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TRF5 08 04 Solutions Ch 8 2005 by BI6e98EE


									6091207d-7d1d-4fba-8a89-e2b406e8e0e1.doc. Federal Tax Research, Seventh Edition                                  Page 8-1

                                    CHAPTER 8
                       CITATORS and OTHER FINDING DEVICES
Discussion Questions

8-3.     Tax practitioners rely on court decisions to determine or argue the appropriate treatment of their clients' tax
         situations. They must be able to determine if subsequent events have affected the validity of the law upon
         which they rely. When a court takes some action that relies on or rejects or otherwise alters the holding of
         another case, it affects the validity of the cited case.

         Page 271

8-4.     A citator is a research tool that allows the tax researcher to both determine the history of a case and
         evaluate the strength of its holdings. A citator may also facilitate locating cases more on point with the
         client’s facts.

         Pages 271

8-5.     A cited case is the case that is being analyzed for its history or precedential value. It can also be referred to
         as the main case.
         Citing cases are those cases which have made reference to the cited case.
         When one case refers to another case, it cites the latter case.
         The name of the cited case and where it can be found is referred to as a citation.

         Page 271

8-6.     A citator does not provide all types of information about a case or a ruling. Citators do not guide the
         researcher to documents related to the case or ruling that do not specifically cite it nor do they indicate
         when a case or ruling is no longer effective because of changes in the Code, unless the Code itself
         specifically identifies the document.

         Page 271

8-7.     Three commercial citators that focus exclusively on tax cases are the following.
                The Commerce Clearing House Citator, which is sold as part of the Standard Federal Tax
                 Reporter or the Internet service Tax Research Network.
                Research Institute of America PH Citator and Citator 2nd Series (RIA Citator series), is published
                 separately from the RIA United States Tax Reporter and Federal Tax Coordinator 2d Service and
                 is offered through the RIA Internet service, Checkpoint.
                Shepard’s Federal Tax Citations, which is not part of any commercial tax service. It is offered
                 through of Lexis.

         Page 273

8-8.     A general directing cite sends the researcher to the first page of the citing case whereas a local directing
         cite points the researcher to the exact page where the cited case is mentioned in the citing case. For
         example, Richard W. Drake (52 TC 842) is cited in Nammack (56 TC 1379) on page 1383. The CCH citing
         is general, Nammack, 56 TC 1379, whereas the RIA and Shepard’s Citators have local cites, Nammack, 56
         TC 1383.

         Page 273

8-9.     Shepard's was the first to introduce the citator as an aid to legal research. Because of its early entry into the
         citator market, and the breadth of its coverage, legal researchers often refer to the process of evaluating the
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          validity of a case and locating additional authority via a citator as “Shepardizing” the case.

          Page 274

8-10.     Shepard’s has a greater breadth of coverage than the RIA and CCH citators. Shepard's has developed
          citators for virtually every case reporter series, as well as for specialized areas of the law, such as taxation.
          RIA and CCH citators cover only taxation cases.

           Pages 274 to 276
----------------------------------------------------------------------------------------------------------------------------- ----------

8-56.     a.         The John Doe decision was rendered in 1974.
          b.         The John Doe citation in the F2d court reporter is 494 F2d 1279.
          c.         The John Doe citation in the AFTR2d court reporter is 33 AFTR 2d 74-1026. This citation cannot
                     be found in the CCH Citator. The case must be found in one of the other citators.
          d.         The court of original jurisdiction for the John Doe case was the Virginia District Court.

Cases 57-59 were not assigned in this Tax Research Course
8-57.     a.         William H. George 26 TC 396.
          b.         CCH Annotation title at 2004FED ¶16,753.707 is “Corporate Reorganizations: Substantially All
                     the Property: Equity, but not shares, transferred”.
          c.         Sec. 368 - Definitions Relating to Corporate Reorganizations.
          d.         Rev. Rul. 78-47, 1978-1 CB 113 issued Jan. 01, 1978; titled “Reorganization; “substantially all"
                     assets transferred,” cite the George case favorably. The student would either have to read the Rev
                     Rul or use a different citator to determine how the Rev Rul. treats the case.

