Income Tax Freeland/Outline: Difference between revisions

	Income Tax
Authors	James Freeland; Daniel Lathrope; Stephen Lind; Richard Stephens
Text	; Fundamentals of Federal Income Taxation: Cases and Materials (University Casebook)
Taught by	Julian M. Fray
Taught at
Related course(s)

Revision as of 18:56, May 31, 2022

Applicable Tax Rates

Origination Clause → all tax bills must come out of the House.

● Shell bill: the Senate receives a tax bill from the House, completely guts it (leaves it a shell of a bill), fills in its own provisions, passes it, and sends it back to the House.

Court System

Tax Court → same level as district court, subject to Circuit Court of Appeals in relevant district for binding authority; bench trials only (no jury); taxpayer does not need to pay first and seek a refund before bringing an action.

District Court & US Court of Claims → taxpayer must pay the tax bill first, then seek a refund (bring action).

The FIRST Tax Bill → February 28, 1913

Federal Income Tax - Applicable Tax Rates

Tax Cuts and Jobs Act (2017)

● Tax breaks for individuals are temporary (easier to pass extensions)

● Tax breaks for corporations are permanent

● Result of lobbying efforts

Authorities: lower tiers do not have authority outweighing higher tiers

Tier 1	Tier 2	Tier 3
IRS Code Regulations Cases Treaties	Public Administrative Rulings Legislative History	Private Administrative Rulings IRS Publications
Get court deference; Chevron Deference for FINAL REGULATIONS, otherwise, LAST IN TIME RULE	No deference, court looks to weight of arguments	No deference, court looks to weight of arguments

*IRS letter rulings can be persuasive (agency interpretation if own law)

Chevron Deference: 2 part test ONLY ON FINAL REGULATIONS

If Congress has clearly addressed the issue, “that is the end of the matter” and the Court gives effect to the intent of Congress
If the statute is silent or ambiguous with respect to the specific question, the agency interpretation is given “controlling weight” unless it is arbitrary or capricious

LAST IN TIME RULE → most recent authority wins

Effective tax rate → tax liability as a percentage of taxable income; the total percentage of tax paid (overall rate, average after all brackets considered, total tax paid); Effective tax rates will show how progressive a tax is (the more brackets in the tax ladder, the more progressive).

● Will always be lower than the marginal tax rate.

Marginal tax rate → rate of tax applicable to the taxpayer’s last dollar of taxable income (the tax bracket at the end, highest bracket applicable to taxpayer).

2018 Marginal Tax Rates - Unmarried Persons

10%	$0-$9,525
12%	$9,526-$38,700
22%	$38,701-$82,500
24%	$82,501-$157,500
32%	$157,501-$200,000
35%	$200,001-$500,000
37%	Over $500,000

Progressive tax → progresses higher as income increases (i.e. federal income tax)

Regressive tax → all pay the same, regardless of income (i.e. sales tax, flat tax in MA)

Dead-weight loss → cost to implement law or provision outweighs the minimal amount of revenue it would raise.

Four Pillars of Tax Law Analysis (steps to answer tax law questions):

1) Sufficiency → does the provision raise enough revenue?

2) Equity → does the provision treat everyone equally?

3) Efficiency → don’t want to create too many market disturbances (don’t stifle a section of the market unless that’s a goal)

4) Administrability → is the rule imposable, policable, practical to regulate and enforce? Is it administratively feasible? (the higher the cost, the less practical it is)

Horizontal equity → same situation, same treatment

Vertical equity → different situation, different treatment

Types of Tax:

● Capitation Tax: everyone pays the same dollar amount

○ Problems: regressive, if different incomes, drastically different impacts (i.e. tax of $5,000 on income of $10,000 v. income of $100,000)

○ Unlikely that much revenue could be generated under this method

● Sales Tax → percentage cost of goods, levied against consumer

○ States without income tax (TX, FL) use higher sales tax to create revenue

● Value Added Tax (VAT) → percentage cost of goods, levied against the business, not the consumer

○ By the time the consumer buys, tax has been paid, BUT cost of good generally higher

● Real Estate Tax → tax imposed on real property (annually)

● Estate Tax → currently imposed on the largest estates, only paid by a tiny portion of estates, exclusion amount doubled

● Flat Tax → everyone pays the same percentage of their income

tax = base x rate

BASE → taxable income RATE → progressive tax bracket, calculated as income increases

Tax Brackets

● Even though marginal rates are going up, you don’t lose money

● Each increment taxed at rate of bracket: First $9,000 taxed at 10%, of the next $10,000, $525 will be taxed at 10% and the remaining will be taxed at the next bracket of 12%

● Taxpayer still benefit from lower rates regardless of income (fewer than 4% of the population makes it to the final tax bracket)

● Tax brackets are updated annually → previously, they were linked to the consumer price index, now brackets are linked to chained CPI (effectively raising taxes)

Filing Status → §1(a)-(c)

1) Married filing jointly

2) Surviving spouse

3) Head of household

4) Unmarried

5) Married filing separately

Taxable Income

Taxable Income Defined → §63

STEP ONE: GROSS INCOME

26 U.S. Code § 61 - Gross income defined (a) General definition. Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items; (2) Gross income derived from business; (3) Gains derived from dealings in property; (4) Interest; (5) Rents; (6) Royalties; (7) Dividends; (8)  [1] Alimony and separate maintenance payments; (9) Annuities; (10) Income from life insurance and endowment contracts; (11) Pensions; (12) Income from discharge of indebtedness; (13) Distributive share of partnership gross income; (14) Income in respect of a decedent; and (15) Income from an interest in an estate or trust. (b) Cross references. For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).

STEP TWO: DEDUCTIONS UNDER §62(a)

26 U.S. Code § 62 - Adjusted gross income defined (a) General rule. For purposes of this subtitle, the term “adjusted gross income” means, in the case of an individual, gross income minus the following deductions: (1) Trade and business deductions. The deductions allowed by this chapter (other than by part VII of this subchapter) which are attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee. (2) Certain trade and business deductions of employees (A) Reimbursed expenses of employees. The deductions allowed by part VI (section 161 and following) which consist of expenses paid or incurred by the taxpayer, in connection with the performance by him of services as an employee, under a reimbursement or other expense allowance arrangement with his employer. The fact that the reimbursement may be provided by a third party shall not be determinative of whether or not the preceding sentence applies. (B) Certain expenses of performing artists. The deductions allowed by section 162 which consist of expenses paid or incurred by a qualified performing artist in connection with the performances by him of services in the performing arts as an employee. (C) Certain expenses of officials. The deductions allowed by section 162 which consist of expenses paid or incurred with respect to services performed by an official as an employee of a State or a political subdivision thereof in a position compensated in whole or in part on a fee basis. (D) Certain expenses of elementary and secondary school teachers. The deductions allowed by section 162 which consist of expenses, not in excess of $250, paid or incurred by an eligible educator— (i) by reason of the participation of the educator in professional development courses related to the curriculum in which the educator provides instruction or to the students for which the educator provides instruction, and (ii) in connection with books, supplies (other than non athletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used by the eligible educator in the classroom. (E) Certain expenses of members of reserve components of the Armed Forces of the United States The deductions allowed by section 162 which consist of expenses, determined at a rate not in excess of the rates for travel expenses (including per diem in lieu of subsistence) authorized for employees of agencies under subchapter I of chapter 57 of title 5, United States Code, paid or incurred by the taxpayer in connection with the performance of services by such taxpayer as a member of a reserve component of the Armed Forces of the United States for any period during which such individual is more than 100 miles away from home in connection with such services. (3) Losses from sale or exchange of property. The deductions allowed by part VI (sec. 161 and following) as losses from the sale or exchange of property. (4) Deductions attributable to rents and royalties. The deductions allowed by part VI (sec. 161 and following), by section 212 (relating to expenses for production of income), and by section 611 (relating to depletion) which are attributable to property held for the production of rents or royalties. (5) Certain deductions of life tenants and income beneficiaries of property. In the case of a life tenant of property, or an income beneficiary of property held in trust, or an heir, legatee, or devisee of an estate, the deduction for depreciation allowed by section 167 and the deduction allowed by section 611. (6) Pension, profit-sharing, and annuity plans of self-employed individuals. In the case of an individual who is an employee within the meaning of section 401(c)(1), the deduction allowed by section 404. (7) Retirement savings. The deduction allowed by section 219 (relating to deduction of certain retirement savings). [(8) Repealed. Pub. L. 104–188, title I, § 1401(b)(4), Aug. 20, 1996, 110 Stat. 1788] (9) Penalties forfeited because of premature withdrawal of funds from time savings accounts or deposits. The deductions allowed by section 165 for losses incurred in any transaction entered into for profit, though not connected with a trade or business, to the extent that such losses include amounts forfeited to a bank, mutual savings bank, savings and loan association, building and loan association, cooperative bank or homestead association as a penalty for premature withdrawal of funds from a time savings account, certificate of deposit, or similar class of deposit. (10) Alimony. The deduction allowed by section 215. (11) Reforestation expenses. The deduction allowed by section 194. (12) Certain required repayments of supplemental unemployment compensation benefits. The deduction allowed by section 165 for the repayment to a trust described in paragraph (9) or (17) of section 501(c) of supplemental unemployment compensation benefits received from such trust if such repayment is required because of the receipt of trade readjustment allowances under section 231 or 232 of the Trade Act of 1974 (19 U.S.C. 2291 and 2292). (13) Jury duty pay remitted to employer. Any deduction allowable under this chapter by reason of an individual remitting any portion of any jury pay to such individual’s employer in exchange for payment by the employer of compensation for the period such individual was performing jury duty. For purposes of the preceding sentence, the term “jury pay” means any payment received by the individual for the discharge of jury duty. [(14) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(34)(C), Dec. 19, 2014, 128 Stat. 4042] (15) Moving expenses. The deduction allowed by section 217. (16) Archer MSAs. The deduction allowed by section 220. (17) Interest on education loans. The deduction allowed by section 221. (18) Higher education expenses. The deduction allowed by section 222. (19) Health savings accounts. The deduction allowed by section 223. (20) Costs involving discrimination suits, etc. Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any action involving a claim of unlawful discrimination (as defined in subsection (e)) or a claim of a violation of subchapter III of chapter 37 of title 31, United States Code [2] or a claim made under section 1862(b)(3)(A) of the Social Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding sentence shall not apply to any deduction in excess of the amount includible in the taxpayer’s gross income for the taxable year on account of a judgment or settlement (whether by suit or agreement and whether as lump sum or periodic payments) resulting from such claim. (21) Attorneys’ fees relating to awards to whistleblowers (A) In general. Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any award under— (i) section 7623(b), or (ii) in the case of taxable years beginning after December 31, 2017, any action brought under— (I) section 21F of the Securities Exchange Act of 1934 (15 U.S.C. 78u–6), (II) a State false claims act, including a State false claims act with qui tam provisions, or (III) section 23 of the Commodity Exchange Act (7 U.S.C. 26). (B) May not exceed award. Subparagraph (A) shall not apply to any deduction in excess of the amount includible in the taxpayer’s gross income for the taxable year on account of such award. Nothing in this section shall permit the same item to be deducted more than once. The deduction allowed by section 199A shall not be treated as a deduction described in any of the preceding paragraphs of this subsection. (b) Qualified performing artist (1) In general. For purposes of subsection (a)(2)(B), the term “qualified performing artist” means, with respect to any taxable year, any individual if— (A) such individual performed services in the performing arts as an employee during the taxable year for at least 2 employers, (B) the aggregate amount allowable as a deduction under section 162 in connection with the performance of such services exceeds 10 percent of such individual’s gross income attributable to the performance of such services, and (C) the adjusted gross income of such individual for the taxable year (determined without regard to subsection (a)(2)(B)) does not exceed $16,000. (2) Nominal employer not taken into account. An individual shall not be treated as performing services in the performing arts as an employee for any employer during any taxable year unless the amount received by such individual from such employer for the performance of such services during the taxable year equals or exceeds $200. (3) Special rules for married couples (A) In general. Except in the case of a husband and wife who lived apart at all times during the taxable year, if the taxpayer is married at the close of the taxable year, subsection (a)(2)(B) shall apply only if the taxpayer and his spouse file a joint return for the taxable year. (B) Application of paragraph (1)In the case of a joint return— (i) paragraph (1) (other than subparagraph (C) thereof) shall be applied separately with respect to each spouse, but (ii) paragraph (1)(C) shall be applied with respect to their combined adjusted gross income. (C) Determination of marital status. For purposes of this subsection, marital status shall be determined under section 7703(a). (D) Joint return. For purposes of this subsection, the term “joint return” means the joint return of a husband and wife made under section 6013. (c) Certain arrangements not treated as reimbursement arrangements. For purposes of subsection (a)(2)(A), an arrangement shall in no event be treated as a reimbursement or other expense allowance arrangement if— (1) such arrangement does not require the employee to substantiate the expenses covered by the arrangement to the person providing the reimbursement, or (2) such arrangement provides the employee the right to retain any amount in excess of the substantiated expenses covered under the arrangement. The substantiation requirements of the preceding sentence shall not apply to any expense to the extent that substantiation is not required under section 274(d) for such expense by reason of the regulations prescribed under the 2nd sentence thereof. (d) Definition; special rules (1) Eligible educator (A) In general. For purposes of subsection (a)(2)(D), the term “eligible educator” means, with respect to any taxable year, an individual who is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year. (B) School. The term “school” means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law. (2) Coordination with exclusions. A deduction shall be allowed under subsection (a)(2)(D) for expenses only to the extent the amount of such expenses exceeds the amount excludable under section 135, 529(c)(1), or 530(d)(2) for the taxable year. (3) Inflation adjustment. In the case of any taxable year beginning after 2015, the $250 amount in subsection (a)(2)(D) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2014” for “calendar year 2016” in subparagraph (A)(ii) thereof. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50. (e) Unlawful discrimination defined. For purposes of subsection (a)(20), the term “unlawful discrimination” means an act that is unlawful under any of the following: (1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C. 1202).[3] (2) Section 201, 202, 203, 204, 205, 206, or 207 of the Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312, 1313, 1314, 1315, 1316, or 1317). (3) The National Labor Relations Act (29 U.S.C. 151 et seq.). (4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201 et seq.). (5) Section 4 or 15 of the Age Discrimination in Employment Act of 1967 (29 U.S.C. 623 or 633a). (6) Section 501 or 504 of the Rehabilitation Act of 1973 (29 U.S.C. 791 or 794). (7) Section 510 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1140). (8) Title IX of the Education Amendments of 1972 (20 U.S.C. 1681 et seq.). (9) The Employee Polygraph Protection Act of 1988 (29 U.S.C. 2001 et seq.). (10) The Worker Adjustment and Retraining Notification Act (29 U.S.C. 2102 et seq.). (11) Section 105 of the Family and Medical Leave Act of 1993 (29 U.S.C. 2615). (12) Chapter 43 of title 38, United States Code (relating to employment and reemployment rights of members of the uniformed services). (13) Section 1977, 1979, or 1980 of the Revised Statutes (42 U.S.C. 1981, 1983, or 1985). (14) Section 703, 704, or 717 of the Civil Rights Act of 1964 (42 U.S.C. 2000e–2, 2000e–3, or 2000e–16). (15) Section 804, 805, 806, 808, or 818 of the Fair Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617). (16) Section 102, 202, 302, or 503 of the Americans with Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or 12203). (17) Any provision of Federal law (popularly known as whistleblower protection provisions) prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted under Federal law. (18) Any provision of Federal, State, or local law, or common law claims permitted under Federal, State, or local law— (i) providing for the enforcement of civil rights, or (ii) regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits, or prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.

STEP THREE: LESS QUALIFIED BUSINESS INCOME UNDER 199A

26 U.S. Code § 199A - Qualified business income (a) In general. In the case of a taxpayer other than a corporation, there shall be allowed as a deduction for any taxable year an amount equal to the sum of— (1) the lesser of— (A) the combined qualified business income amount of the taxpayer, or (B) an amount equal to 20 percent of the excess (if any) of— (i) the taxable income of the taxpayer for the taxable year, over (ii) the sum of any net capital gain (as defined in section 1(h)), plus the aggregate amount of the qualified cooperative dividends, of the taxpayer for the taxable year, plus (2) the lesser of— (A) 20 percent of the aggregate amount of the qualified cooperative dividends of the taxpayer for the taxable year, or (B) taxable income (reduced by the net capital gain (as so defined)) of the taxpayer for the taxable year. The amount determined under the preceding sentence shall not exceed the taxable income (reduced by the net capital gain (as so defined)) of the taxpayer for the taxable year. (b) Combined qualified business income amount. For purposes of this section— (1) In general. The term “combined qualified business income amount” means, with respect to any taxable year, an amount equal to— (A) the sum of the amounts determined under paragraph (2) for each qualified trade or business carried on by the taxpayer, plus (B) 20 percent of the aggregate amount of the qualified REIT dividends and qualified publicly traded partnership income of the taxpayer for the taxable year. (2) Determination of deductible amount for each trade or business. The amount determined under this paragraph with respect to any qualified trade or business is the lesser of— (A) 20 percent of the taxpayer’s qualified business income with respect to the qualified trade or business, or (B) the greater of— (i) 50 percent of the W–2 wages with respect to the qualified trade or business, or (ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property. (3) Modifications to limit based on taxable income (A) Exception from limit. In the case of any taxpayer whose taxable income for the taxable year does not exceed the threshold amount, paragraph (2) shall be applied without regard to subparagraph (B). (B) Phase-in of limit for certain taxpayers (i) In general. If— (I) the taxable income of a taxpayer for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), and (II) the amount determined under paragraph (2)(B) (determined without regard to this subparagraph) with respect to any qualified trade or business carried on by the taxpayer is less than the amount determined under paragraph (2)(A) with respect such trade or business, then paragraph (2) shall be applied with respect to such trade or business without regard to subparagraph (B) thereof and by reducing the amount determined under subparagraph (A) thereof by the amount determined under clause (ii). (ii) Amount of reduction. The amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as— (I) the amount by which the taxpayer’s taxable income for the taxable year exceeds the threshold amount, bears to (II) $50,000 ($100,000 in the case of a joint return). (iii) Excess amount. For purposes of clause (ii), the excess amount is the excess of— (I) the amount determined under paragraph (2)(A) (determined without regard to this paragraph), over (II) the amount determined under paragraph (2)(B) (determined without regard to this paragraph). (4) Wages, etc (A) In general. The term “W–2 wages” means, with respect to any person for any taxable year of such person, the amounts described in paragraphs (3) and (8) of section 6051(a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year. (B) Limitation to wages attributable to qualified business income. Such term shall not include any amount which is not properly allocable to qualified business income for purposes of subsection (c)(1). (C) Return requirement. Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for such return. (5) Acquisitions, dispositions, and short taxable years. The Secretary shall provide for the application of this subsection in cases of a short taxable year or where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year. (6) Qualified property. For purposes of this section: (A) In general. The term “qualified property” means, with respect to any qualified trade or business for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167— (i) which is held by, and available for use in, the qualified trade or business at the close of the taxable year, (ii) which is used at any point during the taxable year in the production of qualified business income, and (iii) the depreciable period for which has not ended before the close of the taxable year. (B) Depreciable period. The term “depreciable period” means, with respect to qualified property of a taxpayer, the period beginning on the date the property was first placed in service by the taxpayer and ending on the later of— (i) the date that is 10 years after such date, or (ii) the last day of the last full year in the applicable recovery period that would apply to the property under section 168 (determined without regard to subsection (g) thereof). (c) Qualified business income. For purposes of this section— (1) In general. The term “qualified business income” means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Such term shall not include any qualified REIT dividends, qualified cooperative dividends, or qualified publicly traded partnership income. (2) Carryover of losses. If the net amount of qualified income, gain, deduction, and loss with respect to qualified trades or businesses of the taxpayer for any taxable year is less than zero, such amount shall be treated as a loss from a qualified trade or business in the succeeding taxable year. (3) Qualified items of income, gain, deduction, and loss. For purposes of this subsection— (A) In general. The term “qualified items of income, gain, deduction, and loss” means items of income, gain, deduction, and loss to the extent such items are— (i) effectively connected with the conduct of a trade or business within the United States (within the meaning of section 864(c), determined by substituting “qualified trade or business (within the meaning of section 199A)” for“nonresident alien individual or a foreign corporation” or for “a foreign corporation” each place it appears), and (ii) included or allowed in determining taxable income for the taxable year. (B) Exceptions. The following investment items shall not be taken into account as a qualified item of income, gain, deduction, or loss: (i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss. (ii) Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). (iii) Any interest income other than interest income which is properly allocable to a trade or business. (iv) Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting “qualified trade or business” for “controlled foreign corporation”). (v) Any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause (ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)). (vi) Any amount received from an annuity which is not received in connection with the trade or business. (vii) Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses. (4) Treatment of reasonable compensation and guaranteed payments. Qualified business income shall not include— (A) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business, (B) any guaranteed payment described in section 707(c) paid to a partner for services rendered with respect to the trade or business, and (C) to the extent provided in regulations, any payment described in section 707(a) to a partner for services rendered with respect to the trade or business. (d) Qualified trade or business. For purposes of this section— (1) In general. The term “qualified trade or business” means any trade or business other than— (A) a specified service trade or business, or (B) the trade or business of performing services as an employee. (2) Specified service trade or business. The term “specified service trade or business” means any trade or business— (A) which is described in section 1202(e)(3)(A) (applied without regard to the words “engineering, architecture,”) or which would be so described if the term “employees or owners” were substituted for “employees” therein, or (B) which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)). (3) Exception for specified service businesses based on taxpayer’s income (A) In generalIf, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then— (i) any specified service trade or business of the taxpayer shall not fail to be treated as a qualified trade or business due to paragraph (1)(A), but (ii) only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages and the unadjusted basis immediately after acquisition of qualified property, of the taxpayer allocable to such specified service trade or business shall be taken into account in computing the qualified business income, W–2 wages, and the unadjusted basis immediately after acquisition of qualified property of the taxpayer for the taxable year for purposes of applying this section. (B) Applicable percentage. For purposes of subparagraph (A), the term “applicable percentage” means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio of— (i) the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to (ii) $50,000 ($100,000 in the case of a joint return). (e) Other Definitions. For purposes of this section— (1) Taxable income. Taxable income shall be computed without regard to the deduction allowable under this section. (2) Threshold amount (A) In general. The term “threshold amount” means $157,500 (200 percent of such amount in the case of a joint return). (B) Inflation adjustment. In the case of any taxable year beginning after 2018, the dollar amount in subparagraph (A) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2017” for “calendar year 2016” in subparagraph (A)(ii) thereof. The amount of any increase under the preceding sentence shall be rounded as provided in section 1(f)(7). (3) Qualified REIT dividend. The term “qualified REIT dividend” means any dividend from a real estate investment trust received during the taxable year which— (A) is not a capital gain dividend, as defined in section 857(b)(3), and (B) is not qualified dividend income, as defined in section 1(h)(11). (4) Qualified cooperative dividend. The term “qualified cooperative dividend” means any patronage dividend (as defined in section 1388(a)), any per-unit retain allocation (as defined in section 1388(f)), and any qualified written notice of allocation (as defined in section 1388(c)), or any similar amount received from an organization described in subparagraph (B)(ii), which— (A) is includible in gross income, and (B) is received from— (i) an organization or corporation described in section 501(c)(12) or 1381(a), or (ii) an organization which is governed under this title by the rules applicable to cooperatives under this title before the enactment of subchapter T. (5) Qualified publicly traded partnership income. The term “qualified publicly traded partnership income” means, with respect to any qualified trade or business of a taxpayer, the sum of— (A) the net amount of such taxpayer’s allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) [1] which is not treated as a corporation under section 7704(c), plus (B) any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a). (f) Special rules (1) Application to partnerships and s corporations (A) In general. In the case of a partnership or S corporation— (i) this section shall be applied at the partner or shareholder level, (ii) each partner or shareholder shall take into account such person’s allocable share of each qualified item of income, gain, deduction, and loss, and (iii) each partner or shareholder shall be treated for purposes of subsection (b) as having W–2 wages and unadjusted basis immediately after acquisition of qualified property for the taxable year in an amount equal to such person’s allocable share of the W–2 wages and the unadjusted basis immediately after acquisition of qualified property of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary). For purposes of clause (iii), a partner’s or shareholder’s allocable share of W–2 wages shall be determined in the same manner as the partner’s or shareholder’s allocable share of wage expenses. For purposes of such clause, partner’s or shareholder’s allocable share of the unadjusted basis immediately after acquisition of qualified property shall be determined in the same manner as the partner’s or shareholder’s allocable share of depreciation. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the shareholder’s pro rata share of an item. (B) Application to trusts and estates. Rules similar to the rules under section 199(d)(1)(B)(i) (as in effect on December 1, 2017) for the apportionment of W–2 wages shall apply to the apportionment of W–2 wages and the apportionment of unadjusted basis immediately after acquisition of qualified property under this section. (C) Treatment of trades or business in Puerto Rico (i) In general. In the case of any taxpayer with qualified business income from sources within the commonwealth of Puerto Rico, if all such income is taxable under section 1 for such taxable year, then for purposes of determining the qualified business income of such taxpayer for such taxable year, the term “United States” shall include the Commonwealth of Puerto Rico. (ii) Special rule for applying limit. In the case of any taxpayer described in clause (i), the determination of W–2 wages of such taxpayer with respect to any qualified trade or business conducted in Puerto Rico shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services in Puerto Rico. (2) Coordination with minimum tax. For purposes of determining alternative minimum taxable income under section 55, qualified business income shall be determined without regard to any adjustments under sections 56 through 59. (3) Deduction limited to income taxes. The deduction under subsection (a) shall only be allowed for purposes of this chapter. (4) Regulations. The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations— (A) for requiring or restricting the allocation of items and wages under this section and such reporting requirements as the Secretary determines appropriate, and (B) for the application of this section in the case of tiered entities. (g) Deduction allowed to specified agricultural or horticultural cooperatives (1) In general. In the case of any taxable year of a specified agricultural or horticultural cooperative beginning after December 31, 2017, there shall be allowed a deduction in an amount equal to the lesser of— (A) 20 percent of the excess (if any) of— (i) the gross income of a specified agricultural or horticultural cooperative, over (ii) the qualified cooperative dividends (as defined in subsection (e)(4)) paid during the taxable year for the taxable year, or (B) the greater of— (i) 50 percent of the W–2 wages of the cooperative with respect to its trade or business, or (ii) the sum of 25 percent of the W–2 wages of the cooperative with respect to its trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property of the cooperative. (2) Limitation. The amount determined under paragraph (1) shall not exceed the taxable income of the specified agricultural or horticultural for the taxable year. (3) Specified agricultural or horticultural cooperative. For purposes of this subsection, the term “specified agricultural or horticultural cooperative” means an organization to which part I of subchapter T applies which is engaged in— (A) the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, (B) the marketing of agricultural or horticultural products which its patrons have so manufactured, produced, grown, or extracted, or (C) the provision of supplies, equipment, or services to farmers or to organizations described in subparagraph (A) or (B). (h) Anti-abuse rules. The Secretary shall— (1) apply rules similar to the rules under section 179(d)(2) in order to prevent the manipulation of the depreciable period of qualified property using transactions between related parties, and (2) prescribe rules for determining the unadjusted basis immediately after acquisition of qualified property acquired in like-kind exchanges or involuntary conversions. (i) Termination. This section shall not apply to taxable years beginning after December 31, 2025.

STEP FOUR A: LESS GENERAL DEDUCTION OR ITEMIZED DEDUCTIONS UNDER 63(c) and 63(d)

26 U.S. Code § 63 - Taxable income defined (a) In general. Except as provided in subsection (b), for purposes of this subtitle, the term “taxable income” means gross income minus the deductions allowed by this chapter (other than the standard deduction). (b) Individuals who do not itemize their deductions. In the case of an individual who does not elect to itemize his deductions for the taxable year, for purposes of this subtitle, the term “taxable income” means adjusted gross income, minus— (1) the standard deduction, (2) the deduction for personal exemptions provided in section 151, and (3) the deduction provided in section 199A. (c) Standard deduction. For purposes of this subtitle— (1) In general. Except as otherwise provided in this subsection, the term “standard deduction” means the sum of— (A) the basic standard deduction, and (B) the additional standard deduction. (2) Basic standard deduction. For purposes of paragraph (1), the basic standard deduction is— (A) 200 percent of the dollar amount in effect under subparagraph (C) for the taxable year in the case of— (i) a joint return, or (ii) a surviving spouse (as defined in section 2(a)), (B) $4,400 in the case of a head of household (as defined in section 2(b)), or (C) $3,000 in any other case. (3) Additional standard deduction for aged and blind. For purposes of paragraph (1), the additional standard deduction is the sum of each additional amount to which the taxpayer is entitled under subsection (f). (4) Adjustments for inflation. In the case of any taxable year beginning in a calendar year after 1988, each dollar amount contained in paragraph (2)(B), (2)(C), or (5) or subsection (f) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting for “calendar year 2016” in subparagraph (A)(ii) thereof— (i) “calendar year 1987” in the case of the dollar amounts contained in paragraph (2)(B), (2)(C), or (5)(A) or subsection (f), and (ii) “calendar year 1997” in the case of the dollar amount contained in paragraph (5)(B). (5) Limitation on basic standard deduction in the case of certain dependents. In the case of an individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the basic standard deduction applicable to such individual for such individual’s taxable year shall not exceed the greater of— (A) $500, or (B) the sum of $250 and such individual’s earned income. (6) Certain individuals, etc., not eligible for standard deduction. In the case of— (A) a married individual filing a separate return where either spouse itemizes deductions, (B) a nonresident alien individual, (C) an individual making a return under section 443(a)(1) for a period of less than 12 months on account of a change in his annual accounting period, or (D) an estate or trust, common trust fund, or partnership, the standard deduction shall be zero. (7) Special rules for taxable years 2018 through 2025. In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) Increase in standard deduction. Paragraph (2) shall be applied— (i) by substituting “$18,000” for “$4,400” in subparagraph (B), and (ii) by substituting “$12,000” for “$3,000” in subparagraph (C). (B) Adjustment for inflation (i) In general. Paragraph (4) shall not apply to the dollar amounts contained in paragraphs (2)(B) and (2)(C). (ii) Adjustment of increased amounts. In the case of a taxable year beginning after 2018, the $18,000 and $12,000 amounts in subparagraph (A) shall each be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2017” for “2016” in subparagraph (A)(ii) thereof. If any increase under this clause is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50. (d) Itemized deductions. For purposes of this subtitle, the term “itemized deductions” means the deductions allowable under this chapter other than— (1) the deductions allowable in arriving at adjusted gross income, (2) the deduction for personal exemptions provided by section 151, and (3) the deduction provided in section 199A. (e) Election to itemize (1) In general. Unless an individual makes an election under this subsection for the taxable year, no itemized deduction shall be allowed for the taxable year. For purposes of this subtitle, the determination of whether a deduction is allowable under this chapter shall be made without regard to the preceding sentence. (2) Time and manner of election. Any election under this subsection shall be made on the taxpayer’s return, and the Secretary shall prescribe the manner of signifying such election on the return. (3) Change of election.Under regulations prescribed by the Secretary, a change of election with respect to itemized deductions for any taxable year may be made after the filing of the return for such year. If the spouse of the taxpayer filed a separate return for any taxable year corresponding to the taxable year of the taxpayer, the change shall not be allowed unless, in accordance with such regulations— (A) the spouse makes a change of election with respect to itemized deductions, for the taxable year covered in such separate return, consistent with the change of treatment sought by the taxpayer, and (B) the taxpayer and his spouse consent in writing to the assessment (within such period as may be agreed on with the Secretary) of any deficiency, to the extent attributable to such change of election, even though at the time of the filing of such consent the assessment of such deficiency would otherwise be prevented by the operation of any law or rule of law. This paragraph shall not apply if the tax liability of the taxpayer’s spouse for the taxable year corresponding to the taxable year of the taxpayer has been compromised under section 7122. (f) Aged or blind additional amounts (1) Additional amounts for the aged. The taxpayer shall be entitled to an additional amount of $600— (A) for himself if he has attained age 65 before the close of his taxable year, and (B) for the spouse of the taxpayer if the spouse has attained age 65 before the close of the taxable year and an additional exemption is allowable to the taxpayer for such spouse under section 151(b). (2) Additional amount for blind. The taxpayer shall be entitled to an additional amount of $600— (A) for himself if he is blind at the close of the taxable year, and (B) for the spouse of the taxpayer if the spouse is blind as of the close of the taxable year and an additional exemption is allowable to the taxpayer for such spouse under section 151(b). For purposes of subparagraph (B), if the spouse dies during the taxable year the determination of whether such spouse is blind shall be made as of the time of such death. (3) Higher amount for certain unmarried individuals. In the case of an individual who is not married and is not a surviving spouse, paragraphs (1) and (2) shall be applied by substituting “$750” for “$600”. (4) Blindness defined. For purposes of this subsection, an individual is blind only if his central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or if his visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees. (g) Marital status. For purposes of this section, marital status shall be determined under section 7703.

STEP FOUR B: ITEMIZED DEDUCTIONS §67

26 U.S. Code § 67 - 2-percent floor on miscellaneous itemized deductions (a) General rule. In the case of an individual, the miscellaneous itemized deductions for any taxable year shall be allowed only to the extent that the aggregate of such deductions exceeds 2 percent of adjusted gross income. (b) Miscellaneous itemized deductions. For purposes of this section, the term “miscellaneous itemized deductions” means the itemized deductions other than— (1) the deduction under section 163 (relating to interest), (2) the deduction under section 164 (relating to taxes), (3) the deduction under section 165(a) for casualty or theft losses described in paragraph (2) or (3) of section 165(c) or for losses described in section 165(d), (4) the deductions under section 170 (relating to charitable, etc., contributions and gifts) and section 642(c) (relating to deduction for amounts paid or permanently set aside for a charitable purpose), (5) the deduction under section 213 (relating to medical, dental, etc., expenses), (6) any deduction allowable for impairment-related work expenses, (7) the deduction under section 691(c) (relating to deduction for estate tax in case of income in respect of the decedent), (8) any deduction allowable in connection with personal property used in a short sale, (9) the deduction under section 1341 (relating to computation of tax where taxpayer restores substantial amount held under claim of right), (10) the deduction under section 72(b)(3) (relating to deduction where annuity payments cease before investment recovered), (11) the deduction under section 171 (relating to deduction for amortizable bond premium), and (12) the deduction under section 216 (relating to deductions in connection with cooperative housing corporations). (c) Disallowance of indirect deduction through pass-thru entity (1) In general. The Secretary shall prescribe regulations which prohibit the indirect deduction through pass-thru entities of amounts which are not allowable as a deduction if paid or incurred directly by an individual and which contain such reporting requirements as may be necessary to carry out the purposes of this subsection. (2) Treatment of publicly offered regulated investment companies (A) In general. Paragraph (1) shall not apply with respect to any publicly offered regulated investment company. (B) Publicly offered regulated investment companies. For purposes of this subsection— (i) In general. The term “publicly offered regulated investment company” means a regulated investment company the shares of which are— (I) continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended (15 U.S.C. 77a to 77aa)), (II) regularly traded on an established securities market, or (III) held by or for no fewer than 500 persons at all times during the taxable year. (ii) Secretary may reduce 500 person requirement. The Secretary may by regulation decrease the minimum shareholder requirement of clause (i)(III) in the case of regulated investment companies which experience a loss of shareholders through net redemptions of their shares. (3) Treatment of certain other entities. Paragraph (1) shall not apply— (A) with respect to cooperatives and real estate investment trusts, and (B) except as provided in regulations, with respect to estates and trusts. (d) Impairment-related work expenses. For purposes of this section, the term “impairment-related work expenses” means expenses— (1) of a handicapped individual (as defined in section 190(b)(3)) for attendant care services at the individual’s place of employment and other expenses in connection with such place of employment which are necessary for such individual to be able to work, and (2) with respect to which a deduction is allowable under section 162 (determined without regard to this section). (e) Determination of adjusted gross income in case of estates and trusts. For purposes of this section, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that— (1) the deductions for costs which are paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate, and (2) the deductions allowable under sections 642(b), 651, and 661, shall be treated as allowable in arriving at adjusted gross income. Under regulations, appropriate adjustments shall be made in the application of part I of subchapter J of this chapter to take into account the provisions of this section. (f) Coordination with other limitation. This section shall be applied before the application of the dollar limitation of the second sentence of section 162(a) (relating to trade or business expenses). (g) Suspension for taxable years 2018 through 2025. Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026.

EXAMPLE → Calculating Taxable Income

Problem: John and Jane Doe; married with no children; both work at ACME Corp.; additional income: rent out basement apartment to law student.

2018 Income and Expenses for John and Jane Doe
Combined Salaries --- $95,000	Mortgage Interest (§163) --- $16,000
Rental Income --- $5,000	Rental Expenses (§212) --- $2,000
Education Loan Interest (§221) --- $8,000	Charitable Contributions (§170) --- $500
Medical Expenses (§213) --- $2,000	Unreimbursed Work Expenses (§162) --- $1,000
Tax Preparation Fee (§212) --- $1,000

STEP ONE: Gross Income → $100,000 (combined salaries + rental income)

STEP TWO: Deductions Under §62(a) → Education Loan Interest §62(a)(4) ABOVE THE LINE!

Rental Expenses §62(a)(17)

$10,000

ADJUSTED GROSS INCOME = $90,000 (gross income less deductions under §62(a)).

STEP THREE: Less Qualified Business Income → N/A, not a qualified business under §199A

STEP FOUR: Less Standard Deduction OR

Less Itemized Deductions

Standard Deduction	Itemized Deductions
Look to §63(c) → Basic Standard Deduction §63(c)(2) If married filing jointly, 200% of $3,000 §63(c)(2)(A)-(C) BUT look to SPECIAL RULES: §63(c)(7)(A)(ii) → Special rules for 2018 Replace $3,000 with $12,000 above $12,000 x 200% = TOTAL STANDARD → $24,000	Regular v. Miscellaneous Regular → on the list in §67(b) Miscellaneous → anything not on list in §67(b) Regular Mortgage Interest --- §67(b)(1) → $16, 000 Charitable Contributions --- §67(b)(4) → $500 Medical Expenses --- §67(b)(5) → $2,000 Miscellaneous Accountant/Tax Prep. Fees → $1,000 Unreimbursed Work Expenses → $1,000 normally, you’d add up misc. and reg. to get total itemized, but due to §67(g), no misc. at this time. 2% floor on miscellaneous, but currently inactive* TOTAL ITEMIZED → $18,500

STEP FIVE: TOTAL TAXABLE INCOME → $66,000 (AGI less standard deduction)

Tax Credits

Tax credit → dollar for dollar reduction in the tax bill that you owe; typically, cannot bring tax owed below $0 (cannot cause a refund), but there are a few exceptions:

● Credit for taxes withheld: money you already paid the government (anything in excess of actual tax owed will go back to the taxpayer

● Earned income tax credit: to help low-income families with cash; you must be working and earning income to benefit from this tax credit

Taxpayer preference for tax-reducing strategies:

1) Tax credits (BEST, actual dollar for dollar reduction)

2) Above the line deductions (preferred because percentage reduction in AGI)

3) Below the line deductions (comes after AGI, least preferable, but still good!)

Child Tax Credit → most subject to change currently; expanded with 2018 tax plan, used to replace eliminated personal exemption deduction

● Changes “phase out” → you can make more before being phased out

● Currently, only goes up to including 16 year olds

● Expanded credit → neediest families are benefitting the least

● You need an SSN to get the credit (children too), so no mixed-immigrant status families (must be a citizen, TINs are not enough)

What is “Income”?

Haig-Simons (NOT GOOD LAW) → Income = change in wealth + consumption

Issues: no realization, phantom income, NOT THE CALCULATION WE USE

Phantom income → cancellation of debt, loan forgiveness (increase in tax bill, no money to pay it)

Eisner v. Macomber (1920) - SCOTUS [π owned stock that increased when company experienced growth]

RULE: Under the 16th Amendment a stock dividend paid as additional shares of stock is not taxable income.

Case Notes: no income until sale and realization of actual $

● Income is payment, labor, or a combination of both

● A stock dividend paid as additional shares is an adjustment to the taxpayer’s invested capital

● A pro rate stock dividend paid by a corporation is not taxable if:

1) Shareholders receive no cash;

2) Proportionate ownership is not altered; and

3) Shareholders do not realize income by sale of shares

Recognition	Realization
A particular situation in the tax code exists; “we are putting it on a tax return” Realization is a prerequisite to recognition. If you have realization, then you have recognition.	realization requirement → where the taxpayer must receive or lose something of monetary value If you are engaged in the marketplace, you likely will have a realization event.

Punitive Damages

Commissioner v. Glenshaw Glass (1955) - SCOTUS [Ds collected punitive damages for fed. antitrust action]

RULE: punitive damages are taxable as gross income.

Case Notes: JUDICIAL DEFINITION: “income derived from any source whatsoever”

● Congress implied no intent to exclude punitive damages

● Section 22 of the 1939 Code describes gross income as “income derived from any source whatsoever”

Glenshaw Glass Test (to determine “income”) ASSESSED WEALTH CLEARLY REALIZED COMPLETE DOMINION

Treasure Trove

Cesarini v. United States (1969) - USDC [πs found cash in used piano purchased at auction]

RULE: all income is subject to tax unless an express exemption applies.

Case Notes: money is taxable when it is discovered, not when the treasure chest was purchased

● REALIZATION EVENT is the finding of the treasure

● Treas. Reg. §1.61-14 → treasure trove is gross income, tax code does not exempt found money from gross income

● §61(a) → gross income is “all income from whatever source derived”

● Treasure trove can be cash or items and is taxable income

§ 1.61-14 Miscellaneous items of gross income. (a) In general. In addition to the items enumerated in section 61(a), there are many other kinds of gross income. For example, punitive damages such as treble damages under the antitrust laws and exemplary damages for fraud are gross income. Another person's payment of the taxpayer's income taxes constitutes gross income to the taxpayer unless excluded by law. Illegal gains constitute gross income. Treasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession. (b) Cross references. (1) Prizes and awards, see section 74 and regulations thereunder; (2) Damages for personal injury or sickness, see section 104 and the regulations thereunder; (3) Income taxes paid by lessee corporation, see section 110 and regulations thereunder; (4) Scholarships and fellowship grants, see section 117 and regulations thereunder; (5) Miscellaneous exemptions under other acts of Congress, see section 122; (6) Tax-free covenant bonds, see section 1451 and regulations thereunder. (7) Notional principal contracts, see § 1.446-3.

Circular 230 → when giving legal advice, you must have substantial authority on anything you put on a tax return and chance of audit is not a factor in determining “substantial authority”; not putting something (omitting) on a tax return is taking a position.

If client finds…

● $500 → must report $500 of gross income

● A diamond ring → must report gross income

Bargain Purchase → if you buy a house, that includes anything in the home, and find a valuable painting, you got a painting and a house for the price of a house, but the value of the painting is not now taxable income to you. (i.e. bite into an oyster and find a pearl).

Illegal Income

James v. United States (1961) - SCOTUS [D acquired $738k through embezzlement, did not declare]

RULE: Embezzlement gains and other illegal income are taxable under federal law.

Case Notes: distinguishes Wilcox, which held that no claim of right = no taxable income.

● A federal taxpayer must report illegally acquired income, including embezzled money, as taxable income

● Statutorily, the recent Code includes all income however obtained, most case law treats all income as taxable, even if another person is legally entitled to recover the income from the recipient.

Compensation for Services - Payments to Third Parties

26 U.S. Code § 61 - Gross income defined (a) General definition. Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items;

26 U.S. Code § 74 - Prizes and awards (a) General rule. Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards. (b) Exception for certain prizes and awards transferred to charities. Gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if— (1) the recipient was selected without any action on his part to enter the contest or proceeding; (2) the recipient is not required to render substantial future services as a condition to receiving the prize or award; and (3) the prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170(c) pursuant to a designation made by the recipient. (c) Exception for certain employee achievement awards (1) In general. Gross income shall not include the value of an employee achievement award (as defined in section 274(j)) received by the taxpayer if the cost to the employer of the employee achievement award does not exceed the amount allowable as a deduction to the employer for the cost of the employee achievement award. (2) Excess deduction award. If the cost to the employer of the employee achievement award received by the taxpayer exceeds the amount allowable as a deduction to the employer, then gross income includes the greater of— (A) an amount equal to the portion of the cost to the employer of the award that is not allowable as a deduction to the employer (but not in excess of the value of the award), or (B) the amount by which the value of the award exceeds the amount allowable as a deduction to the employer. The remaining portion of the value of such award shall not be included in the gross income of the recipient. (3) Treatment of tax-exempt employers In the case of an employer exempt from taxation under this subtitle, any reference in this subsection to the amount allowable as a deduction to the employer shall be treated as a reference to the amount which would be allowable as a deduction to the employer if the employer were not exempt from taxation under this subtitle. (4) Cross reference. For provisions excluding certain de minimis fringes from gross income, see section 132(e). (d) Exception for Olympic and Paralympic medals and prizes (1) In general. Gross income shall not include the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games or Paralympic Games. (2) Limitation based on adjusted gross income (A) In general. Paragraph (1) shall not apply to any taxpayer for any taxable year if the adjusted gross income (determined without regard to this subsection) of such taxpayer for such taxable year exceeds $1,000,000 (half of such amount in the case of a married individual filing a separate return). (B) Coordination with other limitations. For purposes of sections 86, 135, 137, 219, 221, 222, and 469, adjusted gross income shall be determined after the application of paragraph (1) and before the application of subparagraph (A).

Old Colony Trust Co. v. Commissioner (1929) - SCOTUS [D was president, resolution to pay officers income tax]

RULE: Payment by an employer of an employee’s income taxes constitutes taxable gain to the employee

Case Notes: discharging financial obligations is financial gain to the employee, and taxable

● Any payment made for services rendered by an employee constitutes taxable income to the employee.

● Whether the employer makes the payment directly to the employee or to a third party on behalf of the employee is inconsequential.

● Taxes paid in consideration of employee services do not constitute a tax-free gift.

McCann v. United States (1981) - Court of Claims [π qualified for all expenses trip based on sales numbers]

RULE: Gross income includes all-expenses-paid trips rewarded to employees for exceptional services rendered.

Case Notes: despite not being money, the trip was a financial benefit to the employee, and taxable

● §74(a) provides that gross income includes prizes and awards

● Fair market value of an all-expenses-paid trip should be included in gross income

UNDER TCJA: Entertainment expenses are not deductible from 2018-2025; conferences included but tours and shows excluded

United States v. Gotcher (1968) - 5th Cir. [π & wife went to Germany on biz trip to tour facilities and improve sales]

RULE: If an employer sends and employee on an expenses-paid trip primarily so that the employee can better promote the employer’s business, the value of the trip is excluded from the employee’s gross income for federal tax purposes.

Case Notes: P went for dominant purpose of employer; wife is gross income

● Under §61 of the 1954 Code, the trip’s value is included in the employee’s gross income only if the employee gains economically from the trip by receiving a benefit without having to pay for it, and only if the trip is primarily for the employee’s benefit.

● DOMINANT PURPOSE TEST → if the trip is for the employer, it is not taxable income

● Primary purpose → incidental enjoyment by employee is OK so long as the primary benefit is to employer

Meals and Lodging - Furnished on an Employer’s Premises

26 U.S. Code § 119 - Meals or lodging furnished for the convenience of the employer (a) Meals and lodging furnished to employee, his spouse, and his dependents, pursuant to employment. There shall be excluded from gross income of an employee the value of any meals or lodging furnished to him, his spouse, or any of his dependents by or on behalf of his employer for the convenience of the employer, but only if— (1) in the case of meals, the meals are furnished on the business premises of the employer, or (2) in the case of lodging, the employee is required to accept such lodging on the business premises of his employer as a condition of his employment. (b) Special rules. For purposes of subsection (a)— (1) Provisions of employment contract or State statute not to be determinative In determining whether meals or lodging are furnished for the convenience of the employer, the provisions of an employment contract or of a State statute fixing terms of employment shall not be determinative of whether the meals or lodging are intended as compensation. (2) Certain factors not taken into account with respect to meals In determining whether meals are furnished for the convenience of the employer, the fact that a charge is made for such meals, and the fact that the employee may accept or decline such meals, shall not be taken into account. (3) Certain fixed charges for meals (A) In general. If— (i) an employee is required to pay on a periodic basis a fixed charge for his meals, and (ii) such meals are furnished by the employer for the convenience of the employer, there shall be excluded from the employee’s gross income an amount equal to such fixed charge. (B) Application of subparagraph (A)Subparagraph (A) shall apply— (i) whether the employee pays the fixed charge out of his stated compensation or out of his own funds, and (ii) only if the employee is required to make the payment whether he accepts or declines the meals. (4) Meals furnished to employees on business premises where meals of most employees are otherwise excludable. All meals furnished on the business premises of an employer to such employer’s employees shall be treated as furnished for the convenience of the employer if, without regard to this paragraph, more than half of the employees to whom such meals are furnished on such premises are furnished such meals for the convenience of the employer. (c) Employees living in certain camps (1) In general. In the case of an individual who is furnished lodging in a camp located in a foreign country by or on behalf of his employer, such camp shall be considered to be part of the business premises of the employer. (2) Camp. For purposes of this section, a camp constitutes lodging which is— (A) provided by or on behalf of the employer for the convenience of the employer because the place at which such individual renders services is in a remote area where satisfactory housing is not available on the open market, (B) located, as near as practicable, in the vicinity of the place at which such individual renders services, and (C) furnished in a common area (or enclave) which is not available to the public and which normally accommodates 10 or more employees. (d) Lodging furnished by certain educational institutions to employees (1) In general. In the case of an employee of an educational institution, gross income shall not include the value of qualified campus lodging furnished to such employee during the taxable year. (2) Exception in cases of inadequate rent. Paragraph (1) shall not apply to the extent of the excess of— (A) the lesser of— (i) 5 percent of the appraised value of the qualified campus lodging, or (ii) the average of the rentals paid by individuals (other than employees or students of the educational institution) during such calendar year for lodging provided by the educational institution which is comparable to the qualified campus lodging provided to the employee, over (B) the rent paid by the employee for the qualified campus lodging during such calendar year. The appraised value under subparagraph (A)(i) shall be determined as of the close of the calendar year in which the taxable year begins, or, in the case of a rental period not greater than 1 year, at any time during the calendar year in which such period begins. (3) Qualified campus lodging. For purposes of this subsection, the term “qualified campus lodging” means lodging to which subsection (a) does not apply and which is— (A) located on, or in the proximity of, a campus of the educational institution, and (B) furnished to the employee, his spouse, and any of his dependents by or on behalf of such institution for use as a residence. (4) Educational institution, etc.For purposes of this subsection— (A) In general. The term “educational institution” means— (i) an institution described in section 170(b)(1)(A)(ii) (or an entity organized under State law and composed of public institutions so described), or (ii) an academic health center. (B) Academic health center. For purposes of subparagraph (A), the term “academic health center” means an entity— (i) which is described in section 170(b)(1)(A)(iii), (ii) which receives (during the calendar year in which the taxable year of the taxpayer begins) payments under subsection (d)(5)(B) or (h) of section 1886 of the Social Security Act (relating to graduate medical education), and (iii) which has as one of its principal purposes or functions the providing and teaching of basic and clinical medical science and research with the entity’s own faculty.

Meals and Lodging - §119(a)

Meals	Lodging
● Furnished by employer ● For convenience of employer ● On business premises of employer	● Furnished by employer ● For convenience of employer ● On business premises of employer ● Employee required to accept as a condition of employment

Dominant purpose → first ask, is the main purpose business or pleasure?

Employee morale is not a valid reason for “employer convenience”

Commissioner v. Kowalski (1977) - SCOTUS [state troopers given cash meal allowances when out on duty]

RULE: Under federal tax law, cash meal allowances are included in gross income.

Case Notes: Only §119 can be used to find an exception

● Cash meal allowances are not excluded under §119 or the common-law convenience-of-the-employer doctrine (which did not survive the recent codification of federal law anyways)

● §119 excludes meals provided by the employer directly, but not cash reimbursements, which must be included in gross income.

Adams v. United States (1978) - Claims Court [π CEO in Japan req. to live in company-provided housing]

RULE: Employer-provided housing is excludable from a taxpayer’s gross income if: (1) the employment is conditioned upon acceptance of the housing, (2) the housing is for the employer’s convenience, and (3) the housing is on the employer’s business premises.

