Federal income taxation / Joseph Bankman, Ralph M. Parsons Professor of Law and Business, Stanford University; Daniel N. Shaviro, Wayne Perry Professor of Taxation, New York University School of Law; Kirk J. Stark, Barrall Family Professor of Tax Law and Policy, University of California, Los Angeles; Edward D. Kleinbard, Ivadelle and Theodore Johnson Professor of Law and Business, USC Gould School of Law.
2019
KF6369 .B265 2019 (Map It)
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Title
Federal income taxation / Joseph Bankman, Ralph M. Parsons Professor of Law and Business, Stanford University; Daniel N. Shaviro, Wayne Perry Professor of Taxation, New York University School of Law; Kirk J. Stark, Barrall Family Professor of Tax Law and Policy, University of California, Los Angeles; Edward D. Kleinbard, Ivadelle and Theodore Johnson Professor of Law and Business, USC Gould School of Law.
Published
New York : Wolters Kluwer, [2019]
Call Number
KF6369 .B265 2019
Edition
Eighteenth edition.
ISBN
9781543801491
1543801498
1543801498
Description
xxvii, 737 pages ; 26 cm.
System Control No.
(OCoLC)1052902966
Bibliography, etc. Note
Includes bibliographical references and indexes.
Series
Record Appears in
Gift
Purchased from the income of the Edith L. Fisch Fund
Gift
The Arthur W. Diamond Law Library
Purchased from the income of the Edith L. Fisch Fund
Table of Contents
Preface
xxiii
Acknowledgments
xxv
Editorial Notice
xxvii
ch. 1
Introduction
1
A.
Taxing and Spending
1
B.
Some Data on Taxes and the Distribution of Income
3
1.
Income Tax Data
3
2.
Distributional Data
7
C.
Why Is Tax Law So Complicated?
12
1.
Model of Economic Activity
12
2.
How Hard Can It Be?
15
D.
Fundamental Tax Terminology and Concepts
18
1.
Tax Base: From Gross Income to Tax Payable
18
2.
Deduction, Exemption, Exclusion, and Credit
23
3.
Tax Brackets, Progressive Tax Structures, and Effective and Marginal Tax Rates
24
4.
Tax Incidence
27
5.
Capital Gain and Dividend Income; Ordinary Income; Losses and Expenses
28
6.
Tax Accounting
32
7.
Recovery of Cost, Depreciation, and Basis
33
8.
Realization and Recognition
33
9.
Types of Entities
34
10.
Inflation
35
E.
Conversion and Deferral
36
F.
Compliance and Administration
40
1.
Self-Assessment, Audits, and Tax Litigation
40
2.
Penalties for Noncompliance
41
G.
Sources of Federal Tax Law in a Nutshell
42
H.
Walz Tax Return
45
ch. 2
Why And The What Of Taxing Income
49
A.
Why Tax Income?
50
1.
Tax Base and Ability to Pay
50
2.
Alternative Measures to Ability to Pay
51
3.
Efficiency of an Income Tax
54
4.
Allocative and Distributive Effects
56
B.
What Is "Income" Anyway?
57
1.
What Do We Tax?
57
2.
Limits of Intuition
58
C.
Back to the Ballpark
61
Commissioner v. Glenshaw Glass Co.
63
Notes and Questions
65
Cesarini v. United States
66
Notes and Questions
68
D.
Paying Another's Bills
69
Notes and Questions
69
Notes and Questions
70
E.
Noncash Benefits
71
1.
Meals and Lodging Provided to Employees
72
Silicon Valley's Mouthwatering Tax Break
73
Notes and Questions
74
Questions
75
Benaglia v. Commissioner
75
Notes and Questions
79
Statutory Aftermath to Benaglia
80
United States v. Gotcher
82
Notes and Questions
84
2.
Other Fringe Benefit Statutes
85
Section 132 Fringe Benefits
85
Questions
86
Further Notes on Fringe Benefits
87
Questions
90
3.
Health Insurance
91
4.
Another Approach to Valuation
91
Turner v. Commissioner
92
Notes and Questions
93
F.
Price Adjustment or Income?
94
Residents May Have to Pay Taxes on Their Turf Rebate Money
96
G.
Recovery of Capital
97
1.
Sale of Easements
98
Inaja Land Co. v. Commissioner
98
Notes and Questions
99
2.
Gains and Losses from Gambling
100
3.
Recovery of Loss
102
Clark v. Commissioner
102
Current Legal Status of Clark
104
Notes and Questions
105
Hypothetical
106
H.
