Federal Taxation 2020

Pearson’s Federal Taxation 2020 Corporations, Partnerships, Estates & Trusts

Kenneth E. Anderson David S. Hulse Timothy J. Rupert Anna C. Fowler Richard J. Joseph LeAnn Luna Michael S. Schadewald

Solutions Manual

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TABLE OF CONTENTS

Chapter No. Chapter Title Page No.Preface iv C:1 Tax Research C:1-1 C:2 Corporate Formations and Capital Structure C:2-1 C:3 The Corporate Income Tax C:3-1 C:4 Corporate Nonliquidating Distributions C:4-1 C:5 Other Corporate Tax Levies C:5-1 C:6 Corporate Liquidating Distributions C:6-1 C:7 Corporate Acquisitions and Reorganizations C:7-1 C:8 Consolidated Tax Returns C:8-1 C:9 Partnership Formation and Operation C:9-1 C:10 Special Partnership Issues C:10-1 C:11 S Corporations C:11-1 C:12 The Gift Tax C:12-1 C:13 The Estate Tax C:13-1 C:14 Income Taxation of Trusts and Estates C:14-1 C:15 Administrative Procedures C:15-1 C:16 U.S. Taxation of Foreign-Related Transactions C:16-1

Summary of Question and Problem Revisions C:SQR-1

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C:1-iv

Chapter C:1

Tax Research

Note: To do the online research problems for this chapter, textbook users must have access to an Internet-based tax service at their institution. Solutions are provided using RIA Checkpoint, when applicable. In some cases, solutions using other tax services may differ.

Discussion Questions

C:1-1 In a closed-fact situation, the facts have occurred, and the tax advisor‘s task is to analyze them to determine the appropriate tax treatment. In an open-fact situation, by contrast, the facts have not yet occurred, and the tax advisor‘s task is to plan for them or

shape them so as to produce a favorable tax result. p. C:1-2.

C:1-2 According to the AICPA‘s Statements on Standards for Tax Services, the tax practitioner owes the client the following duties: (1) to inform the client of (a) the potential adverse consequences of a tax return position, (b) how the client can avoid a penalty through disclosure, (c) errors in a previously filed tax return, and (d) corrective measures to be taken; (2) to inquire of the client (a) when the client must satisfy conditions to take a deduction and (b) when information provided by him or her appears incorrect, incomplete, or inconsistent on its face; and (3) not to disclose tax-related errors without the client‘s consent. pp. C:1-31 through C:1-33.

C:1-3 When tax advisors speak about ―tax law,‖ they refer to the IRC as elaborated by Treasury Regulations and administrative pronouncements and as interpreted by federal courts. The term also includes the meaning conveyed by committee reports. p. C:1-7.

C:1-4 Committee reports concerning tax legislation explain the purpose behind

Congress‘ proposing the legislation. Transcripts of hearings reproduce the testimonies of the persons who spoke for or against the proposed legislation before the Congressional committees. Committee reports are sometimes used to interpret the statute. p. C:1-7.

C:1-5 Committee reports can help resolve ambiguities in statutory language by revealing Congressional intent. They are indicative of this intent. pp. C:1-7 and C:1-8.

C:1-6 The Internal Revenue Code of 1986 is updated for every statutory change to Title 26 subsequent to 1986. Therefore, it includes the post-1986 tax law changes enacted by

Congress and today reflects the current state of the law. p. C:1-8.

C:1-7 No. Title 26 deals with all taxation matters, not just income taxation. It covers estate tax, gift tax, employment tax, alcohol and tobacco tax, and excise tax matters. p.

C:1-8.

C:1-8 a. Subsection (c). It discusses the tax treatment of property distributions in general (e.g., amount taxable, amount applied against basis, and amount exceeding basis).

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C:1-v

• Because Sec. 301 applies to the entire chapter, one should look throughout

that entire chapter (Chapter 1 of the IRC – which covers Sec. 1 through Sec. 1400U-3) for any exceptions. One special rule – Sec. 301(e) – is found in Sec. 301. This special rule explains the tax treatment of dividends received by a 20% corporate taxpayer.Section 301(f) indicates some of the important special rules found in other IRC sections.

• Legislative. Section 301(e)(4) authorizes the issuance of Treasury

Regulations as may be necessary to carry out the purposes of the subsection. pp. C:1-9

through C:1-10.

C:1-9 Researchers should note the date on which a Treasury Regulation was adopted because the IRC may have been revised subsequent to that date. That is, the regulation may not interpret the current version of the IRC. Discrepancies between the IRC and the regulation occur when the Treasury Department has not updated the regulation to reflect the statute as

amended. p. C:1-9.

C:1-10 a. Proposed regulations are not authoritative, but they do provide guidance concerning how the Treasury Department interprets the IRC. Temporary regulations, which are binding on the taxpayer, often are issued after recent revisions to the IRC so that taxpayers and tax advisers will have guidance concerning procedural and/or computational matters. Final regulations, which are issued after the public has had time to comment on proposed regulations, are considered to be somewhat more authoritative than temporary regulations. pp. C:1-9 and C:1-10.

• Interpretative regulations make the IRC‘s statutory language easier to

understand and apply. They also often provide computational illustrations. In the case of legislative regulations, Congress has delegated the rulemaking on a specific topic (either narrow or broad) to the Treasury Department. However, after the Mayo Foundation case,

both types of regulations will have the same authoritative weight. p. C:1-10.

C:1-11 Prior to 2011, courts gave more authority to legislative regulations than to interpretive regulations. However, after the Supreme Court decision in Mayo Foundation, courts will hold both interpretive and legislative regulations to the same

standard and will overturn them only in very limited cases. p. C:1-10.

C:1-12 Under the legislative reenactment doctrine, a Treasury Regulation is deemed to have been endorsed by Congress if the regulation was finalized before a related IRC provision was amended by Congress and in the interim, Congress did not amend the

statutory provision to which the regulation relates. p. C:1-10.

C:1-13 a. Revenue rulings are not as authoritative as court opinions, Treasury

Regulations, or the IRC. They represent interpretations by an interested party, the IRS.

p. C:1-12.

• If the IRS audits the taxpayer‘s return, the IRS likely will contend that the

taxpayer should have followed the ruling and, therefore, owes a deficiency. p. C:1-12.