TAX LAW

TAX LAW 

Online legal databases for tax cases:

vitallaw.com

wolterskluwer.com 

almanacofthefederaljudiciary.com

RIAG - THOMSON REUTERS RIAG CHECKPOINT TAX LAW DATABASE: - RIAG Checkpoint edge has legislative history and case law. Secondary sources and citator. There are online tutorials. Can perform all research on the federal home page - to get back click on federal on the menu bar. In options under document you can set print settings. Search tab should be set to always default to the federal search area. Can change for individual searches. Under news can get news emailed to your account. Under options in search display see you search results by source - then change to search by relevance. Can change search default to eg show primary sources first. The black menu bar is organized by “practice area”

1) Keyword searches - Prof Comi says do this type of search last. 

2) Citation search (case names or code/reg refs) using templates on left side of screen. ◦ A citation is a reference to a source that supports a statement or is otherwise related to it. It's a way to give credit to the original author and allow readers to find the source material. Citations can be included within the text (in-text citations) or in a separate list at the end of a document (bibliography or reference list) 

3) Table of contents search. Approaches a book from the front. 

4) Index search. Access from home page -> “citation and other search tools” -> “go to” -> “indexes”. (Or use site navigator to get there quicker; or sources, federal library and double click on federal editorial materials and scroll down to indexing)

SEARCHING FOR PRIMARY AND SECONDARY SOURCES ◦ On home page under sources shows entire federal library - use secondary sources to help understand primary sources to answer your tax question. Be familiar with the KEY secondary sources but the three most useful are: ◦ 1) federal tax handbook - one volume paperback only so is short and is only a starting point ◦ 2) federal tax coordinator analysis - by topic - much more detailed than 1) above ◦ 3) United States tax reporter - access this through the site navigator ◦ Below is example of citation search ◦ ◦ We have access to only the state and federal sections in RIAG, e.g. the following sections are accessible: ◦ International Tax Library —>> international tax news, WG&L journals, WG&L international treaties, US tax treaties and explanations. ◦ State tax library ◦ State legislation ◦ State regulations ◦ List of approved laws ◦ Legislative highlights ◦ Sate tax updates (archive) ◦ Advance state documents ◦ State tax reports ◦ State citatory ◦ Federal court cases on state issues ◦ Miscellaneous multistage materials ◦ Sales taxability matrix ◦ Journal of multistage taxation and incentives (WG&L) - Archive **CCH DATABASE SYSTEM: https://www.vitallaw.com 

Follow-> IRAC -> 1. Issues (based on the facts) = what legal questions did the court decide? 2. Rules = IRC or IRS Rulings or Case Law/Precedent. 3. Application = Arguments by IRS and T (Taxpayer) surrounding how the rules should be applied(?) 4. Conclusion = the ruling and the rationale behind the ruling. Start reading a case and once you understand the issue then jump to the end to see which way the court rules. TC = Trial court AC for IRS = Appellate court USSC for T (better than saying upheld or reversed lower court ruling) - US Supreme Court for T (Taxpayer) 

Consider the 5 W's and the H: 1Who - congress 2What - tax law and IRC “the code” 3When - the years when president and congress agreed are the big ones in tax law history - they are 1954, 1969 and 1986. 4Where - DC. 5Why - provide the fed govt. with revenue. How - push and pull between dems and republicans in congress. When looking at the law or precedent, consider: 1. IRC = When briefing match the case name with the black letter law of the case. 2. IRS Ruling = is this also black letter law? Presumably not. But its not precedent either? 3. Case Law = Precedent. Black letter law = "the letter of the law”. In this course it is the IRC. Black letter law is pretty straightforward = it is as written. BUT there is also the intent of the law = what congress meant….and this is what is subjective. It is impossible for the law to say “reasonable” deductions etc. because would be too broad. But even the specifics are up for debate about the intention at the time, so that yields case law = PRECEDENT. 

Tax laws need to be FCC = Fair, Clear(Code/Case Law), and Consistent(Precedent). Who reading a case (LGC): Laser - focus on the tax issue. Glacier - move very slowly. Court Reasoning - learn the court’s reasoning. Court struggles to apply the black letter law and arrives at an OPINION or “HOLDING of the CASE”. The art of asking questions. e.g. what is income? Taxable income, accounting income, economic income, and is answer the same in hands of individual, corporation, estate, trust. RTD = Read the Document. Don’t try to answer something until you have read it. RTQ = Read the Question. What is the issue involved here. What did T argue? What did IRS argue? What was conclusion (HOLDING or OPINION). Was there a dissenting opinion in the case and, ask yourself, was it a better outcome? When answering this look at 5 W’s and H. ATQ = Answer the Question. 

TAX RESEARCH IS IMPORTANT FOR: Compliance planning litigation State and federal circular 230. And IRC penalty provisions. 

RESEARCH SITES PER GOOGLE: There are FREE official government sources for tax case law e.g.: U.S. Tax Court The official website allows you to search for decisions, including Regular, Memorandum, and Summary Opinions. It provides free access to opinions published from 1995 to the present via its DAWSON database. Public Access to Court Electronic Records (PACER) This service provides internet-based access to electronic case files for U.S. appellate, district, and bankruptcy courts, though there may be a small fee for extensive use. IRS.gov The IRS website provides access to the Internal Revenue Bulletin, which contains a selection of federal court decisions on tax matters. Court websites Some federal court websites, including the U.S. Court of Federal Claims, offer direct access to their published decisions. 

Other free online legal databases Resources like Google Scholar, the Legal Information Institute at Cornell, and Justia also provide free access to a variety of federal and state court decisions, including tax cases. 

PER GOOGLE: These other comprehensive platforms are widely used for legal research and require a subscription: Westlaw Offers extensive coverage of federal court cases, including specialized tax databases for Tax Court, District Court, and Appeals Court decisions. Also includes the U.S. Tax Reporter, a commercial publication of tax case law. Lexis Advance A comprehensive legal research tool that allows you to search for tax cases across various federal courts and access specialized reporters. Bloomberg Law Provides a Tax Practice Center that includes access to federal tax cases and expert analysis from BNA portfolios. Checkpoint (Thomson Reuters). This specialized tax research service includes the American Federal Tax Reports (AFTR) and comprehensive databases for Tax Court decisions. VitalLaw (formerly Cheetah) Features the Standard Federal Tax Reporter and databases containing decisions from the Tax Court, U.S. Tax Cases, and other federal court. 

MY NOTES from Federal tax research

1 IRC - The following should be noted in connection with the general character of the Code: 1. First. It makes no changes in existing law. 2. Second. It makes liberal use of catchwords, headlines, different types, indentations, and other typographical improvements. 3. Third. By a system of cross-references, it correlates not only its own provisions but also provisions of the United States Code not relating exclusively to internal revenue. 4. Fourth. To obviate confusion with the law itself, the cross-references are in type different from that containing the law. 5. Fifth. It is arranged with a view of giving prominence to matters which concern the ordinary transactions of the ordinary classes of taxpayers. First “codification” of tax law was in 1939 and was based on everything written since 1875 - they didn’t change/modernize anything. That first wholesale REVISION/MODERNIZATION was in 1954. This was to change the revenue statues to apply to modern day conditions. Between 1939 and 1954 200 revenue statutes and 14 major revenue acts were enacted. The staff sent questionnaires to all individuals, business including labor groups and farmers (they got 17000 replies, from every state in the US). 

Next big revision was 1969. In 1986 the 1959 code as ENTIRELY REPLACED. Unfortunately it was made a lot more complicated at that time. The effort was to BROADEN the tax base not make it simpler (or fairer). The 2017 TCJA legislation made it even more complex (except for some individuals). The US Fed Govt’s “power to tax” comes from article 1 section 8 clause 1 of the Constitution. Justice Chase’s famous quote: “[T]he power of Congress to tax is a very extensive power. It is given in the Constitution, with only two qualifications. Congress must impose direct taxes by the rule of apportionment, and indirect taxes by the rule of uniformity.” What is the difference between a “direct” tax and an “indirect” tax? A direct tax is a tax demanded from the very person who is intended to pay it. An indirect tax is a tax paid primarily by a person who can shift the burden of the tax to someone else or who at least is under no legal compulsion to pay the tax. A tax at a flat rate on all persons is a direct tax (eg corporate income tax?). In contrast, a sales tax is an indirect tax, because it is imposed on the seller who may shift it to the purchaser. A person may avoid an indirect tax by not buying the article subject to the tax. Per old Pollock case a tax on combo of professional income and bond income is INDIRECT. how?  

1986 legislation, it was said, was to be broad- based, simple, fair, and revenue neutral Toward that end the 1986 Act reallocated the tax burden, subjected more items to taxation and, at the same time, reduced tax rates, essentially from a maximum rate of 50 percent to a maximum rate of 28 percent. The goals of the 1986 legislation (we sometimes refer to it as the Tax Obfuscation Act of 1986) have not been achieved. Today, the 1986 Code is much more complex not more simple than its predecessor. A failure to achieve simplification dooms efforts toward fairness. The 1986 legislation has been followed by further tinkering of the 1986 Code in almost every year, often by several acts in a single year. But recent legislation, including the massive 1986 legislation, has not been accompanied with the type of careful, extensive studies that preceded the 1939 and 1954 legislation. 

This is certainly so in the case of the 2017 “Tax Cuts and Jobs Act.”7 That Act was initially aimed at simplification, but while it eliminated the need for many individual taxpayers to make complex computations, it also retains, and even adds, substantial complexity to the Code The fundamentals of federal income taxation remain remarkably constant. And that is what this book is about. Certainly many of the details presented will be altered and some soon. But the student should join the authors in a search for basic concepts and policy considerations supporting basic principles Justice Chase’s famous quote: “[T]he power of Congress to tax is a very extensive power. It is given in the Constitution, with only * * * two qualifications. Congress * * * must impose direct taxes by the rule of apportionment, and indirect taxes by the rule of uniformity. 

What is the difference between a “direct” tax and an “indirect” tax? A direct tax is a tax demanded from the very person who is intended to pay it. An indirect tax is a tax paid primarily by a person who can shift the burden of the tax to someone else or who at least is under no legal compulsion to pay the tax.3 By way of example, a tax at a flat rate on all persons is a direct tax. In contrast, a sales tax is an indirect tax, because it is imposed on the seller who may shift it to the purchaser. A person may avoid an indirect tax by not buying the article subject to the tax At an early date the concept of realization entered the federal tax picture when the Supreme Court stressed that the 16th Amendment applied to gains derived from capital or labor and that, with respect to gains on property, income included profit gained through a sale or conversion of the property.14 A later opinion added:15 While it is true that economic gain is not always taxable as income, gain may occur as a result of exchange of property, payment of taxpayer’s indebtedness, relief from a liability, or other profit realized from the completion of a transaction. Congress once did enact an un-apportioned tax on carriages—hence this seemingly quaint example—which appeared to be a direct tax. However, it was held not to be direct but rather an excise tax on the use of carriages and therefore valid.4 The court was influenced by dicta in prior opinions indicating direct taxes are only capitation taxes or taxes on land.16th Amendment. 

In the Amendment, emphasis is to be placed on the phrase “from whatever source derived,” not on the “power” language. The power was already reposed in Congress by Article I. What the 16th Amendment provides is that income taxes shall not be subject to the rule of apportionment regardless of the sources from which the taxed income is derived. It matters not that a tax on salary income may be an excise and a tax on rental income a direct tax; Congress may enact a statute that taxes both without concern for the apportionment requirement. 

Another reason it is important not to look at the 16th Amendment as an isolated power-granting provision is that, if it were so read, it might appear to authorize an un-apportioned tax on incomes only if Congress taxed all incomes regardless of source. This would invalidate a provision granting an exemption of some income, such as municipal bond interest, or perhaps invalidate an entire taxing act making such an exemption, an argument which the Supreme Court has rejected. It has never been determined, however, that mere appreciation in property that continues to be held by the taxpayer is within the “incomes” concept of the 16th Amendment and, indeed, to this time it has been generally supposed that appreciation or gain is not “realized” and thus not brought within the “incomes” concept by a mere gift of appreciated property.16 If Section 84 is to be sustained, it will be under judicial tax doctrine newly announced, because Section 84 pretty much requires that we treat any disposition of appreciated property,17 not just its “sale or conversion”, as giving rise to realized gain within the “incomes” concept of the 16th Amendment. 

UNIFORMITY re concept of uniformity in the constitution -If it follows that all federal income taxation must be uniform throughout the United States, what then is the meaning of the constitutional term “uniform?” It might appear that if both A and B have $10,000 of income but A is taxed on her salary income and B is not taxed on his municipal bond interest,20 the income tax is not being imposed in a uniform manner. However, it is well settled that the Constitution requires only geographic uniformity.21 Although under principles dating back at least to Brushaber22 certain exemptions may be constitutional, this does not mean that Congress may exempt the state bond interest of New Yorkers while taxing that kind of income of California residents. Similarly, the incomes of A and B may be subjected to different rates of tax; if A is taxed on part of her income at a higher rate than B pays, the constitutional uniformity requirement is not offended if it is because of different income levels and a graduated rate table and not because A and B are merely in different places.

23 Whenever some manner or mode of taxation is used somewhere in the United States, the same manner or mode must be used everywhere throughout the United States Notwithstanding the constitutional fiat of uniformity, in the practical application of the income tax laws some lack of uniformity creeps in, even in the geographical sense. There are always uncertainties in the interpretation of statutes, tax or otherwise, but perhaps more in the tax area than in others. Crystallized differences in meaning develop in various parts of the country. 

A New York district judge may hold a person taxable on an alleged item of income which is held not taxable by a district judge in California. On appeal, the Second and Ninth Circuits may similarly differ. Unless the matter goes to the Supreme Court, in a practical sense the law is different on the east and west coasts and possibly different in one trial forum from another. In recent years even the Treasury has indicated it will sometimes apply different tax principles in different circuits depending on the law as determined by the controlling Court of Appeals.28 These disparities are hardly more palatable than direct geographic discrimination by Congress, which the Constitution expressly condemns. Can it be said that, even if a taxing statute is seemingly untainted, an unconstitutional lack of uniformity may arise by virtue of inconsistent judicial and administrative action? The principal message here is that most taxing statutes are not vulnerable to constitutional attack. The Supreme Court will clearly not attempt to determine in the countless circumstances that arise whether Congress has nicely balanced the tax burden or is instead depriving some taxpayers of property in such a discriminatory manner that it might be considered denial of due process. But there is always the chance that Congress may go too far. 

Taxpayers TOOLS: The IRC code of 1986 is THE LAW. All tax decisions and controversies center around the meaning of provisions of the Code [Per Prof Comi there re primary and 2ndry sources of tax law. Primary is eg IRC (statutory source), IRS (administrative source), Revenue Ruling (administrative sources), Court Case (judicial sources); Everything else is secondary source - published by private publishers not GOVT. 2ndry help us find the law and help us apply it. Only primary sources can be used as authority on taking tax positions in a return. 

Of course the plenary taxing power of Congress is subject to some restraints; federal taxing statutes must square with the requirements of the Constitution much the same as any other federal statute. However, beyond the brief comments in the prior section, discussion of the point will not be extended here because only infrequently in recent years has a civil tax case turned on a constitutional issue. Not all the statutory law of federal income taxation can be found in the Internal Revenue Code. Some provisions affecting tax liability appear in other federal statutes.3 But this is highly unusual, and the Code is the basic, and often the only relevant statutory document. 

By-products of the legislative process should now be briefly noted - they are: BILLS, HEARINGS, COMMITTEE REPORTS, PRIOR LAWS, TREATIES, REGULATIONS, TAX COURT DECISIONS, ACTIONS ON DECISIONS, REVENUE PROCEDURES, PRIVATE LETTER RULINGS, RULINGS ON OTHER TREASURY DOCUMENTS. DISTRICT COURT DECISIONS, COURT OF FEDERAL CLAIMS DECISIONS. COURT OF APPEALS DECISIONS; SUPREME COURT DECISIONS. JUDICIAL REVIEW OF TREASURY REGULATIONS. 

Prior Laws. The modern income tax dates from 1913, the year in which the Sixteenth Amendment was ratified. From then until 1939, Congress enacted numerous internal revenue acts among which the controlling statutory law was scattered. In 1939, the internal revenue laws were codified, first as the Internal Revenue Code of 1939. Thereafter, for fifteen years, internal revenue legislation took the form of additions to or other changes in that Code. Wholesale revision in 1954 produced the Internal Revenue Code of 1954 which was the subject of many additions, deletions, and other changes over a 32-year span until the 1986 Act replaced it with the Internal Revenue Code of 1986. Shop talk about this or that section was greatly hampered by enactment of the 1954 Code as all but one of the 1939 Code section numbers were changed. Although the most recent changes are both broad and deep, most friendly old sections of the 1954 Code retain numerical identity in the 1986 version. 

Statutory changes present two special problems for the student and practitioner. First, if we are not talking about tax liability for the current year (questions controlled by the Code most recently enacted or as most recently amended), what was the status of the statutory law as of the year with which we are concerned? Second, if we find a case bearing on a tax problem, a current problem, did the decision in that case rest on provisions of statutory law that are the same as or at least similar to the current provisions? If not, the case is obviously irrelevant. Generally, the opinion will set out the pertinent statute, either in the text or in the margin, so that it can be compared with the current provisions. 

Where the problem arises otherwise, web-based research services, such as Westlaw or LexisNexis, or tax-specific research services like Thomson Reuters Checkpoint or Wolters Kluwer IntelliConnect may save time in searching for effective date provisions of numerous amendatory acts Most recent statutory changes to the Internal Revenue Code have been passed by Congress under the budget reconciliation process. That process generally permits both budget matters and increases in the federal debt limit to be enacted with a simple majority vote in the House and Senate, thereby in the Senate avoiding the 60-vote requirement to prevent a filibuster.6 The reconciliation process is limited by the “Byrd Rule,”7 which generally provides that reconciliation may not be used to increase a deficit in years after the fiscal years involved in the reconciliation process.8 Thus, many of the tax provisions passed under the budget reconciliation process “sunset;” that is, they terminate in future years. In the past Congress has often extended many sunsetted provisions and can be expected to do so in the future. Treaties. 

In the hierarchy of laws in the United States, a federal statute and a treaty enjoy equal status. Treaties made under the authority of the United States are the supreme law of the land, along with laws made in pursuance of the Constitution and the Constitution itself. Consequently, a tax treaty, of which we now have many can supersede a provision of the Internal Revenue Code. Regulations. The Secretary of the Treasury is given general authority to “prescribe all needful rules and regulations for the enforcement” of the Internal Revenue Code.10 This is a lawful congressional delegation of subordinate legislative authority. The final regulations promulgated under this authority become a kind of proliferation of the statute. 

The principal emphasis is placed on the Code and the regulations. And students should learn at once to think of the initial approach to a tax question as follows: (1) What Code provisions bear on the problem? (2) Do the regs shed any light on their meaning in the setting at hand? This is not the end, but it is the right beginning for the solution of a tax problem. The regulations are especially valuable to the student, often enabling one to move from the general and abstract language of the statute to a specific, concrete example of its application. in using the regulations it is important to remember that they are generally subordinate to the statute and, in any instance in which an exact answer must be achieved, it is entirely improper to rely on the regulations (or on instructions on a tax form, which generally have about the same status) as a substitute for the statute. Indeed, it may well be necessary to go beyond both. 

Regulations, of course, may be challenged and are subject to judicial review. In the final analysis, the judiciary has the right to say whether the regulations promulgated by the executive conform to the statute enacted by the legislature. However, a student should not lightly assume that a regulation is invalid. Rulings and Other Treasury Documents. The regulations are not the only income tax documents emanating from the Treasury Department. For example, there are Revenue Rulings that are issued under the same statutory authority as the regulations. They are generally the Treasury’s answer to a specific question raised by a taxpayer concerning the taxpayer’s tax liability.13 In the interest of a uniform application of the tax laws, they are published to provide precedents for use in the disposition of like cases. While they do not have the force and effect of regulations, they do at least reflect the current policies of the Internal Revenue Service and they may be cited and relied on.14 The Service will not invariably respond to a request for a ruling. 

The Internal Revenue Bulletins and the earlier Cumulative Bulletins are also generally a source for the tax legislation committee reports. A Revenue Procedure is a statement of the Treasury’s practice and procedures. It generally deals with a broad subject.16 The Treasury also publicizes its views in Announcements or Notices, which address timely topics of wide interest and Information Releases, which are press releases that provide public notice of general interest items. All of these publications have the same precedential value as Revenue Rulings and are published in the Internal Revenue Bulletin. 

In very brief summary, there is no statutory obstacle to the Service’s reneging on a ruling if the matter has not been handled so as to conform with the requirements for a closing or compromise agreement.19 However, if the facts have not materially changed, the Treasury generally will not retroactively revoke a ruling so as to upset the expectations of the one to whom the ruling was issued.20 For this reason, taxpayers feel they can rely on rulings issued to them and, even though procedures have been streamlined, rather rarely seek closing agreements. The great majority of rulings are not officially published and thus remain “private” in the sense that they are issued in response to the request of a taxpayer and are officially kept confidential. 

However, as part of the Tax Reform Act of 1976, Congress added Section 6110 to the Code generally to require that many such private “letter rulings” be open to public inspection. This provision is intended to assure that all taxpayers have access to the rulings positions of the Service as well as to increase the public’s confidence that the tax system operates in a fair and even-handed manner. Private letter rulings are also subject to disclosure under FOIL. Private rulings take the form of Private Letter Rulings (“PLR”s), which are similar to revenue rulings as they are a response to a taxpayer’s request to the Treasury to issue its response to the tax consequences of a particular transaction. 

Private rulings also include Technical Advice Memorandums (“TAM”s) which are similar to revenue procedures as they are the Service’s response to a request for advice on a technical or procedural question. Although such rulings may not be relied upon as authority by anyone other than the taxpayer to whom the ruling was issued, they serve a useful function as planning tools especially in light of the announced policy of the Service that only rulings that involve important substantive tax questions and issues of widespread interest will be officially published as Revenue Rulings in the future. 

The Service also issues Announcements (“Ann”s) and Notices (“Not”s) which address topics of wide interest and can be cited as precedent by taxpayers.25 Information Releases (“IR”s) are also issued by the Service to the press to bring items of general interest (rather than technical issues) to public attention. Action on Decisions. The Internal Revenue Service also issues Action on Decisions (“AOD”s) in which it states its position when it has lost an issue in a Tax Court case. An AOD provides guidance to taxpayers as to whether the Service agrees (acquiesces, “acq.”) or disagrees (nonacquiesces, “nonacq.”) in the Tax Court’s determination of issues adverse to the government. Such actions do not affect the taxpayer who has just won the case but, in essence, the Service is saying either we will or we will not continue to contest the point as it arises in other cases. Less methodically, notice is given from time to time whether the Treasury will follow a decision of the Court of Federal Claims, a district court, or court of appeals; obviously, Supreme Court decisions are controlling. These indications of adherence to or shifts in Treasury views are published in the Internal Revenue Bulletin and are, of course, of great importance in tax planning. 

Judicial Materials: The decisional process serves to put the meat on the skeletal law of the statute.26 In broad perspective the Code lays down bare legal norms and cursory fact norms, sometimes clearly and separately identifiable and sometimes coalescing and indistinguishable. When a tax controversy gets into court, the court’s function, at least at the trial level, is to identify the problem, determine the relevant facts (findings of fact), and interpret and apply the Code provisions. In essence the tribunal must draw a line in each case; that is the primary job of the courts. 

The growing body of decisions in many areas of the tax law takes on a meaningful profile which can have significant value as an aid in predicting the outcome of future controversies involving similar issues. Thus lines drawn by the courts in prior decisions can be plotted and are useful tools to the tax practitioner planning prospective transactions and are essential to the practitioner in deciding whether to litigate an issue that is the subject of current administrative controversy. An appellate tribunal can of course review the findings of fact as determined by the trial court, but in general it cannot reject such findings unless they are virtually entirely unsupported by evidence. Hence the function of the appellate process is not so much fact line drawing as it is interpretation. 

You will discover that appellate courts are rather adept at enunciating legal norms or rules or tests, which are then applied by trial courts in specific factual settings. Generally speaking, the appellate tribunal is at its best when the issue before it is a question of law. Thus, for example in Williams v. McGowan27 the only issue the Court of Appeals had to decide was whether the sale of a proprietorship business was a sale of an entity or whether such a sale was a sale of each constituent asset separately. The facts were clear and undisputed. The Code did not provide a ready answer. The Court held as a matter of law that a proprietorship is simply an aggregate of many things, not an entity. 

Court of Appeals Decisions: Tax decisions of the district courts and of the Tax Court can be appealed (as of right) by either party to the courts of appeal, and tax decisions of the Court of Federal Claims are appealable to the Court of Appeals for the Federal Circuit. Supreme Court Decisions. Many tax decisions in the Supreme Court represent that Court’s determination (upon petition for certiorari) to settle a point on which the courts of appeal have taken divergent positions. Judicial Review of Treasury Regulations. The judiciary has the right to evaluate whether the regulations promulgated by an executive agency conform to the statute enacted by the legislature. A court could invalidate a Treasury regulation that is challenged by a taxpayer. 

TAX POLICY FUNDAMENTALS 

Most of Federal income tax will focus on understanding what the law is and how it applies to a taxpayer’s situation. Part of that analysis involves understanding explanations of why the law is what it is.1 What was Congress’s rationale for enacting a particular provision? What reasoning motivated the choices reflected in the Treasury regulations? Insights into the policies that led to our current tax laws often help us understand how those laws are likely to be applied. But what the tax law is may not be what the tax law should be. The “should” question is normative, rather than explanatory, and raises broader tax policy issues for consideration and debate. Three of those broader tax policy issues are discussed briefly here. 

FIRST The first fundamental tax policy issue is the proper function of tax law. Not surprisingly, raising revenue is the primary function of tax law.

SECOND The second major tax policy issue involves the principles that guide tax law design. It is widely accepted that tax laws should be designed to be fair, simple, and good for the economy. But what do these terms mean? For example, many people agree that taxpayers with higher incomes should pay higher taxes, but there is disagreement about how much higher—that is, what is someone’s “fair share”? And when the principles conflict, which should be prioritized, in what situations, and why? For example, to make a tax law fairer, it might need to be made more complex. In that situation, should we opt for the fairer but more complex law or the simpler but less fair law? How do we decide? Reasonable, thoughtful people often differ about the answers to these questions. 

THIRD A third big-picture tax policy question is about the tax “base.”4 On what should tax be imposed? This course studies the Federal income tax. Taxes can also be imposed on consumption. For example, many states and localities impose a retail sales tax. Another possible tax base is wealth. For example, some have proposed to levy tax on the wealth of taxpayers with extremely high net worth (e.g., over $50 million and over $1 billion).5 Any base (income, consumption, wealth, or other) can be broad (i.e., comprehensive) or narrow (i.e., riddled with exceptions and special rules). Despite frequent calls for base-broadening reforms, the Federal income tax continues to include many provisions that narrow the base. 

The goal is to expose the fundamentals of income taxation by exploring the manner in which many basic transactions and events bear upon an individual’s liability for income tax. 

PART 2: WHAT IS INCLUDED IN GROSS INCOME? 

