation for Accountants 23 (July 1997)

Nondeductible losses

• IRC §267
• Reg. §1.267(a)‐1(a)

Bona fide

• Reg. §1.267(a)‐1(c)
• Nathan Blum, 5 TC 702 (1945)

Stock exchange

• John P. McWilliams, 331 U.S. 694 (1947)
• John B. Shethar, 28 TC 1222 (1957)

Foreclose mortgage

• Thomas Zacek, 8 TC 1056 (1947)

Pledgee’s sale

• Charles E. Cooney, 1 TCM 55 (1942)

Members of family

• IRC §267(b)(1) and (c)(4)
• Reg. §1.267(c)‐1(a)(4)

Nominee

• Charles J. Stamler, 45 BTA 37
• O. Phil Nordling, 166 F.2d 703 (9th Cir. 1948), cert. denied, 337 U.S. 938

Wife’s relative

• J. Henry DeBoer, 194 F.2d 989 (2d Cir. 1952), (Nonacq.)

Son‐in‐law

• Fervel Topek, 9 TC 763 (1947)
• * Letter Ruling 9017008

Family hostility may not be considered

• David L. Miller, 75 TC 182 (1980)

Withdrawal from joint ventures and partnerships

• T. N. Mauritz, 205 F.2d 135 (5th Cir. 1953)
• Fritz Busche, 229 F.2d 437 (5th Cir. 1956)
• Henry V. B. Smith, 5 TC 323 (1945)

Controlled corporation

• IRC §267
• Reg. §1.267(b)‐1
• Reg. §1.267(c)‐1

Other losses disallowed

• IRC §267
• Reg. §1.267(b)‐1

Partnership and controlling persons

• IRC §707(b)(1)(A)

Related party’s profitable resale

• IRC §267(d)

5.7 DEFERRING OR EXCLUDING GAIN ON SMALL BUSINESS STOCK INVESTMENT

• IRC §1044 (rollover of gain from publicly traded securities to SSBIC)
• IRC §1045 (rollover of gain from small business stock)
• IRC §1202 (exclusion of gain)
• IRC §1397B (rollover of empowerment zone asset gain)
• * IRS Publication 550

Election on return required for Section 1045 rollover

• Ralph E. Holmes, TC Memo 2012‐25

Increased exclusion

• IRC §1202(a)(3) (75% for stock acquired after 2/17/09 and before 9/28/10)
• IRC §1202(a)(4) (100% for stock acquired after 9/27/10 and before 1/1/15)

Section 1202 exclusion doesn’t apply to options

• Sivatharan Natkunanathan, 2012‐2 USTC ¶50,456 (9th Cir. 2012), aff’g TC Memo. 2010‐15

5.8 REPORTING CAPITAL ASSET SALES ON FORM 8949 AND ON SCHEDULE D

• * IRS Publication 544

Reporting capital gains and losses

• IRC §1(h)
• IRC §1222
• * IRS Publication 544

Short‐term and long‐term transactions

• IRC §1222

Capital losses

• IRC §1211(b) and 1212(b)
• IRC §62(a)(3)

5.9 COUNTING THE MONTHS IN YOUR HOLDING PERIOD

Long‐ and short‐term capital gain or loss

• IRC §1222
• IRC §1223
• Reg. §1.1222‐1
• Reg. §1.1223‐1(a)

Exclude day asset acquired

• Lewis Caspe, 694 F. 2d 1116 (8th Cir. 1982), aff’g 80‐1 USTC ¶9201 (D.C. IA. 1980)

Holding period rules

• IRC §1222

Futures transactions

• IRC §1222

5.10 HOLDING PERIOD FOR SECURITIES

Stock exchange transactions

• Rev. Rul. 72‐381, 1972‐2 CB 233
• Rev. Rul. 70‐598, 1970‐2 CB 168

Installment sale not allowed for publicly traded stock

• IRC §453(k)(2)

Stock subscriptions

• Mayme C. Sommers, Admtrx., 63 F.2d 551 (10th Cir. 1933)
• William J. Wineberg, 20 TCM 1715 (1961), aff’d, 326 F.2d 157 (9th Cir. 1964)

Exercise of rights

• IRC §1223(5)(6)
• Reg. §1.1223‐1(f)
• Rev. Rul. 56‐572, 1956‐2, CB 182

Different lots

• Reg. §1.1223‐1(i)

Employee stock option

• John H. Rolfe, 58 TC 361 (1972), aff’d per curiam, 488 F.2d 1092 (9th Cir. 1974)

Commodity satisfaction of futures contract

• IRC §1223(8)
• Reg. §1.1223‐1(h)

“When issued” transactions

• I.T. 3721, 1945 CB 164, as modified by Rev. Rul. 57‐29, 1957‐1 CB 519

Wash sales

• IRC §1223(4)
• Reg. §1.1223‐1(d)

5.11 HOLDING PERIOD FOR REAL ESTATE

• Rev. Rul. 54‐607, 1954‐2 CB 177

New construction

• M. A. Paul, 206 F.2d 763 (3d Cir. 1953)
• Fred Draper, 32 TC 545 (1959) (Acq.)

