Pearson s Federal Taxation Comprehensive (2017 edition) Textbook Updates

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1 Pearson s Federal Taxation Comprehensive (2017 edition) Textbook Updates Several chapters Table of Updates Sorted by Chapter The IRS has issued its annual Revenue Procedure with the inflation-adjusted amounts for the personal exemption, standard deduction, etc. Here is the link to Rev. Proc , which has these inflation-adjusted amounts for 2017: Chapter I:1 An Introduction to Taxation Chapter I:2 Determination of Tax Page I:2-35 PowerPoint slide I:2-14 PowerPoint slide I:2-32 Chapter I:3 Gross Income: Inclusions Chapter I:4 Gross Income: Exclusions Page I:4-20 PowerPoint slide I:4-29 Chapter I:5 Property Transactions: Capital Gains and Losses Page I:5-19 Chapter I:6 Deductions and Losses Chapter I:7 Itemized Deductions Chapter I:8 Losses and Bad Debts Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-36 1

2 Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I: to I:10-17 and Appendix C Page I:10-19 Page I:10-31 Problem I:10-5 Problem I:10-24 Problem I:10-40 Problem I:10-49 Chapter I:11 Accounting Periods and Methods Test Bank, LO2, Item #20 Chapter I:12 Property Transactions: Nontaxable Exchanges Test Bank, LO3, Item #18 Chapter I:13 Property Transactions: Section 1231 and Recapture Chapter I:14 Special Tax Computation Methods, Tax Credits, and Payment of Tax Test Bank, LO5, Item #6 Chapter C:1 Tax Research Chapter C:2 Corporate Formations and Capital Structure Chapter C:3 The Corporate Income Tax Page C:3-11 Problem C:3-66 PowerPoint slide C:3-10 Chapter C:4 Corporate Nonliquidating Distributions Chapter C:5 Other Corporate Tax Levies Page C:5-6 Chapter C:6 Corporate Liquidating Distributions Chapter C:7 Corporate Acquisitions and Reorganizations 2

3 Chapter C:8 Consolidated Tax Returns Page C:8-38 Page C:8-40 Chapter C:9 Partnership Formation and Operation Chapter C:10 Special Partnership Issues Chapter C:11 S Corporations Chapter C:12 The Gift Tax Problem C:12-31 Problem C:12-58 Chapter C:13 The Estate Tax Problem C:13-63 Chapter C:14 Income Taxation of Trusts and Estates Problem C:14-44 Chapter C:15 Administrative Procedures Page C:

4 Table of Updates Sorted by Date of Posting on Web Site Posted 5/3/2016: Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I: to I:10-17 and Appendix C Posted 7/11/2016: Chapter I:2 Determination of Tax PowerPoint slide I:2-32 Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-36 Posted 10/12/2016: Chapter I:2 Determination of Tax PowerPoint slide I:2-14 Chapter I:4 Gross Income: Exclusions PowerPoint slide I:4-29 Chapter C:3 The Corporate Income Tax Page C:3-11 PowerPoint slide C:3-10 Posted 11/2/2016: Several chapters: Rev. Proc Chapter C:8 Consolidated Tax Returns Page C:8-40 Posted 12/2/2016: Chapter I:4 Gross Income: Exclusions Page I:4-20 Chapter I:11 Accounting Periods and Methods Test Bank, LO2, Item #20 Chapter I:12 Property Transactions: Nontaxable Exchanges Test Bank, LO3, Item #18 Chapter I:14 Special Tax Computation Methods, Tax Credits, and Payment of Tax Test Bank, LO5, Item #6 4

5 Posted 1/26/2017: Chapter I:5 Property Transactions: Capital Gains and Losses Page I:5-19 Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Page I:10-19 Page I:10-31 Problem I:10-5 Problem I:10-24 Problem I:10-40 Problem I:10-49 Chapter C:12 The Gift Tax Problem C:12-31 Problem C:12-58 Chapter C:13 The Estate Tax Problem C:13-63 Chapter C:14 Income Taxation of Trusts and Estates Problem C:14-44 Posted 2/24/2017: Chapter I:2 Determination of Tax Page I:2-35 Chapter C:5 Other Corporate Tax Levies Page C:5-6 Chapter C:8 Consolidated Tax Returns Page C:8-38 Chapter C:15 Administrative Procedures Page C:15-11 Posted 4/21/2017: Chapter C:3 The Corporate Income Tax Problem C:3-66 5