PART 3: so-called assignment of income doctrine which is aimed at preventing the artificial shifting of tax liability among individuals and other taxable entities 

PART 4: concerns DEDUCTIONS In determining taxable income for the year, three additional questions must be considered with respect to each item of income or deduction. They are: (1) For what taxable year is an item income or deductible? This will soon be seen to be quite important when rate tables and statutes limiting the period of liability or of refund recovery are considered. (2) What is the character (capital gain or loss, or ordinary income or loss) of various items? Tax advantages and limitations too attend such determinations. (3) Is gain or loss immediately to be recognized? Some items seemingly taxable or deductible get a deferment, sometimes essential or at least helpful and at others disadvantageous. 

PART 5 Concerns TIMING of recognition of items of income and expense. 

PART 6 of the book illustrates that one must characterize each item of income or deduction and see whether the items when combined are to be given preferential treatment or subjected to limitations. In some situations, even though one has income or loss, even realized income or loss, nevertheless Congress has seen fit not immediately to accord it tax consequences. 

PART 7 examines the nonrecognition or deferral of some gains and the nonrecognition or sometimes outright disallowance of some losses 

PART 8 AMT and tax credits. 

PART 9 Tax procedures are available for correcting mistakes and by administrative and judicial proceedings for settling inevitable controversies. Still in a fundamental way Part Nine, the last section of this book, deals with these phenomena. Part Nine also considers professional responsibility in the tax profession. 

CHAPTER TWO: INCOME. 

MY NOTES from Fundamentals

Legal terms: Precedent Conditions subsequent Percurium Pera materia Remanded Reversion Petitioner Respondent In this class need to have IQ AND SASS acronym: I Issues - they must be spotted Q Question - question everything the court of JJB says. A argue for the taxpayer - argue for IRS on the same issue N Name and main rule of the case - memorize these for each case D Defend yourself S Speak and write the Kings English (Rumpus and Bingo were his male dogs that died…why did he mention this?). A Ask for additional facts and their relevance S Be Sneaky ie CREATIVE S Smile and have some fun. IRAC acronym: I Issues R Rules A Arguments -> T and IRS C Conclusions -> Court NOTES FROM FIRST LECTURE: Have an option to go to court of claims or district court instead of Tax Court. If you strong from a technical point of view then go to Tax Court because have a Tax judge. If you have less technical issue then go to one of the other two courts and appeal to the FAIRNESS of the issue. The judges there are not that technical in Tax Law. 

BRIEFING A CASE: Note the important facts in the margins as you go. F1 F2 F3 -> fact 1, fact 2, fact 3 I1 I2 I3 -> issue 1, Issue 2, Issue 3 IRS1 IRS2 IRS3 -> IRS argument 1, IRS argument 2, IRS argument 3 T1, T2, T3 -> taxpayer argument 1, etc. R1 R2 R3 -> Ruling 1, etc. H1 H2 H3 -> Holding 1, etc. FIRST CASE EXAMPLE - Cessarini: Ruling from the case doc: “While it is generally true that revenue rulings may be disregarded by the courts if in conflict with the code and the regulations, or with other judicial decisions, plaintiffs in the instant case have been unable to point to any inconsistency between the gross income sections of the code, the interpretation of them by the regulations and the courts, and the revenue ruling which they herein attack as inapplicable. 

On the other hand, the United States has shown a consistency in letter and spirit between the ruling and the code, regulations, and court decisions.” Couple found money in a piano and reporting it as income but later changed their return filing. IRS said nope so Taxpayer went to court to fight the IRS on this. The ISSUE depends upon the “WHETHER” PUN -> so, start like this: “the issue is whether” the … 

Discussion Board example: Income is assessed as soon as check is received not when it is cashed. If this was the case people would be holding on to their checks and depositing it whenever they felt it would benefit their income tax the best. 

Section 61 of the IRC from the IRS website—Gross Income Defined 26 CFR § 1.61-2: Compensation for services, including fees, commissions, and similar items (Also: ) Rev. Rul. 2007-19 

PURPOSE The Internal Revenue Service (Service) is aware that some taxpayers are attempting to reduce or eliminate their federal income tax liability by claiming that compensation received in exchange for personal services is not taxable income. These taxpayers often attempt to avoid their federal income tax liability by failing to file federal income tax returns or by failing to report all income from wages or other compensation on their federal income tax return. They often furnish Forms W-4, Employee Withholding Allowance Certificates, on which they claim excessive withholding allowances or claim complete exemption from withholding. In addition, they often claim deductions from gross income for personal, living and family expenditures in order to reduce the tax liability related to wages or other compensation. 

2 The Service is aware that some promoters and return preparers are advising or recommending that taxpayers take these or other meritless positions. This revenue ruling emphasizes to taxpayers, promoters and return preparers that wages and other compensation received in exchange for personal services are taxable income subject to federal income tax. Any argument that such compensation is not taxable income has no merit and is frivolous. The Service is committed to identifying taxpayers who attempt to avoid their federal tax obligations by taking frivolous positions. The Service will take vigorous enforcement action against these taxpayers and against promoters and return preparers who assist taxpayers in taking these frivolous positions. Frivolous returns and other similar documents submitted to the Service are processed through the Service’s Frivolous Return Program. As part of this program, the Service determines whether taxpayers who have taken frivolous positions have filed all required tax returns; computes the correct amount of tax and interest due; and determines whether civil or criminal penalties should apply. The Service also determines whether civil or criminal penalties should apply to return preparers, promoters and others who assist taxpayers in taking frivolous positions and recommends whether an injunction should be sought to halt these activities. Other information about frivolous tax positions is available on the Service website at www.irs.gov. 

3 ISSUE Whether Taxpayer A may avoid federal income tax liability by maintaining that the Internal Revenue Code does not tax wages or other compensation received in exchange for personal services. FACTS Taxpayer A receives wages in exchange for personal services. Taxpayer A then does one or more of the following: (1) furnishes a Form W-4 to the employer on which Taxpayer A claims excessive withholding allowances or claims complete exemption from withholding; (2) fails to file a federal income tax return; (3) fails to report the wages on the federal income tax return; (4) claims a refund for any withheld income tax; or (5) claims deductions for personal, living and family expenditures to offset the wages reported on the federal income tax return. Taxpayer A claims that compensation received for personal services is not subject to federal income tax. Arguments that wages are not subject to federal income tax take many forms including, but not limited to, the following: 1. A tax on wages is a direct tax subject to the provision in Article I, Section 2, Clause 3 of the Constitution that requires that direct taxes be apportioned among the states by population. 2. Money received in exchange for personal labor constitutes an equal, nontaxable exchange of property. 3. 4 Taxable income from wages or other compensation for personal services can only be determined after deduction of the cost of providing the labor. 

LAW AND ANALYSIS 

1. Article 1, Section 2, Clause 3 of the United States Constitution states that “direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers . . . .” This statement has been used to support the argument that there is a constitutional impediment to the imposition of a direct tax on an individual’s wages. The Sixteenth Amendment to the Constitution, ratified in 1913, provides that “[t]he Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” The Sixteenth Amendment has been reviewed by the Supreme Court and upheld. Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916). Thus, the imposition of income tax on wages, without apportionment among the states, is authorized. See, e.g., Funk v. Commissioner, 687 F.2d 264 (8th Cir. 1982); Abrams v. Commissioner, 82 T.C. 403 (1984). Section 61(a) of the Internal Revenue Code defines gross income as income from whatever source derived, including (but not limited to) “compensation for services, including fees, commissions, fringe benefits, and similar items.” I.R.C. § 61(a)(1). Courts consistently have upheld the determination that wages fall within section 61(a)(1)’s definition of compensation and, accordingly, constitute taxable income. See, 5 e.g., Ledford v. United States, 297 F.3d 1378 (Fed. Cir. 2002); United States v. Connor, 898 F.2d 942 (3d Cir. 1990); Casper v. Commissioner, 805 F.2d 902 (10th Cir. 1986); Connor v. Commissioner, 770 F.2d 17 (2d Cir. 1985); Lovell v. United States, 755 F.2d 517 (7th Cir. 1984); Perkins v. Commissioner, 746 F.2d 1187 (6th Cir. 1984); Funk v. Commissioner, 687 F.2d 264 (8th Cir. 1982); Lonsdale v. Commissioner, 661 F.2d 71 (5th Cir. 1981); Rowlee v. Commissioner, 80 T.C. 1111 (1983). In United States v. Connor, 898 F.2d. at 943, the Third Circuit noted that “[e]very court which has ever considered the issue has unequivocally rejected the argument that wages are not income.” 

All income received by a taxpayer is income under section 61 unless it is specifically exempted or excluded. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-30 (1955) (“Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to the intention of Congress to tax all gains except those specifically exempted.”). 

2. Some taxpayers claim that the payment of wages or other compensation in exchange for personal labor is a nontaxable exchange of property. These taxpayers sometimes rely on sections 83 or 1001 of the Internal Revenue Code to support this argument. Section 83 provides for the determination of the amount to be included in gross income and the timing of the inclusion when property is transferred to an employee or independent contractor in connection with the performance of services. Section 1001 provides for the determination of the amount and timing of the recognition of gain or loss from the sale or other disposition of property. 

6 Courts have universally rejected the argument that labor is property that can be exchanged for wages or other compensation in a nontaxable transaction. See Casper v. Commissioner, 805 F.2d at 905; Funk v. Commissioner, 687 F.2d at 265. Courts recognize a distinction between selling labor and selling or exchanging property. See Reading v. Commissioner, 70 T.C. 730, 733-34 (1978), aff’d, 614 F.2d 159 (8th Cir. 1980). Further, the courts have concluded that a taxpayer has no tax basis in one’s labor and, therefore, the full amount of the wages or other compensation received represents gain which may be taxed as income. See, e.g., Casper, 805 F.2d at 905; Abrams, 82 T.C. at 407; Reading, 70 T.C. at 733-34. 3. A related argument is that income from the sale of labor cannot be determined until the taxpayer’s investment in that labor has been recovered. This argument has been repeatedly rejected. See Rowlee, 80 T.C. at 1120; Reading, 70 T.C. at 733-34. In Reading, the Tax Court examined the contention that gain must be realized for there to be income, analyzing the distinction recognized under federal tax law between producing a physical product and providing services. The court flatly rejected the idea that living expenses constitute the cost of “goods” sold for providing labor or services. Reading, 70 T.C. at 733-34. Thus, the court concluded that the gain from the sale of labor is the entire amount received and upheld the disallowance of deductions for personal living expenses. 

Courts have uniformly rejected arguments that wages and other compensation for personal services are not taxable income. Accordingly, raising these arguments justifies the imposition of sanctions. See Ledford v. United States, 297 F.3d at 1381-82 7 (Fed. Cir. 2002); Casper v. Commissioner, 805 F.2d at 906; Connor v. Commissioner, 770 F.2d at 20. HOLDING 1. 2. 3. Wages fall within the definition of income set forth in section 61(a)(1) of the Internal Revenue Code. Taxpayer A’s wages and other compensation for services are income subject to federal income tax and must be reported on Taxpayer A’s federal income tax return. The payment of wages and other compensation for personal services is not an equal exchange of property. The full amount of wages received by Taxpayer A is subject to federal income tax and must be reported on Taxpayer A’s federal income tax return. Wages and other compensation received by Taxpayer A in exchange for personal services are subject to federal income tax without reduction of Taxpayer A’s personal living expenses. 

CIVIL AND CRIMINAL PENALTIES 

The Service will challenge the claims of individuals who improperly attempt to avoid or evade their federal tax liability. In addition to liability for the tax due plus statutory interest, taxpayers who fail to file valid returns or pay tax based on arguments that wages and other compensation for personal services are exempt from federal income tax face substantial civil and criminal penalties. Potentially applicable civil 8 penalties include: (1) the section 6662 accuracy-related penalties, which are generally equal to 20 percent of the amount of tax the taxpayer should have paid; (2) the section 6663 penalty for civil fraud, which is equal to 75 percent of the amount of tax the taxpayer should have paid; (3) the section 6702(a) penalty of $5,000 for a “frivolous tax return”; (4) the section 6702(b) penalty of $5,000 for submitting a “specified frivolous submission”; (5) the section 6651 additions to tax for failure to file a return, failure to pay the tax owed, and fraudulent failure to file a return; (6) the section 6673 penalty of up to $25,000 if the taxpayer makes frivolous arguments in the United States Tax Court; and (7) the section 6682 penalty of $500 for providing false information with respect to withholding. Taxpayers relying on these frivolous positions also may face criminal prosecution under: (1) section 7201 for attempting to evade or defeat tax, the penalty for which is a significant fine and imprisonment for up to 5 years; (2) section 7203 for willful failure to file a return, the penalty for which is a significant fine and imprisonment for up to one year; (3) section 7206 for making false statements on a return, statement, or other document, the penalty for which is a significant fine and imprisonment for up to 3 years; or (4) other provisions of federal law. Persons, including return preparers, who promote these frivolous positions and those who assist taxpayers in claiming tax benefits based on frivolous positions may face civil and criminal penalties and also may be enjoined by a court pursuant to sections 7407 and 7408. Potential penalties include: (1) a $250 penalty under section 6694 for each return or claim for refund prepared by an income tax return preparer who 9 knew or should have known that the taxpayer’s position was frivolous (or $1,000 for each return or claim for refund if the return preparer’s actions were willful, intentional or reckless); (2) a penalty under section 6700 for promoting abusive tax shelters; (3) a $1,000 penalty under section 6701 for aiding and abetting the understatement of tax; and (4) criminal prosecution under section 7206, for which the penalty is a significant fine and imprisonment for up to 3 years, for assisting or advising about the preparation of a false return, statement or other document under the internal revenue laws. 

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MY NOTES from all the initial readings eg above and listening to the videos, etc: Analyze a case with IRAC: ◦ Authority is as follows: the CODE, the COURTS, the REGS (ie Court overrules REGS). ◦ I - What are the ISSUES based on the fact trail? ◦ R - What RULES (the code) have bearing on the problem, AND ◦ do the REGULATIONS (IRS/REV) shed any light on the meaning of the RULES (the code)? [they may or may not] ◦ A - What were the ARGUMENTS by T, ◦ and by the IRS? ◦ C - What were the Court’s conclusions? US Supreme Court (USSC) rarely decides; Appellate Court (AC), Fed Claims Court (FCC), District Court with jury (DC) rarely decides tax cases(?), Tax Court (TC). 

IN PRACTICE HERE YOU HAVE THE TAX COURT (TC) AND THE FEDERAL CLAIMS COURT (FCC) AND YOU WOULD ONLY USE THE TAX COURT IF YOU THINK THE CODE IS CLEAR. AND YOU WOULD ONLY EVER APPEAL A TAX COOURT DECISION IF YOU THINK A MISTAKE WAS MADE BY THE TAX COURT JUDGE, BUT THAT IS NOT LIKELY (BECAUSE TC JUDGES ARE TAX EXPERTS). YOU WOULD PROBABLY ALWAYS APPEAL A FED CLAIMS COURT DECISION, HOWEVER (BECAUSE THE FCC JUDGES ARE NOT TAX EXPERTS). SO YOU CAN GO 1) TC->AC unlikely OR 2) FCC->AC likely. ◦ After 90 days has passed (90 day letter) and the tax has not been paid then the taxpayer doesn’t have the option but to go to Tax Court (TC) ◦ Only if the tax is paid (I think within 90 days) can a taxpayer file a petition with the FCC or DC. ◦ TC -> AC -> USSC most used - do the USSC EVER tax these cases? Probably hardly ever (my thoughts need to check on this). ◦ FCC -> AC -> USSC used less - the USSC probably sometimes takes these (my thoughts need to check on this). ◦ DC -> AC -> USSC not used very often at all(?) - (my thoughts: no idea if USSC would or not…..) 

THESE 3 PRIMARY SOURCES OF AUTHORITY ARE THE ONLY ONES THAT REALLY COUNT WHEN ANALYZING A TAX ISSUE (2NDRY SOURCES HELP YOU INTERPRET THEM) AND IN THIS ORDER!!!: ◦ THE CODE - IRC (statutory source) is “the letter of the law” and principal emphasis should always be here -> this is beginning for the solution of a tax problem, not the end. ◦ THE COURTS - Court Case (judicial sources) -> THESE WOULD SUPERSEDE ANY REGULATIONS. ◦ Always try to understand the court’s reasoning. Court struggles to apply the black letter law and arrives at an OPINION or “HOLDING of the CASE”. ◦ US Court of Federal Claims in DC (FCC) 1/1 -> Federal Appeals Court in DC 1/1 (AC) -> Supreme Court (USSC) ◦ [FCC judges can travel for hearings outside of the National Courts Building in DC] ◦ US District Court which uses a jury (DC) 1/94 locations -> Court of Appeals for the Circuit 1/12 (AC) -> Supreme Court (USSC) ◦ Tax Court (TC) 1/94 locations -> Court of Appeals for the Circuit 1/12 (AC) -> Supreme Court (USSC) ◦ The Supreme Court (USSC) confirms whether the Executive Branch (this IS the Treasury Dept. and its bureau, the IRS) is applying the law as written by CONGRESS or whether they are not. ◦ If you think the law is wrong mail your petition to the Tax Court in DC and the case will be heard in your district. 94 federal district courts in the United States, which are organized into 12 regional circuits. ◦ THE REGULATIONS - IRS (administrative source) and Revenue Ruling (administrative sources) ◦ The regulations are valuable in researching a tax issue, often enabling one to move from the general and abstract language of the statute to a specific, concrete example of its application. ◦ BUT Regulations MAY BE challenged as they are subject to judicial review -> the judiciary has the right to say whether the regulations [promulgated by the executive] conform to the statute enacted by the legislature. That said, one should never lightly assume that a regulation is invalid - look for all the CASE LAW by considering all court decisions. 

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MODULE 2 EXERCISE/ASSIGNMENTS (prof Comi): Bella Boss Question: Practicing the following: ◦ 1 Keyword searches - Prof Comi says do this type of search last. ◦ 2 Citation search using templates on left side of screen. <<— to do this you need the case name or the code number or ruling number -> but how do you get those for a topic you know nothing about???? ◦ 3 Index search. Access from site navigator OR home page by clicking “citation and other search tools” -> “go to” -> “indexes”. ◦ 4 Table of contents search. Approaches a book from the front. ◦ Click on “Browse Table of Contents” button on right. Then choose “Federal Source Materials” then choose your PRIMARY SOURCE (see pic above). ◦ Code, Regulations, Committee Reports & Tax Treaties************ ◦ Internal Revenue Bulletins ◦ IRS Rulings & Releases ◦ Federal Tax Decisions ◦ Tax Court, Federal Procedural & Federal Claims Court Rules ◦ Pending & Enacted Legislation ◦ IRS Publications ◦ IRS Practice  

SECONDARY SOURCES: Under “Federal Editorial Materials”: ◦ Federal Tax Coordinator************* ◦ United States Tax Reporter ◦ Citator ◦ Federal Depreciation Handbook ◦ Federal Tax Handbook*********** ◦ Federal Tax Updates (Archive) ◦ Corporate Tax Insights - Archive through March 9, 2010 ◦ Tables & Rates ◦ Practice Aids ◦ Federal Indexes ◦ WG&L Journals ◦ WG&L Federal Treatises ◦ WG&L (Warren, Gorham, and Lamont) federal treatises are a highly respected series of expert-authored publications that provide in-depth analysis of specific topics within federal taxation. ◦ Many WG&L treatises, such as Federal Income Taxation of Corporations & Shareholders, are frequently cited by courts. ◦ Overviews ◦ 

FURTHER SECONDARY SURCES: There is a “complete analysis” series of papers under “Federal library” and “Archived Tax Legislation Analysis” that covers about 25 pieces of legislation since 1996, e.g.: ◦ TCJA from 2017 (this is the most recent) ◦ American taxpayer relief act of 2012 ◦ American recovery and reinvestment act of 2009 ◦ Worker, Retiree, and Employer Recovery Act of 2008 ◦ Economic Stimulus Act of 2008 ◦ American Jobs Creation Act of 2004 FACTS: Bobby is an accountant and a part-time actor and uses a spare bedroom as his home office for both of those roles -> can he get a HOME OFFICE DEDUCTION for the costs he incurred? TO DO IN MY ANSWER: ◦ analyze primary authority ◦ Section 280Ac allows certain taxpayers a home office deduction. ◦ use secondary authority ◦ Using a table of contents search under “Federal Tax Coordinator” I found these two chapters which MAY BE applicable: ◦ Chapter L Deductions: Business and Investment Expenses, Travel & Entertainment ◦ ¶ L-1300 Deductions for Home Office Expenses ◦ ¶ L-1325 Home office expenses deductible if home office is taxpayer's principal place of business. ◦ ¶ L-1328 Principal place of business where there are multiple businesses. ◦ ¶ L-1329 Does taxpayer have multiple trades or businesses for purposes of principal place of business determinations? ◦ ¶ L-1330 Determining whether home office is principal place of business under Supreme Court's Soliman rules. ◦ ¶ L-1331 Effect of availability of alternative office space on whether home office is taxpayer's principal place of business under Supreme Court's Soliman rules. ◦ ¶ L-1332 Relative importance of various locations in determining principal place of business under Soliman home office rules. ◦ ¶ L-1333 Importance of time spent at business locations in determining principal place of business under Soliman rules. ◦ ¶ L-1334 Pre-Soliman focal point test used to determine taxpayer's principal place of business. ◦ ¶ L-1335 Home office used for administrative and management activities as principal place of business. ◦ ¶ L-1336 Effect of away-from-home fixed locations for administrative or management activities on qualification of home office as principal place of business. ◦ Chapter L-4400A Deductions: Business and Investment Expenses, Travel & Entertainment ◦ Table of contents search under “WG&L federal treatises” I found BUT IT WENT NOWHERE: ◦ Individual and General Federal Taxation -> Bittker & Lokken: Federal Taxation of Income, Estates and Gifts -> Part 4 Personal Exemptions, Deductions and Credits -> Chapter 30 on personal deductions. No “home office” in Ch 30. ◦ research legislative changes ◦ find and analyze case law ◦ weigh available authority in taking a position on a tax return ◦ write an effective tax memo. MY ANSWER: Find and cite the Internal Revenue Code (IRC) Section that covers home office deductions, and list the requirements necessary to qualify for a home office deduction. How would you find the applicable Code Section if you didn’t already know it? ◦ Primary source here is IRC section 280A(c)(1) ◦ “Qualified business use” means the area claimed as your home office must be used exclusively and regularly for your business. ◦ I found this by doing a keyword search _____________________________________________________________________ Find the chapter in the Federal Tax Coordinator that contains a discussion of the home office deduction. What are the paragraph numbers where the FTC discusses home office expenses? ◦ Chapter L Deductions: Business and Investment Expenses, Travel & Entertainment ◦ ¶ L-1300 Deductions for Home Office Expenses ◦ ¶ L-4400A Deductions: Business and Investment Expenses, Travel & Entertainment <— IS THIS APPLICABLE? ____________________________________________________________________ Find the chapter in the Federal Tax Handbook that contains a discussion of the home office deduction. What are the paragraph numbers in that chapter discussion of home office deductions? Paragraph numbers in the handbook pertaining to home office are 1618-1625. I believe the general discussion around the topic is the one that is copied and pasted below. “1618 Residence Used in Part for Business—Home Office Deduction. Self-employed individuals may take home office deductions if tough tests are met. Employees cannot claim home office expense deductions due to the termination of miscellaneous itemized deductions (¶ 2162). The general rule is that no deduction is allowed for the business use of a dwelling unit that's also used by the taxpayer as a residence during the tax year. But exceptions, discussed below, allow deductions under certain circumstances. (Code Sec. 280A(a)) The disallowance rule applies to individuals, trusts, estates, partnerships, and S corporations. However, disallowance doesn't apply to any deduction allowable without regard to its connection with either a business or income-producing activity. (Code Sec. 280A(b)) For example, the deductions allowed under Code Sec. 163 for interest, Code Sec. 164 for certain taxes, and Code Sec. 165 for casualty losses may be claimed without regard to their connection with the taxpayer's trade or business or income-producing activities. In other words, this disallowance applies only to otherwise deductible business expenses (Code Sec. 162) and depreciation.[ FTC ¶ L-1301 et seq.] The home office deduction isn't allowed for expenses of an income-producing activity, unless the activity is a trade or business.[ FTC ¶ L-1305] In situations described in ¶ 1619 et seq., otherwise allowable business expenses are deductible (subject to the limits discussed at ¶ 1622 and ¶ 1623) even though they are incurred in connection with the business use of a portion of a taxpayer's residence. In addition, the cost of capital improvements made to the entire residence may be recovered through depreciation to the extent allocable to the portion of the residence used for the taxpayer's business.[ FTC ¶ L-1306 et seq.] Charges (including taxes) for basic local telephone services for the first telephone line for any residence are treated as personal expenses. (Code Sec. 262(b))[ FTC ¶ L-1307 et seq.]” _____________________________________________________________________ Using the Index to the Federal Tax Coordinator, what paragraph number discusses the “principal place of business” requirement for “home office expenses?” ◦ Chapter L Deductions: Business and Investment Expenses, Travel & Entertainment ◦ ¶ L-1300 Deductions for Home Office Expenses ◦ ¶ L-1325 Home office expenses deductible if home office is taxpayer's principal place of business. _____________________________________________________________________ Using the Table of Contents of the Federal Tax Coordinator, find and cite a paragraph that discusses the “principal place of business” requirement for home office deductions. ◦ Clicked on “Browse Table of Contents” button on right. ◦ Then chose “Federal Source Materials” ◦ Then chose “Federal Editorial Materials” ◦ Then “Federal Tax Coordinator” ◦ Chapter L Deductions: Business and Investment Expenses, Travel & Entertainment ◦ ¶ L-1300 Deductions for Home Office Expenses ◦ ¶ L-1325 Home office expenses deductible if home office is taxpayer's principal place of business. ◦ Extract: “ “. _____________________________________________________________________ Per Prof Comi there are primary and 2ndry sources of tax law. ◦ Primary is eg IRC (statutory source), IRS (administrative source), Revenue Ruling (administrative sources), Case Law (judicial sources); ◦ Everything else is secondary source - published by private publishers not GOVT. 2ndry help us find the law and help us apply it. ◦ Only primary sources can be used as authority on taking tax positions in a return <- Prof Comi]. 4 types of search per Prof Comi: ◦ 1) Keyword searches - Prof Comi says do this type of search last. ◦ 2) Citation search using templates on left side of screen. ◦ 3) Table of contents search. Approaches a book from the front. ◦ 4) Index search. Access from home page by clicking “citation and other search tools” then click indexes under go to. (Or use site navigator to get there quicker) This was my keyword search - I still need to do the 3 other types of search above. Here are all the primary source materials that resulted from that search: QUESTION: doe the bold below mean that the issue (home office deductions) appears in there and unbolded means it does not? PRIMARY SOURCES: ◦ IRC section 280A(c)(1) - Primary source here is IRC section 280A(c)(1): “Qualified business use” means the area claimed as your home office must be used exclusively and regularly for your business. “ (I found this by doing a keyword search). ◦ IRS Publication 587 (2024) Business Use of Your Home, gives clarity on what qualifies and what can be deducted and the methods. <- I found this by reading IRS Pub 529. ◦ Tax Court case in 1990^^^^^ - see below - HAMACHER v. COMMISSIONER, 94 TC 348, Code Sec(s) 280A, Alfred W. and Mary M. Hamacher, Petitionersv. Commissioner of Internal Revenue, Respondent 3/12/1990. <-I found this via L1322 FTC Analysis. This case defines “convenience of his employer”. ◦ IRS Publication 529 (12/2020), Miscellaneous Deductions -IRS Publication 529, Miscellaneous Deductions, details which deductions were affected by the 2017 TCJA and explains the current rules. Made permanent by the 2025 BBB now - it was here that I found reference to Pub 587 Business Use of Your Home. <-BUT HOW DID I FIND THIS ONE? 2NDRY SOURCES: ◦ Federal Tax Coordinator ¶ A-2710—Miscellaneous Itemized Deductions Suspended (Not Allowed) for Tax Years 2018–2025 (I found this by doing a keyword search). ◦ Fed Tax Coordinator Analysis -> L-1322 Expenses of home office used for multiple businesses—home office deductions. (SCREENSHOT BELOW) -> this 2ndry source confirms the word EXCLUSIVELY in the IRC primary source. ◦ United States tax reporter? (I should have accessed this through the site navigator but haven’t done that on this topic…yet) When I ran a general keyword search in RIA Checkpoint I got ALL of the following references: ◦ Federal Tax Coordinator ¶ A-2710 - miscellaneous itemized deductions (that are generally disallowed for tax years 2018–2025) ◦ Federal Tax Coordinator ¶ L-1301 - taxpayers working from home in a non-employee (self-employed, small business owner, independent contractor) capacity may still take the deduction for those years. ◦ FTC Client Letters ¶1120 - Client letter - Home office expense deduction for a self-employed taxpayer ◦ ¶ 1618 Allocation of expenses and depreciation on a house for purposes of the home office deduction <<— WHAT IS THIS?? ◦ Client Letters ¶ 2436 - Sample client letter on the deductibility (after 2025) of particular expense Links to the references I found above: A2710 ¶ 1618 Federal Tax Coordinator 2d ¶L-1300  FTC Client Letters ¶1120 Client letters 2436 FTC Analysis - L-1322 Expenses of home office used for multiple businesses—home office deductions. IRS Pub 529 IRS Pub 587 Client letter 2351 is for non-telecommuting employees only. Bobby is not a telecommuting employee so this likely applies to him too. ^^^^^According to the 1990 Hamacher Tax Court case, an employee's use of a home office is for the “convenience of his employer” where: . . . the employee must maintain the home office as a condition of employment (¶ L-1349); . . . the home office is necessary for the functioning of the employer's business (¶ L-1350); or . . . the home office is necessary to allow the employee to perform the duties of the job properly (¶ L-1350). GOOGLE: “The Federal Tax Coordinator (FTC) is a comprehensive, multi-volume tax research service written and published by Thomson Reuters through its subsidiary, the Research Institute of America (RIA). The service is authored by experienced tax practitioners and experts.  The "client letters" included in the Federal Tax Coordinator are templates written by these tax specialists to help other tax professionals and firms communicate effectively with their clients.  This is distinct from the correspondence the IRS sends to taxpayers. Taxpayer-specific letters and notices are written by the Internal Revenue Service's own staff, primarily the Taxpayer Correspondence Services (TCS) office” “IRS Taxpayer Correspondence Services (TCS) office does not write private letter rulings (PLRs). Instead, the TCS office manages the design, quality, and delivery of correspondence that the IRS sends to taxpayers. PLRs are handled by the Office of Chief Counsel, which is a separate division of the IRS. A PLR is a written statement issued to an individual taxpayer in response to a specific request about the tax consequences of a proposed transaction. To provide a taxpayer with a specific, binding interpretation of tax law for a unique set of facts. A PLR is binding on the IRS” 