Portion of building constructed within long‐term holding period

• Rev. Rul. 75‐524, 1975‐2 CB 342

5.12 HOLDING PERIOD: GIFTS, INHERITANCES, AND OTHER PROPERTY

Gift after 1920

• IRC §1223(2)
• Reg. §1.1223‐1(b)

Donee’s sale at loss

• Rev. Rul. 59‐86, 1959‐1 CB 209

Automatic holding period of over one year for property acquired from decedent

• IRC §1223(11)

Property purchased by executors

• Marjorie K. Campbell, 313 U.S. 15 (1941)
• Richard Van Nest Gambrill, 313 U.S. 11 (1941)

Distribution in kind from partnership

• IRC §735(b)
• Reg. §1.735‐1

Involuntary conversion

• IRC §1223(1)(A)
• Reg. §1.1223‐1(a)

5.13 CALCULATING GAIN OR LOSS

Gain or loss

• IRC §1001
• Reg. §1.1001‐1 (amount realized)

Property basis cannot be increased by unsubstantiated improvements

• Jovita Diaz, TC Memo 2012‐241

5.14 AMOUNT REALIZED IS THE TOTAL SELLING PRICE

Selling price

• Reg. §1.1001
• IRC §1001

Mortgage included in price

• Beulah B. Crane, 331 U.S. 1 (1947)

Property valued at less than mortgage

• John F. Tufts, 456 U.S. 960 (1983)

Legal fee—cost of sale

• Fred W. Gunn, 49 TC 38 (1967)

5.15 FINDING YOUR COST

Unadjusted basis

• IRC §1012
• Reg. §1.1012‐1

Improvements

• IRC §1016
• Reg. §1.016‐2

Adjusted basis

• IRC §1011
• Reg. §1.1011‐1

Improvements not covered by note

• Glenda P. McCormick, 99‐1 USTC ¶50,380 (D. Tenn. 1999)

5.16 UNADJUSTED BASIS OF YOUR PROPERTY

• * IRS Publication 551

Basis is cash cost

• IRC §1012
• Reg. §1.1012‐1

Property subject to mortgage

• Beulah B. Crane, 331 U.S. 1 (1947)

Adjusted cost after depreciation allowed

• IRC §1016
• Reg. §1.1016‐3

Rendering services

• Reg. §1.61‐2
• W. H. Weaver, 25 TC 1067 (1956)
• Lawrence S. Vadner, 14 TCM 866 (1955)

Taxable exchange of property

• Philadelphia Park Amusement Co., 126 F. Supp. 184 (Ct. Cl. 1954)
• Rev. Rul. 56‐100, 1956‐1 CB 624

Tax‐free exchange of property

• IRC §1031
• Reg. §1.1031(d)‐1

Life estate or remainder interest

• Reg. §1.1014‐5

Sale of life estate—zero basis

• IRC §1001(e)

Property subject to lease

• Harriet M. Bryant Trust, 11 TC 374 (1948) (Acq.)

Distribution to settle claim

• Rev. Rul. 55‐117, 1955‐1 CB 233

Compulsory or involuntary conversion

• IRC §1033(b)

Distribution on orders of SEC

• IRC §1081
• Reg. §1.1081

Prenuptial agreement

• Doris Farid‐es‐Sultaneh, 160 F.2d 812 (2d Cir. 1947), rev’g 6 TC 652 (1946)

Basis of new residence after home sale deferral

• IRC §1034(e)
• Reg. §1.1034‐1

Dividends in property

• IRC §301
• Reg. §1.301‐1

5.17 BASIS OF PROPERTY YOU INHERITED OR RECEIVED AS A GIFT

• * “Basis of Property Acquired by Gifts,” Katherine D. Black and Jeffrey N. Barnes, 82 Taxes 41 (November 2004)
• IRC §1014
• Reg. §1.1014‐1
• Reg. §1.1014‐2

Heirs must report basis consistent with value reported by executor on estate tax return filed after July 31, 2015

• IRC §1014 (f) (consistency requirement for heirs, as added by Surface Transportation and Veterans Health Choice Improvement Act of 2015, P.L. 114‐41, 7/31/15)
• IRC §6035 (executor reporting requirement, as added by Surface Transportation and Veterans Health Choice Improvement Act of 2015, P.L. 114‐41, 7/31/15)
• IRC §§6662(b)(8) and (k) (penalty on heirs for claiming inconsistent basis, as added by Surface Transportation and Veterans Health Choice Improvement Act of 2015, P.L. 114‐41, 7/31/15)
• T.D. 9757, 2016‐12 IRB 462 (proposed regulations provide guidance on executor reporting and basis consistency rules)
• Notice 2016‐27, 2016‐15 IRB 576 (IRS delays executor reporting to June 30, 2016)

