Prentice Hall s Federal Taxation 2012: Corporations, Partnerships, Estates, & Trusts

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1 Instructor s Resource Manual Caroline Strobel Prentice Hall s Federal Taxation 2012: Corporations, Partnerships, Estates, & Trusts Kenneth E. Anderson Thomas R. Pope John L. Kramer Prentice Hall Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

2 This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. VP, Editorial Director: Sally Yagan AVP/Editor-in-Chief: Donna Battista Editorial Project Manager: Melissa Pellerano Senior Production Project Manager: Lynne Breitfeller Senior Managing Editor, Production: Cynthia Zonneveld Senior Operations Specialist: Diane Peirano Copyright 2012 Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps ISBN-13: ISBN-10:

3 TABLE OF CONTENTS Preface P-1 Sample Syllabi Instructor Outlines (Ordered by Chapter No.) Tax Form/Return Preparation Problems C:S-1 C:IO-1 C:TRP-1 iii

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5 PREFACE General The text materials from Prentice Hall's Federal Taxation, 2012: Corporations, Partnerships, Estates, and Trusts (Anderson, Pope, and Kramer) are principally designed for use in a second course in federal taxation for undergraduate or graduate accounting and business students. With the inclusion of chapters on partnerships, S corporations, C corporations, estates and trusts, and gift and estate taxation, the text also can be used in a survey federal taxation course for undergraduate or graduate students. The text also could be used in an introductory business entities course in law school to the extent the instructor prefers a more direct approach than the case method. The text includes a full complement of supplementary and ancillary materials. We recommend that all adopters refer to the Preface to the text for the supplementary and ancillary materials provided to adopters. Many of these items are available to faculty and students at no charge. Adopters are encouraged to use these materials to enhance their teaching effectiveness and their students' learning experience. Sample Syllabi This guide contains two sample syllabi for a one-term second tax course. It contains suggested reading and problem assignments that can be turned into a complete assignment sheet with only minimal work. Because the term is broken down into individual class sessions, either syllabus can be used for classes taught on the quarter system. Instructor Outlines The instructor outline for each chapter includes: learning objectives, areas of greater significance, areas of lesser significance, problem areas for students, highlights of recent tax law changes, teaching tips, lecture outline, and a set of references to court are designed to be interesting and informative to the student. A summary description of each area is presented below. Learning Objectives The materials for each chapter include the learning objectives for that chapter. This focus will be useful to the instructor and may be communicated to students to assist their study. P-1

6 Areas of Greater Significance The materials for each chapter point out the areas of greater significance. This feature permits the instructor to allocate a greater share of class time and homework assignments to these areas. Areas of Lesser Significance The materials for each chapter point out the areas of lesser significance. This feature permits the instructor to reduce the amount of class time and homework assignments devoted to these areas. Problem Areas for Students The materials for each chapter detail areas in which students are likely to experience difficulty in learning and in retaining. Instructors may allocate more class time to these topics, while letting the student learn other topics directly from the text and problems. Teaching Tips Each lecture outline contains a series of teaching tips designed to improve an instructor's coverage or presentation of the materials in the chapter. Each of the teaching tips is keyed to a particular page in the chapter. Some of the teaching tips concern issues that might be added to the lecture outline at a particular point. Others are keyed to the method of presentation of a topical item or ancillary materials provided by Prentice Hall to make the learning process a better experience for the students. These teaching tips have been provided by the authors or instructors who are currently using the book. Lecture Outline The lecture outlines for each chapter are organizational tools centered around the topics that could be covered in lecture discussions. Textual examples, tables, figures, and problems are referenced to the applicable topic. Microsoft Word files are available for the lecture outlines so that faculty members can use these outlines to develop their own lecture outlines. P-2

7 The Instructor s Resource Manual, including lecture outlines, is available on the Instructor s Resource Center Online at: A password and user-id are required, and can be obtained from your Prentice Hall representative. If you do not know your Prentice Hall representative, you may visit: The lecture outlines are designed so the instructor could hand out copies to students to assist them in taking notes and subsequent study. Court Case Briefs Each chapter contains references to and a brief annotation of a series of selected court cases. These cases are recommended as a way for faculty members to incorporate interesting illustrations into their lectures. Solutions to Tax Form/Return Preparation Problems The authors have prepared solutions to the Tax Form/Return Preparation Problems for their chapters. Final Remarks We hope these materials are helpful when teaching with the Prentice Hall's Federal Taxation, 2012: Corporations, Partnerships, Estates, and Trusts text. We would appreciate receiving any suggestions that you have for improving these or any other supplemental materials. Please send any error corrections or suggestions to one of the three editors. If you would like to obtain an immediate solution to your question or problem, please do not hesitate to contact the editors at: Editor Phone Fax Kenneth E. Anderson kea@utk.edu (865) (865) Thomas R. Pope tpope@uky.edu (859) (859) Kenneth E. Anderson Thomas R. Pope John L. Kramer P-3