Case Notes: Japanese housing should be completely excluded from income

● There must be a strong link between the residence and business interest to find “convenience of the employer”

Statutory Fringe Benefits

26 U.S. Code § 132 - Certain fringe benefits (a) Exclusion from gross income. Gross income shall not include any fringe benefit which qualifies as a— (1) no-additional-cost service, (2) qualified employee discount, (3) working condition fringe, (4) de minimis fringe, (5) qualified transportation fringe, (6) qualified moving expense reimbursement, (7) qualified retirement planning services, or (8) qualified military base realignment and closure fringe. (b) No-additional-cost service defined. For purposes of this section, the term “no-additional-cost service” means any service provided by an employer to an employee for use by such employee if— (1) such service is offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing services, and (2) the employer incurs no substantial additional cost (including forgone revenue) in providing such service to the employee (determined without regard to any amount paid by the employee for such service). (c) Qualified employee discount defined. For purposes of this section— (1) Qualified employee discount. The term “qualified employee discount” means any employee discount with respect to qualified property or services to the extent such discount does not exceed— (A) in the case of property, the gross profit percentage of the price at which the property is being offered by the employer to customers, or (B) in the case of services, 20 percent of the price at which the services are being offered by the employer to customers. (2) Gross profit percentage (A) In general. The term “gross profit percentage” means the percent which— (i) the excess of the aggregate sales price of property sold by the employer to customers over the aggregate cost of such property to the employer, is of (ii) the aggregate sale price of such property. (B) Determination of gross profit percentage. Gross profit percentage shall be determined on the basis of— (i) all property offered to customers in the ordinary course of the line of business of the employer in which the employee is performing services (or a reasonable classification of property selected by the employer), and (ii) the employer’s experience during a representative period. (3) Employee discount defined. The term “employee discount” means the amount by which— (A) the price at which the property or services are provided by the employer to an employee for use by such employee, is less than (B) the price at which such property or services are being offered by the employer to customers. (4) Qualified property or services. The term “qualified property or services” means any property (other than real property and other than personal property of a kind held for investment) or services which are offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing services. (d) Working condition fringe defined. For purposes of this section, the term “working condition fringe” means any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 or 167. (e) De minimis fringe defined. For purposes of this section— (1) In general. The term “de minimis fringe” means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable. (2) Treatment of certain eating facilities. The operation by an employer of any eating facility for employees shall be treated as a de minimis fringe if— (A) such facility is located on or near the business premises of the employer, and (B) revenue derived from such facility normally equals or exceeds the direct operating costs of such facility. The preceding sentence shall apply with respect to any highly compensated employee only if access to the facility is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees. For purposes of subparagraph (B), an employee entitled under section 119 to exclude the value of a meal provided at such facility shall be treated as having paid an amount for such meal equal to the direct operating costs of the facility attributable to such meal. (f) Qualified transportation fringe (1) In general. For purposes of this section, the term “qualified transportation fringe” means any of the following provided by an employer to an employee: (A) Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee’s residence and place of employment. (B) Any transit pass. (C) Qualified parking. (D) Any qualified bicycle commuting reimbursement. (2) Limitation on exclusion. The amount of the fringe benefits which are provided by an employer to any employee and which may be excluded from gross income under subsection (a)(5) shall not exceed— (A) $175 per month in the case of the aggregate of the benefits described in subparagraphs (A) and (B) of paragraph (1), (B) $175 per month in the case of qualified parking, and (C) the applicable annual limitation in the case of any qualified bicycle commuting reimbursement. (3) Cash reimbursements. For purposes of this subsection, the term “qualified transportation fringe” includes a cash reimbursement by an employer to an employee for a benefit described in paragraph (1). The preceding sentence shall apply to a cash reimbursement for any transit pass only if a voucher or similar item which may be exchanged only for a transit pass is not readily available for direct distribution by the employer to the employee. (4) No constructive receipt. No amount shall be included in the gross income of an employee solely because the employee may choose between any qualified transportation fringe (other than a qualified bicycle commuting reimbursement) and compensation which would otherwise be includible in gross income of such employee. (5) Definitions. For purposes of this subsection— (A) Transit pass. The term “transit pass” means any pass, token, farecard, voucher, or similar item entitling a person to transportation (or transportation at a reduced price) if such transportation is— (i) on mass transit facilities (whether or not publicly owned), or (ii) provided by any person in the business of transporting persons for compensation or hire if such transportation is provided in a vehicle meeting the requirements of subparagraph (B)(i). (B) Commuter highway vehicle. The term “commuter highway vehicle” means any highway vehicle— (i) the seating capacity of which is at least 6 adults (not including the driver), and (ii) at least 80 percent of the mileage use of which can reasonably be expected to be— (I) for purposes of transporting employees in connection with travel between their residences and their place of employment, and (II) on trips during which the number of employees transported for such purposes is at least ½ of the adult seating capacity of such vehicle (not including the driver). (C) Qualified parking. The term “qualified parking” means parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by transportation described in subparagraph (A), in a commuter highway vehicle, or by carpool. Such term shall not include any parking on or near property used by the employee for residential purposes. (D) Transportation provided by employer Transportation referred to in paragraph (1)(A) shall be considered to be provided by an employer if such transportation is furnished in a commuter highway vehicle operated by or for the employer. (E) Employee For purposes of this subsection, the term “employee” does not include an individual who is an employee within the meaning of section 401(c)(1). (F) Definitions related to bicycle commuting reimbursement (i) Qualified bicycle commuting reimbursement. The term “qualified bicycle commuting reimbursement” means, with respect to any calendar year, any employer reimbursement during the 15-month period beginning with the first day of such calendar year for reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee’s residence and place of employment. (ii) Applicable annual limitation. The term “applicable annual limitation” means, with respect to any employee for any calendar year, the product of $20 multiplied by the number of qualified bicycle commuting months during such year. (iii) Qualified bicycle commuting month. The term “qualified bicycle commuting month” means, with respect to any employee, any month during which such employee— (I) regularly uses the bicycle for a substantial portion of the travel between the employee’s residence and place of employment, and (II) does not receive any benefit described in subparagraph (A), (B), or (C) of paragraph (1). (6) Inflation adjustment (A) In general. In the case of any taxable year beginning in a calendar year after 1999, the dollar amounts contained in subparagraphs (A) and (B) of paragraph (2) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting “calendar year 1998” for “calendar year 2016” in subparagraph (A)(ii) thereof. In the case of any taxable year beginning in a calendar year after 2002, clause (ii) shall be applied by substituting “calendar year 2001” for “calendar year 1998” for purposes of adjusting the dollar amount contained in paragraph (2)(A). (B) Rounding. If any increase determined under subparagraph (A) is not a multiple of $5, such increase shall be rounded to the next lowest multiple of $5. (7) Coordination with other provisions. For purposes of this section, the terms “working condition fringe” and “de minimis fringe” shall not include any qualified transportation fringe (determined without regard to paragraph (2)). (8) Suspension of qualified bicycle commuting reimbursement exclusion. Paragraph (1)(D) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. (g) Qualified moving expense reimbursement. For purposes of this section— (1) In general. The term “qualified moving expense reimbursement” means any amount received (directly or indirectly) by an individual from an employer as a payment for (or a reimbursement of) expenses which would be deductible as moving expenses under section 217 if directly paid or incurred by the individual. Such term shall not include any payment for (or reimbursement of) an expense actually deducted by the individual in a prior taxable year. (2) Suspension for taxable years 2018 through 2025. Except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station, subsection (a)(6) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. (h) Certain individuals treated as employees for purposes of subsections (a)(1) and (2)For purposes of paragraphs (1) and (2) of subsection (a)— (1) Retired and disabled employees and surviving spouse of employee treated as employee. With respect to a line of business of an employer, the term “employee” includes— (A) any individual who was formerly employed by such employer in such line of business and who separated from service with such employer in such line of business by reason of retirement or disability, and (B) any widow or widower of any individual who died while employed by such employer in such line of business or while an employee within the meaning of subparagraph (A). (2) Spouse and dependent children (A) In general. Any use by the spouse or a dependent child of the employee shall be treated as use by the employee. (B) Dependent child. For purposes of subparagraph (A), the term “dependent child” means any child (as defined in section 152(f)(1)) of the employee— (i) who is a dependent of the employee, or (ii) both of whose parents are deceased and who has not attained age 25. For purposes of the preceding sentence, any child to whom section 152(e) applies shall be treated as the dependent of both parents. (3) Special rule for parents in the case of air transportation. Any use of air transportation by a parent of an employee (determined without regard to paragraph (1)(B)) shall be treated as use by the employee. (i) Reciprocal agreements. For purposes of paragraph (1) of subsection (a), any service provided by an employer to an employee of another employer shall be treated as provided by the employer of such employee if— (1) such service is provided pursuant to a written agreement between such employers, and (2) neither of such employers incurs any substantial additional costs (including foregone revenue) in providing such service or pursuant to such agreement. (j) Special rules (1) Exclusions under subsection (a)(1) and (2) apply to highly compensated employees only if no discrimination. Paragraphs (1) and (2) of subsection (a) shall apply with respect to any fringe benefit described therein provided with respect to any highly compensated employee only if such fringe benefit is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees. (2) Special rule for leased sections of department stores (A) In general. For purposes of paragraph (2) of subsection (a), in the case of a leased section of a department store— (i) such section shall be treated as part of the line of business of the person operating the department store, and (ii) employees in the leased section shall be treated as employees of the person operating the department store. (B) Leased section of department store. For purposes of subparagraph (A), a leased section of a department store is any part of a department store where over-the-counter sales of property are made under a lease or similar arrangement where it appears to the general public that individuals making such sales are employed by the person operating the department store. (3) Auto salesmen (A) In general. For purposes of subsection (a)(3), qualified automobile demonstration use shall be treated as a working condition fringe. (B) Qualified automobile demonstration use. For purposes of subparagraph (A), the term “qualified automobile demonstration use” means any use of an automobile by a full-time automobile salesman in the sales area in which the automobile dealer’s sales office is located if— (i) such use is provided primarily to facilitate the salesman’s performance of services for the employer, and (ii) there are substantial restrictions on the personal use of such automobile by such salesman. (4) On-premises gyms and other athletic facilities (A) In general. Gross income shall not include the value of any on-premises athletic facility provided by an employer to his employees. (B) On-premises athletic facility. For purposes of this paragraph, the term “on-premises athletic facility” means any gym or other athletic facility— (i) which is located on the premises of the employer, (ii) which is operated by the employer, and (iii) substantially all the use of which is by employees of the employer, their spouses, and their dependent children (within the meaning of subsection (h)). (5) Special rule for affiliates of airlines (A) In general. If— (i) a qualified affiliate is a member of an affiliated group another member of which operates an airline, and (ii) employees of the qualified affiliate who are directly engaged in providing airline-related services are entitled to no-additional-cost service with respect to air transportation provided by such other member, then, for purposes of applying paragraph (1) of subsection (a) to such no-additional-cost service provided to such employees, such qualified affiliate shall be treated as engaged in the same line of business as such other member. (B) Qualified affiliate. For purposes of this paragraph, the term “qualified affiliate” means any corporation which is predominantly engaged in airline-related services. (C) Airline-related services. For purposes of this paragraph, the term “airline-related services” means any of the following services provided in connection with air transportation: (i) Catering. (ii) Baggage handling. (iii) Ticketing and reservations. (iv) Flight planning and weather analysis. (v) Restaurants and gift shops located at an airport. (vi) Such other similar services provided to the airline as the Secretary may prescribe. (D) Affiliated group. For purposes of this paragraph, the term “affiliated group” has the meaning given such term by section 1504(a). (6) Highly compensated employee. For purposes of this section, the term “highly compensated employee” has the meaning given such term by section 414(q). (7) Air cargo. For purposes of subsection (b), the transportation of cargo by air and the transportation of passengers by air shall be treated as the same service. (8) Application of section to otherwise taxable educational or training benefits. Amounts paid or expenses incurred by the employer for education or training provided to the employee which are not excludable from gross income under section 127 shall be excluded from gross income under this section if (and only if) such amounts or expenses are a working condition fringe. (k) Customers not to include employees. For purposes of this section (other than subsection (c)(2)), the term “customers” shall only include customers who are not employees. (l) Section not to apply to fringe benefits expressly provided for elsewhere. This section (other than subsections (e) and (g)) shall not apply to any fringe benefits of a type the tax treatment of which is expressly provided for in any other section of this chapter. (m) Qualified retirement planning services (1) In general. For purposes of this section, the term “qualified retirement planning services” means any retirement planning advice or information provided to an employee and his spouse by an employer maintaining a qualified employer plan. (2) Nondiscrimination rule. Subsection (a)(7) shall apply in the case of highly compensated employees only if such services are available on substantially the same terms to each member of the group of employees normally provided education and information regarding the employer’s qualified employer plan. (3) Qualified employer plan. For purposes of this subsection, the term “qualified employer plan” means a plan, contract, pension, or account described in section 219(g)(5). (n) Qualified military base realignment and closure fringe. For purposes of this section— (1) In general. The term “qualified military base realignment and closure fringe” means 1 or more payments under the authority of section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966 (42 U.S.C. 3374) (as in effect on the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009). (2) Limitation. With respect to any property, such term shall not include any payment referred to in paragraph (1) to the extent that the sum of all of such payments related to such property exceeds the maximum amount described in subsection (c) of such section (as in effect on such date). (o) Regulations. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.

Statutory Fringe Benefits → §132(a) lists eight types of employee fringe benefits specifically excluded from gross income:

1) No-additional-cost service → space available; business is already offering something, no customer took it (i.e. airline tickets for employees, unbooked hotel rooms available to employee for a night for free); no substantial additional cost to employer

2) Qualified employee discount → gross profit % or 20% cap on services; qualified property or services: offered for sale to customers in the ordinary course or line of business in which the employee is performing the services (i.e. can’t offer discounted massage to retail employee)

3) Working condition fringe → normally deductible under §162 or §167; does not include transportation costs

4) De minimis fringe (holiday gifts) → infrequent, small value, administratively not feasible/impractical to claim; does not include transportation costs

5) Qualified transportation fringe → limitation on qualified transportation expenses, typically $175

6) Qualified moving expense reimbursement

7) Qualified retirement planning services

8) Qualified military base realignment and closure fringe

- Other sections of the Code provide other fringe benefit exclusions as well.

Property Received for Services

26 U.S. Code § 83 - Property transferred in connection with performance of services (a) General rule If, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of— (1) the fair market value of such property (determined without regard to any restriction other than a restriction which by its terms will never lapse) at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, over (2) the amount (if any) paid for such property, shall be included in the gross income of the person who performed such services in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. The preceding sentence shall not apply if such person sells or otherwise disposes of such property in an arm’s length transaction before his rights in such property become transferable or not subject to a substantial risk of forfeiture. (b) Election to include in gross income in year of transfer (1) In general. Any person who performs services in connection with which property is transferred to any person may elect to include in his gross income for the taxable year in which such property is transferred, the excess of— (A) the fair market value of such property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse), over (B) the amount (if any) paid for such property. If such election is made, subsection (a) shall not apply with respect to the transfer of such property, and if such property is subsequently forfeited, no deduction shall be allowed in respect of such forfeiture. (2) Election An election under paragraph (1) with respect to any transfer of property shall be made in such manner as the Secretary prescribes and shall be made not later than 30 days after the date of such transfer. Such election may not be revoked except with the consent of the Secretary. (c) Special rules. For purposes of this section— (1) Substantial risk of forfeiture. The rights of a person in property are subject to a substantial risk of forfeiture if such person’s rights to full enjoyment of such property are conditioned upon the future performance of substantial services by any individual. (2) Transferability of property. The rights of a person in property are transferable only if the rights in such property of any transferee are not subject to a substantial risk of forfeiture. (3) Sales which may give rise to suit under section 16(b) of the Securities Exchange Act of 1934. So long as the sale of property at a profit could subject a person to suit under section 16(b) of the Securities Exchange Act of 1934, such person’s rights in such property are— (A) subject to a substantial risk of forfeiture, and (B) not transferable. (4) For purposes of determining an individual’s basis in property transferred in connection with the performance of services, rules similar to the rules of section 72(w) shall apply. (d) Certain restrictions which will never lapse (1) Valuation. In the case of property subject to a restriction which by its terms will never lapse, and which allows the transferee to sell such property only at a price determined under a formula, the price so determined shall be deemed to be the fair market value of the property unless established to the contrary by the Secretary, and the burden of proof shall be on the Secretary with respect to such value. (2) Cancellation If, in the case of property subject to a restriction which by its terms will never lapse, the restriction is canceled, then, unless the taxpayer establishes— (A) that such cancellation was not compensatory, and (B) that the person, if any, who would be allowed a deduction if the cancellation were treated as compensatory, will treat the transaction as not compensatory, as evidenced in such manner as the Secretary shall prescribe by regulations, the excess of the fair market value of the property (computed without regard to the restrictions) at the time of cancellation over the sum of— (C) the fair market value of such property (computed by taking the restriction into account) immediately before the cancellation, and (D) the amount, if any, paid for the cancellation, shall be treated as compensation for the taxable year in which such cancellation occurs. (e) Applicability of section. This section shall not apply to— (1) a transaction to which section 421 applies, (2) a transfer to or from a trust described in section 401(a) or a transfer under an annuity plan which meets the requirements of section 404(a)(2), (3) the transfer of an option without a readily ascertainable fair market value, (4) the transfer of property pursuant to the exercise of an option with a readily ascertainable fair market value at the date of grant, or (5) group-term life insurance to which section 79 applies. (f) Holding period. In determining the period for which the taxpayer has held property to which subsection (a) applies, there shall be included only the period beginning at the first time his rights in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier. (g) Certain exchanges. If property to which subsection (a) applies is exchanged for property subject to restrictions and conditions substantially similar to those to which the property given in such exchange was subject, and if section 354, 355, 356, or 1036 (or so much of section 1031 as relates to section 1036) applied to such exchange, or if such exchange was pursuant to the exercise of a conversion privilege— (1) such exchange shall be disregarded for purposes of subsection (a), and (2) the property received shall be treated as property to which subsection (a) applies. (h) Deduction by employer. In the case of a transfer of property to which this section applies or a cancellation of a restriction described in subsection (d), there shall be allowed as a deduction under section 162, to the person for whom were performed the services in connection with which such property was transferred, an amount equal to the amount included under subsection (a), (b), or (d)(2) in the gross income of the person who performed such services. Such deduction shall be allowed for the taxable year of such person in which or with which ends the taxable year in which such amount is included in the gross income of the person who performed such services. (i) Qualified equity grants (1) In general. For purposes of this subtitle— (A) Timing of inclusion. If qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection, subsection (a) shall be applied by including the amount determined under such subsection with respect to such stock in income of the employee in the taxable year determined under subparagraph (B) in lieu of the taxable year described in subsection (a). (B) Taxable year determined. The taxable year determined under this subparagraph is the taxable year of the employee which includes the earliest of— (i) the first date such qualified stock becomes transferable (including, solely for purposes of this clause, becoming transferable to the employer), (ii) the date the employee first becomes an excluded employee, (iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection), (iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or (v) the date on which the employee revokes (at such time and in such manner as the Secretary provides) the election under this subsection with respect to such stock. (2) Qualified stock (A) In general. For purposes of this subsection, the term “qualified stock” means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if— (i) such stock is received— (I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit, and (ii) such option or restricted stock unit was granted by the corporation— (I) in connection with the performance of services as an employee, and (II) during a calendar year in which such corporation was an eligible corporation. (B) Limitation. The term “qualified stock” shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture. (C) Eligible corporation. For purposes of subparagraph (A)(ii)(II)— (i) In general. The term “eligible corporation” means, with respect to any calendar year, any corporation if— (I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and (II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or are granted restricted stock units, with the same rights and privileges to receive qualified stock. (ii) Same rights and privileges. For purposes of clause (i)(II)— (I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be made in a similar manner as under section 423(b)(5), (II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and (III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit. (iii) Employee. For purposes of clause (i)(II), the term “employee” shall not include any employee described in section 4980E(d)(4) or any excluded employee. (iv) Special rule for calendar years before 2018. In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same. (3) Qualified employee; excluded employee. For purposes of this subsection— (A) In general. The term “qualified employee” means any individual who— (i) is not an excluded employee, and (ii) agrees in the election made under this subsection to meet such requirements as are determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met. (B) Excluded employee. The term “excluded employee” means, with respect to any corporation, any individual— (i) who is a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the calendar year or who was such a 1 percent owner at any time during the 10 preceding calendar years, (ii) who is or has been at any prior time— (I) the chief executive officer of such corporation or an individual acting in such a capacity, or (II) the chief financial officer of such corporation or an individual acting in such a capacity, (iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or (iv) who is one of the 4 highest compensated officers of such corporation for the taxable year, or was one of the 4 highest compensated officers of such corporation for any of the 10 preceding taxable years, determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation). (4) Election (A) Time for making election. An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b). (B) Limitations. No election may be made under this section with respect to any qualified stock if— (i) the qualified employee has made an election under subsection (b) with respect to such qualified stock, (ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or (iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless— (I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and (II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis. (C) Definitions and special rules related to limitation on stock redemptions (i) Deferral stock. For purposes of this paragraph, the term “deferral stock” means stock with respect to which an election is in effect under this subsection. (ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period. Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of subparagraph (B)(iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased. (iii) Purchase of all outstanding deferral stock. The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation’s outstanding deferral stock. (iv) Reporting. Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary requires for purposes of administering this paragraph. (5) Controlled groups. For purposes of this subsection, all persons treated as a single employer under section 414(b) shall be treated as 1 corporation. (6) Notice requirement. Any corporation which transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee— (A) certify to such employee that such stock is qualified stock, and (B) notify such employee— (i) that the employee may be eligible to elect to defer income on such stock under this subsection, and (ii) that, if the employee makes such an election— (I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period, (II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and (III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding. (7) Restricted stock units. This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units.

Contingent Compensation → “golden handcuffs”; consideration, the full enjoyment of which is conditioned upon performance of additional services in the future; frequently come in the form of stock or equity interest.

Deferred Compensation →

● 401K/403B plans

● Incentive stock options → restrictive stock agreement

● Pension plans

§83 Election is irrevocable - must be made within 30 days of the stock grant.

Substantial risk of forfeiture → voluntary term → yes; “for cause” termination → no (involuntary)

Gifts and Bequests

26 U.S. Code § 102 - Gifts and inheritances (a) General rule. Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance. (b) Income. Subsection (a) shall not exclude from gross income— (1) the income from any property referred to in subsection (a); or (2) where the gift, bequest, devise, or inheritance is of income from property, the amount of such income. Where, under the terms of the gift, bequest, devise, or inheritance, the payment, crediting, or distribution thereof is to be made at intervals, then, to the extent that it is paid or credited or to be distributed out of income from property, it shall be treated for purposes of paragraph (2) as a gift, bequest, devise, or inheritance of income from property. Any amount included in the gross income of a beneficiary under subchapter J shall be treated for purposes of paragraph (2) as a gift, bequest, devise, or inheritance of income from property. (c) Employee gifts (1) In general. Subsection (a) shall not exclude from gross income any amount transferred by or for an employer to, or for the benefit of, an employee. (2) Cross references. For provisions excluding certain employee achievement awards from gross income, see section 74(c). For provisions excluding certain de minimis fringes from gross income, see section 132(e).

Gifts and Bequests - §102(a) → gross income does not include the value of property acquired by gift, bequest, devise, or inheritance

A → $50,000 wages → federal income tax on wages VIOLATES HORIZONTAL

B → $50,000 gift → no taxes EQUITY

Reasoning for gift exclusion:

● Administrative convenience - hard to track, imposes into family affairs, difficult to determine value

● Federal wealth transfer taxes - gifted amounts already subject to tax at the hands of the donor, excessive taxation

● Encourage generosity - donors are more willing to give if no tax

Tax consequences to the donor → the transfer of property by gift is seen as personal consumption by the donor, so there is no deduction; appreciated property will not result in any tax consequences for the donor (current value higher than what donor paid originally)

Gifts of Income - §102(b)

What is a “gift”? Code and Regulations are unclear - look to case law.

Commissioner v. Duberstein (1960) - SCOTUS [D got car after helping biz; Δ left church and got “pension”]

RULE: A transfer is not a gift if made out of obligation or anticipation of future benefits

Case Notes: DUBERSTEIN STANDARD → detached and disinterested generosity (determines if “gift”)

● The transfer must be entirely voluntary, but the transferor must lack any ulterior motive or desire to secure a benefit

● Transferor’s mere characterization of a transfer as a gift is insufficient

● Controlling factor is transferor’s intent - courts must look to the transferor's “dominant purpose” when determining the intent; case by case determination, great deference to the factfinder.

DUBERSTEIN STANDARD “Detached and disinterested generosity” ● Donors intent to gift contemplated,, but more than just an intent to give, many factors considered ● There cannot be a legal or moral obligation for the gift ● Gift is not taxable income to recipient but also cannot be claimed as a deduction by the giver, either

Employee Gifts - §102(c)

Olk v. United States (1976) - 9th Cir. [π craps dealer rec’d tokes from players]

RULE: A federal taxpayer receives taxable gross income when a donor voluntarily gives the taxpayer money for the taxpayer’s personal service to the donor.

Case Notes: Considered commercial gratuity - taxable if:

Service included some personal or functional conduct
Gratuity conformed to local practices
Gratuity is easily valued

§102(a) Exclusion → applies to both inter vivos transfers and transfers made at death.

Wolder v. Commissioner (1974) - 2nd Cir. [D promised legal services for life in exch. for securities from merger]

RULE: A bequest made in return for lifetime legal services constitutes taxable income

Case Notes: if the purpose of the bequest is to compensate for services, then it is taxable

● Property acquired by bequest does not constitute taxable income, but where a bequest is made in return for services rendered, that bequest should constitute taxable gain.

Revenue Ruling 67-375 (1967) → a distribution of property under the terms of a will in satisfaction of a written agreement under which the taxpayers were required to perform services for the testator is compensation for services, includable in their gross income in the taxable year of receipt. Loans and the Cancellation of Debt

Basic rules of loans:

(1) A loan is not gross income to the borrower

(2) The lender may not deduct the amount of the loan

(3) The amount paid to satisfy the loan obligation is not deductive by the borrower

(4) Repayment of the loan is not gross income to the lender

(5) Interest paid to the lender is included in the lender’s gross income

(6) Interest paid to the lender may be deductible by the borrower

Cancellation of Debt → if a lender forgives or cancels an outstanding debt, there may be income tax consequences to the borrower.

United States v. Kirby Lumber Co. (1931) - SCOTUS [π issued bonds but bought them back that year for less]

RULE: A corporation that buys back a bond at less than its issuing price realizes taxable income

Case Notes: π did not experience any loss, only gain

● This practice essentially discharges a portion of the outstanding debt.

26 U.S. Code § 61 - Gross income defined (a) General definition. Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (12) Income from discharge of indebtedness;

26 U.S. Code § 108 - Income from discharge of indebtedness (a) Exclusion from gross income (1) In general. Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if— (A) the discharge occurs in a title 11 case, (B) the discharge occurs when the taxpayer is insolvent, (C) the indebtedness discharged is qualified farm indebtedness, (D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness, or (E) the indebtedness discharged is qualified principal residence indebtedness which is discharged— (i) before January 1, 2018, or (ii) subject to an arrangement that is entered into and evidenced in writing before January 1, 2018. ….. (d) Meaning of terms; special rules relating to certain provisions (1) Indebtedness of taxpayer For purposes of this section, the term “indebtedness of the taxpayer” means any indebtedness— (A) for which the taxpayer is liable, or (B) subject to which the taxpayer holds property.

Example: B owes A $50,000 loan repayment; A agrees to accept $45,000 from various sources: compensation for services income of 10k, gain on property of 15k - basis of 20k, discharge of indebtedness income 5k

Gain on transfer of property → 15k COUNTS AS INCOME

Discharge of indebtedness → 5k

Services → 10k

IF YOU WORK OFF DEBT - it counts as income

Contested Liability Theory

Zarin v. Commissioner (1990) - 3rd Cir. [π got credit line at casino, after lawsuit, owed less]

RULE: The discharge of indebtedness resulting from a settlement fixing the amount of a disputed debt is not taxable as income.

Case Notes: Where a taxpayer contests his amount of debt in good faith, the resulting settlement is regarded as the amount of the debt, with no other tax consequences for the taxpayer

● Under §108 and §61(a)(12), a taxpayer who is discharged from indebtedness realizes income in that amount where:

(1) Taxpayer is liable for the indebtedness; or

(2) Taxpayer has an indebtedness by which he holds property

Contested Liability Doctrine → if a taxpayer, in good faith, disputed the amount of debt, a subsequent settlement would be treated as the amount of debt cognizable for tax purposes.

Gains from Dealing in Property

A got stock worth 10k, by end of year was worth 18k

No gain on appreciation of stock unless there is a SALE - $10,000 FMV is the INCOME and the BASIS.

26 U.S. Code § 61 - Gross income defined (a) General definition. Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (3) Gains derived from dealings in property;

Doyle v. Mitchell → no gross income until recovery of capital investment

● In order to determine whether there has been a gain or loss, and the amount of the gain or loss, withdraw from the gross proceeds an amount sufficient to restore the capital value that existed at the start

Computation of Gain or Loss

26 U.S. Code § 1001 - Determination of amount of and recognition of gain or loss (a) Computation of gain or loss. The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized. (b) Amount realized. The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. In determining the amount realized— (1) there shall not be taken into account any amount received as reimbursement for real property taxes which are treated under section 164(d) as imposed on the purchaser, and (2) there shall be taken into account amounts representing real property taxes which are treated under section 164(d) as imposed on the taxpayer if such taxes are to be paid by the purchaser. (c) Recognition of gain or loss. Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized. (d) Installment sales. Nothing in this section shall be construed to prevent (in the case of property sold under contract providing for payment in installments) the taxation of that portion of any installment payment representing gain or profit in the year in which such payment is received. (e) Certain term interests (1) In general. In determining gain or loss from the sale or other disposition of a term interest in property, that portion of the adjusted basis of such interest which is determined pursuant to section 1014, 1015, or 1041 (to the extent that such adjusted basis is a portion of the entire adjusted basis of the property) shall be disregarded. (2) Term interest in property defined. For purposes of paragraph (1), the term “term interest in property” means— (A) a life interest in property, (B) an interest in property for a term of years, or (C) an income interest in a trust. (3) Exception. Paragraph (1) shall not apply to a sale or other disposition which is a part of a transaction in which the entire interest in property is transferred to any person or persons.

GAIN

excess of amount realized over adjusted basis in the property exchanged

LOSS

excess of adjusted basis over amount realized in the property exchanged

Adjusted basis → the cost of what the taxpayer gives up in exchange

Amount realized → value of what the taxpayer receives in the exchange

Realized Gain (RG)	Realized Loss (RL)
Amount Realized (AR) - Adjusted Basis (AB)	Adjusted Basis (AB) - Amount Realized (AR)

Examples: AR is 300K, anything in excess of AB is a gain

● Taxpayer sells building for $300K cash

● Taxpayer sells building for $250K and car for $50k

● Taxpayer sells building for $100K, another for $100K, and securities for $100K

Realization event → creates an opportunity to tax a gain (or take a loss); can be a death, sale or exchange, or statutory event like the end of a taxable year; RECOGNIZE WHEN AN EXCHANGE HAS OCCURRED

EXAMPLES:

Helvering v. Bruun (1940) - SCOTUS [tenant built improvements on landlord P’s property, evicted]

RULE: Under federal tax law, a taxpayer realizes a taxable gain from land improvements at the end of a lease agreement.

Case Notes: just because P’s gain was in the form of property received, doesn’t exclude it as a gain

● Realization does not have to occur as a cash gain from the sale of an asset, it can also occur from profit obtained at the end of a transaction

● A lease agreement is a transaction

Bruun Realization Triggering Events → (1) A property exchange (surrender interest) (2) Relief of a legal obligation owed to a third party (Old Colony) (3) Relief of a legal obligation owed to the party receiving property (Kirby Lumber) (4) “other “ profit transactions (Bruun)

BRUUN is now OVERRULED by §109 and §1019

26 U.S. Code § 109 - Improvements by lessee on lessor’s property Gross income does not include income (other than rent) derived by a lessor of real property on the termination of a lease, representing the value of such property attributable to buildings erected or other improvements made by the lessee.

26 U.S. Code § 1019 - Property on which lessee has made improvements Neither the basis nor the adjusted basis of any portion of real property shall, in the case of the lessor of such property, be increased or diminished on account of income derived by the lessor in respect of such property and excludable from gross income under section 109 (relating to improvements by lessee on lessor’s property).

BUT, still good law from Bruun → the repossession of an asset with an enhanced value from a transaction with another party is gross income.

Adjusted Basis

Adjusted basis → per §1011(a), adjusted basis is a taxpayer’s basis, as adjusted

26 U.S. Code § 1011 - Adjusted basis for determining gain or loss (a) General rule. The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis (determined under section 1012 or other applicable sections of this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses)), adjusted as provided in section 1016. (b) Bargain sale to a charitable organization. If a deduction is allowable under section 170 (relating to charitable contributions) by reason of a sale, then the adjusted basis for determining the gain from such sale shall be that portion of the adjusted basis which bears the same ratio to the adjusted basis as the amount realized bears to the fair market value of the property.

STEP ONE: §1012 - what is “basis”?

26 U.S. Code § 1012 - Basis of property—cost (a) In general. The basis of property shall be the cost of such property, except as otherwise provided in this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses). (b) Special rule for apportioned real estate taxes. The cost of real property shall not include any amount in respect of real property taxes which are treated under section 164(d) as imposed on the taxpayer. (c) Determinations by account (1) In general. In the case of the sale, exchange, or other disposition of a specified security on or after the applicable date, the conventions prescribed by regulations under this section shall be applied on an account by account basis. (2) Application to certain regulated investment companies (A) In general. Except as provided in subparagraph (B), any stock for which an average basis method is permissible under this section which is acquired before January 1, 2012, shall be treated as a separate account from any such stock acquired on or after such date. (B) Election for treatment as single account. If a regulated investment company described in subparagraph (A) elects to have this subparagraph apply with respect to one or more of its stockholders— (i) subparagraph (A) shall not apply with respect to any stock in such regulated investment company held by such stockholders, and (ii) all stock in such regulated investment company which is held by such stockholders shall be treated as covered securities described in section 6045(g)(3) without regard to the date of the acquisition of such stock. A rule similar to the rule of the preceding sentence shall apply with respect to a broker holding such stock as a nominee. (3) Definitions. For purposes of this section, the terms “specified security” and “applicable date” shall have the meaning given such terms in section 6045(g). (d) Average basis for stock acquired pursuant to a dividend reinvestment plan (1) In general. In the case of any stock acquired after December 31, 2011, in connection with a dividend reinvestment plan, the basis of such stock while held as part of such plan shall be determined using one of the methods which may be used for determining the basis of stock in a regulated investment company. (2) Treatment after transfer. In the case of the transfer to another account of stock to which paragraph (1) applies, such stock shall have a cost basis in such other account equal to its basis in the dividend reinvestment plan immediately before such transfer (properly adjusted for any fees or other charges taken into account in connection with such transfer). (3) Separate accounts; election for treatment as single account (A) In general. Rules similar to the rules of subsection (c)(2) shall apply for purposes of this subsection. (B) Average basis method. Notwithstanding paragraph (1), in the case of an election under rules similar to the rules of subsection (c)(2)(B) with respect to stock held in connection with a dividend reinvestment plan, the average basis method is permissible with respect to all such stock without regard to the date of the acquisition of such stock. (4) Dividend reinvestment plan. For purposes of this subsection— (A) In general. The term “dividend reinvestment plan” means any arrangement under which dividends on any stock are reinvested in stock identical to the stock with respect to which the dividends are paid. (B) Initial stock acquisition treated as acquired in connection with plan. Stock shall be treated as acquired in connection with a dividend reinvestment plan if such stock is acquired pursuant to such plan or if the dividends paid on such stock are subject to such plan.

STEP TWO: Taxpayer’s cost basis is then adjusted under §1016

26 U.S. Code § 1016 - Adjustments to basis (a) General rule. Proper adjustment in respect of the property shall in all cases be made— (1) for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made— (A) for— (i) taxes or other carrying charges described in section 266; or (ii) expenditures described in section 173 (relating to circulation expenditures), for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or (B) for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract; (2) in respect of any period since February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent of the amount— (A) allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and (B) resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayer’s taxes under this subtitle (other than chapter 2, relating to tax on self-employment income), or prior income, war-profits, or excess-profits tax laws, but not less than the amount allowable under this subtitle or prior income tax laws. Where no method has been adopted under section 167 (relating to depreciation deduction), the amount allowable shall be determined under the straight line method. Subparagraph (B) of this paragraph shall not apply in respect of any period since February 28, 1913, and before January 1, 1952, unless an election has been made under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976). Where for any taxable year before the taxable year 1932 the depletion allowance was based on discovery value or a percentage of income, then the adjustment for depletion for such year shall be based on the depletion which would have been allowable for such year if computed without reference to discovery value or a percentage of income; (3) in respect of any period— (A) before March 1, 1913, (B) since February 28, 1913, during which such property was held by a person or an organization not subject to income taxation under this chapter or prior income tax laws, (C) since February 28, 1913, and before January 1, 1958, during which such property was held by a person subject to tax under part I of subchapter L (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply, and (D) since February 28, 1913, during which such property was held by a person subject to tax under part II [1] of subchapter L (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent sustained; (4) in the case of stock (to the extent not provided for in the foregoing paragraphs) for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax-free or were applicable in reduction of basis (not including distributions made by a corporation which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 (40 Stat. 1057), or the Revenue Act of 1921 (42 Stat. 227), out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Revenue Act of 1918 or 1921); (5) in the case of any bond (as defined in section 171(d)) the interest on which is wholly exempt from the tax imposed by this subtitle, to the extent of the amortizable bond premium disallowable as a deduction pursuant to section 171(a)(2), and in the case of any other bond (as defined in section 171(d)) to the extent of the deductions allowable pursuant to section 171(a)(1) (or the amount applied to reduce interest payments under section 171(e)(2)) with respect thereto; (6) in the case of any municipal bond (as defined in section 75(b)), to the extent provided in section 75(a)(2); (7) in the case of a residence the acquisition of which resulted, under section 1034 (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997), in the nonrecognition of any part of the gain realized on the sale, exchange, or involuntary conversion of another residence, to the extent provided in section 1034(e) (as so in effect); (8) in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 77, and to the extent of any deficiency on such loan with respect to which the taxpayer has been relieved from liability; (9) for amounts allowed as deductions as deferred expenses under section 616(b) (relating to certain expenditures in the development of mines) and resulting in a reduction of the taxpayer’s taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years; [(10) Repealed. Pub. L. 94–455, title XIX, § 1901(b)(21)(G), Oct. 4, 1976, 90 Stat. 1798] (11) for deductions to the extent disallowed under section 268 (relating to sale of land with unharvested crops), notwithstanding the provisions of any other paragraph of this subsection; [(12) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(75), Dec. 19, 2014, 128 Stat. 4049] [(13) Repealed. Pub. L. 108–357, title IV, § 413(c)(19), Oct. 22, 2004, 118 Stat. 1509] (14) for amounts allowed as deductions as deferred expenses under section 174(b)(1) 1 (relating to research and experimental expenditures) and resulting in a reduction of the taxpayers’ taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years; (15) for deductions to the extent disallowed under section 272 (relating to disposal of coal or domestic iron ore), notwithstanding the provisions of any other paragraph of this subsection; (16) in the case of any evidence of indebtedness referred to in section 811(b) (relating to amortization of premium and accrual of discount in the case of life insurance companies), to the extent of the adjustments required under section 811(b) (or the corresponding provisions of prior income tax laws) for the taxable year and all prior taxable years; (17) to the extent provided in section 1367 in the case of stock of, and indebtedness owed to, shareholders of an S corporation; (18) to the extent provided in section 961 in the case of stock in controlled foreign corporations (or foreign corporations which were controlled foreign corporations) and of property by reason of which a person is considered as owning such stock; (19) to the extent provided in section 50(c), in the case of expenditures with respect to which a credit has been allowed under section 38; (20) for amounts allowed as deductions under section 59(e) (relating to optional 10-year writeoff of certain tax preferences); (21) to the extent provided in section 1059 (relating to reduction in basis for extraordinary dividends); (22) in the case of qualified replacement property the acquisition of which resulted under section 1042 in the nonrecognition of any part of the gain realized on the sale or exchange of any property, to the extent provided in section 1042(d),[2] (23) in the case of property the acquisition of which resulted under section 1043, 1045, or 1397B in the nonrecognition of any part of the gain realized on the sale of other property, to the extent provided in section 1043(c), 1045(b)(3), or 1397B(b)(4), as the case may be,2 [(24) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(34)(G), Dec. 19, 2014, 128 Stat. 4042] [(25) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(2)(D), Dec. 19, 2014, 128 Stat. 4037] (26) to the extent provided in sections 23(g) and 137(e),2 (27) in the case of a residence with respect to which a credit was allowed under section 1400C, to the extent provided in section 1400C(h),2 (28) in the case of a facility with respect to which a credit was allowed under section 45F, to the extent provided in section 45F(f)(1),2 (29) in the case of railroad track with respect to which a credit was allowed under section 45G, to the extent provided in section 45G(e)(3),2 (30) to the extent provided in section 179B(c),2 (31) to the extent provided in section 179D(e),2 (32) to the extent provided in section 45L(e), in the case of amounts with respect to which a credit has been allowed under section 45L,2 (33) to the extent provided in section 25C(f), in the case of amounts with respect to which a credit has been allowed under section 25C,2 (34) to the extent provided in section 25D(f), in the case of amounts with respect to which a credit has been allowed under section 25D,2 (35) to the extent provided in section 30B(h)(4),2 (36) to the extent provided in section 30C(e)(1),2 (37) to the extent provided in section 30D(f)(1),2 and (38) to the extent provided in subsections (b)(2) and (c) of section 1400Z–2. (b) Substituted basis. Whenever it appears that the basis of property in the hands of the taxpayer is a substituted basis, then the adjustments provided in subsection (a) shall be made after first making in respect of such substituted basis proper adjustments of a similar nature in respect of the period during which the property was held by the transferor, donor, or grantor, or during which the other property was held by the person for whom the basis is to be determined. A similar rule shall be applied in the case of a series of substituted bases. (c) Increase in basis of property on which additional estate tax is imposed (1) Tax imposed with respect to entire interest. If an additional estate tax is imposed under section 2032A(c)(1) with respect to any interest in property and the qualified heir makes an election under this subsection with respect to the imposition of such tax, the adjusted basis of such interest shall be increased by an amount equal to the excess of— (A) the fair market value of such interest on the date of the decedent’s death (or the alternate valuation date under section 2032, if the executor of the decedent’s estate elected the application of such section), over (B) the value of such interest determined under section 2032A(a). (2) Partial dispositions (A) In general. In the case of any partial disposition for which an election under this subsection is made, the increase in basis under paragraph (1) shall be an amount— (i) which bears the same ratio to the increase which would be determined under paragraph (1) (without regard to this paragraph) with respect to the entire interest, as (ii) the amount of the tax imposed under section 2032A(c)(1) with respect to such disposition bears to the adjusted tax difference attributable to the entire interest (as determined under section 2032A(c)(2)(B)). (B) Partial disposition. For purposes of subparagraph (A), the term “partial disposition” means any disposition or cessation to which subsection (c)(2)(D), (h)(1)(B), or (i)(1)(B) of section 2032A applies. (3) Time adjustment made. Any increase in basis under this subsection shall be deemed to have occurred immediately before the disposition or cessation resulting in the imposition of the tax under section 2032A(c)(1). (4) Special rule in the case of substituted property. If the tax under section 2032A(c)(1) is imposed with respect to qualified replacement property (as defined in section 2032A(h)(3)(B)) or qualified exchange property (as defined in section 2032A(i)(3)), the increase in basis under paragraph (1) shall be made by reference to the property involuntarily converted or exchanged (as the case may be). (5) Election (A) In general. An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable. (B) Interest on recaptured amount. If an election is made under this subsection with respect to any additional estate tax imposed under section 2032A(c)(1), for purposes of section 6601 (relating to interest on underpayments), the last date prescribed for payment of such tax shall be deemed to be the last date prescribed for payment of the tax imposed by section 2001 with respect to the estate of the decedent (as determined for purposes of section 6601). (d) Reduction in basis of automobile on which gas guzzler tax was imposed. If— (1) the taxpayer acquires any automobile with respect to which a tax was imposed by section 4064, and (2) the use of such automobile by the taxpayer begins not more than 1 year after the date of the first sale for ultimate use of such automobile, the basis of such automobile shall be reduced by the amount of the tax imposed by section 4064 with respect to such automobile. In the case of importation, if the date of entry or withdrawal from warehouse for consumption is later than the date of the first sale for ultimate use, such later date shall be substituted for the date of such first sale in the preceding sentence. (e) Cross reference. For treatment of separate mineral interests as one property, see section 614.

Depreciation → the amount a taxpayer can take as a deduction for the wear and tear of an asset in a particular year; not based on “actual” or “economic” but instead on statutorily created schedules.

Example → taxpayer owns personal residence originally acquired for $200,000

● Taxpayer constructs attached deck, cost of improvement is added to taxpayer’s basis in the residence (now $225,000)

● Taxpayer cannot deduct the $25,000 used for materials

Example → taxpayer spends $10,000 for business copier with a useful life of 5 years

● Can taxpayer deduct entire amount up front, or must they depreciate the cost over the expected life of the property?

● If they must depreciate → they are entitled to deduct a portion of the cost over the 5 year period; as this is done, basis should be reduced each year by the amount of the depreciation deduction (total cost divided by usable life = $2,000 per year). This allows taxpayer to gradually get their money back in the form of a deduction.

Adjusted Basis → reflects the taxpayer’s ongoing investment in an asset from a tax perspective; when the asset is sold or exchanged, the adjusted basis tells us how much unrecovered “cost” the taxpayer continues to have in the property; only to the extent the amount realized exceeds the unrecovered cost should the taxpayer have taxable gain.

TP generally cannot deduct the cost in year one because the copier will provide a benefit beyond the taxable year (so depreciation deduction).

Example (copier cont.) → depreciation schedule

Year 1	$10,000 FMV
Year 2	$8,000 adjusted basis
Year 3	$6,000 adjusted basis
Year 4	$4,000 adjusted basis
Year 5	$2,000 adjusted basis
Value after 5 Years	$0 ($2,000 depreciation deduction each year)

If business sold copier in year 6 for $1,000, the taxpayer would be taxed on $1,000 of gain (the amount realized of $1,000 less the adjusted basis of $0).

26 U.S. Code § 1001 - Determination of amount of and recognition of gain or loss (c) Recognition of gain or loss. Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized.

Per §1012 → taxpayer’s basis in the property is their “cost”

Philadelphia Park Amusement Co. v. United States (1954) - Claims [50 year franchise in exch. for bridge built]

RULE: The cost basis of property received in a taxable exchange is the fair market value of the property received.

Case Notes: in order to prevent distorted assessments of liability against taxpayers, cost basis of property received should be the fair market value of property received

● Taxpayer’s basis in the property received is equal to the property’s FMV

● Each taxable year stands alone

● If the value of property received is hard to value, taxpayer can look to the value of the property surrendered

Following a taxable exchange, the taxpayer’s basis in property received in the exchange is always equal to the FMV of the property received
1. Any gain recognized in the exchange is part of the “cost” to acquire the property received in the exchange
2. Example: TP sells $20 painting in exchange for $100 rug → TP realizes and recognizes $80 gain (rug cost minus painting value - basis); IF TP sells rug for $100 the next day, do they realize another gain? NO; TP’s “cost” is giving up the $20 painting and the tax-cost of an $80 gain.

Each taxable year stands alone
1. Base current year tax consequences on what should have happened in the prior year
2. Example: Philadelphia Park; exchange of bridge and franchise occurred the year prior to the year where the depreciation deduction was sought -- TP should have recognized gain in prior year; TP had FMV basis in franchise received in exchange; they did not include in gross income but treated as though they did

Determining value of difficult property
1. If unclear or hard to determine, assume the value is equal to the value of the property you gave in exchange
2. Assume all transactions were at arm’s length, absent facts to the contrary

Special Basis Rules

Basis of Property Received by Gift, Bequest, Devise, or Inheritance

Inter Vivos gifts →

● Donee takes the donor’s adjusted basis in the property

● A gives B asset worth $5,000 in which A has a basis of $3,000

● B will include nothing in gross income and have basis of $3,000

● Transferred basis, carryover basis

26 U.S. Code § 1015 - Basis of property acquired by gifts and transfers in trust (a) Gifts after December 31, 1920. If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis (adjusted for the period before the date of the gift as provided in section 1016) is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value. If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Secretary finds it impossible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary as of the date or approximate date at which, according to the best information that the Secretary is able to obtain, such property was acquired by such donor or last preceding owner. (b) Transfer in trust after December 31, 1920. If the property was acquired after December 31, 1920, by a transfer in trust (other than by a transfer in trust by a gift, bequest, or devise), the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer under the law applicable to the year in which the transfer was made. (c) Gift or transfer in trust before January 1, 1921. If the property was acquired by gift or transfer in trust on or before December 31, 1920, the basis shall be the fair market value of such property at the time of such acquisition. (d) Increased basis for gift tax paid (1) In general. If— (A) the property is acquired by gift on or after September 2, 1958, the basis shall be the basis determined under subsection (a), increased (but not above the fair market value of the property at the time of the gift) by the amount of gift tax paid with respect to such gift, or (B) the property was acquired by gift before September 2, 1958, and has not been sold, exchanged, or otherwise disposed of before such date, the basis of the property shall be increased on such date by the amount of gift tax paid with respect to such gift, but such increase shall not exceed an amount equal to the amount by which the fair market value of the property at the time of the gift exceeded the basis of the property in the hands of the donor at the time of the gift. (2) Amount of tax paid with respect to gift. For purposes of paragraph (1), the amount of gift tax paid with respect to any gift is an amount which bears the same ratio to the amount of gift tax paid under chapter 12 with respect to all gifts made by the donor for the calendar year (or preceding calendar period) in which such gift is made as the amount of such gift bears to the taxable gifts (as defined in section 2503(a) but computed without the deduction allowed by section 2521) made by the donor during such calendar year or period. For purposes of the preceding sentence, the amount of any gift shall be the amount included with respect to such gift in determining (for the purposes of section 2503(a)) the total amount of gifts made during the calendar year or period, reduced by the amount of any deduction allowed with respect to such gift under section 2522 (relating to charitable deduction) or under section 2523 (relating to marital deduction). (3) Gifts treated as made one-half by each spouse. For purposes of paragraph (1), where the donor and his spouse elected, under section 2513 to have the gift considered as made one-half by each, the amount of gift tax paid with respect to such gift under chapter 12 shall be the sum of the amounts of tax paid with respect to each half of such gift (computed in the manner provided in paragraph (2)). (4) Treatment as adjustment to basis. For purposes of section 1016(b), an increase in basis under paragraph (1) shall be treated as an adjustment under section 1016(a). (5) Application to gifts before 1955. With respect to any property acquired by gift before 1955, references in this subsection to any provision of this title shall be deemed to refer to the corresponding provision of the Internal Revenue Code of 1939 or prior revenue laws which was effective for the year in which such gift was made. (6) Special rule for gifts made after December 31, 1976 (A) In general. In the case of any gift made after December 31, 1976, the increase in basis provided by this subsection with respect to any gift for the gift tax paid under chapter 12 shall be an amount (not in excess of the amount of tax so paid) which bears the same ratio to the amount of tax so paid as— (i) the net appreciation in value of the gift, bears to (ii) the amount of the gift. (B) Net appreciation. For purposes of paragraph (1), the net appreciation in value of any gift is the amount by which the fair market value of the gift exceeds the donor’s adjusted basis immediately before the gift. (e) Gifts between spouses. In the case of any property acquired by gift in a transfer described in section 1041(a), the basis of such property in the hands of the transferee shall be determined under section 1041(b)(2) and not this section.

Applicable Basis rules under §1015(a) →

	Donee Basis for computing GAIN	Donee basis for computing LOSS
FMV > donor’s adjusted basis at the time of the gift	Donor’s adjusted basis	Donor’s adjusted basis
FMV < donor’s adjusted basis at the time of gift	Donor’s adjusted basis	FMV (loss does not carry over

Property acquired from a decedent → §1014

26 U.S. Code § 1014 - Basis of property acquired from a decedent (a) In general. Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be— (1) the fair market value of the property at the date of the decedent’s death, (2) in the case of an election under section 2032, its value at the applicable valuation date prescribed by such section, (3) in the case of an election under section 2032A, its value determined under such section, or (4) to the extent of the applicability of the exclusion described in section 2031(c), the basis in the hands of the decedent. (b) Property acquired from the decedent. For purposes of subsection (a), the following property shall be considered to have been acquired from or to have passed from the decedent: (1) Property acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent; (2) Property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent, with the right reserved to the decedent at all times before his death to revoke the trust; (3) In the case of decedents dying after December 31, 1951, property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent with the right reserved to the decedent at all times before his death to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust; (4) Property passing without full and adequate consideration under a general power of appointment exercised by the decedent by will; (5) In the case of decedents dying after August 26, 1937, and before January 1, 2005, property acquired by bequest, devise, or inheritance or by the decedent’s estate from the decedent, if the property consists of stock or securities of a foreign corporation, which with respect to its taxable year next preceding the date of the decedent’s death was, under the law applicable to such year, a foreign personal holding company. In such case, the basis shall be the fair market value of such property at the date of the decedent’s death or the basis in the hands of the decedent, whichever is lower; (6) In the case of decedents dying after December 31, 1947, property which represents the surviving spouse’s one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, or possession of the United States or any foreign country, if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent’s gross estate under chapter 11 of subtitle B (section 2001 and following, relating to estate tax) or section 811 of the Internal Revenue Code of 1939; [(7) , (8) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(74)(B), Dec. 19, 2014, 128 Stat. 4049] (9) In the case of decedents dying after December 31, 1953, property acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), if by reason thereof the property is required to be included in determining the value of the decedent’s gross estate under chapter 11 of subtitle B or under the Internal Revenue Code of 1939. In such case, if the property is acquired before the death of the decedent, the basis shall be the amount determined under subsection (a) reduced by the amount allowed to the taxpayer as deductions in computing taxable income under this subtitle or prior income tax laws for exhaustion, wear and tear, obsolescence, amortization, and depletion on such property before the death of the decedent. Such basis shall be applicable to the property commencing on the death of the decedent. This paragraph shall not apply to— (A) annuities described in section 72; (B) property to which paragraph (5) would apply if the property had been acquired by bequest; and (C) property described in any other paragraph of this subsection. (10) Property includible in the gross estate of the decedent under section 2044 (relating to certain property for which marital deduction was previously allowed). In any such case, the last 3 sentences of paragraph (9) shall apply as if such property were described in the first sentence of paragraph (9). (c) Property representing income in respect of a decedent. This section shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691. (d) Special rule with respect to DISC stock. If stock owned by a decedent in a DISC or former DISC (as defined in section 992(a)) acquires a new basis under subsection (a), such basis (determined before the application of this subsection) shall be reduced by the amount (if any) which would have been included in gross income under section 995(c) as a dividend if the decedent had lived and sold the stock at its fair market value on the estate tax valuation date. In computing the gain the decedent would have had if he had lived and sold the stock, his basis shall be determined without regard to the last sentence of section 996(e)(2) (relating to reductions of basis of DISC stock). For purposes of this subsection, the estate tax valuation date is the date of the decedent’s death or, in the case of an election under section 2032, the applicable valuation date prescribed by that section. (e) Appreciated property acquired by decedent by gift within 1 year of death (1) In general. In the case of a decedent dying after December 31, 1981, if— (A) appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedent’s death, and (B) such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor), the basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent. (2) Definitions. For purposes of paragraph (1)— (A) Appreciated property. The term “appreciated property” means any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis. (B) Treatment of certain property sold by estate. In the case of any appreciated property described in subparagraph (A) of paragraph (1) sold by the estate of the decedent or by a trust of which the decedent was the grantor, rules similar to the rules of paragraph (1) shall apply to the extent the donor of such property (or the spouse of such donor) is entitled to the proceeds from such sale. (f) Basis must be consistent with estate tax return. For purposes of this section— (1) In general. The basis of any property to which subsection (a) applies shall not exceed— (A) in the case of property the final value of which has been determined for purposes of the tax imposed by chapter 11 on the estate of such decedent, such value, and (B) in the case of property not described in subparagraph (A) and with respect to which a statement has been furnished under section 6035(a) identifying the value of such property, such value. (2) Exception. Paragraph (1) shall only apply to any property whose inclusion in the decedent’s estate increased the liability for the tax imposed by chapter 11 (reduced by credits allowable against such tax) on such estate. (3) Determination. For purposes of paragraph (1), the basis of property has been determined for purposes of the tax imposed by chapter 11 if— (A) the value of such property is shown on a return under section 6018 and such value is not contested by the Secretary before the expiration of the time for assessing a tax under chapter 11, (B) in a case not described in subparagraph (A), the value is specified by the Secretary and such value is not timely contested by the executor of the estate, or (C) the value is determined by a court or pursuant to a settlement agreement with the Secretary. (4) Regulations. The Secretary may by regulations provide exceptions to the application of this subsection.

“Stepped-up” basis →

● Basis is stepped-down to fair market value

● A dies holding asset worth $20,000, B’s basis is $20,000 regardless of A’s adjusted basis in asset

● §1014(a) → such property shall have a basis to the recipient equal to the value of the property at the date of the decedent’s death

● §1014(f) → limits if an estate tax return is required

Transfers in satisfaction of an obligation - other “accessions to wealth” can constitute part of an “amount realized” → Kenan v. Commissioner - trustee transferred appreciated stock; trust had a real and recognized gain.

United States v. Davis (1962) - SCOTUS [π transf. appreciated shares to ex wife purs. to div. agmt]

RULE: for purpose of federal tax law, a transfer of property incident to a divorce is a taxable event

Case Notes: taxable gain should be equal to the value of the stock on the date of transfer

● A transfer of property between spouses pursuant to a divorce agreement is a taxable event.

● In common-law property states, spouses typically have inchoate statutory rights in one another’s separate property in the event of death or divorce

● When one spouse transfers property to the other spouse in exchange for a release from his statutory obligations, the property transfer is an income-realization event

● The transferring spouse is released from the personal liability associated with his former marital obligations and realizes a difficult-to-ascertain gain

● Because a divorce is an arm’s length transaction, the value of the release of liability is presumably equal to the amount the transferring spouse paid to obtain it

Flavor of Income

● Capital gains → receive favorable tax treatment (wealthy: 15-20%, less affluent: 0%)

● “Capital gain” → gain from the sale or exchange of “capital assets” held for more than one year.

“Capital asset” → property held for investment or for personal use; §1221(a) provides negative definitions (what is NOT a capital asset):

(1) Stock in trade of taxpayer, held primarily for sale in course of business

(2) Property used in trade or business

(3) Intellectual property by taxpayer’s personal efforts

(4) Accounts or notes receivable acquired in ordinary course of business for services or property

(5) Publication of US government

(6) Any commodities derivative financial instrument held by a dealer of commodities

(7) Hedging transactions

(8) Supplies regularly used by taxpayer in the ordinary course of business

26 U.S. Code § 1221 - Capital asset defined (a) In general. For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not connected with his trade or business), but does not include— (1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; (2) property, used in his trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or real property used in his trade or business; (3) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by— (A) a taxpayer whose personal efforts created such property, (B) in the case of a letter, memorandum, or similar property, a taxpayer for whom such property was prepared or produced, or (C) a taxpayer in whose hands the basis of such property is determined, for purposes of determining gain from a sale or exchange, in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B); (4) accounts or notes receivable acquired in the ordinary course of trade or business for services rendered or from the sale of property described in paragraph (1); (5) a publication of the United States Government (including the Congressional Record) which is received from the United States Government or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by— (A) a taxpayer who so received such publication, or (B) a taxpayer in whose hands the basis of such publication is determined, for purposes of determining gain from a sale or exchange, in whole or in part by reference to the basis of such publication in the hands of a taxpayer described in subparagraph (A); (6) any commodities derivative financial instrument held by a commodities derivatives dealer, unless— (A) it is established to the satisfaction of the Secretary that such instrument has no connection to the activities of such dealer as a dealer, and (B) such instrument is clearly identified in such dealer’s records as being described in subparagraph (A) before the close of the day on which it was acquired, originated, or entered into (or such other time as the Secretary may by regulations prescribe); (7) any hedging transaction which is clearly identified as such before the close of the day on which it was acquired, originated, or entered into (or such other time as the Secretary may by regulations prescribe); or (8) supplies of a type regularly used or consumed by the taxpayer in the ordinary course of a trade or business of the taxpayer. (b) Definitions and special rules (1) Commodities derivative financial instruments. For purposes of subsection (a)(6)— (A) Commodities derivatives dealer. The term “commodities derivatives dealer” means a person which [1] regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. (B) Commodities derivative financial instrument (i) In general. The term “commodities derivative financial instrument” means any contract or financial instrument with respect to commodities (other than a share of stock in a corporation, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract (as defined in section 1256(b))), the value or settlement price of which is calculated by or determined by reference to a specified index. (ii) Specified index. The term “specified index” means any one or more or any combination of— (I) a fixed rate, price, or amount, or (II) a variable rate, price, or amount, which is based on any current, objectively determinable financial or economic information with respect to commodities which is not within the control of any of the parties to the contract or instrument and is not unique to any of the parties’ circumstances. (2) Hedging transaction (A) In general. For purposes of this section, the term “hedging transaction” means any transaction entered into by the taxpayer in the normal course of the taxpayer’s trade or business primarily— (i) to manage risk of price changes or currency fluctuations with respect to ordinary property which is held or to be held by the taxpayer, (ii) to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by the taxpayer, or (iii) to manage such other risks as the Secretary may prescribe in regulations. (B) Treatment of nonidentification or improper identification of hedging transactions. Notwithstanding subsection (a)(7), the Secretary shall prescribe regulations to properly characterize any income, gain, expense, or loss arising from a transaction— (i) which is a hedging transaction but which was not identified as such in accordance with subsection (a)(7), or (ii) which was so identified but is not a hedging transaction. (3) Sale or exchange of self-created musical works. At the election of the taxpayer, paragraphs (1) and (3) of subsection (a) shall not apply to musical compositions or copyrights in musical works sold or exchanged by a taxpayer described in subsection (a)(3). (4) Regulations. The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of paragraph (6) and (7) of subsection (a) in the case of transactions involving related parties.

Personal property → if not used for business, usually qualifies as a capital asset

Rationale for preferential treatment of capital gains:

● Inflation → necessary to account for taxing gains due to inflation

● Bunching → all gains from asset bunched into year of sale

● Stimulate savings and investment activities

● Cure lock-up problem → encourages sale rather than holding until ones death

American Taxpayer Relief Act of 2012 (ATRA) - extended preferential rates to “qualified dividend income” → aiming to alleviate corporate double taxation (corporations are individuals, and thus taxed at the business level and again at the shareholder level); double taxation justifiable because tax is paid by two different “people”.