Carryover basis election on Form 8939

• Notice 2011‐66, 2011‐35 IRB 184
• Rev. Proc. 2011‐41, 2011‐35 IRB 188

Foreign property

• Rev. Rul. 84‐139, 1984‐2 CB 168

Gift tax paid increases basis

• IRC §1015(d)(6)

Gift after December 31, 1920

• IRC §1015
• Reg. §1.1015‐1

Inheritance of property transferred to decedent within one year of death

• IRC §1014(e)

Estate tax value questioned

• Sam F. McIntosh, 26 TCM 1164 (1967)

Right to buy deceased’s property

• J. Gordon Mack, 3 TC 390 (1944), aff’d 148 F.2d 62 (3d Cir. 1945), cert. denied, 326 U.S. 719

Distributions from trust

• IRC §1015
• Reg. §1.1015‐2
• IRC §643(e)

5.18 JOINT TENANCY BASIS RULES FOR SURVIVING TENANTS

• IRC §1014
• Reg. §1.1014‐2
• IRC §2040(b)
• * IRS Publication 551
• * IRS Publication 559

Figuring basis of property inherited from spouse who died after 1981

• IRC §2040(b)

Spousal joint tenancies created before 1977

• M. Lee Gallenstein, 975 F.2d 286 (6th Cir. 1992)
• Joy B. Patten, 116 F.3d 1029 (4th Cir. 1997)
• Therese Hahn, 110 TC 1040 (1998) (Acq.)

5.19 ALLOCATING COST AMONG SEVERAL ASSETS

Apportionment of cost

• Frederick Leake, 140 F.2d 451 (6th Cir. 1944), cert. denied, 323 U.S. 722
• Nathan Blum, 5 TC 702 (1945)
• Johnson Lumber Corp., 12 TC 348 (1949) (Acq.)
• Fairfield Plaza, Inc., 39 TC 706 (1963) (Acq.)

Apportion land

• McDonald, BTA Memo, P‐H 41,409
• Harlan E. McGregor, 14 TCM 897 (1955)

Sale of stock first bought

• Reg. §1.1012‐1(c)
• A. F. Mack, 31 BTA 1149

5.20 HOW TO FIND ADJUSTED BASIS

Improvements and betterments to property

• IRC §1016
• Reg. §1.1016‐2
• Edgar S. Appleby Est., 123 F.2d 700 (2d Cir. 1941)

Basis cannot be increased by unsubstantiated improvements

• Jovita Diaz, TC Memo 2012‐241

Improvements covered by note not included in basis

• John W. Owen, 34 F. Supp. 2d 1071 (W.D. Tenn. 1998)

Commissions on security sales

• Adolph B. Spreckles, 315 U.S. 626 (1942)

Carrying charges

• IRC §1016
• Reg. §1.1016‐2

Personal residence

• Isaiah Megibow, 218 F.2d 687 (3d Cir. 1955)

Purchaser’s share of real estate tax

• IRC §164(d)
• Reg. §1.164‐6

Unharvested crops

• IRC §1016(a)(11)
• Reg. §1.1016‐5(g)

Demolition cost

• Reg. §1.165‐3
• Edgar S. Appleby Est., 123 F.2d 700 (2d Cir. 1941)

Deduction from basis

• IRC §1016
• Reg. §1.1016‐1 through 8

Return of capital

• IRC §1010(a)(4)
• Reg. §1.1016‐5(a)(1‐2)

Casualty loss

• IRC §1016(a)(1)
• Pasquale Colabella, 17 TCM 704 (1958)

Wrap fees cannot be added to basis of securities

• *Chief Counsel Advice 200721015

Depletion allowances

• IRC §1016(a)(2)
• Reg. §1.1016‐3 and 4

Depreciation, amortization, obsolescence

• IRC §1016(a)(2)
• Reg. §1.1016‐3 and 4
• Rev. Proc. 97‐37, 1997‐33 IRB 18 (adjustment for unclaimed depreciation in a closed year)

5.21 TAX ADVANTAGE OF INSTALLMENT SALES

• IRC §453
• * IRS Publication 537

Depreciation recapture

• IRC §453(i)

Not applicable to year‐end sale of securities

• IRC §453(k)(2)

Farmer who does not inventory

• Temp. Reg. §15A.453‐1(b)(4)

Not applicable to sale of inventory

• Andrew A. Monaghan, 40 TC 680 (1963) (Acq.)
• IRC §453(6)(2)(B)
• Crispo Gallery Inc., 2nd Cir. (6/13/96)

Not applicable to building contractor

• Rev. Rul. 73‐438, 1973‐2 CB 156

Dealers

• IRC §453(b)(2)

Timeshares and residential lots

• IRC §453(1)(2) and (1)(3)

5.22 FIGURING THE TAXABLE PART OF INSTALLMENT PAYMENTS

Selling price

• Temp. Reg. §15A.453‐1(b)(2)(ii)

Contract price

• Temp. Reg. §15A.453‐1(b)(2)(iii)

Payments received

• Temp. Reg. §15A.453‐1(b)(3)

Gross profit

• Temp. Reg. §15A.453‐1(b)(2)(v)

Wraparound mortgages

• Temp. Reg. §15A.453‐1(b)(3)(ii)

Tax Court rejects IRS wraparound regs.