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9 SUGGESTED SYLLABUS STANDARD SECOND COURSE IN TAXATION - SEMESTER BASIS (12 Chapter course) Instructor: Office: Office Phone: Office Hours: Texts: 1. Class Time: Class Location: Class Section: Anderson, Pope, and Kramer, Prentice Hall's Federal Taxation 2012: Corporations, Partnerships, Estates, and Trusts (Required). (). 2. Internal Revenue Code (Optional) Course Description: This course is directed at undergraduate and graduate accounting students who desire to obtain additional tax knowledge beyond the Federal Income Tax Accounting 1 course. It is designed to present a survey approach to the following topics: Tax Research, Corporate Taxation, Partnership Taxation, and International Taxation. Course Objectives: 1. To enable the students to learn the fundamental concepts of the federal income tax system as applied to entities other than individuals. 2. To enable the students to learn the fundamental concepts of tax research. 3. To apply the fundamentals learned in these two areas to problem situations likely to be encountered in tax practice. Prerequisite: Problems: A number of problems will be assigned during this term. Each problem involves an analysis and/or computation of a situation you might expect to encounter in public or industrial accounting when you leave school. The problems will not be collected but will form the basis for class discussion. Solutions to the problems will be placed in the library after the chapter is completed. C:S-1

10 Research Memo Tax Returns: A tax research question will be assigned. The problem involves researching a client-related problem. The memorandum will not exceed five pages in length. A C corporation tax return (Form 1120) will be assigned. The return will be done in groups of two. Using the same tax return information, you also will be required to complete a partnership tax return (Form 1065), an S Corporation tax return (Form 1120S), and Schedule K-1s for the owners after the appropriate topics have been covered. Case Analysis Problems: Grades: Two case analysis problems will be assigned. These will be broader analyses of business situations likely to be encountered in public accounting practice. The write-ups will involve use of tax research techniques as well as tax concepts learned during the discussions of the various topical areas (i.e., corporate and partnership taxation). Additional instructions will be provided at the time the cases are assigned. Assignments Class Participation Tax Returns: C corporation Partnership S corporation Tax Research Memo Case Analysis (20% each) Total Points Author's Note: No classes are scheduled on days that major assignments are due. These days are used to give the students immediate feedback about the assignments that are being turned in. Adopters might choose to hold classes on those days and cover, in addition, Chapter C:15 [Administrative Procedures]. C:S-2

11 Date Week 1 Week 2 Week 3 Week 4 Session Number 1 (50 mins. each) Topic Introduction & Tax Research Chapter* Code Section & Related Regulations Tax Research (continued) C:1(pp. 1-14) Tax Research (continued) C:1(pp ) Tax Research (continued) **Research Memo Assigned** C:1(pp ) Appendix A Formation of the Corporation C:2(pp. 1-20) 351,358 Formation of the Corporation (continued) C:2(pp ) 362,357,1032,165(g), 1244 Taxation of the Corporation C:3(pp. 1-22) 63,170(a)(2),170(b)(2),172 (d), 199,243(a),248 Tax Rates and Controlled Groups C:3(pp ) 1,267,1561(a),1563(a) Procedural Matters and Financial Statement Implications C:3(pp ) 6655, ASC740(SFAS No. 109) **Tax Research Memo Due** Nonliquidating Distributions C:4(pp. 1-13) 301,311,312(a)-(b) C:S-3 Problems C:1-3,C:1-8,C:1-9, C:1-10,C:1-33,C:1-36 C:1-14,C:1-20,C:1-39 C:1-43,C:1-47,C:1-49, C:1-51, C:1-56 C:2-27,C:2-31,C:2-34 C:2-44,C:2-45,C:2-50,C:2-51, C:2-55,C:2-56,C:2-57 C:3-35,C:3-36,C:3-40, C:3-43 C:3-48,C:3-49, C:3-52 C:3-53 C:3-57, C:3-58,C:3-59, C:3-61, C:3-62,C:3-63, C:3-64, C:3-65, C:3-67 C:4-29,C:4-31,C:4-34

