Pearson s Federal Taxation Comprehensive (2018 edition) Textbook Updates

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1 Pearson s Federal Taxation Comprehensive (2018 edition) Textbook Updates Several chapters Table of Updates Sorted by Chapter Updates for the Tax Cuts and Jobs Act of 2017 Rev. Proc Notice Chapter I:1 An Introduction to Taxation Chapter I:2 Determination of Tax Page I:2-35 Test Bank, LO3, Item #29 Chapter I:3 Gross Income: Inclusions Problem I:3-45 Chapter I:4 Gross Income: Exclusions Chapter I:5 Property Transactions: Capital Gains and Losses PowerPoint slide I:5-38 Chapter I:6 Deductions and Losses Chapter I:7 Itemized Deductions Page I:7-18 Chapter I:8 Losses and Bad Debts Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-22 Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I:10-13 to I:10-17 and Appendix C Problem I:10-28 Test Bank, LO1, Item #41

2 Chapter I:11 Accounting Periods and Methods Chapter I:12 Property Transactions: Nontaxable Exchanges Chapter I:13 Property Transactions: Section 1231 and Recapture Chapter I:14 Special Tax Computation Methods, Tax Credits, and Payment of Tax Chapter C:1 Tax Research Chapter C:2 Corporate Formations and Capital Structure Chapter C:3 The Corporate Income Tax Chapter C:4 Corporate Nonliquidating Distributions Chapter C:5 Other Corporate Tax Levies Chapter C:6 Corporate Liquidating Distributions Chapter C:7 Corporate Acquisitions and Reorganizations Problem C:7-69 Chapter C:8 Consolidated Tax Returns Chapter C:9 Partnership Formation and Operation Chapter C:10 Special Partnership Issues Chapter C:11 S Corporations

3 Chapter C:12 The Gift Tax Page C:12-4 Page C:12-9 Problem C:12-34 Chapter C:13 The Estate Tax Chapter C:14 Income Taxation of Trusts and Estates Chapter C:15 Administrative Procedures Page C:15-7

4 Posted 5/3/2017: Table of Updates Sorted by Date of Posting on Web Site Chapter I:2 Determination of Tax Page I:2-35 Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I: to I:10-17 and Appendix C Posted 10/20/2017: Rev. Proc Chapter I:5 Property Transactions: Capital Gains and Losses PowerPoint slide I:5-38 Posted 10/23/2017: Notice Posted 10/26/2017: Chapter I:2 Determination of Tax Test Bank, LO3, Item #29 Posted 11/17/2017: Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Test Bank, LO1, Item #41 Posted 1/4/2018: Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Problem I:10-28 Posted 1/11/2018: Updates for the Tax Cuts and Jobs Act of 2017 Posted 1/18/2018: Updates for the Tax Cuts and Jobs Act of 2017 Chapter I:3 Gross Income: Inclusions Problem I:3-45 Posted 1/24/2018: Updates for the Tax Cuts and Jobs Act of 2017

5 Posted 1/26/2018: Updates for the Tax Cuts and Jobs Act of 2017 Posted 1/29/2018: Updates for the Tax Cuts and Jobs Act of 2017 Chapter C:15 Administrative Procedures Page C:15-7 Posted 2/12/2018: Chapter I:7 Itemized Deductions Page I:7-18 Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-22 Chapter C:7 Corporate Acquisitions and Reorganizations Problem C:7-69 Posted 3/20/2018: Chapter C:12 The Gift Tax Page C:12-4 Page C:12-9 Problem C:12-34

6 Textbook Updates Updates for the Tax Cuts and Jobs Act of 2017 (1/29/2018) On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act of 2017 into law. This legislation represents a major reform of the federal income tax system, with changes that affect many areas of the tax law. Most of the provisions apply to tax years beginning in 2018 and, therefore, will be incorporated into the 2019 edition of Pearson s Federal Taxation series. However, given the scope of these changes, many instructors will want to address the reform in their current classes. To aid instructors in this process, we prepared a summary of the tax reform legislation, as well as a summary of how these changes affect the end-of chapter problems in the 2018 edition. Individuals chapters Corporations, Partnerships, Estates & Trusts chapters Rev. Proc (10/20/2017) The IRS has issued its annual Revenue Procedure with the inflation-adjusted amounts for the personal exemption, standard deduction, etc. Here is a link to Rev. Proc , which has these inflation-adjusted amounts for 2018: Notice (10/23/2017) The IRS has also issued its annual notice with the inflation-adjusted amounts for qualified retirement plans. Here is a link to Notice , which has these inflation-adjusted amounts for 2018: Chapter I:1 An Introduction to Taxation Chapter I:2 Determination of Tax Page I:2-35 (5/3/2017) 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 announced that, under Sec. 6081(a), it will allow an automatic sixmonth 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,

7 depending on the fiscal year-end. Here is a link to the IRS announcement regarding this change: Test Bank, LO3, Item #29 (10/26/2017) Vincent s tax is $427 (not $412). The correct answer thus is D ( of the above), although changing choice C to $427 would make it correct. The $427 tax should be calculated as follows: Tax on net unearned income ($900 28%) $252 Tax on taxable income minus net unearned income ($2,650 $900) 10% 175 Total tax $427 Chapter I:3 Gross Income: Inclusions Problem I:3-45 (1/18/2018) Part b of the Solution Manual s answer should refer to a life expectancy of 25.9 years (not years). Chapter I:4 Gross Income: Exclusions Chapter I:5 Property Transactions: Capital Gains and Losses PowerPoint slide I:5-38 (10/20/2017) The box that currently reads: ST C/L are deductible as ordinary losses and can offset ordinary income without limitation should read ST C/L are deductible as ordinary losses and can offset ordinary income up to $3,000. Chapter I:6 Deductions and Losses Chapter I:7 Itemized Deductions Page I:7-18 (2/12/2018) The Additional Comment notes that, before 2017, taxpayers could also deduct mortgage insurance premiums on a qualified residence and that Congress allowed this provision to