• Professional Equities, Inc., 89 TC 165 (1987) (Acq.)

Pledges of installment obligations

• IRC §453A(d)

5.23 ELECTING NOT TO REPORT ON THE INSTALLMENT METHOD

• IRC §453(d)
• Reg. §15A.453‐1(d)

Tax preparer’s mistake gives taxpayer extension to elect out of installment method

• *Letter Ruling 201540003

Late election out barred for change in capital gain law

• Rev. Rul. 90‐46, 90‐1 CB 107

Switch to installment method denied after NOL reduced

• * Letter Ruling 8338004

Switch to installment method allowed after accountant’s mistake (election out revoked)

• * Letter Ruling 201503005
• * Letter Ruling 201027025
• * Letter Ruling 200814013
• * Letter Ruling 200323009
• * Letter Ruling 8943039
• * Letter Ruling 9141013

5.24 RESTRICTION ON INSTALLMENT SALES TO RELATIVES

• IRC §453(e) and (g)

Two‐year cutoff for property

• IRC §453

Related party

• IRC §453(f)(1)
• IRC §318(a)
• IRC §267(b)

Depreciable property

• IRC §1239(b)

Controlled entity

• IRC §453(g)

5.25 CONTINGENT PAYMENT SALES

• Temp. Reg. §15A.453‐1(c)

5.26 USING ESCROW AND OTHER SECURITY ARRANGEMENTS

• Edward Grannemann, 649 F. Supp. 949 (D. Mo. 1987)
• Marion H. McArdle, 11 TC 961 (1948) (Acq.)
• Rev. Rul. 73‐451, 1973‐2 CB 158

Escrow lacks binding condition

• J. Robert Rhodes, 243 F. Supp. 894 (D.S.C. 1965)
• Everett Pozzi, 49 TC 119 (1968)
• J. Earl Oden, 56 TC 569 (1971)

Escrow under court order

• Nannie C. Harris, 477 F.2d 812 (4th Cir. 1973), rev’g 56 TC 1165 (1971) (Nonacq.)

Substitution of escrow for unpaid notes or deed of trust

• Rev. Rul. 77‐294, 1977‐2 CB 173, revoking Rev. Rul. 68‐246, 1968‐1 CB 198

Certificate of deposit as security

• Ulysses G. Trivett, Jr., 36 TCM 675 (1977) (disqualified installment sale allowed)
• C. J. Porterfield, 73 TC 91 (1979) (installment sale allowed)

5.27 MINIMUM INTEREST ON DEFERRED PAYMENT SALES

• IRC §483
• Reg. §1.483

Exceptions and limitations

• IRC §483(d)

5.28 DISPOSITIONS OF INSTALLMENT NOTES

• IRC §453B

Receipt of notes in Section 331 corporate liquidation

• IRC §453(h)

Exchange of investment realty

• Phil Blatt, 67 TCM 2125 (1994)

Transfer at death

• IRC §453B(c)
• IRC §691(a)(4)
• Reg. §1.691(a)‐5

5.29 REPOSSESSION OF PERSONAL PROPERTY SOLD ON INSTALLMENT

• IRC §453

5.30 BOOT IN LIKE‐KIND EXCHANGE PAYABLE IN INSTALLMENTS

• IRC §453(f)(6)

5.31 “INTEREST” TAX IF SALES PRICE EXCEEDS $150,000 WITH OVER $5 MILLION DEBT

Interest tax

• IRC §453(c)

Pledge rule

• IRC §453A(d)

Dealers

• IRC §453(1)

5.32 WORTHLESS SECURITIES

• * “Worthless Stock and Debt Losses,” Jerred G. Blanchard, Jr. and David C. Garlock, 83 Taxes 205 (March 2005)
• IRC §165(a)
• IRC §165(g)
• Reg. §1.165‐5

Partial worthlessness not allowed

• Edwin Leo Coyle, 142 F.2d 580 (7th Cir. 1944)
• Harry C. Howard, 20 BTA 207, aff’d, 56 F.2d 781 (6th Cir. 1932), cert. denied, 287 U.S. 619

Abandoned securities treated as worthless

• Prop. Reg. §1.165‐5(i)

Statute of limitation

• IRC §6511(d)(1)

Sale for nominal amount after worthlessness

• J. Graham Brown, 94 F.2d 101 (6th Cir. 1938)
• Frank C. Rand, 116 F.2d 929 (8th Cir. 1941), cert. denied, 313 U.S. 594