8-58.     a.         The complete Cumulative Bulletin citation for Revenue Ruling 1979-162 is: Rev. Rul. 1979-162,
                     1979-1 CB 116. It is no longer a valid Revenue Ruling; Rev. Rul.1999-28 revoked it.
          b.         The tax issue Rev. Rul. 1979-162 addresses is whether the cost of completing a course designed to
                     help people stop smoking deductible under section 213 of the Internal Revenue Code of 1954.
          c.         The Federal Tax Coordinator 2d does not reference Rev. Rul. 1979-162 but discusses Rev. Rul.
                     1999-28 at ¶K-2117 - Programs to stop smoking. Rev. Rul. 1979-162 is annotated at Ann
                     ¶2135.05(85) - Miscellaneous expenses.
          d.         Rev Rul 1979-162 is initially presented in paragraph 1979 CCH & 6623.
          e.         The Annotations & Explanations (Code Arranged - USTR) paragraph that mentions Rev Rul
                     1979-162 is Ann ¶ 2135.05(85) - Miscellaneous expenses.

8-59.     a.         Students’ responses may vary. However, both RIA and CCH permit searches by the case name.
          b.         CCH and RIA in this instance do provide the same list of cases, although not in the same order.
          c.         The citing cases treated the Kunze case either favorably or generally. RIA Citator would provide
                     this information; CCH would not.
          d.         The issues involved appear to be constitutional, jurisdictional, and awarding court costs based on
                     net worth. It was easier to determine this information using CCH.

8-60.     a.         The full citation for Revenue Ruling 1999-49 is: Rev. Rul. 1999-49, 1999-2 CB 667.
                     The full citation for Revenue Ruling 2000-56 is: Rev. Rul. 2000-56, 2000-2 CB 598.
          b.         Both revenue rulings have been superseded; Rev. Rul. 1999-49 was superseded by Rev. Rul.
                     2000-56 and Rev. Rul. 2000-56 was superseded by Rev. Rul. 2001-64. The Rev. Rul. is
                     superceded every year, thus, the ruling applicable in 2004 was Rev. Rul. 2004-108.
          c.         Each ruling superceded the prior year’s ruling on below-market loans to continuing care facilities.
          d.         The Rulings provide the amount that taxpayers may lend qualifying continuing care facilities at
                     interest rates below market without incurring imputed interested. The rates are adjusted for
                     inflation each year and thus, a new ruling is issued each year that supersedes the prior year ruling.
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Note to Student: The remaining cases were not assigned, but are
provided to you in case you may want to read about them.
Research Cases

The solutions to the research cases are valid as of August 2004. It is likely that there will be changes in the Code,
Regulations, Administrative Pronouncements, and Case law after this manual is published. Further, it is likely that
the services available to the students will not be identical to those available to the authors of this manual. All
possible citations are not provided; only a sample of the citations most likely provided by students is presented.
Consequently, the student responses may vary from those listed for each question.

The information provided, in the parentheses at the end of each solution, is the search process utilized to find the
answer to the research case. This is not the only research path; it is merely one of many possible methods.

8-61.    This solution assumes that other Code requirements are met such as having receipts for the expenses. The
         answer to this problem is different for 2003 and 2004. For 2003, elementary and secondary educators were
         allowed a FOR AGI deduction for up to $250 of school supplies. Any excess would be treated as an
         unreimbursed employee expense. In this case, Jamie would deduct the amount in excess of $250 as an
         itemized deduction subject to the 2% limitation. Jamie would also be able to deduct the mileage allowance
         for the trip to the educational store. For 2004, all of the costs would be deductible as an itemized employee
         business expense. (2003: RIA keywords - “Educators Expenses”; CCH use archives for 2003. 2004:
         keywords teachers supplies)

         Code              §§ 62(a)(2)(D); 62(d); 162

         Cases             Seymour Feinstein, TC Memo 1970 – 288
                           J.B. Wheatland, TC memo 1964 – 95
                           Gudmundsson, TC Memo. 1978-299.