12 Date Week 5 Week 6 Week 7 Week 8 Session Number Topic Stock Dividends and General Stock Redemptions Rules Chapter C:4(pp ) Code Section & Related Regulations 302,305,307 Special Rules **C Corporation Tax Return Assigned** C:4(pp ) 302(e), 303(a)-(b) Other Corporate Tax Levies -- AMT C:5(pp. 1-14) 53,55-59 Other Corporate Tax Levies-- PHCs and A/E Tax C:5(pp ) , Liquidating Distributions- General Liquidation C:6(pp. 1-10, 15-17) 331,336 Liquidating Distributions - Controlled Subsidiary Corporation C:6(pp ) 332,337 Taxable and Nontaxable Acquisition Transactions C:7(pp. 1-13) 338 Acquisitive Reorganizations: Type A C:7(pp ) 368, ,361,362(b) Acquisitive Reorganizations: Types C and B C:7(pp ) Divisive Reorganizations: Type D **C Corporation Tax Return Due** C:7(pp ) Nontaxable Reorganizations: Judicial and Other Concepts C:7(pp ) 381(a)-(b) C:S-4 Problems C:4-25,C:4-40,C:4-43, C:4-45 C:4-46,C:4-47,C:4-48, C:4-51,C:4-58, C:4-59 C:5-35,C:5-37,C:5-42, C:5-50 C:5-60,C:5-63, C:5-66 C:6-37,C:6-41,C:6-42 C:6-44,C:6-47,C:6-48, C:6-54, C:6-55, C:6-56 C:7-41,C:7-44,C:7-45 C:7-47,C:7-49,C:7-51 C:7-52,C:7-54,C:7-56, C:7-58 C:7-61,C:7-63 C:7-68,C:7-69

13 Date Week 9 Week 10 Week 11 Week 12 Session Number Topic Consolidated Tax Returns Chapter C:8(pp. 1-8) Code Section & Related Regulations Consolidated Tax Returns (continued) C:8(pp.8-19) Consolidated Tax Returns (continued) **Case No. 1 Assigned** C:8(pp ) Partnership Formation C:9(pp. 1-12) 709, Partnership Operations C:9(pp ) ,706 Partnership Operations C:9(pp ) 752 Guaranteed Payments and Family Partnerships C:9(pp ) 707,704(e) Special Partnership Issues - Nonliquidating Distributions C:10(pp. 1-11) **Case No. 1 Due** Partnership Liquidating Distributions and Sale of Interest C:10(pp , 26-29) 735,741,743,751,754 Other Dispositions of an Interest **Partnership Return Assigned** C:10(pp ) 736 Special Forms of Partnership Interests C:10(pp ) 7704, C:S-5 Problems C:8-30,C:8-31,C:8-35 C:8-36 C:8-37,C:8-41,C:8-46 C:8-47 C:8-48,C:8-51,C:8-52, C:8-65, C:8-67 C:9-26,C:9-28 C:9-30,C:9-32,C:9-33, C:9-34 C:9-35,C:9-36,C:9-1,C:9-42,C:9-46, C:9-55, C:9-56 C:9-48,C:9-50,C:9-52 C:10-26,C:10-29,C:10-31, C:10-33 C:10-35,C:10-36, C:10-37,C:10-52, C:10-56 C:10-40,C:10-41, C:10-45,C:10-49, C:10-58 C:10-53,C:10-54,C:10-55

14 Date Session Number 35 Topic S Corporations - Requirements and Election Chapter C:11(pp. 1-13) Code Section & Related Regulations 1361, S Corporations - Operations C:11(pp ) 1363,1374,1375,1377, 1378 Week **Partnership Return Due** *Case No. 2 Assigned* 38 S Corporations - Basis and Loss Passthroughs C:11(pp ) 1366, S Corporations - Distributions and Other Rules **S Corporation Return Assigned** C:11(pp ) 1368,1371(a),1372 Week U.S. Taxation of Foreign-Related Transactions--Basic Principles C:16(pp. 1-13) 41 U.S. Taxation of Foreign-Related Transactions--Nonresident Aliens & Foreign Corporations C:16(pp ) 42 U.S. Taxation of Foreign-Related Transactions--CFCs **S Corporation Return Due** C:16(pp ) Final Exam **Case No. 2 Due** *The text reading includes the appropriate portion of the tax planning considerations and compliance and procedural considerations sections of the chapter. C:S-6 Problems C:11-29,C:11-30,C:11-31 C:11-34,C:11-35,C:11-36, C:11-37 C:11-45,C:11-46, C:11-57, C:11-59 C:11-50,C:11-51,C:11-54,C:11-55, C:11-61, C:11-62 C:16-39,C:16-40,C:16-42 C:16-45,C:16-46,C:16-48 C:16-52,C:16-53,C:16-57, C:16-58.