Insolvency

• Alice G. K. Kleburg, 2 TC 1024 (1943)
• Arthur C. Ansley, 217 F.2d 252 (3d Cir. 1954)

Potential value in stock despite insolvency

• Paul Osborne, 70 TMC 243 (1995)
• Norman Nelson, 131 F.2d 301
  (8th Cir. 1942)

Business continued

• Lola G. Bullard, 146 F.2d 386
  (2d Cir. 1945)
• George P. Snow, 90 F. Supp. 37
  (D. NY 1950)

Bankruptcy

• Joseph A. Jeffrey, 62 F.2d 661
  (6th Cir. 1933)
• Dennis H. Long, 145 F.2d 234
  (6th Cir. 1944)
• In re Harrington, 1 F.2d 749
  (D.C. Cir. 1924)

Court advice on claiming bad debt deduction

• Minnie K. Young, 123 F.2d 597 (2d Cir. 1941)

Payments on note issued for stock

• W. P. Tams, Jr., 33 F. Supp. 764 (D. W. Va. 1940)

Small business investment company

• IRC §1242

Loss on short sale of SBIC stock

• Rev. Rul. 63‐65, 1963‐1 CB 142

Political party debt

• IRC §271

5.33 TAX CONSEQUENCES OF BAD DEBTS

Non‐business bad debt for unpaid business‐related loans

• Harry Robert Haury, No. 13–1780 (8th Cir., 2014)

Business bad debt

• IRC §166
• Reg. §1.166‐1
• * IRS Publication 535

Debt worthless after termination of business

• IRC §166(d)(2)(A)
• Reg. §1.166‐5

Sell merchandise on credit

• Reg. §1.166‐6

No deduction for unpaid account receivable

• Lawrence Washburn, 61 TCM 2529 (1991)

Business of investing or making loans

• Allerton Cushman, 148 F. Supp. 880 (D. Ariz. 1956)
• L. Washburn, 51 F.2d 949 (8th Cir. 1931)
• Hyman R. Minkoff, 15 TCM 1404 (1956)
• Morris H. Cone Estate, 13 TCM 512 (1954)

Sell your business

• Reg. §1.166‐5(d)(6)

Promoter

• Vincent C. Campbell, 11 TC 510 (1948) (Acq.)

Loan to maintain business reputation

• Wilfred J. Funk, 35 TC 42 (1960) (Acq.)
• Stuart Bart, 21 TC 880 (1954) (Acq.)

Loan to insure merchandise delivery

• Robert Haverty Est., 12 TCM 1295 (1953)
• J. T. Dorminey, 26 TC 940 (1956) (Acq.)

Loan to controlled corporation to further business

• Lawrence M. Weil Est., 29 TC 366 (1957) (Acq.)

Nonbusiness debt

• IRC §166(d)
• IRC §1211
• Reg. §1.166‐5
• Reg. §1.1211‐1

Guarantors

• Reg. §1.166‐9
• Reg. §1.1211‐1

Personal advances

• Gifford A. Cochran, 14 TCM 206 (1955)

Attorney’s loan to client

• Robert H. McNeil, 251 F.2d 863 (4th Cir. 1958)

Payment of another’s taxes

• Albert Gersten, 28 TC 756 (1957) (Acq.), aff’d in part, rev’d in part on other issues, 267 F.2d 195 (9th Cir. 1959)

Payment of joint tax by spouse

• Frank R. Haynes, 27 TCM 1531 (1968)

Loss of deposit

• Rev. Rul. 69‐457, 1969‐2 CB 32

Dominant motive test

• Edna Generes, 405 U.S. 93 (1972)

Loan by shareholder‐employees to protect job

• Edna Generes, 405 U.S. 93 (1972), rev’g 427 F.2d 279 (5th Cir. 1970)
• Kenneth W. Graves, TC Memo 2004‐140
• Harry Litwin, 983 F.2d 997 (10th Cir. 1993)
• Donald C. Niblock, Jr., 417 F.2d 1185 (7th Cir. 1969)
• James O. Gould, 64 TC 132 (1975)
• Odee Smith, 55 TC 260 (1970), vacated and rem’d per curiam, 457 F.2d 797 (5th Cir. 1972), on rem’d 60 TC 316 (1973) (Acq.)
• Lawrence J. Doerfler, 36 TCM 789 (1977)
• William G. Young, 33 TCM 397 (1974)

Loans to corporations

• Charles Kadlec, 71 TCM 2399 (1996) (closely held corporation)
• Donald C. Van Pelt, 191 F.2d 861 (6th Cir. 1951)
• Janet McBride, 23 TC 926 (1955) (Acq.)
• Weldon D. Smith, 17 TC 135 (1951), rev’d, 203 F.2d 310 (2d Cir. 1953), cert. denied, 346 U.S. 816
• Sam Schaltzer, 13 TC 43 (1949) (Acq.), aff’d per curiam, 183 F.2d 70 (9th Cir. 1950), cert. denied, 340 U.S. 911
• Rev. Rul. 60‐48, 1960‐1 CB 112