8-62.    Ted is allowed the workers compensation exclusion on the amount he receives from the city. (keywords -
         worker compensation survivor)

         Code              § 104

         Regulation        Reg §1.104-1(b)

         Rulings           Rev Rul 80-44 , 1980-1 CB 34; IRS Letter Ruling 9740020; IRS Letter Ruling 9818023 .
                           Rev Rul. 72-291, 1972-1 CB 36

8-63.    Amounts paid by Peggy for the smoking cessation program and for prescription drugs to alleviate nicotine
         withdrawal are deductible under § 213. Scientific evidence has established that nicotine is addictive and
         that smoking is detrimental to one's health. However, over-the-counter treatments such as nicotine patches
         and chewing gum aren't deductible because they don't require a prescription, which is necessary to qualify
         for deductibility under § 213(b). (CCH SFITR Table of contents search: Medical § 213 keyword smoking;)

         Code              §§213, 213(b)

         Rulings           Rev Rul 99-28, 1999-1 CB 1269
                           IR News Release 1999-55, 6/11/1999

8-64.    The seller cannot deduct the points in the current year as interest, as there is no debt to which the points
         relate. However, buyers may claim a tax deduction for points paid in connection with the purchase of a
         principal residence even if the seller of the property pays the points. Under this rule, the seller is treated as
         having paid the amount of the points to the buyer who, in turn, is treated as having used that cash to pay the
         points charged by the lender. The amount of the seller-paid points is subtracted from the purchase price in
         computing the basis of the residence. (RIA FTC Table of contents search : K 5020 & K 5170)
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         Ruling            Rev Proc 94-27, 94-1 CB 613
                           Rev Rul 69-188, 69-1 CB 54

         Case              George Williams, TC Memo 1966-43

8-65.    The Bed and Breakfast activities qualify as a rental activity. Therefore, they are subject to the vacation
         home and passive activity rules. (CCH SFITR Index drill down to “bed and breakfast”)

         Code              §280A

         Rulings           PLR 8732002

         Cases             Buchholz, TC Memo 1983-378
                           Byers, 82 TC 919 (1984)
                           Razavi, TC Memo 1993-624

8-66.    The income shift will be recognized if the parents improved the child’s skills or provide personal services
         that benefit the child’s career. The parents must substantiate that the arrangement for payment existed prior
         to signing the contract. If the funds are received by the child and then are transferred to the parents for
         services rendered, the child receives a business deduction, which could be considered salary payments to
         the parents. (CCH keywords parent child contract. SFITR, Table of contents search § 162 entertainer)

         Code              §§73 and 162

         Cases             Hundley, 48 TC 339
                           Allen, 410 F2d 398 (1969)
                           Rodgers, 38 TCM 573 (1979)

8-67.    Divorce costs are personal in nature and are non-deductible expenses. The psychologist’s recommendation
         of divorce does not make the divorce a medical expense. If the wife incurs medical expenses, they will
         qualify for that deduction. (RIA FTC Table of contents search – K 2100 & L2900 keyword divorce)

         Regulation        Reg § 1.262-1(b)(7)

         Cases             Jacobs, 62 TC 813
                           Middleman, TC Memo 1970-118
                           Kozak, TC Memo 1971-167

8-68.    The commission reduces sales, as a cost of doing business. They are not a non-deductible fine or bribe,
         because state laws against such payments (if they exist) are not enforced, and the payments are commonly
         made in the industry. (CCH Index drill down to kickbacks)

         Regulation        Reg § 1.162-18(b)(3)

         Rulings           Rev Rul 58-479, 1958-2 CB 60

         Cases             Fiambolis, 57-2 USTC ¶9805
                           Valetti, 260 F2d 185 (1958)
                           Richardson, 16 TC M 518 (1957)
                           Brizell, 93 TC 151