Recoveries for Personal and Business Injuries
107
1.
Basic Rules
107
Murphy v. United States
109
Notes and Questions
117
Perez v. Commissioner
119
2.
Deferred Payments and Structured Settlements
124
3.
Medical Expenses and Other Recoveries and Benefits
124
I.
Illegal Income
125
Gilbert v. Commissioner
125
Notes and Questions
128
J.
Gain on the Sale of a Home
130
Notes and Questions
131
ch. 3
Private Sphere And The Public Sphere
133
A.
Imputed Income
134
1.
Imputed Income, Psychic Income, In-Kind Income
134
Questions
138
2.
Drawing the Line
139
Revenue Ruling 79-24*
139
Questions
140
3.
Imputed Income, Implicit Income, Substitute Taxation
140
B.
Gifts
142
1.
Gift: The Basic Concept
142
Notes and Questions
145
Commissioner v. Duberstein
146
Notes and Questions
152
United States v. Harris
154
Notes
161
2.
Gift: Some Applications
162
Questions
165
3.
Transfer of Unrealized Gain by Gift While the Donor Is Alive
166
Taft v. Bowers
167
Notes and Questions
169
4.
Transfers at Death
171
Questions
173
C.
Transfers Incident to Marriage and Divorce
173
1.
Introduction
173
2.
Property Settlements
174
a.
Transfers Incident to a Divorce or Separation Agreement
174
United States v. Davis
174
Notes and Questions
178
Problems
179
b.
Antenuptial Settlements ("Prenups")
180
Farid-Es-Sultaneh v. Commissioner
180
Questions
183
3.
Alimony, Child Support, and Property Settlements
183
a.
Transfers Pursuant to Agreements Entered into After 2018
183
b.
Transfers Pursuant to Agreements Entered into Before 2019
184
4.
Child-Support Obligations in Default
185
Diez-Arguelles v. Commissioner
186
Notes and Questions
187
ch. 4
When Is It Income?
189
Value of Deferral
191
A.
Annual Accounting and Its Consequences
193
1.
Use of Hindsight
193
Burnet v. Sanford & Brooks Co.
193
Notes and Questions
195
Problems
197
2.
Capital Expenditures, Depreciation, and Expensing
197
3.
Claim of Right
203
Notes and Questions
204
4.
Tax Benefit Rule
205
Notes and Questions
207
B.
Cash and Accrual Methods of Accounting for Income
208
1.
Introduction to Accounting Methods
208
Questions
211
Ford Motor Co. v. Commissioner
211
Notes and Questions
218
Notes and Questions
219
2.
Delay in Receiving Cash
220
Georgia School-Book Depository v. Commissioner
220
Notes and Questions
222
3.
Prepaid Income
223
American Automobile Association v. United States
223
Notes and Questions
228
4.
Deposits Versus Advance Payments
229
Questions
230
C.
Realization Doctrine: The Root of Many Tax Evils
230
1.
Legal Origins of the Realization Doctrine
231
Eisner v. Macomber
232
Notes and Questions
239
Are Stock Dividends Income?
243
Excerpt from Personal Income Taxation
244
2.
Some Implications of the Realization Doctrine in Practice
245
3.
Decline of Realization as a Constitutional Requirement
246
Helvering v. Bruun
247
Notes and Questions
250
4.
Limits of Realization: Nonrecourse Borrowing in Excess of Basis
252
Woodsam Associates, Inc. v. Commissioner
253
Notes and Questions
254
5.
Contemporary Understandings of the Realization Doctrine
255
Cottage Savings Association v. Commissioner
256
Notes
263
Questions
265
Problems
265
D.
Statutory Nonrecognition Provisions
266
1.
Introduction to Nonrecognition Rules
266
2.
Like-Kind Exchanges
267
a.
Like-Kind Requirement
269
PLR 200203033
269
Notes and Questions
271
b.
Boot and Basis in Like-Kind Exchanges
272
c.
Multiparty Transactions
274
E.
Open Transactions and Installment Sales
276
1.
Open Transaction Doctrine
276
Burnet v. Logan
276
Notes and Questions
278
2.
Executory Contract or Completed Sale?
281
Lucas v. North Texas Lumber
282
Notes and Questions
282
Commissioner v. Segall
283
Notes
284
3.
Installment Method
285
F.
Constructive Receipt and Related Doctrines
286
1.