Unpaid stockholder loans to corporation

• A. J. Whipple, 373 U.S. 193 (1963) (nonbusiness bad debt for payment to protect investment)

Stockholder loan to key employee deductible

• Charles W. Carter, 39 TCM 456 (1979)

5.34 FOUR RULES TO PROVE A BAD DEBT DEDUCTION

Advances to insolvent corporation

• W. F. Young, Inc., 120 F.2d 159 (1st Cir. 1941)

Advances repaid only if profit is shown

• Lucia C. Ewing, 20 TC 216 (1953), aff’d, 213 F.2d 438 (2d Cir. 1954)

Usurious loan

• William K. Harriman, 26 TCM 941 (1967)

Usurious loan as a business loss

• Herbert E. Tharp, 31 TCM 22 (1972)

Debtor‐creditor relationship

• Kentucky Rock Asphalt Co., 108 F.2d 779 (6th Cir. 1940)
• W. M. Robertson, 7 TCM 62 (1948)

Loan included in income

• IRC §166
• Reg. §1.166‐1

Consulting engineer

• Jack Shapiro, 20 TCM 579 (1961)

Worthless during year

• IRC §166
• Reg. §1.166‐1

Bankruptcy by court order

• Reg. §1.166‐2(c)

Final liquidation dividend

• Leedom & Worrall Co., 10 BTA 825
• First National Bank of Los Angeles, 6 BTA 850 (Acq.)

Corporation liquidation resolution

• Pantex Oil Corp., 8 TCM 1079 (1949)

Disappearance of debtor

• Fridolin Pabst, 36 F.2d 614 (D.C. Cir. 1930)

Debtor’s refusal to pay

• Philip C. Hughes, 10 TCM 204 (1951)

Revocation of corporate charter

• Leila S. Kirby, 35 BTA 578 (Acq. and nonacq.), aff’d in part, rev’d in part, 102 F.2d 115 (5th Cir. 1939)

Cancelled debt

• Nathan Fink, 29 TC 1119 (1958) (Acq.)

No hope of later value

• American Trust Co., 31 F.2d 47 (9th Cir. 1939), aff’g 10 BTA 490
• Alemite Die Casting & Manufacturing Co., 1 BTA 548

Debt worthless before due

• Clarence Bonynge, 117 F.2d 157 (2d Cir. 1941)

Statute of limitations has run

• Ralph H. Cross, 54 F.2d 781 (9th Cir. 1932)
• Leo Stein, 4 BTA 1016

Statute ran before death

• Clara Burdette, 69 F.2d 410 (9th Cir. 1934)

Debt guaranteed by collateral

• John Hubble, 42 TCM 1537 (1981)

Release an endorser

• Reg. §1.166‐8
• Eleanor A. Bradford, 22 TC 1057 (1954), rev’d, 233 F.2d 935 (6th Cir. 1956)

Breach of contract

• Zelma T. Kyle, 242 F.2d 825 (2d Cir. 1957)

Less than full payment

• Edgar H. Gleason, Jr., 62 TCM 600 (1991)

Embezzled funds

• Reg.§ 1.165‐8

5.35 FAMILY BAD DEBTS

• Reg. §1.166‐1
• * “Shore up Potential Deduction for Intrafamily Loan,” Terri Guiterrez, 65 Tax Strategies 275 (November 2000)

Defaulted support payment

• Carolyn Perry, 92 TC 470 (1989) (reaffirms Swenson)
• Dale Swenson, 43 TC 897 (1965)
• Shirley S. Imeson, 487 F.2d 319 (9th Cir. 1973), aff’g per curiam 28 TCM 899 (1969), cert. denied, 418 U.S. 917
• Rev. Rul. 93‐27, 1993 CB 32 (IRS rejects Ninth Circuit’s possible deduction arguments)
• M. J. Williford, 34 TCM 354 (1975)

Loans to family

• Loy Bowman, 69 TCM 286 (1995)
• Myer B. Barr, 77 TCM 1370 (1999)

6 TAX‐FREE EXCHANGES OF PROPERTY

6.1 TRADES OF LIKE‐KIND PROPERTY

• IRC §1031
• * IRS Publication 544

Personal use safe harbor for tax deferred exchange

• Rev. Proc. 2008‐16, 2008‐10 IRB 547

Exchange solely for like‐kind property

• IRC §1031(a)
• Reg. §1.1031(a)‐1
• Wittig, 70 TCM 824 (withdrawn 11/9/95)

Must be used in trade or business or for investment

• IRC §1031(a)
• Reg. §1.1031(a)‐1

Depreciable equipment on which there is potential gain

• IRC §1245(b)(3)

Farm for city property

• L. M. Dyke, 1 BTA Memo 32‐157
• E. R. Braley, 14 BTA 1153 (Acq.)