Qualified dividend income → most dividends from domestic corporations; no requirement that dividends come from earnings that were previously subject to tax or attributable to dates prior to enactment.

Timing of Income

Timing → Preference is to put off or defer paying tax on gross income for as long as possible.

Claim of right doctrine → causes a taxpayer to recognize income if they receive the income even if they do not have a fixed right to the income

North American Oil Consolidated v. Burnet (1932) - SCOTUS [π oil land appointed to rec’vr; won case, got profits]

RULE: Net profits earned on a property held in receivership are taxable to the taxpayer (and not the received) in the year the taxpayer unconditionally receives the earnings.

Case Notes: receiver only controlled portion of property; don’t want double filing.

● When a receiver holds only part of a company’s property, the net income on that property will be taxable to the company in the year it is unconditionally received

● Rev. Act of 1916 §13(c) - receivers who operate property on behalf of a company must file returns for taxable income just as the company ordinarily would

● This statute only applies where the receiver operates all of the company’s property and essentially takes the place of the corporation

● Companies are not required to file returns for income they may never receive - filing is only required for income a company has actually or constructively received

● Income is taxable in the year that the taxpayer receives it without restriction

Rev. Act of 1916 §13(c) - RETURNS (c) In cases wherein receivers, trustees in bankruptcy, or assignees are operating the property or business of corporations, joint-stock signees, companies or associations, or insurance companies, subject to tax imposed by this title, such receivers, trustees, or assignees shall make returns of net income as and for such corporations, joint stock companies or associations, and insurance companies, in the same manner and form as such organizations are hereinbefore required to make returns, and any income tax due on the basis of such returns made by receivers, trustees, or assingees shall be assessed and collected in the same manner as if assessed directly against the organizations of whose businesses or properties they have custody and control;

Advance Payments and the Issue of Deposits

Commissioner v. Indianapolis Power & Light Company (1990) - SCOTUS [π collected deposit from customers]

RULE: a federal taxpayer has complete dominion over a deposit which subjects the deposit to income tax as an advance payment, if a taxpayer has a guaranteed right to keep the money.

Case Notes: without a guaranteed right to keep the money, no advanced payment and no income tax

● Advance payments are taxable in the year of receipt; loans and security deposits are not taxable income

● The key distinction is whether the taxpayer had complete dominion over the money

● Complete dominion exists where the taxpayer has a guaranteed right to keep the money

Assignment of Income

Income from services → income from services is generally taxed to the party who performed the services (Lucas).

Lucas v. Earl (1930) - SCOTUS [π and wife agreed any income held as joint-tenants; wife didn’t have income]

RULE: a taxpayer cannot anticipatorily divert earned income to another individual, so as to avoid tax liability

Case Notes: the Rev. Act taxes the income of the individual who earns it.

Teschner v. Commissioner (1962) - Tax Court [π entered education annuity contest for daughter and won]

RULE: Under federal tax law, a taxpayer does not earn income if he never had a right to the income despite performing services to acquire it for another.

Case Notes: if the taxpayer is ineligible for the prize, they never had a right to it; here, taxable to daughter.

Income from Property

Helvering v. Horst (1940) - SCOTUS [π gifted coupons of negotiable bonds to son before they were due]

RULE: a gift of interest coupons detached from bonds amounts to realized income to the donor.

Case Notes: the one who determines how the money is used is the one who realizes the income

● Coupons → bearer bonds, presented to debtor for payment

● Securing the right to receive income is not a taxable event because income is not taxed until it is realized - realization occurs upon receipt or when taxpayer has control over how it is used

● Whether taxpayer gives income before or after receipt, the income is realized because taxpayer exercises control over it

● Interest from property is distinguished from interest from earnings and coupons →

○ Property: interest due to property owner and tax liability follows the owner

○ Earnings and coupons: interest due to the earner or bond holders personally

Transferring trees with ripe fruit → Horst: transfers of fruit may not be effective to shift the tax on such fruit to another, but transfers of the entire tree may.

Salvatore v. Commissioner (1970) - Tax Court [π inherited biz, let sons run]

RULE: The federal tax consequences of a property sale are determined by the substance, not the form, of the transaction

Case Notes: substance over form → Court Holding Co.: substance depends not only on the legal means of transferring title but also every step of sale from negotiations to transfer.

● When π accepted offer to sell biz, she was sole owner

● Transfer to children without consideration was an “artificial and intermediate step”

● $ determined not on interest but on need

Tax Planning and Tax Avoidance

Estate of Stranahan v. Commissioner (1973) - 6th Cir. [π exchanged stock to son to take full adv. of int. deduction]

RULE: a taxpayer may escape tax liability for future income from property if he assigns the future income in a bonafide sale for valuable consideration

Case Notes: a bona fide sale for current stock value and consideration existed, π is not liable for the dividends paid out to son.

● Horst → typically, cannot avoid tax liability by transferring or assigning income

Commissioner v. Banks Commissioner v. Banaitis (2005) - SCOTUS [π rec’d settle, claimed amt after atty fees]

RULE: the portion of a money judgment or settlement paid to a P’s attorney under a contingent fee agreement is income to the P.

Case Notes: A contingent fee agreement is essentially an anticipatory assignment of a plaintiff’s income, and any income transferred as a result of the agreement remains taxable to the plaintiff.

● Income is taxed to the one who earns it. Thus, a taxpayer cannot avoid income tax by anticipatorily assigning his income to another.

● Tax liability attaches to the one who has dominion or control over the source of the income.

● In the litigation context, the plaintiff might realize income in the form of a money judgment or settlement.

● The income-producing asset is the lawsuit itself, and a plaintiff exercises complete dominion and control over this asset throughout the course of litigation.

● Any income derived from the lawsuit, therefore, is taxable to the plaintiff.

Tax Treatment of Taxpayer Costs

26 U.S. Code §161 - Allowance of deductions In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX (sec. 261 and following, relating to items not deductible).

Deductibility Factors:

1) Depends on the nature of the cost: “capital expenditure” or an “expense”

2) Depends on the type of activity to which that cost related: business, investment, personal

Capital expenditure → those costs that provide a long-term benefit to the taxpayer, either because they are incurred to acquire a new asset or because they materially add to the value or useful life of some pre-existing asset (costs that should be “capitalized”); generally ADD to or CREATE basis.

Expense → costs that do not acquire, improve, or prolong the life of an asset; generally spent on items that last for a short period of time (less than a year); taxpayers may be able to deduct.

Nature of Activity:

● Expenses paid or incurred with respect to business and investment are generally deductible (§§162 and 212)

● Expenses related to personal activities are generally not deductible (§262)

Handling Capital Expenditures → if a taxpayer must capitalize a cost, they can recover ultimately upon the sale or disposition of the asset (capitalized cost makes up all or part of the adjusted basis in the underlying asset); taxpayer doesn’t always have to wait to recover, and the cost can be recovered over a period of years roughly equivalent to the useful life of the asset:

● Depreciation → tangible property; the property must (among other things) be subject to wear and tear in the hands of the taxpayer (§§617 and 168)

● Amortization → intangible property; statutory requirements in §197.

	Personal	Business	Investment
Capital Expenditures (those that: (1) are used to acquire an asset or some other long-lasting benefit; or (2) permanently improve or extend the useful life of that asset or benefit)	NO DEDUCTION §263(a) (taxpayer gets basis)	NO DEDUCTION §263(a) (taxpayer gets basis) But the taxpayer may be able to recover the cost up front or over time §§167(a); 168; 179; 197	NO DEDUCTION §263(a) (taxpayer gets basis) But taxpayer may be able to recover the cost up front or over time §§167(a); 168; 197
Expenses (outlays that are not capital expenditures)	Generally, NO DEDUCTION §262 [But see Chapter 9]	DEDUCTION §162(a)	DEDUCTION §212
Realized Losses (loss recognized upon the sale, exchange, or other disposition of an asset)	Generally, NO DEDUCTION §262 [But see §165(c)(3)]	DEDUCTION §165(c)(1)	DEDUCTION §165(c)(2)

EXAMPLE OF DEPRECIATION

Building → Basis of $100,000 with a 20 year useful life

$100,000/20 = $5k depreciation per year

Commissioner v. Idaho Power Co. (1974) - SCOTUS

RULE: A federal taxpayer is not entitled to a deduction from gross income for depreciation on equipment that the taxpayer owns and uses in the construction of his own capital facilities.

Case Notes:

● The depreciation cost of using an asset must be attributed to the tax periods that are benefitted by the use.

● If a taxpayer uses an asset for one year to produce income for the same year, the asset’s one-year depreciation is a business expense under § 167(a), for which the taxpayer can take a depreciation deduction in the same tax year to help replace the asset when it wears out.

● However, if an asset is used in one year to make a capital improvement that will produce income over many years, the accounting focus shifts from the depreciation of the asset to the cost of replacing the capital improvement itself.

● Under general accounting principles, capital-improvement costs are computed, or capitalized, over the useful life of the capital improvement.

● Section 263(a)(1) requires “amounts paid out” for capital improvements to be capitalized, and this section takes precedence over the business-expense deduction provisions of § 167(a).

● Treasury Regulations §§ 1.263(a) and 2(a) and longstanding Internal Revenue Service policy treat capital-construction-related depreciation as one of the amounts paid out for capital improvements.

UNICAP Rules → § 263A (DIFFERENT FROM 263(a)): rules require the capitalization of all direct costs and certain indirect costs allocable to real property and tangible personal property produced by the taxpayer. For purposes of the uniform capitalization rules, to “produce” means to construct, build, install, manufacture, develop, improve, create, raise or grow. Self-constructed assets and property built under contract are treated as property “produced” by the taxpayer and the rules under § 263A(a) govern.

● If you fall under § 263A, capitalize everything

● Exception: small business exception in § 263A(i) - any taxpayer who meets the test will be exempt from § 263A. ($25M gross receipts).

● § 263A requires everything to be recovered over time, not deducted NOW.

STEP ONE: Does § 263A apply? If so, capitalize everything (taxpayers don’t want this). Do we fit into an exception?

Improvement = capitalized, capitalized = don’t recover cost right away

Improvements to Tangible Property

Taxpayers must capitalize costs to improve tangible property if the costs “better” the property, restore the property to a “like-new” condition, or adapt the property to a new or different use.

Reg. § 1.263(a)-3 Amounts paid to improve tangible property. (d) Requirement to capitalize amounts paid for improvements. Except as provided in paragraph (h) or paragraph (n) of this section or under § 1.263(a)-1(f), a taxpayer generally must capitalize the related amounts (as defined in paragraph (g)(3) of this section) paid to improve a unit of property owned by the taxpayer. However, paragraph (f) of this section applies to the treatment of amounts paid to improve leased property. Section 263A provides the requirement to capitalize the direct and allocable indirect costs of property produced by the taxpayer and property acquired for resale. Section 1016 provides for the addition of capitalized amounts to the basis of the property, and section 168 governs the treatment of additions or improvements for depreciation purposes. For purposes of this section, a unit of property is improved if the amounts paid for activities performed after the property is placed in service by the taxpayer - (1) Are for a betterment to the unit of property (see paragraph (j) of this section); (2) Restore the unit of property (see paragraph (k) of this section); or (3) Adapt the unit of property to a new or different use (see paragraph (l) of this section).

Fedex Corp. v. United States (2003) - Tennessee [engine shop visit to repair engine, deducted]

RULE: Under federal tax law, a taxpayer must capitalize expenses used to materially add value to property or restore property to a like-new condition.

Case Notes:

● Expenses that materially add value to property or return property to a like-new condition must be capitalized on tax returns.

● For material valuation purposes, the unit of property in question must be determined by looking at four factors:

○ (1) whether the smaller unit is treated as part of a larger unit,

○ (2) whether the economic life of the smaller property is essential for the economic life of the larger property,

○ (3) whether the larger and smaller units can function separately, and

○ (4) whether the smaller unit can be maintained without removal from the larger unit.

Betterments (Additions to Value) → taxpayers must capitalize costs of betterments, which generally includes costs that materially increase the value of property.

(1) PRE EXISTING DEFECTS: The cost ameliorates a condition or defect that existed prior to the property’s acquisition or production by the taxpayer, no matter whether the taxpayer knew of this condition or defect at the time

(2) BETTERMENTS: the cost results in “betterment” of the property or a material addition to the property. This includes costs that improve the property’s quality or strength, or cause the property to be expanded or enlarged

(3) INCREASED PRODUCTIVITY: The cost results in a material increase in the property’s capacity, productivity, or efficiency

Revenue Ruling 2004-62

● It is well established that the costs incurred for silvicultural practices performed in established timber stands are deductible business expenses because they do not materially add value to the timber stand, substantially prolong its useful life or adapt the timber stand to a new or different use.

● There is no established rule with respect to fertilization.

● The Service rules that a deduction for fertilization costs is proper, for post-establishment fertilization is akin to the deductible post-establishment silvicultural practices in that it does not add to value of the timber or prolong the useful life of any of the taxpayer’s assets (the land and the trees).

Restorations v. Repairs → taxpayers must capitalize costs that “restore” a unit or property

Reg. § 1.263(a)-3 Amounts paid to improve tangible property. (k) Capitalization of restorations - (1) In general. A taxpayer must capitalize as an improvement an amount paid to restore a unit of property, including an amount paid to make good the exhaustion for which an allowance is or has been made. An amount restores a unit of property only if it - (i) Is for the replacement of a component of a unit of property for which the taxpayer has properly deducted a loss for that component, other than a casualty loss under § 1.165-7; (ii) Is for the replacement of a component of a unit of property for which the taxpayer has properly taken into account the adjusted basis of the component in realizing gain or loss resulting from the sale or exchange of the component; (iii) Is for the restoration of damage to a unit of property for which the taxpayer is required to take a basis adjustment as a result of a casualty loss under section 165, or relating to a casualty event described in section 165, subject to the limitation in paragraph (k)(4) of this section; (iv) Returns the unit of property to its ordinarily efficient operating condition if the property has deteriorated to a state of disrepair and is no longer functional for its intended use; (v) Results in the rebuilding of the unit of property to a like-new condition as determined under paragraph (k)(5) of this section after the end of its class life as defined in paragraph (i)(4) of this section; or (vi) Is for the replacement of a part or combination of parts that comprise a major component or a substantial structural part of a unit of property as determined under paragraph (k)(6) of this section.

Restoration costs → generally either return property to its “ordinarily efficient operating condition” after the unit of property has deteriorated so much that it no longer functions as intended, or the cost returns property to a like-new condition.

● When a taxpayer has previously taken a deduction for a loss on a component, costs to replace that component must be capitalized

● Amounts paid for repairs or maintenance to tangible property can be treated as expenses.

Reg. § 1.162-4 Repairs. (a) In general. A taxpayer may deduct amounts paid for repairs and maintenance to tangible property if the amounts paid are not otherwise required to be capitalized. Optionally, § 1.263(a)-3(n) provides an election to capitalize amounts paid for repair and maintenance consistent with the taxpayer's books and records.

If the costs are deemed “repairs” then the taxpayer gets an immediate deduction under §162 or §212, assuming the costs relate to a business or investment activity. If the costs are “restorations” or “improvements”, the deduction is deferred because the cost is added to the property’s basis.

Midland Empire Packing Company v. Commissioner (1950) - Tax Court

RULE: An expenditure is currently deductible as a repair to property if it is made solely to keep the property in an ordinarily efficient operating condition.

Case Notes:

● Expenditures to repair property are deductible as an ordinary and necessary business expense.

● On the other hand, expenditures for capital outlay are capitalized and deducted in installments over the capital asset’s useful life.

● In order to determine whether expenditures are repairs or capital outlay, courts must look to the purpose of the expenditure.

● If the expenditure is a replacement of the property in whole or in part, or if it is an improvement intended to add to the property’s value, prolong its life, or change its use, then it is a capital outlay.

● Necessary v. ordinary → ordinary does not necessarily mean regular or frequent, and that even a one-time payment can be ordinary if it is a common and accepted manner of dealing with a particular threat to a business (Welch v. Helvering).

Repairs	Improvements
Keep property in ordinary efficient working condition	Add to value or appreciably prolong the property’s useful life

Mt, Morris Drive-In Theatre Co. v. Commissioner (1955) - Tax Court

RULE: Under federal tax law, in determining whether construction expenses are deductible business expenses or non-deductible capital expenses, the decisive test is the character of the transaction that gives rise to the expenses.

Case Notes:

● In determining whether construction expenses are deductible ordinary and necessary business expenses or non-deductible capital expenses, the decisive test is the character of the transaction that gives rise to the expenses.

● A business-expense deduction has been allowed in past cases for the costs of addressing an unforeseeable physical fault or external factor.

● The business deduction has also been allowed where a farm spent money to adopt farming techniques that were not in use when the farm began operations.

● The business deduction might also be allowed for the expenses of restoring or rearranging an existing capital asset.

Adaptations → taxpayers must capitalize costs that adapt a property to a new or different use.

§ 1.263(a)-3 Amounts paid to improve tangible property. (l) Capitalization of amounts to adapt property to a new or different use - (1) In general. A taxpayer must capitalize as an improvement an amount paid to adapt a unit of property to a new or different use. In general, an amount is paid to adapt a unit of property to a new or different use if the adaptation is not consistent with the taxpayer's ordinary use of the unit of property at the time originally placed in service by the taxpayer. (2) Application of adaption rule to buildings. In the case of a building, an amount is paid to improve a building if it is paid to adapt to a new or different use a property specified under paragraph (e)(2)(ii) (building), paragraph (e)(2)(iii)(B) (condominium), paragraph (e)(2)(iv)(B) (cooperative), or paragraph (e)(2)(v)(B) (leased building or leased portion of building) of this section. For example, an amount is paid to improve a building if it is paid to adapt the building structure or any one of its buildings systems to a new or different use. (3) Examples. The following examples illustrate the application of this paragraph (l) only and do not address whether capitalization is required under another provision of this section or under another provision of the Code (for example, section 263A). Unless otherwise stated, assume that the taxpayer has not properly deducted a loss for any unit of property, asset, or component of a unit of property that is removed and replaced.

Betterments	Restorations	Adaptations
PRE EXISTING DEFECTS. The cost ameliorates a condition or defect that existed prior to the property’s acquisition of production by the taxpayer, no matter whether the taxpayer knew of this condition or defect at the time. Reg. §1.263(a)-3(j)(1)(i).	PREVIOUS DEDUCTION OR SALE. The cost is for the replacement of a component when the taxpayer has already deducted the costs of the original item or accounted for the basis of the item as a part of a sale or exchange. Reg. §1.263(a)-3(k)(1)(i), (ii), (iii)	DIFFERENT USE. The cost produces a change that is not consistent with the intended original use of the property. Reg. §1.263(a)-3(i)
MATERIAL ADDITION. The cost results in a material addition, including enlargement, expansion, or extension of the property. Reg. §1.263(a)-3(j)(1)(ii).	RETURNS TO ORDINARY OPERATION. The cost returns the property to its ordinarily efficient operating condition and the property has deteriorated so much that it is no longer functional for its intended use. Reg. §1.263(a)-3(k)(1)(iv)
INCREASED PRODUCTIVITY. The cost results in a material increase in the property’s capacity, productivity, efficiency, strength, or quality. Reg. §1.263(a)-3(j)(1)(iii)	REBUILD TO LIKE-NEW CONDITION. The cost returns the property to a new, rebuilt, remanufactured condition. Reg. §1.263(a)-3(k)(3).
	REPLACEMENT OF A MAJOR COMPONENT. The cost replaces a substantial structural part of the property. This includes components that are a large part of the structure or that perform a discrete and critical function. Reg. §1.263(a)-3(k)(4).

Problem Example →

K and F own commercial building, lease space as sole business activity; in taxable year, K and F incurred costs below, all directly related to building; current deduction or capitalized costs:

(a) $50,000 to remove asbestos (did not affect building operations) → IRC 263(a)-3(j)(3) Example 2; DEDUCTIBLE

(b) $3,000 to restore awning that originally cost $1,000 to construct and install, current cost to construct and install is $10,000 → case by case basis

(c) $22,000 to repair the driveway providing access from the main road to parking lot → capitalization of betterments

(d) $5,000 to add safety equipment to elevators

(e) $2,500 to fix leak

Costs Related to Intangible Assets

INDOPCO, Inc. v. Commissioner (1992) - SCOTUS

RULE: Corporate expenses incurred for the purpose of changing the corporate structure in order to receive future benefits are not deductible as ordinary and necessary business expenses.

Case Notes:

● Section 162 of the Internal Revenue Code allows current deductions for ordinary and necessary business expenses incurred during the taxable year while carrying on a trade or business.

● On the other hand, § 263 disallows deductions for capital expenditures that are intended to create or enhance an asset or to create a future benefit.

● Instead, such expenditures must be amortized and depreciated over a related asset’s useful life or taken as a loss upon dissolution of the entire business.

● Deductions are only allowable if the taxpayer can clearly demonstrate an enumerated right to claim a deduction; otherwise, capitalization of expenses is the norm.

● In Commissioner v. Lincoln Savings & Loan Association, 403 U.S. 345 (1971), this Court held that a taxpayer’s expenditures that create or enhance a distinct asset should be capitalized.

● However, the ruling does not mean that capital expenditures are limited to only those that create or enhance a distinct asset.

● This Court also stated in Lincoln Savings that the presence of some future benefit is not necessarily a controlling factor that determines whether an expenditure should be capitalized.

● However, that ruling does not preclude a court’s reliance on the presence of a significant future benefit in order to designate an expenditure as a capital outlay.

The test from INDOPCO is sometimes referred to as the “significant future benefits test.” If an expenditure creates a significant future benefit, it should be capitalized.

Revenue Ruling 92-80 → advertising expenses still deductible

Revenue Ruling 94-38 → hazardous waste clean-up costs still deductible, except that construction of groundwater treatment facilities would capitalized

Revenue Ruling 94-77 → severance benefits still deductible

Revenue Ruling 95-32 → certain conservation expenditures still deductible

Revenue Ruling 96-62 → training costs still deductible

The INDOPCO Regulations → generally require capitalization of certain amounts paid to acquire or create intangible assets, and require capitalization of expenses that create or enhance a separate and distinct capital asset.

Deduction for Expenses

STEP ONE: Is it an expense or capital expenditure?

STEP TWO: assuming it is an expense, is that expense deductible? Find specific provision

STEP THREE: assuming there is a deduction, where on the tax ladder can the deduction come in?

STEP FOUR: check 263A and then 263(a)

Look to Sec. 62(a) → tells you where on the tax ladder the deduction falls, but you still need to look to the specific deduction’s provision to see if you qualify.

● Above the line deductions always preferable (second to tax credits)

● If not under 62(a), look at ITEMIZED DEDUCTIONS

No catch-all for deductions, need to find a specific deduction existing in the code; all in different provisions, no master list

In general →

● Expenses are deductible if they relate to a taxpayer’s “trade or business” activity, or if the expense is paid or incurred in the production or collection of income from an activity that does not rise to the level of a trade or business (an “investment activity”).

Trade or Business Expenses

§ 162(a) - Trade or business expenses (a) In general. There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including— (1) a reasonable allowance for salaries or other compensation for personal services actually rendered; (2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and (3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. For purposes of the preceding sentence, the place of residence of a Member of Congress (including any Delegate and Resident Commissioner) within the State, congressional district, or possession which he represents in Congress shall be considered his home, but amounts expended by such Members within each taxable year for living expenses shall not be deductible for income tax purposes. For purposes of paragraph (2), the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year. The preceding sentence shall not apply to any Federal employee during any period for which such employee is certified by the Attorney General (or the designee thereof) as traveling on behalf of the United States in temporary duty status to investigate or prosecute, or provide support services for the investigation or prosecution of, a Federal crime.

Six elements required for a deduction →

1) It must be an ordinary

2) And necessary

3) Expense

4) That was paid or incurred during the taxable year

5) In carrying on

6) A trade or business activity

Ordinary and Necessary → routine and directly related to the business activity; can be extraordinary and unusual, but the expense must have a business purpose and be related to the activity.

Welch v. Helvering (1933) - SCOTUS [π grain co. secretary repaid company debts and deducted]

RULE: Expenditures for ordinary and necessary business expenses may be deducted from gross income if incurred while carrying on a trade or business.

Case Notes:

● Section 162 of the Tax Code states that expenses for ordinary and necessary business expenses may be deducted from gross income if incurred while carrying on a trade or business.

● Many payments may be deemed a necessary expense, but not all necessary payments are ordinary.

● An expense does not need to be a regular and recurring event in order to be ordinary.

● Even one-time payments can be ordinary -- For instance, if a company defends itself in a lawsuit by hiring an attorney, the attorney’s fees is probably an ordinary expense within the meaning of § 162.

● But ultimately, whether an expense is both necessary and ordinary is a determination based on the specific facts at hand.

Jenkins v. Commissioner (1983) - Tax Court [twitty burger failed, repaid investors]

RULE: Under federal tax law, a taxpayer may deduct payments for expenses incurred by another if the taxpayer’s primary motivation is business in nature and there is a sufficient relationship between the expenses and the taxpayer’s business.

Case Notes:

● A taxpayer may deduct an expense if it is an ordinary and necessary expense of the taxpayer’s business.

● Generally, a taxpayer may not deduct the expenses of another.

● However, an exception exists for expenses that are primarily motivated by business and have a sufficient relationship with the taxpayer’s business.

Lohrke Test: A payment may be deducted if it is an ordinary and necessary expense of a trade or business of the shareholder.

In carrying on → continuing business; start-up costs not entirely deductible, a portion of such costs may be deducted in the year in which the new business begins and the balance of such costs are to be amortized (deducted on a pro rata basis) over 15 years.

Estate of Rockefeller v. Commissioner (1985) - 2nd Cir. [deducted costs rel. to commissioned position]

RULE: A federal taxpayer may deduct business expenses incurred to change positions with substantially similar job duties within the same trade or business.

Case Notes:

● A taxpayer may deduct business expenses used to carry on a trade or business, even if the expenses are not for his current position.

● The new position sought by the taxpayer must have substantially similar job duties to his current position.

● An unemployed taxpayer is still viewed as carrying on the trade or business of his most recent position, unless there is a significant lack of continuity.

● For there to be a lack of continuity, the taxpayer must demonstrate an intent to return to a position with substantially similar duties.

● The time lapse cannot be too great.

Trade or business → if an activity is not a “trade or business” it is either an “investment” activity or a “personal” activity.

Commissioner v. Groetzinger (1987) - SCOTUS [lived on gambling wages, loss was tablable]

RULE: A federal taxpayer’s expenses are tax deductible if they arise from a trade or business that the taxpayer conducts primarily for income or profit, and not from an activity in which the taxpayer engages sporadically, or as a hobby, or for amusement.

Case Notes:

● A federal taxpayer’s expenses are tax deductible if the facts show that those expenses arise from a trade or business that the taxpayer conducts primarily for income or profit, and not from an activity in which the taxpayer engages sporadically, or as a hobby, or for amusement.

● This Court now makes this rule explicit because the federal tax code lacks any clear definition of “trade or business,” even though this phrase appears many times throughout the tax code.

● Also, this Court’s earlier trade-or-business tests are not fully satisfactory.

● In Higgins v. Commissioner, 312 U.S. 212 (1941), this Court held that the existence of a trade or business must be determined on the facts of each case, and that a trade or business must be engaged in for profit.

● A year earlier in Deputy v. DuPont, 308 U.S. 488 (1940), this Court assumed that trade or business expenses could include a taxpayer’s expenses from simply managing his or her own estate.

● Higgins, however, specifically found that personal estate-management expenses did not amount to a trade or business.

● Justice Frankfurter suggested in his DuPont concurrence that trade or business necessarily “involves holding oneself out to others as engaged in selling goods and services.”

● However, Justice Frankfurter’s concurrence has never been adopted by this Court.

● In this case, Justice Frankfurter’s test is rejected because the meanings of “holding oneself out,” “goods,” and “services” are too vague to be useful.

Treatment of Capital Expenditures

Cost Recovery

A taxpayer generally cannot recover the cost of a capital expenditure for federal income tax purposes until the improved property is sold, exchanged, or otherwise disposed of in some form.

Depreciation	Amortization
● Tangible assets (i.e. real property) ● Cost recovery system governed by §167 and §168 ● Eligible tangible property must be described in §167(a) ● Property must be held for use in a trade or business or for the production of income; personal-use property is not eligible for cost recovery over its useful life	● Intangible assets (i.e. loans) ● Cost recovery system governed by §191 ● Eligible intangible property must be described in §197(c)(1) and §197(d) ● Property must be held for use in a trade or business or for the production of income; personal-use property is not eligible for cost recovery over its useful life

Depreciation of Tangible Property

26 U.S. Code § 167 - Depreciation (a) General rule. There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)— (1) of property used in the trade or business, or (2) of property held for the production of income. (b) Cross reference. For determination of depreciation deduction in case of property to which section 168 applies, see section 168. (c) Basis for depreciation (1) In general. The basis on which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 1011, for the purpose of determining the gain on the sale or other disposition of such property. (2) Special rule for property subject to lease. If any property is acquired subject to a lease— (A) no portion of the adjusted basis shall be allocated to the leasehold interest, and (B) the entire adjusted basis shall be taken into account in determining the depreciation deduction (if any) with respect to the property subject to the lease. (d) Life tenants and beneficiaries of trusts and estates. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. In the case of an estate, the allowable deduction shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each. (e) Certain term interests not depreciable (1) In general. No depreciation deduction shall be allowed under this section (and no depreciation or amortization deduction shall be allowed under any other provision of this subtitle) to the taxpayer for any term interest in property for any period during which the remainder interest in such property is held (directly or indirectly) by a related person. (2) Coordination with other provisions (A) Section 273. This subsection shall not apply to any term interest to which section 273 applies. (B) Section 305(e). This subsection shall not apply to the holder of the dividend rights which were separated from any stripped preferred stock to which section 305(e)(1) applies. (3) Basis adjustments. If, but for this subsection, a depreciation or amortization deduction would be allowable to the taxpayer with respect to any term interest in property— (A) the taxpayer’s basis in such property shall be reduced by any depreciation or amortization deductions disallowed under this subsection, and (B) the basis of the remainder interest in such property shall be increased by the amount of such disallowed deductions (properly adjusted for any depreciation deductions allowable under subsection (d) to the taxpayer). (4) Special rules (A) Denial of increase in basis of remainderman. No increase in the basis of the remainder interest shall be made under paragraph (3)(B) for any disallowed deductions attributable to periods during which the term interest was held— (i) by an organization exempt from tax under this subtitle, or (ii) by a nonresident alien individual or foreign corporation but only if income from the term interest is not effectively connected with the conduct of a trade or business in the United States. (B) Coordination with subsection (d). If, but for this subsection, a depreciation or amortization deduction would be allowable to any person with respect to any term interest in property, the principles of subsection (d) shall apply to such person with respect to such term interest. (5) Definitions. For purposes of this subsection— (A) Term interest in property. The term “term interest in property” has the meaning given such term by section 1001(e)(2). (B) Related person. The term “related person” means any person bearing a relationship to the taxpayer described in subsection (b) or (e) of section 267. (6) Regulations. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through cross-ownership arrangements or otherwise. (f) Treatment of certain property excluded from section 197 (1) Computer software (A) In general. If a depreciation deduction is allowable under subsection (a) with respect to any computer software, such deduction shall be computed by using the straight line method and a useful life of 36 months. (B) Computer software. For purposes of this section, the term “computer software” has the meaning given to such term by section 197(e)(3)(B); except that such term shall not include any such software which is an amortizable section 197 intangible. (C) Tax-exempt use property subject to lease. In the case of computer software which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to computer software, the useful life under subparagraph (A) shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)). (2) Certain interests or rights acquired separately. If a depreciation deduction is allowable under subsection (a) with respect to any property described in subparagraph (B), (C), or (D) of section 197(e)(4), such deduction shall be computed in accordance with regulations prescribed by the Secretary. If such property would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such property, the useful life under such regulations shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)). (3) Mortgage servicing rights. If a depreciation deduction is allowable under subsection (a) with respect to any right described in section 197(e)(6), such deduction shall be computed by using the straight line method and a useful life of 108 months. (g) Depreciation under income forecast method (1) In general. If the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method— (A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service, (B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satisfied, (C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and (D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year. (2) Look-back method. The interest computed under the look-back method of this paragraph for any recomputation year shall be determined by— (A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property)— (i) the actual income earned in connection with such property for periods before the close of the recomputation year, and (ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service, (B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and (C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B). For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property. (3) Exception from look-back method. Paragraph (1)(D) shall not apply with respect to any property which had a cost basis of $100,000 or less. (4) Recomputation year. For purposes of this subsection, except as provided in regulations, the term “recomputation year” means, with respect to any property, the 3d and the 10th taxable years beginning after the taxable year in which the property was placed in service, unless the actual income earned in connection with the property for the period before the close of such 3d or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A). (5) Special rules (A) Certain costs treated as separate property. For purposes of this subsection, the following costs shall be treated as separate properties: (i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service. (ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property. (B) Syndication income from television series. In the case of property which is 1 or more episodes in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of— (i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or (ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series. (C) Special rules for financial exploitation of characters, etc. For purposes of this subsection, in the case of television and motion picture films, the income from the property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267(b)) to the taxpayer. (D) Collection of interest. For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under paragraph (1) for any recomputation year shall be treated as an increase in the tax imposed by this chapter for such year. (E) Treatment of distribution costs. For purposes of this subsection, the income with respect to any property shall be the taxpayer’s gross income from such property. (F) Determinations. For purposes of paragraph (2), determinations of the amount of income earned in connection with any property shall be made in the same manner as for purposes of applying the income forecast method; except that any income from the disposition of such property shall be taken into account. (G) Treatment of pass-thru entities. Rules similar to the rules of section 460(b)(4) shall apply for purposes of this subsection. (6) Limitation on property for which income forecast method may be used. The depreciation deduction allowable under this section may be determined under the income forecast method or any similar method only with respect to— (A) property described in paragraph (3) or (4) of section 168(f), (B) copyrights, (C) books, (D) patents, and (E) other property specified in regulations. Such methods may not be used with respect to any amortizable section 197 intangible (as defined in section 197(c)). (7) Treatment of participations and residuals (A) In general. For purposes of determining the depreciation deduction allowable with respect to a property under this subsection, the taxpayer may include participations and residuals with respect to such property in the adjusted basis of such property for the taxable year in which the property is placed in service, but only to the extent that such participations and residuals relate to income estimated (for purposes of this subsection) to be earned in connection with the property before the close of the 10th taxable year referred to in paragraph (1)(A). (B) Participations and residuals. For purposes of this paragraph, the term “participations and residuals” means, with respect to any property, costs the amount of which by contract varies with the amount of income earned in connection with such property. (C) Special rules relating to recomputation years. If the adjusted basis of any property is determined under this paragraph, paragraph (4) shall be applied by substituting “for each taxable year in such period” for “for such period”. (D) Other special rules (i) Participations and residuals. Notwithstanding subparagraph (A), the taxpayer may exclude participations and residuals from the adjusted basis of such property and deduct such participations and residuals in the taxable year that such participations and residuals are paid. (ii) Coordination with other rules. Deductions computed in accordance with this paragraph shall be allowable notwithstanding paragraph (1)(B), section 263, 263A, 404, 419, or 461(h). (E) Authority to make adjustments. The Secretary shall prescribe appropriate adjustments to the basis of property and to the look-back method for the additional amounts allowable as a deduction solely by reason of this paragraph. (8) Special rules for certain musical works and copyrights (A) In general. If an election is in effect under this paragraph for any taxable year, then, notwithstanding paragraph (1), any expense which— (i) is paid or incurred by the taxpayer in creating or acquiring any applicable musical property placed in service during the taxable year, and (ii) is otherwise properly chargeable to capital account, shall be amortized ratably over the 5-year period beginning with the month in which the property was placed in service. The preceding sentence shall not apply to any expense which, without regard to this paragraph, would not be allowable as a deduction. (B) Exclusive method. Except as provided in this paragraph, no depreciation or amortization deduction shall be allowed with respect to any expense to which subparagraph (A) applies. (C) Applicable musical property. For purposes of this paragraph— (i) In general. The term “applicable musical property” means any musical composition (including any accompanying words), or any copyright with respect to a musical composition, which is property to which this subsection applies without regard to this paragraph. (ii) Exceptions. Such term shall not include any property— (I) with respect to which expenses are treated as qualified creative expenses to which section 263A(h) applies, (II) to which a simplified procedure established under section 263A(i)(2) [1] applies, or (III) which is an amortizable section 197 intangible (as defined in section 197(c)). (D) Election. An election under this paragraph shall be made at such time and in such form as the Secretary may prescribe and shall apply to all applicable musical property placed in service during the taxable year for which the election applies. (E) Termination. An election may not be made under this paragraph for any taxable year beginning after December 31, 2010. (h) Amortization of geological and geophysical expenditures (1) In general. Any geological and geophysical expenses paid or incurred in connection with the exploration for, or development of, oil or gas within the United States (as defined in section 638) shall be allowed as a deduction ratably over the 24-month period beginning on the date that such expense was paid or incurred. (2) Half-year convention. For purposes of paragraph (1), any payment paid or incurred during the taxable year shall be treated as paid or incurred on the mid-point of such taxable year. (3) Exclusive method. Except as provided in this subsection, no depreciation or amortization deduction shall be allowed with respect to such payments. (4) Treatment upon abandonment. If any property with respect to which geological and geophysical expenses are paid or incurred is retired or abandoned during the 24-month period described in paragraph (1), no deduction shall be allowed on account of such retirement or abandonment and the amortization deduction under this subsection shall continue with respect to such payment. (5) Special rule for major integrated oil companies (A) In general. In the case of a major integrated oil company, paragraphs (1) and (4) shall be applied by substituting “7-year” for “24 month”. (B) Major integrated oil company. For purposes of this paragraph, the term “major integrated oil company” means, with respect to any taxable year, a producer of crude oil— (i) which has an average daily worldwide production of crude oil of at least 500,000 barrels for the taxable year, (ii) which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005, and (iii) to which subsection (c) of section 613A does not apply by reason of paragraph (4) of section 613A(d), determined— (I) by substituting “15 percent” for “5 percent” each place it occurs in paragraph (3) of section 613A(d), and (II) without regard to whether subsection (c) of section 613A does not apply by reason of paragraph (2) of section 613A(d). For purposes of clauses (i) and (ii), all persons treated as a single employer under subsections (a) and (b) of section 52 shall be treated as 1 person and, in case of a short taxable year, the rule under section 448(c)(3)(B) shall apply. (i) Cross references (1) For additional rule applicable to depreciation of improvements in the case of mines, oil and gas wells, other natural deposits, and timber, see section 611. (2) For amortization of goodwill and certain other intangibles, see section 197.

26 U.S. Code § 168 - Accelerated cost recovery system (a) General rule. Except as otherwise provided in this section, the depreciation deduction provided by section 167(a) for any tangible property shall be determined by using— (1) the applicable depreciation method, (2) the applicable recovery period, and (3) the applicable convention. (b) Applicable depreciation method. For purposes of this section— (1) In general. Except as provided in paragraphs (2) and (3), the applicable depreciation method is— (A) the 200 percent declining balance method, (B) switching to the straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance. (2) 150 percent declining balance method in certain cases. Paragraph (1) shall be applied by substituting “150 percent” for “200 percent” in the case of— (A) any 15-year or 20-year property not referred to in paragraph (3), (B) any property (other than property described in paragraph (3)) which is a qualified smart electric meter or qualified smart electric grid system, or (C) any property (other than property described in paragraph (3)) with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply. (3) Property to which straight line method applies. The applicable depreciation method shall be the straight line method in the case of the following property: (A) Nonresidential real property. (B) Residential rental property. (C) Any railroad grading or tunnel bore. (D) Property with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply. (E) Property described in subsection (e)(3)(D)(ii). (F) Water utility property described in subsection (e)(5). (G) Qualified improvement property described in subsection (e)(6). (4) Salvage value treated as zero. Salvage value shall be treated as zero. (5) Election. An election under paragraph (2)(D) or (3)(D) may be made with respect to 1 or more classes of property for any taxable year and once made with respect to any class shall apply to all property in such class placed in service during such taxable year. Such an election, once made, shall be irrevocable. (c) Applicable recovery period. For purposes of this section, the applicable recovery period shall be determined in accordance with the following table: In the case of _____ the applicable recovery period is: 3-year property -- 3 years   5-year property -- 5 years   7-year property -- 7 years   10-year property -- 10 years   15-year property -- 15 years   20-year property -- 20 years   Water utility property -- 25 years   Residential rental property -- 27.5 years   Nonresidential real property -- 39 years. Any railroad grading or tunnel bore -- 50 years. (d) Applicable convention. For purposes of this section— (1) In general. Except as otherwise provided in this subsection, the applicable convention is the half-year convention. (2) Real property. In the case of— (A) nonresidential real property, (B) residential rental property, and (C) any railroad grading or tunnel bore, the applicable convention is the mid-month convention. (3) Special rule where substantial property placed in service during last 3 months of taxable year (A) In general. Except as provided in regulations, if during any taxable year— (i) the aggregate bases of property to which this section applies placed in service during the last 3 months of the taxable year, exceed (ii) 40 percent of the aggregate bases of property to which this section applies placed in service during such taxable year, the applicable convention for all property to which this section applies placed in service during such taxable year shall be the mid-quarter convention. (B) Certain property not taken into account. For purposes of subparagraph (A), there shall not be taken into account— (i) any nonresidential real property [1] residential rental property, and railroad grading or tunnel bore, and (ii) any other property placed in service and disposed of during the same taxable year. (4) Definitions (A) Half-year convention. The half-year convention is a convention which treats all property placed in service during any taxable year (or disposed of during any taxable year) as placed in service (or disposed of) on the mid-point of such taxable year. (B) Mid-month convention. The mid-month convention is a convention which treats all property placed in service during any month (or disposed of during any month) as placed in service (or disposed of) on the mid-point of such month. (C) Mid-quarter convention. The mid-quarter convention is a convention which treats all property placed in service during any quarter of a taxable year (or disposed of during any quarter of a taxable year) as placed in service (or disposed of) on the mid-point of such quarter. (e) Classification of property. For purposes of this section— (1) In general. Except as otherwise provided in this subsection, property shall be classified under the following table: Property shall be treated as _____ if such property has a class life (in years) of ____ 3-year property -- 4 or less 5-year property -- More than 4 but less than 10 7-year property -- 10 or more but less than 16 10-year property -- 16 or more but less than 20 15-year property -- 20 or more but less than 25 20-year property -- 25 or more. (2) Residential rental or nonresidential real property (A) Residential rental property (i) Residential rental property. The term “residential rental property” means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units. (ii) Definitions. For purposes of clause (i)— (I) the term “dwelling unit” means a house or apartment used to provide living accommodations in a building or structure, but does not include a unit in a hotel, motel, or other establishment more than one-half of the units in which are used on a transient basis, and (II) if any portion of the building or structure is occupied by the taxpayer, the gross rental income from such building or structure shall include the rental value of the portion so occupied. (B) Nonresidential real property. The term “nonresidential real property” means section 1250 property which is not— (i) residential rental property, or (ii) property with a class life of less than 27.5 years. (3) Classification of certain property (A) 3-year property. The term “3-year property” includes— (i) any race horse— (I) which is placed in service before January 1, 2018, and (II) which is placed in service after December 31, 2017, and which is more than 2 years old at the time such horse is placed in service by such purchaser, (ii) any horse other than a race horse which is more than 12 years old at the time it is placed in service, and (iii) any qualified rent-to-own property. (B) 5-year property. The term “5-year property” includes— (i) any automobile or light general purpose truck, (ii) any semiconductor manufacturing equipment, (iii) any computer-based telephone central office switching equipment, (iv) any qualified technological equipment, (v) any section 1245 property used in connection with research and experimentation, (vi) any property which— (I) is described in subparagraph (A) of section 48(a)(3) (or would be so described if “solar or wind energy” were substituted for “solar energy” in clause (i) thereof and the last sentence of such section did not apply to such subparagraph), (II) is described in paragraph (15) of section 48(l) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) and is a qualifying small power production facility within the meaning of section 3(17)(C) of the Federal Power Act (16 U.S.C. 796(17)(C)), as in effect on September 1, 1986, or (III) is described in section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), and (vii) any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) which is used in a farming business (as defined in section 263A(e)(4)), the original use of which commences with the taxpayer after December 31, 2017. Nothing in any provision of law shall be construed to treat property as not being described in clause (vi)(I) (or the corresponding provisions of prior law) by reason of being public utility property (within the meaning of section 48(a)(3)). (C) 7-year property. The term “7-year property” includes— (i) any railroad track, and  (ii) any motorsports entertainment complex, (iii) any Alaska natural gas pipeline, (iv) any natural gas gathering line the original use of which commences with the taxpayer after April 11, 2005, and (v) any property which— (I) does not have a class life, and (II) is not otherwise classified under paragraph (2) or this paragraph. (D) 10-year property. The term “10-year property” includes— (i) any single purpose agricultural or horticultural structure (within the meaning of subsection (i)(13)), (ii) any tree or vine bearing fruit or nuts, (iii) any qualified smart electric meter, and (iv) any qualified smart electric grid system. (E) 15-year property. The term “15-year property” includes— (i) any municipal wastewater treatment plant, (ii) any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications, (iii) any section 1250 property which is a retail motor fuels outlet (whether or not food or other convenience items are sold at the outlet), (iv) initial clearing and grading land improvements with respect to gas utility property, (v) any section 1245 property (as defined in section 1245(a)(3)) used in the transmission at 69 or more kilovolts of electricity for sale and the original use of which commences with the taxpayer after April 11, 2005, and (vi) any natural gas distribution line the original use of which commences with the taxpayer after April 11, 2005, and which is placed in service before January 1, 2011. (F) 20-year property. The term “20-year property” means initial clearing and grading land improvements with respect to any electric utility transmission and distribution plant. (4) Railroad grading or tunnel bore. The term “railroad grading or tunnel bore” means all improvements resulting from excavations (including tunneling), construction of embankments, clearings, diversions of roads and streams, sodding of slopes, and from similar work necessary to provide, construct, reconstruct, alter, protect, improve, replace, or restore a roadbed or right-of-way for railroad track. (5) Water utility property. The term “water utility property” means property— (A) which is an integral part of the gathering, treatment, or commercial distribution of water, and which, without regard to this paragraph, would be 20-year property, and (B) any municipal sewer. (6) Qualified improvement property (A) In general. The term “qualified improvement property” means any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. (B) Certain improvements not included. Such term shall not include any improvement for which the expenditure is attributable to— (i) the enlargement of the building, (ii) any elevator or escalator, or (iii) the internal structural framework of the building. (f) Property to which section does not apply [EXCLUDED] (g) Alternative depreciation system for certain property (1) In general. In the case of— (A) any tangible property which during the taxable year is used predominantly outside the United States, (B) any tax-exempt use property, (C) any tax-exempt bond financed property, (D) any imported property covered by an Executive order under paragraph (6), (E) any property to which an election under paragraph (7) applies, (F) any property described in paragraph (8), and (G) any property with a recovery period of 10 years or more which is held by an electing farming business (as defined in section 163(j)(7)(C)), the depreciation deduction provided by section 167(a) shall be determined under the alternative depreciation system. (2) Alternative depreciation system. For purposes of paragraph (1), the alternative depreciation system is depreciation determined by using— (A) the straight line method (without regard to salvage value), (B) the applicable convention determined under subsection (d), and (C) a recovery period determined under the following table: In the case of __________ the recovery period shall be ______ (i) Property not described in clause (ii) or (iii) -- The class life. (ii) Personal property with no class life -- 12 years. (iii) Residential rental property -- 30 years (iv) Nonresidential real property -- 40 years (v) Any railroad grading or tunnel bore or water utility property -- 50 years (3) Special rules for determining class life (A) Tax-exempt use property subject to lease. In the case of any tax-exempt use property subject to a lease, the recovery period used for purposes of paragraph (2) shall (notwithstanding any other subparagraph of this paragraph) in no event be less than 125 percent of the lease term. (B) Special rule for certain property assigned to classes. For purposes of paragraph (2), in the case of property described in any of the following subparagraphs of subsection (e)(3), the class life shall be determined as follows:If property is described in subparagraph _____, the class life is ____ (A)(iii), 4    (B)(ii), 5    (B)(iii), 9.5 (B)(vii), 10    (C)(i), 10    (C)(iii), 22    (C)(iv), 14    (D)(i), 15    (D)(ii), 20    (D)(v), 20    (E)(i), 24    (E)(ii), 24    (E)(iii), 20    (E)(iv), 20    (E)(v), 30    (E)(vi), 35    (F), 25    (C) Qualified technological equipment. In the case of any qualified technological equipment, the recovery period used for purposes of paragraph (2) shall be 5 years. (D) Automobiles, etc. In the case of any automobile or light general purpose truck, the recovery period used for purposes of paragraph (2) shall be 5 years. (E) Certain real property. In the case of any section 1245 property which is real property with no class life, the recovery period used for purposes of paragraph (2) shall be 40 years. (4) Exception for certain property used outside United States. Subparagraph (A) of paragraph (1) shall not apply to— (A) any aircraft which is registered by the Administrator of the Federal Aviation Agency and which is operated to and from the United States or is operated under contract with the United States; (B) rolling stock which is used within and without the United States and which is— (i) of a rail carrier subject to part A of subtitle IV of title 49, or (ii) of a United States person (other than a corporation described in clause (i)) but only if the rolling stock is not leased to one or more foreign persons for periods aggregating more than 12 months in any 24-month period; (C) any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States; (D) any motor vehicle of a United States person (as defined in section 7701(a)(30)) which is operated to and from the United States; (E) any container of a United States person which is used in the transportation of property to and from the United States; (F) any property (other than a vessel or an aircraft) of a United States person which is used for the purpose of exploring for, developing, removing, or transporting resources from the outer Continental Shelf (within the meaning of section 2 of the Outer Continental Shelf Lands Act, as amended and supplemented; (43 U.S.C. 1331)); (G) any property which is owned by a domestic corporation (other than a corporation which has an election in effect under section 936) or by a United States citizen (other than a citizen entitled to the benefits of section 931 or 933) and which is used predominantly in a possession of the United States by such a corporation or such a citizen, or by a corporation created or organized in, or under the law of, a possession of the United States; (H) any communications satellite (as defined in section 103(3) of the Communications Satellite Act of 1962, 47 U.S.C. 702(3)), or any interest therein, of a United States person; (I) any cable, or any interest therein, of a domestic corporation engaged in furnishing telephone service to which section 168(i)(10)(C) applies (or of a wholly owned domestic subsidiary of such a corporation), if such cable is part of a submarine cable system which constitutes part of a communication link exclusively between the United States and one or more foreign countries; (J) any property (other than a vessel or an aircraft) of a United States person which is used in international or territorial waters within the northern portion of the Western Hemisphere for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or deposits under such waters; (K) any property described in section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) which is owned by a United States person and which is used in international or territorial waters to generate energy for use in the United States; and (L) any satellite (not described in subparagraph (H)) or other spacecraft (or any interest therein) held by a United States person if such satellite or other spacecraft was launched from within the United States. For purposes of subparagraph (J), the term “northern portion of the Western Hemisphere” means the area lying west of the 30th meridian west of Greenwich, east of the international dateline, and north of the Equator, but not including any foreign country which is a country of South America. (5) Tax-exempt bond financed property. For purposes of this subsection— (A) In general. Except as otherwise provided in this paragraph, the term “tax-exempt bond financed property” means any property to the extent such property is financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a). (B) Allocation of bond proceeds. For purposes of subparagraph (A), the proceeds of any obligation shall be treated as used to finance property acquired in connection with the issuance of such obligation in the order in which such property is placed in service. (C) Qualified residential rental projects. The term “tax-exempt bond financed property” shall not include any qualified residential rental project (within the meaning of section 142(a)(7)). (6) Imported property (A) Countries maintaining trade restrictions or engaging in discriminatory acts. If the President determines that a foreign country— (i) maintains nontariff trade restrictions, including variable import fees, which substantially burden United States commerce in a manner inconsistent with provisions of trade agreements, or (ii) engages in discriminatory or other acts (including tolerance of international cartels) or policies unjustifiably restricting United States commerce, the President may by Executive order provide for the application of paragraph (1)(D) to any article or class of articles manufactured or produced in such foreign country for such period as may be provided by such Executive order. Any period specified in the preceding sentence shall not apply to any property ordered before (or the construction, reconstruction, or erection of which began before) the date of the Executive order unless the President determines an earlier date to be in the public interest and specifies such date in the Executive order. (B) Imported property. For purposes of this subsection, the term “imported property” means any property if— (i) such property was completed outside the United States, or (ii) less than 50 percent of the basis of such property is attributable to value added within the United States. For purposes of this subparagraph, the term “United States” includes the Commonwealth of Puerto Rico and the possessions of the United States. (7) Election to use alternative depreciation system (A) In general. If the taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, the alternative depreciation system under this subsection shall apply to all property in such class placed in service during such taxable year. Notwithstanding the preceding sentence, in the case of nonresidential real property or residential rental property, such election may be made separately with respect to each property. (B) Election irrevocable. An election under subparagraph (A), once made, shall be irrevocable. (8) Electing real property trade or business. The property described in this paragraph shall consist of any nonresidential real property, residential rental property, and qualified improvement property held by an electing real property trade or business (as defined in 163(j)(7)(B)). (h) Tax-exempt use property [EXCLUDED] (i) Definitions and special rules [EXCLUDED] (j) Property on Indian reservations [EXCLUDED] (k) Special allowance for certain property [EXCLUDED] (l) Special allowance for second generation biofuel plant property [EXCLUDED] (m) Special allowance for certain reuse and recycling property [EXCLUDED] (n) Special allowance for qualified disaster assistance property [EXCLUDED]

Treas. Reg. § 1.167(a)-2 Tangible property. The depreciation allowance in the case of tangible property applies only to that part of the property which is subject to wear and tear, to decay or decline from natural causes, to exhaustion, and to obsolescence. The allowance does not apply to inventories or stock in trade, or to land apart from the improvements or physical development added to it. The allowance does not apply to natural resources which are subject to the allowance for depletion provided in section 611. No deduction for depreciation shall be allowed on automobiles or other vehicles used solely for pleasure, on a building used by the taxpayer solely as his residence, or on furniture or furnishings therein, personal effects, or clothing; but properties and costumes used exclusively in a business, such as a theatrical business, may be depreciated.

Property Eligible for Deduction §167(a) → permits a deduction for the “exhaustion, wear and tear” and for the “obsolescence” of property used in a trade or business or held for the production of income; two required features:

(1) It has a useful life beyond the taxable year (the reason it was capitalized in the first place); and

(2) It wears out, decays, declines in value due to natural causes, or is subject to exhaustion or obsolescence

Simon v. Commissioner (1994) - Tax Court [violin bows depreciated for wear and tear]

RULE: A federal taxpayer may take depreciation deductions for recovery property under the accelerated cost recovery system.

Case Notes:

● Taxpayers may take depreciation deductions for recovery property under the ACRS.

● Recovery property must be:

○ (1) tangible,

○ (2) placed in service after 1980,

○ (3) used in a trade or business, and

○ (4) of a character subject to the allowance for depreciation.

● A comparison between current and previous tax law indicates that Congress used the term “depreciation” to mean exhaustion, wear and tear, or obsolescence.

Simon v. Commissioner (1995) - 2nd Cir. Ct. of Appeals [PART II]

RULE: Demonstration of a business asset’s useful life is not required to take depreciation deductions under the Accelerated Recovery Tax Act (ARTA).

Case Notes:

● The ACRS, under § 168, allows taxpayers to take depreciation deductions for recovery property.

● Recovery property is “tangible property of a character subject to the allowance for depreciation,” used in the course of carrying on a trade or business.

● The requirement that the business asset also have a determinable useful life, was a determination required for depreciation deductions prior to the implementation of ACRS.

● Not all business assets are subject to wear and tear. For instance, paintings hung on the wall of a business office or violin bows kept as collector’s items in a for-profit museum are technically business assets that do not undergo wear and tear.

● Previously, a determination of a business asset’s determinable useful life was required in order to take a depreciation deduction.

● Depreciation deductions allow taxpayers to offset their taxable income by deducting the cost of a business asset over its useful life.

● The allowable depreciation allowance for each year could not be calculated without first establishing the asset’s useful life.

● The introduction of the ACRS, however, eliminated the need to determine the useful life of an asset.

● In an effort to stimulate economic growth, the ACRS provides for accelerated depreciation periods that are unrelated to the useful life of an asset.

● The determination of an asset’s useful life is no longer essential to calculate depreciation allowances.

● In fact, depreciation periods under the ACRS are usually shorter than the asset’s true useful life.

● Congress also sought to simplify depreciation deductions by de-emphasizing concepts such as useful life and salvage value.

● §168 only requires that a business asset be subject to wear and tear to be eligible for depreciation deductions.

Some tangible assets, like works of art, are not depreciable even though they are used in a trade or business (i.e. painting on the wall of a law office to attract clients).

Legislative History

ADR → Asset depreciation range -- Asset depreciation range was an accounting method established by the Internal Revenue Service in 1971 to determine the useful life of specific classes of depreciable assets. It was replaced with the accelerated cost recovery system (ACRS) in 1981, which in turn was replaced by the modified accelerated cost recovery system (MACRS) in 1986.

ERTA → The Economic Recovery Tax Act of 1981 (Pub.L. 97–34), also known as the ERTA or "Kemp–Roth Tax Cut", was a federal law enacted in the United States in 1981. [August 31, 2018]

● It was an act "to amend the Internal Revenue Code of 1954 to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings, and for other purposes".

● Included in the act was an across-the-board decrease in the marginal income tax rates in the United States by 25% over three years, with the top rate falling from 70% to 50% and the bottom rate dropping from 14% to 11%.