6 Textbook Updates Several chapters: The IRS has issued its annual Revenue Procedure with the inflation-adjusted amounts for the personal exemption, standard deduction, etc. Here is the link to Rev. Proc , which has these inflation-adjusted amounts for 2017: Chapter I:1 An Introduction to Taxation Chapter I:2 Determination of Tax Page I:2-35 (2/24/2017) The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the due date for calendar-year C corporations from March 15 to April 15. It also changed Sec. 6081(b) to allow an automatic five-month extension for such corporations through The IRS recently announced that, under Sec. 6081(a), it will allow an automatic six-month extension for calendar-year C corporations. The last sentence on page I:2-35 thus should read as follows: C corporations also file Form 7004 to obtain an extension, but it is six or seven months, depending on the fiscal year-end. Here is a link to the IRS announcement regarding this change: PowerPoint slide I:2-14 (10/12/2016) The 7.5%-of-AGI threshold for the medical expense deduction applies for individuals who are age 65 or older (not over age 65). However, note that this threshold will be 10% for all individuals, regardless of age, for taxable years beginning after December 31, PowerPoint slide I:2-32 (7/11/2016) At the box containing Will taxpayer claim someone else as a dependent, the label for the arrow pointing up should be YES (not NO ), and the label for the arrow pointing right should be NO (not YES ). A revised PowerPoint slide reflecting this will be posted shortly, but you should note this correction if you already have accessed the file containing this slide. 6

7 Chapter I:3 Gross Income: Inclusions Chapter I:4 Gross Income: Exclusions Page I:4-20 (12/2/2016) In Example I:4-28, the second line should refer to an exclusion of $101,300 (not $100,800). The example later correctly uses the $101,300 amount. PowerPoint slide I:4-29 (10/12/2016) The conjunction between the two qualifications for the exclusion should be OR (not AND ). Chapter I:5 Property Transactions: Capital Gains and Losses Page I:5-19 (1/26/2017) Example I:5-55 should indicate that Raef s purchase of the Monona stock was on October 1, 2008 (not 2009). That is, the purchase date should be when the exclusion percentage was 50%. The example s $1.9 million exclusion is correct for a 50% exclusion percentage. Chapter I:6 Deductions and Losses Chapter I:7 Itemized Deductions Chapter I:8 Losses and Bad Debts Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-36 (7/11/2016) In the second paragraph, the first sentence should say that, if a nonqualified stock option has a readily ascertainable FMV, the employee recognizes ordinary income on the grant date equal to the fair market value of the option over the amount paid (if any) for such property. It 7

8 should not say that the ordinary income equals the difference between the stock s FMV and the option s exercise price). Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I:10-13 to I:10-17 and Appendix C (5/3/2016) The textbook notes (on pages 14 and 16 and at Table 6 in Appendix C) that, at the time the 2017 edition went to print, the IRS had not yet released the 2016 ceiling limits for luxury automobiles. The IRS has since released these limits. The 2015 and 2016 ceiling limits are the same for passenger automobiles, but they differ for trucks and vans. The textbook s content is affected by the IRS release in these ways: Appendix C: An updated version of Table 6 is available here. Example I:10-22: All of the amounts are correct. Additional Comment on page 14: The $15,800 amount is correct. Table I:10-3: All of the amounts are correct. Example I:10-25: All of the amounts are correct. Page 16: Replace the table in the middle of the page with the following: Annual Ceiling Limitations Year 1 (2016) $3,560 or $11,560* Year 2 (2017) 5,700 Year 3 (2018) 3,350 Year 4 (2019 and subsequent years) 2,075 *If the taxpayer does not elect out of bonus depreciation. Footnote 25: This should refer to Rev. Proc The update for the solutions manual notes changes pertaining to the end-of-chapter Problem Materials. Similarly, the textbook notes (on page 16 and at Tables 13 and 14 in Appendix C) that, at the time the 2017 edition went to print, the IRS had not yet released the 2016 lease inclusion amounts. The IRS has since released these amounts, and they differ from the 2015 amounts. The textbook s content is affected by the IRS release in these ways: Appendix C: Updated versions of Tables 13 and 14 are available here. Example I:10-26: The last three sentences should be as follows: For 2016, this reduction was $34 ($ ). Thus, Jim s auto lease deduction for 2016 was $5,726 ($5,760 $34). For 2017, the second year, Jim s auto lease deduction is $5,686 [$5,760 ($ )]. The update for the solutions manual notes changes pertaining to the end-of-chapter Problem Materials. 8

