Federal Income Tax

Federal Income Tax Fall 2009 University of Cincinnati College of Law Professor Stephanie Hunter McMahon Overview. This course has three primary goals: 1) To continue students’ development as attorneys. As an attorney you must inspire confidence in your listeners. At times when you practice as a junior attorney you will get questions where you definitely know the answer and are able to speak confidently. But, at other times, you will be put on the spot and forced to hazard an educated guess on questions you are not sure of. It is important to learn to convey confidence and competence in your response even when you need to go look up the substantive answer to a client or supervisor’s question. 2) To examine the fundamental rules, definitions, and concepts of federal income taxation. After this course students should have a solid grasp of the overall structure of the income tax and how it applies to individuals, such as what is “income,” when income is taxed, and what can be deducted from income. 3) To develop the skills of statutory interpretation. Focusing on the Internal Revenue Code and the accompanying Treasury Department regulations, you will explore how statutes are written and how lawyers and legal institutions have interpreted them over time. This is a fundamental legal skill that extends far beyond tax law. This class uses the problem method. Determining what the law is and applying it to the facts of a problem require a close reading of assigned statutes, regulations, and cases. While this is not a course in accounting, you will have to do some basic math (addition, subtraction, multiplication, and division, as well as some basic fractions). Feel free to bring a calculator. Materials. The assigned texts are (i) Burke & Friel, Taxation of Individual Income, 8th edition, and (ii) Bank and Stark, Federal Income Tax Code and Regulations, 2009-2010 edition. It is very important to have current materials. Bring BOTH texts to each class session. You must read the Code and Regulations to be prepared for this course. In addition, I will post supplemental, mandatory materials in the “Course Documents” area of the class’s TWEN website. Optional materials: Marvin Chirelstein, Federal Income Taxation (2009). I highly recommend this book. If you decide to use it, be sure to obtain the latest edition. Federal Income Tax, Fall 2009 McMahon Class Meetings, Contact Information, and Office Hours. The class will meet on Tuesdays, Thursdays, and Fridays from 11:10 to 12:05 in Room 118. My regular office hours are Tuesdays and Thursdays from 1:00 to 2:00 in Room 430. I will also make myself available to meet with students by appointment. I can be reached by email at Stephanie.McMahon@UC.edu or by phone at 556-4206. Please feel free to contact me as often as you wish to ask me questions or communicate any suggestions or concerns about the course, law school, or the legal profession and your future role in it. I encourage you to write me comments or questions about the subjects we will be covering in class. As these questions will often be of interest to your fellow students, I reserve the right to forward your questions to your classmates, without your name attached, unless, of course, your email asks that your communication remain confidential, in which case I will always honor the request for confidentiality. Hypos and use of TWEN Discussion Board: Students often raise interesting hypotheticals in class that involve variations on the assigned problems. When hypotheticals are raised in class, I will generally ask the student who raised it what he or she thinks is the answer. If time permits, I may ask for others to add to the analysis of the hypothetical. If you ask a question in class that will take us beyond the assigned material or will require substantial time reviewing material previously discussed, I may defer answering the question at any length until outside of class time or I will simply post the hypothetical on the Discussion Board of the TWEN site after class so that class discussion of the hypothetical can take place there. If you ask a question that I reserve for further discussion outside of class, please do not take it personally and feel free to follow up with me outside of class in person or by email. I also encourage students with hypotheticals not raised in class to post them on the Discussion Board for other students to respond to. I will respond periodically to student posts on the Discussion Board. Tax advice: I am sorry but I cannot provide tax advice to students. Of course, I am happy to help with questions relating to the course, but I cannot address students’ personal tax situations or those of their friends, family, etc. Attendance. Class attendance is essential. Not only is regular class attendance a requirement for you to get your degree and be admitted to the bar, but students who miss a lot of classes generally perform poorly on the exam. There is no panel of students on call and I will try to call on many different students each class. Therefore, I expect you to attend class, to prepare the assignments, and to participate in the classroom discussion. Students who do so conscientiously may have their final grade raised or lowered by as much as a ½ letter grade (e.g., from a B+ to an A-). Chronic absenteeism or unpreparedness may result in sanctions, including the receipt of a “UWF” grade where appropriate. To be fully prepared for class, you will need to have read and carefully considered the assigned Code sections, Treasury Regulations, cases, rulings, etc. There are also assigned problems to help you work through the material; you must write out complete answers in order to be prepared for class. When analyzing the problems, focus on (1) the relevant legal principles; (2) the application of the principles to the facts; and (3) the conclusion. You need to be prepared to explain your analysis – the analysis is more important than your answer to the problem. 