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Assignment for MODULE TWO - 2nd case example (Carlos case): 

QUESTION Carlos lives in State X, which provides tuition loans to residents of State X who are getting a degree in education. Upon graduating, the loan will be forgiven if the recipient teaches for at least three full years in the state’s public school system. Carlos took advantage of that loan program to pay his tuition. Immediately upon graduation, Carlos obtained a job teaching in a private school. The private school is paying Carlos a salary of $45,000 per year, and has also agreed to pay off Carlos’s student loans to State X. Does Carlos have taxable income when his employer pays off his student loan? Provide your answer in complete sentences and cite the primary authority upon which you are relying. 

MY ANSWER SECONDARY SOURCE: “Federal Editorial Materials” -> WG&L Federal Treatises -> Bittker & Lokken: Federal Taxation of Income, Estates, and Gifts (WG&L) -> ¶36A.1. Qualified Tuition and Related Expenses From the handbook secondary source: Student loans . .cancellation/discharge of 1381 . . .public service work, programs requiring 1381 . .discharged after 2020 and before 2026 1381 . .employer payments, exclusion for 2214 . .interest on 2220; 2221; 4746 

PER SECONDARY AUTHORITY HANDBOOK: “Eligible student loan repayments” (below) are also excluded from employee gross income as “educational assistance,” subject to the above $5,250 limit. These are payments by the employer, whether paid to the employee or a lender, of principal or interest on any qualified higher education loan as defined in Code Sec. 221(d)(1) for the education of the employee (but not of a spouse or dependent). (Code Sec. 127(c)(1)(B)). [NOTE Cannot also claim interests deduction on the piece forgiven though to avoid double counting] PSLF- not applicable because he chose to work for private school. 

PER PRIMARY AUTHORITY: Exclusion where cancellation requires work in certain professions. Under Code Sec. 108(f)(1), there's no COD income (¶ 1379) from the cancellation of all or part of certain government student loans (or certain loans made by tax-exempt educational organizations), or loans made by exempt educational organizations or other exempt organizations to refinance any student loan, if the debtor is required to perform public service work for a period of time in certain professions for any of a broad range of employers. (Code Sec. 108(f)(1))[ FTC ¶ J-7506] MY ANSWER: Per the Internal Revenue Code Section 108(f)(1)) there is an exclusion from income for the forgiveness of all or part of certain government student loans or loans made by exempt educational organizations if the debtor is required to perform public service work for a period of time, e..g teaching in a public school. Since Carlos chose to teach in a private school his loan forgiveness is not excluded and will for part of gross income. The Code Sec. 221(d)(1) f does, however, grant Carlos the ability to exclude the first $5,250 of the income from his tax liability for the year in which the loss were forgiven. ******Grade for assignment 1 was 68% - here is Prof Comi feedback******: ****************** 

PER OTHER: WG&L (Warren, Gorham, and Lamont) federal treatises are a highly respected series of expert-authored publications that provide in-depth analysis of specific topics within federal taxation. They are a valuable resource for tax professionals, attorneys, and accountants who need comprehensive, detailed explanations of complex tax issues. Now a part of Thomson Reuters, the treatises are available on tax research platforms like Checkpoint and Westlaw. Key characteristics Expert authorship: The treatises are written by recognized experts and leading practitioners in the tax field. Detailed analysis: They provide comprehensive, interpretive analysis and practical guidance on various federal tax topics. Highly cited: Many WG&L treatises, such as Federal Income Taxation of Corporations & Shareholders, are frequently cited by courts. Covers specific topics: Rather than offering a broad overview, each treatise focuses on a specific area of tax law. Notable WG&L treatise titles: ◦ Federal Income Taxation of Corporations and Shareholders (Bittker & Eustice): An authoritative treatise that examines the full range of corporate tax issues. 

CORORPATIONS ◦ Federal Taxation of Partnerships and Partners (McKee, Nelson & Whitmire): Focuses on partnership taxation and Subchapter K. PARTNERSHIPS ◦ IRS Practice and Procedure (Saltzman): Explains and analyzes the procedures the IRS follows to ensure tax compliance. IRS COMPLIANCE ◦ Federal Income Taxation of Estates and Trusts: A comprehensive guide covering the special income tax rules for estates and trusts and their beneficiaries. ◦ Federal Estate and Gift Taxation: A widely used treatise that focuses exclusively on estate and gift taxation. 

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MY OBSERVATIONS: ◦ THE CODE HAS FEW WORDS ◦ THE REGS ADD MORE WORDS (to explain how IRS applies or interprets the code) ◦ THE COURTS DECIDE ON WHETHER THE REGS ◦ ARE RIGHT (is the IRS doing what congress really intended when they wrote the code), OR ◦ ARE FAIR (there may be a need to fix unintended consequences). MY QUESTIONS: ◦ When researching an issue, how do you know a lower court decision was not already overruled by a higher court? ◦ Said another way - The courts overrule the Regs, but how do you know a higher court has not opined? ◦ If a T is questioning a treatment and wants to escalate beyond the IRS, it seems the best course of action would be to go to the Tax Court where T thinks the law is simply misapplied/misconstrued; but the T should probably go to the FCC where its a question of unfairness of the law ◦ Is this assumption correct: Only if the tax is paid within 90 days of getting the 90 day letter (I think) can a taxpayer file a petition with the FCC or DC? If the tax remains unpaid after 90 days the taxpayers is forced into Tax Court. ◦ 