8-69.    Clara will qualify for the lifetime learning credit to the extent of the tuition and related fees limitation for
         the courses she has taken during the year. The travel costs do not qualify for the lifetime learning credit.
         Clara might rather try to deduct the expenses as employee educational costs. Whether Clara can deduct the
         expenses she incurred depends on whether they were undertaken to maintain or improve existing skills
         required by her employment or to meets the express requirements of her employer. Since Clara has no
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         formal training in any of the areas in which she works, it is questionable whether she has existing skills to
         maintain. It is clear that her employer is not requiring her to attend the seminars or college classes. If Clara
         can prove the expenses meet the requirements, the seminar costs may be deductible as miscellaneous
         expenses. (RIA FTC Table of contents search A4500 & L3700)

         Code              §§ 25A, 67, 162

         Notice            Notice 97-60

         Regulations       Reg §§ 1.25A-4, 1.67-1T, 1.162-5

         Cases:            Nathan Fleischer, 22 AFTR 2d 5765
                           Robert Boser, 77 TC 1124 (1981)
                           Michael Rossum, TC Memo 1985-593
                           Gordon Raines, TC Memo 1983-125

8-70.    This solution assumes that the other Code requirements are met, so that the indicated amount of business
         expense will be deductible by the taxpayer.
         The accompanying spouse must have a business purpose for attending the meeting. No business purpose
         appears to exist here because the husband could have taken taxis. Permanently handicapped persons can
         qualify for deductions as described in the problem, but it is usually claimed a medical expense deduction
         for the wife’s attendance. (CCH SFITR Table of contents §161-162 Keywords helper disabled)

         Rulings           Rev Rul 55-57, 1955-1 CB 315
                           Rev Rul 56-168, 1956-1 CB 93
                           Rev Rul 75-317, 1975-2 CB 57
                           PLR 8327065

         Cases             Zubrod, TC Memo 1967-204
                           Rieley, TC Memo 1964-66
                           Buck, 47 TC 113 (1966)
                           Goldaper, TC Memo 1977-343
                           Reisner, 34 TC 1122 (1960)
                           Megeath, 5 BTA 1274 (1927)
                           Quinn, 40 AFTR2d 77-5097
                           Allenberg Cotton Co. Inc., 61-1USTC ¶9131

8-71.    The head of a household must maintain a home in which the head of household and qualifying person lives
         for more than six months. The children must live with Brown for him to qualify as head of household.
         However, the Ninth Circuit Court of Appeals in Clair Smith, 13 AFTR 2d 1633 (1964) indicated that the
         house that the dependent lived in as a principal residence did not have to be the taxpayer’s principal
         residence. The taxpayer only had to reside in the home for a portion of the year, not more than 50%. The
         IRS have indicated they will not follow this case. (RIA FTC Table of contents A1411)

         Code              §2

         Regulations       Reg. §1.2-2

         Rulings           Rev Rul 72-43, 1972-1 CB 4
                           Rev Rul 54-498, 1954-2 CB 107

         Cases             Grace, 421 F2d 165 (1969)
                           Biolchin, 433 F2d 301(1970)
                           McDonald TC Memo 1991-242

8-72.    The deductibility of Alice’s entertaining of the faculty at her home are contingent on whether they are
6091207d-7d1d-4fba-8a89-e2b406e8e0e1.doc. Federal Tax Research, Seventh Edition                             Page 8-6

         ordinary and necessary expenses for her position. Also important is the reason for the entertainment.
         Maintaining good morale is not a sufficient motivation but utilizing the entertainment to motivate faulty
         would help with the deductibility. Detailed records of the expenses and reasons for the expenditures would
         be necessary for any of the costs to be deductible. (CCH SFITR Table of contents § 161 & 162, Meals and
         Entertainment Keyword employee)

         Code              §§ 162, 274

         Regulations       Reg § 1.274-2

         Ruling            Rev Rul 78-373, 78-2 CB 108

         Cases             W.F. Burrhus, 52 TCM 447, TC Memo. 1986-430.
                           A.D. Crews, 11 TCM 511
                           E.A. Walsh, 20 TCM 367, TC Memo. 1961-80.
                           Christensen, 17 TC 1456
                           S.A. Mulne, 72 TCM 111, TC Memo. 1996-320.