15 SUGGESTED SYLLABUS STANDARD SECOND COURSE IN TAXATION - SEMESTER BASIS (14 Chapter course) Instructor: Office: Office Phone: Office Hours: Texts: 1. Class Time: Class Location: Class Section: Anderson, Pope, and Kramer, Prentice Hall's Federal Taxation 2012: Corporations, Partnerships, Estates, and Trusts (Required). (). 2. Internal Revenue Code (Optional) Course Description: This course is directed at undergraduate and graduate accounting students who desire to obtain additional tax knowledge beyond the Federal Income Tax Accounting I course. It is designed to present a survey approach to the following topics: Tax Research, Corporate Taxation, Partnership Taxation, Transfer Taxation, and Income Taxation of Estates and Trusts. Course Objectives: 1. To enable the students to learn the fundamental concepts of the federal income tax system as applied to entities other than individuals. 2. To enable the students to learn the fundamental concepts of tax research. 3. To apply the fundamentals learned in these two areas to problem situations likely to be encountered in tax practice. Prerequisite: Problems: A number of problems will be assigned during this term. Each problem involves an analysis and/or computation of a situation you might expect to encounter in public or industrial accounting when you leave school. The problems will not be collected but will form the basis for class discussion. Solutions to the problems will be placed in the library after the chapter is completed. C:S-7

16 Research Memo Tax Returns: A tax research question will be assigned. The problem involves researching a client-related problem. The memorandum will not exceed five pages in length. A C corporation tax return (Form 1120) will be assigned. The return will be done in groups of two. Using the same tax return information, you also will be required to complete a partnership tax return (Form 1065), and an S Corporation tax return (Form 1120S), and Schedule K-1s for the owners after the appropriate topics have been covered. Case Analysis Problems: Grades: Two case analysis problems will be assigned. These will be broader analyses of business situations, likely to be encountered in public accounting practice. The write-ups will involve use of tax research techniques as well as tax concepts learned during the discussions of the various topical areas (i.e., corporate and partnership taxation). Additional instructions will be provided at the time the cases are assigned. Assignments Class Participation Tax Returns: C corporation Partnership S corporation Tax Research Memo Case Analysis (20% each) Total Points C:S-8

17 Date Week 1 Week 2 Week 3 Week 4 Session Number 1 (50 mins. each) Topic Introduction & Tax Research Chapter* Code Section & Related Regulations Tax Research (continued) C:1(pp. 1-14) Tax Research (continued) C:1(pp ) Tax Research (continued) **Tax Research Memo Assigned** C:1(pp ) Appendix A Formation of the Corporation C:2(pp. 1-20) 351,358 Formation of the Corporation (continued) C:2(pp ) 362,357,1032,165(g), 1244 Taxation of the Corporation C:3(pp. 1-22) 63,170(a)(2),170(b)(2),172 (d), 199, 243(a),248 Tax Rates and Controlled Groups C:3(pp ) 11,267,1561(a),1563(a) Procedural Matters and Financial Statement Implications C:3(pp ) 6655,ASC740(SFAS No. 109) **Tax Research Memo Due** Nonliquidating Distributions C:4(pp. 1-13) 301,311,312(a)-(b) C:S-9 Problems C:1-3,C:1-8,C:1-9, C:1-10,C:1-33,C:1-36 C:1-14,C:1-20,C:1-39 C:1-43,C:1-47, C:1-49, C:1-51,C:1-56 C:2-27,C:2-31,C:2-34 C:2-44,C:2-45,C:2-50, C:2-51, C:2-55,C:2-6,C:2-57 C:3-35,C:3-36,C:3-40, C:3-43 C:3-48,C:3-49,C:3-52, C:3-53 C:3-57, C:3-58,C:3-59, C:3-61,C:3-62,C:3-63, C:3-64, C:3-65, C:3-67 C:4-29,C:4-31,C:4-34