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TOPIC OF HOME OFFICE EXPENSES Using a table of contents search under “Federal Tax Coordinator” I found -> Chapter L Deductions: Business and Investment Expenses, Travel & Entertainment -> ¶ L-1300 Deductions for Home Office Expenses ¶ L-1300 Deductions for Home Office Expenses. ¶ L-1300 Deductions for Home Office Expenses.Print¶ L-1300 Deductions for Home Office Expenses. ¶ L-1301 Deductibility of expenses for business use of the home.Print¶ L-1301 Deductibility of expenses for business use of the home. ¶ L-1325 Home office expenses deductible if home office is taxpayer's principal place of business.Print¶ L-1325 Home office expenses deductible if home office is taxpayer's principal place of business. ¶ L-1328 Principal place of business where there are multiple businesses.Print¶ L-1328 Principal place of business where there are multiple businesses. ¶ L-1329 Does taxpayer have multiple trades or businesses for purposes of principal place of business determinations?Print¶ L-1329 Does taxpayer have multiple trades or businesses for purposes of principal place of business determinations? ¶ L-1330 Determining whether home office is principal place of business under Supreme Court's Soliman rules.Print¶ L-1330 Determining whether home office is principal place of business under Supreme Court's Soliman rules. ¶ L-1331 Effect of availability of alternative office space on whether home office is taxpayer's principal place of business under Supreme Court's Soliman rules.Print¶ L-1331 Effect of availability of alternative office space on whether home office is taxpayer's principal place of business under Supreme Court's Soliman rules. ¶ L-1332 Relative importance of various locations in determining principal place of business under Soliman home office rules.Print¶ L-1332 Relative importance of various locations in determining principal place of business under Soliman home office rules. ¶ L-1333 Importance of time spent at business locations in determining principal place of business under Soliman rules.Print¶ L-1333 Importance of time spent at business locations in determining principal place of business under Soliman rules. ¶ L-1334 Pre-Soliman focal point test used to determine taxpayer's principal place of business.Print¶ L-1334 Pre-Soliman focal point test used to determine taxpayer's principal place of business. ¶ L-1335 Home office used for administrative and management activities as principal place of business.Print¶ L-1335 Home office used for administrative and management activities as principal place of business. ¶ L-1336 Effect of away-from-home fixed locations for administrative ormanagement activities on qualification of home office as principal place of business.Print¶ L-1336 Effect of away-from-home fixed locations for administrative or management activities on qualification of home office as principal place of business. *********** Lecture notes from wed sep 3rd: Per Prof Comi there are primary and 2ndry sources of tax law. ◦ Primary is eg IRC (statutory source), IRS (administrative source), Revenue Ruling (administrative sources), Case Law (judicial sources); ◦ Everything else is secondary source - published by private publishers not GOVT. 2ndry help us find the law and help us apply it. ◦ Only primary sources can be used as authority on taking tax positions in a return <- Prof Comi]. 4 types of search per Prof Comi: ◦ 1) Keyword searches - Prof Comi says do this type of search last. ◦ 2) Citation search using templates on left side of screen. ◦ 3) Table of contents search. Approaches a book from the front. ◦ 4) Index search. Access from home page by clicking “citation and other search tools” then click indexes under go to. (Or use site navigator to get there quicker) PRIMARY SOURCES: ◦ IRC section 280A(c)(1) - Primary source here is IRC section 280A(c)(1): “Qualified business use” means the area claimed as your home office must be used exclusively and regularly for your business. “ (I found this by doing a keyword search). ◦ IRS Publication 587 (2024) Business Use of Your Home, gives clarity on what qualifies and what can be deducted and the methods. <- I found this by reading IRS Pub 529. ◦ Tax Court case in 1990^^^^^ - see below - HAMACHER v. COMMISSIONER, 94 TC 348, Code Sec(s) 280A, Alfred W. and Mary M. Hamacher, Petitionersv. Commissioner of Internal Revenue, Respondent 3/12/1990. <-I found this via L1322 FTC Analysis. This case defines “convenience of his employer”. ◦ IRS Publication 529 (12/2020), Miscellaneous Deductions -IRS Publication 529, Miscellaneous Deductions, details which deductions were affected by the 2017 TCJA and explains the current rules. Made permanent by the 2025 BBB now - it was here that I found reference to Pub 587 Business Use of Your Home. <-BUT HOW DID I FIND THIS ONE? 2NDRY SOURCES: ◦ Federal Tax Coordinator ¶ A-2710—Miscellaneous Itemized Deductions Suspended (Not Allowed) for Tax Years 2018–2025 (I found this by doing a keyword search). ◦ Fed Tax Coordinator Analysis -> L-1322 Expenses of home office used for multiple businesses—home office deductions. (SCREENSHOT BELOW) -> this 2ndry source confirms the word EXCLUSIVELY in the IRC primary source. ◦ United States tax reporter? (I should have accessed this through the site navigator but haven’t done that on this topic…yet) Andrew burns is a financial advisor. He gives a little tax advice but GOOGLE is dangerous. Cannot cite IRS publications as primary source? Must always cite 1) CODE 2) REGS 3) CASE LAW 4) RULINGs from IRS. IRS publications ARE NOT a primary source per Comi it’s just a publication. Cannot CITE THIS. RIA checkpoint does use AI. The platform is expensive because it is VETTED. Which means they are up to date and are not relying on rules that have been overwritten. There are constantly rulings coming out and never-ending pipeline of case law. BBB is big recent change. TCJA was the last big change. These must be incorporated into the platforms?? is the BBB in there already?? 3 platforms the prof says you can rely on are: Checkpoint or AnswerConnect or BBNA ???? These platforms allow for “the old and the new” to work together well. There is still a lot of law from the 1800s applicable today(?). o the platforms cannot be placed and they cannot be replicated by google, AI or any other website or web tool. The real value in these databases is the added explanatory writings. PROF COMI DOESNT TRUST THESE OTHER SYSTEMS: (we have duty of ethics to clients) Joey does tax research and he used to use Bloomberg. Now he says taxgpt is getting big and bluejay is big. He does compliance and planning work. Joshua seems to do tax research work too and he uses a new one created by Thomson Reuters - called “CoCOUNSEL”. AnswerConnect is another good system that Joey uses which does cite primary sources. ******* The citator is how you check whether or not there is LATER authority which you may be missing. ******** Prof Comi memo 1 and memo 2 is what she really will evaluate us on. How to put research memos together is what she really cares about. She will five a lot of feedback on memo 1. So that we do well in memo 2. Memo 2 is basically Coma’s final exam. Comi’s part of the exams is small and straight forward. Comi said that section 4 legislature may be more work than other weeks for most students. Or at least it may be a little difficult. The nuances are what makes tax law very difficult (Comi). Sometimes its is hard to understand how the courts arrived at a different answer where the fact trail is seemingly similar but it actually is not. Understanding how a case has applicability in a different context is hard. So that is what Comi will four on. If you want to do planning then you need to have the ability. You have to take the code and find a way to apply it differently. If we handed over compliance to the IRS they would take over no problem but we definitely would not be minimizing the taxpayers tax liability. JJB’s cases are also so foundational that we really have to know them. Need to memorize the rationale from each of them and apply to current/different situations. That’s what JJB will test in the exams (and how). FTC 2nd - is the second edition of fed tax coordinator. Clearly this is what I should be using. ELEMENTS OF A TAX PRACTICE: 1 COMPLIANCE - preparing and returning returns, and defending returns in the event of an audit. Also includes gathering pertinent info. Clients don’t know what they need to tell a tax person. So requirement is on tax specialist. Have to know what questions to ask. Classifying that info. And evaluating it is your job. If you think a client is not being forthcoming then you need to document everything that’s happening. 2 PLANNING - is more about the future. It is legal. Just must be based on research and applicable law that is outdated. Need to steer clear of breaking the law. What is difference of an OPEN vs a CLOSED transaction. Closed means you are already out of the tax year, so the return cannot be amended. If a transaction is not closed yet and eh tax year is still open then structure it however you can to legally minimize taxes as far as possible. Comi said there always tax issues raised by deal changes at the 11th hour and they hardly ever worked. Always need to get advanced notice. This doesn’t really happen at accounting firms. But at securities firms running up to deadlines happens a lot because the investment bankers don’t see tax strategy as driving deals. 3.1 controversy matters (is this a practice area??) 3.2 TAX RESEARCH. ◦ FACTS are important. Because cases turn on the TAX FACTS. They give rise to the TAX ISSUE. If want to use facts to arrive at a legal outcome, there is a BURDEN OF PROOF to have all the facts together and documented in your files. Also gets facts from the partners/client facing staff and from clients themselves. ◦ To identify the issue you have to KNOW THE LAW. So sometimes formulating the issue takes research itself. A case normally turns on what or more sub-issues. So tax research is an iterative process. YES! ◦ Locating authority is third step. “Authority” for Comi is broad, including primary and secondary sources. When referencing the IRC need to say (ALSO FOR OUR GRADED MEMOS) need to terence it as IRC of 1986, Amended (“IRC”) then reference it as IRC going forward. If referencing the IRC of 1939 then use a reference for that too e.g. IRC1939 (?). anything from government is a primary source. But need to consider the weight of each ruling. Weight basically means the most recent rulings take precedent. When you are writing a memo you are required to know and identify the primary authority. NEVER NEVER cite secondary authority. For the assignment we did but it just academic would NEVER quote secondary sources of authority. ◦ Can we also CITE PRIVATE LETTER RULINGS? I AM NOT SURE WHAT THE PROF SAID we can use them to understand the governments position. They can be used in making the “substantial authority” standard. ◦ (Missed one step here) ◦ Developing conclusions and recommendations. ◦ Communicating Results. Email, Letter, etc. be careful how you present it. USING CHECKPOINT: Comi said: WG&L tax dictionary under citation is a GREAT TOOL for finding the relevant code section. Then click on federal as the practice area then look at the handbook and the fed tax coordinator 2nd. Coordinator and handbook are topical sources as opposed to annotated - topical material means the content is organized by topic so you can use. The USTR (1committee reports, 2regulations and 3analysis) is an annotated source - so you have to have the code section then you get (1committee reports, 2regulations and 3analysis) quickly. Keyword searching is best when you know the source. Rather than just shoot in to a huge amount of info and do keyword search. YUP! Get the table of contents below and check off only the right. Chapter or chapters and then run the keyword search at the top so you only get results from the chapters that you know matter. In checkpoint you can pull up a contents box on the right that shows you exactly where you are. To see table of contents on the right in a dialogue box need to click on maximize and find the contents button. <- I asked about this, my first and only question to date. A lot of time you end up in the same place irrespective of how you get there. Eg through coordinator or through the handbook. Lots of ways to get to an answer. Carlos case in assignment for module 2. I GOT IT WRONG. Bottom line here is this was payment of a debt, but NOT A CANCELLATION. Discharge of debt is a different concept than what is happening here. His employer effectively gave him money and said pay your debts with it. The money is taxable. 1) 127 doesn’t apply there are no facts that suggest it could. 2) this part I missed. 3) 108f does not provide an exclusion for Carlos (its an income inclusion rule). Without income under 61 there is nothing else to discuss or analyze. So need to explain how and why something is income, then go from there. So always - is it income and why and how and how much. First thing after confirming it is income then need to consider if we can exclude anything. 1. Income? 2. exclusions? 3. ……… In an academic course like this need to take the facts as presented - don’t look for issues like you may do in a professional context. ********* MODULE 3 EXCLUSIONS FROM INCOME Learning Outcomes Analyze gross income inclusion and exclusion rules relating to gifts, inheritances, employee benefits, discharge of indebtedness Interpret and apply income tax laws to fact patterns Readings: IRC §§ 102, 119, 108 (skim) Fundamentals of Income Taxation Ch.3 1. Duberstein 2. Stanton (part of Duberstein) 3. Lyeth v. Hoey 4. Wolder Fundamentals of Income Taxation Ch 4 - Hatt Fundamentals of Income Taxation Ch 8 - Zarin Learning Activities ◦ Watch the pre-recorded videos and complete the self-assessment exercises in Brightspcace ◦ Brief above cases in your textbook ◦ Complete Module 3 discussion board assignment ◦ I had the MOST trouble with the case of _______________________ BECAUSE ... ◦ I had the LEAST trouble with the case of _______________________ BECAUSE ... ◦ Post your responses in this Discussion Board thread.  You will be able to see your classmates' responses after you have posted your response.  MORE DETAIL ON WHAT IS REQUIRED FOR MODULE 3: 1. Read entire Chapter 3 and brief these cases: -Duberstein – also see video under Module 3 in Blackboard -Stanton – also see video under Module 3 in Blackboard -Lyeth v. Hoey – also see video under Module 3 in Blackboard -Wolder- also see video under Module 3 in Blackboard 2. Read and brief only the Hatt case in Chapter 4. Also see video under Module 3 in Blackboard. ***Remember to use the Toggle sidezone button to guide you through the videos of cases when you are in Playposit*** 3. Read and brief only these cases in Chapter 6: -Philadelphia Park Amusement -Farid-EsSultaneh -IRS Notice 2014-21 There are no videos for these cases in Blackboard 4. Read entire Chapter 7 on life insurance – there no cases to brief or videos in Blackboard 5. Read and brief only these cases in Chapter 8: -Kirby Lumber -Revenue Ruling 2008-34 6. Read and brief Zarin (it is not in your text but is posted under Additional Course Materials in Blackboard) Also see video under Module 3 in Blackboard 7. Read entire Chapter 9. There are no cases to brief or videos in Blackboard 8. Complete the Module 3 Discussion Board assignment 9. Complete the assessments under Module 3 – it is a good review. Reminder: Jack’s Judicial Jargons (in text form under Additional Course Materials) is helpful for completing these assessments. *********** MODULE 4 RESEARCHING LEGISLATIVE CHANGES: Learning outcomes: Describe the legislative process for new tax laws and amendments Examine the role of legislative history in interpreting tax laws Identify the various types of IRS pronouncements and their significance Locate and interpret the precedential value of statutory and administrative sources of tax law Explain and use the elements of common citations for legislative and administrative sources of tax law Research and analyze a tax issue based on IRS pronouncements Summary of Chapter 3 of Federal Tax Research, 13th Edition This chapter focuses on the constitutional and legislative sources of federal tax law. It explains that the foundation of U.S. tax law is the Constitution, which grants Congress the authority to impose and collect taxes. The chapter then details the legislative process through which tax laws, primarily the Internal Revenue Code (IRC), are created. Constitutional Basis of Tax Law -> The U.S. Constitution provides the legal framework for federal taxation. Key provisions include: 1. The Power to Tax: The Constitution grants Congress the power to levy and collect taxes. 2. Direct Taxes: The Constitution originally required that any "direct tax" be apportioned among the states based on population. The Sixteenth Amendment was enacted to override this rule, allowing for the federal government to impose an income tax without apportionment. This amendment is the cornerstone of modern federal income tax. Legislative Process and the Internal Revenue Code (IRC) -> The chapter thoroughly explains how a tax bill becomes law, emphasizing the role of the legislative branch. 1. House Ways and Means Committee: All tax bills must originate in the House of Representatives, specifically in the House Ways and Means Committee. 2. Senate Finance Committee: After passing the House, a tax bill moves to the Senate Finance Committee, which may amend the bill. 3. Joint Conference Committee: If the House and Senate versions of the bill differ, a joint conference committee is formed to reconcile the differences. 4. The Internal Revenue Code (IRC): The final, approved bill is then codified into law as the IRC. The IRC is the primary statutory source of federal tax law. The chapter details its organization by subtitle, chapter, subchapter, part, and section, which is critical for understanding and citing tax law. It also discusses the importance of legislative history, such as committee reports, which provide insight into congressional intent behind a law. Summary of Chapter 4 of Federal Tax Research, 13th Edition Key Administrative Sources -> The chapter details the hierarchy and purpose of various administrative pronouncements: COMI ◦ Treasury Regulations: These are the most authoritative administrative source. They are official interpretations of the IRC issued by the Treasury Department and carry significant legal weight. The chapter distinguishes between different types of regulations: ◦ Final Regulations: These have gone through a public comment period and are legally binding. ◦ Temporary Regulations: These are issued to provide immediate guidance on new tax legislation and have the same weight as Final Regulations for a limited time. ◦ Proposed Regulations: These are drafts released for public comment before being finalized. ◦ Revenue Rulings: Issued by the IRS, these are official pronouncements that apply the tax law to a specific set of facts. They are a good indication of the IRS's position on a particular issue and are valuable for tax practitioners. ◦ Revenue Procedures: These documents describe the IRS's internal practices and procedures for tax administration. They are used to provide guidance on how to comply with tax laws, such as how to file for a specific tax status or how to handle an audit. ◦ Private Letter Rulings (PLRs): These are issued by the IRS in response to a specific request from a taxpayer. A PLR provides guidance on the tax consequences of a proposed transaction. While they are legally binding only for the taxpayer who requested it, they provide a valuable insight into the IRS's thinking and are often used as a research tool by other practitioners. ◦ Notices and Announcements: These are used by the IRS to provide timely guidance on new legislation or administrative changes. Notices are considered a higher level of authority than Announcements. The chapter explains the importance of understanding the weight and authority of each type of pronouncement, as they are not all equally binding. It also discusses how to properly research and cite these administrative sources in tax memorandums and other professional communications. Notes from Comi video 1 for module 4: Public law numbers contain the congressional session number first. Pay attention to the public law number. 111 is amended section 36(h)(2) The public law amendments are different to the code sections. Sometimes the effective date for law in the IRC is in the congressional public law. Public law can also amend other laws, not just IRC (eg 111 also amends immigration law) We find the congressional reports using the public law number. Notes from Comi video 2 for module 4: Using proper citation in my work is important. To avoid doubt on the authority of what you have written. YEAR JURISDICTION. Look for list of citation formats in the course contents. It miscopied into the section immediately below called CITATION FORMS. Best way to refer to IRC is to write it out in full, but define an abbreviation and use that after the first time. Treas Reg. Is short for Treasury Regulations. Prefix 1 is normally IRC. Next number is normally code section. Temporary regulations normally have a T at the end. Rev Rule 2005-7 means 7th revenue ruling issued in 2005. General VOLUME THEN SET OF BOOKS THEN THE PAGE NUMBER where that 2005-1-712 is where the rev rule 2005-7 ruling can be found in the IRS bulletin. Revenue rules and revenue bulletins are completely differently numbering systems. PLR Technical advice memoranda etc and all unique numbering systems. but they always show the year first. And 9 digits normally. CITATION FORMS:see below Notes from Comi video 3 for module 4: Demo Videos: Researching Legislative History using RIA checkpoint. Do a citation search using a code reference (federal then citation on left then code and regs then enter refs number in current code box) then click on “Hist” button above or History of legislative changes for that section of the codes. Click on Hist to open the dialogue box on the right. *****The “history” box on the right will show every legislative change pertaining to that code section since it was enacted in reverse chronological order***** We are looking at the history of a code section in order to determine which P.L. made the amendment to the code section. P.L. = Public Law. This section shows: 1. Changes in dates, language 2. Additions to language, subsections 3. Deletions of language, subsections repealed Type control F and use find box to find the specific subsections of the code you are looking at which may have been changed. Using the P.L. number and section/subsection that you just looked up then you can find the Congressional Committee reports. Then go back to the main search page where you first entered the code number (citation search) and go to “Com. Rpts.” (Committee Reports page) using the button at top (next to history (Hist.)). The Committee Reports are listed in chronological order by public law (P.L.) so that is why we needed to look up the subsection first, so we know where to look in the Committee reports. There is normally a House Bill and possibly a Senate Amendment. And there is a Conference Agreement section at the bottom which gives the effective date for the new law. The summaries in the committee reports are written in plain language and are useful to understand why the changes were made. Once you are in the detailed explanation by Checkpoint of a legislative change then you can click on contents on the right and bring up the right side dialogue box that shows the trail of changes - it shows the analysis of the entire Public Law, not just the topic we are looking at. Alternatively, doing a Table of contents search: Table of contents -> Sources -> Federal Library -> Archived Tax Legislation Analysis. Will see RIA’s analysis of all major changes in tax legislation in recent years in reverse chronological order. Add chapter boxes from here then do a keyword search in just the specific chapters. This is a great way to get an overview of the changes made whenever we have new tax legislation. There is also a way to see pending legislation (and enacted legislation that is not yet effective) under “Federal source materials”. Notes from Comi video 4 for module 4: Demo Videos: Researching Administrative Tax Authorities Published by the IRS The TREASURY REGS that accompany the IRC cover almost every tax scenario. They define how the rules are applied. To find the TREAS REGS pertaining to a topic do a citation search. Do a main search at “Federal” home -> “search” -> “citation and other search tools” -> “code and regs” -> ‘final, temporary and proposed regulations” -> enter code number in box at top then click “search”. Then click “Regs” and it ists all TREAS REGS in chronological order in the right panel -> REGS are NOT numbered the way code sections are numbered, or even the way the subsections are numbered. The TREAS REG numbering system has nothing to do with the IRC code itself. And often the numbering system for the REGS is not standard at all. The citation format and numbering must be exact for this search to work. So Comi prefers to go to the code sections first and see all the TREAS REGS there first. Go to code search at top then REGS button at top which opens box on right that lists all TREAS REGS for the code section entered. From there the best way to find the appropriate TREAS REG is to read the titles. To dig into a subsection look at the “preamble”. Like a committee report it explains the law. ITS AN EXPLANATION OF THE TREAS REG IN PLAIN LANGUAGE. To find the preamble for any TREAS REG scroll all the way to the bottom and click on the T.D. = Treasury Decision hyperlink, e.g. below: The preamble gives you not just a plain language explanation but also a history of the regulation . The preamble puts the changes over time in a way that they can be understood. The regs themselves are often very confusing re changes. ALSO remember that TREAS REGS are a PRIMARY SOURCE. Given the fact that TREAS REGS are not numbered in order - to find a T REG one has to either 1) peruse the list of T REGS or 2) find a citation to the T REG in a secondary source discussion. Sometimes a T REG has a -0 section at top which gives contents for that topic which is helpful - not all T REGS have this though. When trying to find relevant paragraphs perhaps use the EMBEDDED LINKS. Eg FTC button below. As opposed to scrolling through all the links in the box on the right trying to see which paragraph you need. FINDING THE RELEVANT DISCUSSION FOR THE EXACT TOPIC YOU ARE RESEARCHING IS THE GOAL. When clicking the FTC button the relevant Fed Trade Commission documents pop up on the right. And remember that the FTC documents are ordered by content. The second button in the pic above is Ann’s = Annotations. These are short normally one sentence summaries of a CASE or a RULING. So, in short, you don’t need to do a keyword search to find a ton of content on a topic - just start with IRC & T REGS and then back into the secondary sources. COMI If you have a citation to a rev ruling or to an IRS bulletin then use the box under “find by citation” called “Rulings/IRB”. Note that Rev Rulings and Rev Procedures are two different sets of documents with diff search templates - BUT they sometimes have the same numbering system..(!) Through “Rulings/IRB” button above one can also access Notices, Announcements or Private Letter Rulings - as long as you have the accurate citation. When you are looking at a ruling (eg T REG) there is a button at top for FTC - brings up Fed Tax Coordinator on right - links back to every secondary source that explains this ruling. Also shows ALL citations to this ruling which allows one to find other primary authority. This is where you can go back and forth between primary and secondary sources whilst staying on topic. IRB Bulletin searches: Do a main search at “Federal” home -> “search” -> “citation and other search tools” -> “Rulings/IRB” -> pull up whole copy of IRB bulletin which is weekly summary of all rulings and regulations issued by the IRS that week. If you know the reference code then enter that in the IRB box further down that search page. Main menu on left has button for finding “IRS pubs and other tax documents” -> these publications can be a good starting point if you don’t know anything about a topic. They are a general discussion. BUT ONT RELY ON THESE AS A TAX PRO. These documents do not contain any citations to the tax rules. They are for the lay person not tax pros. Can use these discussions as a guide only. But Tax Pros need to rely on primary sources only. Specifically, TAX PROS need to rely on only: 1) IRC 2) T REGS 3) RULINGS 4) CASE LAW 5) OTHER PRIMARY SOURCES. Secondary sources are for understanding the primary sources. Use ONLY reputable secondary sources. DONE -> these self assessment exercises for module 4: 1. the legislative process and IRC 2. Final regulations 3. Temporary and proposed regulations 4. Other IRS pronouncements DONE -> Module 4 Assignment 2 RE LEGISLATIVE CHANGES: Question 1 re: section 108’s most recent amendment Answer help: https://www.law.cornell.edu/uscode/text/26/108 A1: In 2025, P.L. 119-21, Sec. 70119(a), amended section 108 para. (f)(5), effective for discharges of student loan debt after 12/31/2025. This amendment completely rewrote the wording of that paragraph (f)(5). The nature of the change was to ensure that a student loan forgiven would not result in taxable income to the taxpayer (the borrower) and it added a requirement for a valid social security number in order to get the exclusion. Q2a: When was IRC § 108(a)(1)(E) added to the Code? Indicate the name of the Public Law that added IRC § 108(a)(1)(E) to the Code. [Hint: Section 1 of a Public Law will indicate the common title of that law] I2a: Refers to a law effective January 1st 2026. See: https://bradfordtaxinstitute.com/Endnotes/IRC_Section_108a1E.pdf A2a:The answer is P.L. 110-142, Sec. 2(a). Q2b: Find and cite the Joint Committee on Taxation report describing this change [the addition of IRC § 108(a)(1)(E)] I2b: https://www.epcstlouis.org/assets/Councils/StLouis-MO/library/Transfer%20for%20Value%20Rule%2C%20Income%20Tax%20Consequences%20of%20Trust%20Modifications%2C%20and%20Code%20§199A%20Safe%20Harbor%20fo.pdf A2b:P.L. 110-142: Law Sec. 2. DISCHARGES OF INDEBTEDNESS ON PRINCIPAL RESIDENCE EXCLUDED FROM GROSS INCOME. 110th Congress - Enacted Legislation (RIA) (a) IRC In General. Paragraph (1) of section 108(a) of the Internal Revenue Code of 1986 is amended by striking “or” at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting “, or”, and by inserting after subparagraph (D) the following new subparagraph: “(E) the indebtedness discharged is qualified principal residence indebtedness which is discharged before January 1, 2010.”. The actual law on congress website: https://www.govinfo.gov/content/pkg/PLAW-110publ142/pdf/PLAW-110publ142.pdf This is the joint committee report: https://www.jct.gov/getattachment/5afdf0b3-5e84-44ee-a457-f7edc2e9b3f8/s-1-09-1990.pdf Full name of the document is: “GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN THE 110TH CONGRESS PREPARED BY THE STAFF OF THE JOINT COMMITTEE ON TAXATION, MARCH 2009” The specific section of that huge committee report where this change in the tax law was discussed was “Part Four: Mortgage Forgiveness Debt Relief Act of 2007 (Public Law 110–142)” on pages 48-49. How do I cite it? And, more importantly, how do I find it in RIA checkpoint? Mortgage Forgiveness Debt Relief Act of 2007 COMREP ¶ 1081.0005 Discharges of indebtedness on principal residence excluded from gross income. (Mortgage Forgiveness Debt Relief Act of 2007, , PL 110-142, 12/20/2007) House Report 110-356 Document Title:COMREP ¶1081.0005 Discharges of indebtedness on principal residence excluded from gross income. (Mortgage Forgiveness Debt Relief Act of 2007, PL 110-142, 12/20/2007). Checkpoint Source:Committee Reports (Code Arranged - USTR) (RIA) © 2025 Thomson Reuters/Tax & Accounting. All Rights Reserved. Q2c: Find and cite the section of the Federal Tax Coordinator which discusses the rules relating to the current exception for discharge of indebtedness income for qualified principal residence indebtedness of up to $750,000. I2c: $750k limit https://www.nolo.com/legal-updates/mortgage-forgiveness-tax-break-extended-through-2025.html A2c: see screenshots This is how you abbrev paragraph number -> (¶) A2: Fed. Tax Coordinator 2d ¶ J-7417 Q3: I.R.C. § 280A(a) (dealing with business or rental use of a residence), refers to a “dwelling unit” used by the taxpayer during the year as a residence. Find and cite the Treasury Regulation that defines “dwelling unit.” What is the definition? I3: https://bradfordtaxinstitute.com/Endnotes/IRC_Section_280Af1.pdf A3: section 280A -> “Prop Reg § 1.280A-1. Limitations on deductions with respect to a dwelling unit which is used by the taxpayer during the taxable year as a residence. Treas. Reg. § 1.280A-1(c)(1) -> “In general. For purposes of this section and §§1.280A-2 and 1.280A-3, the term “dwelling unit” includes a house, apartment, condominium, mobile home, boat, or similar property, which provides basic living accommodations such as sleeping space, toilet, and cooking facilities. All structures and other property appurtenant to a dwelling unit which do not themselves constitute dwelling units are considered part of the unit.” Q4: Several years ago the IRS issued a Revenue Procedure providing for a simplified method of calculating the home office deduction – allowing a taxpayer to deduct a prescribed rate of $5 per square foot. Find and cite that Revenue Procedure. I4: https://www.irs.gov/businesses/small-businesses-self-employed/faqs-simplified-method-for-home-office-deduction AND https://www.irs.gov/irb/2013-06_IRB#RP-2013-13 A4: Internal Revenue Bulletin: 2013-6 February 4, 2013 sets the simplified method at $5 per square foot up to 300 square feet max. Rev. Proc. 2013-13, 2013-6 IRB 478 -- IRC Sec(s). 280A, 01/15/2013. Revenue Procedures (1955 - Present) (RIA). https://www.irs.gov/irb/2013-06_IRB#RP-2013-13 Rev. Proc. 2013-13: This is Revenue Procedure 13, published in the year 2013. 2013-6 IRB: This means the document was published in the 6th issue of the Internal Revenue Bulletin in the year 2013. 478: This is the starting page number for Revenue Procedure 2013-13 within that issue of the IRB. Q5: George is a police officer employed by the city. He made an arrangement with the manager of a large apartment complex to receive a rent-free apartment. In exchange, George agreed to live in the apartment and patrol the grounds of the apartment complex when he was not on his regular police duty, and be available for emergencies. All the tenants of the apartment complex were given George’s number so he could immediately respond should any emergencies arise. George probably spends at least 15 hours a week fulfilling his security duties at the apartment complex. Does George have taxable income equal to the value of the apartment or is the value of his housing excluded under IRC § 119? Provide your answer in complete sentences and cite the primary authority upon which you are relying. I5: providing services for rent free living - what is taxable and under what primary source. A5: Under 61(a)(1) gross income means all income from whatever source derived, including compensation for services, e.g. security guard services - and “compensation” includes e.g. non-cash compensation. A5: IRC § 119 Meals or lodging furnished for the convenience of the employer. There shall be excluded from gross income of an employee the value of any meals or lodging furnished to him, his spouse, or any of his dependents by or on behalf of his employer for the convenience of the employer, but only if— 119(a)(2) in the case of lodging, the employee is required to accept such lodging on the business premises of his employer as a condition of his employment. Under the “convenience of the employer” test, the primary reason for providing the meals or lodging must be to benefit the employer, i.e., to enable the employee to do his job. It appears that is the case here and therefore the rental value of the residence is likely not included as income in the hands of the police officer. ****************** ******************** Module 5 lecture notes: See Jack’s Judicial Jargon below for notes on below cases. Chapter 11 - IRC 121 only. Chapter 12 1. Lucas v Earl 2. Giannini 3. Horst 4. BlaiIR 5. Salvatorie Chapter 13 1. Culberstson 2. Overton 3. Clifford 4. Borge 5. Read Ch12 pp. 258-263. See Jack’s Judicial Jargon below for notes on above cases. ******************** Module 6 - notes from textbook: SEE summary of Chapter 5 of Federal Tax Research, 13th Edition AT BOTTOM. Module 6 - my lecture notes: If you have a new tax provision and want to understand what the starting point is - If you are dealing with new legislation you can do legislative history research by clicking on history then get the Public Law number and then look up the Pub Law using citation search. At code page using section number and open up the committee report for the change in the law. That comm. Report is the place to start when trying to understand a new law change. Go into a code section then hit FTC button or WGL treatises - even more detail. Time and place to use handbook, or coordinator, or treatises. Depends on how deep you need to go. Start off basic and expand from there. Tax law comes from Legislative branch Executive (administrative) branch Judicial branch How do we get to the point where we have a tax case? A tax case arises where a taxpayer disagrees with the IRS or vice versa. Taxpayer voluntarily files a return but must stick with the rules. If IRS audits and there is a deficiency the first thing that happens is the statutory notice of deficiency letter - you have a 90 window to go to tax court - you can 1)pay 2) negotiate with IRS or 3) file petition with the tax court. The other courts you have to pay and then get a refund. But tax court you have 90 days and do not have to pay until decided. Different timing and procedure for tax court. Must use the term PETITION that is tied by the PETITIONER (taxpayer) IRS is never the petitioner - the taxpayer or IRS could be an appelant though. In a tax court case the IRS is the RESPONDENT (ALWAYS). Why would someone choose to go to tax court instead of another court? If a case is complicated then a tax court judge is a better option for the taxpayer. The judge is the “tryer of fact” and the tax court judges will be good at handling complex facts. ALSO tax court gets you in quickly. A TAX COMPLIANCE OFFICER or REVENUE AGENT can “blow” the statute of limitations and the case will get dropped (normal timeframe is 2 or 3 years?). need to bring evidence and there are rules of evidence. Also a federal district judge has a busy calendar etc. the tax court is staffed up and ready to go always. For complex cases or where it is necessary the IRS lawyers will give a taxpayer more time and extend the status of limitations. It is very much a judgement call. Downside is tax court is expensive(?). Is the tax court judge decision binding? NO, there is court of appeal - but the tax court is a national court - so an appeal from the tax court would lie in the circuit of where the taxpayer resides - in california all appeals go the the 9th circuit - another big one is 2nd circuit which is New York - also 10th Texas. And DC court of appeals - DC has its own district court. . In california there are 4 district courts. Every state has at least one district court. Louisiana has three district courts. So the numbers in brackets behind citations are important to identify the court and year. COMI mentioned a CHEAT SHEET(?). RIA citations are not necessarily correct. But you can construct a correct citation from any case in RIA. Which is reported in the AFTR = american federal tax reporter. AFTR 2nd. AFTR 3rd. Know which AFTR. If it’s not RIA, then it could be CCH. It has its own set of reporters. Fed. Supp = Federal supplement cases. WHHAT ARE THESE - federal district court judges handle all cases not just tax. You have right to a JURY in federal district court. F = federal appellate court cases. Supreme Court = four different reporters? JURY Court of Federal claims - third trial court you can go to with tax dispute. JURY TRIAL. Tax court is always taxpayer vs commissioner. But when seeking a refund that is considered a claim against federal govt is US (not commissioner).. so the citation is taxpayer vs US or US vs taxpayer. Civil cases in tax court and appeals are always initiated by the taxpayer. Plaintiff is taxpayer. Defendant is govt. taxpayer has to carry the “burden of proof” when they petition. A unique aspect of trial court as opposed to appellate court is facts have to be introduced with EVIDENCE.txpayer needs to prove the position they took in their return. If a taxpayer fails the burden of proof then it has no precendiary value = cannot use this case and apply to other taxpayers. Because the case never “reached the merits”. Whether or not a case sets case law turns on whether or not the “merits were reached”. Eg a plaintiff taxpayer could not prove that a casualty loss happened in an insurance case. Order of fighting back: 1. Tax court 2. Most attractive aspect of district court is the JURY. 3. Federal claims court in DC (national court) - if the court o fed claims has precedent for your specific case then you should file there, even though it’s more expensive. 1st to 11th circuits of jurisdictional courts. There is also a DC district court and its own circuit court of appeals. And then the federal court of appeals has its own appeals court in DC. Supreme Court doesn’t normally rule on tax cases. Tax disputes end before the Supreme Court. Only case of note is Solomon who won then lost and the law ended up getting changed. Principal place of business question under 280 (c)(1)(A). The Supreme Court announced a new test. Have to show by facts and circumstances that it is used as your principal place of business. The case law all starts with the statue. Supreme Court rules on this because they were sick and tired of lower courts applying different interpretations and setting “weak precedent”. To get to Supreme Court you need to file writ of cert. if you get the writ then you can file. Long story short most. Tax court summary cases. We should not cite these. It will be in citation. Only picked up by the publishers like RIA - there will be a header that says “may not be cited as precedent”. The amount is below $50,000 and you may not appeal and cannot set precedent. Summary opinion is like a PLRuling. but they are still worth looking at even though we cannot rely on them directly. also do not cite IRS publications. Can public law be cited as precedent? YES, they are acts of law. Approved by both houses and the president. Don’t get cited often though. But unless citing a public law is tied with a committee report an its recent then rather just cite the IRC section. Cite the code note the ACT. Golsen rule - why relevant? Tax court will apply the law of the circuit court where an appeal would lie. Hit the buttons embedded in the RIA to see explanations and history etc - there is a lot of expert analysis out there. In our memos in this class you are reporting the authority that you have found and applying that authority to the facts of your case - if the facts are closely aligned enough then can rely on other cases for precedent. Cases can turn on actual difference but they can also turn RESEARCH MEMO First memo is a heavily fact intensive memo. And are can easily be for or against. But you have to find all the facts - and show how the facts are the same or different. Need to deicde on deductibility based on the law. Reporting findings only. This is not opinion. And write everything in the third person. It is NOT AN OPINION. RIA memo series is AFTR - if you pick the AFTR as the reporter then stick with that reporter for all cases in the research memo. Don’t mix AFTR with TCM. ******** HOW THE LAW WORKS - FROM COMI TEXTBOOK: Primary Sources of Federal Tax Law • Chapter 3: Constitutional and Legislative Sources • Chapter 4: Administrative Regulations and Rulings • Chapter 5: Judicial Interpretations  Chapter 3: Constitutional and Legislative Sources Chapter 3 of Federal Tax Research, 13th Edition examines the constitutional and legislative origins of federal tax law, including the Sixteenth Amendment and the legislative process. The chapter details the Internal Revenue Code (IRC) as the primary authority, covering its organization, interpretation, and citation, and discusses related topics such as tax treaties and the history of U.S. taxation Elaborate on the role of committee reports in interpreting the IRC In federal tax research, committee reports play a crucial role as part of a law's legislative history, offering insights into Congress's intent when the law was written. While not the law itself, they are a primary source for interpreting ambiguous or unclear language in the Internal Revenue Code (IRC). What committee reports are When a new tax bill is proposed in Congress, it is reviewed and developed by specific committees. These committees issue reports that accompany the bill as it moves through the legislative process. The most relevant reports are produced by the following: House Ways and Means Committee: When a tax bill is introduced, this report explains the committee's rationale and proposed changes. Senate Finance Committee: As the Senate considers the bill, this committee publishes a report detailing any changes it recommends to the House version. Joint Conference Committee: If the House and Senate versions of the bill differ, a conference committee composed of members from both chambers issues a report to reconcile the two. Conference reports are considered highly authoritative because they represent the final congressional position before a bill is sent to the president. How committee reports are used in interpretation Tax professionals, the IRS, and courts use committee reports to interpret the IRC, especially when the statutory language is not explicit. This interpretive process becomes necessary in situations where the IRC is: Ambiguous or unclear: If the wording of a tax law is open to multiple interpretations, researchers turn to committee reports to understand the intended meaning. Silent on an issue: When the IRC does not explicitly address a particular circumstance, reports can indicate how Congress intended the law to apply. New or without judicial history: In the absence of court decisions or Treasury Regulations, committee reports are often the best initial source for understanding congressional intent. Key information within a committee report These reports typically contain several sections that are vital for interpretation: Reason for the bill: A general explanation of why the legislation is being proposed. Detailed section-by-section analysis: A breakdown of specific parts of the bill, explaining how they are intended to function. Legislative changes: An explanation of how the new law amends or repeals existing statutes. Distinction from Joint Committee on Taxation reports It is important to differentiate between standard committee reports and post-enactment explanations published by the Joint Committee on Taxation (JCT). Official reports: The House Ways and Means, Senate Finance, and Conference committee reports are part of the official legislative history and directly reflect congressional intent at the time of the law's passage. JCT "Bluebooks": These are explanations of tax legislation prepared after a bill has become law. They are highly respected but are technically not part of the legislative history because they are created after the fact. The impact of Loper Bright The Supreme Court's 2024 decision in Loper Bright Enterprises v. Raimondo significantly changed the landscape for administrative agencies, including the IRS. The ruling overturned the Chevron doctrine, which previously required courts to defer to an agency's reasonable interpretation of an ambiguous statute. This change has several implications for the use of committee reports: Increased judicial scrutiny: Courts will now scrutinize IRS regulations more rigorously and can determine the "best" interpretation of a statute themselves, rather than deferring to the agency. Greater focus on legislative history: With less deference given to agency interpretations, courts may rely more heavily on traditional tools of statutory interpretation, including committee reports, to determine congressional intent. Potential for more challenges: Taxpayers may now have more success challenging IRS regulations if they can provide a compelling argument for a different interpretation, potentially using legislative history to support their case. Revenue rulings provide the official interpretation of tax law as it applies to specific facts, while revenue procedures offer detailed instructions on how taxpayers must comply with the law. The two documents serve different purposes but are both published in the Internal Revenue Bulletin to offer public guidance.  Comparison of revenue rulings vs. revenue procedures  Characteristic Revenue Ruling Revenue Procedure Purpose States the official IRS position on how a law, treaty, or regulation applies to a specific set of facts. Explains the procedural steps, guidelines, or instructions for taxpayers to follow to comply with a given law or IRS position. Focus Substantive tax law. IRS practices and procedures. Content The ruling explains the IRS's legal conclusion based on a particular scenario. The procedure provides operational details, such as how to file a form or calculate an expense. Example Scenario A taxpayer exchanges services instead of cash. Revenue Ruling 79–24 explains that if a housepainter paints a lawyer's house in exchange for legal services, the fair market value of the services received is considered taxable income. A taxpayer uses the standard mileage deduction. A revenue procedure might provide the specific, annually updated mileage rates that taxpayers can use to compute their deductible automobile expenses, rather than calculating actual operating costs. Example Scenario A homeowner's association has excess income. Revenue Ruling 70-604 provides that a homeowners' association can avoid paying taxes on excess membership income if it returns the excess funds to its members or carries it forward to the following tax year. A taxpayer needs an extension to file. Annual revenue procedures provide instructions and deadlines for taxpayers requesting an extension of time to file certain returns. Regulations issued by the U.S. Treasury Department are a primary source of tax law and a critical component of tax research. As the official interpretations of the Internal Revenue Code (IRC), they explain and expand upon the law passed by Congress. Regulations are used by tax professionals for the following purposes: Interpreting ambiguous statutes. When a section of the IRC is vague or unclear, the regulations provide the Treasury Department's official interpretation of the law. This helps taxpayers and practitioners understand how the IRS will apply a particular statute. Compliance guidance. Regulations give specific directions on how to comply with the tax law. They translate the often complex and general language of the IRC into practical rules for taxpayers to follow. Legal authority. In the hierarchy of tax law sources, regulations are considered the highest administrative authority, behind only the IRC itself and tax treaties. Final and temporary regulations have the force of law and are binding on the IRS and the courts unless they are found to be invalid. Identifying IRS position. Because they reflect the official IRS and Treasury position on a particular tax issue, regulations are used by researchers to determine how the government views a transaction or set of facts. Planning and advice. Tax professionals use regulations to advise clients on how to structure transactions or comply with a complex area of tax law. The regulations help them to understand the tax consequences of a client's actions. Litigation. When a tax dispute goes to court, regulations are a key piece of evidence. The court will determine if the IRS and the taxpayer have followed the rules set forth in the regulations. A court will generally defer to a regulation unless it is found to be unreasonable or contrary to congressional intent. Supporting tax positions. Regulations can be cited as "substantial authority" to justify a tax return position and avoid penalties for underpayment, even in their proposed form. Different types of regulations The weight and use of regulations in tax research depend on their status: Proposed Regulations: These are draft regulations issued for public comment and generally do not have the force of law. However, they are useful for indicating the IRS's direction on a new or complex issue and can be cited as "substantial authority". Temporary Regulations: These are effective immediately upon publication and provide urgent, immediate guidance. They have the force of law but expire automatically within three years. They are often issued simultaneously with proposed regulations. Final Regulations: These are permanent and legally binding interpretations of the IRC. They are issued after public comments on a proposed version have been considered and carry the full force of the law. Legislative Regulations: These are issued when Congress explicitly delegates authority to the Treasury to create specific rules for a Code section. They have a high degree of legal authority and carry great weight in court. Interpretive Regulations: These are issued under the Treasury's general authority to interpret the tax laws. They explain existing law but are still given deference by the courts. Chapter 4: Administrative Regulations and Rulings This chapter examines administrative regulations and rulings from the U.S. Treasury Department and IRS, positioning them as essential secondary sources for interpreting the Internal Revenue Code. The chapter details various administrative pronouncements, including Treasury Regulations, Revenue Rulings, Revenue Procedures, and publications like the Internal Revenue Bulletin, explaining their authority, purpose, and application in tax research. Elaborate on the different types of Treasury Regulations and their authority Treasury Regulations, which interpret and clarify the Internal Revenue Code (IRC), are issued under the authority of the Treasury Department. They are categorized by type, which affects their authority: Legislative Regulations: Authority: Carry the highest level of judicial deference because they are issued based on a specific directive from Congress granting the IRS the authority to make rules for a particular area. They are difficult to challenge. Interpretive Regulations: Authority: Issued under the Treasury's general authority to interpret the IRC, granted by IRC § 7805(a). They are given less judicial deference than legislative regulations but are followed if they reflect congressional intent. They can be challenged if they are deemed contrary to the IRC or exceed the Treasury's rulemaking power. Procedural Regulations: Authority: Address procedural matters like filing returns or making elections. Generally considered binding. Treasury Regulations also go through different stages in their issuance: Proposed Regulations: Published for public comment but are generally not binding. Temporary Regulations: Provide immediate guidance, are effective upon publication, and have the same authority as final regulations. Those issued after November 20, 1988, expire within three years if not finalized, but must be accompanied by a proposed regulation. Final Regulations: Of a continuing and permanent nature and carry the highest authority issued by the Treasury Department. Final and temporary regulations are first published as Treasury Decisions (T.D.) and include a preamble explaining the rule and its purpose. Upon codification, regulations are assigned a prefix, the relevant IRC section, and internal organizational numbers. They are codified in Title 26 of the Code of Federal Regulations (CFR). Where can I find Revenue Rulings and Procedures? Revenue Rulings and Revenue Procedures are primarily published by the IRS in the weekly Internal Revenue Bulletin (IRB). This is the authoritative, official source. The bulletins are later consolidated semiannually into the Cumulative Bulletin (CB). In addition to the official IRS publications, you can find Revenue Rulings and Procedures through these other sources: The IRS Website: The official IRS website provides an archive of IRBs, with issues available in HTML and PDF formats. Professional Tax Research Services: If you are a tax professional, you can access these documents through subscription-based services that include advanced search functions, editorial analysis, and citator tools. Some of the main services are: RIA Checkpoint CCH AnswerConnect Bloomberg Law Westlaw Lexis Law Libraries and Legal Databases: Many university and law school libraries provide access to legal databases that contain comprehensive collections of IRS guidance, often extending back several decades. Government Publishing Office (GovInfo): You can access historical Cumulative Bulletins through GovInfo, which maintains an archive of older government publications. Treasury Regulations and Revenue Rulings are both administrative documents that provide guidance on tax law, but they differ in their authority, purpose, and how they are issued. Treasury Regulations Authority: Treasury Regulations represent the highest administrative authority issued by the Treasury Department. Final and temporary regulations have the force of law. Purpose: Regulations interpret and expand upon the Internal Revenue Code (IRC) and provide directions on complying with the law. They can provide guidance on new legislation or address issues related to existing IRC sections. Issuance: They are issued by the Treasury Department, which has been delegated rule-making authority by Congress. Regulations are typically published first in proposed form, allowing for public comment, before being issued as final or temporary regulations. Temporary regulations go into effect immediately but generally expire within three years. Revenue Rulings Authority: Revenue Rulings are less authoritative than Treasury Regulations. They do have precedential value for others in similar circumstances. Purpose: A Revenue Ruling is an official interpretation by the IRS of how the law (including the IRC, related statutes, tax treaties, and regulations) applies to a specific set of facts. They are published for the information and guidance of taxpayers, IRS personnel, and tax professionals. Issuance: They are issued by the IRS and published in the Internal Revenue Bulletin. Revenue Rulings foster uniformity and help taxpayers understand their obligations. Chapter 5: Judicial Interpretations  My summary of Chapter 5 of Federal Tax Research, 13th Edition - this chapter focuses on the judicial interpretations of tax law, explaining how court decisions act as primary authority in the tax research process. It provides an overview of the federal court system, the different types of judicial decisions, and the legal concepts involved. The federal court system - the chapter examines the structure of the federal court system and how it applies to federal tax disputes. There are three trial-level courts where a tax case can originate: ◦ U.S. Tax Court: This national court hears only federal tax cases. Taxpayers can petition the Tax Court within 90 days of receiving a notice of deficiency without paying the disputed tax first. A jury trial is not available. The court issues two types of decisions: ◦ Regular decisions: Involving new or unusual points of law. ◦ Memorandum decisions: Applying existing law to specific facts. ◦ U.S. District Courts: These courts have jurisdiction over federal tax cases, as well as many other types of federal cases. A taxpayer must pay the disputed tax and then sue the government for a refund. A significant feature is the availability of a jury trial, which some taxpayers may prefer for arguing emotional or sympathetic issues. ◦ U.S. Court of Federal Claims: Like the District Courts, this national court requires the taxpayer to pay the disputed tax and sue for a refund. The court's jurisdiction extends beyond tax matters to include other claims against the U.S. government. Appellate courts and the Supreme Court - the chapter outlines the path of appeals from the trial courts: ◦ U.S. Courts of Appeals: Tax Court and District Court decisions are appealed to one of the 13 U.S. Courts of Appeals, depending on the taxpayer's geographic location. The Tax Court follows the Golsen Rule, which states that it must follow a precedent set by the Circuit Court of Appeals that has jurisdiction over the taxpayer's case. ◦ U.S. Supreme Court: This is the highest court in the federal judiciary. It hears only a small number of tax cases each year, typically those involving a conflict among the Circuit Courts. Importance of citators ◦ A key takeaway from the chapter is the use of citators in tax research. Citators are essential for determining the subsequent history and validity of a judicial decision, IRS ruling, or regulation. This process helps researchers ensure that the legal authority they are relying on is still good law. Popular citator services mentioned include Bloomberg Law, Westlaw's KeyCite, and LexisNexis's Shepard's. Overall tax research process ◦ While focusing on judicial authority, Chapter 5 reinforces its role within the broader tax research process. It emphasizes that judicial interpretations, along with statutory and administrative authorities, are all primary authorities. It is crucial for a tax researcher to: ◦ Understand the client's facts. ◦ Identify the specific tax issues. ◦ Locate the relevant authority, including judicial decisions. ◦ Evaluate and analyze the authority. ◦ Develop conclusions supported by the primary authority. In law, nonacquiescence is the intentional failure by one branch of the government to comply with the decision of another to some degree An Action on Decision (AOD) is a formal memorandum prepared by the IRS Office of Chief Counsel that announces the future litigation position the IRS will take with regard to the court decision addressed by the AOD. Here is an example: You have found a court decision that is directly on point (favorably) with an issue that your client has under audit with the IRS. However, the IRS has issued a nonacquiescence to that decision. What effect may that nonacquiescence have on your decision to continue fighting the issue with the IRS? - you would continue to pursue your case! Treasury Regulations are actually issued by the IRS -> The Internal Revenue Service, which is part of the U.S. Treasury Department, issues regulations as part of its responsibility for administering the income tax laws passed by Congress. The IRS’s official interpretation of the Internal Revenue Code is found in the Treasury Regulations. Regulations are issued in the form of a "Treasury Decision," which can be found by its "TD" number. The Treasury Decision is somewhat like an introduction (and history) to a Regulation, and is often called the "Preamble," since it contains an introductory explanation to the Regulation. The Treasury Decision number can always be found at the very end of a Regulation. Reading the Preamble can be very helpful in understanding the purpose for a regulation, and in determining any changes between a proposed regulation and its final version. A TREAS DECISION (TD) is the process by which a Regulation is issued. Congress has authorized the Treasury Department, and hence the Internal Revenue Service (which is part of the Treasury Department), to prescribe rules and regulations necessary to administer and enforce the Internal Revenue Code. See IRC § 7805(a). Thus, Regulations and other rulings of the IRS must be followed. In the citation Treas. Reg. § 1.162-21, the researcher knows that this Regulation deals with IRC code section 162. The number after the period in a regulation always indicates the Internal Revenue Code section that this regulation is interpreting. The number after the dash is just a numerical list of the different regulations issued under this Code section. Thus, there are at least 21 regulations issued under Code Section 162. Prior to 1943, the U.S. Tax Court was called the Board of Tax Appeals. Tax Court judges are NOT political appointees. Even though the US Tax Court does not have a jury it IS a trial-level court. If no agreement is reached between the taxpayer and the IRS after an audit of the taxpayer's return, the taxpayer can pursue his or her case in the court system. However, all cases must start at a trial-level court – that is the U.S. Tax Court or a U.S. District Court. What are the various trial courts available for federal tax cases? What are the differences in taking a taxpayer’s case to these different courts? When/why would you choose U.S. District court over U.S. Tax Court? Trial Courts (District Courts): This is the first level where cases begin. Appellate Courts (Courts of Appeals): These courts review the decisions from the district courts. Supreme Court: The highest court in the U.S., which hears appeals from the courts of appeals. ******** ******** ********************** What are official cites? -> CITATION FORMATS JUDICIAL AUTHORITY U.S. Supreme Court: Official: Commissioner v. Indianapolis Power & Light, 493 U.S. 203 (1990) RIA: Commissioner v. Indianapolis Power & Light, 65 AFTR 2d 90-394 (USSC 1990) CCH: Commissioner v. Indianapolis Power & Light, 90-1 USTC ¶ 50,007 (USSC 1990) West: Commissioner v. Indianapolis Power & Light, 110 S. Ct. 589 (1990) U.S. Courts of Appeal: Official/West: Oxford Capital Corp. v. U.S., 211 F.3d 280 (5th Cir. 2000) or (CA-5 2000) RIA: Oxford Capital Corp. v. U.S., 85 AFTR 2d 2000-1840 (5th Cir. 2000) or (CA-5 2000) CCH: Oxford Capital Corp. v. U.S., 2000-1 USTC ¶ 50,447 (5th Cir. 2000) or (CA-5 2000) Note: U.S. Federal Circuit Court of Appeal would have the same citations as any Court of Appeal, with the parenthetical showing “Fed. Cir.” and the year. U.S. District Court Official/West: Barber v. U.S., 85 F. Supp.2d 967 (N.D.CA 2000) RIA: Barber v. U.S., 85 AFTR 2d 2000-879 (N.D. CA 2000) CCH: Barber v. U.S., 2000-1 USTC ¶ 50,209 (N.D. CA 2000) U.S. Court of Federal Claims RIA: First Nationwide Bank v. U.S., 88 AFTR 2d 2001-7178 (Ct. Fed. Cl. 2001) CCH: First Nationwide Bank v. U.S., 2001-2 USTC ¶ 50,544(Ct. Fed. Cl. 2001) West: First Nationwide Bank v. U.S., 49 Fed. Cl. 750 (2001) Tax Court Regular Official: Hillman v. Commissioner, 114 T.C. 103 (2000). <<— 114 is the VOLUME; 103 is the PAGE where the case starts. Only difference to RIA is RIA also adds the code section before the date. e.g. 280A. Note that none of these is the docket number for the case. Tax Court Memorandum RIA: Fields v. Commissioner, T.C. Memo 2002-320 CCH: Fields v. Commissioner, 84 T.C.M. 710 (2002) Board of Tax Appeals Official: DeLong v. Commissioner, 43 B.T.A. 1185 (1941) The Federal Reporter publishes decisions from the United States Court of Appeals. The Federal Reporter consists of three series: F., F.2d., and F.3d Mason, Carl B. v. U.S., (1957, DC HI) 52 AFTR 1593 >. Mason v. United States. U.S. Dist. Hawaii (1957) Haines, C. William, (1979) 71 TC 644  William Haines, et ux. v. Commissioner, 71 T.C. 644 (1979). > Haines v. Commissioner, 71 T.C. 644 (1979). Et ux means and wife. When looking up cases in RIA note that Headnote discussion at top is the RIA editors wording and is a brief summary of the holding of the case Some case have an “official tax court syllabus section” - this is also a summary of the case (presuamby written by the court itself(?). 1. US Supreme Court case show as “US”. So the citation is volume, US, page number. Case starts on that page. And then the year of the decision in brackets at end of citation. (Not the year of the tax return in question, it is the year the court decided). 2. Tax court citation => Volume TC page number (year of decision) - Tax Court MEMO case is different to Tax Court regular case. TAX COURT MEMO CASES are tax court cases. After a tax court case has been decided then the judge decides whether the case covers previously settled law in which case the case gets called MEMO because it is just the same as prior cases. If a case decides a new issue then it will be regular (not memo 0 and there can be full panel of judges deciding and lots of writings attached to the decision. Tax memo is easy legal cases. Factual differences don’t mean new law if you are applying the law as its alwas been applied. MEMO cases don’t have an offical citation(!!!). but RIA and CCH picks them up and makes then TCM Tax court Meorandums (black books with gold lettering). TCM is not jurisdiction so only need the year and the volume. RIA reporter is called TCM = Tax Court Memo. TCM digits and then year. TCM = Tax Court Memo -> reported by RIA. 3. Court of appeals citation =>. F. Series. F. 2nd. Or F. Third. 4. If official F Sup. For federal reporter must include the circuit - DC circuit or Federal circuit. Plus year in brackets. 1. If not official then AFTR reporter will have published the dedication. District court. D. MD. means district court Maryland. For all F Sup (Fed district court) cases - you need to identify the state. Remember in california there are 4 so need to know which Califnoria district court. Use same citations throughout. 5. DC court of appeal or fed court of appeal just show that court and the year of the decision. 6. Supreeme court is US 1. If RIA it is AFTR - they report the Supreme Court cases. So have to say (USSC) and year in bracket. 2. For CCH - the reporter is “US Tax Cases” (USTC is not same as Tax Court). Digits before USTC are volume. After UTSC is page number. Then ID whether district court or appelate court and the year in brackets. includes supreme court cases. Tax court cases are not included, as they are published in CCH’s “Tax Court Reporter” and RIA’s Tax Court Reports. 3. S.Ct. -> westlaw citation. Volume. S.Ct. page. Year of decision. We do not use. But can use citation and look up in RIA using citation search. The self assessment questions in module 6 show how the MIDTERM question will look. Prop. Reg. = proposed reg. —— Final regs just have 1……. In module 8 will cover reasons and form when writing a memo. Not just sumarizeing case law when we write the RESEARCH MEMO. DICTA = not the legal part of a case. It iswritings from the judge that were consideration in the case that may hav bearing on future cases. COMI’s part if 20 questions multiple choice and its just like the self assessment exercises. That means Barcals part is 50 questions half of which are “matching”. CITATION FORMS: LEGISLATIVE AND ADMINISTRATIVE AUTHORITIES Internal Revenue Code 1st: Section 1031 of the Internal Revenue Code of 1986, as amended (the “IRC”) Thereafter: IRC § 1031 Treasury Regulations Final: Treas. Reg. § 1.761-1 Temporary: Treas. Reg. § 1.469-4T Proposed: Prop. Reg. § 1.117-6 Revenue Rulings Temporary: Rev. Rul. 2005-7, 2005-9 I.R.B. 712 Permanent: Rev. Rul. 2005-7, 2005-1 C.B. 712* Revenue Procedures Temporary: Rev. Proc. 2004-22, 2004-15 I.R.B. 727 Permanent: Rev. Proc. 2004-22, 2004-1 C.B. 727 -> The IRS ceased publication of the Cumulative Bulletin with the 2008-2 edition.  Thereafter, only the “Temporary” citation is used to cite Revenue Rulings and Revenue Procedures. Private Letter Rulings /Technical Advice Memos PLR 200422059 TAM 200631029 COMI: PRIMARY SOURCES CITATION FORMAT: IRC —>> Section 1031 of the Internal Revenue Code of 1986, as amended Treasury regulations—commonly referred to as federal tax regulations—provide the official interpretation of the IRC by the U.S. Department of the Treasury and give directions to taxpayers on how to comply with IRC requirements —>> Treas. Reg. § 1.761-1 FOR A PROPOSED TREG: Prop. Reg. § 1.117-6 Revenue Rulings —>> Revenue Rulings are public administrative rulings by the Internal Revenue Service (IRS) that apply the law to particular factual situations or refer to issues not adequately addressed by the code, regulations, or case law. A revenue ruling can be relied upon as precedent by all taxpayers. Revenue rulings are published in the Internal Revenue Bulletin (IRB) which is available in CCH IntelliConnect, and RIA Checkpoint. Internal Revenue Bulletin (IRB) The Internal Revenue Bulletin (IRB) is the authoritative instrument for announcing official rulings and procedures of the IRS and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general interest. Revenue Rulings (temporary) —>> Rev. Rul. 2005-7, 2005-9 I.R.B. 712 Revenue Rulings (permanent) —>> Rev. Rul. 2005-7, 2005-1 C.B. 712* Revenue Procedures (temporary) —>> Rev. Proc. 2004-22, 2004-15 I.R.B. 727 Revenue Procedures (permanent) —>> Rev. Proc. 2004-22, 2004-1 C.B. 727 -> The IRS ceased publication of the Cumulative Bulletin with the 2008-2 edition.  Thereafter, only the “Temporary” citation is used to cite Revenue Rulings and Revenue Procedures. In the IRB this shows as “Rev. Proc. 2004–22, page 727” in the text and “Bulletin No. 2004-15” at the top. The Treasury Dept cites things like this: IRB 2005-27 as REV. RUL. 2005-38 IRB 2005-28 as REV. PROC. 2005-36 IRB 2005-32 as NOTICE 2005-56 IRB 2005-41 as ANNOUNCEMENT 2005-71 And each of the four above are normally followed by a release date in brackets. Specifically, TAX PROS need to rely on only: IRC, TREGS, RULINGS, CASE LAW, or OTHER PRIMARY SOURCES if they exist. Rev Rulings and Rev Procedures are two different sets of documents with diff search templates - BUT they sometimes have the same numbering system. 