8 expire for years after The Bipartisan Budget Act of 2018 (P.L ) extends this deduction through Chapter I:8 Losses and Bad Debts Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-22 (2/12/2018) The first paragraph discusses the Sec. 222 deduction for qualified tuition and related expenses, and footnote 34 notes it was scheduled to expire at the end of The Bipartisan Budget Act of 2018 (P.L ) extends this deduction through Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I:10-13 to I:10-17 and Appendix C (5/3/2017) The textbook notes (on pages 14 and 16 and at Table 6 in Appendix C) that, at the time the 2018 edition went to print, the IRS had not yet released the 2017 ceiling limits for luxury automobiles. The IRS has since released these limits. The 2016 and 2017 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. On page I:10-14, all of the amounts are correct in Examples I:10-22, -23, and -24, as well as in the Additional Comment. On page I:10-15, all of the amounts are correct in Table I:10-3 and Example I: On page I:10-16, replace the table in the middle of the page with the following: Annual Ceiling Limitations Year 1 (2017) $3,560 or $11,560* Year 2 (2018) 5,700 Year 3 (2019) 3,450 Year 4 (2020 and subsequent years) 2,075 *If the taxpayer does not elect out of bonus depreciation. Also, footnote 29 should refer to Rev. Proc , I.R.B., 4/3/2017. Similarly, the textbook notes (on page 16 and at Tables 13 and 14 in Appendix C) that, at the time the 2018 edition went to print, the IRS had not yet released the 2017 lease inclusion amounts. The IRS has since released these amounts, and they differ from the 2016 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.

9 On page I:10-16, the last three sentences of Example I:10-26 should be as follows: For 2017, this reduction was $34 ($ ). Thus, Jim s auto lease deduction for 2017 was $5,726 ($5,760 $34). For 2018, the second year, Jim s auto lease deduction is $5,684 [$5,760 ($ )]. The Chapter I:10 portion of the Solutions Manual includes a Note to Instructors at its beginning about the 2017 ceiling amounts for luxury automobiles and lease inclusion amounts. It notes that the Solutions Manual uses amounts based on the tables originally published in the text and that any problems resulting in different answers are included in the updates website, i.e., here. Below are the problems resulting in different answers. I: The lease inclusion amounts for a passenger automobile (that is not a truck or van) with a lease term beginning in 2017 whose fair market value is over $58,000 but not over $59,000 is $78 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 ($78 x 306/365) (65) Deductible lease payments in 2017 $5,935 I: The lease inclusion amounts for a passenger automobile (that is not a truck or van) with a lease term beginning in 2017 whose fair market value is over $40,000 but not over $41,000 is $45 for the first year and $99 for the second year (see updated Table 13). Thus, in part b, Troy must reduce his annual lease payment deduction by $36 ($45 x 0.80) in 2017 and by $79 ($99 x 0.80) in 2018, using the updated amounts. Also, problem I:10-49 requires a comparison of the purchase of a passenger automobile versus leasing it. The amounts used in the Purchase the car portion of the answer are correct because the ceiling amounts are the same for 2016 and The amounts in the Lease the car portion of the answer are correct because the problem says to assume for simplicity that the lease inclusion amount is $230 per year. Problem I:10-28 (1/4/2018) In the solutions manual s answer for part a, the third line of the calculation should indicate that the is from Table 9, Year 1, 12th month (not Year 2). Test Bank, LO1, Item #41 (11/17/2017) Choice D should be $541,000 (not $543,000), which is calculated as follows: Section 179 immediate expensing $510,000 MACRS depreciation: ($665,000 $510,000).20 31,000 Total depreciation $541,000

10 Chapter I:11 Accounting Periods and Methods Chapter I:12 Property Transactions: Nontaxable Exchanges Chapter I:13 Property Transactions: Section 1231 and Recapture Chapter I:14 Special Tax Computation Methods, Tax Credits, and Payment of Tax Chapter C:1 Tax Research Chapter C:2 Corporate Formations and Capital Structure Chapter C:3 The Corporate Income Tax Chapter C:4 Corporate Nonliquidating Distributions Chapter C:5 Other Corporate Tax Levies

11 Chapter C:6 Corporate Liquidating Distributions Chapter C:7 Corporate Acquisitions and Reorganizations Problem C:7-69 (2/12/2018) In the solutions manual s answer for part a, the second line should refer to a final tax return covering the period 1/1/17 through 5/31/17 (not 1/1/16 through 5/31/16). Chapter C:8 Consolidated Tax Returns Chapter C:9 Partnership Formation and Operation Chapter C:10 Special Partnership Issues Chapter C:11 S Corporations Chapter C:12 The Gift Tax Page C:12-4 (3/20/2018) Add the following to footnote 5: Alaska is an opt-in community property state. Page C:12-9 (3/20/2018) In the What Would You Do in this Situation, the right-hand column should refer to 2017 twice (not 2015). Problem C:12-34 (3/20/2018) In the solutions manual answer for part a, the first line should refer to $184,000 of taxable gifts (not $186,000). The subsequent calculation of this $184,000 is correct.

12 Chapter C:13 The Estate Tax Chapter C:14 Income Taxation of Trusts and Estates Chapter C:15 Administrative Procedures Page C:15-7 (1/29/2018) The second-to-last paragraph should refer to a $50,000 (not $25,000) maximum for a taxpayer to use the small cases procedure of the Tax Court.

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