Basic Principles
287
Amend v. Commissioner
287
Notes
290
Pulsifer v. Commissioner
291
Question
293
G.
Nonqualified Deferred Compensation
293
1.
Background
293
Minor v. United States
294
Notes
298
2.
Nonqualified Deferred Compensation: Current Practice Overview
298
Problem
303
3.
Nonqualified Deferred Compensation: Constructive Receipt and [§]409A
303
4.
Nonqualified Deferred Compensation: Stock Options
305
5.
Nonqualified Deferred Compensation: Qualified Equity Grants
306
6.
Nonqualified Deferred Compensation: Shortcuts
307
Fundamental Operating Rules
307
Nonqualified Stock Options
307
7.
Nonqualified Deferred Compensation: Policy
307
H.
Qualified Employee Plans and Incentive Stock Options
309
1.
Qualified Employee Plans
309
a.
Basic Choices and Rules
309
b.
Amount of Tax Benefit
311
c.
Antidiscrimination Rules
312
d.
Individuals
313
e.
Penalty for Early Withdrawal
314
f.
Mandatory Distributions
314
g.
Limitations on Contributions and Benefits
315
2.
Incentive Stock Options
315
Questions
316
ch. 5
Debt And Certain Other Financial Instruments
317
A.
Financial Instruments and the Income Tax
317
B.
Loans and Cancellation of Indebtedness Income
318
1.
Exclusion of Loan Proceeds from Income
318
2.
True Discharge of Indebtedness
320
United States v. Kirby Lumber Co.
321
Notes and Questions
321
3.
Relief Provisions
322
a.
Insolvent Debtors
322
b.
Solvent Farmers
323
c.
Adjustment of Purchase Money Debt
323
d.
Student Loan Forgiveness
324
e.
Mortgage Forgiveness
324
4.
Contested or Uncertain Liabilities
324
Zarin v. Commissioner
325
Notes
333
C.
Transfers of Property Subject to Debt
334
1.
Basic Rules
334
2.
Nonrecourse Debt, Part I: Crane and Tufts
337
Crane v. Commissioner
337
Notes and Questions
342
Commissioner v. Tufts
346
Notes and Questions
352
3.
Nonrecourse Debt, Part II: Property Worth Less at Acquisition Than the Face Amount of the Debt
354
a.
Seller Financing
354
b.
Mid-Stream Acquisition of "Distressed" Property
354
4.
Gift Tax Liability Created by the Transfer
357
Diedrich v. Commissioner
357
Notes and Questions
360
D.
Interest Income and Original Issue Discount
361
1.
Compounding and the Economic Accrual of Interest Income
361
2.
When and Why It Matters: Counterparty Effects
363
3.
Mechanics of the OID Rules
364
E.
Interest on State and Local Bonds
368
1.
Basic Concepts
368
Notes and Questions
369
2.
Limitations on Exempt Status
371
3.
Constitutional Barrier?
372
4.
Tax Arbitrage
372
5.
U.S. Treasury Bonds
374
F.
Certain Other Financial Instruments
375
1.
Life Insurance
375
2.
Annuities
379
G.
Deemed Realizations: Constructive Sales
382
Joint Committee on Taxation General Explanation of Tax Legislation Enacted in 1997
384
Questions
385
ch. 6
Whose Income Is It?
387
A.
Income from Services: Diversion by Private Agreement
389
Lucas v. Earl
389
Notes and Questions
390
B.
Income from Services: Diversion by Operation of Law
391
Poe v. Seaborn
392
Notes and Questions
394
C.
Marriage Penalty (and Bonus)
396
1.
Legislative "Solution": The Income-Splitting Joint Return
396
2.
Addressing the Marriage Penalty/Bonus
397
3.
Filing Status: Summary and Data
398
D.
Transfers of Property and Income from Property
399
Blair v. Commissioner
399
Helvering v. Horst
401
Notes and Questions
405
E.
Services Transformed into Property
406
Helvering v. Eubank
407
Heim v. Fitzpatrick
408
Notes and Questions
410
F.
Shifting Income Through Legal Entities
411
1.
Family Partnerships and S Corporations
412
2.
Income Splitting Through Corporations
413
ch. 7
Expenses Of Earning Income
415
A.
Introduction
415
1.
Expenses and the Net Income Concept
415
2.
Deduction Mechanics
416
B.
Pass-Through Deduction for Qualifying Business Income
417
C.
Current Expenses Versus Capital Expenditures
420
1.
Which Expenditures Must Be Capitalized?