Farms exchanged

• Rev. Rul. 59‐229, 1959‐2 CB 180

Exchange of ownership interest in realty for 30‐year leasehold

• Reg. §1.1031(a)‐1(c)
• Rev. Rul. 78‐72, 1978‐1 CB 258

Land for water rights

• Rev. Rul. 55‐749, 1955‐2 CB 295, distinguished by Rev. Rul. 67‐255, 1967‐2 CB 270

Exchange of partnership interests

• IRC §1031(a)(2)(D)
• Rollin E. Meyers, Sr., Est., 503 F.2d 556 (9th Cir. 1974), aff’g per curiam, 58 TC 311 (1972) (Nonacq.)
• Reg. §1.1031(a)‐1(a) and (e)

Tax‐free oil lease for ranch

• Rev. Rul. 68‐331, 1968‐1 CB 352

Taxable oil lease for ranch

• William Fleming, 356 U.S. 260 (1958), rev’g 241 F.2d 78 (5th Cir. 1957)

Timber rights

• Oregon Lumber Co., 20 TC 192 (1953) (Acq.)

Exchange of cattle of different sexes

• IRC §1031(e)

Exception — residence for other residence

• IRC §1034
• Reg. §1.1034‐1
• Ethel Black, 35 TC 90 (1960)

U.S. and foreign real estate not “like kind”

• IRC §1031(h)

Personal property used predominately in the U.S.

• IRC §1031(h)(i)

Joint tenancy and tenancy in common

• Rev. Rul. 46‐437, 1956‐2 CB 507

Other exchanges

• IRC §1002
• Reg. §1.1002‐1

6.2 PERSONAL PROPERTY HELD FOR BUSINESS OR INVESTMENT

Like‐class test for depreciable tangible personal property

• Reg. §1.1031(a)‐2
• Rev. Proc. 87‐56, 1987‐2 CB 674

General asset classes

• Reg. §1.1031(a)‐2(b)(2)

Product classes

• Temp. Reg. §1.1031(a)‐2T (NAICS codes)

Multiple property exchanges

• Reg. §1.1031(j)‐1

Trading in an SUV for a car

• * Letter Ruling 200450005

6.3 RECEIPT OF CASH AND OTHER PROPERTY—“BOOT”

• * “Many Transaction Costs Can Reduce Boot in Like‐Kind Exchanges,” Craig W. Murel and Richard L. Panich, 74 Journal of Taxation 320 (May 1991)

Boot is taxed

• IRC §1031(b)
• Reg. §1.1031(b)‐1

No loss recognized if boot given

• IRC §1031(c) and (d)
• Reg. §1.1031(c)‐1 and (d)‐1

Mortgage release is boot

• Reg. §1031(d)‐2
• Beulah B. Crane, 331 U.S. 1 (1947)
• Wittig, 70 TCM 824 (withdrawn 11/9/95)

Basis of property received

• Reg. §1.1031(d)‐2

Exclusion plus gain deferral on exchange of residence

• Rev. Proc. 2005‐14, 2005‐7 IRB 528

6.4 TIME LIMITS AND SECURITY ARRANGEMENT FOR DEFERRED EXCHANGES

Time limits

• IRC §1031(a)(3)
• Reg. §1.1031(k)‐1(b)

Identifying replacement property

• Reg. §1.1031(k)‐1(c) and (d)

Safe harbors for security arrangements

• Reg. §1.1031(k)‐1(g)

Safe harbor if qualified intermediary defaults

• Rev. Proc. 2010‐14, 2010‐12 IRB 456

Direct deed transfer

• Rev. Rul. 90‐34, 1990‐1 CB 154

Like‐kind exchange tax deferral allowed despite moving into replacement property

• Patrick A. Reesink, TC Memo 2012‐118

Tax‐deferred exchange fails without restrictive escrow account

• *Ralph E. Crandall, TC Summary Opinion 2011‐14

6.5 QUALIFIED EXCHANGE ACCOMMODATION ARRANGEMENTS (QEAAS) FOR REVERSE EXCHANGES

• * “New Safe Harbor Promotes Reverse Exchanges,” Bradley T. Borden, 66 Practical Tax Strategies 68 (February 2001)
• * “Guidance from the IRS on Making Reverse‐Starker Exchanges,” Jeffrey J. Bryant and Richard L. Allitzer, 79 Taxes 2 (February 2001)

Escrow accounts—final regs

• T.D. 9413, 73 F.R. 39614 (2008)

Safe‐harbor tests for reverse exchanges

• Rev. Proc. 2000‐37, 2000‐40 IRB 308

Restriction on “parking” safe harbor

• Rev. Proc. 2004‐51, 2004‐33 IRB 294

6.6 EXCHANGES BETWEEN RELATED PARTIES

• IRC §1031(f)