18 Date Week 5 Week 6 Week 7 Week 8 Session Number Topic Stock Dividends and General Stock Redemptions Rules Chapter C:4(pp ) Code Section & Related Regulations 302,305,307 Special Rules **C Corporation Tax Return Assigned** C:4(pp ) 302(e), 303(a)-(b) Other Corporate Tax Levies -- AMT C:5(pp. 1-14) 53,55-59 Other Corporate Tax Levies-- PHCs and A/E Tax C:5(pp ) , Liquidating Distributions- General Liquidation C:6(pp. 1-10, 15-17) 331,336 Liquidating Distributions - Controlled Subsidiary Corporations C:6(pp ) 332,337 Taxable and Nontaxable Acquisition Transactions C:7(pp. 1-13) 338 Acquisitive Reorganizations: Type A C:7(pp ) 368,354-56,361,362(b) Acquisitive Reorganizations: Types C and B C:7(pp ) Divisive Reorganizations: Type D C:7(pp ) **C Corporation Tax Return Due** Nontaxable Reorganizations: Judicial and Other Concepts C:7(pp ) 381(a)-(b) C:S-10 Problems C:4-25,C:4-40,C:4-43, C:4-45 C:4-46,C:4-47,C:4-48, C:4-51,C:4-58,C:4-59 C:5-35,C:5-37, C:5-42, C:5-50 C:5-60, C:5-63, C:5-66 C:6-37,C:6-41,C:6-42 C:6-44,C:6-47,C:6-48, C:6-54,C:6-55,C:6-56 C:7-41,C:7-44, C:7-45 C:7-47,C:7-48,C:7-51 C:7-52,C:7-54,C:7-56, C:7-58 C:7-61,C:7-63 C:7-68,C:7-69

19 Date Week 9 Week 10 Week 11 Week 12 Session Number Topic Consolidated Tax Returns Chapter C:8(pp. 1-8) Code Section & Related Regulations Consolidated Tax Returns (continued) C:8(pp. 8-19) Consolidated Tax Returns (continued) **Case No. 1 Assigned** C:8(pp.19-34) Partnership Formation C:9(pp. 1-12) 709, Partnership Operations C:9(pp ) ,706 Partnership Operations C:9(pp ) 752 Guaranteed Payments and Family Partnerships C:9(pp ) 707,704(e) Special Partnership Issues - Nonliquidating Distributions C:10(pp. 1-11) Partnership Liquidating Distributions and Sale of Interest C:10(pp ,26-29) 735,741,743,751,754 **Case No. 1 Due** Other Dispositions of an Interest **Partnership Return Assigned** C:10(pp ) 736 Special Forms of Partnership Interests C:10(pp ) 7704, C:S-11 Problems C:8-30,C:8-31,C:8-35, C:8-36 C:8-37,C:8-41,C:8-46, C:8-47 C:8-48, C:8-51, C:8-52, C:8-59,C:8-65,C:8-67 C:9-26,C:9-28 C:9-30,C:9-32,C:9-33, C:9-34 C:9-35,C:9-36,C:9-41, C:9-42,C:9-46,C:9-55, C:9-56 C:9-48,C:9-50,C:9-52 C:10-26,C:10-29,C:10-31, C:10-33 C:10-35,C:10-36,C:10-37,C:10-52,C:10-56 C:10-40,C:10-41,C:10-45,C:10-49,C:10-58 C:10-53,C:10-54,C:10-55

20 Date Session Number 36 Topic S Corporations - Requirements and Election Chapter 11(pp. 1-13) Code Section & Related Regulations 1361,1362 Problems C:11-29,C:11-30,C:11-31 Week S Corporations - Operations 11(pp ) 1363,1374,1375,1377, 1378 C:11-34,C:11-35,C:11-36, C: S Corporations-Basis and Loss Passthroughs **Partnership Return Due** 11(pp ) 1366,1367 C:11-45,C:11-46,C:11-57, C: S Corporations-Distribution and Other Concepts **S Corporation Return Assigned** 11(pp ) 1368,1371(a),1372 C:11-50,C:11-51,C:11-54,C:11-55,C:11-61,C:11-62 Week Gift Taxes-Calculation of Transfer Tax Base C:12(pp. 1-23) C:12-6,C: Gift Taxes-Calculation of Tax Liability **Case No. 2 Assigned** C:12(pp ) C:12-20,C:12-41,C:12-49,C: Estate Taxes-Calculation of Transfer Tax Base C:13(pp. 1-22) 2031,2032 C:13-5,C:13-35,C:13-36 Week Estate Taxes-Calculation of Tax Liability C:13(pp ) 2001,2010,2011 C:13-53,C:13-57,C: Income Taxation of Trusts & Estates **S Corporation Return Due** C:14(pp. 1-19) C:14-33,C: Income Taxes of Trusts & Estates (continued) C:14(pp ) C:14-38,C:14-39,C:14-44, C:14-51,C:14-52 Final Exam **Case No. 2 Due** *The text reading includes the appropriate portion of the tax planning/considerations and compliance and procedural considerations sections of the chapter. C:S-12