9 Solutions Manual Updates: Note to Instructors about Chapter I:10: As noted on page I:10-16 and Appendix C of the text, the IRS had not yet released the 2016 ceiling amounts for luxury automobiles and the lease inclusion amounts at the time this edition went to press. The IRS has since released these amounts. The 2015 and 2016 ceiling limits are the same for passenger automobiles, but they differ for trucks and vans. The lease inclusion amounts are also different for 2016 than they were in In the Solutions Manual, we use the amounts based on the tables originally published in the text. However, below is a summary of the end-of-chapter questions that involve these tables and changes that would result from using the updated tables. I:10-8. No changes in the numbers included in the solution. Part c of the problem refers to the lease inclusion tables, but does not incorporate numbers from the tables in the solution. I: No changes in the numbers included in the solution. I: The IRS has released updated amounts for lease inclusion for 2016 that differ from the 2015 lease inclusion amounts that appear in Tables 13 and 14 of Appendix C. The lease inclusion amounts for a passenger automobile (that is not a truck or van) with a lease term beginning in 2016 whose fair market value is over $58,000 but not over $59,000 is $77 for the first year (see updated Table 13) Thus, Sarah s lease payment deduction, using the updated amount, is computed as follows: Lease payments ($600/month x 10 months) $6,000 Minus: Lease inclusion amount from Rev. Proc ($77 x 306/366) (64) Deductible lease payments in 2016 $5,936 I: No changes in the numbers included in the solution. I: No changes in the numbers included in the solution. I: No changes in the numbers included in the solution. I: No changes in the numbers included in the solution. I: The IRS has released updated amounts for lease inclusion for 2016 that differ from the 2015 lease inclusion amounts that appear in Tables 13 and 14 of Appendix C. The lease inclusion amounts for a passenger automobile (that is not a truck or van) with a lease term beginning in 2016 whose fair market value is over $40,000 but not over $41,000 is $44 for the first year and $97 for the second year (see updated Table 13). Thus, in part b, Troy must reduce his annual lease payment deduction by $35 ($44 x 0.80) in 2016 and by $78 ($97 x 0.80) in 2017, using the updated amounts. I: The limits for passenger automobiles (that are not trucks or vans) that are placed in service in 2016 are the same as they are for such vehicles placed in service in Thus, the amounts used in the Purchase the car portion of the answer are correct for

10 The 2016 lease inclusion amounts released by the IRS differ from the 2015 lease inclusion amounts that appear in Tables 13 and 14 of Appendix C. However, the problem says to assume for simplicity that the lease inclusion amount is $230 per year, so the amounts from Tables 13 and 14 are not used in the solution. Page I:10-19 (1/26/2017) Examples I:10-29 and I:10-30 should refer to Example I:10-27 (not Example I:10-28). Page I:10-31 (1/26/2017) In Problem I:10-28, the second sentence should say that Large did not claim Sec. 179 expensing or bonus depreciation on any of the properties (not that it did not elect Sec. 179). Problem I:10-5 (1/26/2017) Part b of the solution manual s answer, should read as follows (changed language in bold): If Robert elected Sec. 179 in 2016, he would deduct all $50,000 (which is less than the $500,000 maximum amount allowed under Sec. 179 for 2016). There would be no cost remaining to depreciate under MACRS, so his total depreciation deductions would be $50,000 for 2016 and $0 for Problem I:10-24 (1/26/2017) The third-to-last line of the solution manual s answer should say 0.40 (not 0.35). The $140,000 and $350,000 amounts are correct. Problem I:10-40 (1/26/2017) In the Solution Manual s answer for part a, the unrecovered basis at the end of 2019 and subsequent years should be as follows: 2019: $22,815 ($24,690 $1,875) 2020: $20,940 ($22,815 $1,875) 2021: $19,065 ($20,940 $1,875) For 2022 and subsequent years, the unrecovered basis is reduced by $1,875 each year. Problem I:10-49 (1/26/2017) The third-to-last line of the solution manual s answer should say PV of $121 (not PV of $119), consistent with the line preceding it. The $5,968 amount is correct. Chapter I:11 Accounting Periods and Methods Test Bank, LO2, Item #20 (12/2/2016) The correct choice is B (not A). The explanation correctly notes that $1,000 of the payment is deductible for

11 Chapter I:12 Property Transactions: Nontaxable Exchanges Test Bank, LO3, Item #18 (12/2/2016) The correct choice is D (not A). The explanation correctly notes that of the gain is taxable, which means that Jenna may exclude all $40,000 of the gain. Chapter I:13 Property Transactions: Section 1231 and Recapture Chapter I:14 Special Tax Computation Methods, Tax Credits, and Payment of Tax Test Bank, LO5, Item #6 (12/2/2016) The correct choice is B (not C). The explanation correctly notes that Amelida may rely on the 110% safe harbor because her prior year AGI exceeded $150,000. Chapter C:1 Tax Research Chapter C:2 Corporate Formations and Capital Structure Chapter C:3 The Corporate Income Tax Page C:3-11 (10/12/2016) The second point following the paragraph titled Timing of the Deduction should read as follows (changed language in bold italics): The corporation pays the contribution on or before the fifteenth day of the fourth month following the end of the accrual year (third month if the corporation has a June 30 year-end). Problem C:3-66 (4/21/2017) In the Instructor Resource Manual s solution, Form 1120, Schedule C, Line 20, the amount should be $6,720 rather than $6,270. The correct number, $6,720, nevertheless is correctly displayed elsewhere on Schedule C and also is reported correctly on Form 1120, Page 1, Line