8-73.    Assuming no insurance recovery, there is no deduction for the casualty loss. Casualty losses are limited to
         the basis of the property, which in this case is zero. (RIA FTC Table of contents M 1800 keyword

         Regulation        Reg. §1.165-7

         Cases             Clark, TC Memo 1966-22
                           Davis, 34 TC 586
                           Alcoma Assn Inc, 239 F2d 365(1956)
                           Winter TC Memo 1983-584
                           Fisher, TC Memo 1997-225
                           Bowman, TC Memo 1979-432

8-74.    Damages paid are non-deductible and damages received are excluded from gross income. If the court
         approved the reduction of the payment to $12,000, the transaction is closed. Lacking such approval, an
         $18,000 receivable exists and Buddy might claim a non-business bad debt deduction. Matt would have
         income for a forgiveness of debt. (CCH SFITR Table of contents §§ 61, 108, 165, 166)

         Code              §§61, 104, 108,165

         Rulings           Rev Rul 82-202, 1982-2 CB 35
                           Rev Rul 91-31, 1991-1 CB 19

         Cases             Hall, 41 TCM 282 (1980)
                           Meyer, 547 F2d 943 (1977)
                           Schleier, v. Com., 95-1 USTC ¶50,309

8-75.    a.        Larry has $15,000 of gross income from the embezzlement and Floyd has $15,000 of gross
                   income from the scam sale under the claim of right doctrine. (RIA FTC Table of contents J 1600)

         Code              § 61

         Ruling            Rev Rul 61-185, 1961-2 CB 9

         Cases             James, 366 US 213 (1961)                     Geiger 16 AFTR 2d 5805
                           Aker v Scofield 36 AFTR 981                  Jannsen 15 AFTR 2d 64
                           McDanial TC Memo 1977-256                    Olken, TC Memo 1987-589
                           Naegle, 378 F2d 397 (1967)                   Dingler, TC Memo 1990-411
                           Shipley, TC Memo 1981-630
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         b.        Larry’s income is reduced when, and to the extent restitution is made. The amount repaid is
                   deductible as an itemized (loss) deduction. (RIA FTC Table of contents J 1600)

         Code              § 165

         Ruling            Rev Rul 65-254, 1965-2 CB 50

         Cases             James, 366 US 213 (1961)
                           Gerome, 80-1 USTC ¶9301
                           Hauser, TC Memo 1970-207

8-76.    Reverend Ruth has gross income of $50,000 for her salary. The allowance for the parsonage is excluded
         from income to the extent it is used for rent and housing related costs. Thus, the unused housing allowance
         of $1,500 is income. If Ruth comes under the Social Security system, she must include as self-employment
         the income rental allowance. (CCH SFITR Keywords parsonage rental)

         Code              §107

         Rulings           PLR 8825025
                           Rev Rul 59-350, 1959-2 CB 45
                           Rev Rul 78-448, 1978-2 CB 105

         Cases             Reed, 82 TC 208
                           Swaggart, TC Memo 1984-409
                           Rasmussen, TC Memo 1994-311

8-77.    The grant is not designated to cover tuition and books bur rather for research, therefore the full amount of
         the grant ($13,000) is taxable as income. It does not qualify as a scholarship. What she does with the
         money is irrelevant for tax purposes. (RIA FTC Table of content search J 1230 Keywords research grant)

         Code              § 117

         Regulations       Prop Reg § 1.117-6

8-78.    The examination books do not constitute gross income until Professor Dodd makes a charitable
         contribution of them to the library. In order to take the charitable contribution, the books must be included
         in income. (RIA FTC Keywords unsolicited gifts)

         Rulings           IR-1062, 8/22/70
                           Rev Rul 70-498, 1970-2 CB 6
                           PLR 8109003
                           PLR 8109004

         Cases             Haverly, 513 F2d 224 (1975, CA 7)

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