● This act slashed estate taxes and trimmed taxes paid by business corporations by $150 billion over a five-year period.

● Additionally the tax rates were indexed for inflation, though the indexing was delayed until 1985.

● In the year after enactment of ERTA, the deficit ballooned, which in turn, drove interest rates from around 12% to over 20%, which, in turn, drove the economy into the second dip of the 1978-82 "double dip recession".

ACRS → The Accelerated Cost Recovery System (ACRS) was a major component of the ERTA and was amended in 1986 to become the Modified Accelerated cost Recovery System (MACRS).

● The system changed the way that depreciation deductions are allowed for tax purposes.

● Instead of basing the depreciation deduction on an estimate of the expected useful life of assets, the assets were placed into categories: 3, 5, 10, or 15 years of life.

● For example, the agriculture industry saw a re-evaluation of their farming assets. Items such as automobiles and swine were given 3 year depreciation values, and things like buildings and land had a 15-year depreciation value.

● The idea was that there would be a rise in tax cuts due to the optimistic consideration of depreciating values -- this would in turn put more cash into the pockets of business owners to promote investment and economic growth.

Modified Accelerated Cost Recovery System (MACRS) → MACRS is a depreciation system which allows the capitalized cost basis of assets to be recovered over a specified life of the asset by annual deductions for value depreciation. MACRS is the depreciation system used in the United States, and was created after the release of the Tax Reform Act of 1986.

Table of Property Types and Class Lives
Description of Assets	Useful Life (Years)
Tractors, racehorses, rent-to-own property, etc.	3
Automobiles, buses, trucks, computers, office machinery, breeding cattle, furniture, etc.	5
Office furniture, fixtures, agricultural machinery, railroad track, etc.	7
Vessels, tugs, agricultural structure, tree or vine bearing fruits or nuts, etc.	10
Municipal wastewater treatment plant, restaurant property, natural gas distribution line, land improvements, such as shrubbery, fences, and sidewalks, etc.	15
Farm buildings, certain municipal sewers, etc.	20
Water utility property, certain municipal sewers, etc.	25
Any building or structure where 80% or more of its gross rental income is from dwelling units	27.5
An office building, store, or warehouse that is not residential property or has a class life of less than 27.5 years	39

The Mechanics of Depreciation

Variables affecting depreciation deductions under §168(a):

(1) Depreciation base → the depreciation base for all assets is its cost basis; because the statute assumes that all depreciable assets have no salvage value under §168(b)(4), a taxpayer may recover his or her entire basis in the asset.

(2) Class life → the estimated life expectancy of the asset; established in Revenue Procedure 87-56.

Rev. Proc. 87-56 SECTION 1. PURPOSE The purpose of this revenue procedure is to set forth the class lives of property that are necessary to compute the depreciation allowances available under section 168 of the Internal Revenue Code, as amended by section 201(a) of the Tax Reform Act of 1986 (Act), 1986-3 (Vol. 1) C.B. 38. Rev. Proc. 87-57, page 17, this Bulletin, describes the applicable depreciation methods, applicable recovery periods, and applicable conventions that must be used in computing depreciation allowances under section 168. SEC. 2. GENERAL RULES OF APPLICATION 01 IN GENERAL. This revenue procedure specifies class lives and recovery periods for property subject to depreciation under the general depreciation system provided in section 168(a) of the Code or the alternative depreciation system provided in section 168(g). SEC. 5. TABLES OF CLASS LIVES AND RECOVERY PERIODS .01 Except for property described in section 5.02, below, the class lives (if any) and recovery periods for property subject to depreciation under section 168 of the Code appear in the tables below. These tables are based on the definition of class life in section 2.02 of this revenue procedure and the assigned items described in section 3 of this revenue procedure. .02 For purposes of depreciation under the general depreciation system, residential rental property has a recovery period of 27.5 years and nonresidential real property has a recovery period of 31.5 years. For purposes of the alternative depreciation system, residential rental and nonresidential real property each has a recovery period of 40 years. [TABLE EXCLUDED]

(3) Applicable Recovery Period → under §168(a)(2)

(a) The table in §168(e)(1) uses the asset’s class life to classify it as one of six different types of property

(b) Then, the table in §168(c) lists the recovery period for each type of property (subject to the four exceptions noted at the end of the table)

(c) The recovery period represents the number of taxable years over which the taxpayer may claim depreciation deductions

(d) Taxpayers typically prefer shorter recovery periods, because that means bigger deductions and quicker recovery of the asset’s basis

(4) Applicable depreciation method →

(a) “Straight-line method” -- where the cost is recovered ratably, one divides the depreciation base by the applicable recovery period [FRAY WILL ONLY ASK US TO DO THIS]

(b) Accelerated methods -- “Declining balance methods” -- §168(b) lists them; used more frequently than any other method.

(i) “Double declining balance method” -- a taxpayer may claim double the percentage of the declining balance in the depreciation base; taxpayer would never fully recover the cost of the asset, statute says to switch to the straight-line method in the first year when that method yields a larger result

(ii) “150 percent declining balance method”

EXAMPLE:

Year	Declining Balance	40% DDB	Straight-Line	Deduction	Adjusted Basis
1	$5,000	$2,000	$1,000
2	$3,000	$1,200	$750*
3	$1,800	$720
4	$1,080	$432
5	$540	$216

Losses

Business and Investment Losses

62(a)(3), 165(a)-(d)

§1001(a) → defines a loss from the sale or exchange of property as the excess of TP’s adjusted basis over the amount realized

§1001(c) → all realized losses are recognized (deductible) except as provided elsewhere in the Code

● FOR INDIVIDUALS, §165(c) is the major limitation; only permits the deduction of three types of uncompensated losses:

(1) Losses incurred in a trade or business;

(2) Losses incurred in profit-motivated transactions; and

(3) Casualty and theft losses with respect to personal-use property

If a realized loss is not described in §165(c), an individual taxpayer cannot deduct the loss.

§165(a) → two additional limitations

(1) The loss must be “sustained” -- for example, a decline in the FMV of an asset cannot be claimed as a loss until the asset is sold or otherwise disposed of in a completed transaction

(2) The taxpayer must not have been “compensated” for the loss -- if a TP receives insurance proceeds or other compensation for a loss (e.g. homeowners insurance), it would be a windfall to permit a loss deduction on top of recovery

Miller v. Commissioner (1984) - 6th Cir. [boat damaged, did not file insurance claim, claimed loss]

RULE: Taxpayers are allowed to claim deductions for economic detriments which are a loss and not compensated for by insurance or otherwise regardless whether the property was insured or not.

Facts:

● Plaintiff taxpayer had an undamaged boat and a friend who is a bad captain.

● Unfortunately he lent his boat to this friend who then ran taxpayer's boat into the ground.

● Taxpayer was able to collect $200.00 from his friend, reducing taxpayer's actual loss to $642.55.

● After taking into account the $100.00 limitation under 26 U.S.C. § 165(c)(3), taxpayer claimed a $542.22 casualty loss deduction on his 1976 return.

● While the taxpayer's boat was insured, he did not file an insurance claim for fear of having his insurance policy revoked.

● 26 U.S.C. § 165(c)allows a deduction for private parties for losses resulting from a shipwreck.

● The court considered whether a taxpayer's voluntary election not to file an insurance claim for a loss precludes the taxpayer from taking a casualty loss deduction according to 26 U.S.C. § 165.

Case Notes:

● If you damage something that is insured or under warranty but don't make a claim and don't receive compensation, can you still deduct the loss according to 26 U.S.C. § 165.

● Plain language example: Someone backs into your car while you are away and breaks a taillight. While you have insurance for the taillight, you don't make a claim because you might lose your insurance or don't want to deal with the paperwork. The loss in excess of the limit in 26 U.S.C. § 165(c)3 (currently $100) may be deducted.

● Previously, Kentucky Utilities rule → In order to claim a deduction, the court required the taxpayer to a) exhaust all reasonable prospects for insurance indemnification before claiming a sustained loss or (b) that 26 U.S.C. § 165 equated "not compensated by" with "not covered by."

● Avoiding the Kentucky Utilities rule

○ First, it allows insured taxpayers to decline insurance indemnification without the penalty of not being able to deduct the loss as if they did not have insurance.

○ There are many valid reasons for not involving insurance companies and the tax law should not work against them.

○ Second, taxpayers who carry no insurance or are under-insured are not rewarded with an additional deduction not available to their colleagues who carry the proper amount of insurance coverage.

● Kentucky Utilities was overruled by Hills, which recognized that "compensated" is distinct from "covered."

Individual Losses

● §165(b) → If a TP receives no consideration for a realized loss (whether as payment or compensation), the loss deduction is limited to the TP’s basis in the loss property

● Thus if a TP is unable to collect on an account receivable (in which a TP has a zero basis except in very limited cases), there is no deduction under §165(a)

● §165(d) → limits the deduction for gambling losses to the amount of the TP’s gambling winnings; it does not matter whether gambling is a business, investment, or personal activity of the TP

Net Operating Losses

26 U.S. Code § 172 - Net operating loss deduction (a) Deduction allowed. There shall be allowed as a deduction for the taxable year an amount equal to the lesser of— (1) the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, or (2) 80 percent of taxable income computed without regard to the deduction allowable under this section. For purposes of this subtitle, the term “net operating loss deduction” means the deduction allowed by this subsection. (b) Net operating loss carrybacks and carryovers (1) Years to which loss may be carried (A) General rule. Except as otherwise provided in this paragraph, a net operating loss for any taxable year— (i) except as otherwise provided in this paragraph, shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss, and (ii) shall be a net operating loss carryover to each taxable year following the taxable year of the loss. (B) Farming losses (i) In general. In the case of any portion of a net operating loss for the taxable year which is a farming loss with respect to the taxpayer, such loss shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss. (ii) Farming loss. For purposes of this section, the term “farming loss” means the lesser of— (I) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or (II) the amount of the net operating loss for such taxable year. (iii) Coordination with paragraph (2). For purposes of applying paragraph (2), a farming loss for any taxable year shall be treated as a separate net operating loss for such taxable year to be taken into account after the remaining portion of the net operating loss for such taxable year. (iv) Election. Any taxpayer entitled to a 2-year carryback under clause (i) from any loss year may elect not to have such clause apply to such loss year. Such election shall be made in such manner as prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year. (C) Insurance companies. In the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year— (i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and (ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss. (2) Amount of carrybacks and carryovers. The entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the “loss year”) shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall— (A) be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter, (B) not be considered to be less than zero, and (C) not exceed the amount determined under subsection (a)(2) for such prior taxable year. (3) Election to waive carryback. Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for such taxable year. (c) Net operating loss defined. For purposes of this section, the term “net operating loss” means the excess of the deductions allowed by this chapter over the gross income. Such excess shall be computed with the modifications specified in subsection (d). (d) Modifications. The modifications referred to in this section are as follows: (1) Net operating loss deduction. No net operating loss deduction shall be allowed. (2) Capital gains and losses of taxpayers other than corporations. In the case of a taxpayer other than a corporation— (A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and (B) the exclusion provided by section 1202 shall not be allowed. (3) Deduction for personal exemptions. No deduction shall be allowed under section 151 (relating to personal exemptions). No deduction in lieu of any such deduction shall be allowed. (4) Nonbusiness deductions of taxpayers other than corporations. In the case of a taxpayer other than a corporation, the deductions allowable by this chapter which are not attributable to a taxpayer’s trade or business shall be allowed only to the extent of the amount of the gross income not derived from such trade or business. For purposes of the preceding sentence— (A) any gain or loss from the sale or other disposition of— (i) property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or (ii) real property used in the trade or business, shall be treated as attributable to the trade or business; (B) the modifications specified in paragraphs (1), (2)(B), and (3) shall be taken into account; (C) any deduction for casualty or theft losses allowable under paragraph (2) or (3) of section 165(c) shall be treated as attributable to the trade or business; and (D) any deduction allowed under section 404 to the extent attributable to contributions which are made on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall not be treated as attributable to the trade or business of such individual. (5) Computation of deduction for dividends received. The deductions allowed by section [1] 243 (relating to dividends received by corporations) and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246(b) (relating to limitation on aggregate amount of deductions). (6) Modifications related to real estate investment trusts. In the case of any taxable year for which part II of subchapter M (relating to real estate investment trusts) applies to the taxpayer— (A) the net operating loss for such taxable year shall be computed by taking into account the adjustments described in section 857(b)(2) (other than the deduction for dividends paid described in section 857(b)(2)(B)); (B) where such taxable year is a “prior taxable year” referred to in paragraph (2) of subsection (b), the term “taxable income” in such paragraph shall mean “real estate investment trust taxable income” (as defined in section 857(b)(2)); and (C) subsection (a)(2) shall be applied by substituting “real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561))” for “taxable income”. [(7) Repealed. Pub. L. 115–97, title I, § 13305(b)(3), Dec. 22, 2017, 131 Stat. 2126.] (8) Qualified business income deduction. The deduction under section 199A shall not be allowed. (9) Deduction for foreign-derived intangible income. The deduction under section 250 shall not be allowed. (e) Law applicable to computations. In determining the amount of any net operating loss carryback or carryover to any taxable year, the necessary computations involving any other taxable year shall be made under the law applicable to such other taxable year. (f) Special rule for insurance companies. In the case of an insurance company (as defined in section 816(a)) other than a life insurance company— (1) the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and (2) subparagraph (C) of subsection (b)(2) shall not apply. (g) Cross references (1) For treatment of net operating loss carryovers in certain corporate acquisitions, see section 381. (2) For special limitation on net operating loss carryovers in case of a corporate change of ownership, see section 382.

EXAMPLE → A and B operate similar businesses

● A’s business income is very steady; in year 1 and year 2, A has a net business income of $10k

● B’s business income is more volatile; in year 1, B had a new business LOSS of $10K and in year 2, B had a net business income of $30K

● During the combined two-year operating period, both A and B had a net income of $20K, but they will not be treated the same.

	A	B
Year 1	$10,000	($10,000)
Year 2	$10,000	$30,000
Total	$20,000	$20,000

Section 172 → designed to ameliorate the different tax treatments

● A will pay tax on $10K in each of years 1 and 2

● B will pay no tax in year 1 but will also not be entitled to a return

● In year 2, B will pay tax on $30K

● UNDER §172 → B could carry his $10K “net operating loss” from year 1 over to year 2; by doing so, B’s year 2 taxable income would be reduced by $10K; by allowing a deduction on B’s year 2 income, equitable treatment is closer to achievable

§172(b) → carryover

● Taxpayers can carry forward net operating losses

● Under §172(a), any net operating loss deduction cannot exceed 80% of a TP’s taxable income

● TCJA removed carryback provisions

Loss Limitations

Other limitations on the deductibility of losses

● §465 → a TP’s losses from business and investment activities are limited to the amount the TP is “at risk” in such activities

○ If a TP invests $10K in an investment activity (like an ILP in a real estate LP), the TP can only claim up to $10K in losses from the activity

● §469 → Losses from “passive” activities can only be deducted to the extent of income from passive activities

● §1091 → with respect to sales of marketable securities, 1091 disallows losses from so called “wash sales”, where a TP sells shares of stock at a loss and then, within a short period following the sale, purchases shares in the same corporation in anticipation of an upturn in the stock price

Transactions with Related Persons

26 U.S. Code § 267 - Losses, expenses, and interest with respect to transactions between related taxpayers (a) In general (1) Deduction for losses disallowed. No deduction shall be allowed in respect of any loss from the sale or exchange of property, directly or indirectly, between persons specified in any of the paragraphs of subsection (b). The preceding sentence shall not apply to any loss of the distributing corporation (or the distributee) in the case of a distribution in complete liquidation. (2) Matching of deduction and payee income item in the case of expenses and interest. If— (A) by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not (unless paid) includible in the gross income of such person, and (B) at the close of the taxable year of the taxpayer for which (but for this paragraph) the amount would be deductible under this chapter, both the taxpayer and the person to whom the payment is to be made are persons specified in any of the paragraphs of subsection (b), then any deduction allowable under this chapter in respect of such amount shall be allowable as of the day as of which such amount is includible in the gross income of the person to whom the payment is made (or, if later, as of the day on which it would be so allowable but for this paragraph). For purposes of this paragraph, in the case of a personal service corporation (within the meaning of section 441(i)(2)), such corporation and any employee-owner (within the meaning of section 269A(b)(2), as modified by section 441(i)(2)) shall be treated as persons specified in subsection (b). (3) Payments to foreign persons (A) In general. The Secretary shall by regulations apply the matching principle of paragraph (2) in cases in which the person to whom the payment is to be made is not a United States person. (B) Special rule for certain foreign entities (i) In general. Notwithstanding subparagraph (A), in the case of any item payable to a controlled foreign corporation (as defined in section 957) or a passive foreign investment company (as defined in section 1297), a deduction shall be allowable to the payor with respect to such amount for any taxable year before the taxable year in which paid only to the extent that an amount attributable to such item is includible (determined without regard to properly allocable deductions and qualified deficits under section 952(c)(1)(B)) during such prior taxable year in the gross income of a United States person who owns (within the meaning of section 958(a)) stock in such corporation. (ii) Secretarial authority. The Secretary may by regulation exempt transactions from the application of clause (i), including any transaction which is entered into by a payor in the ordinary course of a trade or business in which the payor is predominantly engaged and in which the payment of the accrued amounts occurs within 8½ months after accrual or within such other period as the Secretary may prescribe. (b) Relationships. The persons referred to in subsection (a) are: (1) Members of a family, as defined in subsection (c)(4); (2) An individual and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual; (3) Two corporations which are members of the same controlled group (as defined in subsection (f)); (4) A grantor and a fiduciary of any trust; (5) A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts; (6) A fiduciary of a trust and a beneficiary of such trust; (7) A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts; (8) A fiduciary of a trust and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for the trust or by or for a person who is a grantor of the trust; (9) A person and an organization to which section 501 (relating to certain educational and charitable organizations which are exempt from tax) applies and which is controlled directly or indirectly by such person or (if such person is an individual) by members of the family of such individual; (10) A corporation and a partnership if the same persons own— (A) more than 50 percent in value of the outstanding stock of the corporation, and (B) more than 50 percent of the capital interest, or the profits interest, in the partnership; (11) An S corporation and another S corporation if the same persons own more than 50 percent in value of the outstanding stock of each corporation; (12) An S corporation and a C corporation, if the same persons own more than 50 percent in value of the outstanding stock of each corporation; or (13) Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate. (c) Constructive ownership of stock. For purposes of determining, in applying subsection (b), the ownership of stock— (1) Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries; (2) An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family; (3) An individual owning (otherwise than by the application of paragraph (2)) any stock in a corporation shall be considered as owning the stock owned, directly or indirectly, by or for his partner; (4) The family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and (5) Stock constructively owned by a person by reason of the application of paragraph (1) shall, for the purpose of applying paragraph (1), (2), or (3), be treated as actually owned by such person, but stock constructively owned by an individual by reason of the application of paragraph (2) or (3) shall not be treated as owned by him for the purpose of again applying either of such paragraphs in order to make another the constructive owner of such stock. (d) Amount of gain where loss previously disallowed (1) In general. If— (A) in the case of a sale or exchange of property to the taxpayer a loss sustained by the transferor is not allowable to the transferor as a deduction by reason of subsection (a)(1), and (B) the taxpayer sells or otherwise disposes of such property (or of other property the basis of which in the taxpayer’s hands is determined directly or indirectly by reference to such property) at a gain, then such gain shall be recognized only to the extent that it exceeds so much of such loss as is properly allocable to the property sold or otherwise disposed of by the taxpayer. (2) Exception for wash sales. Paragraph (1) shall not apply if the loss sustained by the transferor is not allowable to the transferor as a deduction by reason of section 1091 (relating to wash sales). (3) Exception for transfers from tax indifferent parties. Paragraph (1) shall not apply to the extent any loss sustained by the transferor (if allowed) would not be taken into account in determining a tax imposed under section 1 or 11 or a tax computed as provided by either of such sections. (e) Special rules for pass-thru entities (1) In general. In the case of any amount paid or incurred by, to, or on behalf of, a pass-thru entity, for purposes of applying subsection (a)(2)— (A) such entity, (B) in the case of— (i) a partnership, any person who owns (directly or indirectly) any capital interest or profits interest of such partnership, or (ii) an S corporation, any person who owns (directly or indirectly) any of the stock of such corporation, (C) any person who owns (directly or indirectly) any capital interest or profits interest of a partnership in which such entity owns (directly or indirectly) any capital interest or profits interest, and (D) any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to a person described in subparagraph (B) or (C), shall be treated as persons specified in a paragraph of subsection (b). Subparagraph (C) shall apply to a transaction only if such transaction is related either to the operations of the partnership described in such subparagraph or to an interest in such partnership. (2) Pass-thru entity. For purposes of this section, the term “pass-thru entity” means— (A) a partnership, and (B) an S corporation. (3) Constructive ownership in the case of partnerships. For purposes of determining ownership of a capital interest or profits interest of a partnership, the principles of subsection (c) shall apply, except that— (A) paragraph (3) of subsection (c) shall not apply, and (B) interests owned (directly or indirectly) by or for a C corporation shall be considered as owned by or for any shareholder only if such shareholder owns (directly or indirectly) 5 percent or more in value of the stock of such corporation. (4) Subsection (a)(2) not to apply to certain guaranteed payments of partnerships. In the case of any amount paid or incurred by a partnership, subsection (a)(2) shall not apply to the extent that section 707(c) applies to such amount. (5) Exception for certain expenses and interest of partnerships owning low-income housing (A) In general. This subsection shall not apply with respect to qualified expenses and interest paid or incurred by a partnership owning low-income housing to— (i) any qualified 5-percent or less partner of such partnership, or (ii) any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to any qualified 5-percent or less partner of such partnership. (B) Qualified 5-percent or less partner. For purposes of this paragraph, the term “qualified 5-percent or less partner” means any partner who has (directly or indirectly) an interest of 5 percent or less in the aggregate capital and profits interests of the partnership but only if— (i) such partner owned the low-income housing at all times during the 2-year period ending on the date such housing was transferred to the partnership, or (ii) such partnership acquired the low-income housing pursuant to a purchase, assignment, or other transfer from the Department of Housing and Urban Development or any State or local housing authority. For purposes of the preceding sentence, a partner shall be treated as holding any interest in the partnership which is held (directly or indirectly) by any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to such partner. (C) Qualified expenses and interest. For purpose of this paragraph, the term “qualified expenses and interest” means any expense or interest incurred by the partnership with respect to low-income housing held by the partnership but— (i) only if the amount of such expense or interest (as the case may be) is unconditionally required to be paid by the partnership not later than 10 years after the date such amount was incurred, and (ii) in the case of such interest, only if such interest is incurred at an annual rate not in excess of 12 percent. (D) Low-income housing. For purposes of this paragraph, the term “low-income housing” means— (i) any interest in property described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B), and (ii) any interest in a partnership owning such property. (6) Cross reference. For additional rules relating to partnerships, see section 707(b). (f) Controlled group defined; special rules applicable to controlled groups (1) Controlled group defined. For purposes of this section, the term “controlled group” has the meaning given to such term by section 1563(a), except that— (A) “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears in section 1563(a), and (B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. (2) Deferral (rather than denial) of loss from sale or exchange between membersIn the case of any loss from the sale or exchange of property which is between members of the same controlled group and to which subsection (a)(1) applies (determined without regard to this paragraph but with regard to paragraph (3))— (A) subsections (a)(1) and (d) shall not apply to such loss, but (B) such loss shall be deferred until the property is transferred outside such controlled group and there would be recognition of loss under consolidated return principles or until such other time as may be prescribed in regulations. (3) Loss deferral rules not to apply in certain cases (A) Transfer to DISC. For purposes of applying subsection (a)(1), the term “controlled group” shall not include a DISC. (B) Certain sales of inventory, Except to the extent provided in regulations prescribed by the Secretary, subsection (a)(1) shall not apply to the sale or exchange of property between members of the same controlled group (or persons described in subsection (b)(10)) if— (i) such property in the hands of the transferor is property described in section 1221(a)(1), (ii) such sale or exchange is in the ordinary course of the transferor’s trade or business, (iii) such property in the hands of the transferee is property described in section 1221(a)(1), and (iv) the transferee or the transferor is a foreigncorporation. (C) Certain foreign currency losses. To the extent provided in regulations, subsection (a)(1) shall not apply to any loss sustained by a member of a controlled group on the repayment of a loan made to another member of such group if such loan is payable in a foreign currency or is denominated in such a currency and such loss is attributable to a reduction in value of such foreign currency. (D) Redemptions by fund-of-funds regulated investment companies. Except to the extent provided in regulations prescribed by the Secretary, subsection (a)(1) shall not apply to any distribution in redemption of stock of a regulated investment company if— (i) such company issues only stock which is redeemable upon the demand of the stockholder, and (ii) such redemption is upon the demand of another regulated investment company. (4) Determination of relationship resulting in disallowance of loss, for purposes of other provisions. For purposes of any other section of this title which refers to a relationship which would result in a disallowance of losses under this section, deferral under paragraph (2) shall be treated as disallowance. (g) Coordination with section 1041. Subsection (a)(1) shall not apply to any transfer described in section 1041(a) (relating to transfers of property between spouses or incident to divorce).

Related party sales

● 267(a) prevents manipulation by disallowing any otherwise deductible loss if the loss results from the sale or exchange of property to a related person

● 267(b) spells out specific relationships that will trigger disallowance (in-laws are not related)

Limitation on the Deductibility of Capital Losses

26 U.S. Code § 1211 - Limitation on capital losses (a) Corporations. In the case of a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of gains from such sales or exchanges. (b) Other taxpayers. In the case of a taxpayer other than a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges, plus (if such losses exceed such gains) the lower of— (1) $3,000 ($1,500 in the case of a married individual filing a separate return), or (2) the excess of such losses over such gains.

Deducting Capital Losses: The $3,000 Bonus

● Capital loss → a loss arising from the sale or exchange of a capital asset

● If the capital asset was held by the TP for more than one year prior to the sale or exchange, the TP has a long-term capital loss.

● If the TP held the asset for one year or less, the TP has a short-term capital loss.

1211(b) → generally limits the deductibility of capital losses to the extent of capital gains; also contains a TP-friendly bonus, if capital losses exceed capital gains (statute: “net capital loss”), up to $3,000 of the excess can be deducted (i.e., up to $3,000 of net capital loss can be used to offset a TP’s ordinary income).

Carryover of Excess Capital Losses

26 U.S. Code § 1212 - Capital loss carrybacks and carryovers (a) Corporations (1) In general. If a corporation has a net capital loss for any taxable year (hereinafter in this paragraph referred to as the “loss year”), the amount thereof shall be— (A) a capital loss carryback to each of the 3 taxable years preceding the loss year, but only to the extent— (i) such loss is not attributable to a foreign expropriation capital loss, and (ii) the carryback of such loss does not increase or produce a net operating loss (as defined in section 172(c)) for the taxable year to which it is being carried back; (B) except as provided in subparagraph (C), a capital loss carryover to each of the 5 taxable years succeeding the loss year; and (C) a capital loss carryover to each of the 10 taxable years succeeding the loss year, but only to the extent such loss is attributable to a foreign expropriation loss, and shall be treated as a short-term capital loss in each such taxable year. The entire amount of the net capital loss for any taxable year shall be carried to the earliest of the taxable years to which such loss may be carried, and the portion of such loss which shall be carried to each of the other taxable years to which such loss may be carried shall be the excess, if any, of such loss over the total of the capital gain net income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the capital gain net income for any such prior taxable year shall be computed without regard to the net capital loss for the loss year or for any taxable year thereafter. In the case of any net capital loss which cannot be carried back in full to a preceding taxable year by reason of clause (ii) of subparagraph (A), the capital gain net income for such prior taxable year shall in no case be treated as greater than the amount of such loss which can be carried back to such preceding taxable year upon the application of such clause (ii). (2) Definitions and special rules (A) Foreign expropriation capital loss defined. For purposes of this subsection, the term “foreign expropriation capital loss” means, for any taxable year, the sum of the losses taken into account in computing the net capital loss for such year which are— (i) losses sustained directly by reason of the expropriation, intervention, seizure, or similar taking of property by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing, or (ii) losses (treated under section 165(g)(1) as losses from the sale or exchange of capital assets) from securities which become worthless by reason of the expropriation, intervention, seizure, or similar taking of property by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing. (B) Portion of loss attributable to foreign expropriation capital loss. For purposes of paragraph (1), the portion of any net capital loss for any taxable year attributable to a foreign expropriation capital loss is the amount of the foreign expropriation capital loss for such year (but not in excess of the net capital loss for such year). (C) Priority of application. For purposes of paragraph (1), if a portion of a net capital loss for any taxable year is attributable to a foreign expropriation capital loss, such portion shall be considered to be a separate net capital loss for such year to be applied after the other portion of such net capital loss. (3) Regulated investment companies (A) In general. If a regulated investment company has a net capital loss for any taxable year— (i) paragraph (1) shall not apply to such loss, (ii) the excess of the net short-term capital loss over the net long-term capital gain for such year shall be a short-term capital loss arising on the first day of the next taxable year, and (iii) the excess of the net long-term capital loss over the net short-term capital gain for such year shall be a long-term capital loss arising on the first day of the next taxable year. (B) Coordination with general rule. If a net capital loss to which paragraph (1) applies is carried over to a taxable year of a regulated investment company— (i) Losses to which this paragraph applies. Clauses (ii) and (iii) of subparagraph (A) shall be applied without regard to any amount treated as a short-term capital loss under paragraph (1). (ii) Losses to which general rule applies. Paragraph (1) shall be applied by substituting “net capital loss for the loss year or any taxable year thereafter (other than a net capital loss to which paragraph (3)(A) applies)” for “net capital loss for the loss year or any taxable year thereafter”. (4) Special rules on carrybacks. A net capital loss of a corporation shall not be carried back under paragraph (1)(A) to a taxable year— (A) for which it is a regulated investment company (as defined in section 851), or (B) for which it is a real estate investment trust (as defined in section 856). (b) Other taxpayers (1) In general. If a taxpayer other than a corporation has a net capital loss for any taxable year— (A) the excess of the net short-term capital loss over the net long-term capital gain for such year shall be a short-term capital loss in the succeeding taxable year, and (B) the excess of the net long-term capital loss over the net short-term capital gain for such year shall be a long-term capital loss in the succeeding taxable year. (2) Treatment of amounts allowed under section 1211(b)(1) or (2) (A) In general. For purposes of determining the excess referred to in subparagraph (A) or (B) of paragraph (1), there shall be treated as a short-term capital gain in the taxable year an amount equal to the lesser of— (i) the amount allowed for the taxable year under paragraph (1) or (2) of section 1211(b), or (ii) the adjusted taxable income for such taxable year. (B) Adjusted taxable income. For purposes of subparagraph (A), the term “adjusted taxable income” means taxable income increased by the sum of— (i) the amount allowed for the taxable year under paragraph (1) or (2) of section 1211(b), and (ii) the deduction allowed for such year under section 151 or any deduction in lieu thereof. For purposes of the preceding sentence, any excess of the deductions allowed for the taxable year over the gross income for such year shall be taken into account as negative taxable income. (c) Carryback of losses from section 1256 contracts to offset prior gains from such contracts (1) In general. If a taxpayer (other than a corporation) has a net section 1256 contracts loss for the taxable year and elects to have this subsection apply to such taxable year, the amount of such net section 1256 contracts loss— (A) shall be a carryback to each of the 3 taxable years preceding the loss year, and (B) to the extent that, after the application of paragraphs (2) and (3), such loss is allowed as a carryback to any such preceding taxable year— (i) 40 percent of the amount so allowed shall be treated as a short-term capital loss from section 1256 contracts, and (ii) 60 percent of the amount so allowed shall be treated as a long-term capital loss from section 1256 contracts. (2) Amount carried to each taxable year. The entire amount of the net section 1256 contracts loss for any taxable year shall be carried to the earliest of the taxable years to which such loss may be carried back under paragraph (1). The portion of such loss which shall be carried to each of the 2 other taxable years to which such loss may be carried back shall be the excess (if any) of such loss over the portion of such loss which, after the application of paragraph (3), was allowed as a carryback for any prior taxable year. (3) Amount which may be used in any prior taxable year. An amount shall be allowed as a carryback under paragraph (1) to any prior taxable year only to the extent— (A) such amount does not exceed the net section 1256 contract gain for such year, and (B) the allowance of such carryback does not increase or produce a net operating loss (as defined in section 172(c)) for such year. (4) Net section 1256 contracts loss. For purposes of paragraph (1), the term “net section 1256 contracts loss” means the lesser of— (A) the net capital loss for the taxable year determined by taking into account only gains and losses from section 1256 contracts, or (B) the sum of the amounts which, but for paragraph (6)(A), would be treated as capital losses in the succeeding taxable year under subparagraphs (A) and (B) of subsection (b)(1). (5) Net section 1256 contract gain. For purposes of paragraph (1)— (A) In general. The term “net section 1256 contract gain” means the lesser of— (i) the capital gain net income for the taxable year determined by taking into account only gains and losses from section 1256 contracts, or (ii) the capital gain net income for the taxable year. (B) Special rule. The net section 1256 contract gain for any taxable year before the loss year shall be computed without regard to the net section 1256 contracts loss for the loss year or for any taxable year thereafter. (6) Coordination with carryforward provisions of subsection (b)(1) (A) Carryforward amount reduced by amount used as carryback. For purposes of applying subsection (b)(1), if any portion of the net section 1256 contracts loss for any taxable year is allowed as a carryback under paragraph (1) to any preceding taxable year— (i) 40 percent of the amount allowed as a carryback shall be treated as a short-term capital gain for the loss year, and (ii) 60 percent of the amount allowed as a carryback shall be treated as a long-term capital gain for the loss year. (B) Carryover loss retains character as attributable to section 1256 contract. Any amount carried forward as a short-term or long-term capital loss to any taxable year under subsection (b)(1) (after the application of subparagraph (A)) shall, to the extent attributable to losses from section 1256 contracts, be treated as loss from section 1256 contracts for such taxable year. (7) Other definitions and special rules. For purposes of this subsection— (A)Section 1256 contract. The term “section 1256 contract” means any section 1256 contract (as defined in section 1256(b)) to which section 1256 applies. (B) Exclusion for estates and trusts. This subsection shall not apply to any estate or trust.

Carryover of Excess Capital Losses → under 1212(b)(1), if the TP’s net capital loss exceeds the $3,000 bonus amount, then the non-deductible portion carries over to the next taxable year.

EXAMPLE → For Year One, TP, an individual, recognized $5,000 in long-term capital gains and $3,000 in long-term capital losses; TP has no other capital gains or losses; the long-term capital losses are fully deductible and offset the long-term capital gains; TP has a “net capital gain” of $2,000 (which will be taxed at a preferential rate under 1(h).

TP also recognized $4,000 in short-term capital gains and $9,000 in short-term capital losses in Year One; the total capital losses in Year One ($12,000) exceed the total capital gains ($9,000) by $3,000. Under 1211(b), however, TP may deduct all of the capital losses in Year One because this excess does not exceed $3,000; the $12,000 deduction will offset all of TP’s capital gains ($9,000) and even $3,000 of ordinary income from Year One.

	Long-Term	Short-Term	TOTALS
Gains	$5,000	$4,000	$9,000
Losses	($3,000)	($9,000)	$12,000
Net	$2,000	($5,000)	($3,000)

If total capital losses exceeds total capital gains by more than $3,000, under 1211(b), TP can deduct $3,000 of this excess in Year One; the remaining $$ comproses TP’s “net capital loss” → under 1212(b), that net capital loss will carry over to Year Two; to determine the flavor of the carryover amount 1212(b)(2)(A) tells us to treat the $3,000 bonus as a short-term capital gain.

● In Year Two, the entire $$ carryover will be flavored as a short-term capital loss and TP can use that carryover amount to offset capital gains (and maybe up to $3,000 of ordinary income) recognized in Year Two.

Transactions in Property

Amount Realized (AR) - Adjusted Basis (AB) Realized Gain (RG)

Adjusted Basis (AB) - Amount Realized (AR) Realized Loss (RL)

The Impact of Debt Relief on Amount Realized

1001; 1012; 1014(a); 1016(a)

Recourse debt → one in which the lender has recourse against more than just property securing the loan; the borrower is personally on the hook for the money

Nonrecourse debt → debt where the lender can go after the collateral on the loan (usually property) but not the borrower individually.

Debt incurred is included in basis and any relief from that debt is included in amount realized.

For recourse debt…

EXAMPLE → A borrows $200 from the bank and uses $300 of her own funds to purchase a capital asset for $500 (agreed to recourse debt)

Borrowing $200 from the bank does not give rise to gross income for A, because A’s repayment obligation offsets any “accession to wealth” from receipt of the loan proceeds
Because A’s repayment obligation to Bank is part of her “cost” in acquiring the purchased asset, A’s basis in the asset is now $500.
IF A sells the purchased asset 13 months later to an unrelated buyer and the FMV is $900 →
STEP

ONE: GROSS INCOME

1. How much will the buyer pay for the asset? Since the asset still secures A’s repayment obligation, the buyer will not pay the full $900 to A; if A defaults, the Bank would foreclose on the asset and the buyer could lose $200 of the asset’s value to the bank; buyer will either assume the debt and pay the seller an amount of cash equal to the excess of the asset’s value over the amount of the debt, or the buyer will take the property subject to the seller’s liability and pay the seller an amount of cash equal to the seller’s equity
  1. Buyer here would pay $700 to A and either assume the liability to the Bank or take the property subject to the risk of A’s default
2. What is the amount realized by A? The amount of a recourse liability secured by transferred property is included in the seller’s amount realized; the liability has shifted to the buyer and is no longer the seller’s problem.
  1. A’s amount realized is $900 ($700 cash and $200 debt relief) no matter whether the buyer assumes the debt or takes the asset subject to the debt
3. What is the flavor of A’s gain? By disposing of the debt in the same transaction as the underlying capital asset, the gain allocable to the debt relief piggybacks onto the flavor of the transferred asset.
  1. With an amount realized of $900, A realizes a gain of $400 on the sale (amount realized of $900 less adjusted basis of $500); treated as a long-term capital gain since it was held for 13 months and will get preferential tax treatment under 1(h)
  2. The entire gain is eligible for the preferential tax treatment even though a portion is allocable to A’s debt relief, this is different than if the Bank forgave or cancelled the debt (treated as COD income and ordinary income under 1).

IF the amount of the debt is higher than the value of the asset → if the lender agrees not to pursue a claim against the seller for the difference, the lender effectively relieves the seller of the excess debt which would then be treated as COD income.

BUT for nonrecourse debt...

Crane v. Commissioner (1947) - SCOTUS

RULE: The amount realized in the disposition of property subject to an unassumed mortgage includes the amount of the mortgage.

Case Notes:

● A taxpayer’s gain from the disposition of property is calculated by subtracting the adjusted basis from the amount realized.

● The adjusted basis is found by adjusting the original basis for certain factors, such as depreciation; the amount realized is calculated by adding any money and property received.

● Where the taxpayer receives the property from a decedent’s estate, the original basis is the fair market value at the time of receipt.

● In order to ascertain the adjusted basis and amount realized for the property, it is first necessary to determine what the term “property” refers to.

○ First, the plain meaning of the term suggests that “property” refers to the physical thing that is owned.

○ Second, administrative regulations have used the term to refer to physical property.

○ Third, in other provisions of the Revenue Code, Congress clearly distinguishes between property and equity and there is no indication that Congress interchanges the two terms.

○ Finally, if property referred to equity, depreciation deductions based on equity would be miniscule; or, if depreciation deductions were based on the actual value of the property and deducted from an equity basis, negative deductions would result.

● Interpreting the term to mean equity would negate the purpose of allowing depreciation deductions in the first place.

● If property is based on equity, the taxpayer’s basis would change every time a mortgage payment is made, causing a great administrative burden on both the Commissioner and taxpayers.

● It makes no difference whether the taxpayer is personally liable for the mortgage or not. A taxpayer who sells property subject to a mortgage receives a benefit equal to the value of the mortgage.

● It is not unconstitutional to adjust TP’s cost basis by the amount of the depreciation deductions TP took on the property, in order to determine how much TP has gained from the sale.

Commissioner v. Tufts (1983) - SCOTUS

RULE: The amount realized in the disposition of property subject to a nonrecourse mortgage includes the entire amount of the mortgage regardless of whether the mortgage exceeds the fair market value of the property.

Case Notes:

● In Crane, this Court held that a taxpayer who sells property subject to a nonrecourse mortgage must include the unpaid balance of the mortgage in the amount realized.

● Generally, with a nonrecourse mortgage, the mortgager is not personally liable for the loan. The mortgage is secured by property, so that the mortgager is only liable up to the fair market value of the property.

● Upon sale of the property subject to a nonrecourse loan, the mortgager must calculate the amount realized.

● The amount realized includes the sum of money and property received, as well as any debts the mortgager is relieved of through the transaction.

● Though a taxpayer could technically only be relieved of liability equal in value to the fair market value of the property, the mortgager must include the entire amount of the unpaid mortgage in the amount realized. This is because the taxpayer receives certain benefits based on the assumption that the taxpayer is obligated to repay the entire nonrecourse mortgage.

● For instance, the taxpayer receives a nonrecourse mortgage tax-free, since it is money the taxpayer must eventually pay back. If, after receiving the mortgage tax-free, the taxpayer does not include the entire unpaid loan in the amount realized upon disposition of the property, he receives the amount in excess of the fair market value of the property tax-free.

● A taxpayer is allowed to include the entire amount of a nonrecourse loan in his cost basis of the property because he is expected to repay the entire loan. If he is not correspondingly required to include the entire unpaid loan in the amount realized, the taxpayer would receive an untaxed increase in basis.

● To prevent such incongruities, a taxpayer must include the entire unpaid amount of a nonrecourse mortgage in his amount realized, regardless of whether the mortgage exceeds the fair market value of the property.

Flavor

Capital Assets

1221(a); 1222; 1223

Capital Assets --

● Defined in 1221(a); “negative definition” - if not included in list, it IS a capital asset

● Overarching themes:

○ Assets that are held to produce ordinary income are generally not capital assets (this includes inventory and other property held for sale to customers, buildings and equipment used in a business activity, certain IP rights that generate royalties, and supplies consumed in the ordinary course of business)

○ Assets where gain results from the efforts of the TP and not from the mere passage of time are likely not capital assets (such as works of art, etc.)

Section 1221(a)(1) lists three assets that do not qualify as capital assets:

(1) Stock in trade; (raw materials used to manufacture or produce inventory property)

(2) Inventory property; and

(3) Property held primarily for sale to customers in the ordinary course of business

Byram v. United States (1983) - 5th Cir.

RULE: For federal tax purposes, property held primarily for sale to customers in the ordinary course of business is ordinary income rather than a capital asset.

Case Notes:

● Property held primarily for sale to customers in the ordinary course of a taxpayer’s business is not a capital asset, thus subjecting it to a higher rate of taxation as ordinary income.

● The issue of whether a taxpayer is holding property for sale to customers in the ordinary course of business is a factual issue of intent.

● Seven-factor test to determine that TP’s purpose for holding the realty was not primarily for sale to customers in the ordinary course of his business; “seven pillars of capital gains treatment”

(1) The nature and purpose of the acquisition of the property and the duration of the ownership;

(2) The extent and nature of the TP’s efforts to sell the property;

(3) The number, extent, continuity and substantiality of the sales; (IMPORTANT)

(4) The extent of subdividing, developing, and advertising to increase sales;

(5) The use of a business office for the sale of the property;

(6) The character and degree of supervision or control exercised by the TP over any representative selling the property; and

(7) The time and effort the TP habitually devoted to the sales.

● These factors are known as the Winthrop factors and are not all weighed the same

●

Winthrop Factors (1) The nature and purpose of the acquisition of the property and the duration of the ownership; (2) The extent and nature of the TP’s efforts to sell the property; (3) The number, extent, continuity and substantiality of the sales; (IMPORTANT) (4) The extent of subdividing, developing, and advertising to increase sales; (5) The use of a business office for the sale of the property; (6) The character and degree of supervision or control exercised by the TP over any representative selling the property; and (7) The time and effort the TP habitually devoted to the sales.

Futures contract→ a contract to buy a fixed amount of a commodity at a set price at some specific date in the future (e.g. a buyer promises to buy a seller’s corn at $10 per bushel in three months); the seller benefits because the seller knows the prices at which the product can be sold, and the buyer benefits because there is a fixed price for the manufacturing inputs and the buyer can plan accordingly. Many investors buy futures, not for the product, but for the bet on whether the price of the underlying commodity will rise or fall

● if the price of a commodity goes up, the long future is worth more because a person could purchase the product for less than the sales price agreed to in the contract

● if the price goes down, below the future price, the future is worthless because you can buy the product on the open market

Corn Products Refining Co. v. Commissioner (1955) - SCOTUS

RULE: For federal tax purposes, assets held by a business to hedge operating risks are not capital assets.

Case Notes:

● Assets bought and sold to hedge risks associated with an operating business are not capital assets under 26 U.S.C. § 1221.

● If a taxpayer’s ordinary business activities involve hedging what might otherwise be considered capital assets, such as real estate or securities, the taxpayer’s gains or losses from the sale of those assets constitute ordinary income or losses, not capital gains or losses.

● Investments, including investments in futures-commodity contracts, are capital assets.

● Corn Products does not create a common-law exception to the definition of capital asset but instead found that the futures were surrogates for inventory

● Definition of “capital asset” must be construed narrowly and its exceptions defined broadly

Arkansas Best → motivation of the customer is irrelevant; if it falls within the definition, the gain or sale will be capital

Section 1221(a)(7) → now specifically excludes from the definition of capital asset “hedging transactions” identified by the TP

Section 1221(a)(8) → excludes supplies regularly used by the TP in a trade or business.

Section 1237 → Safe harbor for those who own real property to retain investment status rather than being treated like a broker.

Holding Periods

26 U.S. Code § 1222 - Other terms relating to capital gains and losses For purposes of this subtitle— (1) Short-term capital gain. The term “short-term capital gain” means gain from the sale or exchange of a capital asset held for not more than 1 year, if and to the extent such gain is taken into account in computing gross income. (2) Short-term capital loss. The term “short-term capital loss” means loss from the sale or exchange of a capital asset held for not more than 1 year, if and to the extent that such loss is taken into account in computing taxable income. (3) Long-term capital gain. The term “long-term capital gain” means gain from the sale or exchange of a capital asset held for more than 1 year, if and to the extent such gain is taken into account in computing gross income. (4) Long-term capital loss. The term “long-term capital loss” means loss from the sale or exchange of a capital asset held for more than 1 year, if and to the extent that such loss is taken into account in computing taxable income. (5) Net short-term capital gain. The term “net short-term capital gain” means the excess of short-term capital gains for the taxable year over the short-term capital losses for such year. (6) Net short-term capital loss. The term “net short-term capital loss” means the excess of short-term capital losses for the taxable year over the short-term capital gains for such year. (7) Net long-term capital gain. The term “net long-term capital gain” means the excess of long-term capital gains for the taxable year over the long-term capital losses for such year. (8) Net long-term capital loss. The term “net long-term capital loss” means the excess of long-term capital losses for the taxable year over the long-term capital gains for such year. (9) Capital gain net income. The term “capital gain net income” means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges. (10) Net capital loss. The term “net capital loss” means the excess of the losses from sales or exchanges of capital assets over the sum allowed under section 1211. In the case of a corporation, for the purpose of determining losses under this paragraph, amounts which are short-term capital losses under section 1212(a)(1) shall be excluded. (11) Net capital gain. The term “net capital gain” means the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year.

Section 1222 → requires netting of “long-term” and “short-term” capital gains and losses; in certain situations, a TP may add the holding period of another owner or add the holding period from another asset. (TACKING RELEVANT FOR DETERMINING WHETHER THE 13 MONTH MINIMUM FOR LONG TERM HAS BEEN MET)

Section 1223 → lists various situations where “tacking” of holding periods is allowed; unless one of these situations is present, a TP’s holding period begins upon acquisition.

● For example, if a TP exchanges one capital asset for another in a transaction in which the taxpayer does not recognize gain or loss (a so-called “nonrecognition transaction” → NRT), the TP usually takes the new asset with a basis equal to the TP’s basis in the property surrendered (i.e. the gain or loss from the surrendered asset is preserved in the acquired asset”

● 1223(1) → the TP’s holding period in the surrendered asset also carries over to the acquired asset; if a TP exchanges an asset held for five years for another capital asset in a NRT, the newly acquired asset is deemed to have been held for five years (and immediate sale would produce long-term cap gain or loss).

26 U.S. Code § 1223 - Holding period of property For purposes of this subtitle— (1) In determining the period for which the taxpayer has held property received in an exchange, there shall be included the period for which he held the property exchanged if, under this chapter, the property has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as the property exchanged, and, in the case of such exchanges the property exchanged at the time of such exchange was a capital asset as defined in section 1221 or property described in section 1231. For purposes of this paragraph— (A) an involuntary conversion described in section 1033 shall be considered an exchange of the property converted for the property acquired, and (B) a distribution to which section 355 (or so much of section 356 as relates to section 355) applies shall be treated as an exchange. (2) In determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person, if under this chapter such property has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as it would have in the hands of such other person. (3) In determining the period for which the taxpayer has held stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the nondeductibility (under section 1091 relating to wash sales) of the loss from the sale or other disposition of substantially identical stock or securities, there shall be included the period for which he held the stock or securities the loss from the sale or other disposition of which was not deductible. (4) In determining the period for which the taxpayer has held stock or rights to acquire stock received on a distribution, if the basis of such stock or rights is determined under section 307, there shall (under regulations prescribed by the Secretary) be included the period for which he held the stock in the distributing corporation before the receipt of such stock or rights upon such distribution. (5) In determining the period for which the taxpayer has held stock or securities acquired from a corporation by the exercise of rights to acquire such stock or securities, there shall be included only the period beginning with the date on which the right to acquire was exercised. [(6) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(80)(C), Dec. 19, 2014, 128 Stat. 4049.] (7) In determining the period for which the taxpayer has held a commodity acquired in satisfaction of a commodity futures contract (other than a commodity futures contract to which section 1256 applies) there shall be included the period for which he held the commodity futures contract if such commodity futures contract was a capital asset in his hands. [(8) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(80)(C), Dec. 19, 2014, 128 Stat. 4049.] (9) In the case of a person acquiring property from a decedent or to whom property passed from a decedent (within the meaning of section 1014(b)), if— (A) the basis of such property in the hands of such person is determined under section 1014, and (B) such property is sold or otherwise disposed of by such person within 1 year after the decedent’s death, then such person shall be considered to have held such property for more than 1 year. (10) If— (A) property is acquired by any person in a transfer to which section 1040 applies, (B) such property is sold or otherwise disposed of by such person within 1 year after the decedent’s death, and (C) such sale or disposition is to a person who is a qualified heir (as defined in section 2032A(e)(1)) with respect to the decedent, then the person making such sale or other disposition shall be considered to have held such property for more than 1 year. (11) In determining the period for which the taxpayer has held qualified replacement property (within the meaning of section 1042(b)) the acquisition of which resulted under section 1042 in the nonrecognition of any part of the gain realized on the sale of qualified securities (within the meaning of section 1042(b)), there shall be included the period for which such qualified securities had been held by the taxpayer. (12) In determining the period for which the taxpayer has held property the acquisition of which resulted under section 1043 in the nonrecognition of any part of the gain realized on the sale of other property, there shall be included the period for which such other property had been held as of the date of such sale. (13) Except for purposes of sections 1202(a)(2), 1202(c)(2)(A), 1400B(b), and 1400F(b), in determining the period for which the taxpayer has held property the acquisition of which resulted under section 1045 or 1397B in the nonrecognition of any part of the gain realized on the sale of other property, there shall be included the period for which such other property has been held as of the date of such sale. (14) If the security to which a securities futures contract (as defined in section 1234B) relates (other than a contract to which section 1256 applies) is acquired in satisfaction of such contract, in determining the period for which the taxpayer has held such security, there shall be included the period for which the taxpayer held such contract if such contract was a capital asset in the hands of the taxpayer. (15) Cross reference.— For special holding period provision relating to certain partnership distributions, see section 735(b).

The Sale or Exchange Requirement

1222

Section 1222 → states that a capital gain or capital loss arises only upon the “sale or exchange” of a capital asset

● If a TP disposes of a capital asset in a transaction not properly characterized as a sale or exchange, any resulting fain would be ordinary income (BAD) any any realized loss would be ordinary loss (OK, GOOD).

● The requirement must be narrower than the requirement of a “sale or disposition of property” under 1001(a) (the provision providing the basic formula for computing realized gains and losses)

● There are ways to dispose of property other than by sale or exchange (abandonment, forfeiture, etc.)

● There are no overt rationale for limiting capital gain or loss characterization only to property dispositions that constitute a sale or exchange.

Depreciation Recapture

26 U.S. Code § 1245 - Gain from dispositions of certain depreciable property (a) General rule (1) Ordinary income. Except as otherwise provided in this section, if section 1245 property is disposed of the amount by which the lower of— (A) the recomputed basis of the property, or (B) (i) in the case of a sale, exchange, or involuntary conversion, the amount realized, or (ii) in the case of any other disposition, the fair market value of such property, exceeds the adjusted basis of such property shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. (2) Recomputed basis. For purposes of this section— (A) In general. The term “recomputed basis” means, with respect to any property, its adjusted basis recomputed by adding thereto all adjustments reflected in such adjusted basis on account of deductions (whether in respect of the same or other property) allowed or allowable to the taxpayer or to any other person for depreciation or amortization. (B) Taxpayer may establish amount allowed. For purposes of subparagraph (A), if the taxpayer can establish by adequate records or other sufficient evidence that the amount allowed for depreciation or amortization for any period was less than the amount allowable, the amount added for such period shall be the amount allowed. (C) Certain deductions treated as amortization. Any deduction allowable under section 179, 179B, 179C, 179D, 179E, 181, 190, 193, or 194 shall be treated as if it were a deduction allowable for amortization. (3) Section 1245 property. For purposes of this section, the term “section 1245 property” means any property which is or has been property of a character subject to the allowance for depreciation provided in section 167 and is either— (A) personal property, (B) other property (not including a building or its structural components) but only if such other property is tangible and has an adjusted basis in which there are reflected adjustments described in paragraph (2) for a period in which such property (or other property)— (i) was used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, (ii) constituted a research facility used in connection with any of the activities referred to in clause (i), or (iii) constituted a facility used in connection with any of the activities referred to in clause (i) for the bulk storage of fungible commodities (including commodities in a liquid or gaseous state), (C) so much of any real property (other than any property described in subparagraph (B)) which has an adjusted basis in which there are reflected adjustments for amortization under section 169, 179, 179B, 179C, 179D, 179E, 185,[1] 188 (as in effect before its repeal by the Revenue Reconciliation Act of 1990), 190, 193, or 194,[2] (D) a single purpose agricultural or horticultural structure (as defined in section 168(i)(13)), (E) a storage facility (not including a building or its structural components) used in connection with the distribution of petroleum or any primary product of petroleum, or (F) any railroad grading or tunnel bore (as defined in section 168(e)(4)). (b) Exceptions and limitations (1) Gifts. Subsection (a) shall not apply to a disposition by gift. (2) Transfers at death. Except as provided in section 691 (relating to income in respect of a decedent), subsection (a) shall not apply to a transfer at death. (3) Certain tax-free transactions. If the basis of property in the hands of a transferee is determined by reference to its basis in the hands of the transferor by reason of the application of section 332, 351, 361, 721, or 731, then the amount of gain taken into account by the transferor under subsection (a)(1) shall not exceed the amount of gain recognized to the transferor on the transfer of such property (determined without regard to this section). Except as provided in paragraph (6), this paragraph shall not apply to a disposition to an organization (other than a cooperative described in section 521) which is exempt from the tax imposed by this chapter. (4) Like kind exchanges; involuntary conversions, etc.If property is disposed of and gain (determined without regard to this section) is not recognized in whole or in part under section 1031 or 1033, then the amount of gain taken into account by the transferor under subsection (a)(1) shall not exceed the sum of— (A) the amount of gain recognized on such disposition (determined without regard to this section), plus (B) the fair market value of property acquired which is not section 1245 property and which is not taken into account under subparagraph (A). (5) Property distributed by a partnership to a partner (A) In general. For purposes of this section, the basis of section 1245 property distributed by a partnership to a partner shall be deemed to be determined by reference to the adjusted basis of such property to the partnership. (B) Adjustments added back. In the case of any property described in subparagraph (A), for purposes of computing the recomputed basis of such property the amount of the adjustments added back for periods before the distribution by the partnership shall be— (i) the amount of the gain to which subsection (a) would have applied if such property had been sold by the partnership immediately before the distribution at its fair market value at such time, reduced by (ii) the amount of such gain to which section 751(b) applied. (6) Transfers to tax-exempt organization where property will be used in unrelated business (A) In general. The second sentence of paragraph (3) shall not apply to a disposition of section 1245 property to an organization described in section 511(a)(2) or 511(b)(2) if, immediately after such disposition, such organization uses such property in an unrelated trade or business (as defined in section 513). (B) Later change in use. If any property with respect to the disposition of which gain is not recognized by reason of subparagraph (A) ceases to be used in an unrelated trade or business of the organization acquiring such property, such organization shall be treated for purposes of this section as having disposed of such property on the date of such cessation. (7) Timber property. In determining, under subsection (a)(2), the recomputed basis of property with respect to which a deduction under section 194 was allowed for any taxable year, the taxpayer shall not take into account adjustments under section 194 to the extent such adjustments are attributable to the amortizable basis of the taxpayer acquired before the 10th taxable year preceding the taxable year in which gain with respect to the property is recognized. (8) Disposition of amortizable section 197 intangibles (A) In general. If a taxpayer disposes of more than 1 amortizable section 197 intangible (as defined in section 197(c)) in a transaction or a series of related transactions, all such amortizable 197 intangibles shall be treated as 1 section 1245 property for purposes of this section. (B) Exception. Subparagraph (A) shall not apply to any amortizable section 197 intangible (as so defined) with respect to which the adjusted basis exceeds the fair market value. (c) Adjustments to basis. The Secretary shall prescribe such regulations as he may deem necessary to provide for adjustments to the basis of property to reflect gain recognized under subsection (a). (d) Application of section. This section shall apply notwithstanding any other provision of this subtitle.