2 Federal Income Tax, Fall 2009 McMahon If you do not have time to completely prepare for class, I recommend the following priority order for the materials: (i) the assigned Code sections, (ii) the assigned Regulation sections, (iii) the assigned material in the casebook, and (iv) the problems. Grading. Fifteen percent of your grade is composed of a problem set of five professional emails of the type a practicing lawyer might send to a client. The problems will focus on statutory interpretation. You will be assigned to groups to complete this assignment. I expect to post the problems in the Assignment Drop Box on the class TWEN website on October 5, and answers will be due to me via the same source by midnight the October 23. These dates are subject to change. I will not accept responses after the given deadline. I will include a style sheet with format suggestions when I post the problems. The remaining eight-five percent of your grade is a final examination. The exam will consist of a set of multiple choice questions and short answers to be completed in an email format. One of the most important skills of a good lawyer (and one of the most important skills that you must demonstrate on my exam) is the ability to apply law to facts and come to conclusions. Course Schedule. The following is a guide; I will designate which topic(s) will be covered next at the end of each class. Always read the Code and Regulation provisions under study and always bring your Code book to class! The assignments are grouped by topic; after the first class, they do not necessarily correspond to class session. In general, we will spend approximately 1-1 ½ hours on the material assigned in each casebook chapter that we cover. Please note, the Burke & Friel casebook is excellent but its chapters are organized in an unusual way. Each chapter begins with a problem. You will find that you cannot answer the problem without first having completed the assigned reading. Following the problem in each chapter is the reading assignment for the chapter. The Code and Regulations sections listed in the casebook’s Assignment section are assigned unless the syllabus specifies otherwise. Supplemental, mandatory materials that are posted on the course’s TWEN website under Course Documents are listed in italics. 3 Federal Income Tax, Fall 2009 ASSIGNMENTS McMahon All chapter assignments are in the Burke & Friel casebook. All Code and Regulation sections and all problems within the assigned chapter are also assigned, unless otherwise noted. Materials in italics are available in the “Course Documents” section of the TWEN website. The assignments are subject to change. The assignments below are grouped by topic; after the first class, they do not necessarily correspond to class sessions. Some class sessions will cover more than one topic and others will cover less than an entire assignment. I will post on the TWEN website on the Calendar where we will start and approximately where I expect we will get to in the following class session. If you miss a class, check the Calendar on TWEN site for that information. Assignment Number Subject Matter Assigned Materials 1 Part 1: INTRODUCTION Overview of federal Preface, pp. v-vi; Chapter 1 (skim); Appendix I, pp. income taxation 1095-1100. Read only §§61, 62(a), 63(a); Rev. Proc. 2008-66 on pp. 604-11 of Code book. Basic Tax Handout; Obama tax return. Part 2: GROSS INCOME Concept of gross Chapter 2. Omit McCann, Roco. Omit sections to skim. income Omit §1.61-11(a). Omit problem 1(d) and (f). In part (b) of the problem, how would it affect your answer if the $5,000 were instead a new car worth $50,000? Loans; Effect of Chapter 3. Omit Westpac Food. Omit problem 4. Read obligations to repay §1341(a) carefully; omit §1341(b). Omit §1.61-8(b). In problem 1, how would it affect your answer if the repayment were $2,000 instead of $5,000? (Hint: Consider §1341(a).) Discharge of Chapter 9. Omit sections A.3, A.5. Omit problem 2(d), Indebtedness (e); 3. In problem 4, how much cancellation of indebtedness income does Lloyd have in each of the two scenarios? Omit §§108(c), (d)(9); (e)(1), (5); 1017(b)(3); §§1.61-12(a); 1.108-2; 1.1017-1. Basis; computing Chapter 4 – read this chapter twice. Omit problem 3. realized and Read also, pp. 888-892. Basis handout. recognized gains from dealings in property Gifts, Bequests, and Chapter 5. Omit Goodwin; Wolder. Omit problems 1 Inheritances and 2. Omit §§274(b)(1); 1015(d)(6); 1.102-1(b), (c); 1.1001-2, -4; 1.1014-2(a)(5); 1.1015-1(a). 2 3 4 5 6 4 Federal Income Tax, Fall 2009 7 Life Insurance and Annuities McMahon Chapter 8. In part A, skim Overview; skim §7702; do only problem 1; omit §§79(b)-(e), 101(g), (j); 1.101-1. In part B, skim Overview and §72(a), (b)(1) only. Omit part C. Chapter 11. Omit Gotcher; Examination of Nixon’s Tax Returns. Omit problems 1(c), 2, 4(c), (f), 5. Omit §§1.132-2(c); 1.132-3(c)(1)(ii); 1.132-4; 1.132-5; 1.1326(c), (d)(4). Skim 132(c)-(g). Omit sections to skim. Chapter 34. Omit Salvatore; Stranahan; May; Code sections assigned to skim; and “plans” 3(c)-(d) and 4 in the problem. Tax unit problems. Part 3: DEDUCTIONS 8 Fringe benefits 9 Whose income; Assignment of income 5