All the IRB’s are here: https://www.irs.gov/downloads/irs-irbs COMI: Using RIA checkpoint: To search using only the FTC Analysis as a secondary source click on the plus button below “Save Set” and choose see pic. Click on FTC button to bring up not just FTC articles on the right but also the WG&L analyses if any using the drop down menu on right under Links. To look up a Tax Court case using the citation eg Hamacher was volume 94 page 348, need only those two numbers and enter in the citation search block for cases as below: 

Tax Court Memo lookup looks like this, just year and memo number (sequential memorandum decision number for that year (likely 3 digits): Also under citation search for cases - can search district court or Supreme Court or Tax Court or other courts by using the drop down menu under AFTR - American Federal Tax Reports see pic below: AFTR in the drop menu above shows you the set of books RIA developed to contain just the tax-related District Court, Circuit Court and Supreme Court cases. Can sometimes search the same case info two different ways eg: CITATOR is a tool that can be used to analyze whether there has been a change in the Law through APPEAL and new RESULT. 

JACK’S JUDICIAL JARGON - REVISED AND EXPANDED 

CASE LAW NOTES FOR ALL OF THE 554T RESEARCH COURSE Cases are all from the CHAPTERS in Fundamentals

Below are references to all the cases in module 1, 3, 5. ◦ DEDUCTIONS ◦ HOME OFFICE DED. - principal place of business ◦ Soliman case (97) changed the law from 1998 onwards. MODULE 1 covers the following cases in Ch2

CHAPTER 2 ◦ GROSS INCOME ◦ Cesarini ◦ Charley ◦ Dean ◦ Glenshaw Glass ◦ Helvering vs Independent Life ◦ Indianapolis Power and Light (where is this case in the Fed textbook?) ◦ Old Colony Trust 

CESARINI - GROSS INCOME INCLUDES MONEY FOUND IN A PIANO WHEN REDUCED TO UNDISPUTED POSSESSION OLD COLONY TRUST - EE HAS ADDITIONAL INCOME WHEN ER PAYS INCOME TAX FOR EE ON SALARY OF 978, 725 

IN 1918 GLENSHAW GLASS - PUNITIVE DAMAGES ARE INCOME TO T AS UNDENIABLE ACCESSIONS TO WEALTH, CLEARLY REALIZED CHARLEY - TRAVEL CREDITS TO T WERE INCOME. HE KEPT THE 300 DIFFERENCE BETWEEN 1ST CLASS 500 & COACH 200 

INDIANAPOLIS POWER - A SECURITY DEPOSIT IS NOT INCOME TO THE UTILITY, BUT IS LIKE A LOAN. 

INDEP LIFE INS CO - FMV OF BUILDING OCCUPIED BY OWNER IS NOT INCOME TO OWNER 

DEAN v. COMM - FMV OF USE OF RESIDENCE OWNED BY CORPORATION IS INCOME TO SHAREHOLDER 

MODULE 3 covers cases in CHAPTERS 3, 4, 6, 7, 8, 9. 

CHAPTER 3 ◦ EXCLUSIONS FROM INCOME ◦ Duberstein3 ◦ Stanton (part of Duberstein)3 ◦ Lyeth v. Hoey3 ◦ Wolder3 

DUBERSTEIN - A GIFT MUST PROCEED FROM A DETACHED AND DISINTERESTED GENEROSITY & IS DIFFICULT IN A BUSINESS CONTEXT. Supreme Court case where IRS won and Cadillac gift was considered income to Duberstein. Client gives a professional a gift of a Cadillac. Tax court rules for IRS. Appellate court rules for taxpayer. The court gives us 8 criteria for business overtones. Bring in these criteria 1) business context 2) moral obligation to make payment doesn’t mean its a gift 3) moral duty 4) in return for services, economic benefit, 5) proceeds from generosity 6) most critical is TRANSFERORS INTENTION (recipient will always say its a gift). Another related case here is STANTON - where the courts found that the receipt was non-taxable (supreme court sent it back to lower court to decide). Both of these two cases still exist today but the decisions seem to be in opposition. Church is a 501c3 so they don’t file tax returns. Court believe the church when they said this is a gift. Stanton was decided in 1942 during WW2 - probably won’t be same answer by Courts today. 

LYETH v. HOEY - COMPROMISE OF CLAIM BY HEIR IN WILL CONTEST IS NOT INCOME TO HEIR. A SETTLEMENT IN LIEU OF A TRIAL. HYPOTHETICALS ATTACHED TO THIS CASE: Grandfather gives $5m to the son. Under section 102 gifts, inheritance (generic term, each state has intestate laws deciding where assets go), bequest (“gift” once deceased), device is real property. The $5m is not taxable to the son because it is a bequest. If the grandfather leaves money to mistress and son sues to get it, AND HE WINS, then it is not taxable to the son because it is considered inheritance. Coming back to the case -> whenever there is a SETTLEMENT -> must ask what it was in lieu of and cite LYETH case. Eg a settlement could be in lieu of inheritance - so non taxable (court rules in favor of son and throws out the will which gives everything to mistress - in absence of will the money to son is simply an inheritance. If a State pays employees a gift of $5k per month, still taxable at federal level. Another Hypothetical: State law vs federal law not always the same. Remember that state’s have their own inheritance laws. Ubi Testamentum Ibi Here (where there is a will there is a way - where there is a will there is a greedy bene). Sometimes an heir is not considered as such e.g. step child gets different treatment. If the stepchild gets a payoff/settlement from the mistress (step child won’t sue her for the inheritance money) so that it is taxable because it is not in lieu of inheritance. REMEMBER: bequest come through a will or a trust - in absence of will or trust the payment is an inheritance. 

LYETH case -> Whenever you hear “in lieu of” or “settlement” almost certainly referring to LYETH v HOEY. WOLDER v. COMM - ATTORNEY WHO RECEIVES CASH BEQUEST UNDER WILL IN LIEU OF PAYMENT FOR SERVICES HAS INCOME. The issue is whether it is payment for services or not. The type of services do not matter? Remember that a dollar amount needs to be in proportion to the services rendered - wealthy neighbor mows his neighbors lawn for a large sum was the example the prof gave. 

EXCLUSIONS FROM INCOME ◦ Zarin (in Brightspace not in textbook) 

CHAPTER 4 ◦ EXCLUSIONS FROM INCOME ◦ Hatt v Comissioner4 HATT, HERBERT G - FMV OF FUNERAL HOME IS NOT INCOME TO EE REQUIRED TO LIVE ON PREMISES FOR CONVENIENCE OF ER - she was in 20’s he was in 40’s. She gives him stock in company and he is majority shareholder. Is the lodging excluded or included in his income? Section 119 - required by the employer, for convenience of employer and it is on property owned by the employer. If you are the employer (because you own more than 50% of the company) and the employee this won’t work and this will be income to the employee/taxpayer. 

CHAPTER 5 No case from chapter 5 is required but the one in there is McDonell vs Commissioner 

CHAPTER 6 DETERMINATION OF TAX BASIS: 

Philadelphia Park Amusement6 ◦ Farid-EsSultaneh6 PHILADELPHIA PARK AMUSEMENT - FMV OF STRAWBERRY BRIDGE GIVEN IS PRESUMED = TO FMV OF FRANCHISE RECEIVED IN EXCHANGE. Company builds a bridge in 1899 and deeds the bridge to the city in 1934. They get ten year extension on the amusement park.. 1946 bridge is abandoned. What is the cost basis of the ten year extension? IRS says basis is zero in 1946 because the taxpayer had a gain or loss in 1934. Taxpayers wants to get a carry over basis from bridge to franchise because it is impossible to value the bridge and value the amusement par too. The court said if you can value either of them in 1934 then there is no basis to carry forward. THE RULE from this case - the value of what is given is considered equal to the value of what is received. And that determines whether you have gain or loss at that time. Swapping the bridge for the franchise was the “realization event”. the court ruling found that the company could use the fair market value of the franchise extension as its cost basis for the depreciation deduction. Note that the taxpayer didnt own the bridge anymore in 1946. 

FARID-ES-SULTANEH - FUTURE W IN PRENUPTIAL AGREEMENT GETS BASIS IN PROPERTY RECEIVED = TO FMV OF SUPPORT RIGHTS SHE GAVE UP. She was 32 and he was 57. In 1923 she says she will release dowry and support rights. He had $375 million and $100 million in real estate. He was founder of KMart. So they married under prenuptial. He says he will give her stock under a prenup. The stock has 20 cents basis. They got divorced after five years. In 1938 she sells the stock and claims the basis was $290 (FMV at time of the gift). IRS says basis is 16 (20cents per share). She calcium her gain is $100-290. IRS says carry over basis is much bigger. Taxpayer wins the case and did not have to pay the bigger gain. Did she have gain when she got the stock when married? Revenue ruling 67-221 addresses this and says she did not have a gain in 1923 when she got married. Because she would have received the dowry and support payments under marriage so it would not have been taxable anyway. IRS 2014-21. Crypto is subject to income tax if using as a medium of exchange. Prof glossed over this. Section 1041 - husband gives money to wife there is no gain or loss. Section 1014. Husband dies. Son gets stock.. step up in basis to fair market value. LIFE INSURANCE - not taxable to the recipient. As of 817-06 if the buyer of the policy has no relationship to the insured then it is taxable. it is called VIATICAL insurance. Taxpayer buys annuity from insurance company - exclusion ratio is 60k/100k - ROC is the concept - return of capital (ROC). Invest 60k and get 100k back. 