Section 1245 → error-correcting device

● When a TP takes a depreciation on property, the TP’s basis is reduced by the amount of the depreciation

● If the TP later sells that asset for more than the basis, at least some of that gain is, by definition, due to the previously taken depreciation

● The TP took more depreciation than economic depreciation would have allowed so now they must pay tax on the difference

● Applies to machines, equipment, and vehicles

FIRST calculate your realized gain

THEN calculate your recapture amount (amount realized - recomputed basis)

RESULTING NUMBER tells you how much is allowed to be treated as capital gain (rather than ordinary income)

Recomputed basis amount → take current actual basis and add it to any depreciation deductions you have received.

If RESULTING NUMBER is a negative/loss (below zero) → all of your gain will be ordinary income

Recapture only comes into play when you have a gain, it does not apply where there is a loss (if the realized gain/first calculation comes up as a loss, don’t even move on to recapture amount)

EXAMPLE → A acquires depreciable equipment for use in their business at a cost of $100,000, makes no 179 election, and properly plans to claim straight-line depreciation deductions of $10,000 each year for 10 years; after 3 years of depreciation deductions, and ignoring the half-year convention, the TP’s basis in the equipment is $70,000.

If TP sells the equipment to an unrelated buyer for $80,000 cash, TP realizes and recognizes $10,000 of gain (but what is the flavor?)

● Under 1221(a)(2) → not a capital asset

● BUT because TP held the equipment for more than a year, the gain is properly treated as a 1231 gain

● That means there is a chance the gain could be treated as long-term capital gain under 1231(a)(1)

BUT the $10,000 gain is entirely due to the fact that TP received a $10,000 deduction that offset ordinary income; to the extent the depreciation deduction was used to offset ordinary income, fairness dictates that gain attributable solely to depreciation should be treated as ordinary income and not long-term capital gain.

In this example, 1245 would recharacterize the flavor of the gain as ordinary income

● Under 1245(a)(1) → gain attributable to depreciation deductions (and not economic appreciation) must be taxed as ordinary income

● This recharacterization of the gain is known as “depreciation recapture” → it is triggered by the need to account for the fact that prior depreciation deductions offset ordinary income

Depreciation recapture and 1245

● Under 1245 is limited to “section 1245” property (defined in 1245(a)(3)).

● 1245(a)(3)(A) encompasses all depreciable personal property

● In order to determine the portion of a realized gain that is attributable to prior depreciation deductions, the statute creates a device called recomputed basis.

Recomputed Basis → calculated by adding to the adjusted basis all deductions allowed or allowable to the taxpayer or to any other person for depreciation or amortization

→ the recomputed basis is then compared to the amount realized (in the event of a sale, exchange, or involuntary conversion of the property) or the fair market value of the property (in the case of any other disposition)

The smaller number is then applied against the taxpayer’s adjusted basis to determine the recapture amount, the portion of the gain that must be treated as ordinary income.

More 1245 rules →

● 1245 does not apply where the taxpayer has a realized loss

● 1245 requires the recognition of ordinary income even where the transaction would not otherwise be taxable

Depreciation Recapture for Real Property: Section 1250

Review:

● TPs can depreciate the cost of real property used in a trade or business activity or held for investment

● While the underlying land is not depreciable, structures on the land are subject to “exhaustion” or “wear and tear” and thus qualify for depreciation deductions

● The depreciation deductions offset ordinary income and reduce the taxpayer’s basis in the subject property

● When the taxpayer sells the real property, at least some portion of any resulting gain will be attributable to the prior depreciation deductions

● FAIRNESS dictates that the portion of the realized gain attributable to prior depreciation deductions should be treated as ordinary income

● Although real property used in a trade or business activity is not a capital asset under 1221(a)(2), gain from the sale of such property qualifies as 1231 gain if the taxpayer has held the property for more than one year under 1231(b)

● If the taxpayer’s section 1231 gains exceed the taxpayer’s 1231 losses for the taxable year, the gains and losses are treated as long-term capital gains and losses, meaning any net gain will qualify for preferential tax treatment pursuant to 1231(a)(1).

If the subject real property is held as investment property, it is a capital asset to begin with and the resulting gain is automatically eligible for preferential tax rates if the subject property was held for more than a year, even though the property was depreciable in the hands of the taxpayer.

To permit preferential tax treatment to a gain caused only by the taxpayer’s taking depreciation deductions to offset ordinary income is an unjustified double benefit → 1245 recapture does not apply to most depreciable real property like buildings and their permanent fixtures, SO…

1250

26 U.S. Code § 1250 - Gain from dispositions of certain depreciable realty (a) General rule. Except as otherwise provided in this section— (1) Additional depreciation after December 31, 1975 (A) In general. If section 1250 property is disposed of after December 31, 1975, then the applicable percentage of the lower of— (i) that portion of the additional depreciation (as defined in subsection (b)(1) or (4)) attributable to periods after December 31, 1975, in respect of the property, or (ii) the excess of the amount realized (in the case of a sale, exchange, or involuntary conversion), or the fair market value of such property (in the case of any other disposition), over the adjusted basis of such property, shall be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. (B) Applicable percentage. For purposes of subparagraph (A), the term “applicable percentage” means— (i) in the case of section 1250 property with respect to which a mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of State or local laws and with respect to which the owner is subject to the restrictions described in section 1039(b)(1)(B) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; (ii) in the case of dwelling units which, on the average, were held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of State or local law authorizing similar levels of subsidy for lower-income families, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; (iii) in the case of section 1250 property with respect to which a depreciation deduction for rehabilitation expenditures was allowed under section 167(k), 100 percent minus 1 percentage point for each full month in excess of 100 full months after the date on which such property was placed in service; (iv) in the case of section 1250 property with respect to which a loan is made or insured under title V of the Housing Act of 1949, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; and (v) in the case of all other section 1250 property, 100 percent. In the case of a building (or a portion of a building devoted to dwelling units), if, on the average, 85 percent or more of the dwelling units contained in such building (or portion thereof) are units described in clause (ii), such building (or portion thereof) shall be treated as property described in clause (ii). Clauses (i), (ii), and (iv) shall not apply with respect to the additional depreciation described in subsection (b)(4) which was allowed under section 167(k). (2) Additional depreciation after December 31, 1969, and before January 1, 1976 (A) In general. If section 1250 property is disposed of after December 31, 1969, and the amount determined under paragraph (1)(A)(ii) exceeds the amount determined under paragraph (1)(A)(i), then the applicable percentage of the lower of— (i) that portion of the additional depreciation attributable to periods after December 31, 1969, and before January 1, 1976, in respect of the property, or (ii) the excess of the amount determined under paragraph (1)(A)(ii) over the amount determined under paragraph (1)(A)(i), shall also be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. (B) Applicable percentage. For purposes of subparagraph (A), the term “applicable percentage” means— (i) in the case of section 1250 property disposed of pursuant to a written contract which was, on July 24, 1969, and at all times thereafter, binding on the owner of the property, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 20 full months; (ii) in the case of section 1250 property with respect to which a mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of State or local laws, and with respect to which the owner is subject to the restrictions described in section 1039(b)(1)(B) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 20 full months; (iii) in the case of residential rental property (as defined in section 167(j)(2)(B)) other than that covered by clauses (i) and (ii), 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; (iv) in the case of section 1250 property with respect to which a depreciation deduction for rehabilitation expenditures was allowed under section 167(k), 100 percent minus 1 percentage point for each full month in excess of 100 full months after the date on which such property was placed in service; and (v) in the case of all other section 1250 property, 100 percent. Clauses (i), (ii), and (iii) shall not apply with respect to the additional depreciation described in subsection (b)(4). (3) Additional depreciation before January 1, 1970 (A) In general. If section 1250 property is disposed of after December 31, 1963, and the amount determined under paragraph (1)(A)(ii) exceeds the sum of the amounts determined under paragraphs (1)(A)(i) and (2)(A)(i), then the applicable percentage of the lower of— (i) that portion of the additional depreciation attributable to periods before January 1, 1970, in respect of the property, or (ii) the excess of the amount determined under paragraph (1)(A)(ii) over the sum of the amounts determined under paragraphs (1)(A)(i) and (2)(A)(i), shall also be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. (B) Applicable percentage. For purposes of subparagraph (A), the term “applicable percentage” means 100 percent minus 1 percentage point for each full month the property was held after the date on which the property was held for 20 full months. (4) Special rule. For purposes of this subsection, any reference to section 167(k) or 167(j)(2)(B) shall be treated as a reference to such section as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990. (5) Cross reference. For reduction in the case of corporations on capital gain treatment under this section, see section 291(a)(1). (b) Additional depreciation defined. For purposes of this section— (1) In general. The term “additional depreciation” means, in the case of any property, the depreciation adjustments in respect of such property; except that, in the case of property held more than one year, it means such adjustments only to the extent that they exceed the amount of the depreciation adjustments which would have resulted if such adjustments had been determined for each taxable year under the straight line method of adjustment. (2) Property held by lessee. In the case of a lessee, in determining the depreciation adjustments which would have resulted in respect of any building erected (or other improvement made) on the leased property, or in respect of any cost of acquiring the lease, the lease period shall be treated as including all renewal periods. For purposes of the preceding sentence— (A) the term “renewal period” means any period for which the lease may be renewed, extended, or continued pursuant to an option exercisable by the lessee, but (B) the inclusion of renewal periods shall not extend the period taken into account by more than ⅔ of the period on the basis of which the depreciation adjustments were allowed. (3) Depreciation adjustments. The term “depreciation adjustments” means, in respect of any property, all adjustments attributable to periods after December 31, 1963, reflected in the adjusted basis of such property on account of deductions (whether in respect of the same or other property) allowed or allowable to the taxpayer or to any other person for exhaustion, wear and tear, obsolescence, or amortization (other than amortization under section 168 (as in effect before its repeal by the Tax Reform Act of 1976), 169, 185 (as in effect before its repeal by the Tax Reform Act of 1986), 188 (as in effect before its repeal by the Revenue Reconciliation Act of 1990), 190, or 193). For purposes of the preceding sentence, if the taxpayer can establish by adequate records or other sufficient evidence that the amount allowed as a deduction for any period was less than the amount allowable, the amount taken into account for such period shall be the amount allowed. (4) Additional depreciation attributable to rehabilitation expenditures. The term “additional depreciation” also means, in the case of section 1250 property with respect to which a depreciation or amortization deduction for rehabilitation expenditures was allowed under section 167(k) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) or 191 (as in effect before its repeal by the Economic Recovery Tax Act of 1981), the depreciation or amortization adjustments allowed under such section to the extent attributable to such property, except that, in the case of such property held for more than one year after the rehabilitation expenditures so allowed were incurred, it means such adjustments only to the extent that they exceed the amount of the depreciation adjustments which would have resulted if such adjustments had been determined under the straight line method of adjustment without regard to the useful life permitted under section 167(k) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) or 191 (as in effect before its repeal by the Economic Recovery Tax Act of 1981). (5) Method of computing straight line adjustments. For purposes of paragraph (1), the depreciation adjustments which would have resulted for any taxable year under the straight line method shall be determined— (A) in the case of property to which section 168 applies, by determining the adjustments which would have resulted for such year if the taxpayer had elected the straight line method for such year using the recovery period applicable to such property, and (B) in the case any property to which section 168 does not apply, if a useful life (or salvage value) was used in determining the amount allowable as a deduction for any taxable year, by using such life (or value). (c) Section 1250 property. For purposes of this section, the term “section 1250 property” means any real property (other than section 1245 property, as defined in section 1245(a)(3)) which is or has been property of a character subject to the allowance for depreciation provided in section 167. (d) Exceptions and limitations (1) Gifts. Subsection (a) shall not apply to a disposition by gift. (2) Transfers at death. Except as provided in section 691 (relating to income in respect of a decedent), subsection (a) shall not apply to a transfer at death. (3) Certain tax-free transactions. If the basis of property in the hands of a transferee is determined by reference to its basis in the hands of the transferor by reason of the application of section 332, 351, 361, 721, or 731, then the amount of gain taken into account by the transferor under subsection (a) shall not exceed the amount of gain recognized to the transferor on the transfer of such property (determined without regard to this section). Except as provided in paragraph (9), this paragraph shall not apply to a disposition to an organization (other than a cooperative described in section 521) which is exempt from the tax imposed by this chapter. (4) Like kind exchanges; involuntary conversions, etc. (A) Recognition limit. If property is disposed of and gain (determined without regard to this section) is not recognized in whole or in part under section 1031 or 1033, then the amount of gain taken into account by the transferor under subsection (a) shall not exceed the greater of the following: (i) the amount of gain recognized on the disposition (determined without regard to this section), increased as provided in subparagraph (B), or (ii) the amount determined under subparagraph (C). (B) Increase for certain stock. With respect to any transaction, the increase provided by this subparagraph is the amount equal to the fair market value of any stock purchased in a corporation which (but for this paragraph) would result in nonrecognition of gain under section 1033(a)(2)(A). (C) Adjustment where insufficient section 1250 property is acquired. With respect to any transaction, the amount determined under this subparagraph shall be the excess of— (i) the amount of gain which would (but for this paragraph) be taken into account under subsection (a), over (ii) the fair market value (or cost in the case of a transaction described in section 1033(a)(2)) of the section 1250 property acquired in the transaction. (D) Basis of property acquired. In the case of property purchased by the taxpayer in a transaction described in section 1033(a)(2), in applying section 1033(b)(2), such sentence [1] shall be applied— (i) first solely to section 1250 properties and to the amount of gain not taken into account under subsection (a) by reason of this paragraph, and (ii) then to all purchased properties to which such sentence applies and to the remaining gain not recognized on the transaction as if the cost of the section 1250 properties were the basis of such properties computed under clause (i). In the case of property acquired in any other transaction to which this paragraph applies, rules consistent with the preceding sentence shall be applied under regulations prescribed by the Secretary. (E) Additional depreciation with respect to property disposed of. In the case of any transaction described in section 1031 or 1033, the additional depreciation in respect of the section 1250 property acquired which is attributable to the section 1250 property disposed of shall be an amount equal to the amount of the gain which was not taken into account under subsection (a) by reason of the application of this paragraph. (5) Property distributed by a partnership to a partner (A) In general. For purposes of this section, the basis of section 1250 property distributed by a partnership to a partner shall be deemed to be determined by reference to the adjusted basis of such property to the partnership. (B) Additional depreciation. In respect of any property described in subparagraph (A), the additional depreciation attributable to periods before the distribution by the partnership shall be— (i) the amount of the gain to which subsection (a) would have applied if such property had been sold by the partnership immediately before the distribution at its fair market value at such time and the applicable percentage for the property had been 100 percent, reduced by (ii) if section 751(b) applied to any part of such gain, the amount of such gain to which section 751(b) would have applied if the applicable percentage for the property had been 100 percent. (6) Transfers to tax-exempt organization where property will be used in unrelated business (A) In general. The second sentence of paragraph (3) shall not apply to a disposition of section 1250 property to an organization described in section 511(a)(2) or 511(b)(2) if, immediately after such disposition, such organization uses such property in an unrelated trade or business (as defined in section 513). (B) Later change in use. If any property with respect to the disposition of which gain is not recognized by reason of subparagraph (A) ceases to be used in an unrelated trade or business of the organization acquiring such property, such organization shall be treated for purposes of this section as having disposed of such property on the date of such cessation. (7) Foreclosure dispositions. If any section 1250 property is disposed of by the taxpayer pursuant to a bid for such property at foreclosure or by operation of an agreement or of process of law after there was a default on indebtedness which such property secured, the applicable percentage referred to in paragraph (1)(B), (2)(B), or (3)(B) of subsection (a), as the case may be, shall be determined as if the taxpayer ceased to hold such property on the date of the beginning of the proceedings pursuant to which the disposition occurred, or, in the event there are no proceedings, such percentage shall be determined as if the taxpayer ceased to hold such property on the date, determined under regulations prescribed by the Secretary, on which such operation of an agreement or process of law, pursuant to which the disposition occurred, began. (e) Holding period. For purposes of determining the applicable percentage under this section, the provisions of section 1223 shall not apply, and the holding period of section 1250 property shall be determined under the following rules: (1) Beginning of holding period. The holding period of section 1250 property shall be deemed to begin— (A) in the case of property acquired by the taxpayer, on the day after the date of acquisition, or (B) in the case of property constructed, reconstructed, or erected by the taxpayer, on the first day of the month during which the property is placed in service. (2) Property with transferred basis. If the basis of property acquired in a transaction described in paragraph (1), (2), or (3) of subsection (d) is determined by reference to its basis in the hands of the transferor, then the holding period of the property in the hands of the transferee shall include the holding period of the property in the hands of the transferor. (f) Special rules for property which is substantially improved (1) Amount treated as ordinary income. If, in the case of a disposition of section 1250 property, the property is treated as consisting of more than one element by reason of paragraph (3), then the amount taken into account under subsection (a) in respect of such section 1250 property as ordinary income shall be the sum of the amounts determined under paragraph (2). (2) Ordinary income attributable to an element. For purposes of paragraph (1), the amount taken into account for any element shall be the sum of a series of amounts determined for the periods set forth in subsection (a), with the amount for any such period being determined by multiplying— (A) the amount which bears the same ratio to the lower of the amounts specified in clause (i) or (ii) of subsection (a)(1)(A), in clause (i) or (ii) of subsection (a)(2)(A), or in clause (i) or (ii) of subsection (a)(3)(A), as the case may be, for the section 1250 property as the additional depreciation for such element attributable to such period bears to the sum of the additional depreciation for all elements attributable to such period, by (B) the applicable percentage for such element for such period. For purposes of this paragraph, determinations with respect to any element shall be made as if it were a separate property. (3) Property consisting of more than one element. In applying this subsection in the case of any section 1250 property, there shall be treated as a separate element— (A) each separate improvement, (B) if, before completion of section 1250 property, units thereof (as distinguished from improvements) were placed in service, each such unit of section 1250 property, and (C) the remaining property which is not taken into account under subparagraphs (A) and (B). (4) Property which is substantially improved. For purposes of this subsection— (A) In general. The term “separate improvement” means each improvement added during the 36–month period ending on the last day of any taxable year to the capital account for the property, but only if the sum of the amounts added to such account during such period exceeds the greatest of— (i) 25 percent of the adjusted basis of the property, (ii) 10 percent of the adjusted basis of the property, determined without regard to the adjustments provided in paragraphs (2) and (3) of section 1016(a), or (iii) $5,000. For purposes of clauses (i) and (ii), the adjusted basis of the property shall be determined as of the beginning of the first day of such 36–month period, or of the holding period of the property (within the meaning of subsection (e)), whichever is the later. (B) Exception. Improvements in any taxable year shall be taken into account for purposes of subparagraph (A) only if the sum of the amounts added to the capital account for the property for such taxable year exceeds the greater of— (i) $2,000, or (ii) one percent of the adjusted basis referred to in subparagraph (A)(ii), determined, however, as of the beginning of such taxable year. For purposes of this section, if the amount added to the capital account for any separate improvement does not exceed the greater of clause (i) or (ii), such improvement shall be treated as placed in service on the first day, of a calendar month, which is closest to the middle of the taxable year. (C) Improvement. The term “improvement” means, in the case of any section 1250 property, any addition to capital account for such property after the initial acquisition or after completion of the property. (g) Adjustments to basis. The Secretary shall prescribe such regulations as he may deem necessary to provide for adjustments to the basis of property to reflect gain recognized under subsection (a). (h) Application of section. This section shall apply notwithstanding any other provision of this subtitle.

Section 1250 → appears to provide a recapture mechanism (but it does not)

● 1250(a)(1)(A) → In order to trigger a 1250 recapture, TP must have taken “additional depreciation” on depreciable real property

● 1250(b)(1) → Additional depreciation → generally defined as the excess of the amount of accelerated depreciation deductions allowed to the taxpayer over the amount that would have been allowed had the property been depreciated using the straight-line method

● BUT pursuant to 168(b)(3), TPs with depreciable real property are required to use the straight-line method

1250 is no longer effective to provide recapture for depreciable real property sold at a gain, but an indirect form of recapture sits in 1(h)(1)(D):

26 U.S. Code § 1 - Tax imposed (h) Maximum capital gains rate (1) In general. If a taxpayer has a net capital gain for any taxable year, the tax imposed by this section for such taxable year shall not exceed the sum of— (A) a tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of— (i) taxable income reduced by the net capital gain; or (ii) the lesser of— (I) the amount of taxable income taxed at a rate below 25 percent; or (II) taxable income reduced by the adjusted net capital gain; (B) 0 percent of so much of the adjusted net capital gain (or, if less, taxable income) as does not exceed the excess (if any) of— (i) the amount of taxable income which would (without regard to this paragraph) be taxed at a rate below 25 percent, over (ii) the taxable income reduced by the adjusted net capital gain; (C) 15 percent of the lesser of— (i) so much of the adjusted net capital gain (or, if less, taxable income) as exceeds the amount on which a tax is determined under subparagraph (B), or (ii) the excess of— (I) the amount of taxable income which would (without regard to this paragraph) be taxed at a rate below 39.6 percent, over (II) the sum of the amounts on which a tax is determined under subparagraphs (A) and (B), (D) 20 percent of the adjusted net capital gain (or, if less, taxable income) in excess of the sum of the amounts on which tax is determined under subparagraphs (B) and (C), (E) 25 percent of the excess (if any) of— (i) the unrecaptured section 1250 gain (or, if less, the net capital gain (determined without regard to paragraph (11))), over (ii) the excess (if any) of— (I) the sum of the amount on which tax is determined under subparagraph (A) plus the net capital gain, over (II) taxable income; and (F) 28 percent of the amount of taxable income in excess of the sum of the amounts on which tax is determined under the preceding subparagraphs of this paragraph. (2) Net capital gain taken into account as investment income For purposes of this subsection, the net capital gain for any taxable year shall be reduced (but not below zero) by the amount which the taxpayer takes into account as investment income under section 163(d)(4)(B)(iii). (3) Adjusted net capital gain. For purposes of this subsection, the term “adjusted net capital gain” means the sum of— (A) net capital gain (determined without regard to paragraph (11)) reduced (but not below zero) by the sum of— (i) unrecaptured section 1250 gain, and (ii) 28-percent rate gain, plus (B) qualified dividend income (as defined in paragraph (11)). (4) 28-percent rate gain. For purposes of this subsection, the term “28-percent rate gain” means the excess (if any) of— (A) the sum of— (i) collectibles gain; and (ii) section 1202 gain, over (B) the sum of— (i) collectibles loss; (ii) the net short-term capital loss; and (iii) the amount of long-term capital loss carried under section 1212(b)(1)(B) to the taxable year. (5) Collectibles gain and loss. For purposes of this subsection— (A) In general. The terms “collectibles gain” and “collectibles loss” mean gain or loss (respectively) from the sale or exchange of a collectible (as defined in section 408(m) without regard to paragraph (3) thereof) which is a capital asset held for more than 1 year but only to the extent such gain is taken into account in computing gross income and such loss is taken into account in computing taxable income. (B) Partnerships, etc. For purposes of subparagraph (A), any gain from the sale of an interest in a partnership, S corporation, or trust which is attributable to unrealized appreciation in the value of collectibles shall be treated as gain from the sale or exchange of a collectible. Rules similar to the rules of section 751 shall apply for purposes of the preceding sentence. (6) Unrecaptured section 1250 gain. For purposes of this subsection— (A) In general. The term “unrecaptured section 1250 gain” means the excess (if any) of— (i) the amount of long-term capital gain (not otherwise treated as ordinary income) which would be treated as ordinary income if section 1250(b)(1) included all depreciation and the applicable percentage under section 1250(a) were 100 percent, over (ii) the excess (if any) of— (I) the amount described in paragraph (4)(B); over (II) the amount described in paragraph (4)(A). (B) Limitation with respect to section 1231 property. The amount described in subparagraph (A)(i) from sales, exchanges, and conversions described in section 1231(a)(3)(A) for any taxable year shall not exceed the net section 1231 gain (as defined in section 1231(c)(3)) for such year. (7)Section 1202 gain. For purposes of this subsection, the term “section 1202 gain” means the excess of— (A) the gain which would be excluded from gross income under section 1202 but for the percentage limitation in section 1202(a), over (B) the gain excluded from gross income under section 1202. (8) Coordination with recapture of net ordinary losses under section 1231. If any amount is treated as ordinary income under section 1231(c), such amount shall be allocated among the separate categories of net section 1231 gain (as defined in section 1231(c)(3)) in such manner as the Secretary may by forms or regulations prescribe. (9) Regulations. The Secretary may prescribe such regulations as are appropriate (including regulations requiring reporting) to apply this subsection in the case of sales and exchanges by pass-thru entities and of interests in such entities. (10) Pass-thru entity defined. For purposes of this subsection, the term “pass-thru entity” means— (A) a regulated investment company; (B) a real estate investment trust; (C) an S corporation; (D) a partnership; (E) an estate or trust; (F) a common trust fund; and (G) a qualified electing fund (as defined in section 1295). (11) Dividends taxed as net capital gain (A) In general. For purposes of this subsection, the term “net capital gain” means net capital gain (determined without regard to this paragraph) increased by qualified dividend income. (B) Qualified dividend income. For purposes of this paragraph— (i) In general. The term “qualified dividend income” means dividends received during the taxable year from— (I) domestic corporations, and (II) qualified foreign corporations. (ii) Certain dividends excluded. Such term shall not include— (I) any dividend from a corporation which for the taxable year of the corporation in which the distribution is made, or the preceding taxable year, is a corporation exempt from tax under section 501 or 521, (II) any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.), and (III) any dividend described in section 404(k). (iii) Coordination with section 246(c)Such term shall not include any dividend on any share of stock— (I) with respect to which the holding period requirements of section 246(c) are not met (determined by substituting in section 246(c) “60 days” for “45 days” each place it appears and by substituting “121-day period” for “91-day period”), or (II) to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. (C) Qualified foreign corporations (i) In general. Except as otherwise provided in this paragraph, the term “qualified foreign corporation” means any foreign corporation if— (I) such corporation is incorporated in a possession of the United States, or (II) such corporation is eligible for benefits of a comprehensive income tax treaty with the United States which the Secretary determines is satisfactory for purposes of this paragraph and which includes an exchange of information program. (ii) Dividends on stock readily tradable on United States securities market. A foreign corporation not otherwise treated as a qualified foreign corporation under clause (i) shall be so treated with respect to any dividend paid by such corporation if the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States. (iii) Exclusion of dividends of certain foreign corporations. Such term shall not include— (I) any foreign corporation which for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a passive foreign investment company (as defined in section 1297), and (II) any corporation which first becomes a surrogate foreign corporation (as defined in section 7874(a)(2)(B)) after the date of the enactment of this subclause, other than a foreign corporation which is treated as a domestic corporation under section 7874(b). (iv) Coordination with foreign tax credit limitation. Rules similar to the rules of section 904(b)(2)(B) shall apply with respect to the dividend rate differential under this paragraph. (D) Special rules (i) Amounts taken into account as investment income. Qualified dividend income shall not include any amount which the taxpayer takes into account as investment income under section 163(d)(4)(B). (ii) Extraordinary dividends. If a taxpayer to whom this section applies receives, with respect to any share of stock, qualified dividend income from 1 or more dividends which are extraordinary dividends (within the meaning of section 1059(c)), any loss on the sale or exchange of such share shall, to the extent of such dividends, be treated as long-term capital loss. (iii) Treatment of dividends from regulated investment companies and real estate investment trusts. A dividend received from a regulated investment company or a real estate investment trust shall be subject to the limitations prescribed in sections 854 and 857

199A → Qualified Business Income

● Reduction offered in 11 for C Corporations

● No reduction for businesses operated as sole proprietorships, noncorporate entities like partnerships and LLCs, or S Corporations

● Deduction will terminate at the end of 2025 and unavailable on 2026 tax returns unless Congress extends it -- 199A(i)

