Individual Income Taxes

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Study Guide


South-Western Federal Taxation
            Individual Income Taxes
                                     2010 EDITION

         William H. Hoffman, Jr., J.D., Ph.D., CPA
                                 University of Houston


                     James E. Smith, Ph.D., CPA
                            College of William and Mary


                      Eugene Willis, Ph.D., CPA
                  University of Illinois, Urbana-Champaign




                                      Prepared by

                            Gerald E. Whittenburg
                                 San Diego State University




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Study Guide to accompany                       2010, 2009 South-Western, Cengage Learning
South-Western Federal Taxation,
Individual Income Taxes, 2010 Edition
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Printed in the United States of America
1 2 3 4 5 6 7 13 12 11 10 09
                                                                      CONTENTS


                      PREFACE

Chapter 1          AN INTRODUCTION TO TAXATION AND
                   UNDERSTANDING THE FEDERAL TAX LAW                                                                                                            1-1

Chapter 2          WORKING WITH THE TAX LAW                                                                                                                     2-1

Chapter 3          TAX FORMULA AND TAX DETERMINATION: AN OVERVIEW
                   OF PROPERTY TRANSACTIONS                                                                                                                     3-1

Chapter 4          GROSS INCOME: CONCEPTS AND INCLUSIONS                                                                                                        4-1

Chapter 5          GROSS INCOME: EXCLUSIONS                                                                                                                     5-1

Chapter 6          DEDUCTIONS AND LOSSES: IN GENERAL                                                                                                            6-1

Chapter 7          DEDUCTIONS AND LOSSES: CERTAIN
                   BUSINESS EXPENSES AND LOSSES                                                                                                                 7-1

Chapter 8          DEPRECIATION, COST RECOVERY,
                   AMORTIZATION, AND DEPLETION                                                                                                                  8-1

Chapter 9          DEDUCTIONS: EMPLOYEE AND
                   SELF- EMPLOYED RELATED EXPENSES                                                                                                              9-1

Chapter 10         DEDUCTIONS AND LOSSES: CERTAIN
                   ITEMIZED DEDUCTIONS                                                                                                                         10-1

Chapter 11         INVESTOR LOSSES                                                                                                                             11-1

Chapter 12         ALTERNATIVE MINIMUM TAX                                                                                                                     12-1

Chapter 13         TAX CREDITS AND PAYMENT PROCEDURES                                                                                                          13-1

Chapter 14         PROPERTY TRANSACTIONS: DETERMINATION OF
                   GAIN OR LOSS AND BASIS CONSIDERATIONS                                                                                                       14-1

Chapter 15         PROPERTY TRANSACTIONS: NONTAXABLE
                   EXCHANGES                                                                                                                                   15-1

Chapter 16         PROPERTY TRANSACTIONS: CAPITAL GAINS
                   AND LOSSES                                                                                                                                  16-1

Chapter 17         PROPERTY TRANSACTIONS: SECTION 1231 AND
                   RECAPTURE PROVISIONS                                                                                                                        17-1

Chapter 18         ACCOUNTING PERIODS AND METHODS                                                                                                              18-1

Chapter 19         DEFERRED COMPENSATION                                                                                                                       19-1

Chapter 20         CORPORATIONS AND PARTNERSHIPS                                                                                                               20-1



                                                                              iii
     2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
                                                                        PREFACE




This Study Guide has been designed to be used as a supplement to the 2010 Edition of West's Federal Taxation:
Individual Income Taxes. Its purpose is to help you master the material presented in the text.

This Study Guide contains two features to help you understand income taxes.

       Chapter Highlights This section provides statements about key concepts presented in the text.

       Tests for Self-Evaluation Hundreds of questions and problems are presented (with answers) so that you may
       evaluate how well you understand the material in the text. The answers are keyed to the page numbers in the text.

I recommend the following approach as a method to use this Study Guide effectively:

       1.    Study the textbook chapter.

       2.    Review the Chapter Highlights section of the Study Guide. If something is not clear to you, review the
             chapter in the textbook.

       3.    Mark the Test for Self-Evaluation and resolve your missed answers by referring to the solutions and to the
             textbook.

It is important that you use this Study Guide as an aid to mastering the material in the textbook, and not as a replacement
for it. I suggest that you incorporate (as outlined above) the Study Guide into your regular study routine.

I would like to express my appreciation to Colt Clements and Abby Boxer for her help in preparing this edition of the
Study Guide.



                                                                                       G. E. Whittenburg, March 2009




                                                                               iv
      2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
                                                 CHAPTER 1
                                        AN INTRODUCTION TO TAXATION
                                   AND UNDERSTANDING THE FEDERAL TAX LAW




CHAPTER HIGHLIGHTS



1.1    LEARNING AND COPING WITH TAXATION

       A review of the history of the U.S. Federal tax system is helpful for the student to gain an understanding
       of the principles, which have shaped the development of the system. This chapter introduces the student to
       the structure of the U.S. Federal tax system, the major types of taxes, and the organizational aspects of
       administering the tax law.


1.2    HISTORY OF U.S. TAXATION

       A.           There have been several income taxes in the past. The first North American income tax was
                    enacted in 1634 in the Massachusetts Bay Colony. The first U.S. income tax was passed in 1861
                    to help finance the Civil War. In 1894, the Supreme Court, in Pollock v. Farmers' Loan and Trust
                    Co., held that an early version of the individual income tax was unconstitutional. In response to
                    this Supreme Court decision, a constitutional amendment was passed to authorize the individual
                    income tax. The Sixteenth Amendment, which was ratified in 1913, gave Congress the power to
                    impose and collect an income tax. Before the Sixteenth Amendment, the corporate income tax
                    was held to be an excise tax, and therefore, deemed constitutional by the Supreme Court.

       B.           Various Revenue Acts were passed between 1913 and 1939. In 1939, these Acts were codified
                    into the Internal Revenue Code of 1939, which was later recodified in 1954 and renamed in 1986
                    as the Internal Revenue Code of 1986.




                                                                               1-1
       2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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