420
Encyclopaedia Britannica v. Commissioner
420
Notes and Questions
425
2.
Uniform Capitalization Rules of [§]263A
427
3.
INDOPCO Decision and the Capitalization Regulations
428
D.
Repair and Maintenance Expenses
430
Midland Empire Packing Co. v. Commissioner
430
Notes and Questions
432
Treatment of Environmental Remediation Expenses Under Section 263A
435
E.
Inventory Accounting
437
Problem
438
F.
"Ordinary and Necessary"
438
1.
Payments for "Goodwill" and Other Assets
438
Welch v. Helvering
438
Notes and Questions
440
2.
Extraordinary Behavior
442
Gilliam v. Commissioner
442
Notes and Questions
447
3.
Reasonable Compensation
449
4.
Sexual Harassment Settlements
450
G.
Depreciation and Amortization
450
1.
Significance of the Timing of Cost Recovery
450
2.
Overview of Depreciation Rules
451
3.
Current System
454
a.
Tangible Assets Depreciable Under [§]168
454
Comparative Focus: The UK "Industrial Buildings Allowance"
456
4.
Goodwill and Other Intangibles
457
H.
Depletion and Intangible Drilling Costs
459
I.
Other Loss Deduction Issues
461
1.
Timing of Loss Allowance
462
2.
Was the Taxpayer Seeking to Earn Income?
465
3.
Determining the Amount of Allowable Loss
466
4.
Section
165
in Action: The Madoff Fraud
466
Revenue Ruling 2009-9*
467
Notes and Questions
470
J.
Investments in Human Capital
471
1.
Educational Expenses in Theory
471
Present Law and Analysis Relating to Tax Benefits for Higher Education
472
2.
Defining Deductible Educational Expenses in Practice
473
Carroll v. Commissioner
474
Notes and Questions
475
Kopaigora v. Commissioner
475
Notes and Questions
478
ch. 8
Tax Shelters And Tax Planning
481
A.
Nature of the Problem
481
B.
Origin of Substance-over-Form Doctrine
484
Notes and Questions
486
1.
Gregory v. Helvering on Appeal
486
Notes and Questions
487
C.
Requiring Economic Substance in Response to Loss-Generating Tax Shelters
488
Knetsch v. United States
489
Notes and Questions
492
Development of the Economic Substance Doctrine
494
D.
Common-Law and Other Responses to Sale-Leasebacks
495
1.
Two Distinct Tax Reasons for Engaging in Sale-Leasebacks
495
2.
Overvaluation Sale-Leasebacks
497
Estate of Franklin v. Commissioner
497
Notes and Questions
501
3.
Sale-Leasebacks That Change the Tax Owner for Depreciation Purposes
502
E.
Tax Shelters More Generally
504
1.
Definition and Elements of a Tax Shelter
504
2.
Real Estate and Other Tax Shelters of the 1970s and Early 1980s
505
3.
Congressional Response to the Tax Shelters of the 1980s
506
Notes and Questions
509
4.
More Recent Corporate and Individual Tax Shelters
510
Winn-Dixie Stores, Inc. v. Commissioner
511
Notes
513
5.
Codification of Economic Substance
514
6.
Rules Versus Standards
515
7.
Rules Aimed at the Tax Lawyer
517
ch. 9
Mixed Business And Personal Expenses
519
A.
Clothing Expenses
521
Pevsner v. Commissioner
522
Note
524
Questions
525
B.
Home Offices and Vacation Homes
525
1.
Home Offices
525
Popov v. Commissioner
526
Questions
529
2.
Vacation Homes
530
C.
Child-Care Expenses
531
Smith v. Commissioner
531
Notes and Questions
532
D.
Commuting Expenses
534
Commissioner v. Flowers
535
Notes and Questions
539
Comparative Focus: A Comparative Perspective: Commuting Expenses Auf Deutschland
540
Hantzis v. Commissioner
540
Notes and Questions
546
Problems: Testing the Rationale
547
E.
Travel and Entertainment Expenses
548
1.
Deductibility of Business Travel
548
Rudolph v. United States
550
2.
Limitations Under [§]274
553
3.
Business Lunches
555
Moss v. Commissioner
555
Questions
558
F.
Legal Expenses
559
United States v. Gilmore
559
Notes and Questions
563
G.
Hobby Losses
565
Nickerson v. Commissioner
565
Notes and Questions
570
ch. 10
Personal Deductions, Exemptions, And Credits
573
A.
Introduction
573
1.