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@@ Line 14: / Line 14: @@
 '''Court System'''
 Tax Court → same level as district court, subject to Circuit Court of Appeals in relevant district for binding authority; bench trials only (no jury); taxpayer does not need to pay first and seek a refund before bringing an action.
 District Court & US Court of Claims → taxpayer must pay the tax bill first, then seek a refund (bring action).
 The FIRST Tax Bill  → February 28, 1913
 '''Federal Income Tax - Applicable Tax Rates'''
@@ Line 64: / Line 60: @@
 <nowiki>*</nowiki>IRS letter rulings can be persuasive (agency interpretation if own law)
-'''<span lang="EN">Chevron Deference</span>''': 2 part test ONLY ON '''FINAL REGULATIONS'''
+'''Chevron Deference''': 2 part test ONLY ON '''FINAL REGULATIONS'''
 #If Congress has clearly    addressed the issue, “that is the end of the matter” and the Court gives    effect to the intent of Congress
 #If the statute is silent or    ambiguous with respect to the specific question, the agency interpretation    is given “controlling weight” unless it is arbitrary or capricious
-'''<span lang="EN">LAST IN TIME RULE</span>''' → most recent authority wins
+'''LAST IN TIME RULE''' → most recent authority wins
-'''<span lang="EN">Effective tax rate</span>''' → tax liability as a percentage of taxable income; the total percentage of tax paid (overall rate, average after all brackets considered, total tax paid); Effective tax rates will show how '''progressive''' a tax is (the more brackets in the tax ladder, the more '''progressive''').
+'''Effective tax rate''' → tax liability as a percentage of taxable income; the total percentage of tax paid (overall rate, average after all brackets considered, total tax paid); Effective tax rates will show how '''progressive''' a tax is (the more brackets in the tax ladder, the more '''progressive''').
-<span lang="EN">●      Will '''always''' be lower than the marginal tax rate.</span>
+●      Will '''always''' be lower than the marginal tax rate.
-'''<span lang="EN">Marginal tax rate</span>''' <span lang="EN">→ rate of tax applicable to the taxpayer’s '''last dollar''' of taxable income (the tax bracket at the end, highest bracket applicable to taxpayer).</span>
+'''Marginal tax rate''' → rate of tax applicable to the taxpayer’s '''last dollar''' of taxable income (the tax bracket at the end, highest bracket applicable to taxpayer).
-'''<span lang="EN">2018 Marginal Tax Rates</span>''' <span lang="EN">- Unmarried Persons</span>
+'''2018 Marginal Tax Rates''' - Unmarried Persons
 {| class="wikitable"
-|'''<span lang="EN">10%</span>'''
+|'''10%'''
-|'''<span lang="EN">$0-$9,525</span>'''
+|'''$0-$9,525'''
 |-
-|'''<span lang="EN">12%</span>'''
+|'''12%'''
-|'''<span lang="EN">$9,526-$38,700</span>'''
+|'''$9,526-$38,700'''
 |-
-|'''<span lang="EN">22%</span>'''
+|'''22%'''
-|'''<span lang="EN">$38,701-$82,500</span>'''
+|'''$38,701-$82,500'''
 |-
-|'''<span lang="EN">24%</span>'''
+|'''24%'''
-|'''<span lang="EN">$82,501-$157,500</span>'''
+|'''$82,501-$157,500'''
 |-
-|'''<span lang="EN">32%</span>'''
+|'''32%'''
-|'''<span lang="EN">$157,501-$200,000</span>'''
+|'''$157,501-$200,000'''
 |-
-|'''<span lang="EN">35%</span>'''
+|'''35%'''
-|'''<span lang="EN">$200,001-$500,000</span>'''
+|'''$200,001-$500,000'''
 |-
-|'''<span lang="EN">37%</span>'''
+|'''37%'''
-|'''<span lang="EN">Over $500,000</span>'''
+|'''Over $500,000'''
 |}
-'''<span lang="EN">Progressive tax</span>''' <span lang="EN">→ progresses higher as income increases (i.e. federal income tax)</span>
+'''Progressive tax''' → progresses higher as income increases (i.e. federal income tax)
-'''<span lang="EN">Regressive tax</span>''' <span lang="EN">→ all pay the same, regardless of income (i.e. sales tax, flat tax in MA)</span>
+'''Regressive tax''' → all pay the same, regardless of income (i.e. sales tax, flat tax in MA)
-'''<span lang="EN">Dead-weight loss</span>''' <span lang="EN">→ cost to implement law or provision outweighs the minimal amount of revenue it would raise.</span>
+'''Dead-weight loss''' → cost to implement law or provision outweighs the minimal amount of revenue it would raise.
-<span lang="EN">Four Pillars of Tax Law Analysis (steps to answer tax law questions):</span>
+Four Pillars of Tax Law Analysis (steps to answer tax law questions):
-<span lang="EN">1)    Sufficiency → does the provision raise enough revenue?</span>
+)    Sufficiency → does the provision raise enough revenue?
-<span lang="EN">2)    Equity → does the provision treat everyone equally?</span>
+)    Equity → does the provision treat everyone equally?
-<span lang="EN">3)    Efficiency → don’t want to create too many market disturbances (don’t stifle a section of the market unless that’s a goal)</span>
+)    Efficiency → don’t want to create too many market disturbances (don’t stifle a section of the market unless that’s a goal)
-<span lang="EN">4)    Administrability → is the rule imposable, policable, practical to regulate and enforce? Is it administratively feasible? (the higher the cost, the less practical it is)</span>
+)    Administrability → is the rule imposable, policable, practical to regulate and enforce? Is it administratively feasible? (the higher the cost, the less practical it is)
-<span lang="EN">Horizontal equity → same situation, same treatment</span>
+Horizontal equity → same situation, same treatment
-<span lang="EN">Vertical equity → different situation, different treatment</span>
+Vertical equity → different situation, different treatment
-<span lang="EN">Types of Tax:</span>
+Types of Tax:
-<span lang="EN">●      Capitation Tax: everyone pays the same dollar amount</span>
+●      Capitation Tax: everyone pays the same dollar amount
-<span lang="EN">○      Problems: regressive, if different incomes, drastically different impacts (i.e. tax of $5,000 on income of $10,000 v. income of $100,000)</span>
+○      Problems: regressive, if different incomes, drastically different impacts (i.e. tax of $5,000 on income of $10,000 v. income of $100,000)
-<span lang="EN">○      Unlikely that much revenue could be generated under this method</span>
+○      Unlikely that much revenue could be generated under this method
-<span lang="EN">●      Sales Tax → percentage cost of goods, levied against consumer</span>
+●      Sales Tax → percentage cost of goods, levied against consumer
-<span lang="EN">○      States without income tax (TX, FL) use higher sales tax to create revenue</span>
+○      States without income tax (TX, FL) use higher sales tax to create revenue
-<span lang="EN">●      Value Added Tax (VAT) → percentage cost of goods, levied against the business, not the consumer</span>
+●      Value Added Tax (VAT) → percentage cost of goods, levied against the business, not the consumer
-<span lang="EN">○      By the time the consumer buys, tax has been paid, BUT cost of good generally higher</span>
+○      By the time the consumer buys, tax has been paid, BUT cost of good generally higher
-<span lang="EN">●      Real Estate Tax → tax imposed on real property (annually)</span>
+●      Real Estate Tax → tax imposed on real property (annually)
-<span lang="EN">●      Estate Tax → currently imposed on the largest estates, only paid by a tiny portion of estates, exclusion amount doubled</span>
+●      Estate Tax → currently imposed on the largest estates, only paid by a tiny portion of estates, exclusion amount doubled
-<span lang="EN">●      Flat Tax → everyone pays the same percentage of their income</span>
+●      Flat Tax → everyone pays the same percentage of their income
-'''<span lang="EN">tax = base x rate</span>'''
+'''tax = base x rate'''
 BASE → taxable income RATE → progressive tax bracket, calculated as income increases
-<span lang="EN">Tax Brackets</span>
+Tax Brackets
-<span lang="EN">●      Even though marginal rates are going up, you don’t lose money</span>
+●      Even though marginal rates are going up, you don’t lose money
-<span lang="EN">●      Each increment taxed at rate of bracket: First $9,000 taxed at 10%, of the next $10,000, $525 will be taxed at 10% and the remaining will be taxed at the next bracket of 12%</span>
+●      Each increment taxed at rate of bracket: First $9,000 taxed at 10%, of the next $10,000, $525 will be taxed at 10% and the remaining will be taxed at the next bracket of 12%
-<span lang="EN">●      Taxpayer still benefit from lower rates regardless of income (fewer than 4% of the population makes it to the final tax bracket)</span>
+●      Taxpayer still benefit from lower rates regardless of income (fewer than 4% of the population makes it to the final tax bracket)
 ●      Tax brackets are updated annually → previously, they were linked to the consumer price index, now brackets are linked to chained CPI (effectively raising taxes)
@@ Line 162: / Line 158: @@
 )    Married filing jointly
-<span lang="EN">2)    Surviving spouse</span>
+)    Surviving spouse
-<span lang="EN">3)    Head of household</span>
+)    Head of household
-<span lang="EN">4)    Unmarried</span>
+)    Unmarried
 )    Married filing separately
-'''<span lang="EN">Taxable Income</span>'''
+'''Taxable Income'''
 Taxable Income Defined → §63
-<span lang="EN">STEP ONE: GROSS INCOME</span>
+STEP ONE: GROSS INCOME
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 61 - Gross income defined</span>'''
+|'''26  U.S. Code § 61 - Gross income defined'''
-'''<span lang="EN">(a)  General definition. Except as otherwise provided in this subtitle, gross  income means all income from whatever source derived, including (but not  limited to) the following items:</span>'''
+'''(a)  General definition. Except as otherwise provided in this subtitle, gross  income means all income from whatever source derived, including (but not  limited to) the following items:'''
-'''<span lang="EN">    (1) Compensation for services, including  fees, commissions, fringe benefits, and similar items;</span>'''
+'''    (1) Compensation for services, including  fees, commissions, fringe benefits, and similar items;'''
-'''<span lang="EN">    (2) Gross income derived from business;</span>'''
+'''    (2) Gross income derived from business;'''
-'''<span lang="EN">    (3) Gains derived from dealings in  property;</span>'''
+'''    (3) Gains derived from dealings in  property;'''
-'''<span lang="EN">    (4) Interest;</span>'''
+'''    (4) Interest;'''
-'''<span lang="EN">    (5) Rents;</span>'''
+'''    (5) Rents;'''
-'''<span lang="EN">    (6) Royalties;</span>'''
+'''    (6) Royalties;'''
-'''<span lang="EN">    (7) Dividends;</span>'''
+'''    (7) Dividends;'''
-'''<span lang="EN">    (8)  [1] Alimony and separate  maintenance payments;</span>'''
+'''    (8)  [1] Alimony and separate  maintenance payments;'''
-'''<span lang="EN">    (9) Annuities;</span>'''
+'''    (9) Annuities;'''
-'''<span lang="EN">    (10) Income from life insurance and  endowment contracts;</span>'''
+'''    (10) Income from life insurance and  endowment contracts;'''
-'''<span lang="EN">    (11) Pensions;</span>'''
+'''    (11) Pensions;'''
-'''<span lang="EN">    (12) Income from discharge of  indebtedness;</span>'''
+'''    (12) Income from discharge of  indebtedness;'''
-'''<span lang="EN">    (13) Distributive share of partnership  gross income;</span>'''
+'''    (13) Distributive share of partnership  gross income;'''
-'''<span lang="EN">    (14) Income in respect of a decedent;  and</span>'''
+'''    (14) Income in respect of a decedent;  and'''
-'''<span lang="EN">    (15) Income from an interest in an  estate or trust.</span>'''
+'''    (15) Income from an interest in an  estate or trust.'''
-'''<span lang="EN">(b)  Cross references. For items specifically included in gross income, see part  II (sec. 71 and following). For items specifically excluded from gross  income, see part III (sec. 101 and following).</span>'''
+'''(b)  Cross references. For items specifically included in gross income, see part  II (sec. 71 and following). For items specifically excluded from gross  income, see part III (sec. 101 and following).'''
 |}
-<span lang="EN">STEP TWO: DEDUCTIONS UNDER §62(a)</span>
+STEP TWO: DEDUCTIONS UNDER §62(a)
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 62 - Adjusted gross income defined</span>'''
+|'''26  U.S. Code § 62 - Adjusted gross income defined'''
-'''<span lang="EN">(a)  General rule. For purposes of this subtitle, the term “adjusted gross income”  means, in the case of an individual, gross income minus the following  deductions:</span>'''
+'''(a)  General rule. For purposes of this subtitle, the term “adjusted gross income”  means, in the case of an individual, gross income minus the following  deductions:'''
-'''<span lang="EN">    (1) Trade and business deductions. The  deductions allowed by this chapter (other than by part VII of this  subchapter) which are attributable to a trade or business carried on by the  taxpayer, if such trade or business does not consist of the performance of  services by the taxpayer as an employee.</span>'''
+'''    (1) Trade and business deductions. The  deductions allowed by this chapter (other than by part VII of this  subchapter) which are attributable to a trade or business carried on by the  taxpayer, if such trade or business does not consist of the performance of  services by the taxpayer as an employee.'''
-'''<span lang="EN">     (2) Certain trade and business  deductions of employees</span>'''
+'''     (2) Certain trade and business  deductions of employees'''
-'''<span lang="EN">         (A) Reimbursed expenses of  employees. The deductions allowed by part VI (section 161 and following)  which consist of expenses paid or incurred by the taxpayer, in connection  with the performance by him of services as an employee, under a reimbursement  or other expense allowance arrangement with his employer. The fact that the  reimbursement may be provided by a third party shall not be determinative of  whether or not the preceding sentence applies.</span>'''
+'''         (A) Reimbursed expenses of  employees. The deductions allowed by part VI (section 161 and following)  which consist of expenses paid or incurred by the taxpayer, in connection  with the performance by him of services as an employee, under a reimbursement  or other expense allowance arrangement with his employer. The fact that the  reimbursement may be provided by a third party shall not be determinative of  whether or not the preceding sentence applies.'''
-'''<span lang="EN">          (B) Certain expenses of  performing artists. The deductions allowed by section 162 which consist of  expenses paid or incurred by a qualified performing artist in connection with  the performances by him of services in the performing arts as an employee.</span>'''
+'''          (B) Certain expenses of  performing artists. The deductions allowed by section 162 which consist of  expenses paid or incurred by a qualified performing artist in connection with  the performances by him of services in the performing arts as an employee.'''
-'''<span lang="EN">          (C) Certain expenses of  officials. The deductions allowed by section 162 which consist of expenses  paid or incurred with respect to services performed by an official as an  employee of a State or a political subdivision thereof in a position  compensated in whole or in part on a fee basis.</span>'''
+'''          (C) Certain expenses of  officials. The deductions allowed by section 162 which consist of expenses  paid or incurred with respect to services performed by an official as an  employee of a State or a political subdivision thereof in a position  compensated in whole or in part on a fee basis.'''
-'''<span lang="EN">          (D) Certain expenses of  elementary and secondary school teachers. The deductions allowed by section  162 which consist of expenses, not in excess of $250, paid or incurred by an  eligible educator—</span>'''
+'''          (D) Certain expenses of  elementary and secondary school teachers. The deductions allowed by section  162 which consist of expenses, not in excess of $250, paid or incurred by an  eligible educator—'''
-'''<span lang="EN">              (i) by reason of the  participation of the educator in professional development courses related to  the curriculum in which the educator provides instruction or to the students  for which the educator provides instruction, and</span>'''
+'''              (i) by reason of the  participation of the educator in professional development courses related to  the curriculum in which the educator provides instruction or to the students  for which the educator provides instruction, and'''
-'''<span lang="EN">              </span>'''
+'''              '''
-'''<span lang="EN">              (ii) in connection with books,  supplies (other than non athletic supplies for courses of instruction in  health or physical education), computer equipment (including related software  and services) and other equipment, and supplementary materials used by the  eligible educator in the classroom.</span>'''
+'''              (ii) in connection with books,  supplies (other than non athletic supplies for courses of instruction in  health or physical education), computer equipment (including related software  and services) and other equipment, and supplementary materials used by the  eligible educator in the classroom.'''
-'''<span lang="EN">         (E) Certain expenses of members of  reserve components of the Armed Forces of the United States</span>'''
+'''         (E) Certain expenses of members of  reserve components of the Armed Forces of the United States'''
-'''<span lang="EN">The deductions allowed by section 162 which consist of expenses, determined  at a rate not in excess of the rates for travel expenses (including per diem  in lieu of subsistence) authorized for employees of agencies under subchapter  I of chapter 57 of title 5, United States Code, paid or incurred by the  taxpayer in connection with the performance of services by such taxpayer as a  member of a reserve component of the Armed Forces of the United States for  any period during which such individual is more than 100 miles away from home  in connection with such services.</span>'''
+'''The deductions allowed by section 162 which consist of expenses, determined  at a rate not in excess of the rates for travel expenses (including per diem  in lieu of subsistence) authorized for employees of agencies under subchapter  I of chapter 57 of title 5, United States Code, paid or incurred by the  taxpayer in connection with the performance of services by such taxpayer as a  member of a reserve component of the Armed Forces of the United States for  any period during which such individual is more than 100 miles away from home  in connection with such services.'''
-'''<span lang="EN">     (3) Losses from sale or exchange  of property. The deductions allowed by part VI (sec. 161 and following) as  losses from the sale or exchange of property.</span>'''
+'''     (3) Losses from sale or exchange  of property. The deductions allowed by part VI (sec. 161 and following) as  losses from the sale or exchange of property.'''
-'''<span lang="EN">     (4) Deductions attributable to  rents and royalties. The deductions allowed by part VI (sec. 161 and  following), by section 212 (relating to expenses for production of income),  and by section 611 (relating to depletion) which are attributable to property  held for the production of rents or royalties.</span>'''
+'''     (4) Deductions attributable to  rents and royalties. The deductions allowed by part VI (sec. 161 and  following), by section 212 (relating to expenses for production of income),  and by section 611 (relating to depletion) which are attributable to property  held for the production of rents or royalties.'''
-'''<span lang="EN">     (5) Certain deductions of life  tenants and income beneficiaries of property. In the case of a life tenant of  property, or an income beneficiary of property held in trust, or an heir,  legatee, or devisee of an estate, the deduction for depreciation allowed by  section 167 and the deduction allowed by section 611.</span>'''
+'''     (5) Certain deductions of life  tenants and income beneficiaries of property. In the case of a life tenant of  property, or an income beneficiary of property held in trust, or an heir,  legatee, or devisee of an estate, the deduction for depreciation allowed by  section 167 and the deduction allowed by section 611.'''
-'''<span lang="EN">     (6) Pension, profit-sharing, and  annuity plans of self-employed individuals. In the case of an individual who  is an employee within the meaning of section 401(c)(1), the deduction allowed  by section 404.</span>'''
+'''     (6) Pension, profit-sharing, and  annuity plans of self-employed individuals. In the case of an individual who  is an employee within the meaning of section 401(c)(1), the deduction allowed  by section 404.'''
-'''<span lang="EN">     (7) Retirement savings. The  deduction allowed by section 219 (relating to deduction of certain retirement  savings).</span>'''
+'''     (7) Retirement savings. The  deduction allowed by section 219 (relating to deduction of certain retirement  savings).'''
-'''<span lang="EN">     [(8) Repealed. Pub. L. 104–188,  title I, § 1401(b)(4), Aug. 20, 1996, 110 Stat. 1788]</span>'''
+'''     [(8) Repealed. Pub. L. 104–188,  title I, § 1401(b)(4), Aug. 20, 1996, 110 Stat. 1788]'''
-'''<span lang="EN">    (9) Penalties forfeited because of  premature withdrawal of funds from time savings accounts or deposits. The  deductions allowed by section 165 for losses incurred in any transaction  entered into for profit, though not connected with a trade or business, to  the extent that such losses include amounts forfeited to a bank, mutual  savings bank, savings and loan association, building and loan association,  cooperative bank or homestead association as a penalty for premature  withdrawal of funds from a time savings account, certificate of deposit, or  similar class of deposit.</span>'''
+'''    (9) Penalties forfeited because of  premature withdrawal of funds from time savings accounts or deposits. The  deductions allowed by section 165 for losses incurred in any transaction  entered into for profit, though not connected with a trade or business, to  the extent that such losses include amounts forfeited to a bank, mutual  savings bank, savings and loan association, building and loan association,  cooperative bank or homestead association as a penalty for premature  withdrawal of funds from a time savings account, certificate of deposit, or  similar class of deposit.'''
-'''<span lang="EN">     (10) Alimony. The deduction  allowed by section 215.</span>'''
+'''     (10) Alimony. The deduction  allowed by section 215.'''
-'''<span lang="EN">     (11) Reforestation expenses. The  deduction allowed by section 194.</span>'''
+'''     (11) Reforestation expenses. The  deduction allowed by section 194.'''
-'''<span lang="EN">     (12) Certain required repayments  of supplemental unemployment compensation benefits. The deduction allowed by  section 165 for the repayment to a trust described in paragraph (9) or (17)  of section 501(c) of supplemental unemployment compensation benefits received  from such trust if such repayment is required because of the receipt of trade  readjustment allowances under section 231 or 232 of the Trade Act of 1974 (19  U.S.C. 2291 and 2292).</span>'''
+'''     (12) Certain required repayments  of supplemental unemployment compensation benefits. The deduction allowed by  section 165 for the repayment to a trust described in paragraph (9) or (17)  of section 501(c) of supplemental unemployment compensation benefits received  from such trust if such repayment is required because of the receipt of trade  readjustment allowances under section 231 or 232 of the Trade Act of 1974 (19  U.S.C. 2291 and 2292).'''
-'''<span lang="EN">     (13) Jury duty pay remitted to  employer. Any deduction allowable under this chapter by reason of an individual  remitting any portion of any jury pay to such individual’s employer in  exchange for payment by the employer of compensation for the period such  individual was performing jury duty. For purposes of the preceding sentence,  the term “jury pay” means any payment received by the individual for the  discharge of jury duty.</span>'''
+'''     (13) Jury duty pay remitted to  employer. Any deduction allowable under this chapter by reason of an individual  remitting any portion of any jury pay to such individual’s employer in  exchange for payment by the employer of compensation for the period such  individual was performing jury duty. For purposes of the preceding sentence,  the term “jury pay” means any payment received by the individual for the  discharge of jury duty.'''
-'''<span lang="EN">     [(14) Repealed. Pub. L. 113–295,  div. A, title II, § 221(a)(34)(C), Dec. 19, 2014, 128 Stat. 4042]</span>'''
+'''     [(14) Repealed. Pub. L. 113–295,  div. A, title II, § 221(a)(34)(C), Dec. 19, 2014, 128 Stat. 4042]'''
-'''<span lang="EN">    (15) Moving expenses. The deduction  allowed by section 217.</span>'''
+'''    (15) Moving expenses. The deduction  allowed by section 217.'''
-'''<span lang="EN">     (16) Archer MSAs. The deduction  allowed by section 220.</span>'''
+'''     (16) Archer MSAs. The deduction  allowed by section 220.'''
-'''<span lang="EN">     (17) Interest on education loans.  The deduction allowed by section 221.</span>'''
+'''     (17) Interest on education loans.  The deduction allowed by section 221.'''
-'''<span lang="EN">     (18) Higher education expenses.  The deduction allowed by section 222.</span>'''
+'''     (18) Higher education expenses.  The deduction allowed by section 222.'''
-'''<span lang="EN">     (19) Health savings accounts. The  deduction allowed by section 223.</span>'''
+'''     (19) Health savings accounts. The  deduction allowed by section 223.'''
-'''<span lang="EN">     (20) Costs involving  discrimination suits, etc. Any deduction allowable under this chapter for  attorney fees and court costs paid by, or on behalf of, the taxpayer in  connection with any action involving a claim of unlawful discrimination (as  defined in subsection (e)) or a claim of a violation of subchapter III of  chapter 37 of title 31, United States Code [2] or a claim made under section  1862(b)(3)(A) of the Social Security Act (42 U.S.C. 1395y(b)(3)(A)). The  preceding sentence shall not apply to any deduction in excess of the amount  includible in the taxpayer’s gross income for the taxable year on account of  a judgment or settlement (whether by suit or agreement and whether as lump  sum or periodic payments) resulting from such claim.</span>'''
+'''     (20) Costs involving  discrimination suits, etc. Any deduction allowable under this chapter for  attorney fees and court costs paid by, or on behalf of, the taxpayer in  connection with any action involving a claim of unlawful discrimination (as  defined in subsection (e)) or a claim of a violation of subchapter III of  chapter 37 of title 31, United States Code [2] or a claim made under section  1862(b)(3)(A) of the Social Security Act (42 U.S.C. 1395y(b)(3)(A)). The  preceding sentence shall not apply to any deduction in excess of the amount  includible in the taxpayer’s gross income for the taxable year on account of  a judgment or settlement (whether by suit or agreement and whether as lump  sum or periodic payments) resulting from such claim.'''
-'''<span lang="EN">     (21) Attorneys’ fees relating to  awards to whistleblowers</span>'''
+'''     (21) Attorneys’ fees relating to  awards to whistleblowers'''
-'''<span lang="EN">         (A) In general. Any deduction  allowable under this chapter for attorney fees and court costs paid by, or on  behalf of, the taxpayer in connection with any award under—</span>'''
+'''         (A) In general. Any deduction  allowable under this chapter for attorney fees and court costs paid by, or on  behalf of, the taxpayer in connection with any award under—'''
-'''<span lang="EN">              (i) section 7623(b), or</span>'''
+'''              (i) section 7623(b), or'''
-'''<span lang="EN">              (ii) in the case of taxable  years beginning after December 31, 2017, any action brought under—</span>'''
+'''              (ii) in the case of taxable  years beginning after December 31, 2017, any action brought under—'''
-'''<span lang="EN">                   (I) section 21F of the  Securities Exchange Act of 1934 (15 U.S.C. 78u–6),</span>'''
+'''                   (I) section 21F of the  Securities Exchange Act of 1934 (15 U.S.C. 78u–6),'''
-'''<span lang="EN">                   (II) a State false claims  act, including a State false claims act with qui tam provisions, or</span>'''
+'''                   (II) a State false claims  act, including a State false claims act with qui tam provisions, or'''
-'''<span lang="EN">                   (III) section 23 of the  Commodity Exchange Act (7 U.S.C. 26).</span>'''
+'''                   (III) section 23 of the  Commodity Exchange Act (7 U.S.C. 26).'''
-'''<span lang="EN">         (B) May not exceed award.  Subparagraph (A) shall not apply to any deduction in excess of the amount  includible in the taxpayer’s gross income for the taxable year on account of  such award.</span>'''
+'''         (B) May not exceed award.  Subparagraph (A) shall not apply to any deduction in excess of the amount  includible in the taxpayer’s gross income for the taxable year on account of  such award.'''
-'''<span lang="EN">Nothing  in this section shall permit the same item to be deducted more than once. The  deduction allowed by section 199A shall not be treated as a deduction  described in any of the preceding paragraphs of this subsection.</span>'''
+'''Nothing  in this section shall permit the same item to be deducted more than once. The  deduction allowed by section 199A shall not be treated as a deduction  described in any of the preceding paragraphs of this subsection.'''
-'''<span lang="EN">(b)  Qualified performing artist</span>'''
+'''(b)  Qualified performing artist'''
-'''<span lang="EN">    (1) In general. For purposes of  subsection (a)(2)(B), the term “qualified performing artist” means, with respect  to any taxable year, any individual if—</span>'''
+'''    (1) In general. For purposes of  subsection (a)(2)(B), the term “qualified performing artist” means, with respect  to any taxable year, any individual if—'''
-'''<span lang="EN">         (A) such individual performed  services in the performing arts as an employee during the taxable year for at  least 2 employers,</span>'''
+'''         (A) such individual performed  services in the performing arts as an employee during the taxable year for at  least 2 employers,'''
-'''<span lang="EN">         (B) the aggregate amount allowable  as a deduction under section 162 in connection with the performance of such  services exceeds 10 percent of such individual’s gross income attributable to  the performance of such services, and</span>'''
+'''         (B) the aggregate amount allowable  as a deduction under section 162 in connection with the performance of such  services exceeds 10 percent of such individual’s gross income attributable to  the performance of such services, and'''
-'''<span lang="EN">         (C) the adjusted gross income of  such individual for the taxable year (determined without regard to subsection  (a)(2)(B)) does not exceed $16,000.</span>'''
+'''         (C) the adjusted gross income of  such individual for the taxable year (determined without regard to subsection  (a)(2)(B)) does not exceed $16,000.'''
-'''<span lang="EN">    (2) Nominal employer not taken into  account. An individual shall not be treated as performing services in the  performing arts as an employee for any employer during any taxable year  unless the amount received by such individual from such employer for the  performance of such services during the taxable year equals or exceeds $200.</span>'''
+'''    (2) Nominal employer not taken into  account. An individual shall not be treated as performing services in the  performing arts as an employee for any employer during any taxable year  unless the amount received by such individual from such employer for the  performance of such services during the taxable year equals or exceeds $200.'''
-'''<span lang="EN">     (3) Special rules for married  couples</span>'''
+'''     (3) Special rules for married  couples'''
-'''<span lang="EN">         (A) In general. Except in the case  of a husband and wife who lived apart at all times during the taxable year,  if the taxpayer is married at the close of the taxable year, subsection  (a)(2)(B) shall apply only if the taxpayer and his spouse file a joint return  for the taxable year.</span>'''
+'''         (A) In general. Except in the case  of a husband and wife who lived apart at all times during the taxable year,  if the taxpayer is married at the close of the taxable year, subsection  (a)(2)(B) shall apply only if the taxpayer and his spouse file a joint return  for the taxable year.'''
-'''<span lang="EN">          (B) Application of paragraph  (1)In the case of a joint return—</span>'''
+'''          (B) Application of paragraph  (1)In the case of a joint return—'''
-'''<span lang="EN">              (i) paragraph (1) (other than  subparagraph (C) thereof) shall be applied separately with respect to each  spouse, but</span>'''
+'''              (i) paragraph (1) (other than  subparagraph (C) thereof) shall be applied separately with respect to each  spouse, but'''
-'''<span lang="EN">              (ii) paragraph (1)(C) shall be  applied with respect to their combined adjusted gross income.</span>'''
+'''              (ii) paragraph (1)(C) shall be  applied with respect to their combined adjusted gross income.'''
-'''<span lang="EN">         (C) Determination of marital  status. For purposes of this subsection, marital status shall be determined  under section 7703(a).</span>'''
+'''         (C) Determination of marital  status. For purposes of this subsection, marital status shall be determined  under section 7703(a).'''
-'''<span lang="EN">          (D) Joint return. For  purposes of this subsection, the term “joint return” means the joint return  of a husband and wife made under section 6013.</span>'''
+'''          (D) Joint return. For  purposes of this subsection, the term “joint return” means the joint return  of a husband and wife made under section 6013.'''
-'''<span lang="EN">(c) Certain arrangements not treated as reimbursement arrangements. For  purposes of subsection (a)(2)(A), an arrangement shall in no event be treated  as a reimbursement or other expense allowance arrangement if—</span>'''
+'''(c) Certain arrangements not treated as reimbursement arrangements. For  purposes of subsection (a)(2)(A), an arrangement shall in no event be treated  as a reimbursement or other expense allowance arrangement if—'''
-'''<span lang="EN">    (1) such arrangement does not require  the employee to substantiate the expenses covered by the arrangement to the  person providing the reimbursement, or</span>'''
+'''    (1) such arrangement does not require  the employee to substantiate the expenses covered by the arrangement to the  person providing the reimbursement, or'''
-'''<span lang="EN">    (2) such arrangement provides the  employee the right to retain any amount in excess of the substantiated  expenses covered under the arrangement.</span>'''
+'''    (2) such arrangement provides the  employee the right to retain any amount in excess of the substantiated  expenses covered under the arrangement.'''
-'''<span lang="EN">The  substantiation requirements of the preceding sentence shall not apply to any  expense to the extent that substantiation is not required under section  274(d) for such expense by reason of the regulations prescribed under the 2nd  sentence thereof.</span>'''
+'''The  substantiation requirements of the preceding sentence shall not apply to any  expense to the extent that substantiation is not required under section  274(d) for such expense by reason of the regulations prescribed under the 2nd  sentence thereof.'''
-'''<span lang="EN">(d)  Definition; special rules</span>'''
+'''(d)  Definition; special rules'''
-'''<span lang="EN">    (1) Eligible educator</span>'''
+'''    (1) Eligible educator'''
-'''<span lang="EN">         (A) In general. For purposes of  subsection (a)(2)(D), the term “eligible educator” means, with respect to any  taxable year, an individual who is a kindergarten through grade 12 teacher,  instructor, counselor, principal, or aide in a school for at least 900 hours  during a school year.</span>'''
+'''         (A) In general. For purposes of  subsection (a)(2)(D), the term “eligible educator” means, with respect to any  taxable year, an individual who is a kindergarten through grade 12 teacher,  instructor, counselor, principal, or aide in a school for at least 900 hours  during a school year.'''
-'''<span lang="EN">          (B) School. The term “school”  means any school which provides elementary education or secondary education  (kindergarten through grade 12), as determined under State law.</span>'''
+'''          (B) School. The term “school”  means any school which provides elementary education or secondary education  (kindergarten through grade 12), as determined under State law.'''
-'''<span lang="EN">     (2) Coordination with exclusions.  A deduction shall be allowed under subsection (a)(2)(D) for expenses only to  the extent the amount of such expenses exceeds the amount excludable under  section 135, 529(c)(1), or 530(d)(2) for the taxable year.</span>'''
+'''     (2) Coordination with exclusions.  A deduction shall be allowed under subsection (a)(2)(D) for expenses only to  the extent the amount of such expenses exceeds the amount excludable under  section 135, 529(c)(1), or 530(d)(2) for the taxable year.'''
-'''<span lang="EN">     (3) Inflation adjustment. In the  case of any taxable year beginning after 2015, the $250 amount in subsection  (a)(2)(D) shall be increased by an amount equal to—</span>'''
+'''     (3) Inflation adjustment. In the  case of any taxable year beginning after 2015, the $250 amount in subsection  (a)(2)(D) shall be increased by an amount equal to—'''
-'''<span lang="EN">         (A) such dollar amount, multiplied  by</span>'''
+'''         (A) such dollar amount, multiplied  by'''
-'''<span lang="EN">         (B) the cost-of-living adjustment  determined under section 1(f)(3) for the calendar year in which the taxable  year begins, determined by substituting “calendar year 2014” for “calendar  year 2016” in subparagraph (A)(ii) thereof.</span>'''
+'''         (B) the cost-of-living adjustment  determined under section 1(f)(3) for the calendar year in which the taxable  year begins, determined by substituting “calendar year 2014” for “calendar  year 2016” in subparagraph (A)(ii) thereof.'''
-'''<span lang="EN">Any  increase determined under the preceding sentence shall be rounded to the  nearest multiple of $50.</span>'''
+'''Any  increase determined under the preceding sentence shall be rounded to the  nearest multiple of $50.'''
-'''<span lang="EN">(e)  Unlawful discrimination defined. For purposes of subsection (a)(20), the term  “unlawful discrimination” means an act that is unlawful under any of the  following:</span>'''
+'''(e)  Unlawful discrimination defined. For purposes of subsection (a)(20), the term  “unlawful discrimination” means an act that is unlawful under any of the  following:'''
-'''<span lang="EN">    (1) Section 302 of the Civil Rights Act  of 1991 (2 U.S.C. 1202).[3]</span>'''
+'''    (1) Section 302 of the Civil Rights Act  of 1991 (2 U.S.C. 1202).[3]'''
-'''<span lang="EN">    (2) Section 201, 202, 203, 204, 205,  206, or 207 of the Congressional Accountability Act of 1995 (2 U.S.C. 1311,  1312, 1313, 1314, 1315, 1316, or 1317).</span>'''
+'''    (2) Section 201, 202, 203, 204, 205,  206, or 207 of the Congressional Accountability Act of 1995 (2 U.S.C. 1311,  1312, 1313, 1314, 1315, 1316, or 1317).'''
-'''<span lang="EN">    (3) The National Labor Relations Act (29  U.S.C. 151 et seq.).</span>'''
+'''    (3) The National Labor Relations Act (29  U.S.C. 151 et seq.).'''
-'''<span lang="EN">    (4) The Fair Labor Standards Act of 1938  (29 U.S.C. 201 et seq.).</span>'''
+'''    (4) The Fair Labor Standards Act of 1938  (29 U.S.C. 201 et seq.).'''
-'''<span lang="EN">    </span>'''
+'''    '''
-'''<span lang="EN">    (5) Section 4 or 15 of the Age  Discrimination in Employment Act of 1967 (29 U.S.C. 623 or 633a).</span>'''
+'''    (5) Section 4 or 15 of the Age  Discrimination in Employment Act of 1967 (29 U.S.C. 623 or 633a).'''
-'''<span lang="EN">    (6) Section 501 or 504 of the  Rehabilitation Act of 1973 (29 U.S.C. 791 or 794).</span>'''
+'''    (6) Section 501 or 504 of the  Rehabilitation Act of 1973 (29 U.S.C. 791 or 794).'''
-'''<span lang="EN">    (7) Section 510 of the Employee  Retirement Income Security Act of 1974 (29 U.S.C. 1140).</span>'''
+'''    (7) Section 510 of the Employee  Retirement Income Security Act of 1974 (29 U.S.C. 1140).'''
-'''<span lang="EN">    (8) Title IX of the Education Amendments  of 1972 (20 U.S.C. 1681 et seq.).</span>'''
+'''    (8) Title IX of the Education Amendments  of 1972 (20 U.S.C. 1681 et seq.).'''
-'''<span lang="EN">    (9) The Employee Polygraph Protection  Act of 1988 (29 U.S.C. 2001 et seq.).</span>'''
+'''    (9) The Employee Polygraph Protection  Act of 1988 (29 U.S.C. 2001 et seq.).'''
-'''<span lang="EN">    (10) The Worker Adjustment and  Retraining Notification Act (29 U.S.C. 2102 et seq.).</span>'''
+'''    (10) The Worker Adjustment and  Retraining Notification Act (29 U.S.C. 2102 et seq.).'''
-'''<span lang="EN">    (11) Section 105 of the Family and  Medical Leave Act of 1993 (29 U.S.C. 2615).</span>'''
+'''    (11) Section 105 of the Family and  Medical Leave Act of 1993 (29 U.S.C. 2615).'''
-'''<span lang="EN">    (12) Chapter 43 of title 38, United  States Code (relating to employment and reemployment rights of members of the  uniformed services).</span>'''
+'''    (12) Chapter 43 of title 38, United  States Code (relating to employment and reemployment rights of members of the  uniformed services).'''
-'''<span lang="EN">    (13) Section 1977, 1979, or 1980 of the  Revised Statutes (42 U.S.C. 1981, 1983, or 1985).</span>'''
+'''    (13) Section 1977, 1979, or 1980 of the  Revised Statutes (42 U.S.C. 1981, 1983, or 1985).'''
-'''<span lang="EN">    (14) Section 703, 704, or 717 of the  Civil Rights Act of 1964 (42 U.S.C. 2000e–2, 2000e–3, or 2000e–16).</span>'''
+'''    (14) Section 703, 704, or 717 of the  Civil Rights Act of 1964 (42 U.S.C. 2000e–2, 2000e–3, or 2000e–16).'''
-'''<span lang="EN">    (15) Section 804, 805, 806, 808, or 818  of the Fair Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).</span>'''
+'''    (15) Section 804, 805, 806, 808, or 818  of the Fair Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).'''
-'''<span lang="EN">    (16) Section 102, 202, 302, or 503 of  the Americans with Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182,  or 12203).</span>'''
+'''    (16) Section 102, 202, 302, or 503 of  the Americans with Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182,  or 12203).'''
-'''<span lang="EN">    (17) Any provision of Federal law  (popularly known as whistleblower protection provisions) prohibiting the  discharge of an employee, the discrimination against an employee, or any  other form of retaliation or reprisal against an employee for asserting  rights or taking other actions permitted under Federal law.</span>'''
+'''    (17) Any provision of Federal law  (popularly known as whistleblower protection provisions) prohibiting the  discharge of an employee, the discrimination against an employee, or any  other form of retaliation or reprisal against an employee for asserting  rights or taking other actions permitted under Federal law.'''
-'''<span lang="EN">    (18) Any provision of Federal, State, or  local law, or common law claims permitted under Federal, State, or local law—</span>'''
+'''    (18) Any provision of Federal, State, or  local law, or common law claims permitted under Federal, State, or local law—'''
-'''<span lang="EN">         (i) providing for the enforcement  of civil rights, or</span>'''
+'''         (i) providing for the enforcement  of civil rights, or'''
-'''<span lang="EN">         (ii) regulating any aspect of the  employment relationship, including claims for wages, compensation, or  benefits, or prohibiting the discharge of an employee, the discrimination  against an employee, or any other form of retaliation or reprisal against an  employee for asserting rights or taking other actions permitted by law.</span>'''
+'''         (ii) regulating any aspect of the  employment relationship, including claims for wages, compensation, or  benefits, or prohibiting the discharge of an employee, the discrimination  against an employee, or any other form of retaliation or reprisal against an  employee for asserting rights or taking other actions permitted by law.'''
 |}
-<span lang="EN">STEP THREE: LESS QUALIFIED BUSINESS INCOME UNDER 199A</span>
+STEP THREE: LESS QUALIFIED BUSINESS INCOME UNDER 199A
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 199A - Qualified business income</span>'''
+|'''26  U.S. Code § 199A - Qualified business income'''
-'''<span lang="EN">(a)  In general. In the case of a taxpayer other than a corporation, there shall  be allowed as a deduction for any taxable year an amount equal to the sum of—</span>'''
+'''(a)  In general. In the case of a taxpayer other than a corporation, there shall  be allowed as a deduction for any taxable year an amount equal to the sum of—'''
-'''<span lang="EN">    (1) the lesser of—</span>'''
+'''    (1) the lesser of—'''
-'''<span lang="EN">         (A) the combined qualified business  income amount of the taxpayer, or</span>'''
+'''         (A) the combined qualified business  income amount of the taxpayer, or'''
-'''<span lang="EN">         (B) an amount equal to 20 percent  of the excess (if any) of—</span>'''
+'''         (B) an amount equal to 20 percent  of the excess (if any) of—'''
-'''<span lang="EN">              (i) the taxable income of the  taxpayer for the taxable year, over</span>'''
+'''              (i) the taxable income of the  taxpayer for the taxable year, over'''
-'''<span lang="EN">              (ii) the sum of any net  capital gain (as defined in section 1(h)), plus the aggregate amount of the  qualified cooperative dividends, of the taxpayer for the taxable year, plus</span>'''
+'''              (ii) the sum of any net  capital gain (as defined in section 1(h)), plus the aggregate amount of the  qualified cooperative dividends, of the taxpayer for the taxable year, plus'''
-'''<span lang="EN">    (2) the lesser of—</span>'''
+'''    (2) the lesser of—'''
-'''<span lang="EN">         (A) 20 percent of the aggregate  amount of the qualified cooperative dividends of the taxpayer for the taxable  year, or</span>'''
+'''         (A) 20 percent of the aggregate  amount of the qualified cooperative dividends of the taxpayer for the taxable  year, or'''
-'''<span lang="EN">         (B) taxable income (reduced by the  net capital gain (as so defined)) of the taxpayer for the taxable year.</span>'''
+'''         (B) taxable income (reduced by the  net capital gain (as so defined)) of the taxpayer for the taxable year.'''
-'''<span lang="EN">The  amount determined under the preceding sentence shall not exceed the taxable  income (reduced by the net capital gain (as so defined)) of the taxpayer for  the taxable year.</span>'''
+'''The  amount determined under the preceding sentence shall not exceed the taxable  income (reduced by the net capital gain (as so defined)) of the taxpayer for  the taxable year.'''
-'''<span lang="EN">(b)  Combined qualified business income amount. For purposes of this section—</span>'''
+'''(b)  Combined qualified business income amount. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. The term “combined  qualified business income amount” means, with respect to any taxable year, an  amount equal to—</span>'''
+'''    (1) In general. The term “combined  qualified business income amount” means, with respect to any taxable year, an  amount equal to—'''
-'''<span lang="EN">         (A) the sum of the amounts  determined under paragraph (2) for each qualified trade or business carried  on by the taxpayer, plus</span>'''
+'''         (A) the sum of the amounts  determined under paragraph (2) for each qualified trade or business carried  on by the taxpayer, plus'''
-'''<span lang="EN">         (B) 20 percent of the aggregate  amount of the qualified REIT dividends and qualified publicly traded  partnership income of the taxpayer for the taxable year.</span>'''
+'''         (B) 20 percent of the aggregate  amount of the qualified REIT dividends and qualified publicly traded  partnership income of the taxpayer for the taxable year.'''
-'''<span lang="EN">    (2) Determination of deductible amount  for each trade or business. The amount determined under this paragraph with  respect to any qualified trade or business is the lesser of—</span>'''
+'''    (2) Determination of deductible amount  for each trade or business. The amount determined under this paragraph with  respect to any qualified trade or business is the lesser of—'''
-'''<span lang="EN">         (A) 20 percent of the taxpayer’s  qualified business income with respect to the qualified trade or business, or</span>'''
+'''         (A) 20 percent of the taxpayer’s  qualified business income with respect to the qualified trade or business, or'''
-'''<span lang="EN">         (B) the greater of—</span>'''
+'''         (B) the greater of—'''
-'''<span lang="EN">              (i) 50 percent of the W–2  wages with respect to the qualified trade or business, or</span>'''
+'''              (i) 50 percent of the W–2  wages with respect to the qualified trade or business, or'''
-'''<span lang="EN">              (ii) the sum of 25 percent of  the W–2 wages with respect to the qualified trade or business, plus 2.5  percent of the unadjusted basis immediately after acquisition of all  qualified property.</span>'''
+'''              (ii) the sum of 25 percent of  the W–2 wages with respect to the qualified trade or business, plus 2.5  percent of the unadjusted basis immediately after acquisition of all  qualified property.'''
-'''<span lang="EN">    (3) Modifications to limit based on  taxable income</span>'''
+'''    (3) Modifications to limit based on  taxable income'''
-'''<span lang="EN">         (A) Exception from limit. In the  case of any taxpayer whose taxable income for the taxable year does not  exceed the threshold amount, paragraph (2) shall be applied without regard to  subparagraph (B).</span>'''
+'''         (A) Exception from limit. In the  case of any taxpayer whose taxable income for the taxable year does not  exceed the threshold amount, paragraph (2) shall be applied without regard to  subparagraph (B).'''
-'''<span lang="EN">          (B) Phase-in of limit for  certain taxpayers</span>'''
+'''          (B) Phase-in of limit for  certain taxpayers'''
-'''<span lang="EN">              (i) In general. If—</span>'''
+'''              (i) In general. If—'''
-'''<span lang="EN">                   (I) the taxable income of  a taxpayer for any taxable year exceeds the threshold amount, but does not  exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of  a joint return), and</span>'''
+'''                   (I) the taxable income of  a taxpayer for any taxable year exceeds the threshold amount, but does not  exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of  a joint return), and'''
-'''<span lang="EN">                   (II) the amount  determined under paragraph (2)(B) (determined without regard to this  subparagraph) with respect to any qualified trade or business carried on by  the taxpayer is less than the amount determined under paragraph (2)(A) with  respect such trade or business, then paragraph (2) shall be applied with  respect to such trade or business without regard to subparagraph (B) thereof  and by reducing the amount determined under subparagraph (A) thereof by the  amount determined under clause (ii).</span>'''
+'''                   (II) the amount  determined under paragraph (2)(B) (determined without regard to this  subparagraph) with respect to any qualified trade or business carried on by  the taxpayer is less than the amount determined under paragraph (2)(A) with  respect such trade or business, then paragraph (2) shall be applied with  respect to such trade or business without regard to subparagraph (B) thereof  and by reducing the amount determined under subparagraph (A) thereof by the  amount determined under clause (ii).'''
-'''<span lang="EN">              (ii) Amount of reduction. The  amount determined under this subparagraph is the amount which bears the same  ratio to the excess amount as—</span>'''
+'''              (ii) Amount of reduction. The  amount determined under this subparagraph is the amount which bears the same  ratio to the excess amount as—'''
-'''<span lang="EN">                   (I) the amount by which  the taxpayer’s taxable income for the taxable year exceeds the threshold  amount, bears to</span>'''
+'''                   (I) the amount by which  the taxpayer’s taxable income for the taxable year exceeds the threshold  amount, bears to'''
-'''<span lang="EN">                   (II) $50,000 ($100,000 in  the case of a joint return).</span>'''
+'''                   (II) $50,000 ($100,000 in  the case of a joint return).'''
-'''<span lang="EN">              (iii) Excess amount. For  purposes of clause (ii), the excess amount is the excess of—</span>'''
+'''              (iii) Excess amount. For  purposes of clause (ii), the excess amount is the excess of—'''
-'''<span lang="EN">                   (I) the amount determined  under paragraph (2)(A) (determined without regard to this paragraph), over</span>'''
+'''                   (I) the amount determined  under paragraph (2)(A) (determined without regard to this paragraph), over'''
-'''<span lang="EN">                   (II) the amount  determined under paragraph (2)(B) (determined without regard to this  paragraph).</span>'''
+'''                   (II) the amount  determined under paragraph (2)(B) (determined without regard to this  paragraph).'''
-'''<span lang="EN">    (4) Wages, etc</span>'''
+'''    (4) Wages, etc'''
-'''<span lang="EN">         (A) In general. The term “W–2  wages” means, with respect to any person for any taxable year of such person,  the amounts described in paragraphs (3) and (8) of section 6051(a) paid by  such person with respect to employment of employees by such person during the  calendar year ending during such taxable year.</span>'''
+'''         (A) In general. The term “W–2  wages” means, with respect to any person for any taxable year of such person,  the amounts described in paragraphs (3) and (8) of section 6051(a) paid by  such person with respect to employment of employees by such person during the  calendar year ending during such taxable year.'''
-'''<span lang="EN">          (B) Limitation to wages  attributable to qualified business income. Such term shall not include any  amount which is not properly allocable to qualified business income for  purposes of subsection (c)(1).</span>'''
+'''          (B) Limitation to wages  attributable to qualified business income. Such term shall not include any  amount which is not properly allocable to qualified business income for  purposes of subsection (c)(1).'''
-'''<span lang="EN">          (C) Return requirement. Such  term shall not include any amount which is not properly included in a return  filed with the Social Security Administration on or before the 60th day after  the due date (including extensions) for such return.</span>'''
+'''          (C) Return requirement. Such  term shall not include any amount which is not properly included in a return  filed with the Social Security Administration on or before the 60th day after  the due date (including extensions) for such return.'''
-'''<span lang="EN">     (5) Acquisitions, dispositions,  and short taxable years. The Secretary shall provide for the application of  this subsection in cases of a short taxable year or where the taxpayer  acquires, or disposes of, the major portion of a trade or business or the  major portion of a separate unit of a trade or business during the taxable  year.</span>'''
+'''     (5) Acquisitions, dispositions,  and short taxable years. The Secretary shall provide for the application of  this subsection in cases of a short taxable year or where the taxpayer  acquires, or disposes of, the major portion of a trade or business or the  major portion of a separate unit of a trade or business during the taxable  year.'''
-'''<span lang="EN">     (6) Qualified property. For  purposes of this section:</span>'''
+'''     (6) Qualified property. For  purposes of this section:'''
-'''<span lang="EN">         </span>'''
+'''         '''
-'''<span lang="EN">          (A) In general. The term “qualified  property” means, with respect to any qualified trade or business for a  taxable year, tangible property of a character subject to the allowance for  depreciation under section 167—</span>'''
+'''          (A) In general. The term “qualified  property” means, with respect to any qualified trade or business for a  taxable year, tangible property of a character subject to the allowance for  depreciation under section 167—'''
-'''<span lang="EN">              (i) which is held by, and  available for use in, the qualified trade or business at the close of the  taxable year,</span>'''
+'''              (i) which is held by, and  available for use in, the qualified trade or business at the close of the  taxable year,'''
-'''<span lang="EN">              (ii) which is used at any  point during the taxable year in the production of qualified business income,  and</span>'''
+'''              (ii) which is used at any  point during the taxable year in the production of qualified business income,  and'''
-'''<span lang="EN">              (iii) the depreciable period  for which has not ended before the close of the taxable year.</span>'''
+'''              (iii) the depreciable period  for which has not ended before the close of the taxable year.'''
-'''<span lang="EN">         (B) Depreciable period. The term  “depreciable period” means, with respect to qualified property of a taxpayer,  the period beginning on the date the property was first placed in service by  the taxpayer and ending on the later of—</span>'''
+'''         (B) Depreciable period. The term  “depreciable period” means, with respect to qualified property of a taxpayer,  the period beginning on the date the property was first placed in service by  the taxpayer and ending on the later of—'''
-'''<span lang="EN">              (i) the date that is 10 years  after such date, or</span>'''
+'''              (i) the date that is 10 years  after such date, or'''
-'''<span lang="EN">              (ii) the last day of the last  full year in the applicable recovery period that would apply to the property  under section 168 (determined without regard to subsection (g) thereof).</span>'''
+'''              (ii) the last day of the last  full year in the applicable recovery period that would apply to the property  under section 168 (determined without regard to subsection (g) thereof).'''
-'''<span lang="EN">(c)  Qualified business income. For purposes of this section—</span>'''
+'''(c)  Qualified business income. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. The term “qualified  business income” means, for any taxable year, the net amount of qualified  items of income, gain, deduction, and loss with respect to any qualified  trade or business of the taxpayer. Such term shall not include any qualified  REIT dividends, qualified cooperative dividends, or qualified publicly traded  partnership income.</span>'''
+'''    (1) In general. The term “qualified  business income” means, for any taxable year, the net amount of qualified  items of income, gain, deduction, and loss with respect to any qualified  trade or business of the taxpayer. Such term shall not include any qualified  REIT dividends, qualified cooperative dividends, or qualified publicly traded  partnership income.'''
-'''<span lang="EN">     (2) Carryover of losses. If the  net amount of qualified income, gain, deduction, and loss with respect to  qualified trades or businesses of the taxpayer for any taxable year is less  than zero, such amount shall be treated as a loss from a qualified trade or  business in the succeeding taxable year.</span>'''
+'''     (2) Carryover of losses. If the  net amount of qualified income, gain, deduction, and loss with respect to  qualified trades or businesses of the taxpayer for any taxable year is less  than zero, such amount shall be treated as a loss from a qualified trade or  business in the succeeding taxable year.'''
-'''<span lang="EN">    (3) Qualified items of income, gain,  deduction, and loss. For purposes of this subsection—</span>'''
+'''    (3) Qualified items of income, gain,  deduction, and loss. For purposes of this subsection—'''
-'''<span lang="EN">         (A) In general. The term “qualified items of income, gain, deduction,  and loss” means items of income, gain, deduction, and loss to the extent such  items are—</span>'''
+'''         (A) In general. The term “qualified items of income, gain, deduction,  and loss” means items of income, gain, deduction, and loss to the extent such  items are—'''
-'''<span lang="EN">              (i) effectively connected with  the conduct of a trade or business within the United States (within the  meaning of section 864(c), determined by substituting “qualified trade or  business (within the meaning of section 199A)” for“nonresident alien  individual or a foreign corporation” or for “a foreign corporation” each  place it appears), and</span>'''
+'''              (i) effectively connected with  the conduct of a trade or business within the United States (within the  meaning of section 864(c), determined by substituting “qualified trade or  business (within the meaning of section 199A)” for“nonresident alien  individual or a foreign corporation” or for “a foreign corporation” each  place it appears), and'''
-'''<span lang="EN">              (ii) included or allowed in  determining taxable income for the taxable year.</span>'''
+'''              (ii) included or allowed in  determining taxable income for the taxable year.'''
-'''<span lang="EN">         (B) Exceptions. The following  investment items shall not be taken into account as a qualified item of  income, gain, deduction, or loss:</span>'''
+'''         (B) Exceptions. The following  investment items shall not be taken into account as a qualified item of  income, gain, deduction, or loss:'''
-'''<span lang="EN">               (i) Any item of short-term capital gain, short-term capital loss,  long-term capital gain, or long-term capital loss.</span>'''
+'''               (i) Any item of short-term capital gain, short-term capital loss,  long-term capital gain, or long-term capital loss.'''
-'''<span lang="EN">              (ii) Any dividend, income  equivalent to a dividend, or payment in lieu of dividends described in  section 954(c)(1)(G).</span>'''
+'''              (ii) Any dividend, income  equivalent to a dividend, or payment in lieu of dividends described in  section 954(c)(1)(G).'''
-'''<span lang="EN">              (iii) Any interest income  other than interest income which is properly allocable to a trade or  business.</span>'''
+'''              (iii) Any interest income  other than interest income which is properly allocable to a trade or  business.'''
-'''<span lang="EN">              (iv) Any item of gain or loss  described in subparagraph (C) or (D) of section 954(c)(1) (applied by  substituting “qualified trade or business” for “controlled foreign  corporation”).</span>'''
+'''              (iv) Any item of gain or loss  described in subparagraph (C) or (D) of section 954(c)(1) (applied by  substituting “qualified trade or business” for “controlled foreign  corporation”).'''
-'''<span lang="EN">              (v) Any item of income, gain,  deduction, or loss taken into account under section 954(c)(1)(F) (determined  without regard to clause (ii) thereof and other than items attributable to  notional principal contracts entered into in transactions qualifying under  section 1221(a)(7)).</span>'''
+'''              (v) Any item of income, gain,  deduction, or loss taken into account under section 954(c)(1)(F) (determined  without regard to clause (ii) thereof and other than items attributable to  notional principal contracts entered into in transactions qualifying under  section 1221(a)(7)).'''
-'''<span lang="EN">              (vi) Any amount received from  an annuity which is not received in connection with the trade or business.</span>'''
+'''              (vi) Any amount received from  an annuity which is not received in connection with the trade or business.'''
-'''<span lang="EN">              (vii) Any item of deduction or  loss properly allocable to an amount described in any of the preceding  clauses.</span>'''
+'''              (vii) Any item of deduction or  loss properly allocable to an amount described in any of the preceding  clauses.'''
-'''<span lang="EN">    (4) Treatment of reasonable compensation  and guaranteed payments. Qualified business income shall not include—</span>'''
+'''    (4) Treatment of reasonable compensation  and guaranteed payments. Qualified business income shall not include—'''
-'''<span lang="EN">         (A) reasonable compensation paid to  the taxpayer by any qualified trade or business of the taxpayer for services  rendered with respect to the trade or business,</span>'''
+'''         (A) reasonable compensation paid to  the taxpayer by any qualified trade or business of the taxpayer for services  rendered with respect to the trade or business,'''
-'''<span lang="EN">         (B) any guaranteed payment  described in section 707(c) paid to a partner for services rendered with  respect to the trade or business, and</span>'''
+'''         (B) any guaranteed payment  described in section 707(c) paid to a partner for services rendered with  respect to the trade or business, and'''
-'''<span lang="EN">         (C) to the extent provided in  regulations, any payment described in section 707(a) to a partner for  services rendered with respect to the trade or business.</span>'''
+'''         (C) to the extent provided in  regulations, any payment described in section 707(a) to a partner for  services rendered with respect to the trade or business.'''
-'''<span lang="EN">(d)  Qualified trade or business. For purposes of this section—</span>'''
+'''(d)  Qualified trade or business. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. The term “qualified  trade or business” means any trade or business other than—</span>'''
+'''    (1) In general. The term “qualified  trade or business” means any trade or business other than—'''
-'''<span lang="EN">         (A) a specified service trade or  business, or</span>'''
+'''         (A) a specified service trade or  business, or'''
-'''<span lang="EN">         (B) the trade or business of  performing services as an employee.</span>'''
+'''         (B) the trade or business of  performing services as an employee.'''
-'''<span lang="EN">    (2) Specified service trade or business.  The term “specified service trade or business” means any trade or business—</span>'''
+'''    (2) Specified service trade or business.  The term “specified service trade or business” means any trade or business—'''
-'''<span lang="EN">         (A) which is described in section  1202(e)(3)(A) (applied without regard to the words “engineering,  architecture,”) or which would be so described if the term “employees or  owners” were substituted for “employees” therein, or</span>'''
+'''         (A) which is described in section  1202(e)(3)(A) (applied without regard to the words “engineering,  architecture,”) or which would be so described if the term “employees or  owners” were substituted for “employees” therein, or'''
-'''<span lang="EN">         (B) which involves the performance  of services that consist of investing and investment management, trading, or  dealing in securities (as defined in section 475(c)(2)), partnership  interests, or commodities (as defined in section 475(e)(2)).</span>'''
+'''         (B) which involves the performance  of services that consist of investing and investment management, trading, or  dealing in securities (as defined in section 475(c)(2)), partnership  interests, or commodities (as defined in section 475(e)(2)).'''
-'''<span lang="EN">    (3) Exception for specified service  businesses based on taxpayer’s income</span>'''
+'''    (3) Exception for specified service  businesses based on taxpayer’s income'''
-'''<span lang="EN">         (A) In generalIf, for any taxable  year, the taxable income of any taxpayer is less than the sum of the  threshold amount plus $50,000 ($100,000 in the case of a joint return), then—</span>'''
+'''         (A) In generalIf, for any taxable  year, the taxable income of any taxpayer is less than the sum of the  threshold amount plus $50,000 ($100,000 in the case of a joint return), then—'''
-'''<span lang="EN">              (i) any specified service  trade or business of the taxpayer shall not fail to be treated as a qualified  trade or business due to paragraph (1)(A), but</span>'''
+'''              (i) any specified service  trade or business of the taxpayer shall not fail to be treated as a qualified  trade or business due to paragraph (1)(A), but'''
-'''<span lang="EN">              (ii) only the applicable  percentage of qualified items of income, gain, deduction, or loss, and the  W–2 wages and the unadjusted basis immediately after acquisition of qualified  property, of the taxpayer allocable to such specified service trade or  business shall be taken into account in computing the qualified business  income, W–2 wages, and the unadjusted basis immediately after acquisition of  qualified property of the taxpayer for the taxable year for purposes of  applying this section.</span>'''
+'''              (ii) only the applicable  percentage of qualified items of income, gain, deduction, or loss, and the  W–2 wages and the unadjusted basis immediately after acquisition of qualified  property, of the taxpayer allocable to such specified service trade or  business shall be taken into account in computing the qualified business  income, W–2 wages, and the unadjusted basis immediately after acquisition of  qualified property of the taxpayer for the taxable year for purposes of  applying this section.'''
-'''<span lang="EN">    (B) Applicable percentage. For purposes  of subparagraph (A), the term “applicable percentage” means, with respect to  any taxable year, 100 percent reduced (not below zero) by the percentage  equal to the ratio of—</span>'''
+'''    (B) Applicable percentage. For purposes  of subparagraph (A), the term “applicable percentage” means, with respect to  any taxable year, 100 percent reduced (not below zero) by the percentage  equal to the ratio of—'''
-'''<span lang="EN">              (i) the taxable income of the taxpayer for  the taxable year in excess of the threshold amount, bears to</span>'''
+'''              (i) the taxable income of the taxpayer for  the taxable year in excess of the threshold amount, bears to'''
-'''<span lang="EN">              (ii) $50,000 ($100,000 in the  case of a joint return).</span>'''
+'''              (ii) $50,000 ($100,000 in the  case of a joint return).'''
-'''<span lang="EN">(e)  Other Definitions. For purposes of this section—</span>'''
+'''(e)  Other Definitions. For purposes of this section—'''
-'''<span lang="EN">    (1) Taxable income. Taxable income shall  be computed without regard to the deduction allowable under this section.</span>'''
+'''    (1) Taxable income. Taxable income shall  be computed without regard to the deduction allowable under this section.'''
-'''<span lang="EN">     (2) Threshold amount</span>'''
+'''     (2) Threshold amount'''
-'''<span lang="EN">         (A) In general. The term “threshold  amount” means $157,500 (200 percent of such amount in the case of a joint  return).</span>'''
+'''         (A) In general. The term “threshold  amount” means $157,500 (200 percent of such amount in the case of a joint  return).'''
-'''<span lang="EN">          (B) Inflation adjustment. In the  case of any taxable year beginning after 2018, the dollar amount in  subparagraph (A) shall be increased by an amount equal to—</span>'''
+'''          (B) Inflation adjustment. In the  case of any taxable year beginning after 2018, the dollar amount in  subparagraph (A) shall be increased by an amount equal to—'''
-'''<span lang="EN">              (i) such dollar amount,  multiplied by</span>'''
+'''              (i) such dollar amount,  multiplied by'''
-'''<span lang="EN">              (ii) the cost-of-living  adjustment determined under section 1(f)(3) for the calendar year in which  the taxable year begins, determined by substituting “calendar year 2017” for  “calendar year 2016” in subparagraph (A)(ii) thereof.</span>'''
+'''              (ii) the cost-of-living  adjustment determined under section 1(f)(3) for the calendar year in which  the taxable year begins, determined by substituting “calendar year 2017” for  “calendar year 2016” in subparagraph (A)(ii) thereof.'''
-'''<span lang="EN">The  amount of any increase under the preceding sentence shall be rounded as  provided in section 1(f)(7).</span>'''
+'''The  amount of any increase under the preceding sentence shall be rounded as  provided in section 1(f)(7).'''
-'''<span lang="EN">    (3) Qualified REIT dividend. The term  “qualified REIT dividend” means any dividend from a real estate investment  trust received during the taxable year which—</span>'''
+'''    (3) Qualified REIT dividend. The term  “qualified REIT dividend” means any dividend from a real estate investment  trust received during the taxable year which—'''
-'''<span lang="EN">         (A) is not a capital gain dividend,  as defined in section 857(b)(3), and</span>'''
+'''         (A) is not a capital gain dividend,  as defined in section 857(b)(3), and'''
-'''<span lang="EN">         (B) is not qualified dividend  income, as defined in section 1(h)(11).</span>'''
+'''         (B) is not qualified dividend  income, as defined in section 1(h)(11).'''
-'''<span lang="EN">    (4) Qualified cooperative dividend. The  term “qualified cooperative dividend” means any patronage dividend (as defined  in section 1388(a)), any per-unit retain allocation (as defined in section  1388(f)), and any qualified written notice of allocation (as defined in  section 1388(c)), or any similar amount received from an organization  described in subparagraph (B)(ii), which—</span>'''
+'''    (4) Qualified cooperative dividend. The  term “qualified cooperative dividend” means any patronage dividend (as defined  in section 1388(a)), any per-unit retain allocation (as defined in section  1388(f)), and any qualified written notice of allocation (as defined in  section 1388(c)), or any similar amount received from an organization  described in subparagraph (B)(ii), which—'''
-'''<span lang="EN">         (A) is includible in gross income,  and</span>'''
+'''         (A) is includible in gross income,  and'''
-'''<span lang="EN">         (B) is received from—</span>'''
+'''         (B) is received from—'''
-'''<span lang="EN">              (i) an organization or  corporation described in section 501(c)(12) or 1381(a), or</span>'''
+'''              (i) an organization or  corporation described in section 501(c)(12) or 1381(a), or'''
-'''<span lang="EN">              (ii) an organization which is  governed under this title by the rules applicable to cooperatives under this  title before the enactment of subchapter T.</span>'''
+'''              (ii) an organization which is  governed under this title by the rules applicable to cooperatives under this  title before the enactment of subchapter T.'''
-'''<span lang="EN">    (5) Qualified publicly traded  partnership income. The term “qualified publicly traded partnership income”  means, with respect to any qualified trade or business of a taxpayer, the sum  of—</span>'''
+'''    (5) Qualified publicly traded  partnership income. The term “qualified publicly traded partnership income”  means, with respect to any qualified trade or business of a taxpayer, the sum  of—'''
-'''<span lang="EN">         (A) the net amount of such  taxpayer’s allocable share of each qualified item of income, gain, deduction,  and loss (as defined in subsection (c)(3) and determined after the  application of subsection (c)(4)) from a publicly traded partnership (as  defined in section 7704(a)) [1] which is not treated as a corporation under  section 7704(c), plus</span>'''
+'''         (A) the net amount of such  taxpayer’s allocable share of each qualified item of income, gain, deduction,  and loss (as defined in subsection (c)(3) and determined after the  application of subsection (c)(4)) from a publicly traded partnership (as  defined in section 7704(a)) [1] which is not treated as a corporation under  section 7704(c), plus'''
-'''<span lang="EN">         (B) any gain recognized by such  taxpayer upon disposition of its interest in such partnership to the extent  such gain is treated as an amount realized from the sale or exchange of  property other than a capital asset under section 751(a).</span>'''
+'''         (B) any gain recognized by such  taxpayer upon disposition of its interest in such partnership to the extent  such gain is treated as an amount realized from the sale or exchange of  property other than a capital asset under section 751(a).'''