CHAPTER 7: ENTIRE CHAPTER discusses exclusions from gross income, specifically focusing on life insurance proceeds and annuities. Life insurance proceeds paid due to the insured's death are generally excluded from the beneficiary's gross income, subject to exceptions like the transfer-for-value rule. For annuities, a tax-free portion of each payment is determined by an exclusion ratio, with the remainder being taxable.……

Chapter 7 focuses on business and investment expense deductions, detailing Internal Revenue Code provisions that permit taxpayers to reduce taxable income via expenses incurred in trade, business, or other profit-seeking ventures. The chapter explains the criteria for ordinary and necessary business expenses under IRC Section 162 and covers investment expenses deductible under IRC Section 212, which are related to income production, management, conservation, or maintenance of property held for income production. .……. 

CHAPTER 8 DISCHARGE OF INDEBTEDNESS: 

Kirby Lumber8 -> discharge of indebtedness = Gross Income. KIRBY LUMBER - BONDS REPURCHASED AT A PRICE LESS THAN ISSUE PRICE = INCOME TO CORP PURCHASER – FORGIVENESS OF DEBT. Purchase of the debt is considered income - straight forward.discharge of indebtedness is not income if…… 

ZARIN - SETTLEMENT OF A CONTESTED GAMBLING LIABILITY IS NOT INCOME FROM CANCELLATION OF INDEBTEDNESS. Zarin owes the casino $3.5m and settles by paying them $500k. IRS says $3m is income. Contested liability doctrine. Zarin says the real liability is only $500k. New Jersey has compulsive gambling statute so that taxpayer wins. Las Vegas case Watanabee owed $400 million to the casinos and claimed the amount was less - compulsive gambler statute! Contested liability refers to a situation where the defendant disputes responsibility for causing the plaintiff's injuries in a personal injury case. Instead of admitting fault, the defendant argues that they were not negligent, that someone else was to blame, or that the plaintiff was partially or entirely at fault. 

RR-2008 – 34 - DISCHARGE OF STUDENT LOAN UNDER LRAP (PUBLIC SERVICE WORK) IS NOT INC. – INCLUDES REFI LOAN. If you work for the city or a not for profit for ten years - and debt forgiven it is not taxable. AND IRS agreed this also applies to refinanced portion of a student loan!! Section 104a2 - damages for personal injury - car accident and T loses a leg. Court finds insurance payout non taxable because he suffered enough. T sues for emotional distress. Court said only if Tort. Congress and IRS changed the Law - 104a2 now says physical personal injury - needs to be proved. 

CHAPTER 9: ENTIRE CHAPTER(!) covers the scope of gross income, including income received without cash, along with various exclusions such as gifts, inheritances, and certain fringe benefits. It also addresses property transactions, including the taxation of gains, computation of basis, and realized gain, referencing principles from Crane v. Commissioner. …….……. 

MODULE 5 covers cases from CHAPTER 11, 12 and 13. CHAPTER 11 - IRC 121 only. NOT SURE OF THIS: likely focuses on inclusions and exclusions from gross income, the realization requirement for recognizing gains and losses, and the taxation and basis of gifts and inheritances. It may also discuss the policy and purpose behind these tax rules.…….……. 

CHAPTER 12 - Assignment of income. 

LUCAS v. EARL - FRUIT IS TAXABLE TO THE TREE EVEN WHERE Husband & Wife TRY TO AGREE THAT Husband’S SALARY IS TAXABLE ½ TO Wife. Fruit and the tree case. The tree is the husband. The fruit is the salary. FRUIT IS TAXABLE TO THE TREE EVEN WHERE Husband & Wife TRY TO AGREE THAT Husband’S SALARY IS TAXABLE ½ TO Wife. Income must be taxed to the individual that earns it(?) what is the partnership test from the Tower case? Think it says that to be a partnership there has to be a contribution of capital or services(?). 

GIANNINI - REFUSAL OF MONEY BY Taxpayer BANK PRESIDENT BEFORE IT WAS EARNED IS NOT INCOME TO Taxpayer - Board of Tax Appeals (now called…. Court?) rules for the taxpayer. He founded the precursor to Bank of America. Taxpayer didn’t send the money nor did he have the power to direct its use. He had an unqualified refusal of the property. Property which is renounced another be taxed. “HE DID NOT DIRECT IT’S DISPOSITION”. The only was never beneficially received. Going forward -> you have to renounce the money IN ADVANCE. 

HORST v. HELVERING - DONOR HAS INCOME FROM GIFTED BOND COUPONS WHEN HE RETAINS THE BOND ITSELF - SO THE FATHER PAYS THE TAX BECAUSE HE RETAINS CONTROL OF THE BONDS - assignment of income case. Father gave bond coupons to the son. If T sets up a trust then he is still taxed on the income, because he still has discretion on where the income is assigned. For those who earn or otherwise create the right to receive income or enjoy the income. They mention fruit of the tree. The father gets taxed no matter how many years of coupons he gives away, if the father holds onto the bond then he pays the tax on the coupon interest. The tree is the bond. If it can be proven that the father has relinquished control of the bond then maybe the son will pay the tax on the coupons. 

BLAIR - Taxpayer NOT TAXABLE ON INCOME FROM TRUST HE ASSIGNED TO HIS KIDS. Taxpayer DOES NOT OWN ANY CORPUS. Corpus is a trust’s total capital. Taxpayer owned income from a trust interest and assigned it entirely to his children. Supreme Court question - is the assignment valid for federal taxes? The IRS argument was only the income was assigned not the interest in the trust itself. Supreme Court argued against that and decided the recipients (children) were to be taxed on the income from the trust. 

SALVATORE, SUSIE - GAS STATION SALE TAXABLE TO Taxpayer WHO ASSIGNED TO HER KIDS AFTER THE SALE CONTRACT WAS SIGNED. The question is whether the petitioner is taxable on all or half of the gain from sale of the property. Her and husband owned the property 50/50 but the husband died. After he died she sold the property, but then she back-dated a gift (deed) of 50% of the property to her sons, ostensibly to reduce her tax liability. What is Burnett v Leniger that is cited in the Lucas v Earl case. Note that the Commissioner at the time was named Earl - used to be cases in the IRS Commissioner’s own name. So refer to that case as Lucas (NOT EARL). 

CHAPTER 13 

CORLISS v. BOWERS - TRUST IN WHICH T RETAINED THE POWER TO ALTER IT IN ANY WAY IS TAXABLE TO T. Grantor transfer $1m to trustee and provides income to bene for life. Principal can be used for B’s health. Remainder goes to B’s kids. And always ask who holds the power over the trust. Who pays the tax? grantor, trust, bene’s, trustee, kids, power holder? Court held the grantor is taxable on the trust income because he held he power to control the trust. 

MORRILL - TRUST WHICH PAID FOR KIDS TUITION WHICH T WAS OBLIGATED TO PAY FOR IS TAXABLE TO T CLIFFORD - 5 YEAR TRUST TAXED TO T EVEN IF IRREVOCABLE BECAUSE T RETAINED A BUNDLE OF RIGHTS = TO CONTROL. 

Helvering vs Clifford - Clifford Trust rules - if the trust exists for ten years and one day then the grantor is not taxable. In 1986 the law changed and the trust must now exist for 34 years. Income to beneficiary is taxable to bene if they receive income from the trust for 34 years or more. 

CULBERTSON - EXISTENCE OF PARTNERSHIP DEPENDS ON FACTS & CIRCUMSTANCES INCLUDING FAIR RETURN TO CAPITAL & SERVICES. Trial Court went for the IRS. Appellate Court for the taxpayer. Culbertson sold one half of the interest to the four sons, two days later the sons gave the father a note for what they owed him. Some of the boys worked on the ranch for a while and some did not. Reference to Tower Case - or a partnership to exist need vital services or capital. Court of Appeals reversed the decision and said that if a family partnership was entered into in good faith and without the intention of tax avoidance is sufficient to satisfy concept of partnership. Some boys contributed capital, some services, some contributed neither during the year, but they still got partnership treatment- different to the Tower case. The Appellate Court said are they really intending on carrying on the business themselves? They consider the conduct of the parties, their relationships etc. the court decided this case based on the GOOD INTENTIONS of the family. This is despite not provided capital or services. 

CULBERTSON - EXISTENCE OF PARTNERSHIP DEPENDS ON FACTS & CIRCUMSTANCES - INCLUDING FAIR RETURN TO CAPITAL & SERVICES - Commissioner of Internal Revenue v. Culbertson et ux. serves as a critical affirmation of the principles established in prior cases regarding the substance over form in partnership arrangements for tax purposes. The Supreme Court's decision underscores the necessity for active economic participation by all partners within a business, especially in familial contexts where the temptation to manipulate income distribution for tax benefits is prevalent. This judgment not only clarifies the requirements for partnership recognition under the Internal Revenue Code but also reinforces the foundational tax principle that income must be taxed to its true earners. Consequently, businesses and family partnerships must structure their agreements and operations to reflect genuine economic collaboration, ensuring compliance with tax obligations and avoiding unintended tax liabilities. The most critical part of the reason the taxpayers won this is because the Tower case didnt apply - the reason it didn’t apply is because they had bona fide business intentions - this was not a tax scheme. They had an incredibly strong business purpose. They wanted the strain of cattle to remain hence required that the herd be split between 5 people. VERY STRONG PEOPLE PURPOSE. 

OVERTON - Husband GIVES Wife B STOCK $1 LIQ VALUE, NO VOTE, $150/YR DIVIDEND. HELD ASSIGNMENT OF INCOME, NOT REAL STOCK - gift tax liability for the petitioner. And income tax liability too. Dividends received by wife were really income to the husband was the IRS argument. But the shares were split into A and B (A is voting and B is non voting). The Taxpayer lost - but not because pf the non-voting stock - the critical factor is the fact that the company had a buy back of the B stock at one dollar. Getting dividends of $150 per year when the shares are only worth one dollar to the taxpayer makes no sense hence the T lost the case. 

BORGE - ENTERTAINER’S EARNINGS PAID TO HIS POULTRY CORP WERE REALLOCATED TO HIM UNDER S482. Victor Borge is a comedian and pianist. He had a farm where he raises hens. He started an LLC called Danica to limit his corporate liability from the farm. His corp shows a $300k loss and his personal 1040 shows $400k income from entertainment work. He assigns his “entertainment” to the LLC and he shows only $100k payment from LLC as income. section 482 gives IRS power to reallocate income and he pays tax on the $400k anyway. Appellate Court upholds the decision. Aside for Culbertson, another case where the taxpayer said they had precedent on their side but they lost was Glenshaw Glass (anti trust). Eisner McComber case ?? Capital or labor or both combined. Taxpayer said no capital or labor involved based on Eisner McComber case. Supreme Court ruled that the taxpayer owes the tax based on Glenshaw Glass. Supreme Court are saying the facts are. Not exactly the same in the two instances. Other cases mentioned in modules 1-6: There are more cases under contents - e.g. Masser Oscar swag Stanton Hamacher - Tax Court case about home office deduction that defines “for convenience of employer”. Under divorce cases - courts look at property and support rights differently - Van Kamp and Carrera. Jack Barcal teaches these in the family wealth preservation course. 

************* ************* *********** *****

CHAPTER 14 JACK’S JUDICIAL JARGON 

WELCH - PAYMENTS BY T ON BEHALF OF HIS FORMER BANKRUPT ER WERE NECESSARY BUT NOT ORDINARY. MIDLAND EMP PKG - CONCRETE LINING IN T’S BASEMENT WAS BOTH NECESSARY AND ORDINARY

INDOPCO, INC. - EXPENSES INCURRED BY TARGET IN FRIENDLY TAKEOVER ARE NOT 162 EXPENSES NORWEST CORP - EXPENSES OF REMOVING ASBESTOS MUST BE CAPITALIZED IF PART OF A RENOVATION PLAN 

FRANK, MORTON - TRIPS BY T TO BUY A NEWSPAPER BUSINESS WERE NON-DED PRE OPERATING EXPS 

EXACTO SPRING CORP - REASONABLE COMPENSATION IS ALLOWED IF OTHER INDEPENDENT OWNERS APPROVE PAYMENT HAROLD’S CLUB - REASONABLE COMPENSATION IS ALLOWED IF A FREE BARGAIN & REASONABLE WHEN CONTRACT IS MADE 

ROSENSPAN - TRAVEL EXPS BY T WHO HAS NO HOME TO BE AWAY FROM ARE NOT DEDUCTIBLE 

ANDREWS v. COMM - UNDER IRC 162 T WITH HOMES AND BUSINESS IN MA & FLA DOES NOT HAVE 2 TAX HOMES, JUST 1 HILL v. COMM - SCHOOLTEACHER MAY DEDUCT EDUCATION COSTS AT COLLEGE WHEN NEEDED TO KEEP HER CERTIFICATE 

COUGHLIN - LAWYER MAY DEDUCT COST OF NYU TAX INSTITUTE EACH YEAR TO KEEP CURRENT SIMON - VIOLIN BOWS ARE SUBJECT TO ACRS DEPRECIATION EVEN IF THEY APPRECIATE AS ANTIQUES 

CHAPTER 17 JACK’S JUDICIAL JARGON ENGDAHL - HOBBY LOSS - YOU CAN CONSIDER RANCH APPRECIATION IN A HORSE BREEDING OPERATION CHAPTER 18 JACK’S JUDICIAL JARGON BANKS - T MUST PAY TAX ON CONTINGENT FEE PORTION THAT GOES TO PERSONAL INJURY ATTORNEY 

CHAPTER 19 JACK’S JUDICIAL JARGON HORNUNG, PAUL - AUTO IS INCOME TO ATHLETE WHEN HE HAD CONSTRUCTIVE RECEIPT & UNFETTERED CONTROL. NEW CAPITAL HOTEL - RENT RECEIVED IN ADVANCE IS INCOME UPON RECEIPT 

CHAPTER 21 JACK’S JUDICIAL JARGON MAULDIN - DEALER STATUS & ORDINARY INCOME RESULTS TO T WHO SOLD LOTS BEC OF PURPOSE FOR WHICH LOTS WERE HELD

MALAT v. RIDDELL - PRIMARILY FOR SALE TO CUSTOMERS MEANS PRINCIPAL PURPOSE – NOT JUST A SUBSTANTIAL PURPOSE HORT - LANDLORD HAS ORD INCOME ON $ RECEIVED FOR CANCELLATION OF LEASE METROPOLITAN BLDG - LESSEE HAS CAP GAIN ON $ RECEIVED FOR CANCELLATION OF LEASE 

KENAN - APPRECIATED STOCK USED TO SATISFY A DEBT OWED BY TRUST TO BENEFICIARY IS A DISPOSITION & CG. 

GALVIN HUDSON - T BUYS NOTE AT DISCOUNT. DEBTOR PAYS OFF NOTE, BUT NO CG TO T BECAUSE NOT A SALE OR EXCH WATKINS - T SELLS PAYMENTS UNDER LOTTO CONTRACT FOR LUMP SUM IN CASH. OI NOT CG. 

ARROWSMITH - CORP LIQUIDATES IN 1937 & T HAS CG. IN 1940 T PAYS $, BUT NO ORD DED BEC PMT RELATED BACK TO CG ON LIQ 

CHAPTER 22 JACK’S JUDICIAL JARGON PARKER - T OWNED > 80% OF VALUE OF STOCK UNDER S 1239 BECAUSE OTHER S/H STOCK WAS RESTRICTED 

CHAPTER 23 JACK’S JUDICIAL JARGON BUGBEE, HOWARD - T LOANED $ & HAS A DED WHEN DEBTOR FAILS TO PAY – INTENT OF PARTIES IS KEY HASLAM, CHARLES - EE WHO GUARANTEES ER’S DEBTS HAS DED IF DONE BY EE TO PRESERVE HIS JOB 

CHAPTER 24 JACK’S JUDICIAL JARGON BURNET v. LOGAN - T MAY RECOVER COST BASIS FIRST ON SALE – RARE CASE WHERE PMT WAS IN DOUBT INAJA LAND CO - T MAY RECOVER COST BASIS FIRST ON SALE OF FLOOD EASEMENT WHERE BASIS COULD NOT BE ALLOCATED 

CHAPTER 26 JACK’S JUDICIAL JARGON BLMGTN COCA-COLA - CASH BOOT IN N/T 1031 EXCHANGE DOES NOT VOID THE ENTIRE TRANSACTION CRICHTON - NON-TAXABLE EXCHANGE – MINERAL INTEREST WHICH WAS RE CAN BE TRADED FOR CITY LOT LESLIE CO - SALE & LEASEBACK OF BLDG TO PRUDENTIAL RESULTS IN LOSS TO T – IRS ARGUED 1031 EXCHANGEMASSER - T MUST SELL PARCEL 1 WHEN PARCEL 2 IS CONDEMNED. THIS IS INVOLUNTARY CONVERSION OF BOTH. CLIFTON INV. TO OFFICE BUILDING - UNDER IRC 1033 HOTEL WAS NOT SIMILAR OR RELATED IN SERVICE OR USE RR 67 – 254 -1033 CONDEMNATION PROCEEDS CAN BE USED TO BUILD NEW BUILDING ON LAND ALREADY OWNED ******** 

RESEARCH MEMO 1 - pool in backyard deductible for medical reasons? Need to break the memo into sections and stick to the point. 1) facts, 2) issues, 3) analysis, 4) support. Need to show that you have found relevant case law with factual situations similar to Susan’s and the finding Rulings that seem most relevant or not. There is no clear absolute answer. Show analytical ability. And properly apply it to the facts here. And then draw the comparisons. As tax practitioners were are trying to get to a better tax situation. Provisions in 213 could cause a problem for Susan? Support positions by reference to relevant law. Look at case law and Rulings. But only those that support. if the negative authority is overwhelming then the answer is no to the deduction. You could tilt the conclusions either way. Be analytical as possible. Use the tools in checkpoint to uncover the authority that is most relevant and most applicable to Susan. 

CITATOR TOOL is used for looking at changes in case law over time - but it cannot be used with the IRC. There is no prompt for a code section when doing a citator search. But it will show you all subsequent history. But you won’t get anything prior to that point. As researchers we want to know subsquent history so that we know if it is applicable (know what is still “good law”). when there are changes in the law then there will be court discussion about what changed eg salvatore case. Courts can only overrule lower courts within their jurisdiction? This is what legal scholars do all the time. As practioners we dont have time to act like legal scholars. 

The Citator does the work for us and gets us to the answer faster. Even though you cannot put an IRC in the Citator, but congress changes a code section, the citator willl reference “judicial case eg Solomon 280A C1A place of business question. a new test for principal place of business was intricuduced by the courts - the citator shows this as a statutory change. 280Ac1 exception. If there is no other place to perform substantial business then you can deduct home office costs. 

SUPREME COURT RULING expanded the definition. So the citator references the law change but there are very view situations like that in the Citator. Need to hit history button in the code section and go back from there to see prior code sections. Side note: Salvatore analysis is still “good law”. (there was no assignment of income - mother gifted the daughter the interest in the business). 

RESEARCH PAPER 1: SWIMMING POOL DEDUCTIBLE AS A MEDICAL EXPENSE? Write a 3 to 5 page Tax research memorandum in WORD (addressed to a tax partner) discussing whether or not Susan is entitled to deduct the cost of installing and maintaining a swimming pool as a medical expense. 

SUSAN VIDEO SUMMARY (QUESTION FOR RESEARCH MEMO 1): Osteoarthritis. Tried everything. Including surgery. Hereditary. Very painful and gets worse as get older. Cannot walk or run. Even riding a bike doesn’t work. Only swimming works. Orthopedist prescription. No pool at the gym. Inconvenient in city pool too far away and crowded and cold. Backyard has space and weather in California is good year round. Tens of thousands to install. Maintenance costs are high too. Can Susan deduct the cost as a medical expense? 

TAX RESEARCH PROCESS: Establish the facts Identify the issues Locate authority Evaluate authority Develop conclusions and recommendations Communicate the recommendations 

TAX MEMO WRITING GUIDELINES Tax professionals often must document and communicate their tax research. Clear written communication is important since tax planning ideas or IRS audits can cause prior tax returns to be amended or adjusted long after originally filed. The tax professional may have long since forgotten the reasons for his or her research conclusions, so it is essential that the relevant tax authorities and rationales be thoroughly documented and clearly explained. In some cases, the tax professionals who prepared the research memo may no longer be with the firm, increasing the importance of written communication that others can follow easily. 

FORMAT: Use proper memo format (Facts, Issue, Conclusion, Support). 

CITATIONS: Documentation is a very important part of communicating the results of tax research. Unsupported statements or opinions are worthless to the reader who desires to verify your findings. Supporting cites generally should be only to primary sources. The tax professional should provide complete and specific cites. For example, do not write §864 or Reg. §1.162-1 when you actually want the reviewer to see §864(c)(4)(C) or Reg. §1.162-1(a)(2). 

Only one form of citation need be used (i.e., CCH, RIA, or official). Parallel cites are not necessary. Citations are typically in the text of the memo, as the cited authority immediately after a statement of law or discussion of a ruling or case. Less common is to place citations in footnotes. All statements of law must be cited with the appropriate authority. Once a case has been cited, it may simply be referred to by name without citing it each time. Case names must be italicized. However, when discussing the taxpayer him/herself as opposed to the court opinion, the taxpayer’s name is not in italics. At the beginning of the memo, provide a complete statement of the facts. All potentially relevant facts should be stated clearly. Careless or ambiguous statements of facts or omitted facts can lead to inefficient research or, worse, inappropriate conclusions. 

Clearly stating facts is particularly important when more than one person is involved in the research project. For example, the person who began the research might leave the firm before finishing. The facts should be written clearly so that whoever continues the research project (or deals with the issues in a later IRS audit) will understand them with virtually no chance of misinterpretation. When research is based on misconceptions or incorrect facts, part or all of the research often must be redone. Depending on the situation, the tax professional may bear the cost of these mistakes and resulting inefficiencies. 

ISSUE: As with the statement of facts, the tax professional should express all issues clearly and unambiguously; that is, the meaning of issues should be subject to only one possible interpretation. When the issue is written unclearly or ambiguously, the tax professional may research the wrong issue. Issues are generally written in question form and should be couched in the specific context of the client’s facts. Provide sufficient detail so that the issue’s tax implication is clear, but avoid including a detailed cite within the issue. Starting a sentence with the word “whether” is not a complete sentence. (i.e., “Whether Bobby may deduct the expenses of his home office.”) Number and arrange issues in the most logical order. Generally, important issues should be addressed first, but avoid the temptation to list numerous obscure and irrelevant issues. Some issues cannot be addressed until other issues are resolved first. To maintain a logical progression, dependent issues should follow precedent issues. 

CONCLUSION: The presentation of research findings and conclusions should not resemble a mystery novel. Immediately after the issue, give a clear and unambiguous conclusion in a separate section. Then, (in the Support section) proceed to logically and methodically explain how you arrived at your conclusion. In other words, do not make the reviewer wade through the entire analysis before revealing the conclusion. Highlight your conclusion up front. Research memos are easier to read when the reviewer knows from the outset where the analysis will end. Your conclusion should briefly state why you concluded as you did – a brief statement of the law as applied to your facts (i.e., “yes, they are deductible” is not sufficient). Explain your conclusion again at the end of the analysis/support section. Even if you can’t come to a definitive conclusion on the issue, you should be able to recommend a course of action (i.e., it is not deductible unless additional facts are uncovered; it does not appear that there is substantial authority to take the deduction, etc.). 

EVALUATING AUTHORITY: Your legal analysis (support section) should follow the following guidelines: Start with the most general authority (i.e., IRC) and then get more specific (i.e., next Regs, then Rulings or case law). When making a general statement of law, cite the most primary source (i.e., don’t cite a case for authority on a statement that can be referenced directly by the IRC). In your analysis/support section, be careful of speaking in “bullet points;” with important cases, don’t just make a statement of law and cite the case. Discuss the tax authority in sufficient detail, including facts and holding, to show its relationship to your client’s situation. Then, build a “bridge” that logically connects each cited authority with your facts. Do not leave it to the reader to “connect the dots.” You should not force the reader to wonder how your cited authority relates to the issue or require your reader to interpret the authority. Make it clear so that misinterpretation is impossible. The conclusion should be a logical step after reading your analysis. Don’t ignore negative authority. You must discuss and distinguish it. Don’t just mention one case when there is a lot of authority on point. The reader will want to know the overwhelming support for the issue, and not think that there is only one case. However, instead of discussing many similar cases, they can be referred to by use of a string of cases with parentheticals. Example: “Many cases have held similarly. See Jones v. Commissioner, 21 T.C. 42 (1987) (home office deduction allowed for musician); Smith v. Commissioner, 54 T.C. 87 (1995) (home office deduction allowed for artist); Anderson v. Commission , 76 T.C. 967 (2001) (home office deduction allowed for actor).” Don’t stop your research after you have found one or two items on point. Do not quote headnotes or cite any secondary authority. Misinterpreting tax authority may be due to simply not reading it carefully enough. No substitute exists for reading and rereading the relevant source until its meaning is clear. 

WRITING GUIDELINES: Keep your writing clear and organized. Avoid excess words. Example: “In answering the question of whether these fees are deductible, it has uniformly been held by the courts in past litigation that . . . “ Replace with: “Courts have generally held that . . .” Write in the active voice rather than the passive voice. In the active voice, the subject performs the action expressed in the verb: “The dog bit the boy.” or “The taxpayer can deduct the fees.” In the passive voice, the subject receives the action; the subject is acted upon: “The boy was bitten by the dog.” or “The fees can be deducted by the taxpayer.” Abbreviate very common tax terms as appropriate, especially in citations. Thus, you may use Reg. rather than Regulation or Treasury Regulation, Rev. Rul. rather than Revenue Ruling, CIR or Comm’r in judicial citations rather than Commissioner or Commissioner of Internal Revenue, IRS rather than Internal Revenue Service, Code or IRC rather than Internal Revenue Code, and U.S. rather than United States. However, avoid the temptation to abbreviate many words or phrases beyond those that are commonly accepted (i.e., “FMV”). 

DON’T FORGET – SPELLCHECK, GRAMMAR-CHECK, PROOFREAD, EDIT AND REVISE SEVERAL TIMES! COMMENTS RE: USING QUOTATIONS FOR PRIMARY SOURCES IN TAX MEMOS: If you are pulling language directly from any primary source and it’s important language, or long, or not like you’d usually write, I’d put it in quotes. For example, if you lift the entire language from IRC Sec. 165(c), it needs quotations: “In the case of an individual, the deduction under subsection (a) shall be limited to (1) losses incurred in a trade or business; (2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and (3) except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.” If you are paraphrasing or rewriting the code or Reg or ruling language in a more readable fashion, you might still have a partial sentence or so that is pulled directly and I’d put that part in quotes if it’s key language, or long, or not how you’d usually write: IRC Section 165 allows individuals to deduct losses only if they are (1) incurred in a trade or business, (2) incurred in a for-profit activity, or (3) “losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.” If you are paraphrasing the whole thing to make it more readable or succinct, you may be able to keep some of the key language intact without using quotes and that would be fine because you will be citing it. It’s more important not to change the meaning of the primary source. If in doubt, you can put quote marks around the lifted key words (i.e., you could put the last phase – “fires, storms, shipwrecks, or other casualties” – in quotes but I don’t think it’s necessary). 