Basic Structure of Personal Deductions
573
2.
Rationale for Personal Deductions
574
B.
Casualty Losses
575
C.
Medical Expenses: Exclusion for Employer-Provided Healthcare and Deduction for Extraordinary Medical Expenses
576
1.
Overview and Policy
576
2.
What Is "Medical Care"?
577
Taylor v. Commissioner
578
Ochs v. Commissioner
579
Notes and Questions
581
D.
Charitable Contributions and Treatment of Nonprofits
582
1.
Overview
582
2.
Rules Governing Charitable Contributions
583
3.
Treatment of Nonprofit Organizations
584
4.
Policy
585
Comparative Focus: Canada's Charitable Contribution Credit
586
5.
Gifts with Private Objectives or Benefits
587
Ottawa Silica Co. v. United States
587
Notes and Questions
590
6.
More on Private Benefits
591
a. Quid Pro Quo Contributions
591
b. The Complicitous Role of Some Charitable Organizations
592
7.
Overvaluation of Contributed Property
592
8.
Special Case of Collegiate Athletics
593
9.
Religious Benefits and Services
593
10.
Voluntariness
594
11.
Public Policy and Charitable Purpose
595
Bob Jones University v. United States
595
Notes and Questions
602
12.
Loss of Exemption Due to Private Inurement
603
E.
Interest
603
1.
Rules
603
2.
Asymmetrical Treatment of Interest Income and Expense
604
3.
Policy Justification and Transition Issues
605
4.
Tracing
606
5.
Interest on Student Loans
606
F.
Taxes
606
1.
Rationale for the SALT Deduction
607
2.
Basic Structure of U.S. State and Local Taxation
607
G.
Personal Exemptions
608
H.
Alternative Minimum Tax
609
1.
Individual Alternative Minimum Tax
609
2.
Corporate AMT
610
ch. 11
Tax And Poverty: The Earned Income Tax Credit
611
A.
Introduction
611
B.
Income Tax and the Earned Income Tax Credit
613
1.
Features of the Tax Law That Reduce Liability to Zero
613
2.
Overview of the EITC
614
3.
Operation of the EITC
615
4.
Efficiency of the EITC
617
5.
Reform Proposals
617
ch. 12
Capital Gains And Losses
619
A.
Background and Statutory Framework
619
1.
Net Capital Gain
619
2.
Statutory Tax Rates for Net Capital Gain
621
3.
Net Capital Loss
622
B.
Definition of "Capital Asset"
622
C.
Policy Considerations
624
1.
Rationale for Favorable Treatment of Capital Gain
624
2.
Rationale for Limiting the Deductibility of Capital Losses
626
Comparative Focus: South Africa's Decision to Tax Capital Gains
627
D.
Property Held "Primarily for Sale to Customers"
628
1.
Sale to "Customers"
628
Bielfeldt v. Commissioner
628
Notes and Questions
630
2.
"Primarily for Sale"
631
Biedenharn Realty Co. v. United States
631
Notes and Questions
638
E.
Transactions Related to the Taxpayer's Business
639
Corn Products Refining Co. v. Commissioner
641
Arkansas Best Corporation v. Commissioner
644
Notes and Questions
647
F.
Substitutes for Ordinary Income
648
1.
Payment for Cancellation of a Lease
648
Hort v. Commissioner
648
Notes and Questions
650
2.
Sale of Interest in a Trust
653
McAllister v. Commissioner
653
Notes and Questions
656
3.
Lottery Winnings
657
Womack v. Commissioner
657
Questions
660
4.
Oil Payments
661
Commissioner v. P. G. Lake, Inc.
661
Notes and Questions
664
G.
Other Claims and Contract Rights
665
1.
Termination Payments
665
Baker v. Commissioner
665
Notes and Questions
672
2.
Theatrical Production Rights
672
Commissioner v. Ferrer
672
Notes and Questions
680
3.
Right of Publicity or Commercial Exploitation
680
Miller v. Commissioner
680
Question
683
4.
Patents and Copyrights
683
H.
Correlation with Prior Related Transactions
684
Merchants National Bank v. Commissioner
684
Arrowsmith v. Commissioner
685
Notes
687
I.
Requirement of a Sale or Exchange
688
Appendix: The Federal Taxing and Spending Powers
691
History
699
Table of Cases
703
Table of Internal Revenue Code Sections
709
Table of Treasury Regulations
715
Table of IRS Revenue Rulings
717
Table of Miscellaneous IRS Pronouncements
719
Index
721