-'''<span lang="EN">(f)  Special rules</span>'''
+'''(f)  Special rules'''
-'''<span lang="EN">    (1) Application to partnerships and s  corporations</span>'''
+'''    (1) Application to partnerships and s  corporations'''
-'''<span lang="EN">         (A) In general. In the case of a  partnership or S corporation—</span>'''
+'''         (A) In general. In the case of a  partnership or S corporation—'''
-'''<span lang="EN">              (i) this section shall be  applied at the partner or shareholder level,</span>'''
+'''              (i) this section shall be  applied at the partner or shareholder level,'''
-'''<span lang="EN">              (ii) each partner or  shareholder shall take into account such person’s allocable share of each  qualified item of income, gain, deduction, and loss, and</span>'''
+'''              (ii) each partner or  shareholder shall take into account such person’s allocable share of each  qualified item of income, gain, deduction, and loss, and'''
-'''<span lang="EN">              (iii) each partner or  shareholder shall be treated for purposes of subsection (b) as having W–2 wages  and unadjusted basis immediately after acquisition of qualified property for  the taxable year in an amount equal to such person’s allocable share of the  W–2 wages and the unadjusted basis immediately after acquisition of qualified  property of the partnership or S corporation for the taxable year (as  determined under regulations prescribed by the Secretary).</span>'''
+'''              (iii) each partner or  shareholder shall be treated for purposes of subsection (b) as having W–2 wages  and unadjusted basis immediately after acquisition of qualified property for  the taxable year in an amount equal to such person’s allocable share of the  W–2 wages and the unadjusted basis immediately after acquisition of qualified  property of the partnership or S corporation for the taxable year (as  determined under regulations prescribed by the Secretary).'''
-'''<span lang="EN">For  purposes of clause (iii), a partner’s or shareholder’s allocable share of W–2  wages shall be determined in the same manner as the partner’s or shareholder’s  allocable share of wage expenses. For purposes of such clause, partner’s or  shareholder’s allocable share of the unadjusted basis immediately after  acquisition of qualified property shall be determined in the same manner as  the partner’s or shareholder’s allocable share of depreciation. For purposes  of this subparagraph, in the case of an S corporation, an allocable share  shall be the shareholder’s pro rata share of an item.</span>'''
+'''For  purposes of clause (iii), a partner’s or shareholder’s allocable share of W–2  wages shall be determined in the same manner as the partner’s or shareholder’s  allocable share of wage expenses. For purposes of such clause, partner’s or  shareholder’s allocable share of the unadjusted basis immediately after  acquisition of qualified property shall be determined in the same manner as  the partner’s or shareholder’s allocable share of depreciation. For purposes  of this subparagraph, in the case of an S corporation, an allocable share  shall be the shareholder’s pro rata share of an item.'''
-'''<span lang="EN">         (B) Application to trusts and  estates. Rules similar to the rules under section 199(d)(1)(B)(i) (as in  effect on December 1, 2017) for the apportionment of W–2 wages shall apply to  the apportionment of W–2 wages and the apportionment of unadjusted basis  immediately after acquisition of qualified property under this section.</span>'''
+'''         (B) Application to trusts and  estates. Rules similar to the rules under section 199(d)(1)(B)(i) (as in  effect on December 1, 2017) for the apportionment of W–2 wages shall apply to  the apportionment of W–2 wages and the apportionment of unadjusted basis  immediately after acquisition of qualified property under this section.'''
-'''<span lang="EN">     (C) Treatment of trades or  business in Puerto Rico</span>'''
+'''     (C) Treatment of trades or  business in Puerto Rico'''
-'''<span lang="EN">              (i) In general. In the case of  any taxpayer with qualified business income from sources within the  commonwealth of Puerto Rico, if all such income is taxable under section 1  for such taxable year, then for purposes of determining the qualified  business income of such taxpayer for such taxable year, the term “United  States” shall include the Commonwealth of Puerto Rico.</span>'''
+'''              (i) In general. In the case of  any taxpayer with qualified business income from sources within the  commonwealth of Puerto Rico, if all such income is taxable under section 1  for such taxable year, then for purposes of determining the qualified  business income of such taxpayer for such taxable year, the term “United  States” shall include the Commonwealth of Puerto Rico.'''
-'''<span lang="EN">               (ii) Special rule for  applying limit. In the case of any taxpayer described in clause (i), the  determination of W–2 wages of such taxpayer with respect to any qualified  trade or business conducted in Puerto Rico shall be made without regard to  any exclusion under section 3401(a)(8) for remuneration paid for services in  Puerto Rico.</span>'''
+'''               (ii) Special rule for  applying limit. In the case of any taxpayer described in clause (i), the  determination of W–2 wages of such taxpayer with respect to any qualified  trade or business conducted in Puerto Rico shall be made without regard to  any exclusion under section 3401(a)(8) for remuneration paid for services in  Puerto Rico.'''
-'''<span lang="EN">     (2) Coordination with minimum tax.  For purposes of determining alternative minimum taxable income under section  55, qualified business income shall be determined without regard to any  adjustments under sections 56 through 59.</span>'''
+'''     (2) Coordination with minimum tax.  For purposes of determining alternative minimum taxable income under section  55, qualified business income shall be determined without regard to any  adjustments under sections 56 through 59.'''
-'''<span lang="EN">     (3) Deduction limited to income  taxes. The deduction under subsection (a) shall only be allowed for purposes  of this chapter.</span>'''
+'''     (3) Deduction limited to income  taxes. The deduction under subsection (a) shall only be allowed for purposes  of this chapter.'''
-'''<span lang="EN">     (4) Regulations. The Secretary  shall prescribe such regulations as are necessary to carry out the purposes  of this section, including regulations—</span>'''
+'''     (4) Regulations. The Secretary  shall prescribe such regulations as are necessary to carry out the purposes  of this section, including regulations—'''
-'''<span lang="EN">         (A) for requiring or restricting  the allocation of items and wages under this section and such reporting  requirements as the Secretary determines appropriate, and</span>'''
+'''         (A) for requiring or restricting  the allocation of items and wages under this section and such reporting  requirements as the Secretary determines appropriate, and'''
-'''<span lang="EN">         (B) for the application of this  section in the case of tiered entities.</span>'''
+'''         (B) for the application of this  section in the case of tiered entities.'''
-'''<span lang="EN">(g)  Deduction allowed to specified agricultural or horticultural cooperatives</span>'''
+'''(g)  Deduction allowed to specified agricultural or horticultural cooperatives'''
-'''<span lang="EN">    (1) In general. In the case of any  taxable year of a specified agricultural or horticultural cooperative  beginning after December 31, 2017, there shall be allowed a deduction in an  amount equal to the lesser of—</span>'''
+'''    (1) In general. In the case of any  taxable year of a specified agricultural or horticultural cooperative  beginning after December 31, 2017, there shall be allowed a deduction in an  amount equal to the lesser of—'''
-'''<span lang="EN">         (A) 20 percent of the excess (if  any) of—</span>'''
+'''         (A) 20 percent of the excess (if  any) of—'''
-'''<span lang="EN">              (i) the gross income of a  specified agricultural or horticultural cooperative, over</span>'''
+'''              (i) the gross income of a  specified agricultural or horticultural cooperative, over'''
-'''<span lang="EN">              (ii) the qualified cooperative  dividends (as defined in subsection (e)(4)) paid during the taxable year for  the taxable year, or</span>'''
+'''              (ii) the qualified cooperative  dividends (as defined in subsection (e)(4)) paid during the taxable year for  the taxable year, or'''
-'''<span lang="EN">    (B) the greater of—</span>'''
+'''    (B) the greater of—'''
-'''<span lang="EN">              (i) 50 percent of the W–2  wages of the cooperative with respect to its trade or business, or</span>'''
+'''              (i) 50 percent of the W–2  wages of the cooperative with respect to its trade or business, or'''
-'''<span lang="EN">              (ii) the sum of 25 percent of  the W–2 wages of the cooperative with respect to its trade or business, plus  2.5 percent of the unadjusted basis immediately after acquisition of all  qualified property of the cooperative.</span>'''
+'''              (ii) the sum of 25 percent of  the W–2 wages of the cooperative with respect to its trade or business, plus  2.5 percent of the unadjusted basis immediately after acquisition of all  qualified property of the cooperative.'''
-'''<span lang="EN">    (2) Limitation. The amount determined  under paragraph (1) shall not exceed the taxable income of the specified  agricultural or horticultural for the taxable year.</span>'''
+'''    (2) Limitation. The amount determined  under paragraph (1) shall not exceed the taxable income of the specified  agricultural or horticultural for the taxable year.'''
-'''<span lang="EN">     (3) Specified agricultural or  horticultural cooperative. For purposes of this subsection, the term  “specified agricultural or horticultural cooperative” means an organization  to which part I of subchapter T applies which is engaged in—</span>'''
+'''     (3) Specified agricultural or  horticultural cooperative. For purposes of this subsection, the term  “specified agricultural or horticultural cooperative” means an organization  to which part I of subchapter T applies which is engaged in—'''
-'''<span lang="EN">         (A) the manufacturing, production,  growth, or extraction in whole or significant part of any agricultural or  horticultural product,</span>'''
+'''         (A) the manufacturing, production,  growth, or extraction in whole or significant part of any agricultural or  horticultural product,'''
-'''<span lang="EN">         (B) the marketing of agricultural  or horticultural products which its patrons have so manufactured, produced,  grown, or extracted, or</span>'''
+'''         (B) the marketing of agricultural  or horticultural products which its patrons have so manufactured, produced,  grown, or extracted, or'''
-'''<span lang="EN">         (C) the provision of supplies,  equipment, or services to farmers or to organizations described in  subparagraph (A) or (B).</span>'''
+'''         (C) the provision of supplies,  equipment, or services to farmers or to organizations described in  subparagraph (A) or (B).'''
-'''<span lang="EN">(h)  Anti-abuse rules. The Secretary shall—</span>'''
+'''(h)  Anti-abuse rules. The Secretary shall—'''
-'''<span lang="EN">    (1) apply rules similar to the rules  under section 179(d)(2) in order to prevent the manipulation of the  depreciable period of qualified property using transactions between related  parties, and</span>'''
+'''    (1) apply rules similar to the rules  under section 179(d)(2) in order to prevent the manipulation of the  depreciable period of qualified property using transactions between related  parties, and'''
-'''<span lang="EN">    (2) prescribe rules for determining the  unadjusted basis immediately after acquisition of qualified property acquired  in like-kind exchanges or involuntary conversions.</span>'''
+'''    (2) prescribe rules for determining the  unadjusted basis immediately after acquisition of qualified property acquired  in like-kind exchanges or involuntary conversions.'''
-'''<span lang="EN">(i)  Termination. This section shall not apply to taxable years beginning after  December 31, 2025.</span>'''
+'''(i)  Termination. This section shall not apply to taxable years beginning after  December 31, 2025.'''
 |}
-<span lang="EN">STEP FOUR A: LESS GENERAL DEDUCTION OR ITEMIZED DEDUCTIONS UNDER 63(c) and 63(d)</span>
+STEP FOUR A: LESS GENERAL DEDUCTION OR ITEMIZED DEDUCTIONS UNDER 63(c) and 63(d)
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 63 - Taxable income defined</span>'''
+|'''26  U.S. Code § 63 - Taxable income defined'''
-'''<span lang="EN">(a)  In general. Except as provided in subsection (b), for purposes of this  subtitle, the term “taxable income” means gross income minus the deductions  allowed by this chapter (other than the standard deduction).</span>'''
+'''(a)  In general. Except as provided in subsection (b), for purposes of this  subtitle, the term “taxable income” means gross income minus the deductions  allowed by this chapter (other than the standard deduction).'''
-'''<span lang="EN">(b) Individuals who do not itemize their deductions. In the case of an  individual who does not elect to itemize his deductions for the taxable year,  for purposes of this subtitle, the term “taxable income” means adjusted gross  income, minus—</span>'''
+'''(b) Individuals who do not itemize their deductions. In the case of an  individual who does not elect to itemize his deductions for the taxable year,  for purposes of this subtitle, the term “taxable income” means adjusted gross  income, minus—'''
-'''<span lang="EN">    (1) the standard deduction,</span>'''
+'''    (1) the standard deduction,'''
-'''<span lang="EN">    (2) the deduction for personal  exemptions provided in section 151, and</span>'''
+'''    (2) the deduction for personal  exemptions provided in section 151, and'''
-'''<span lang="EN">    (3) the deduction provided in section  199A.</span>'''
+'''    (3) the deduction provided in section  199A.'''
-'''<span lang="EN">(c)  Standard deduction. For purposes of this subtitle—</span>'''
+'''(c)  Standard deduction. For purposes of this subtitle—'''
-'''<span lang="EN">    (1) In general. Except as otherwise  provided in this subsection, the term “standard deduction” means the sum of—</span>'''
+'''    (1) In general. Except as otherwise  provided in this subsection, the term “standard deduction” means the sum of—'''
-'''<span lang="EN">         (A) the basic standard deduction,  and</span>'''
+'''         (A) the basic standard deduction,  and'''
-'''<span lang="EN">         (B) the additional standard  deduction.</span>'''
+'''         (B) the additional standard  deduction.'''
-'''<span lang="EN">    (2) Basic standard deduction. For  purposes of paragraph (1), the basic standard deduction is—</span>'''
+'''    (2) Basic standard deduction. For  purposes of paragraph (1), the basic standard deduction is—'''
-'''<span lang="EN">         (A) 200 percent of the dollar  amount in effect under subparagraph (C) for the taxable year in the case of—</span>'''
+'''         (A) 200 percent of the dollar  amount in effect under subparagraph (C) for the taxable year in the case of—'''
-'''<span lang="EN">              (i) a joint return, or</span>'''
+'''              (i) a joint return, or'''
-'''<span lang="EN">              (ii) a surviving spouse (as  defined in section 2(a)),</span>'''
+'''              (ii) a surviving spouse (as  defined in section 2(a)),'''
-'''<span lang="EN">         (B) $4,400 in the case of a head of  household (as defined in section 2(b)), or</span>'''
+'''         (B) $4,400 in the case of a head of  household (as defined in section 2(b)), or'''
-'''<span lang="EN">         (C) $3,000 in any other case.</span>'''
+'''         (C) $3,000 in any other case.'''
-'''<span lang="EN">    (3) Additional standard deduction for  aged and blind. For purposes of paragraph (1), the additional standard  deduction is the sum of each additional amount to which the taxpayer is  entitled under subsection (f).</span>'''
+'''    (3) Additional standard deduction for  aged and blind. For purposes of paragraph (1), the additional standard  deduction is the sum of each additional amount to which the taxpayer is  entitled under subsection (f).'''
-'''<span lang="EN">     (4) Adjustments for inflation. In  the case of any taxable year beginning in a calendar year after 1988, each  dollar amount contained in paragraph (2)(B), (2)(C), or (5) or subsection (f)  shall be increased by an amount equal to—</span>'''
+'''     (4) Adjustments for inflation. In  the case of any taxable year beginning in a calendar year after 1988, each  dollar amount contained in paragraph (2)(B), (2)(C), or (5) or subsection (f)  shall be increased by an amount equal to—'''
-'''<span lang="EN">         (A) such dollar amount, multiplied  by</span>'''
+'''         (A) such dollar amount, multiplied  by'''
-'''<span lang="EN">         (B) the cost-of-living adjustment  determined under section 1(f)(3) for the calendar year in which the taxable  year begins, by substituting for “calendar year 2016” in subparagraph (A)(ii)  thereof—</span>'''
+'''         (B) the cost-of-living adjustment  determined under section 1(f)(3) for the calendar year in which the taxable  year begins, by substituting for “calendar year 2016” in subparagraph (A)(ii)  thereof—'''
-'''<span lang="EN">              (i) “calendar year 1987” in  the case of the dollar amounts contained in paragraph (2)(B), (2)(C), or  (5)(A) or subsection (f), and</span>'''
+'''              (i) “calendar year 1987” in  the case of the dollar amounts contained in paragraph (2)(B), (2)(C), or  (5)(A) or subsection (f), and'''
-'''<span lang="EN">              (ii) “calendar year 1997” in  the case of the dollar amount contained in paragraph (5)(B).</span>'''
+'''              (ii) “calendar year 1997” in  the case of the dollar amount contained in paragraph (5)(B).'''
-'''<span lang="EN">    (5) Limitation on basic standard  deduction in the case of certain dependents. In the case of an individual  with respect to whom a deduction under section 151 is allowable to another  taxpayer for a taxable year beginning in the calendar year in which the  individual’s taxable year begins, the basic standard deduction applicable to  such individual for such individual’s taxable year shall not exceed the  greater of—</span>'''
+'''    (5) Limitation on basic standard  deduction in the case of certain dependents. In the case of an individual  with respect to whom a deduction under section 151 is allowable to another  taxpayer for a taxable year beginning in the calendar year in which the  individual’s taxable year begins, the basic standard deduction applicable to  such individual for such individual’s taxable year shall not exceed the  greater of—'''
-'''<span lang="EN">         (A) $500, or</span>'''
+'''         (A) $500, or'''
-'''<span lang="EN">         (B) the sum of $250 and such  individual’s earned income.</span>'''
+'''         (B) the sum of $250 and such  individual’s earned income.'''
-'''<span lang="EN">    (6) Certain individuals, etc., not  eligible for standard deduction. In the case of—</span>'''
+'''    (6) Certain individuals, etc., not  eligible for standard deduction. In the case of—'''
-'''<span lang="EN">         (A) a married individual filing a  separate return where either spouse itemizes deductions,</span>'''
+'''         (A) a married individual filing a  separate return where either spouse itemizes deductions,'''
-'''<span lang="EN">         (B) a nonresident alien individual,</span>'''
+'''         (B) a nonresident alien individual,'''
-'''<span lang="EN">         (C) an individual making a return  under section 443(a)(1) for a period of less than 12 months on account of a  change in his annual accounting period, or</span>'''
+'''         (C) an individual making a return  under section 443(a)(1) for a period of less than 12 months on account of a  change in his annual accounting period, or'''
-'''<span lang="EN">         (D) an estate or trust, common  trust fund, or partnership, the standard deduction shall be zero.</span>'''
+'''         (D) an estate or trust, common  trust fund, or partnership, the standard deduction shall be zero.'''
-<span lang="EN">     '''(7)  Special rules for taxable years 2018 through 2025. In the case of a taxable  year beginning after December 31, 2017, and before January 1, 2026—'''</span>
+     '''(7)  Special rules for taxable years 2018 through 2025. In the case of a taxable  year beginning after December 31, 2017, and before January 1, 2026—'''
-'''<span lang="EN">         (A) Increase in standard deduction.  Paragraph (2) shall be applied—</span>'''
+'''         (A) Increase in standard deduction.  Paragraph (2) shall be applied—'''
-'''<span lang="EN">              (i) by substituting “$18,000”  for “$4,400” in subparagraph (B), and</span>'''
+'''              (i) by substituting “$18,000”  for “$4,400” in subparagraph (B), and'''
-'''<span lang="EN">              (ii) by substituting “$12,000”  for “$3,000” in subparagraph (C).</span>'''
+'''              (ii) by substituting “$12,000”  for “$3,000” in subparagraph (C).'''
-'''<span lang="EN">         (B) Adjustment for inflation</span>'''
+'''         (B) Adjustment for inflation'''
-'''<span lang="EN">              (i) In general. Paragraph (4)  shall not apply to the dollar amounts contained in paragraphs (2)(B) and  (2)(C).</span>'''
+'''              (i) In general. Paragraph (4)  shall not apply to the dollar amounts contained in paragraphs (2)(B) and  (2)(C).'''
-'''<span lang="EN">               (ii) Adjustment of  increased amounts. In the case of a taxable year beginning after 2018, the  $18,000 and $12,000 amounts in subparagraph (A) shall each be increased by an  amount equal to—</span>'''
+'''               (ii) Adjustment of  increased amounts. In the case of a taxable year beginning after 2018, the  $18,000 and $12,000 amounts in subparagraph (A) shall each be increased by an  amount equal to—'''
-'''<span lang="EN">                   (I) such dollar amount,  multiplied by</span>'''
+'''                   (I) such dollar amount,  multiplied by'''
-'''<span lang="EN">                   (II) the cost-of-living  adjustment determined under section 1(f)(3) for the calendar year in which  the taxable year begins, determined by substituting “2017” for “2016” in  subparagraph (A)(ii) thereof.</span>'''
+'''                   (II) the cost-of-living  adjustment determined under section 1(f)(3) for the calendar year in which  the taxable year begins, determined by substituting “2017” for “2016” in  subparagraph (A)(ii) thereof.'''
-'''<span lang="EN">If  any increase under this clause is not a multiple of $50, such increase shall  be rounded to the next lowest multiple of $50.</span>'''
+'''If  any increase under this clause is not a multiple of $50, such increase shall  be rounded to the next lowest multiple of $50.'''
-'''<span lang="EN">(d)  Itemized deductions. For purposes of this subtitle, the term “itemized  deductions” means the deductions allowable under this chapter other than—</span>'''
+'''(d)  Itemized deductions. For purposes of this subtitle, the term “itemized  deductions” means the deductions allowable under this chapter other than—'''
-'''<span lang="EN">    (1) the deductions allowable in arriving  at adjusted gross income,</span>'''
+'''    (1) the deductions allowable in arriving  at adjusted gross income,'''
-'''<span lang="EN">    (2) the deduction for personal exemptions  provided by section 151, and</span>'''
+'''    (2) the deduction for personal exemptions  provided by section 151, and'''
-'''<span lang="EN">    (3) the deduction provided in section  199A.</span>'''
+'''    (3) the deduction provided in section  199A.'''
-'''<span lang="EN">(e)  Election to itemize</span>'''
+'''(e)  Election to itemize'''
-'''<span lang="EN">    (1) In general. Unless an individual  makes an election under this subsection for the taxable year, no itemized  deduction shall be allowed for the taxable year. For purposes of this  subtitle, the determination of whether a deduction is allowable under this  chapter shall be made without regard to the preceding sentence.</span>'''
+'''    (1) In general. Unless an individual  makes an election under this subsection for the taxable year, no itemized  deduction shall be allowed for the taxable year. For purposes of this  subtitle, the determination of whether a deduction is allowable under this  chapter shall be made without regard to the preceding sentence.'''
-'''<span lang="EN">     (2) Time and manner of election.  Any election under this subsection shall be made on the taxpayer’s return,  and the Secretary shall prescribe the manner of signifying such election on  the return.</span>'''
+'''     (2) Time and manner of election.  Any election under this subsection shall be made on the taxpayer’s return,  and the Secretary shall prescribe the manner of signifying such election on  the return.'''
-'''<span lang="EN">     (3) Change of election.Under  regulations prescribed by the Secretary, a change of election with respect to  itemized deductions for any taxable year may be made after the filing of the  return for such year. If the spouse of the taxpayer filed a separate return  for any taxable year corresponding to the taxable year of the taxpayer, the  change shall not be allowed unless, in accordance with such regulations—</span>'''
+'''     (3) Change of election.Under  regulations prescribed by the Secretary, a change of election with respect to  itemized deductions for any taxable year may be made after the filing of the  return for such year. If the spouse of the taxpayer filed a separate return  for any taxable year corresponding to the taxable year of the taxpayer, the  change shall not be allowed unless, in accordance with such regulations—'''
-'''<span lang="EN">         (A) the spouse makes a change of  election with respect to itemized deductions, for the taxable year covered in  such separate return, consistent with the change of treatment sought by the  taxpayer, and</span>'''
+'''         (A) the spouse makes a change of  election with respect to itemized deductions, for the taxable year covered in  such separate return, consistent with the change of treatment sought by the  taxpayer, and'''
-'''<span lang="EN">         (B) the taxpayer and his spouse  consent in writing to the assessment (within such period as may be agreed on  with the Secretary) of any deficiency, to the extent attributable to such  change of election, even though at the time of the filing of such consent the  assessment of such deficiency would otherwise be prevented by the operation  of any law or rule of law.</span>'''
+'''         (B) the taxpayer and his spouse  consent in writing to the assessment (within such period as may be agreed on  with the Secretary) of any deficiency, to the extent attributable to such  change of election, even though at the time of the filing of such consent the  assessment of such deficiency would otherwise be prevented by the operation  of any law or rule of law.'''
-'''<span lang="EN">This  paragraph shall not apply if the tax liability of the taxpayer’s spouse for  the taxable year corresponding to the taxable year of the taxpayer has been  compromised under section 7122.</span>'''
+'''This  paragraph shall not apply if the tax liability of the taxpayer’s spouse for  the taxable year corresponding to the taxable year of the taxpayer has been  compromised under section 7122.'''
-'''<span lang="EN">(f)  Aged or blind additional amounts</span>'''
+'''(f)  Aged or blind additional amounts'''
-'''<span lang="EN">    (1) Additional amounts for the aged. The  taxpayer shall be entitled to an additional amount of $600—</span>'''
+'''    (1) Additional amounts for the aged. The  taxpayer shall be entitled to an additional amount of $600—'''
-'''<span lang="EN">         (A) for himself if he has attained  age 65 before the close of his taxable year, and</span>'''
+'''         (A) for himself if he has attained  age 65 before the close of his taxable year, and'''
-'''<span lang="EN">         (B) for the spouse of the taxpayer  if the spouse has attained age 65 before the close of the taxable year and an  additional exemption is allowable to the taxpayer for such spouse under  section 151(b).</span>'''
+'''         (B) for the spouse of the taxpayer  if the spouse has attained age 65 before the close of the taxable year and an  additional exemption is allowable to the taxpayer for such spouse under  section 151(b).'''
-'''<span lang="EN">    (2) Additional amount for blind. The  taxpayer shall be entitled to an additional amount of $600—</span>'''
+'''    (2) Additional amount for blind. The  taxpayer shall be entitled to an additional amount of $600—'''
-'''<span lang="EN">         (A) for himself if he is blind at  the close of the taxable year, and</span>'''
+'''         (A) for himself if he is blind at  the close of the taxable year, and'''
-'''<span lang="EN">         (B) for the spouse of the taxpayer  if the spouse is blind as of the close of the taxable year and an additional  exemption is allowable to the taxpayer for such spouse under section 151(b).</span>'''
+'''         (B) for the spouse of the taxpayer  if the spouse is blind as of the close of the taxable year and an additional  exemption is allowable to the taxpayer for such spouse under section 151(b).'''
-'''<span lang="EN">For  purposes of subparagraph (B), if the spouse dies during the taxable year the  determination of whether such spouse is blind shall be made as of the time of  such death.</span>'''
+'''For  purposes of subparagraph (B), if the spouse dies during the taxable year the  determination of whether such spouse is blind shall be made as of the time of  such death.'''
-'''<span lang="EN">    (3) Higher amount for certain unmarried  individuals. In the case of an individual who is not married and is not a  surviving spouse, paragraphs (1) and (2) shall be applied by substituting  “$750” for “$600”.</span>'''
+'''    (3) Higher amount for certain unmarried  individuals. In the case of an individual who is not married and is not a  surviving spouse, paragraphs (1) and (2) shall be applied by substituting  “$750” for “$600”.'''
-'''<span lang="EN">     (4) Blindness defined. For  purposes of this subsection, an individual is blind only if his central  visual acuity does not exceed 20/200 in the better eye with correcting  lenses, or if his visual acuity is greater than 20/200 but is accompanied by  a limitation in the fields of vision such that the widest diameter of the  visual field subtends an angle no greater than 20 degrees.</span>'''
+'''     (4) Blindness defined. For  purposes of this subsection, an individual is blind only if his central  visual acuity does not exceed 20/200 in the better eye with correcting  lenses, or if his visual acuity is greater than 20/200 but is accompanied by  a limitation in the fields of vision such that the widest diameter of the  visual field subtends an angle no greater than 20 degrees.'''
-'''<span lang="EN">(g) Marital status. For purposes of this section, marital status shall be  determined under section 7703.</span>'''
+'''(g) Marital status. For purposes of this section, marital status shall be  determined under section 7703.'''
 |}
-<span lang="EN">STEP FOUR B: ITEMIZED DEDUCTIONS §67</span>
+STEP FOUR B: ITEMIZED DEDUCTIONS §67
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 67 - 2-percent floor on miscellaneous itemized deductions</span>'''
+|'''26  U.S. Code § 67 - 2-percent floor on miscellaneous itemized deductions'''
-'''<span lang="EN">(a)  General rule. In the case of an individual, the miscellaneous itemized  deductions for any taxable year shall be allowed only to the extent that the  aggregate of such deductions exceeds 2 percent of adjusted gross income.</span>'''
+'''(a)  General rule. In the case of an individual, the miscellaneous itemized  deductions for any taxable year shall be allowed only to the extent that the  aggregate of such deductions exceeds 2 percent of adjusted gross income.'''
-'''<span lang="EN">(b) Miscellaneous itemized deductions. For purposes of this section, the term  “miscellaneous itemized deductions” means the itemized deductions other than—</span>'''
+'''(b) Miscellaneous itemized deductions. For purposes of this section, the term  “miscellaneous itemized deductions” means the itemized deductions other than—'''
-'''<span lang="EN">    (1) the deduction under section 163  (relating to interest),</span>'''
+'''    (1) the deduction under section 163  (relating to interest),'''
-'''<span lang="EN">    (2) the deduction under section 164  (relating to taxes),</span>'''
+'''    (2) the deduction under section 164  (relating to taxes),'''
-'''<span lang="EN">    (3) the deduction under section 165(a) for  casualty or theft losses described in paragraph (2) or (3) of section 165(c)  or for losses described in section 165(d),</span>'''
+'''    (3) the deduction under section 165(a) for  casualty or theft losses described in paragraph (2) or (3) of section 165(c)  or for losses described in section 165(d),'''
-'''<span lang="EN">    (4) the deductions under section 170  (relating to charitable, etc., contributions and gifts) and section 642(c)  (relating to deduction for amounts paid or permanently set aside for a  charitable purpose),</span>'''
+'''    (4) the deductions under section 170  (relating to charitable, etc., contributions and gifts) and section 642(c)  (relating to deduction for amounts paid or permanently set aside for a  charitable purpose),'''
-'''<span lang="EN">    (5) the deduction under section 213  (relating to medical, dental, etc., expenses),</span>'''
+'''    (5) the deduction under section 213  (relating to medical, dental, etc., expenses),'''
-'''<span lang="EN">    (6) any deduction allowable for  impairment-related work expenses,</span>'''
+'''    (6) any deduction allowable for  impairment-related work expenses,'''
-'''<span lang="EN">    (7) the deduction under section 691(c)  (relating to deduction for estate tax in case of income in respect of the  decedent),</span>'''
+'''    (7) the deduction under section 691(c)  (relating to deduction for estate tax in case of income in respect of the  decedent),'''
-'''<span lang="EN">    (8) any deduction allowable in  connection with personal property used in a short sale,</span>'''
+'''    (8) any deduction allowable in  connection with personal property used in a short sale,'''
-'''<span lang="EN">    (9) the deduction under section 1341  (relating to computation of tax where taxpayer restores substantial amount  held under claim of right),</span>'''
+'''    (9) the deduction under section 1341  (relating to computation of tax where taxpayer restores substantial amount  held under claim of right),'''
-'''<span lang="EN">    (10) the deduction under section  72(b)(3) (relating to deduction where annuity payments cease before  investment recovered),</span>'''
+'''    (10) the deduction under section  72(b)(3) (relating to deduction where annuity payments cease before  investment recovered),'''
-'''<span lang="EN">    (11) the deduction under section 171  (relating to deduction for amortizable bond premium), and</span>'''
+'''    (11) the deduction under section 171  (relating to deduction for amortizable bond premium), and'''
-'''<span lang="EN">    (12) the deduction under section 216  (relating to deductions in connection with cooperative housing corporations).</span>'''
+'''    (12) the deduction under section 216  (relating to deductions in connection with cooperative housing corporations).'''
-'''<span lang="EN">(c)  Disallowance of indirect deduction through pass-thru entity</span>'''
+'''(c)  Disallowance of indirect deduction through pass-thru entity'''
-'''<span lang="EN">    (1) In general. The Secretary shall  prescribe regulations which prohibit the indirect deduction through pass-thru  entities of amounts which are not allowable as a deduction if paid or  incurred directly by an individual and which contain such reporting  requirements as may be necessary to carry out the purposes of this  subsection.</span>'''
+'''    (1) In general. The Secretary shall  prescribe regulations which prohibit the indirect deduction through pass-thru  entities of amounts which are not allowable as a deduction if paid or  incurred directly by an individual and which contain such reporting  requirements as may be necessary to carry out the purposes of this  subsection.'''
-'''<span lang="EN">     (2) Treatment of publicly offered  regulated investment companies</span>'''
+'''     (2) Treatment of publicly offered  regulated investment companies'''
-'''<span lang="EN">         (A) In general. Paragraph (1) shall  not apply with respect to any publicly offered regulated investment company.</span>'''
+'''         (A) In general. Paragraph (1) shall  not apply with respect to any publicly offered regulated investment company.'''
-'''<span lang="EN">          (B) Publicly offered  regulated investment companies. For purposes of this subsection—</span>'''
+'''          (B) Publicly offered  regulated investment companies. For purposes of this subsection—'''
-'''<span lang="EN">              (i) In general. The term  “publicly offered regulated investment company” means a regulated investment  company the shares of which are—</span>'''
+'''              (i) In general. The term  “publicly offered regulated investment company” means a regulated investment  company the shares of which are—'''
-'''<span lang="EN">                   (I) continuously offered  pursuant to a public offering (within the meaning of section 4 of the  Securities Act of 1933, as amended (15 U.S.C. 77a to 77aa)),</span>'''
+'''                   (I) continuously offered  pursuant to a public offering (within the meaning of section 4 of the  Securities Act of 1933, as amended (15 U.S.C. 77a to 77aa)),'''
-'''<span lang="EN">                   (II) regularly traded on  an established securities market, or</span>'''
+'''                   (II) regularly traded on  an established securities market, or'''
-'''<span lang="EN">                   (III) held by or for no  fewer than 500 persons at all times during the taxable year.</span>'''
+'''                   (III) held by or for no  fewer than 500 persons at all times during the taxable year.'''
-'''<span lang="EN">              (ii) Secretary may reduce 500  person requirement. The Secretary may by regulation decrease the minimum  shareholder requirement of clause (i)(III) in the case of regulated  investment companies which experience a loss of shareholders through net  redemptions of their shares.</span>'''
+'''              (ii) Secretary may reduce 500  person requirement. The Secretary may by regulation decrease the minimum  shareholder requirement of clause (i)(III) in the case of regulated  investment companies which experience a loss of shareholders through net  redemptions of their shares.'''
-'''<span lang="EN">     (3) Treatment of certain other  entities. Paragraph (1) shall not apply—</span>'''
+'''     (3) Treatment of certain other  entities. Paragraph (1) shall not apply—'''
-'''<span lang="EN">         (A) with respect to cooperatives  and real estate investment trusts, and</span>'''
+'''         (A) with respect to cooperatives  and real estate investment trusts, and'''
-'''<span lang="EN">         (B) except as provided in  regulations, with respect to estates and trusts.</span>'''
+'''         (B) except as provided in  regulations, with respect to estates and trusts.'''
-'''<span lang="EN">(d)  Impairment-related work expenses. For purposes of this section, the term  “impairment-related work expenses” means expenses—</span>'''
+'''(d)  Impairment-related work expenses. For purposes of this section, the term  “impairment-related work expenses” means expenses—'''
-'''<span lang="EN">    (1) of a handicapped individual (as  defined in section 190(b)(3)) for attendant care services at the individual’s  place of employment and other expenses in connection with such place of  employment which are necessary for such individual to be able to work, and</span>'''
+'''    (1) of a handicapped individual (as  defined in section 190(b)(3)) for attendant care services at the individual’s  place of employment and other expenses in connection with such place of  employment which are necessary for such individual to be able to work, and'''
-'''<span lang="EN">    (2) with respect to which a deduction is  allowable under section 162 (determined without regard to this section).</span>'''
+'''    (2) with respect to which a deduction is  allowable under section 162 (determined without regard to this section).'''
-'''<span lang="EN">(e)  Determination of adjusted gross income in case of estates and trusts. For  purposes of this section, the adjusted gross income of an estate or trust  shall be computed in the same manner as in the case of an individual, except  that—</span>'''
+'''(e)  Determination of adjusted gross income in case of estates and trusts. For  purposes of this section, the adjusted gross income of an estate or trust  shall be computed in the same manner as in the case of an individual, except  that—'''
-'''<span lang="EN">    (1) the deductions for costs which are  paid or incurred in connection with the administration of the estate or trust  and which would not have been incurred if the property were not held in such  trust or estate, and</span>'''
+'''    (1) the deductions for costs which are  paid or incurred in connection with the administration of the estate or trust  and which would not have been incurred if the property were not held in such  trust or estate, and'''
-'''<span lang="EN">    (2) the deductions allowable under  sections 642(b), 651, and 661,</span>'''
+'''    (2) the deductions allowable under  sections 642(b), 651, and 661,'''
-'''<span lang="EN">shall be treated as allowable in arriving at adjusted gross income. Under  regulations, appropriate adjustments shall be made in the application of part  I of subchapter J of this chapter to take into account the provisions of this  section.</span>'''
+'''shall be treated as allowable in arriving at adjusted gross income. Under  regulations, appropriate adjustments shall be made in the application of part  I of subchapter J of this chapter to take into account the provisions of this  section.'''
-'''<span lang="EN">(f)  Coordination with other limitation. This section shall be applied before the  application of the dollar limitation of the second sentence of section 162(a)  (relating to trade or business expenses).</span>'''
+'''(f)  Coordination with other limitation. This section shall be applied before the  application of the dollar limitation of the second sentence of section 162(a)  (relating to trade or business expenses).'''
-'''<span lang="EN">(g) Suspension for  taxable years 2018 through 2025. Notwithstanding subsection (a), no  miscellaneous itemized deduction shall be allowed for any taxable year  beginning after December 31, 2017, and before January 1, 2026.</span>'''
+'''(g) Suspension for  taxable years 2018 through 2025. Notwithstanding subsection (a), no  miscellaneous itemized deduction shall be allowed for any taxable year  beginning after December 31, 2017, and before January 1, 2026.'''
 |}
-'''<span lang="EN">EXAMPLE</span>''' <span lang="EN">→ Calculating Taxable Income</span>
+'''EXAMPLE''' → Calculating Taxable Income
-<span lang="EN">Problem: John and Jane Doe; married with no children; both work at ACME Corp.; additional income: rent out basement apartment to law student.</span>
+Problem: John and Jane Doe; married with no children; both work at ACME Corp.; additional income: rent out basement apartment to law student.
 {| class="wikitable"
-| colspan="2" |'''<span lang="EN">2018 Income and Expenses for John and Jane Doe</span>'''
+| colspan="2" |'''2018 Income and Expenses for John and Jane Doe'''
 |-
-|'''<span lang="EN">Combined Salaries --- $95,000</span>'''
+|'''Combined Salaries --- $95,000'''
-|<span lang="EN">Mortgage Interest (§163) --- $16,000</span>
+|Mortgage Interest (§163) --- $16,000
 |-
-|'''<span lang="EN">Rental Income --- $5,000</span>'''
+|'''Rental Income --- $5,000'''
-|'''<span lang="EN">Rental Expenses (§212) --- $2,000</span>'''
+|'''Rental Expenses (§212) --- $2,000'''
 |-
-|'''<span lang="EN">Education Loan Interest (§221) --- $8,000</span>'''
+|'''Education Loan Interest (§221) --- $8,000'''
-|<span lang="EN">Charitable Contributions (§170) --- $500</span>
+|Charitable Contributions (§170) --- $500
 |-
-|<span lang="EN">Medical Expenses (§213) --- $2,000</span>
+|Medical Expenses (§213) --- $2,000
-|<span lang="EN">Unreimbursed Work Expenses (§162) --- $1,000</span>
+|Unreimbursed Work Expenses (§162) --- $1,000
 |-
-|<span lang="EN">Tax Preparation Fee (§212) --- $1,000</span>
+|Tax Preparation Fee (§212) --- $1,000
 |
 |}
-<span lang="EN">STEP ONE: '''Gross Income''' → $100,000 (combined salaries + rental income)</span>
+STEP ONE: '''Gross Income''' → $100,000 (combined salaries + rental income)
-<span lang="EN">STEP TWO: '''Deductions''' Under §62(a) → Education Loan Interest §62(a)(4)                   ABOVE THE LINE!</span>
+STEP TWO: '''Deductions''' Under §62(a) → Education Loan Interest §62(a)(4)                   ABOVE THE LINE!
-<span lang="EN">                                                             Rental Expenses §62(a)(17)</span>
+                                                             Rental Expenses §62(a)(17)
-<span lang="EN">                                                             $10,000</span>
+                                                             $10,000
-<span lang="EN">ADJUSTED GROSS INCOME = $90,000 (gross income less deductions under §62(a)).</span>
+ADJUSTED GROSS INCOME = $90,000 (gross income less deductions under §62(a)).
-<span lang="EN">STEP THREE: Less Qualified Business Income → N/A, not a qualified business under §199A</span>
+STEP THREE: Less Qualified Business Income → N/A, not a qualified business under §199A
-<span lang="EN">STEP FOUR: Less Standard Deduction OR</span>
+STEP FOUR: Less Standard Deduction OR
-<span lang="EN">                     Less Itemized Deductions</span>
+                     Less Itemized Deductions
 {| class="wikitable"
-|'''<span lang="EN">Standard  Deduction</span>'''
+|'''Standard  Deduction'''
-|'''<span lang="EN">Itemized  Deductions</span>'''
+|'''Itemized  Deductions'''
 |-
-|<span lang="EN">Look to §63(c) →  Basic Standard Deduction §63(c)(2)</span>
+|Look to §63(c) →  Basic Standard Deduction §63(c)(2)
-<span lang="EN">If married filing jointly, 200% of $3,000 §63(c)(2)(A)-(C)</span>
+If married filing jointly, 200% of $3,000 §63(c)(2)(A)-(C)
-<span lang="EN">BUT look to '''SPECIAL RULES''':</span>
+BUT look to '''SPECIAL RULES''':
-<span lang="EN">§63(c)(7)(A)(ii)  → Special rules for 2018</span>
+§63(c)(7)(A)(ii)  → Special rules for 2018
-<span lang="EN">Replace $3,000 with $12,000 above</span>
+Replace $3,000 with $12,000 above
-<span lang="EN">$12,000 x 200% =  TOTAL STANDARD → '''<u>$24,000</u>'''</span>
+$12,000 x 200% =  TOTAL STANDARD → '''<u>$24,000</u>'''
-|<span lang="EN">Regular v.  Miscellaneous</span>
+|Regular v.  Miscellaneous
-<span lang="EN">Regular → on the  list in §67(b)</span>
+Regular → on the  list in §67(b)
-<span lang="EN">Miscellaneous →  anything not on list in §67(b)</span>
+Miscellaneous →  anything not on list in §67(b)
-<u><span lang="EN">Regular</span></u>
+<u>Regular</u>
-<span lang="EN">Mortgage Interest  --- §67(b)(1) → $16, 000</span>
+Mortgage Interest  --- §67(b)(1) → $16, 000
-<span lang="EN">Charitable  Contributions --- §67(b)(4) → $500</span>
+Charitable  Contributions --- §67(b)(4) → $500
-<span lang="EN">Medical Expenses  --- §67(b)(5) → $2,000</span>
+Medical Expenses  --- §67(b)(5) → $2,000
-<u><span lang="EN">Miscellaneous</span></u>
+<u>Miscellaneous</u>
-<span lang="EN">Accountant/Tax  Prep. Fees → $1,000</span>
+Accountant/Tax  Prep. Fees → $1,000
-<span lang="EN">Unreimbursed Work  Expenses → $1,000</span>
+Unreimbursed Work  Expenses → $1,000
-''<span lang="EN">*normally,  you’d add up misc. and reg. to get total itemized, but due to §67(g), no  misc. at this time.</span>''
+''*normally,  you’d add up misc. and reg. to get total itemized, but due to §67(g), no  misc. at this time.''
-''<span lang="EN">2%  floor on miscellaneous, but currently inactive</span>''
+''2%  floor on miscellaneous, but currently inactive''
-<span lang="EN">TOTAL ITEMIZED → '''<u>$18,500</u>'''</span>
+TOTAL ITEMIZED → '''<u>$18,500</u>'''
 |}
-'''<span lang="EN">STEP FIVE: TOTAL TAXABLE INCOME → $66,000</span>''' <span lang="EN">(AGI less standard deduction)</span>
+'''STEP FIVE: TOTAL TAXABLE INCOME → $66,000''' (AGI less standard deduction)
-'''<span lang="EN">Tax Credits</span>'''
+'''Tax Credits'''
-<span lang="EN">Tax credit → dollar for dollar reduction in the tax bill that you owe; typically, cannot bring tax owed below $0 (cannot cause a refund), but there are a few exceptions:</span>
+Tax credit → dollar for dollar reduction in the tax bill that you owe; typically, cannot bring tax owed below $0 (cannot cause a refund), but there are a few exceptions:
-<span lang="EN">●      Credit for taxes withheld: money you already paid the government (anything in excess of actual tax owed will go back to the taxpayer</span>
+●      Credit for taxes withheld: money you already paid the government (anything in excess of actual tax owed will go back to the taxpayer
-<span lang="EN">●      Earned income tax credit: to help low-income families with cash; you must be working and earning income to benefit from this tax credit</span>
+●      Earned income tax credit: to help low-income families with cash; you must be working and earning income to benefit from this tax credit
-<span lang="EN">Taxpayer preference for tax-reducing strategies:</span>
+Taxpayer preference for tax-reducing strategies:
-<span lang="EN">1)    Tax credits (BEST, actual dollar for dollar reduction)</span>
+)    Tax credits (BEST, actual dollar for dollar reduction)
-<span lang="EN">2)    Above the line deductions (preferred because percentage reduction in AGI)</span>
+)    Above the line deductions (preferred because percentage reduction in AGI)
-<span lang="EN">3)    Below the line deductions (comes after AGI, least preferable, but still good!)</span>
+)    Below the line deductions (comes after AGI, least preferable, but still good!)
-<span lang="EN">Child Tax Credit → most subject to change currently; expanded with 2018 tax plan, used to replace eliminated personal exemption deduction</span>
+Child Tax Credit → most subject to change currently; expanded with 2018 tax plan, used to replace eliminated personal exemption deduction
-<span lang="EN">●      Changes “phase out” → you can make more before being phased out</span>
+●      Changes “phase out” → you can make more before being phased out
-<span lang="EN">●      Currently, only goes up to including 16 year olds</span>
+●      Currently, only goes up to including 16 year olds
-<span lang="EN">●      Expanded credit → neediest families are benefitting the least</span>
+●      Expanded credit → neediest families are benefitting the least
-<span lang="EN">●      You need an SSN to get the credit (children too), so no mixed-immigrant status families (must be a citizen, TINs are not enough)</span>
+●      You need an SSN to get the credit (children too), so no mixed-immigrant status families (must be a citizen, TINs are not enough)
-'''<span lang="EN">What is “Income”?</span>'''
+'''What is “Income”?'''
-<span lang="EN">Haig-Simons (NOT GOOD LAW) → Income = change in wealth + consumption</span>
+Haig-Simons (NOT GOOD LAW) → Income = change in wealth + consumption
-<span lang="EN">Issues: no realization, phantom income, NOT THE CALCULATION WE USE</span>
+Issues: no realization, phantom income, NOT THE CALCULATION WE USE
-<span lang="EN">Phantom income → cancellation of debt, loan forgiveness (increase in tax bill, no money to pay it)</span>
+Phantom income → cancellation of debt, loan forgiveness (increase in tax bill, no money to pay it)
-<u><span lang="EN">Eisner v. Macomber (1920)</span></u> <span lang="EN">- SCOTUS [π owned stock that increased when company experienced growth]</span>
+<u>Eisner v. Macomber (1920)</u> - SCOTUS [π owned stock that increased when company experienced growth]
-<span lang="EN">RULE: Under the 16th Amendment a stock dividend paid as additional shares of stock is not taxable income.</span>
+RULE: Under the 16th Amendment a stock dividend paid as additional shares of stock is not taxable income.
-<span lang="EN">Case Notes: '''no income until sale and realization of actual $'''</span>
+Case Notes: '''no income until sale and realization of actual $'''
-<span lang="EN">●      Income is payment, labor, or a combination of both</span>
+●      Income is payment, labor, or a combination of both
-<span lang="EN">●      A stock dividend paid as additional shares is an adjustment to the taxpayer’s invested capital</span>
+●      A stock dividend paid as additional shares is an adjustment to the taxpayer’s invested capital
-<span lang="EN">●      A pro rate stock dividend paid by a corporation is not taxable if:</span>
+●      A pro rate stock dividend paid by a corporation is not taxable if:
-<span lang="EN">1)    Shareholders receive no cash;</span>
+)    Shareholders receive no cash;
-<span lang="EN">2)    Proportionate ownership is not altered; and</span>
+)    Proportionate ownership is not altered; and
-<span lang="EN">3)    Shareholders do not realize income by sale of shares</span>
+)    Shareholders do not realize income by sale of shares
 {| class="wikitable"
-|'''<span lang="EN">Recognition</span>'''
+|'''Recognition'''
-|'''<span lang="EN">Realization</span>'''
+|'''Realization'''
 |-
-|<span lang="EN">A particular situation in the tax code  exists; “we are putting it on a tax return”</span>
+|A particular situation in the tax code  exists; “we are putting it on a tax return”
-<span lang="EN">Realization is a prerequisite to  recognition. If you have realization, then you have recognition.</span>
+Realization is a prerequisite to  recognition. If you have realization, then you have recognition.
-|<span lang="EN">realization  requirement →  where the taxpayer must  receive or lose something of monetary value</span>
+|realization  requirement →  where the taxpayer must  receive or lose something of monetary value
-<span lang="EN">If you are engaged in the marketplace, you  likely will have a realization event.</span>
+If you are engaged in the marketplace, you  likely will have a realization event.
 |}
-'''<span lang="EN">Punitive Damages</span>'''
+'''Punitive Damages'''
-<u><span lang="EN">Commissioner v. Glenshaw Glass (1955)</span></u> <span lang="EN">- SCOTUS [Ds collected punitive damages for fed. antitrust action]</span>
+<u>Commissioner v. Glenshaw Glass (1955)</u> - SCOTUS [Ds collected punitive damages for fed. antitrust action]
-<span lang="EN">RULE: punitive damages are taxable as gross income.</span>
+RULE: punitive damages are taxable as gross income.
-<span lang="EN">Case Notes: JUDICIAL DEFINITION: “income derived from any source whatsoever”</span>
+Case Notes: JUDICIAL DEFINITION: “income derived from any source whatsoever”
-<span lang="EN">●      Congress implied no intent to exclude punitive damages</span>
+●      Congress implied no intent to exclude punitive damages
-<span lang="EN">●      Section 22 of the 1939 Code describes gross income as “income derived from any source whatsoever”</span>
+●      Section 22 of the 1939 Code describes gross income as “income derived from any source whatsoever”
 {| class="wikitable"
-|'''<u><span lang="EN">Glenshaw  Glass</span></u> <span lang="EN">Test (to determine “income”)</span>'''
+|'''<u>Glenshaw  Glass</u> Test (to determine “income”)'''
-# '''<span lang="EN">ASSESSED WEALTH</span>'''
+# '''ASSESSED WEALTH'''
-# '''<span lang="EN">CLEARLY REALIZED</span>'''
+# '''CLEARLY REALIZED'''
-# '''<span lang="EN">COMPLETE DOMINION</span>'''
+# '''COMPLETE DOMINION'''
 |}
-'''<span lang="EN">Treasure Trove</span>'''
+'''Treasure Trove'''
-<span lang="EN">Cesarini v. United States (1969) - USDC [πs found cash in used piano purchased at auction]</span>
+Cesarini v. United States (1969) - USDC [πs found cash in used piano purchased at auction]
-<span lang="EN">RULE: all income is subject to tax unless an express exemption applies.</span>
+RULE: all income is subject to tax unless an express exemption applies.
-<span lang="EN">Case Notes: '''money is taxable when it is discovered, not when the treasure chest was purchased'''</span>
+Case Notes: '''money is taxable when it is discovered, not when the treasure chest was purchased'''
-<span lang="EN">●      REALIZATION EVENT is the finding of the treasure</span>
+●      REALIZATION EVENT is the finding of the treasure
-<span lang="EN">●      Treas. Reg. §1.61-14 → treasure trove is gross income, tax code does not exempt found money from gross income</span>
+●      Treas. Reg. §1.61-14 → treasure trove is gross income, tax code does not exempt found money from gross income
-<span lang="EN">●      §61(a) → gross income is “all income from whatever source derived”</span>
+●      §61(a) → gross income is “all income from whatever source derived”
-<span lang="EN">●      Treasure trove can be cash or items and is taxable income</span>
+●      Treasure trove can be cash or items and is taxable income
 {| class="wikitable"
-|'''<span lang="EN">§  1.61-14 Miscellaneous items of gross income.</span>'''
+|'''§  1.61-14 Miscellaneous items of gross income.'''
-<span lang="EN">(a) In general. In addition to the items enumerated in section 61(a), there  are many other kinds of gross income.</span>
+(a) In general. In addition to the items enumerated in section 61(a), there  are many other kinds of gross income.
-<span lang="EN">For example, '''punitive damages''' such as treble damages under the antitrust laws  and exemplary damages for fraud are gross income. Another person's payment of  the taxpayer's income taxes constitutes gross income to the taxpayer unless  excluded by law. '''Illegal gains'''  constitute gross income. '''Treasure  trove''', to the extent of its value in United States currency, constitutes  gross income for the taxable year in which it is reduced to undisputed  possession.</span>
+For example, '''punitive damages''' such as treble damages under the antitrust laws  and exemplary damages for fraud are gross income. Another person's payment of  the taxpayer's income taxes constitutes gross income to the taxpayer unless  excluded by law. '''Illegal gains'''  constitute gross income. '''Treasure  trove''', to the extent of its value in United States currency, constitutes  gross income for the taxable year in which it is reduced to undisputed  possession.
-<span lang="EN">(b) Cross references.</span>
+(b) Cross references.
-<span lang="EN">     (1) Prizes and awards, see section  74 and regulations thereunder;</span>
+     (1) Prizes and awards, see section  74 and regulations thereunder;
-<span lang="EN">     (2) Damages for personal injury or  sickness, see section 104 and the regulations thereunder;</span>
+     (2) Damages for personal injury or  sickness, see section 104 and the regulations thereunder;
-<span lang="EN">     (3) Income taxes paid by lessee  corporation, see section 110 and regulations thereunder;</span>
+     (3) Income taxes paid by lessee  corporation, see section 110 and regulations thereunder;
-<span lang="EN">     (4) Scholarships and fellowship  grants, see section 117 and regulations thereunder;</span>
+     (4) Scholarships and fellowship  grants, see section 117 and regulations thereunder;
-<span lang="EN">     (5) Miscellaneous exemptions under  other acts of Congress, see section 122;</span>
+     (5) Miscellaneous exemptions under  other acts of Congress, see section 122;
-<span lang="EN">     (6) Tax-free covenant bonds, see  section 1451 and regulations thereunder.</span>
+     (6) Tax-free covenant bonds, see  section 1451 and regulations thereunder.
-<span lang="EN">     (7) Notional principal contracts,  see § 1.446-3.</span>
+     (7) Notional principal contracts,  see § 1.446-3.
 |}
-'''<span lang="EN">Circular 230</span>''' <span lang="EN">→ when giving legal advice, you must have substantial authority on anything you put on a tax return and chance of audit is <u>not</u> a factor in determining “substantial authority”; not putting something (omitting) on a tax return '''is''' taking a position.</span>
+'''Circular 230''' → when giving legal advice, you must have substantial authority on anything you put on a tax return and chance of audit is <u>not</u> a factor in determining “substantial authority”; not putting something (omitting) on a tax return '''is''' taking a position.
-<span lang="EN">If client finds…</span>
+If client finds…
-<span lang="EN">●      $500 → must report $500 of gross income</span>
+●      $500 → must report $500 of gross income
-<span lang="EN">●      A diamond ring → must report gross income</span>
+●      A diamond ring → must report gross income
-'''<span lang="EN">Bargain Purchase</span>''' <span lang="EN">→ if you buy a house, that includes anything in the home, and find a valuable painting, you got a painting and a house for the price of a house, but the value of the painting is '''<u>not</u>''' now taxable income to you. (i.e. bite into an oyster and find a pearl).</span>
+'''Bargain Purchase''' → if you buy a house, that includes anything in the home, and find a valuable painting, you got a painting and a house for the price of a house, but the value of the painting is '''<u>not</u>''' now taxable income to you. (i.e. bite into an oyster and find a pearl).
-'''<span lang="EN">Illegal Income</span>'''
+'''Illegal Income'''
-<u><span lang="EN">James v. United States (1961)</span></u> <span lang="EN">- SCOTUS [D acquired $738k through embezzlement, did not declare]</span>
+<u>James v. United States (1961)</u> - SCOTUS [D acquired $738k through embezzlement, did not declare]
-<span lang="EN">RULE: Embezzlement gains and other illegal income are taxable under federal law.</span>
+RULE: Embezzlement gains and other illegal income are taxable under federal law.
-<span lang="EN">Case Notes: distinguishes <u>Wilcox</u>, which held that no claim of right = no taxable income.</span>
+Case Notes: distinguishes <u>Wilcox</u>, which held that no claim of right = no taxable income.
-<span lang="EN">●      A federal taxpayer must report illegally acquired income, including embezzled money, as taxable income</span>
+●      A federal taxpayer must report illegally acquired income, including embezzled money, as taxable income
-<span lang="EN">●      Statutorily, the recent Code includes all income however obtained, most case law treats all income as taxable, even if another person is legally entitled to recover the income from the recipient.</span>
+●      Statutorily, the recent Code includes all income however obtained, most case law treats all income as taxable, even if another person is legally entitled to recover the income from the recipient.
-'''<span lang="EN">Compensation for Services - Payments to Third Parties</span>'''
+'''Compensation for Services - Payments to Third Parties'''
 {| class="wikitable"
-|<span lang="EN">26 U.S. Code § 61 - Gross income defined</span>
+|26 U.S. Code § 61 - Gross income defined
-<span lang="EN">(a) General definition. Except as otherwise provided in this subtitle, gross  income means all income from whatever source derived, including (but not  limited to) the following items:</span>
+(a) General definition. Except as otherwise provided in this subtitle, gross  income means all income from whatever source derived, including (but not  limited to) the following items:
-<span lang="EN">     (1) Compensation for services, including fees, commissions, fringe  benefits, and similar items;</span>
+     (1) Compensation for services, including fees, commissions, fringe  benefits, and similar items;
 |}
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 74 - Prizes and awards</span>'''
+|'''26  U.S. Code § 74 - Prizes and awards'''
-'''<span lang="EN">(a) General rule. Except as otherwise provided in this section or in section  117 (relating to qualified scholarships), gross income includes amounts received  as prizes and awards.</span>'''
+'''(a) General rule. Except as otherwise provided in this section or in section  117 (relating to qualified scholarships), gross income includes amounts received  as prizes and awards.'''
-'''<span lang="EN">(b) Exception for certain prizes and awards transferred to charities. Gross  income does not include amounts received as prizes and awards made primarily  in recognition of religious, charitable, scientific, educational, artistic,  literary, or civic achievement, but only if—</span>'''
+'''(b) Exception for certain prizes and awards transferred to charities. Gross  income does not include amounts received as prizes and awards made primarily  in recognition of religious, charitable, scientific, educational, artistic,  literary, or civic achievement, but only if—'''
-'''<span lang="EN">    (1) the recipient was selected without  any action on his part to enter the contest or proceeding;</span>'''
+'''    (1) the recipient was selected without  any action on his part to enter the contest or proceeding;'''
-'''<span lang="EN">    (2) the recipient is not required to  render substantial future services as a condition to receiving the prize or  award; and</span>'''
+'''    (2) the recipient is not required to  render substantial future services as a condition to receiving the prize or  award; and'''
-'''<span lang="EN">    (3) the prize or award is transferred by  the payor to a governmental unit or organization described in paragraph (1)  or (2) of section 170(c) pursuant to a designation made by the recipient.</span>'''
+'''    (3) the prize or award is transferred by  the payor to a governmental unit or organization described in paragraph (1)  or (2) of section 170(c) pursuant to a designation made by the recipient.'''
-'''<span lang="EN">(c)  Exception for certain employee achievement awards</span>'''
+'''(c)  Exception for certain employee achievement awards'''
-'''<span lang="EN">    (1) In general. Gross income shall not  include the value of an employee achievement award (as defined in section  274(j)) received by the taxpayer if the cost to the employer of the employee  achievement award does not exceed the amount allowable as a deduction to the  employer for the cost of the employee achievement award.</span>'''
+'''    (1) In general. Gross income shall not  include the value of an employee achievement award (as defined in section  274(j)) received by the taxpayer if the cost to the employer of the employee  achievement award does not exceed the amount allowable as a deduction to the  employer for the cost of the employee achievement award.'''
-'''<span lang="EN">     (2) Excess deduction award. If the  cost to the employer of the employee achievement award received by the  taxpayer exceeds the amount allowable as a deduction to the employer, then  gross income includes the greater of—</span>'''
+'''     (2) Excess deduction award. If the  cost to the employer of the employee achievement award received by the  taxpayer exceeds the amount allowable as a deduction to the employer, then  gross income includes the greater of—'''
-'''<span lang="EN">         (A) an amount equal to the portion  of the cost to the employer of the award that is not allowable as a deduction  to the employer (but not in excess of the value of the award), or</span>'''
+'''         (A) an amount equal to the portion  of the cost to the employer of the award that is not allowable as a deduction  to the employer (but not in excess of the value of the award), or'''
-'''<span lang="EN">         (B) the amount by which the value  of the award exceeds the amount allowable as a deduction to the employer.</span>'''
+'''         (B) the amount by which the value  of the award exceeds the amount allowable as a deduction to the employer.'''
-'''<span lang="EN">The  remaining portion of the value of such award shall not be included in the  gross income of the recipient.</span>'''
+'''The  remaining portion of the value of such award shall not be included in the  gross income of the recipient.'''
-'''<span lang="EN">(3) Treatment of tax-exempt employers</span>'''
+'''(3) Treatment of tax-exempt employers'''
-'''<span lang="EN">In  the case of an employer exempt from taxation under this subtitle, any  reference in this subsection to the amount allowable as a deduction to the  employer shall be treated as a reference to the amount which would be  allowable as a deduction to the employer if the employer were not exempt from  taxation under this subtitle.</span>'''
+'''In  the case of an employer exempt from taxation under this subtitle, any  reference in this subsection to the amount allowable as a deduction to the  employer shall be treated as a reference to the amount which would be  allowable as a deduction to the employer if the employer were not exempt from  taxation under this subtitle.'''
-'''<span lang="EN">     (4) Cross reference. For  provisions excluding certain de minimis fringes from gross income, see  section 132(e).</span>'''
+'''     (4) Cross reference. For  provisions excluding certain de minimis fringes from gross income, see  section 132(e).'''
-'''<span lang="EN">(d) Exception for Olympic and Paralympic medals and prizes</span>'''
+'''(d) Exception for Olympic and Paralympic medals and prizes'''
-'''<span lang="EN">    (1) In general. Gross income shall not  include the value of any medal awarded in, or any prize money received from  the United States Olympic Committee on account of, competition in the Olympic  Games or Paralympic Games.</span>'''
+'''    (1) In general. Gross income shall not  include the value of any medal awarded in, or any prize money received from  the United States Olympic Committee on account of, competition in the Olympic  Games or Paralympic Games.'''
-'''<span lang="EN">     (2) Limitation based on adjusted  gross income</span>'''
+'''     (2) Limitation based on adjusted  gross income'''
-'''<span lang="EN">         (A) In general. Paragraph (1) shall  not apply to any taxpayer for any taxable year if the adjusted gross income  (determined without regard to this subsection) of such taxpayer for such  taxable year exceeds $1,000,000 (half of such amount in the case of a married  individual filing a separate return).</span>'''
+'''         (A) In general. Paragraph (1) shall  not apply to any taxpayer for any taxable year if the adjusted gross income  (determined without regard to this subsection) of such taxpayer for such  taxable year exceeds $1,000,000 (half of such amount in the case of a married  individual filing a separate return).'''
-'''<span lang="EN">          (B) Coordination with other  limitations. For purposes of sections 86, 135, 137, 219, 221, 222, and 469,  adjusted gross income shall be determined after the application of paragraph  (1) and before the application of subparagraph (A).</span>'''
+'''          (B) Coordination with other  limitations. For purposes of sections 86, 135, 137, 219, 221, 222, and 469,  adjusted gross income shall be determined after the application of paragraph  (1) and before the application of subparagraph (A).'''
 |}
-<u><span lang="EN">Old Colony Trust Co. v. Commissioner (1929)</span></u> <span lang="EN">- SCOTUS [D was president, resolution to pay officers income tax]</span>
+<u>Old Colony Trust Co. v. Commissioner (1929)</u> - SCOTUS [D was president, resolution to pay officers income tax]
-<span lang="EN">RULE: Payment by an employer of an employee’s income taxes constitutes taxable gain to the employee</span>
+RULE: Payment by an employer of an employee’s income taxes constitutes taxable gain to the employee
-<span lang="EN">Case Notes: discharging financial obligations is financial gain to the employee, and taxable</span>
+Case Notes: discharging financial obligations is financial gain to the employee, and taxable
-<span lang="EN">●      Any payment made for services rendered by an employee constitutes taxable income to the employee.</span>
+●      Any payment made for services rendered by an employee constitutes taxable income to the employee.
-<span lang="EN">●      Whether the employer makes the payment directly to the employee or to a third party on behalf of the employee is inconsequential.</span>
+●      Whether the employer makes the payment directly to the employee or to a third party on behalf of the employee is inconsequential.
-<span lang="EN">●      Taxes paid in consideration of employee services do not constitute a tax-free gift.</span>
+●      Taxes paid in consideration of employee services do not constitute a tax-free gift.
-<u><span lang="EN">McCann v. United States (1981)</span></u> <span lang="EN">- Court of Claims [π qualified for all expenses trip based on sales numbers]</span>
+<u>McCann v. United States (1981)</u> - Court of Claims [π qualified for all expenses trip based on sales numbers]
-<span lang="EN">RULE: Gross income includes all-expenses-paid trips rewarded to employees for exceptional services rendered.</span>
+RULE: Gross income includes all-expenses-paid trips rewarded to employees for exceptional services rendered.
-<span lang="EN">Case Notes: despite not being money, the trip was a financial benefit to the employee, and taxable</span>
+Case Notes: despite not being money, the trip was a financial benefit to the employee, and taxable
-<span lang="EN">●      §74(a) provides that gross income includes prizes and awards</span>
+●      §74(a) provides that gross income includes prizes and awards
-<span lang="EN">●      Fair market value of an all-expenses-paid trip should be included in gross income</span>
+●      Fair market value of an all-expenses-paid trip should be included in gross income
-<span lang="EN">UNDER TCJA: Entertainment expenses are '''<u>not</u>''' deductible from 2018-2025; conferences included but tours and shows excluded</span>
+UNDER TCJA: Entertainment expenses are '''<u>not</u>''' deductible from 2018-2025; conferences included but tours and shows excluded
-<u><span lang="EN">United States v. Gotcher (1968)</span></u> <span lang="EN">- 5th Cir. [π & wife went to Germany on biz trip to tour facilities and improve sales]</span>
+<u>United States v. Gotcher (1968)</u> - 5th Cir. [π & wife went to Germany on biz trip to tour facilities and improve sales]
-<span lang="EN">RULE: If an employer sends and employee on an expenses-paid trip primarily so that the employee can better promote the employer’s business, the value of the trip is excluded from the employee’s gross income for federal tax purposes.</span>
+RULE: If an employer sends and employee on an expenses-paid trip primarily so that the employee can better promote the employer’s business, the value of the trip is excluded from the employee’s gross income for federal tax purposes.
-<span lang="EN">Case Notes: P went for '''dominant purpose''' of employer; wife is gross income</span>
+Case Notes: P went for '''dominant purpose''' of employer; wife is gross income
-<span lang="EN">●      Under §61 of the 1954 Code, the trip’s value is included in the employee’s gross income only if the employee gains economically from the trip by receiving a benefit without having to pay for it, and only if the trip is '''primarily for the employee’s benefit'''.</span>
+●      Under §61 of the 1954 Code, the trip’s value is included in the employee’s gross income only if the employee gains economically from the trip by receiving a benefit without having to pay for it, and only if the trip is '''primarily for the employee’s benefit'''.
-<span lang="EN">●      '''DOMINANT PURPOSE TEST''' → if the trip is for the employer, it is not taxable income</span>
+●      '''DOMINANT PURPOSE TEST''' → if the trip is for the employer, it is not taxable income
-<span lang="EN">●      '''Primary purpose''' → incidental enjoyment by employee is OK so long as the primary benefit is to employer</span>
+●      '''Primary purpose''' → incidental enjoyment by employee is OK so long as the primary benefit is to employer
-'''<span lang="EN">Meals and Lodging - Furnished on an Employer’s Premises</span>'''
+'''Meals and Lodging - Furnished on an Employer’s Premises'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 119 - Meals or lodging furnished for the convenience of the  employer</span>'''
+|'''26  U.S. Code § 119 - Meals or lodging furnished for the convenience of the  employer'''
-'''<span lang="EN">(a) Meals and lodging furnished to employee, his spouse, and his dependents,  pursuant to employment. There shall be excluded from gross income of an  employee the value of any meals or lodging furnished to him, his spouse, or  any of his dependents by or on behalf of his employer for the convenience of  the employer, but only if—</span>'''
+'''(a) Meals and lodging furnished to employee, his spouse, and his dependents,  pursuant to employment. There shall be excluded from gross income of an  employee the value of any meals or lodging furnished to him, his spouse, or  any of his dependents by or on behalf of his employer for the convenience of  the employer, but only if—'''
-'''<span lang="EN">    (1) in the case of meals, the meals are  furnished on the business premises of the employer, or</span>'''
+'''    (1) in the case of meals, the meals are  furnished on the business premises of the employer, or'''
-'''<span lang="EN">    (2) in the case of lodging, the employee  is required to accept such lodging on the business premises of his employer  as a condition of his employment.</span>'''