IRC Section 165(c) allows individuals to deduct losses only if they are incurred in a trade or business, in a for-profit activity, or are from fires, storms, shipwrecks, or other casualties. I think the key is to make the material that’s not in quotes sound like it comes from you yet without changing the meaning. Since you normally wouldn’t write like the first two examples in red, above, if you are using those, I’d definitely use quotes. 

My research in CHECKPOINT: 

RIA general search” “When is a swimming pool treated as a medical expense?” Gen rule: “Medical” expenses merely beneficial to the individual's general health, including general exercise (not specifically mentioned in section 213) are not deductible. Under Code Sec. 213(d)(1), deductible medical expenses are amounts paid for the diagnosis, mitigation, treatment, prevention of disease or for the purpose of affecting the body's structure or function (Code Sec. 213(d)(1)), and the costs of nursing services (Reg § 1.213-1(e)(1)(ii)) (and related insurance payments, ¶ 2135, and transportation, ¶ 2148). Deductible expenses include the costs of: numerous examples, one of which illustrates the concept of excess expense over and above the norm: “Weight-loss program or nutritional counseling for treatment of a specific disease (e.g., obesity, hypertension), but not the cost of diet food (unless it doesn't satisfy normal nutritional needs, it alleviates or treats an illness, and the need for it is substantiated by a physician, in which case the excess over the cost of non-diet food is deductible).” 

OTHER RESEARCH: Cost of installing equipment required under written doctor’s orders. Cost of maintaining and operating it? Is it used partially for medical use and partially for “recreational” (non-medical use). If the value of the pool increases the home value by more than the cost of installing the pool then how can anything be deductible. If the cost is more than the value increase then the difference where the cost exceeds the value of the installed pool could be considered medical expense. Only “qualifying” improvements are deductible. What “qualifies”? Modifications to the home that make it more usable by someone with a medical condition. Sources: IRC section 213. Supreme Court case: Bilder. Direct medical costs only, not “general living expenses in the pursuit of doctor’s orders”. Numerous Tax Court cases. Gersacker case applicable? Why? Randolph case applicable? Why? IRS Publication 502 applicable?. Why? 

CHECKPOINT: Under Reg § 1.213-1(e)(1)(iii), amounts incurred for elevators, swimming pools, and other permanent improvements to taxpayer's property (including capital expenditures to accommodate a residence to a physically handicapped individual) may be deductible medical expenses (¶ 2144) if the primary purpose is for the medical care of taxpayer, spouse, or dependents. But the medical deduction is limited to that part of the expenses that exceeds the amount by which the improvement increases the value of taxpayer's property. (Reg § 1.213-1(e)(1)(iii)). All the costs of operating or maintaining a medical capital asset are deductible, even if none or only a part of the cost of the asset itself qualifies. (Reg § 1.213-1(e)(1)(iii)). Reg § 1.213-1(e)(1)(iii) —>> Capital expenditures are generally not deductible for Federal income tax purposes. See section 263 and the regulations thereunder. However, an expenditure which otherwise qualifies as a medical expense under section 213 shall not be disqualified merely because it is a capital expenditure. For purposes of section 213 and this paragraph, a capital expenditure made by the taxpayer may qualify as a medical expense, if it has as its primary purpose the medical care (as defined in subdivisions (i) and (ii) of this subparagraph) of the taxpayer, his spouse, or his dependent. Thus, a capital expenditure which is related only to the sick person and is not related to permanent improvement or betterment of property, if it otherwise qualifies as an expenditure for medical care, shall be deductible; for example, an expenditure for eye glasses, a seeing eye dog, artificial teeth and limbs, a wheel chair, crutches, an inclinator or an air conditioner which is detachable from the property and purchased only for the use of a sick person, etc. Moreover, a capital expenditure for permanent improvement or betterment of property which would not ordinarily be for the purpose of medical care (within the meaning of this paragraph) may, nevertheless, qualify as a medical expense to the extent that the expenditure exceeds the increase in the value of the related property, if the particular expenditure is related directly to medical care. Such a situation could arise, for example, where a taxpayer is advised by a physician to install an elevator in his residence so that the taxpayer's wife who is afflicted with heart disease will not be required to climb stairs. If the cost of installing the elevator is $1,000 and the increase in the value of the residence is determined to be only $700, the difference of $300, which is the amount in excess of the value enhancement, is deductible as a medical expense. If, however, by reason of this expenditure, it is determined that the value of the residence has not been increased, the entire cost of installing the elevator would qualify as a medical expense. Expenditures made for the operation or maintenance of a capital asset are likewise deductible medical expenses if they have as their primary purpose the medical care (as defined in subdivisions (i) and (ii) of this subparagraph) of the taxpayer, his spouse, or his dependent. Normally, if a capital expenditure qualifies as a medical expense, expenditures for the operation or maintenance of the capital asset would also qualify provided that the medical reason for the capital expenditure still exists. The entire amount of such operation and maintenance expenditures qualifies, even if none or only a portion of the original cost of the capital asset itself qualified. 

MY NOTES: The IRC says (SEE ABOVE): Reg § 1.213-1(e)(1)(iii), ¶ K-2181 and K-2184 -> determinants of deducibility are whether the primary purpose of the pool is for medical care and whether the expenditure is related directly to medical care. AND whether or not the pool serves for the convenience and/or comfort of the taxpayer or serves a therapeutic purpose ¶ K-2105. IRC section 213 paragraph (d) (11) was added but appears to apply to relative only so not relevant (?). Case law taught us this: A pool that is very clearly designed for recreational use (based on size and depth) won’t get a medical deduction. That said, a special design for the pool is helpful but NOT necessary, as long as primary use is for medical. Proof that swimming helps with the medical condition is not necessary, but it helps. A doctors note is the minimum. The Tax Court has held that the availability of less expensive, reasonably convenient alternative sources of exercise is a factor working against a pool's qualification as a deductible medical expense. Convenient means available during the hours when the taxpayer can make it to the pool eg after work. Convenient also means near to the taxpayers home. Certain types of medical conditions would normally indicate deductibility of a swimming pool e.g. polio, osteoarthritis, emphysema, bronchitis, degenerative spinal problems, these are all conditions that would normally satisfy the medical necessity of a pool for exercise and movement. On the other hand, no deduction was allowed for a taxpayer who just broke his leg and whose doctor recommended swimming as therapy - as this is a short term thing presumably and there are alternative treatments/therapies. Also in this case, it was agued that an outdoor pool that would be unavailable for part of the time therapy would be needed, therefore was not primarily serving the intended medical purpose. 

WHICH OF BELOW CASES ARE APPLICABLE AND WHY: which overruled which. And which are binding and which are not (eg private letter rollings are not binding)? Supreme Court case: Bilder. Direct medical costs only, not “general living expenses in the pursuit of doctor’s orders”. Numerous Tax Court cases. Eg Gersacker case applicable? Why? Randolph case applicable? Why? 1957 case —>> Mason, Carl B. v. U.S., (1957, DC HI) 52 AFTR 1593, 57-2 USTC ¶10012. 1977 case —>> Ferris v Commish - Ferris, Collins H. v. Com., (1978, CA7) 42 AFTR 2d78-5674, 42 AFTR 2d 78-5674, 582 F2d 1112, 78-2 USTC ¶9646, revg & remg(1977) TC Memo 1977-186, PH TCM ¶77186, 36 CCH TCM 765. 1979 case —>> Haines, C. William, (1979) 71 TC 644; 1981 PLR - IRS Letter Ruling 8208128. 1981 case —>> Polacsek, Richard A., (1981) TC Memo 1981-569, PH TCM ¶81569, 42 CCH TCM 1289. 1981 case —>> Emanuel, Robert, (2002) TC Summary Opinion 2002-127. 1982 case —>> Evanoff, Dan J., (1982) TC Memo 1982-600, PH TCM ¶82600, 44 CCH TCM 1394. 1983 case —>> Cherry, Herbert, (1983) TC Memo 1983-470, PH TCM ¶83470, 46 CCH TCM 1031. 1983 revenue ruling —>> Rev Rul 83-33, 1983-1 CB 70. Worden, Carl F. Jr., (1981) TC Memo 1981-366, PH TCM ¶81366, 42 CCH TCM 399. 1996 Meyers tax court case - MEMO CASE Cohan case (details?) that is cited numerous times in other case decisions. Revenue Rulings say: Rev. Rul. 54-57, 1954-1 C.B. 67, holds that a deduction is not available for capital expenditures that increase the value of the taxpayer's property. Rev. Ruls. 54-57 and 59-411 are modified to the extent they indicate that a capital expenditure for medical purposes may only be deducted as a medical expense if it does not increase the value of the taxpayer's property. Revenue Rulings from 1983. IRS Publication 502 applicable? Why? 

EXAMPLE OF GOOD START TO 4th and final SECTION OF MEMO called ‘SUPPORT’. 

MY DRAFT MEMO: 

FACTS Susan has osteoarthritis, a serious degenerative disease. She has tried everything to fix it, including surgery, but it is a hereditary and, therefore, chronic condition that will persist for the rest of her life. In fact, it is likely to get worse as Susan gets older. Only swimming works for her, no other form of exercise is an option. She has an orthopedist prescription for regular swimming, but she does not have access to a convenient pool in order to comply with her doctor’s orders. Her best option is having a pool where she lives. The taxpayer seems to have no good alternative to constructing a pool at her home residence. It is likely, based on Susan’s stated intentions, that a pool built at her home will be used year round by her, primarily for exercise. 

ISSUE Can Susan deduct the costs of installing and maintaining the swimming pool as a medical expense for Federal tax purposes? 

CONCLUSION It is more likely than not, based on the limited facts presented, that Susan will at least get a partial deduction for the installation cost of the swimming pool, as well as a full deduction of the ongoing maintenance expenses each year. The courts have generally held that a taxpayer can deduct these types of expenses when certain conditions are met, many of which appear to apply to Susan. The most persuasive of these are the type of medical condition, the length of time the condition will endure, the weather in the location the taxpayer lives in, the lack of good alternative options, the medical necessity of swimming as a form of exercise, and the taxpayers stated intentions. Furthermore, there are certain steps the taxpayer can take that would increase the likelihood of the deduction being successful and those need to be clearly communicated to the client, e.g. physical dimensions of the pool, and the suggestion to keep records of usage as well as records of the before and after value of her home. 

SUPPORT Section ……. of the IRC allows for ………. Per IRC §………… there are 3 requirements / exceptions: - IRC §280A(c)(2): storage of inventory EG ONLY - IRC §280A(c)(4): certain daycare facilities EG ONLY - IRC §280A(c)(4): certain daycare facilities EG ONLY Thus, in order to take the deduction, the taxpayer must be able to satisfy certain criteria by proving 1) 2). 3). OR SAY The main problem for Susan is…- capital expenditures are generally not deductible for Federal income tax purposes(??), so the burden of proof is on her to show that the pool is a 1) medically necessary expense and 2) will be used primarily for therapeutic purposes and not private and/or recreational use. Section 280A of the Internal Revenue Code of 1986, as amended (“IRC”), states that, “no deduction […] shall be allowed with respect to ….. A similar fact pattern can be seen in the case of……… in which the taxpayer attempted to claim a deduction …..similarities and differences. The Tax Court has consistently disallowed deductions for similar medical expenses when the …….requirement is not met There was an amendment to the law in… There was a clarification in the meaning of …. As such, in determining whether Susan is allowed a deduction for the cost for swimming pool at home, it is necessary to determine whether medically necessary, ….. And primary usage.on a regular basis…….. In order to meet the requirements the taxpayer should…… It is our recommendation that the taxpayer keep accurate records of the expenses incurred, both upfront and ongoing costs. 

Also show usage - incidental and occasional recreational use is ok but should be recorded. Also show distinct features and how the pool differs from a regular pool. orthopedist prescription for regular swimming should specify heated pool and depth of the pool. A real eater agent’s independent report showing the value of the property before and after the installation of the pool would be highly recommended. The smaller the value change before and after the more indicative it is of the pool being purpose built and medically necessary and not a feature or improvement to the property. If it is considered analogous to a wheelchair ramp, i.e. not a general improvement to the home that has commercial appeal to all prospective buyers. The single best piece of evidence would be to stop using the pool for a defined period of time and get a doctor’s record of the physical effects of taking a break from the swimming exercise. We cannot advise this, but it would be extremely compelling evidence of the medical necessity of the pool, as we have learned from …….case. 

However, it is possible that Susan’s condition is extreme enough that the IRS won’t question the medical diagnosis of swimming as the only viable form of exercise, and they will accept the orthopedic surgeon’s written prescription as sufficient in this regard. Aside for the usual medical records, Susan also has a record of surgery to satisfy the medical necessity requirement. We believe she needs to focus simply on the dimensions of the pool and, once it is built, on keeping a record of usage, as these are the tipping point for her. Federal Tax Coordinator analysis: 2d ¶K-2180 When is the cost of installing a swimming pool a deductible medical expense? In determining whether the cost of installing a swimming pool qualifies as a deductible medical expense, courts and the IRS have sought to determine . . . whether the primary purpose of the pool is for medical care (see Reg § 1.213-1(e)(1)(iii), ¶ K-2181), . . . whether the expenditure is related directly to medical care (see Reg § 1.213-1(e)(1)(iii), ¶ K-2184), and . . . whether the pool does more than serve the convenience and/or comfort of the taxpayer (see ¶ K-2105). 

1 Factors that play a role in the determination include: 1. . . whether the pool is suitable for general recreation use and is so used by other family members. In one ruling, a taxpayer with severe osteoarthritis was allowed to deduct the cost of a “lap” pool only 8 feet long and 3 to 5 feet deep. The pool wasn't suitable for general recreational use. 2 Similarly, a pool installed by a taxpayer with breathing difficulties qualified as a medical expense where it was only 4 feet deep and was used solely for therapeutic purposes. 3The costs of maintaining a swimming pool that taxpayer and his son used daily for therapy on their doctors' advice were deductible. The pool, which was 3 to 5.5 feet deep and had wide steps and a hand rail, was tailored for their use and wasn't used for recreation by other family members. 4A taxpayer's pool was a medical expense despite its suitability for recreational use. His family used it recreationally only occasionally. The taxpayer used it twice daily and when he failed to use it his breathing condition worsened. 5On the other hand, a taxpayer who broke his leg couldn't deduct the cost of a swimming pool where swimming aided in his therapy. The pool was 30 by 40 feet and up to 9.5 feet deep. It was suitable for recreational use and taxpayer's family and friends regularly enjoyed it. It was an outdoor pool and thus only available for taxpayer's therapy from April through October. The court held the pool was installed for taxpayer's convenience and not primarily for medical purposes. 6. . . whether the pool is specially designed for medical purposes. Thus, a pool with a special ramp allowing a taxpayer with polio to gain entrance from his wheelchair for therapeutic swimming qualified. 7 And a specially sized shallow pool for a taxpayer with osteoarthritis qualified. 8. . . whether the taxpayer had reasonable access to community pools or similar facilities. The Tax Court has held that the availability of less expensive, reasonably convenient alternative sources of exercise is a factor working against a pool's qualification as a deductible medical expense. 9Thus, a deduction was denied for a pool for taxpayer's daughter who suffered from a mild case of scoliosis for which swimming was recommended by a doctor. There were 11 community pools within 8 miles of the home. The daughter could drive and had access to the two family cars. Pool membership would have cost just $250 a year. She could have also made more use of the pool at her school. Taxpayer's religion forbade her swimming with boys, but religious convictions are personal rather than medical considerations. 10On the other hand, the fact that there are no alternative facilities near taxpayer's home is a factor in support of deductibility. 11 In one case, the deduction was allowed even where there was an adequate pool nearby, because taxpayer's work schedule kept him away from home during its available hours. A taxpayer needn't alter his employment to become entitled to a medical deduction. 12 Application of factors. In a case involving all of these factors, taxpayer's pool qualified as a medical expense where he installed it to alleviate a breathing condition. He swam at least twice daily and when he didn't swim his breathing worsened. No other form of exercise was as effective. The community pool's hours conflicted with his work schedule. While the pool was suitable for general recreation use, it was only so used by his family occasionally. Last, while there was no special design for the pool, none was necessary for taxpayer's medical purposes. 13 Polio, 14 osteoarthritis, 15 emphysema and bronchitis, 16 and degenerative spinal problems, 17 are diseases suffered by patients for which a deduction for a swimming pool has been allowed. On the other hand, no deduction was allowed for a taxpayer who just broke his leg and whose doctor recommended swimming as therapy. The therapy would only be needed for a while. Also, it was an outdoor pool that would be unavailable for part of the time therapy would be needed. 18 Similarly, a taxpayer who installed a 38-foot long heated pool with a jacuzzi on the advice of a chiropractor who told him it would help his back couldn't deduct the cost. The primary purpose of the pool was held not to be medical, but recreational. 1. 1957 case —>> Mason, Carl B. v. U.S., (1957, DC HI) 52 AFTR 1593, 57-2 USTC ¶10012. 2. 1977 case —>> Ferris v Commish - Ferris, Collins H. v. Com., (1978, CA7) 42 AFTR 2d78-5674, 42 AFTR 2d 78-5674, 582 F2d 1112, 78-2 USTC ¶9646, revg & remg(1977) TC Memo 1977-186, PH TCM ¶77186, 36 CCH TCM 765. 3. 1979 case —>> Haines, C. William, (1979) 71 TC 644; 4. 1981 IRS Letter Ruling 8208128. 5. 1981 case —>> Polacsek, Richard A., (1981) TC Memo 1981-569, PH TCM ¶81569, 42 CCH TCM 1289. 6. 1981 case —>> Emanuel, Robert, (2002) TC Summary Opinion 2002-127. 7. 1982 case —>> Evanoff, Dan J., (1982) TC Memo 1982-600, PH TCM ¶82600, 44 CCH TCM 1394. 8. 1983 case —>> Cherry, Herbert, (1983) TC Memo 1983-470, PH TCM ¶83470, 46 CCH TCM 1031. 9. 1983 revenue ruling —>> Rev Rul 83-33, 1983-1 CB 70. Worden, Carl F. Jr., (1981) TC Memo 1981-366, PH TCM ¶81366, 42 CCH TCM 399. 1996 Meyers tax court case - MEMO CASE Cohan case (details?) that is cited numerous times in other case decisions. 1. 1957 case —>> Mason, Carl B. v. U.., Medical expense—definition—cost of improvement (swimming pool).— Cost of installation of specially designed swimming pool, installed on the advice of a physician to provide hydrotherapeutic treatment for taxpayer, victim of paralytic poliomyelitis, found by jury to constitute a deductible medical expense and not a nondeductible capital expenditure.Hawaii district court decision 1957. 2. 1977 case —> Ferris, Collins H. v. Com., 1978. FERRIS v. COMM., 42 AFTR 2d 78-5674 (582 F. 2d 1112), Code Sec(s) 213, (CA7), 08/15/1978American Federal Tax Reports (Prior Years) (RIA) Medical expense deduction denied for that part of swimming pool addition not incurred for medical care of taxpayer. Expenditures for such items as architectural and aesthetic compatibility with the related property weren't expenses for medical care. Tax Court should decide amount of allowable deduction, difference between minimum reasonable cost of a functionally adequate pool and housing structure and amount by which realty's value was increased.U.S. Court of Appeals, Seventh Circuit,1978 Redetermination - COLLINS H. FERRIS and BONNIE BACH FERRIS. Taxpayer, who suffered from spinal injury and was advised by her doctor to swim twice daily to prevent paralysis, could deduct part of cost of enclosed pool added to her principal residence. Court determined amount of deduction to be difference between total cost of pool and essential equipment and the amount by which the pool enhanced the value of the residence. Court rejected IRS contention that deduction should be based on cost of hypothetical "bare bones" structure.Tac Court memo 1977 DONT MENTION THIS CASE IN YOUR PAPER IT WAS “REDETERMINED” A "redetermination of a tax case" is the process of reviewing and adjusting a taxpayer's liability after the initial tax has been calculated, often due to new information or a dispute with the taxing authority. Judicial proceeding: A taxpayer can file a formal "Petition for Redetermination" with the U.S. Tax Court to challenge a deficiency notice issued by the IRS. Different to an audit reconsideration when new evidence filed with IRS. 3. 1979 case —> C. William Haines and Sara B. Haines, Petitionerv. Commissioner of Internal Revenue, Respondent- Medical expense deduction denied for cost of swimming pool taxpayer built in his home. Expenses incurred in building pool were not primarily related to his medical care. Need for special therapy for taxpayer's leg continued for only limited period of time. Having pool at home was mere convenience, not necessity. Since pool was not enclosed, taxpayer had access to it for only 6 months out of the year and it contained no equipment to help him with his physical therapy.Tax Court & Board of Tax Appeals (Prior Years) (RIA) 1979 Haines, C. William, (1979) 71 TC 644: MEDICAL EXPENSES—Definition of medical care—special home improvements for disabled persons and preventive medicine—deduction denied. Medical expense deduction denied for cost of swimming pool taxpayer built in his home. Expenses incurred in building pool were not primarily related to his medical care. Need for special therapy for taxpayer's leg continued for only limited period of time. Having pool at home was mere convenience, not necessity. Since pool was not enclosed, taxpayer had access to it for only 6 months out of the year and it contained no equipment to help him with his physical therapy. Reference(s): 1979 P-H Fed. ¶16,432(10). Code Sec. 213; P's leg was seriously broken. He constructed a swimming pool at his home and exercised the leg in the pool to rebuild its strength. Held: P failed to establish that his expenses for constructing the pool were incurred for the primary purpose of, and related directly to, his medical care. Therefore, P is not entitled to deduct any portion of such expenses under sec. 213, I.R.C. 1954, relating to medical expenses.the pool expenditures were primarily personal in character Tax Court & Board of Tax Appeals (Prior Years) (RIA) 1979 case. 4. 1981 private letter ruling —>> PLR IRS Letter Ruling 8208128.Accordingly, based on the information submitted, we conclude that to the extent the costs of the exercise pool and housing structure do not exceed the minimum reasonable costs of a functionally adequate facility, and to the extent that such minimum reasonable costs exceed the increase in value of your residence as a result of its installation, such costs are deductible as a medical expense under section 213 of the Code. Furthermore, the expenses of operating and maintaining the exercise pool are deductible in the taxable year paid as a medical expense under section 213.This ruling is directed only to the taxpayer who requested it. Section 6110(j)(3) of the Code provides that it may not be used or cited as precedent.1981 PLR 5. 1981 case —>> Richard A. Polacsek, TC Memo 1981-569., Code Sec(s). 213, 09/30/1981: MEDICAL EXPENSES—Definition of medical care—special home improvements for disabled persons and preventive medicine. Medical expense deduction for cost of installing swimming pool on taxpayer's property allowed only to extent cost of pool exceeded amount it increased value of property. Testimony of expert appraiser and complete record showed pool increased value of taxpayer's property. Reference(s): 1981 P-H Fed. ¶16,432(5). Code Sec. 213.Official Tax Court Syllabus: Held: A swimming pool installed at petitioners' home at a cost of $10,516.26, and used for medical purposes added $4,000 to the value of the petitioners' property. Petitioners are entitled to deduct $6,516.26 of the cost of the pool as a medical expense. Tax Court Memorandum Decisions (Prior Years) (RIA) 1981 case. 6. —>> ROBERT AND MARTHA EMANUEL, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Petitioners claim that they are entitled to deduct as a medical expense amounts paid to maintain the quality of the swimming pool (i.e., chemicals, equipment, electricity) at their home. Petitioners installed the swimming pool in their home in 1979 after Christopher's pediatrician recommended that he swim to develop his motor skills. He uses the pool about once a day with Mrs. Emanuel's assistance. The pool depth ranges from 3 to 5-1/2 feet. It has wide steps and a grab rail in the shallow end, but it has no diving board or slide.Mr. Emanuel's doctors also recommended that he engage in aquatic therapy in a swimming pool. Mr. Emanuel testified that he used the pool at his house three or four times a day in good weather. Mr. Emanuel testified that his other son almost never used the swimming pool.Both Christopher and Mr. Emanuel used the pool daily for therapy related to their physical disabilities upon the advice of doctors. The pool is tailored for use by both Christopher and Mr. Emanuel, it is usable throughout the year, and Christopher and Mr. Emanuel used the pool daily. See Haines v. Commissioner, supra at 648. Other family members do not use the swimming pool for recreation. Upon these facts, we conclude that the swimming pool has as its primary purpose and is directly related to the medical care of both Christopher and Mr. Emanuel.Sec. 1.213-1(e), Income Tax Regs.Petitioners did not maintain receipts of the expenses incurred with respect to the maintenance of the pool; therefore, they produced an estimate from the swimming pool supply store, Pinch-A-Penny, from which they purchased supplies. The estimate provided that the annual cost of maintaining a swimming pool such as the one owned by petitioners was approximately $1,200. Moreover, Mr. Emanuel provided testimony as to the items needed to maintain the pool and their general cost. We find the estimate from Pinch-A-Penny and Mr. Emanuel's testimony to be credible.Although generally a taxpayer is required to keep records to establish the amount of his deductions under section 6001, in some situations, the Court may estimate the amount of medical expenses and allow a deduction to that extent, notwithstanding substantiating documentary evidence in the record. Cohan v. Commissioner, 39 F.2d 540, 543-544 [8 AFTR 10552] (2d Cir. 1930); Meyers v. Commissioner, T.C. Memo. 1996-219 [1996 RIA TC Memo ¶96,219]. The Court is satisfied that petitioners incurred $1,200 in pool maintenance expenses for each of the years at issue, and petitioners are entitled to deduct the expenses for 1996, 1997, and 1998 as medical expenses to the extent allowable under section 213(a) TaxCourt memo 1981 7. 1982 case —>> Evanoff, Dan J., (1982) TC Memo 1982-600, Taxpayer denied medical deduction for installation of swimming pool. Principal reason for pool construction was personal convenience and satisfaction of family rather than daughter's mild scoliosis. There were several community pools (some open year round) available that taxpayer didn't join, daughter made only limited use of school pool, and entire family made great use of taxpayer's pool. Tax Court 1982 8. 1983 case —>> Cherry, Herbert, (1983) TC Memo 1983-470: MEDICAL EXPENSES—What is "medical care"?—special home improvements for disabled persons and preventive medicine.Cost of operating and maintaining swimming pool was deductible medical expense. Taxpayer had lung disease and pool was for primary purpose of medical care. He investigated other forms of exercise and community pools before investing in his own. Family use of the pool was minimal. The facts and circumstances of this case convince us that petitioners' expenditures in operating and maintaining their swimming pool satisfy this test. Operating and maintaining the pool certainly was directly related to Herbert's medical care. Herbert's doctor recommended swimming to help his emphysema and bronchitis. Herbert mitigated the effect of the lung disease through diligent use of the pool. The disease symptoms returned after 5 days when he could not swim regularly. Further, maintaining a pool at his own house was the only way Herbert could swim on a regular basis. These facts convince us that the expenditures for operating and maintaining the pool were directly related to Herbert's medical care because they mitigated the effects of severe emphysema and bronchitis. We are also convinced that petitioners' primary purpose in maintaining the pool was to provide medical care for Herbert. Petitioners did not have a pool prior to the time when Herbert's lung problems were diagnosed. Also, despite the doctor's recommendation to swim, petitioners did not immediately buy a pool. Instead, Herbert first investigated other less expensive forms of exercise. Plus, even after deciding that swimming was best for him, Herbert investigated the possibility of swimming in pools in his community before deciding to invest in his own pool. This careful approach shows that petitioners purchased and maintained the pool only because they needed their own pool to satisfy Herbert's medical requirement for regular exercise. In addition, Herbert used the pool at least two times every day, all year long. Petitioners purchased a new house and incurred the additional cost of putting the pool indoors so that Herbert could satisfy his need for a constant schedule of swimming. The fact that petitioners bore the additional costs which exceeded the cost of installing a purely recreational pool in order to provide Herbert with the regular exercise he needed indicates that petitioners purchased and maintained the pool primarily for Herbert's medical care. Furthermore, Adele and the children used the pool only occasionally. Adele's swimming was itself prescribed by a doctor to aid her arthritis. Petitioners never entertained in the pool room. The children only entertained twice in the pool room. These additional uses were incidental to Herbert's constant use of the pool for medical purposes. Accordingly, our careful review of all the facts in the record convinces us that petitioners' primary purpose in purchasing and maintaining the pool was to provide medical care for Herbert. Unsubstantiated pool expenses were redetermined under Cohan rule. ?????Tax Court Memorandum Decisions (Prior Years) (RIA) 1983 case. 1. 1983 revenue ruling —>> Rev. Rul. 83-33, 1983-1 CB 70 -- IRC Sec(s). 213 The test whether a capital expenditure is deductible under section 213 of the Code as a medical expense is whether the expenditure is incurred for the primary purpose of, and is related directly to, the taxpayer's medical care. The courts have distinguished personal expenditures that are merely beneficial to the general health of the individual from those that have as their purpose medical care, the prevention or alleviation of a physical or mental defect or illness. Thus, not every expenditure prescribed by a physician or for the physical comfort of the individual will be considered a medical expense. In the present situation, A's physician prescribed swimming in order to alleviate A's osteoarthritis. In order to follow the prescribed treatment, A constructed a shallow “lap” pool incorporating specially designed stairs for ease of entry and exit and a hydrotherapy device. The specially designed exercise pool is not suitable for general recreational use.HOLDINGS A's cost of the pool is an expenditure incurred for the primary purpose of, and is directly related to, the taxpayer's medical care and, to the extent the expenditure exceeds the increase in value of A's property as a result of the installation, is deductible under section 213 of the Code.A's costs to operate and maintain the special purpose exercise pool are deductible in the tax year paid as medical expense under section 213 of the Code.EFFECTS ON OTHER RULINGS Rev. Rul. 54-57, 1954-1 C.B. 67, holds that a deduction is not available for capital expenditures that increase the value of the taxpayer's property. Rev. Rul. 59-411, 1959-2 C.B. 100, holds that expenditures made for medical purposes will not be disallowed merely because they are of a capital nature. Rev. Ruls. 54-57 and 59-411 are modified to the extent they indicate that a capital expenditure for medical purposes may only be deducted as a medical expense if it does not increase the value of the taxpayer's property. Revenue Rulings from 1983. 1996 case —>> Michelle Bird Meyers v. Commissioner, TC Memo 1996-219 , Code Sec(s) 7442. Tax court memo 1996 nothing about a pool; references Cohan rule ********* 