12 PowerPoint slide C:3-10 (10/12/2016) The 3½ months that item b) under Exception mentions is generally correct. However, it is only 2½ months for a C corporation whose taxable year ends on June 30 (for taxable years ending before January 1, 2026). Chapter C:4 Corporate Nonliquidating Distributions Chapter C:5 Other Corporate Tax Levies Page C:5-6 (2/24/2017) Near the bottom of the page, replace the language starting with Property to which bonus depreciation applies... and continuing onto the first two lines of the next page with the following: Property for which the taxpayer claims bonus depreciation is depreciated the same way for AMT purposes as it is for regular tax purposes. Thus, no AMT depreciation is required. Property eligible for bonus depreciation for which the taxpayer elects out of bonus depreciation also is depreciated the same way for AMT and regular tax purposes if it is placed into service after However, if the taxpayer elects out of bonus depreciation for property placed into service before 2016, the taxpayer calculates AMT depreciation using the 150% declining balance method discussed above. Chapter C:6 Corporate Liquidating Distributions Chapter C:7 Corporate Acquisitions and Reorganizations Chapter C:8 Consolidated Tax Returns Page C:8-38 (2/24/2017) The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the due date for calendar-year C corporations from March 15 to April 15. It also changed Sec. 6081(b) to allow an automatic five-month extension for such corporations through The IRS recently announced that, under Sec. 6081(a), it will allow an automatic six-month extension for calendar-year C corporations. The Additional Comment 12

13 thus should read as follows: If a corporation or consolidated group has a June 30 year end, the filing deadline remains as the fifteenth day of the third month after the end of its taxable year (i.e., September 15) until tax years beginning after In addition, the extension for filing its tax return is seven months until The fourth sentence in the paragraph to the right of that additional comment should refer only to a June 30 year-end and no longer refer to a December 31 year-end. Here is a link to the IRS announcement regarding this change: Page C:8-40 (11/2/2016) The second additional comment mentions an accounting standards change the FASB is considering. The FASB has issued ASU , finalizing the change. The treatment discussed on page C:8-40 continues to apply for intra-group inventory transfers, but it will not apply for intra-group transfers of non-inventory assets. The change is generally effective in 2018 for calendar-year entities, although early adoption is allowed. Chapter C:9 Partnership Formation and Operation Chapter C:10 Special Partnership Issues Chapter C:11 S Corporations Chapter C:12 The Gift Tax Problem C:12-31 (1/26/2017) The problem should state that Amir s taxable gift is $600,000 in 2016 (not 2015). The solution manual s answer uses 2016 as the year for this gift. Problem C:12-58 (1/26/2017) Delete the last sentence of the first paragraph. There is no need to assume whatever amount you like for the adjusted basis of gifted property as it is given in the information that immediately follows. 13

14 Chapter C:13 The Estate Tax Problem C:13-63 (1/26/2017) There are two corrections to the Instructor Resource Manual s answer. At the bottom of page 1 of the tax return, it should say less the 2013 gift tax credit (i.e., change 2015 gift tax credit to 2013 gift tax credit). On page 3 of the tax return, the $800,000 should be on line 9 (not line 8). This has no effect on the $8,827,100 amount on line 11. Chapter C:14 Income Taxation of Trusts and Estates Problem C:14-44 (1/26/2017) The solution manual s answer should say that Ali makes a present interest gift to Ali of $22,000 (not $25,000), which is the amount the problem specifies. Chapter C:15 Administrative Procedures Page C:15-11 (2/24/2017) The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the due date for calendar-year C corporations from March 15 to April 15. It also changed Sec. 6081(b) to allow an automatic five-month extension for such corporations through The IRS recently announced that, under Sec. 6081(a), it will allow an automatic six-month extension for calendar-year C corporations. The paragraph between Examples C:15-3 and C:15-4 thus should read as follows: Corporations. Corporations request an automatic six-month extension by filing Form 7004 (Application for Automatic Extension of Time to File Corporation Income Tax Return) by the original due date for the return. For tax years beginning after 2015, but before 2026, C corporations with a June 30 year-end may request an automatic sevenmonth extension until April 15. Here is a link to the IRS announcement regarding this change: 14

Pearson s Federal Taxation Individuals (2017 edition) Textbook Updates

Pearson s Federal Taxation Individuals (2017 edition) Textbook Updates Several chapters Table of Updates Sorted by Chapter The IRS has issued its annual Revenue Procedure with the inflation-adjusted amounts