Two‐year freeze on exchange with related party

• IRC §1031(f)

Prearranged plans

• IRC §1031(f)(4)

6.7 PROPERTY TRANSFERS BETWEEN SPOUSES AND EX‐SPOUSES

• IRC §1041
• Temp. Reg. §1.041‐IT
• * “Code Sec. 1041 and Constructive Dividend Decisional Law: Irreconcilable Differences,” Tina Steward Quinn and Rebecca C. Carr, 80 Taxes 37 (September 2002)
• * “Interest Paid to an Ex‐Spouse Incident to Divorce — Yes, It Can Be Deductible,” Richard P. Algeo, 89 Journal of Taxation 310 (November 1998)

Sale of business interest to ex‐spouse not taxable

• Joseph R. Belot, TC Memo 2016‐113

Final regulations: divorce‐related stock redemptions

• Reg. §1.1041‐2 (tax‐free treatment for transferor conditional on constructive distribution for non‐transferor)

Divorce‐related stock redemption is tax free

• Joann C. Arnes, 981 F.2d 456 (9th Cir. 1993)
• John A. Arnes, 102 TC 20 (1994)
• Carol M. Read, 114 TC 14 (2000)
• Linda Craven, 215 F.3d 1201 (11th Cir. 2000)

Divorce‐related stock redemption is taxable

• Gloria T. Blatt, 102 TC 5 (1994)
• * Letter Ruling 9427009

Divorce transfer of nonqualified options

• Rev. Rul. 2004‐60, 2004‐24 IRB 1051
• Rev. Rul. 2002‐22, 2002‐19 IRB 849

Readjustment of property settlement

• Louise F. Young, 2001‐1 USTC ¶50,244 (4th Cir. 2001)

Cash paid for house transfer in property settlement

• Michael J. Godlewski, 90 TC 200 (1988)

Nonresident spouses

• IRC §1041(a)

Transfer of savings bonds

• Rev. Rul. 87‐112, 1987‐2 CB 207

Gain realized on transfer in trust

• IRC §1041(e)
• Temp. Reg. §1.1041‐1T

Divorce‐related exchange of marital rights is tax free

• * Letter Ruling 200442003

Tax‐free transfer for relinquishment of community property right to retirement pay

• Hazel E. Balding, 98 TC 368 (1992)

Divorced wife taxed on sale of business

• Vincent Yonadi, 21 F.3d 1292 (1994)

6.8 TAX‐FREE EXCHANGES OF STOCK IN SAME CORPORATION

Tax‐free exchange of stock for stock in same company

• IRC §1036
• Reg. §1.1036‐1

Recapitalization is a type of reorganization

• IRC §368(a)(1)(E)
• Reg. §1.368‐2(e)

Stock dividends and stock rights

• IRC §305(a)

6.9 JOINT OWNERSHIP INTERESTS

Exchange of tenants in common

• Rev. Rul. 73‐476, 1973‐2 CB 300

Joint tenancy and tenancy in common

• Rev. Rul. 56‐437, 1956‐2 CB 507

Boot not offset by assumption of liability

• Rev. Rul. 79‐44, 1979‐1 CB 265

6.10 SETTING UP CLOSELY HELD CORPORATIONS

• IRC §351

Securities as boot

• IRC §351(a)

6.11 EXCHANGES OF COINS AND BULLION

• IRC §1031

Mexican pesos for Austrian coronas

• Rev. Rul. 76‐214, 1976‐1 CB 218

Silver bullion for gold bullion not tax free

• Rev. Rul. 82‐166, 1982‐2 CB 190

U.S. gold coins for S. African Krugerrands

• Rev. Rul. 79‐413, 1979‐2 CB 309

Swiss francs for U.S. double eagle coins not like‐kind exchange

• California Fed. Life Ins. Co., 76 TC 107 (1981), aff’d, 680 F.2d 85 (9th Cir. 1982)

6.12 TAX‐FREE EXCHANGES OF INSURANCE POLICIES

Tax‐free exchanges

• IRC §1035
• Reg. §1.1035‐1

Tax‐free exchange of policy from financially troubled insurer

• Rev. Proc. 92‐44, 1992‐1 CB 875, amplified by Rev. Proc. 92‐44A

Partial tax‐free exchange of annuity contracts

• Rev. Proc. 2011‐38, 2011‐30 IRB 66 (transfers after 10‐23‐11)
• Rev. Proc. 2008‐24, 2008–1 C.B. 684 (transfers before 10‐24‐11)
• Dona Conway, 111 TC 350 (1998), Acq. 1999‐2 CB xvi

Tax‐free exchange of key executive policy

• Rev. Rul. 90‐109, 1990‐2 CB 191

Endorsement of annuity check for another annuity is taxable

• Rev. Rul. 2007‐24, 2007‐21 IRB 1282

7 RETIREMENT AND ANNUITY INCOME