RESEARCH ASSIGNMENT using CCH 

Generally you would not be citing secondary authority, but you can here where indicated.] 1. Find and cite the Internal Revenue Code section that deals with the ability of an individual to deduct interest on their home mortgage. a. What are the requirements for the deductibility of interest on the mortgage on the taxpayer’s home? b. What are the limitations on the deductibility of home mortgage interest? 2. Where is deductibility of home mortgage interest discussed in the Master Tax Guide (cite to the paragraph number in the Master Tax Guide)? a. What is the title of the Chapter in the Master Tax Guide where this topic is found? 3. Where is “qualified residence interest” discussed in the Standard Federal Tax Reporter (indicate the paragraph number)? 4. Find and cite the Regulation that discusses the deductibility of home mortgage interest. When was that regulation adopted? 5. Find the “history notes” to IRC § 163(h). What was the change made by the Tax Cuts and Jobs Act of 2017? 6. Your clients Les and Lee are unmarried co-owners of a house, holding title to the house as joint tenants. With the house as security, they obtained a $1,500,000 mortgage to purchase the property. They are jointly and severally liable for that loan. They each pay for half of the mortgage. Being unmarried, they of course file separate returns. They would like to know if they can each deduct the interest on $750,000 of the loan – that is, whether the $750,000 limit in IRC § 163(h)(3)(F) is a per-taxpayer or per-residence limit. Find and cite primary authority.

¶K-5470 Introduction—Qualified Residence Interest (Mortgage Interest Deduction). Although personal interest is generally nondeductible, a deduction (commonly called the “mortgage interest deduction ”) is allowed under Code Sec. 163(h)(3) for “qualified residence interest ” (QRI). QRI is interest paid or accrued during the tax year on “acquisition indebtedness,” which is debt incurred to acquire, construct, or substantially improve a “qualified residence” of the taxpayer and secured by that residence. A qualified residence is the taxpayer's principal residence and one additional residence selected by the taxpayer. 

Before 2018, interest on home equity indebtedness was also treated as QRI. RIA caution: The deduction for interest on home equity indebtedness was suspended for 2018–2025 by the 2017 Tax Cuts and Jobs Act and permanently disallowed by the 2025 Act (see ¶ K-5471). In determining QRI, a taxpayer may treat no more than $750,000 of debt as acquisition indebtedness ($375,000 for marrieds filing separately). 

There are exceptions to these dollar limits for: (i) debt incurred before Dec. 16, 2017; (ii) “binding contracts” entered into before Dec. 15, 2017, where other requirements are met; and (iii) refinancing of debt incurred before Dec. 16, 2017. If an exception applies, the limitation on the amount of acquisition debt is the pre-2018 limitation of $1 million ($500,000 for marrieds filing separately). 

Sample client letter: A sample client letter explaining the rules for the mortgage interest deduction appears in Client Letters ¶ 1327. For the rule allowing the deduction for QRI, see ¶ K-5471. For points and other prepaid interest as QRI, including a safe harbor for points paid on acquisition of a principal residence, see ¶ K-5472 and ¶ K-5177 et seq. For the effect of various tax rules on the QRI deduction, see ¶ K-5474. 

For the definition of “qualified residence,” see ¶ K-5475 et seq. For a second residence as a qualified residence, see ¶ K-5477. For property used only partly as a residence, see ¶ K-5478. For the definition of acquisition indebtedness, including refinanced debt, see ¶ K-5484 et seq. For the $750,000 ($375,000 for married individuals filing separately) limitation on the amount of acquisition debt, see ¶ K-5485; for exceptions to the $750,000/$375,000 limitation on acquisition indebtedness, see ¶ K-5486. 

For treatment of mortgage insurance premiums as QRI, see ¶ K-5489.3 et seq. For whether debt is secured by a qualified residence, see ¶ K-5492 et seq. For the limitation on the amount of residence-secured interest that's deductible as QRI, based on the residence's “adjusted purchase price,” see ¶ K-5494 et seq. For the grandfather rules for QRI paid on pre-Aug. 15, '86, debt, see ¶ K-5496 et seq. For the treatment of mortgage interest for alternative minimum tax (AMT) purposes, see ¶ A-8310. 

For a safe harbor method under which taxpayers who receive Homeowner Assistance Fund (HAF) payments as COVID-19 relief may deduct mortgage interest and real property taxes, see ¶ K-4504.2 For the general prohibition on noncorporate taxpayers deducting personal interest, see ¶ K-5510 et seq. ____ §163 Interest. (3) Qualified residence interest. 

For purposes of this subsection— 163(h)(3) (A) defines the term “qualified residence interest” (B) defines Acquisition indebtedness. (C) defines Home equity indebtedness (D) Treatment of indebtedness incurred on or before October 13, 1987. (E) Mortgage insurance premiums treated as interest. (F) COMMITTEE REPORTS FOR TCJA: Section 11043 ¶ 5017 Limitation on deduction for qualified residence interest. Code Sec. 163 Conference Report Present Law 

As a general matter, personal interest is not deductible.159 Qualified residence interest is not treated as personal interest and is allowed as an itemized deduction, subject to limitations.160 Qualified residence interest means interest paid or accrued during the taxable year on either acquisition indebtedness or home equity indebtedness. A qualified residence means the taxpayer's principal residence and one other residence of the taxpayer selected to be a qualified residence. A qualified residence can be a house, condominium, cooperative, mobile home, house trailer, or boat. 159 Sec. 163(h)(1). 160 Sec. 163(h)(2)(D) and (h)(3). 

Acquisition indebtedness: Acquisition indebtedness is indebtedness that is incurred in acquiring, constructing, or substantially improving a qualified residence of the taxpayer and which secures the residence. The maximum amount treated as acquisition indebtedness is $1 million ($500,000 in the case of a married person filing a separate return). Acquisition indebtedness also includes indebtedness from the refinancing of other acquisition indebtedness but only to the extent of the amount (and term) of the refinanced indebtedness. Thus, for example, if the taxpayer incurs $200,000 of acquisition indebtedness to acquire a principal residence and pays down the debt to $150,000, the taxpayer's acquisition indebtedness with respect to the residence cannot thereafter be increased above $150,000 (except by indebtedness incurred to substantially improve the residence). 

Interest on acquisition indebtedness is allowable in computing alternative minimum taxable income. However, in the case of a second residence, the acquisition indebtedness may only be incurred with respect to a house, apartment, condominium, or a mobile home that is not used on a transient basis. 

Home equity indebtedness: Home equity indebtedness is indebtedness (other than acquisition indebtedness) secured by a qualified residence. The amount of home equity indebtedness may not exceed $100,000 ($50,000 in the case of a married individual filing a separate return) and may not exceed the fair market value of the residence reduced by the acquisition indebtedness. Interest on home equity indebtedness is not deductible in computing alternative minimum taxable income. Interest on qualifying home equity indebtedness is deductible, regardless of how the proceeds of the indebtedness are used. 

For example, personal expenditures may include health costs and education expenses for the taxpayer's family members or any other personal expenses such as vacations, furniture, or automobiles. A taxpayer and a mortgage company can contract for the home equity indebtedness loan proceeds to be transferred to the taxpayer in a lump sum payment (e.g., a traditional mortgage), a series of payments (e.g., a reverse mortgage), or the lender may extend the borrower a line of credit up to a fixed limit over the term of the loan (e.g., a home equity line of credit). 

Thus, the aggregate limitation on the total amount of a taxpayer's acquisition indebtedness and home equity indebtedness with respect to a taxpayer's principal residence and a second residence that may give rise to deductible interest is $1,100,000 ($550,000, for married persons filing a separate return). House Bill The House bill modifies the home mortgage interest deduction in the following ways. 

First, under the provision, only interest paid on indebtedness used to acquire, construct or substantially improve the taxpayer's principal residence may be included in the calculation of the deduction. Thus, under the provision, a taxpayer receives no deduction for interest paid on indebtedness used to acquire a second home. 

Second, under the provision, a taxpayer may treat no more than $500,000 as principal residence acquisition indebtedness ($250,000 in the case of married taxpayers filing separately). In the case of principal residence acquisition indebtedness incurred before the date of introduction (November 2, 2017), this limitation is $1,000,000 ($500,000 in the case of married taxpayers filing separately).161 Although the term principal residence acquisition indebtedness is not defined in the statute, it is intended that this “grandfathering” provision apply only with respect to indebtedness incurred with respect to a taxpayer's principal residence. 

161 Special rules apply in the case of indebtedness from refinancing existing principal residence acquisition indebtedness. Specifically, the $1,000,000 ($500,000 in the case of married taxpayers filing separately) limitation continues to apply to any indebtedness incurred on or after November 2, 2017, to refinance qualified residence indebtedness incurred before that date to the extent the amount of the indebtedness resulting from the refinancing does not exceed the amount of the refinanced indebtedness. Thus, the maximum dollar amount that may be treated as principal residence acquisition indebtedness will not decrease by reason of a refinancing. 

Last, under the provision, interest paid on home equity indebtedness is not treated as qualified residence interest, and thus is not deductible. This is the case regardless of when the home equity indebtedness was incurred. Effective date The provision is effective for interest paid or accrued in taxable years beginning after December 31, 2017. 

Senate Amendment: The Senate amendment suspends the deduction for interest on home equity indebtedness. Thus, for taxable years beginning after December 31, 2017, a taxpayer may not claim a deduction for interest on home equity indebtedness. The suspension ends for taxable years beginning after December 31, 2025. Effective date The provision is effective for taxable years beginning after December 31, 2017. 

Conference Agreement: The conference agreement provides that, in the case of taxable years beginning after December 31, 2017, and beginning before January 1, 2026, a taxpayer may treat no more than $750,000 as acquisition indebtedness ($375,000 in the case of married taxpayers filing separately). In the case of acquisition indebtedness incurred before December 15, 2017162 this limitation is $1,000,000 ($500,000 in the case of married taxpayers filing separately).163 For taxable years beginning after December 31, 2025, a taxpayer may treat up to $1,000,000 ($500,000 in the case of married taxpayers filing separately) of indebtedness as acquisition indebtedness, regardless of when the indebtedness was incurred. 

162 The conference agreement provides that a taxpayer who has entered into a binding written contract before December 15, 2017 to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, shall be considered to incurred acquisition indebtedness prior to December 15, 2017 under this provision. 

163 Special rules apply in the case of indebtedness from refinancing existing acquisition indebtedness. Specifically, the $1,000,000 ($500,000 in the case of married taxpayers filing separately) limitation continues to apply to any indebtedness incurred on or after December 15, 2017, to refinance qualified residence indebtedness incurred before that date to the extent the amount of the indebtedness resulting from the refinancing does not exceed the amount of the refinanced indebtedness. Thus, the maximum dollar amount that may be treated as principal residence acquisition indebtedness will not decrease by reason of a refinancing. Additionally, the conference agreement suspends the deduction for interest on home equity indebtedness. 

Thus, for taxable years beginning after December 31, 2017, a taxpayer may not claim a deduction for interest on home equity indebtedness. The suspension ends for taxable years beginning after December 31, 2025. Effective date The provision is effective for taxable years beginning after December 31, 2017. Document Title:¶5017 Limitation on deduction for qualified residence interest. Checkpoint Source: Committee Reports for the Tax Cuts and Jobs Act © 2025 Thomson Reuters/Tax & Accounting. All Rights Reserved. 

MY ANSWERS TO M10 ASSIGNMENT: 

1. Find and cite the Internal Revenue Code section that deals with the ability of an individual to deduct interest on their home mortgage. Internal Revenue Code Sec. 163(h)(3) a. What are the requirements for the deductibility of interest on the mortgage on the taxpayer’s home? Interest paid on an individual taxpayer’s residential mortgage may be claimed by as SCH A itemized deduction if the interest is paid (or accrued) during the tax year on debt secured by the taxpayer’s qualified residence. The taxpayer’s home needs to be secured by that mortgage and the home needs to be a “qualified residence” as defined. A qualified residence is generally defined as 1) the taxpayer’s principal residence (main home) and 2) one other residence used by the taxpayer as a residence (e.g., vacation home). b. What are the limitations on the deductibility of home mortgage interest? The deduction is limited to debt that does not exceed $750,000 ($375,000 if married filing separately) if secured after December 15, 2017, and before January 1, 2026 ( ¶1048). 

Home mortgage interest may be deducted to the extent that the loan proceeds are used to buy, build, or substantially improve the home securing the loan, regardless of how the loan is labeled. It includes first and second mortgages, home equity loans, and refinanced mortgages. The deduction is limited to debt that does not exceed $1 million ($500,000 if married filing separately) if secured before December 16, 2017. 2. Where is deductibility of home mortgage interest discussed in the Master Tax Guide (cite to the paragraph number in the Master Tax Guide)? Wolters Kluwer U.S. Master Tax Guide (CCH), ¶ 1047 (2025) a. What is the title of the Chapter in the Master Tax Guide where this topic is found? Nonbusiness Expenses (Chapter 10) 3. Where is “qualified residence interest” discussed in the Standard Federal Tax Reporter (indicate the paragraph number)? 4. Find and cite the Regulation that discusses the deductibility of home mortgage interest. When was that regulation adopted? 5. Find the “history notes” to IRC § 163(h). 

What was the change made by the Tax Cuts and Jobs Act of 2017? 

6. Your clients Les and Lee are unmarried co-owners of a house, holding title to the house as joint tenants. With the house as security, they obtained a $1,500,000 mortgage to purchase the property. They are jointly and severally liable for that loan. They each pay for half of the mortgage. Being unmarried, they of course file separate returns. They would like to know if they can each deduct the interest on $750,000 of the loan – that is, whether the $750,000 limit in IRC § 163(h)(3)(F) is a per-taxpayer or per-residence limit. Find and cite primary authority. 

Analysis of the Tax Cuts and Jobs Act ¶ 507. Mortgage interest deduction acquisition debt maximum is lowered to $750,000, deduction for home equity interest is suspended Code Sec. 163(h)(3)(F), as amended by 2017 Tax Cuts and Jobs Act §11043(a) Generally effective: Tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026 Committee Reports, see ¶5017 Taxpayers may claim an itemized deduction for “qualified residence interest” (QRI) (the “mortgage interest deduction”). Deductible QRI is interest that's paid or accrued during the tax year on acquisition indebtedness that's secured by a qualified residence, or, under pre-Tax Cuts and Jobs Act law, it also included home equity indebtedness that was secured by a qualified residence. (FTC 2d/Fin ¶K-5470; FTC 2d/Fin ¶K-5471; FTC 2d/Fin ¶K-5490; USTR ¶1634.052).

Acquisition indebtedness is debt that's incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer. (FTC 2d/Fin ¶K-5470; FTC 2d/Fin ¶K-5484; USTR ¶1634.052) Acquisition indebtedness also includes indebtedness from the refinancing of other acquisition indebtedness, but only to the extent of the amount (and term) of the refinanced indebtedness. (FTC 2d/Fin ¶K-5470; FTC 2d/Fin ¶K-5471 et seq.; FTC 2d/Fin ¶K-5488; USTR ¶1634.052) Under pre-Tax Cuts and Jobs Act law, for purposes of the QRI deduction, the maximum amount allowed to be treated as acquisition indebtedness was $1 million ($500,000 for marrieds filing separately). (FTC 2d/Fin ¶K-5470; FTC 2d/Fin ¶K-5471 et seq.; FTC 2d/Fin ¶K-5485; USTR ¶1634.052) And under pre-Tax Cuts and Jobs Act law, home equity indebtedness was indebtedness, secured by a qualified residence, that didn't qualify as home acquisition indebtedness—i.e., a loan taken out for reasons other than to acquire, construct, or substantially improve the taxpayer's qualified residence. The amount of home equity indebtedness couldn't exceed $100,000 ($50,000 for a married individual filing separately) and couldn't exceed the fair market value of the residence, reduced by the acquisition indebtedness. (FTC 2d/Fin ¶K-5470; FTC 2d/Fin ¶K-5471 et seq.; FTC 2d/Fin ¶K-5490 et seq.; USTR ¶1634.052) 

New Law. For tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, the Tax Cuts and Jobs Acts modifies the mortgage interest deduction rules, as follows (Code Sec. 163(h)(3)(F)(i) as amended by 2017 Tax Cuts and Jobs Act §11043(a)): • Deduction for home equity interest is suspended for 2018–2025. The deduction for QRI paid on home equity indebtedness doesn't apply. (Code Sec. 163(h)(3)(F)(i)(I)) That is, for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, taxpayers may not claim a deduction for interest on home equity indebtedness. (Com Rept, see ¶5017) • Maximum acquisition debt is limited to $750,000 ($375,000 for marrieds filing separately) for 2018–2025. The aggregate amount treated as acquisition indebtedness can't exceed $750,000 ($375,000 for marrieds filing separately). (Code Sec. 163(h)(3)(F)(i)(II)) That is, for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, a taxpayer may treat no more than $750,000 as acquisition indebtedness ($375,000 for married filing separately). (Com Rept, see ¶5017) • 

Debt incurred on or before Dec. 15, 2017 is subject to $1,000,000 ($500,000 for marrieds filing separately) acquisition debt limit. The Tax Cuts and Jobs Act's $750,000/$375,000 limit on acquisition indebtedness above, doesn't apply to any indebtedness incurred on or before Dec. 15, 2017. (Code Sec. 163(h)(3)(F)(i)(III)) 

RIA observation: Thus, for acquisition debt incurred on or before Dec. 15, 2017, the limitation is $1,000,000 ($500,000 for marrieds filing separately)—i.e., the post-2025/pre-2018 limitation, as discussed below, applies.
In applying the $750,000/$375,000 acquisition debt limit above to any indebtedness incurred after Dec. 15, 2017, the $750,000/$375,000 limit must be reduced (but not below zero) by the amount of any indebtedness incurred on or before Dec. 15, 2017 that's treated as acquisition indebtedness for purposes of the deduction for QRI for the tax year. (Code Sec. 163(h)(3)(F)(i)(III))

Pre-Dec. 15, 2017 binding contract exception to $750,000/$375,000 acquisition debt limit. For a taxpayer who enters into a written binding contract before Dec. 15, 2017 to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases that residence before Apr. 1, 2018, the special rule above for debt incurred on or before Dec. 15, 2017 (limiting acquisition indebtedness to $1,000,000/$500,000) applies, by substituting “Apr. 1, 2018” for “Dec. 15, 2017.” (Code Sec. 163(h)(3)(F)(i)(IV)) 

RIA observation: That is, a taxpayer who has entered into a binding written contract before Dec. 15, 2017 to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases that residence before Apr. 1, 2018, is treated as having incurred acquisition indebtedness before Dec. 15, 2017 under the special rule above, and, so, may apply the $1,000,000/$500,000 limit. After 2025, $1,000,000/$500,000 acquisition debt limit applies, regardless of when debt is incurred. For tax years beginning after Dec. 31, 2025, the limitation on the amount of indebtedness (under Code Sec. 163(h)(3)(B)(ii), i.e., the $1,000,000/$500,000 limitation) is applied to the taxpayer's aggregate amount of acquisition indebtedness, without regard to the tax year in which the indebtedness was incurred. (Code Sec. 163(h)(3)(F)(ii)) That is, for tax years beginning after Dec. 31, 2025, a taxpayer may treat up to $1,000,000 ($500,000 for married separate filers) of indebtedness as acquisition indebtedness, regardless of when the indebtedness was incurred. (Com Rept, see ¶5017) Treatment of debt refinancings. For any indebtedness that's incurred to refinance indebtedness, the refinanced indebtedness is treated, for purposes of the special rule above for debt incurred on or before Dec. 15, 2017 (limiting acquisition indebtedness to $1,000,000/$500,000) as incurred on the date the original indebtedness was incurred, to the extent the amount of the indebtedness resulting from the refinancing doesn't exceed the amount of the refinanced indebtedness. (Code Sec. 163(h)(3)(F)(iii)(I)) Thus, the $1,000,000/$500,000 limit applies to any indebtedness incurred on or after Dec. 15, 2017, to refinance qualified residence debt incurred before that date, to the extent the amount of the indebtedness resulting from the refinancing doesn't exceed the amount of the refinanced indebtedness. 

The maximum dollar amount that may be treated as principal residence acquisition indebtedness doesn't decrease by reason of a refinancing. (Com Rept, see ¶5017) But the above rule (applying the $1,000,000/$500,000 limit) doesn't apply to any indebtedness after the expiration of the term of the original indebtedness or, if the principal of the original indebtedness is not amortized over its term, the expiration of the term of the first refinancing of the indebtedness (or if earlier, the date that is 30 years after the date of the first refinancing). (Code Sec. 163(h)(3)(F)(iii)(II)) Coordination with income exclusion rules for pre-2017 discharge of mortgage debt. Code Sec. 108(h)(2) (excluding from income, pre-2017 discharges of up to $2 million of mortgage debt on a taxpayer's main home, see FTC ¶J-7417 ; USTR ¶1084.01 ) must be applied without regard to the Code Sec. 163(h)(3)(F) rules described above. (Code Sec. 163(h)(3)(F)(iv)) Sunset. The Tax Cuts and Jobs Act changes described above won't apply for tax years beginning after Dec. 31, 2025. (Code Sec. 163(h)(3)(F)(i)) RIA client letter: A sample client letter explaining these mortgage interest deduction rules appears in ¶ 3216. Effective: Tax years beginning after Dec. 31, 2017 (2017 Tax Cuts and Jobs Act §11043(b)), and before Jan. 1, 2026. (Code Sec. 163(h)(3)(F)(i))

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Question 1 (Mandatory) (1 point) 

Citators are most important because:

Question 1 options:

New cases, rulings, and regulations are issued only once every 10 years

The Internal Revenue Code is amended frequently WRONG

New cases, rulings, and regulations are issued nearly every day TRUE

The Internal Revenue Code can never be amended

Question 2 (Mandatory) (1 point) 

A citator is: 

Question 2 options:

Primary authority

Secondary authority TRUE

Tertiary authority

Not an authority WRONG

  Although the citator involves primary authority (in determining, for example, if a case or ruling has been overturned), it is simply a tool provided by private publishers. 

Question 3 (Mandatory) (1 point) 

Most important to a researcher is a case’s: 

Question 3 options:

Subsequent history

Prior history

Question 4 (Mandatory) (1 point) 

In performing tax research, the researcher should use the citator to determine the subsequent history of authority on which he or she is relying:

Question 4 options:

Only when a ruling has been modified

When it is the secondary authority

Only when the authority relied on is old

In every research question

Question 5 (Mandatory) (1 point) 

Citators can also be used:

Question 5 options:

To determine if Regulations have recently been issued under a particular Code Section

To find additional relevant authority

Question 6 (Mandatory) (1 point) 

A citator cannot be used to determine if a subsequent change in the Internal Revenue Code makes a case no longer valid.

Question 6 options:

True

False WRONG

 A case as originally issued may later become irrelevant if the Internal Revenue Code upon which it was based was changed after the date of that case. This is generally not picked up by a citator. 

Question 7 (Mandatory) (1 point) 

The oldest and most well-known citator is called Westlaw.

Question 7 options:

True

False

the Shepard's citator that is the oldest and most well-known citator, and is available only through LexisNexis. To cite check a case is often called "Shepardizing" a case. Westlaw does have its own citation system but is not the original citator.

Question 8 (Mandatory) (1 point) 

With respect to IRS rulings such as Revenue Rulings and Revenue Procedures:

Question 8 options:

A citator will indicate whether the ruling in question is still valid and current

A typical citator will not be of assistance to determine if the ruling is current

Question 9 (Mandatory) (1 point) 

A tax periodical is secondary authority.

Question 9 options:

True

False is WRONG

Primary authority, upon which a practitioner can rely in determining a tax position, consists solely of legislative (e.g. the IRC), administrative (e.g. Treasury Regulations), and judicial (e.g. case law) sources. It does not include periodicals which contain articles written by private parties. Thus, the discussion in periodicals cannot be relied on as authority to support a tax position. However, they are helpful to keep the researcher up to date or provide an in-depth analysis of a topic.

Question 10 (Mandatory) (1 point) 

A tax newsletter is primary authority.

Question 10 options:

True

False

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