+'''    (2) in the case of lodging, the employee  is required to accept such lodging on the business premises of his employer  as a condition of his employment.'''
-'''<span lang="EN">(b)  Special rules. For purposes of subsection (a)—</span>'''
+'''(b)  Special rules. For purposes of subsection (a)—'''
-'''<span lang="EN">    (1) Provisions of employment contract or  State statute not to be determinative</span>'''
+'''    (1) Provisions of employment contract or  State statute not to be determinative'''
-'''<span lang="EN">In determining whether meals or lodging are furnished for the convenience of  the employer, the provisions of an employment contract or of a State statute  fixing terms of employment shall not be determinative of whether the meals or  lodging are intended as compensation.</span>'''
+'''In determining whether meals or lodging are furnished for the convenience of  the employer, the provisions of an employment contract or of a State statute  fixing terms of employment shall not be determinative of whether the meals or  lodging are intended as compensation.'''
-'''<span lang="EN">     (2) Certain factors not taken into  account with respect to meals</span>'''
+'''     (2) Certain factors not taken into  account with respect to meals'''
-'''<span lang="EN">In determining whether meals are furnished for the convenience of the  employer, the fact that a charge is made for such meals, and the fact that  the employee may accept or decline such meals, shall not be taken into  account.</span>'''
+'''In determining whether meals are furnished for the convenience of the  employer, the fact that a charge is made for such meals, and the fact that  the employee may accept or decline such meals, shall not be taken into  account.'''
-'''<span lang="EN">     (3) Certain fixed charges for  meals</span>'''
+'''     (3) Certain fixed charges for  meals'''
-'''<span lang="EN">         (A) In general. If—</span>'''
+'''         (A) In general. If—'''
-'''<span lang="EN">              (i) an employee is required to  pay on a periodic basis a fixed charge for his meals, and</span>'''
+'''              (i) an employee is required to  pay on a periodic basis a fixed charge for his meals, and'''
-'''<span lang="EN">              (ii) such meals are furnished  by the employer for the convenience of the employer,</span>'''
+'''              (ii) such meals are furnished  by the employer for the convenience of the employer,'''
-'''<span lang="EN">there shall be excluded from the employee’s gross income an amount equal to  such fixed charge.</span>'''
+'''there shall be excluded from the employee’s gross income an amount equal to  such fixed charge.'''
-'''<span lang="EN">         (B) Application of subparagraph  (A)Subparagraph (A) shall apply—</span>'''
+'''         (B) Application of subparagraph  (A)Subparagraph (A) shall apply—'''
-'''<span lang="EN">              (i) whether the employee pays  the fixed charge out of his stated compensation or out of his own funds, and</span>'''
+'''              (i) whether the employee pays  the fixed charge out of his stated compensation or out of his own funds, and'''
-'''<span lang="EN">              (ii) only if the employee is  required to make the payment whether he accepts or declines the meals.</span>'''
+'''              (ii) only if the employee is  required to make the payment whether he accepts or declines the meals.'''
-'''<span lang="EN">    (4) Meals furnished to employees on  business premises where meals of most employees are otherwise excludable. All  meals furnished on the business premises of an employer to such employer’s  employees shall be treated as furnished for the convenience of the employer  if, without regard to this paragraph, more than half of the employees to whom  such meals are furnished on such premises are furnished such meals for the  convenience of the employer.</span>'''
+'''    (4) Meals furnished to employees on  business premises where meals of most employees are otherwise excludable. All  meals furnished on the business premises of an employer to such employer’s  employees shall be treated as furnished for the convenience of the employer  if, without regard to this paragraph, more than half of the employees to whom  such meals are furnished on such premises are furnished such meals for the  convenience of the employer.'''
-'''<span lang="EN">(c) Employees living in certain camps</span>'''
+'''(c) Employees living in certain camps'''
-'''<span lang="EN">    (1) In general. In the case of an  individual who is furnished lodging in a camp located in a foreign country by  or on behalf of his employer, such camp shall be considered to be part of the  business premises of the employer.</span>'''
+'''    (1) In general. In the case of an  individual who is furnished lodging in a camp located in a foreign country by  or on behalf of his employer, such camp shall be considered to be part of the  business premises of the employer.'''
-'''<span lang="EN">     (2) Camp. For purposes of this  section, a camp constitutes lodging which is—</span>'''
+'''     (2) Camp. For purposes of this  section, a camp constitutes lodging which is—'''
-'''<span lang="EN">         (A) provided by or on behalf of the  employer for the convenience of the employer because the place at which such  individual renders services is in a remote area where satisfactory housing is  not available on the open market,</span>'''
+'''         (A) provided by or on behalf of the  employer for the convenience of the employer because the place at which such  individual renders services is in a remote area where satisfactory housing is  not available on the open market,'''
-'''<span lang="EN">         (B) located, as near as  practicable, in the vicinity of the place at which such individual renders  services, and</span>'''
+'''         (B) located, as near as  practicable, in the vicinity of the place at which such individual renders  services, and'''
-'''<span lang="EN">         (C) furnished in a common area (or  enclave) which is not available to the public and which normally accommodates  10 or more employees.</span>'''
+'''         (C) furnished in a common area (or  enclave) which is not available to the public and which normally accommodates  10 or more employees.'''
-'''<span lang="EN">(d)  Lodging furnished by certain educational institutions to employees</span>'''
+'''(d)  Lodging furnished by certain educational institutions to employees'''
-'''<span lang="EN">    (1) In general. In the case of an  employee of an educational institution, gross income shall not include the  value of qualified campus lodging furnished to such employee during the  taxable year.</span>'''
+'''    (1) In general. In the case of an  employee of an educational institution, gross income shall not include the  value of qualified campus lodging furnished to such employee during the  taxable year.'''
-'''<span lang="EN">     (2) Exception in cases of  inadequate rent. Paragraph (1) shall not apply to the extent of the excess  of—</span>'''
+'''     (2) Exception in cases of  inadequate rent. Paragraph (1) shall not apply to the extent of the excess  of—'''
-'''<span lang="EN">         (A) the lesser of—</span>'''
+'''         (A) the lesser of—'''
-'''<span lang="EN">              (i) 5 percent of the appraised  value of the qualified campus lodging, or</span>'''
+'''              (i) 5 percent of the appraised  value of the qualified campus lodging, or'''
-'''<span lang="EN">              (ii) the average of the  rentals paid by individuals (other than employees or students of the  educational institution) during such calendar year for lodging provided by  the educational institution which is comparable to the qualified campus  lodging provided to the employee, over</span>'''
+'''              (ii) the average of the  rentals paid by individuals (other than employees or students of the  educational institution) during such calendar year for lodging provided by  the educational institution which is comparable to the qualified campus  lodging provided to the employee, over'''
-'''<span lang="EN">         (B) the rent paid by the employee for the  qualified campus lodging during such calendar year.</span>'''
+'''         (B) the rent paid by the employee for the  qualified campus lodging during such calendar year.'''
-'''<span lang="EN">The appraised value under subparagraph (A)(i) shall be determined as of the  close of the calendar year in which the taxable year begins, or, in the case  of a rental period not greater than 1 year, at any time during the calendar  year in which such period begins.</span>'''
+'''The appraised value under subparagraph (A)(i) shall be determined as of the  close of the calendar year in which the taxable year begins, or, in the case  of a rental period not greater than 1 year, at any time during the calendar  year in which such period begins.'''
-'''<span lang="EN">    (3) Qualified campus lodging. For  purposes of this subsection, the term “qualified campus lodging” means  lodging to which subsection (a) does not apply and which is—</span>'''
+'''    (3) Qualified campus lodging. For  purposes of this subsection, the term “qualified campus lodging” means  lodging to which subsection (a) does not apply and which is—'''
-'''<span lang="EN">         (A) located on, or in the proximity  of, a campus of the educational institution, and</span>'''
+'''         (A) located on, or in the proximity  of, a campus of the educational institution, and'''
-'''<span lang="EN">         (B) furnished to the employee, his  spouse, and any of his dependents by or on behalf of such institution for use  as a residence.</span>'''
+'''         (B) furnished to the employee, his  spouse, and any of his dependents by or on behalf of such institution for use  as a residence.'''
-'''<span lang="EN">    (4) Educational institution, etc.For  purposes of this subsection—</span>'''
+'''    (4) Educational institution, etc.For  purposes of this subsection—'''
-'''<span lang="EN">         (A) In general. The term  “educational institution” means—</span>'''
+'''         (A) In general. The term  “educational institution” means—'''
-'''<span lang="EN">              (i) an institution described  in section 170(b)(1)(A)(ii) (or an entity organized under State law and  composed of public institutions so described), or</span>'''
+'''              (i) an institution described  in section 170(b)(1)(A)(ii) (or an entity organized under State law and  composed of public institutions so described), or'''
-'''<span lang="EN">              (ii) an academic health  center.</span>'''
+'''              (ii) an academic health  center.'''
-'''<span lang="EN">         (B) Academic health center. For  purposes of subparagraph (A), the term “academic health center” means an  entity—</span>'''
+'''         (B) Academic health center. For  purposes of subparagraph (A), the term “academic health center” means an  entity—'''
-'''<span lang="EN">              (i) which is described in  section 170(b)(1)(A)(iii),</span>'''
+'''              (i) which is described in  section 170(b)(1)(A)(iii),'''
-'''<span lang="EN">              (ii) which receives (during  the calendar year in which the taxable year of the taxpayer begins) payments  under subsection (d)(5)(B) or (h) of section 1886 of the Social Security Act  (relating to graduate medical education), and</span>'''
+'''              (ii) which receives (during  the calendar year in which the taxable year of the taxpayer begins) payments  under subsection (d)(5)(B) or (h) of section 1886 of the Social Security Act  (relating to graduate medical education), and'''
-'''<span lang="EN">              (iii) which has as one of its  principal purposes or functions the providing and teaching of basic and  clinical medical science and research with the entity’s own faculty.</span>'''
+'''              (iii) which has as one of its  principal purposes or functions the providing and teaching of basic and  clinical medical science and research with the entity’s own faculty.'''
 |}
-<span lang="EN">Meals and Lodging - §119(a)</span>
+Meals and Lodging - §119(a)
 {| class="wikitable"
-| <span lang="EN">       <u>Meals</u></span>
+|        <u>Meals</u>
-| <span lang="EN">       <u>Lodging</u></span>
+|        <u>Lodging</u>
 |-
-|<span lang="EN">●      Furnished by employer</span>
+|●      Furnished by employer
-<span lang="EN">●      For convenience of employer</span>
+●      For convenience of employer
-<span lang="EN">●      On business premises of employer</span>
+●      On business premises of employer
-|<span lang="EN">●      Furnished by employer</span>
+|●      Furnished by employer
-<span lang="EN">●      For convenience of employer</span>
+●      For convenience of employer
-<span lang="EN">●      On business premises of employer</span>
+●      On business premises of employer
-<span lang="EN">●      Employee required to accept as a condition  of employment</span>
+●      Employee required to accept as a condition  of employment
 |}
-<span lang="EN">Dominant purpose → first ask, is the main purpose business or pleasure?</span>
+Dominant purpose → first ask, is the main purpose business or pleasure?
-<span lang="EN">Employee morale is '''<u>not</u>''' a valid reason for “employer convenience”</span>
+Employee morale is '''<u>not</u>''' a valid reason for “employer convenience”
-<u><span lang="EN">Commissioner v. Kowalski (1977)</span></u> <span lang="EN">- SCOTUS [state troopers given cash meal allowances when out on duty]</span>
+<u>Commissioner v. Kowalski (1977)</u> - SCOTUS [state troopers given cash meal allowances when out on duty]
-<span lang="EN">RULE: Under federal tax law, cash meal allowances are included in gross income.</span>
+RULE: Under federal tax law, cash meal allowances are included in gross income.
-<span lang="EN">Case Notes: Only §119 can be used to find an exception</span>
+Case Notes: Only §119 can be used to find an exception
-<span lang="EN">●      Cash meal allowances are not excluded under §119 or the common-law convenience-of-the-employer doctrine (which did not survive the recent codification of federal law anyways)</span>
+●      Cash meal allowances are not excluded under §119 or the common-law convenience-of-the-employer doctrine (which did not survive the recent codification of federal law anyways)
-<span lang="EN">●      §119 excludes meals provided by the employer directly, but not cash reimbursements, which must be included in gross income.</span>
+●      §119 excludes meals provided by the employer directly, but not cash reimbursements, which must be included in gross income.
-<u><span lang="EN">Adams v. United States (1978)</span></u> <span lang="EN">- Claims Court [π CEO in Japan req. to live in company-provided housing]</span>
+<u>Adams v. United States (1978)</u> - Claims Court [π CEO in Japan req. to live in company-provided housing]
-<span lang="EN">RULE: Employer-provided housing is excludable from a taxpayer’s gross income if: (1) the employment is conditioned upon acceptance of the housing, (2) the housing is for the employer’s convenience, and (3) the housing is on the employer’s business premises.</span>
+RULE: Employer-provided housing is excludable from a taxpayer’s gross income if: (1) the employment is conditioned upon acceptance of the housing, (2) the housing is for the employer’s convenience, and (3) the housing is on the employer’s business premises.
-<span lang="EN">Case Notes: Japanese housing should be completely excluded from income</span>
+Case Notes: Japanese housing should be completely excluded from income
-<span lang="EN">●      There must be a strong link between the residence and business interest to find “convenience of the employer”</span>
+●      There must be a strong link between the residence and business interest to find “convenience of the employer”
-'''<span lang="EN">Statutory Fringe Benefits</span>'''
+'''Statutory Fringe Benefits'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 132 - Certain fringe benefits</span>'''
+|'''26  U.S. Code § 132 - Certain fringe benefits'''
-'''<span lang="EN">(a) Exclusion from gross income. Gross income shall not include any fringe  benefit which qualifies as a—</span>'''
+'''(a) Exclusion from gross income. Gross income shall not include any fringe  benefit which qualifies as a—'''
-'''<span lang="EN">    (1) no-additional-cost service,</span>'''
+'''    (1) no-additional-cost service,'''
-'''<span lang="EN">    (2) qualified employee discount,</span>'''
+'''    (2) qualified employee discount,'''
-'''<span lang="EN">    (3) working condition fringe,</span>'''
+'''    (3) working condition fringe,'''
-'''<span lang="EN">    (4) de minimis fringe,</span>'''
+'''    (4) de minimis fringe,'''
-'''<span lang="EN">    (5) qualified transportation fringe,</span>'''
+'''    (5) qualified transportation fringe,'''
-'''<span lang="EN">    (6) qualified moving expense  reimbursement,</span>'''
+'''    (6) qualified moving expense  reimbursement,'''
-'''<span lang="EN">    (7) qualified retirement planning  services, or</span>'''
+'''    (7) qualified retirement planning  services, or'''
-'''<span lang="EN">    (8) qualified military base realignment  and closure fringe.</span>'''
+'''    (8) qualified military base realignment  and closure fringe.'''
-'''<span lang="EN">(b)  No-additional-cost service defined. For purposes of this section, the term  “no-additional-cost service” means any service provided by an employer to an  employee for use by such employee if—</span>'''
+'''(b)  No-additional-cost service defined. For purposes of this section, the term  “no-additional-cost service” means any service provided by an employer to an  employee for use by such employee if—'''
-'''<span lang="EN">    (1) such service is offered for sale to  customers in the ordinary course of the line of business of the employer in  which the employee is performing services, and</span>'''
+'''    (1) such service is offered for sale to  customers in the ordinary course of the line of business of the employer in  which the employee is performing services, and'''
-'''<span lang="EN">    (2) the employer incurs no substantial  additional cost (including forgone revenue) in providing such service to the  employee (determined without regard to any amount paid by the employee for  such service).</span>'''
+'''    (2) the employer incurs no substantial  additional cost (including forgone revenue) in providing such service to the  employee (determined without regard to any amount paid by the employee for  such service).'''
-'''<span lang="EN">(c)  Qualified employee discount defined. For purposes of this section—</span>'''
+'''(c)  Qualified employee discount defined. For purposes of this section—'''
-'''<span lang="EN">    (1) Qualified employee discount. The  term “qualified employee discount” means any employee discount with respect  to qualified property or services to the extent such discount does not  exceed—</span>'''
+'''    (1) Qualified employee discount. The  term “qualified employee discount” means any employee discount with respect  to qualified property or services to the extent such discount does not  exceed—'''
-'''<span lang="EN">         (A) in the case of property, the  gross profit percentage of the price at which the property is being offered  by the employer to customers, or</span>'''
+'''         (A) in the case of property, the  gross profit percentage of the price at which the property is being offered  by the employer to customers, or'''
-'''<span lang="EN">         (B) in the case of services, 20  percent of the price at which the services are being offered by the employer  to customers.</span>'''
+'''         (B) in the case of services, 20  percent of the price at which the services are being offered by the employer  to customers.'''
-'''<span lang="EN">    (2) Gross profit percentage</span>'''
+'''    (2) Gross profit percentage'''
-'''<span lang="EN">         (A) In general. The term “gross  profit percentage” means the percent which—</span>'''
+'''         (A) In general. The term “gross  profit percentage” means the percent which—'''
-'''<span lang="EN">              (i) the excess of the  aggregate sales price of property sold by the employer to customers over the  aggregate cost of such property to the employer, is of</span>'''
+'''              (i) the excess of the  aggregate sales price of property sold by the employer to customers over the  aggregate cost of such property to the employer, is of'''
-'''<span lang="EN">              (ii) the aggregate sale price  of such property.</span>'''
+'''              (ii) the aggregate sale price  of such property.'''
-'''<span lang="EN">         (B) Determination of gross profit  percentage. Gross profit percentage shall be determined on the basis of—</span>'''
+'''         (B) Determination of gross profit  percentage. Gross profit percentage shall be determined on the basis of—'''
-'''<span lang="EN">              (i) all property offered to  customers in the ordinary course of the line of business of the employer in  which the employee is performing services (or a reasonable classification of  property selected by the employer), and</span>'''
+'''              (i) all property offered to  customers in the ordinary course of the line of business of the employer in  which the employee is performing services (or a reasonable classification of  property selected by the employer), and'''
-'''<span lang="EN">              (ii) the employer’s experience  during a representative period.</span>'''
+'''              (ii) the employer’s experience  during a representative period.'''
-'''<span lang="EN">    (3) Employee discount defined. The term  “employee discount” means the amount by which—</span>'''
+'''    (3) Employee discount defined. The term  “employee discount” means the amount by which—'''
-'''<span lang="EN">         (A) the price at which the property  or services are provided by the employer to an employee for use by such  employee, is less than</span>'''
+'''         (A) the price at which the property  or services are provided by the employer to an employee for use by such  employee, is less than'''
-'''<span lang="EN">         (B) the price at which such  property or services are being offered by the employer to customers.</span>'''
+'''         (B) the price at which such  property or services are being offered by the employer to customers.'''
-'''<span lang="EN">    (4) Qualified property or services. The  term “qualified property or services” means any property (other than real  property and other than personal property of a kind held for investment) or  services which are offered for sale to customers in the ordinary course of  the line of business of the employer in which the employee is performing  services.</span>'''
+'''    (4) Qualified property or services. The  term “qualified property or services” means any property (other than real  property and other than personal property of a kind held for investment) or  services which are offered for sale to customers in the ordinary course of  the line of business of the employer in which the employee is performing  services.'''
-'''<span lang="EN">(d) Working condition fringe defined. For purposes of this section, the term  “working condition fringe” means any property or services provided to an  employee of the employer to the extent that, if the employee paid for such  property or services, such payment would be allowable as a deduction under  section 162 or 167.</span>'''
+'''(d) Working condition fringe defined. For purposes of this section, the term  “working condition fringe” means any property or services provided to an  employee of the employer to the extent that, if the employee paid for such  property or services, such payment would be allowable as a deduction under  section 162 or 167.'''
-'''<span lang="EN">(e) De minimis fringe defined. For purposes of this section—</span>'''
+'''(e) De minimis fringe defined. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. The term “de minimis  fringe” means any property or service the value of which is (after taking  into account the frequency with which similar fringes are provided by the  employer to the employer’s employees) so small as to make accounting for it  unreasonable or administratively impracticable.</span>'''
+'''    (1) In general. The term “de minimis  fringe” means any property or service the value of which is (after taking  into account the frequency with which similar fringes are provided by the  employer to the employer’s employees) so small as to make accounting for it  unreasonable or administratively impracticable.'''
-'''<span lang="EN">     (2) Treatment of certain eating  facilities. The operation by an employer of any eating facility for employees  shall be treated as a de minimis fringe if—</span>'''
+'''     (2) Treatment of certain eating  facilities. The operation by an employer of any eating facility for employees  shall be treated as a de minimis fringe if—'''
-'''<span lang="EN">         (A) such facility is located on or  near the business premises of the employer, and</span>'''
+'''         (A) such facility is located on or  near the business premises of the employer, and'''
-'''<span lang="EN">         (B) revenue derived from such  facility normally equals or exceeds the direct operating costs of such  facility.</span>'''
+'''         (B) revenue derived from such  facility normally equals or exceeds the direct operating costs of such  facility.'''
-'''<span lang="EN">The  preceding sentence shall apply with respect to any highly compensated  employee only if access to the facility is available on substantially the  same terms to each member of a group of employees which is defined under a  reasonable classification set up by the employer which does not discriminate  in favor of highly compensated employees. For purposes of subparagraph (B),  an employee entitled under section 119 to exclude the value of a meal  provided at such facility shall be treated as having paid an amount for such  meal equal to the direct operating costs of the facility attributable to such  meal.</span>'''
+'''The  preceding sentence shall apply with respect to any highly compensated  employee only if access to the facility is available on substantially the  same terms to each member of a group of employees which is defined under a  reasonable classification set up by the employer which does not discriminate  in favor of highly compensated employees. For purposes of subparagraph (B),  an employee entitled under section 119 to exclude the value of a meal  provided at such facility shall be treated as having paid an amount for such  meal equal to the direct operating costs of the facility attributable to such  meal.'''
-'''<span lang="EN">(f)  Qualified transportation fringe</span>'''
+'''(f)  Qualified transportation fringe'''
-'''<span lang="EN">    (1) In general. For purposes of this  section, the term “qualified transportation fringe” means any of the  following provided by an employer to an employee:</span>'''
+'''    (1) In general. For purposes of this  section, the term “qualified transportation fringe” means any of the  following provided by an employer to an employee:'''
-'''<span lang="EN">         (A) Transportation in a commuter  highway vehicle if such transportation is in connection with travel between  the employee’s residence and place of employment.</span>'''
+'''         (A) Transportation in a commuter  highway vehicle if such transportation is in connection with travel between  the employee’s residence and place of employment.'''
-'''<span lang="EN">         (B) Any transit pass.</span>'''
+'''         (B) Any transit pass.'''
-'''<span lang="EN">         (C) Qualified parking.</span>'''
+'''         (C) Qualified parking.'''
-'''<span lang="EN">         (D) Any qualified bicycle commuting reimbursement.</span>'''
+'''         (D) Any qualified bicycle commuting reimbursement.'''
-'''<span lang="EN">    (2) Limitation on exclusion. The amount  of the fringe benefits which are provided by an employer to any employee and  which may be excluded from gross income under subsection (a)(5) shall not  exceed—</span>'''
+'''    (2) Limitation on exclusion. The amount  of the fringe benefits which are provided by an employer to any employee and  which may be excluded from gross income under subsection (a)(5) shall not  exceed—'''
-'''<span lang="EN">         (A) $175 per month in the case of  the aggregate of the benefits described in subparagraphs (A) and (B) of  paragraph (1),</span>'''
+'''         (A) $175 per month in the case of  the aggregate of the benefits described in subparagraphs (A) and (B) of  paragraph (1),'''
-'''<span lang="EN">         (B) $175 per month in the case of  qualified parking, and</span>'''
+'''         (B) $175 per month in the case of  qualified parking, and'''
-'''<span lang="EN">         (C) the applicable annual  limitation in the case of any qualified bicycle commuting reimbursement.</span>'''
+'''         (C) the applicable annual  limitation in the case of any qualified bicycle commuting reimbursement.'''
-'''<span lang="EN">    (3) Cash reimbursements. For purposes of  this subsection, the term “qualified transportation fringe” includes a cash  reimbursement by an employer to an employee for a benefit described in  paragraph (1). The preceding sentence shall apply to a cash reimbursement for  any transit pass only if a voucher or similar item which may be exchanged  only for a transit pass is not readily available for direct distribution by  the employer to the employee.</span>'''
+'''    (3) Cash reimbursements. For purposes of  this subsection, the term “qualified transportation fringe” includes a cash  reimbursement by an employer to an employee for a benefit described in  paragraph (1). The preceding sentence shall apply to a cash reimbursement for  any transit pass only if a voucher or similar item which may be exchanged  only for a transit pass is not readily available for direct distribution by  the employer to the employee.'''
-'''<span lang="EN">     (4) No constructive receipt. No  amount shall be included in the gross income of an employee solely because  the employee may choose between any qualified transportation fringe (other  than a qualified bicycle commuting reimbursement) and compensation which  would otherwise be includible in gross income of such employee.</span>'''
+'''     (4) No constructive receipt. No  amount shall be included in the gross income of an employee solely because  the employee may choose between any qualified transportation fringe (other  than a qualified bicycle commuting reimbursement) and compensation which  would otherwise be includible in gross income of such employee.'''
-'''<span lang="EN">     (5) Definitions. For purposes of  this subsection—</span>'''
+'''     (5) Definitions. For purposes of  this subsection—'''
-'''<span lang="EN">         (A) Transit pass. The term “transit  pass” means any pass, token, farecard, voucher, or similar item entitling a  person to transportation (or transportation at a reduced price) if such  transportation is—</span>'''
+'''         (A) Transit pass. The term “transit  pass” means any pass, token, farecard, voucher, or similar item entitling a  person to transportation (or transportation at a reduced price) if such  transportation is—'''
-'''<span lang="EN">              (i) on mass transit facilities  (whether or not publicly owned), or</span>'''
+'''              (i) on mass transit facilities  (whether or not publicly owned), or'''
-'''<span lang="EN">              (ii) provided by any person in  the business of transporting persons for compensation or hire if such  transportation is provided in a vehicle meeting the requirements of  subparagraph (B)(i).</span>'''
+'''              (ii) provided by any person in  the business of transporting persons for compensation or hire if such  transportation is provided in a vehicle meeting the requirements of  subparagraph (B)(i).'''
-'''<span lang="EN">         (B) Commuter highway vehicle. The  term “commuter highway vehicle” means any highway vehicle—</span>'''
+'''         (B) Commuter highway vehicle. The  term “commuter highway vehicle” means any highway vehicle—'''
-'''<span lang="EN">              (i) the seating capacity of  which is at least 6 adults (not including the driver), and</span>'''
+'''              (i) the seating capacity of  which is at least 6 adults (not including the driver), and'''
-'''<span lang="EN">              (ii) at least 80 percent of  the mileage use of which can reasonably be expected to be—</span>'''
+'''              (ii) at least 80 percent of  the mileage use of which can reasonably be expected to be—'''
-'''<span lang="EN">                   (I) for purposes of  transporting employees in connection with travel between their residences and  their place of employment, and</span>'''
+'''                   (I) for purposes of  transporting employees in connection with travel between their residences and  their place of employment, and'''
-'''<span lang="EN">                   (II) on trips during  which the number of employees transported for such purposes is at least ½ of  the adult seating capacity of such vehicle (not including the driver).</span>'''
+'''                   (II) on trips during  which the number of employees transported for such purposes is at least ½ of  the adult seating capacity of such vehicle (not including the driver).'''
-'''<span lang="EN">         (C) Qualified parking. The term  “qualified parking” means parking provided to an employee on or near the  business premises of the employer or on or near a location from which the  employee commutes to work by transportation described in subparagraph (A), in  a commuter highway vehicle, or by carpool. Such term shall not include any  parking on or near property used by the employee for residential purposes.</span>'''
+'''         (C) Qualified parking. The term  “qualified parking” means parking provided to an employee on or near the  business premises of the employer or on or near a location from which the  employee commutes to work by transportation described in subparagraph (A), in  a commuter highway vehicle, or by carpool. Such term shall not include any  parking on or near property used by the employee for residential purposes.'''
-'''<span lang="EN">          (D) Transportation provided  by employer</span>'''
+'''          (D) Transportation provided  by employer'''
-'''<span lang="EN">Transportation referred to in paragraph (1)(A) shall be considered to be  provided by an employer if such transportation is furnished in a commuter  highway vehicle operated by or for the employer.</span>'''
+'''Transportation referred to in paragraph (1)(A) shall be considered to be  provided by an employer if such transportation is furnished in a commuter  highway vehicle operated by or for the employer.'''
-'''<span lang="EN">          (E) Employee</span>'''
+'''          (E) Employee'''
-'''<span lang="EN">For purposes of this subsection, the term “employee” does not include an  individual who is an employee within the meaning of section 401(c)(1).</span>'''
+'''For purposes of this subsection, the term “employee” does not include an  individual who is an employee within the meaning of section 401(c)(1).'''
-'''<span lang="EN">          (F) Definitions related to  bicycle commuting reimbursement</span>'''
+'''          (F) Definitions related to  bicycle commuting reimbursement'''
-'''<span lang="EN">              (i) Qualified bicycle  commuting reimbursement. The term “qualified bicycle commuting reimbursement”  means, with respect to any calendar year, any employer reimbursement during  the 15-month period beginning with the first day of such calendar year for  reasonable expenses incurred by the employee during such calendar year for  the purchase of a bicycle and bicycle improvements, repair, and storage, if  such bicycle is regularly used for travel between the employee’s residence  and place of employment.</span>'''
+'''              (i) Qualified bicycle  commuting reimbursement. The term “qualified bicycle commuting reimbursement”  means, with respect to any calendar year, any employer reimbursement during  the 15-month period beginning with the first day of such calendar year for  reasonable expenses incurred by the employee during such calendar year for  the purchase of a bicycle and bicycle improvements, repair, and storage, if  such bicycle is regularly used for travel between the employee’s residence  and place of employment.'''
-'''<span lang="EN">               (ii) Applicable annual  limitation. The term “applicable annual limitation” means, with respect to  any employee for any calendar year, the product of $20 multiplied by the  number of qualified bicycle commuting months during such year.</span>'''
+'''               (ii) Applicable annual  limitation. The term “applicable annual limitation” means, with respect to  any employee for any calendar year, the product of $20 multiplied by the  number of qualified bicycle commuting months during such year.'''
-'''<span lang="EN">               (iii) Qualified bicycle  commuting month. The term “qualified bicycle commuting month” means, with  respect to any employee, any month during which such employee—</span>'''
+'''               (iii) Qualified bicycle  commuting month. The term “qualified bicycle commuting month” means, with  respect to any employee, any month during which such employee—'''
-'''<span lang="EN">                   (I) regularly uses the  bicycle for a substantial portion of the travel between the employee’s  residence and place of employment, and</span>'''
+'''                   (I) regularly uses the  bicycle for a substantial portion of the travel between the employee’s  residence and place of employment, and'''
-'''<span lang="EN">                   (II) does not receive any  benefit described in subparagraph (A), (B), or (C) of paragraph (1).</span>'''
+'''                   (II) does not receive any  benefit described in subparagraph (A), (B), or (C) of paragraph (1).'''
-'''<span lang="EN">    (6) Inflation adjustment</span>'''
+'''    (6) Inflation adjustment'''
-'''<span lang="EN">         (A) In general. In the case of any  taxable year beginning in a calendar year after 1999, the dollar amounts  contained in subparagraphs (A) and (B) of paragraph (2) shall be increased by  an amount equal to—</span>'''
+'''         (A) In general. In the case of any  taxable year beginning in a calendar year after 1999, the dollar amounts  contained in subparagraphs (A) and (B) of paragraph (2) shall be increased by  an amount equal to—'''
-'''<span lang="EN">              (i) such dollar amount,  multiplied by</span>'''
+'''              (i) such dollar amount,  multiplied by'''
-'''<span lang="EN">              (ii) the cost-of-living  adjustment determined under section 1(f)(3) for the calendar year in which  the taxable year begins, by substituting “calendar year 1998” for “calendar  year 2016” in subparagraph (A)(ii) thereof.</span>'''
+'''              (ii) the cost-of-living  adjustment determined under section 1(f)(3) for the calendar year in which  the taxable year begins, by substituting “calendar year 1998” for “calendar  year 2016” in subparagraph (A)(ii) thereof.'''
-'''<span lang="EN">In  the case of any taxable year beginning in a calendar year after 2002, clause  (ii) shall be applied by substituting “calendar year 2001” for “calendar year  1998” for purposes of adjusting the dollar amount contained in paragraph  (2)(A).</span>'''
+'''In  the case of any taxable year beginning in a calendar year after 2002, clause  (ii) shall be applied by substituting “calendar year 2001” for “calendar year  1998” for purposes of adjusting the dollar amount contained in paragraph  (2)(A).'''
-'''<span lang="EN">         (B) Rounding. If any increase  determined under subparagraph (A) is not a multiple of $5, such increase  shall be rounded to the next lowest multiple of $5.</span>'''
+'''         (B) Rounding. If any increase  determined under subparagraph (A) is not a multiple of $5, such increase  shall be rounded to the next lowest multiple of $5.'''
-'''<span lang="EN">     (7) Coordination with other  provisions. For purposes of this section, the terms “working condition  fringe” and “de minimis fringe” shall not include any qualified  transportation fringe (determined without regard to paragraph (2)).</span>'''
+'''     (7) Coordination with other  provisions. For purposes of this section, the terms “working condition  fringe” and “de minimis fringe” shall not include any qualified  transportation fringe (determined without regard to paragraph (2)).'''
-'''<span lang="EN">     (8) Suspension of qualified  bicycle commuting reimbursement exclusion. Paragraph (1)(D) shall not apply  to any taxable year beginning after December 31, 2017, and before January 1,  2026.</span>'''
+'''     (8) Suspension of qualified  bicycle commuting reimbursement exclusion. Paragraph (1)(D) shall not apply  to any taxable year beginning after December 31, 2017, and before January 1,  2026.'''
-'''<span lang="EN">(g) Qualified moving expense reimbursement. For purposes of this section—</span>'''
+'''(g) Qualified moving expense reimbursement. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. The term “qualified  moving expense reimbursement” means any amount received (directly or  indirectly) by an individual from an employer as a payment for (or a  reimbursement of) expenses which would be deductible as moving expenses under  section 217 if directly paid or incurred by the individual. Such term shall  not include any payment for (or reimbursement of) an expense actually  deducted by the individual in a prior taxable year.</span>'''
+'''    (1) In general. The term “qualified  moving expense reimbursement” means any amount received (directly or  indirectly) by an individual from an employer as a payment for (or a  reimbursement of) expenses which would be deductible as moving expenses under  section 217 if directly paid or incurred by the individual. Such term shall  not include any payment for (or reimbursement of) an expense actually  deducted by the individual in a prior taxable year.'''
-'''<span lang="EN">     (2) Suspension for taxable years 2018 through 2025.  Except in the case of a member of the Armed Forces of the United States on  active duty who moves pursuant to a military order and incident to a  permanent change of station, subsection (a)(6) shall not apply to any taxable  year beginning after December 31, 2017, and before January 1, 2026.</span>'''
+'''     (2) Suspension for taxable years 2018 through 2025.  Except in the case of a member of the Armed Forces of the United States on  active duty who moves pursuant to a military order and incident to a  permanent change of station, subsection (a)(6) shall not apply to any taxable  year beginning after December 31, 2017, and before January 1, 2026.'''
-'''<span lang="EN">(h) Certain individuals treated as employees for purposes of subsections  (a)(1) and (2)For purposes of paragraphs (1) and (2) of subsection (a)—</span>'''
+'''(h) Certain individuals treated as employees for purposes of subsections  (a)(1) and (2)For purposes of paragraphs (1) and (2) of subsection (a)—'''
-'''<span lang="EN">    (1) Retired and disabled employees and  surviving spouse of employee treated as employee. With respect to a line of  business of an employer, the term “employee” includes—</span>'''
+'''    (1) Retired and disabled employees and  surviving spouse of employee treated as employee. With respect to a line of  business of an employer, the term “employee” includes—'''
-'''<span lang="EN">         (A) any individual who was formerly  employed by such employer in such line of business and who separated from  service with such employer in such line of business by reason of retirement  or disability, and</span>'''
+'''         (A) any individual who was formerly  employed by such employer in such line of business and who separated from  service with such employer in such line of business by reason of retirement  or disability, and'''
-'''<span lang="EN">         (B) any widow or widower of any  individual who died while employed by such employer in such line of business  or while an employee within the meaning of subparagraph (A).</span>'''
+'''         (B) any widow or widower of any  individual who died while employed by such employer in such line of business  or while an employee within the meaning of subparagraph (A).'''
-'''<span lang="EN">    (2) Spouse and dependent children</span>'''
+'''    (2) Spouse and dependent children'''
-'''<span lang="EN">         (A) In general. Any use by the  spouse or a dependent child of the employee shall be treated as use by the  employee.</span>'''
+'''         (A) In general. Any use by the  spouse or a dependent child of the employee shall be treated as use by the  employee.'''
-'''<span lang="EN">          (B) Dependent child. For  purposes of subparagraph (A), the term “dependent child” means any child (as  defined in section 152(f)(1)) of the employee—</span>'''
+'''          (B) Dependent child. For  purposes of subparagraph (A), the term “dependent child” means any child (as  defined in section 152(f)(1)) of the employee—'''
-'''<span lang="EN">              (i) who is a dependent of the  employee, or</span>'''
+'''              (i) who is a dependent of the  employee, or'''
-'''<span lang="EN">              (ii) both of whose parents are  deceased and who has not attained age 25.</span>'''
+'''              (ii) both of whose parents are  deceased and who has not attained age 25.'''
-'''<span lang="EN">For  purposes of the preceding sentence, any child to whom section 152(e) applies  shall be treated as the dependent of both parents.</span>'''
+'''For  purposes of the preceding sentence, any child to whom section 152(e) applies  shall be treated as the dependent of both parents.'''
-'''<span lang="EN">    (3) Special rule for parents in the case  of air transportation. Any use of air transportation by a parent of an  employee (determined without regard to paragraph (1)(B)) shall be treated as  use by the employee.</span>'''
+'''    (3) Special rule for parents in the case  of air transportation. Any use of air transportation by a parent of an  employee (determined without regard to paragraph (1)(B)) shall be treated as  use by the employee.'''
-'''<span lang="EN">(i) Reciprocal agreements. For purposes of paragraph (1) of subsection (a),  any service provided by an employer to an employee of another employer shall  be treated as provided by the employer of such employee if—</span>'''
+'''(i) Reciprocal agreements. For purposes of paragraph (1) of subsection (a),  any service provided by an employer to an employee of another employer shall  be treated as provided by the employer of such employee if—'''
-'''<span lang="EN">    (1) such service is provided pursuant to  a written agreement between such employers, and</span>'''
+'''    (1) such service is provided pursuant to  a written agreement between such employers, and'''
-'''<span lang="EN">    (2) neither of such employers incurs any  substantial additional costs (including foregone revenue) in providing such  service or pursuant to such agreement.</span>'''
+'''    (2) neither of such employers incurs any  substantial additional costs (including foregone revenue) in providing such  service or pursuant to such agreement.'''
-'''<span lang="EN">(j)  Special rules</span>'''
+'''(j)  Special rules'''
-'''<span lang="EN">    (1) Exclusions under subsection (a)(1)  and (2) apply to highly compensated employees only if no discrimination.  Paragraphs (1) and (2) of subsection (a) shall apply with respect to any  fringe benefit described therein provided with respect to any highly  compensated employee only if such fringe benefit is available on  substantially the same terms to each member of a group of employees which is  defined under a reasonable classification set up by the employer which does  not discriminate in favor of highly compensated employees.</span>'''
+'''    (1) Exclusions under subsection (a)(1)  and (2) apply to highly compensated employees only if no discrimination.  Paragraphs (1) and (2) of subsection (a) shall apply with respect to any  fringe benefit described therein provided with respect to any highly  compensated employee only if such fringe benefit is available on  substantially the same terms to each member of a group of employees which is  defined under a reasonable classification set up by the employer which does  not discriminate in favor of highly compensated employees.'''
-'''<span lang="EN">     (2) Special rule for leased  sections of department stores</span>'''
+'''     (2) Special rule for leased  sections of department stores'''
-'''<span lang="EN">         (A) In general. For purposes of  paragraph (2) of subsection (a), in the case of a leased section of a  department store—</span>'''
+'''         (A) In general. For purposes of  paragraph (2) of subsection (a), in the case of a leased section of a  department store—'''
-'''<span lang="EN">              (i) such section shall be  treated as part of the line of business of the person operating the  department store, and</span>'''
+'''              (i) such section shall be  treated as part of the line of business of the person operating the  department store, and'''
-'''<span lang="EN">              (ii) employees in the leased  section shall be treated as employees of the person operating the department  store.</span>'''
+'''              (ii) employees in the leased  section shall be treated as employees of the person operating the department  store.'''
-'''<span lang="EN">         (B) Leased section of department  store. For purposes of subparagraph (A), a leased section of a department  store is any part of a department store where over-the-counter sales of  property are made under a lease or similar arrangement where it appears to  the general public that individuals making such sales are employed by the  person operating the department store.</span>'''
+'''         (B) Leased section of department  store. For purposes of subparagraph (A), a leased section of a department  store is any part of a department store where over-the-counter sales of  property are made under a lease or similar arrangement where it appears to  the general public that individuals making such sales are employed by the  person operating the department store.'''
-'''<span lang="EN">     (3) Auto salesmen</span>'''
+'''     (3) Auto salesmen'''
-'''<span lang="EN">         (A) In general. For purposes of  subsection (a)(3), qualified automobile demonstration use shall be treated as  a working condition fringe.</span>'''
+'''         (A) In general. For purposes of  subsection (a)(3), qualified automobile demonstration use shall be treated as  a working condition fringe.'''
-'''<span lang="EN">          (B) Qualified automobile  demonstration use. For purposes of subparagraph (A), the term “qualified  automobile demonstration use” means any use of an automobile by a full-time  automobile salesman in the sales area in which the automobile dealer’s sales  office is located if—</span>'''
+'''          (B) Qualified automobile  demonstration use. For purposes of subparagraph (A), the term “qualified  automobile demonstration use” means any use of an automobile by a full-time  automobile salesman in the sales area in which the automobile dealer’s sales  office is located if—'''
-'''<span lang="EN">               (i) such use is provided primarily to facilitate the salesman’s  performance of services for the employer, and</span>'''
+'''               (i) such use is provided primarily to facilitate the salesman’s  performance of services for the employer, and'''
-'''<span lang="EN">              (ii) there are substantial  restrictions on the personal use of such automobile by such salesman.</span>'''
+'''              (ii) there are substantial  restrictions on the personal use of such automobile by such salesman.'''
-'''<span lang="EN">    (4) On-premises gyms and other athletic  facilities</span>'''
+'''    (4) On-premises gyms and other athletic  facilities'''
-'''<span lang="EN">         (A) In general. Gross income shall  not include the value of any on-premises athletic facility provided by an  employer to his employees.</span>'''
+'''         (A) In general. Gross income shall  not include the value of any on-premises athletic facility provided by an  employer to his employees.'''
-'''<span lang="EN">          (B) On-premises athletic  facility. For purposes of this paragraph, the term “on-premises athletic  facility” means any gym or other athletic facility—</span>'''
+'''          (B) On-premises athletic  facility. For purposes of this paragraph, the term “on-premises athletic  facility” means any gym or other athletic facility—'''
-'''<span lang="EN">              (i) which is located on the  premises of the employer,</span>'''
+'''              (i) which is located on the  premises of the employer,'''
-'''<span lang="EN">              (ii) which is operated by the  employer, and</span>'''
+'''              (ii) which is operated by the  employer, and'''
-'''<span lang="EN">              (iii) substantially all the  use of which is by employees of the employer, their spouses, and their  dependent children (within the meaning of subsection (h)).</span>'''
+'''              (iii) substantially all the  use of which is by employees of the employer, their spouses, and their  dependent children (within the meaning of subsection (h)).'''
-'''<span lang="EN">    (5) Special rule for affiliates of  airlines</span>'''
+'''    (5) Special rule for affiliates of  airlines'''
-'''<span lang="EN">         (A) In general. If—</span>'''
+'''         (A) In general. If—'''
-'''<span lang="EN">              (i) a qualified affiliate is a  member of an affiliated group another member of which operates an airline,  and</span>'''
+'''              (i) a qualified affiliate is a  member of an affiliated group another member of which operates an airline,  and'''
-'''<span lang="EN">              (ii) employees of the  qualified affiliate who are directly engaged in providing airline-related  services are entitled to no-additional-cost service with respect to air  transportation provided by such other member, then, for purposes of applying  paragraph (1) of subsection (a) to such no-additional-cost service provided  to such employees, such qualified affiliate shall be treated as engaged in  the same line of business as such other member.</span>'''
+'''              (ii) employees of the  qualified affiliate who are directly engaged in providing airline-related  services are entitled to no-additional-cost service with respect to air  transportation provided by such other member, then, for purposes of applying  paragraph (1) of subsection (a) to such no-additional-cost service provided  to such employees, such qualified affiliate shall be treated as engaged in  the same line of business as such other member.'''
-'''<span lang="EN">    (B) Qualified affiliate. For purposes of  this paragraph, the term “qualified affiliate” means any corporation which is  predominantly engaged in airline-related services.</span>'''
+'''    (B) Qualified affiliate. For purposes of  this paragraph, the term “qualified affiliate” means any corporation which is  predominantly engaged in airline-related services.'''
-'''<span lang="EN">     (C) Airline-related services. For  purposes of this paragraph, the term “airline-related services” means any of  the following services provided in connection with air transportation:</span>'''
+'''     (C) Airline-related services. For  purposes of this paragraph, the term “airline-related services” means any of  the following services provided in connection with air transportation:'''
-'''<span lang="EN">              (i) Catering.</span>'''
+'''              (i) Catering.'''
-'''<span lang="EN">              (ii) Baggage handling.</span>'''
+'''              (ii) Baggage handling.'''
-'''<span lang="EN">              (iii) Ticketing and reservations.</span>'''
+'''              (iii) Ticketing and reservations.'''
-'''<span lang="EN">              (iv) Flight planning and  weather analysis.</span>'''
+'''              (iv) Flight planning and  weather analysis.'''
-'''<span lang="EN">              (v) Restaurants and gift shops  located at an airport.</span>'''
+'''              (v) Restaurants and gift shops  located at an airport.'''
-'''<span lang="EN">              (vi) Such other similar  services provided to the airline as the Secretary may prescribe.</span>'''
+'''              (vi) Such other similar  services provided to the airline as the Secretary may prescribe.'''
-'''<span lang="EN">         (D) Affiliated group. For purposes  of this paragraph, the term “affiliated group” has the meaning given such  term by section 1504(a).</span>'''
+'''         (D) Affiliated group. For purposes  of this paragraph, the term “affiliated group” has the meaning given such  term by section 1504(a).'''
-'''<span lang="EN">     (6) Highly compensated employee.  For purposes of this section, the term “highly compensated employee” has the  meaning given such term by section 414(q).</span>'''
+'''     (6) Highly compensated employee.  For purposes of this section, the term “highly compensated employee” has the  meaning given such term by section 414(q).'''
-'''<span lang="EN">     (7) Air cargo. For purposes of  subsection (b), the transportation of cargo by air and the transportation of  passengers by air shall be treated as the same service.</span>'''
+'''     (7) Air cargo. For purposes of  subsection (b), the transportation of cargo by air and the transportation of  passengers by air shall be treated as the same service.'''
-'''<span lang="EN">     (8) Application of section to  otherwise taxable educational or training benefits. Amounts paid or expenses  incurred by the employer for education or training provided to the employee  which are not excludable from gross income under section 127 shall be  excluded from gross income under this section if (and only if) such amounts  or expenses are a working condition fringe.</span>'''
+'''     (8) Application of section to  otherwise taxable educational or training benefits. Amounts paid or expenses  incurred by the employer for education or training provided to the employee  which are not excludable from gross income under section 127 shall be  excluded from gross income under this section if (and only if) such amounts  or expenses are a working condition fringe.'''
-'''<span lang="EN">(k) Customers not to include employees. For purposes of this section (other  than subsection (c)(2)), the term “customers” shall only include customers  who are not employees.</span>'''
+'''(k) Customers not to include employees. For purposes of this section (other  than subsection (c)(2)), the term “customers” shall only include customers  who are not employees.'''
-'''<span lang="EN">(l) Section not to apply to fringe benefits expressly provided for elsewhere.  This section (other than subsections (e) and (g)) shall not apply to any  fringe benefits of a type the tax treatment of which is expressly provided for  in any other section of this chapter.</span>'''
+'''(l) Section not to apply to fringe benefits expressly provided for elsewhere.  This section (other than subsections (e) and (g)) shall not apply to any  fringe benefits of a type the tax treatment of which is expressly provided for  in any other section of this chapter.'''
-'''<span lang="EN">(m) Qualified retirement planning services</span>'''
+'''(m) Qualified retirement planning services'''
-'''<span lang="EN">    (1) In general. For purposes of this  section, the term “qualified retirement planning services” means any  retirement planning advice or information provided to an employee and his  spouse by an employer maintaining a qualified employer plan.</span>'''
+'''    (1) In general. For purposes of this  section, the term “qualified retirement planning services” means any  retirement planning advice or information provided to an employee and his  spouse by an employer maintaining a qualified employer plan.'''
-'''<span lang="EN">     (2) Nondiscrimination rule.  Subsection (a)(7) shall apply in the case of highly compensated employees  only if such services are available on substantially the same terms to each  member of the group of employees normally provided education and information  regarding the employer’s qualified employer plan.</span>'''
+'''     (2) Nondiscrimination rule.  Subsection (a)(7) shall apply in the case of highly compensated employees  only if such services are available on substantially the same terms to each  member of the group of employees normally provided education and information  regarding the employer’s qualified employer plan.'''
-'''<span lang="EN">     (3) Qualified employer plan. For  purposes of this subsection, the term “qualified employer plan” means a plan,  contract, pension, or account described in section 219(g)(5).</span>'''
+'''     (3) Qualified employer plan. For  purposes of this subsection, the term “qualified employer plan” means a plan,  contract, pension, or account described in section 219(g)(5).'''
-'''<span lang="EN">(n) Qualified military base realignment and closure fringe. For purposes of  this section—</span>'''
+'''(n) Qualified military base realignment and closure fringe. For purposes of  this section—'''
-'''<span lang="EN">    (1) In general. The term “qualified  military base realignment and closure fringe” means 1 or more payments under  the authority of section 1013 of the Demonstration Cities and Metropolitan  Development Act of 1966 (42 U.S.C. 3374) (as in effect on the date of the  enactment of the American Recovery and Reinvestment Tax Act of 2009).</span>'''
+'''    (1) In general. The term “qualified  military base realignment and closure fringe” means 1 or more payments under  the authority of section 1013 of the Demonstration Cities and Metropolitan  Development Act of 1966 (42 U.S.C. 3374) (as in effect on the date of the  enactment of the American Recovery and Reinvestment Tax Act of 2009).'''
-'''<span lang="EN">     (2) Limitation. With respect to  any property, such term shall not include any payment referred to in  paragraph (1) to the extent that the sum of all of such payments related to  such property exceeds the maximum amount described in subsection (c) of such  section (as in effect on such date).</span>'''
+'''     (2) Limitation. With respect to  any property, such term shall not include any payment referred to in  paragraph (1) to the extent that the sum of all of such payments related to  such property exceeds the maximum amount described in subsection (c) of such  section (as in effect on such date).'''
-'''<span lang="EN">(o) Regulations. The Secretary shall prescribe such regulations as may be  necessary or appropriate to carry out the purposes of this section.</span>'''
+'''(o) Regulations. The Secretary shall prescribe such regulations as may be  necessary or appropriate to carry out the purposes of this section.'''
 |}
-<span lang="EN">Statutory Fringe Benefits → §132(a) lists eight types of employee fringe benefits specifically excluded from gross income:</span>
+Statutory Fringe Benefits → §132(a) lists eight types of employee fringe benefits specifically excluded from gross income:
-<span lang="EN">1)    No-additional-cost service → space available; business is already offering something, no customer took it (i.e. airline tickets for employees, unbooked hotel rooms available to employee for a night for free); '''no substantial additional cost to employer'''</span>
+)    No-additional-cost service → space available; business is already offering something, no customer took it (i.e. airline tickets for employees, unbooked hotel rooms available to employee for a night for free); '''no substantial additional cost to employer'''
-<span lang="EN">2)    Qualified employee discount → gross profit % or 20% cap on services; qualified property or services: offered for sale to customers in the '''ordinary course or line of business''' in which the employee is performing the services (i.e. can’t offer discounted massage to retail employee)</span>
+)    Qualified employee discount → gross profit % or 20% cap on services; qualified property or services: offered for sale to customers in the '''ordinary course or line of business''' in which the employee is performing the services (i.e. can’t offer discounted massage to retail employee)
-<span lang="EN">3)    Working condition fringe → normally deductible under §162 or §167; does not include transportation costs</span>
+)    Working condition fringe → normally deductible under §162 or §167; does not include transportation costs
-<span lang="EN">4)    De minimis fringe (holiday gifts) → infrequent, small value, administratively not feasible/impractical to claim; does not include transportation costs</span>
+)    De minimis fringe (holiday gifts) → infrequent, small value, administratively not feasible/impractical to claim; does not include transportation costs
-<span lang="EN">5)    Qualified transportation fringe → limitation on qualified transportation expenses, typically $175</span>
+)    Qualified transportation fringe → limitation on qualified transportation expenses, typically $175
-<span lang="EN">6)    Qualified moving expense reimbursement</span>
+)    Qualified moving expense reimbursement
-<span lang="EN">7)    Qualified retirement planning services</span>
+)    Qualified retirement planning services
 )    Qualified military base realignment and closure fringe
-<span lang="EN">**Other sections of the Code provide other fringe benefit exclusions as well.</span>
+**Other sections of the Code provide other fringe benefit exclusions as well.
-'''<span lang="EN">Property Received for Services</span>'''
+'''Property Received for Services'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 83 - Property transferred in connection with performance of  services</span>'''
+|'''26  U.S. Code § 83 - Property transferred in connection with performance of  services'''
-'''<span lang="EN">(a) General rule If, in connection with the performance of services, property  is transferred to any person other than the person for whom such services are  performed, the excess of—</span>'''
+'''(a) General rule If, in connection with the performance of services, property  is transferred to any person other than the person for whom such services are  performed, the excess of—'''
-'''<span lang="EN">    (1) the fair market value of such  property (determined without regard to any restriction other than a  restriction which by its terms will never lapse) at the first time the rights  of the person having the beneficial interest in such property are  transferable or are not subject to a substantial risk of forfeiture,  whichever occurs earlier, over</span>'''
+'''    (1) the fair market value of such  property (determined without regard to any restriction other than a  restriction which by its terms will never lapse) at the first time the rights  of the person having the beneficial interest in such property are  transferable or are not subject to a substantial risk of forfeiture,  whichever occurs earlier, over'''
-'''<span lang="EN">    (2) the amount (if any) paid for such  property, shall be included in the gross income of the person who performed  such services in the first taxable year in which the rights of the person  having the beneficial interest in such property are transferable or are not  subject to a substantial risk of forfeiture, whichever is applicable. The  preceding sentence shall not apply if such person sells or otherwise disposes  of such property in an arm’s length transaction before his rights in such  property become transferable or not subject to a substantial risk of  forfeiture.</span>'''
+'''    (2) the amount (if any) paid for such  property, shall be included in the gross income of the person who performed  such services in the first taxable year in which the rights of the person  having the beneficial interest in such property are transferable or are not  subject to a substantial risk of forfeiture, whichever is applicable. The  preceding sentence shall not apply if such person sells or otherwise disposes  of such property in an arm’s length transaction before his rights in such  property become transferable or not subject to a substantial risk of  forfeiture.'''
-'''<span lang="EN">(b)  Election to include in gross income in year of transfer</span>'''
+'''(b)  Election to include in gross income in year of transfer'''
-'''<span lang="EN">    (1) In general. Any person who performs  services in connection with which property is transferred to any person may  elect to include in his gross income for the taxable year in which such  property is transferred, the excess of—</span>'''
+'''    (1) In general. Any person who performs  services in connection with which property is transferred to any person may  elect to include in his gross income for the taxable year in which such  property is transferred, the excess of—'''
-'''<span lang="EN">         (A) the fair market value of such  property at the time of transfer (determined without regard to any  restriction other than a restriction which by its terms will never lapse),  over</span>'''
+'''         (A) the fair market value of such  property at the time of transfer (determined without regard to any  restriction other than a restriction which by its terms will never lapse),  over'''
-'''<span lang="EN">         (B) the amount (if any) paid for  such property. If such election is made, subsection (a) shall not apply with  respect to the transfer of such property, and if such property is  subsequently forfeited, no deduction shall be allowed in respect of such  forfeiture.</span>'''
+'''         (B) the amount (if any) paid for  such property. If such election is made, subsection (a) shall not apply with  respect to the transfer of such property, and if such property is  subsequently forfeited, no deduction shall be allowed in respect of such  forfeiture.'''
-'''<span lang="EN">    (2) Election An election under paragraph  (1) with respect to any transfer of property shall be made in such manner as  the Secretary prescribes and shall be made not later than 30 days after the  date of such transfer. Such election may not be revoked except with the  consent of the Secretary.</span>'''
+'''    (2) Election An election under paragraph  (1) with respect to any transfer of property shall be made in such manner as  the Secretary prescribes and shall be made not later than 30 days after the  date of such transfer. Such election may not be revoked except with the  consent of the Secretary.'''
-'''<span lang="EN">(c) Special rules. For purposes of this section—</span>'''
+'''(c) Special rules. For purposes of this section—'''
-'''<span lang="EN">    (1) Substantial risk of forfeiture. The  rights of a person in property are subject to a substantial risk of  forfeiture if such person’s rights to full enjoyment of such property are  conditioned upon the future performance of substantial services by any  individual.</span>'''
+'''    (1) Substantial risk of forfeiture. The  rights of a person in property are subject to a substantial risk of  forfeiture if such person’s rights to full enjoyment of such property are  conditioned upon the future performance of substantial services by any  individual.'''
-'''<span lang="EN">     (2) Transferability of property.  The rights of a person in property are transferable only if the rights in  such property of any transferee are not subject to a substantial risk of  forfeiture.</span>'''
+'''     (2) Transferability of property.  The rights of a person in property are transferable only if the rights in  such property of any transferee are not subject to a substantial risk of  forfeiture.'''
-'''<span lang="EN">     (3) Sales which may give rise to  suit under section 16(b) of the Securities Exchange Act of 1934. So long as  the sale of property at a profit could subject a person to suit under section  16(b) of the Securities Exchange Act of 1934, such person’s rights in such  property are—</span>'''
+'''     (3) Sales which may give rise to  suit under section 16(b) of the Securities Exchange Act of 1934. So long as  the sale of property at a profit could subject a person to suit under section  16(b) of the Securities Exchange Act of 1934, such person’s rights in such  property are—'''
-'''<span lang="EN">         (A) subject to a substantial risk  of forfeiture, and</span>'''
+'''         (A) subject to a substantial risk  of forfeiture, and'''
-'''<span lang="EN">         (B) not transferable.</span>'''
+'''         (B) not transferable.'''
-'''<span lang="EN">    (4) For purposes of determining an  individual’s basis in property transferred in connection with the performance  of services, rules similar to the rules of section 72(w) shall apply.</span>'''
+'''    (4) For purposes of determining an  individual’s basis in property transferred in connection with the performance  of services, rules similar to the rules of section 72(w) shall apply.'''
-'''<span lang="EN">(d)  Certain restrictions which will never lapse</span>'''
+'''(d)  Certain restrictions which will never lapse'''
-'''<span lang="EN">    (1) Valuation. In the case of property  subject to a restriction which by its terms will never lapse, and which  allows the transferee to sell such property only at a price determined under  a formula, the price so determined shall be deemed to be the fair market  value of the property unless established to the contrary by the Secretary,  and the burden of proof shall be on the Secretary with respect to such value.</span>'''
+'''    (1) Valuation. In the case of property  subject to a restriction which by its terms will never lapse, and which  allows the transferee to sell such property only at a price determined under  a formula, the price so determined shall be deemed to be the fair market  value of the property unless established to the contrary by the Secretary,  and the burden of proof shall be on the Secretary with respect to such value.'''
-'''<span lang="EN">     (2) Cancellation If, in the case  of property subject to a restriction which by its terms will never lapse, the  restriction is canceled, then, unless the taxpayer establishes—</span>'''
+'''     (2) Cancellation If, in the case  of property subject to a restriction which by its terms will never lapse, the  restriction is canceled, then, unless the taxpayer establishes—'''
-'''<span lang="EN">         (A) that such cancellation was not  compensatory, and</span>'''
+'''         (A) that such cancellation was not  compensatory, and'''
-'''<span lang="EN">         (B) that the person, if any, who  would be allowed a deduction if the cancellation were treated as  compensatory, will treat the transaction as not compensatory, as evidenced in  such manner as the Secretary shall prescribe by regulations, the excess of  the fair market value of the property (computed without regard to the  restrictions) at the time of cancellation over the sum of—</span>'''
+'''         (B) that the person, if any, who  would be allowed a deduction if the cancellation were treated as  compensatory, will treat the transaction as not compensatory, as evidenced in  such manner as the Secretary shall prescribe by regulations, the excess of  the fair market value of the property (computed without regard to the  restrictions) at the time of cancellation over the sum of—'''
-'''<span lang="EN">         (C) the fair market value of such  property (computed by taking the restriction into account) immediately before  the cancellation, and</span>'''
+'''         (C) the fair market value of such  property (computed by taking the restriction into account) immediately before  the cancellation, and'''
-'''<span lang="EN">         (D) the amount, if any, paid for  the cancellation, shall be treated as compensation for the taxable year in  which such cancellation occurs.</span>'''
+'''         (D) the amount, if any, paid for  the cancellation, shall be treated as compensation for the taxable year in  which such cancellation occurs.'''
-'''<span lang="EN">(e)  Applicability of section. This section shall not apply to—</span>'''
+'''(e)  Applicability of section. This section shall not apply to—'''
-'''<span lang="EN">    (1) a transaction to which section 421  applies,</span>'''
+'''    (1) a transaction to which section 421  applies,'''
-'''<span lang="EN">    (2) a transfer to or from a trust  described in section 401(a) or a transfer under an annuity plan which meets  the requirements of section 404(a)(2),</span>'''
+'''    (2) a transfer to or from a trust  described in section 401(a) or a transfer under an annuity plan which meets  the requirements of section 404(a)(2),'''
-'''<span lang="EN">    (3) the transfer of an option without a  readily ascertainable fair market value,</span>'''
+'''    (3) the transfer of an option without a  readily ascertainable fair market value,'''
-'''<span lang="EN">    (4) the transfer of property pursuant to  the exercise of an option with a readily ascertainable fair market value at  the date of grant, or</span>'''
+'''    (4) the transfer of property pursuant to  the exercise of an option with a readily ascertainable fair market value at  the date of grant, or'''
-'''<span lang="EN">    (5) group-term life insurance to which  section 79 applies.</span>'''
+'''    (5) group-term life insurance to which  section 79 applies.'''
-'''<span lang="EN">(f)  Holding period. In determining the period for which the taxpayer has held  property to which subsection (a) applies, there shall be included only the  period beginning at the first time his rights in such property are  transferable or are not subject to a substantial risk of forfeiture,  whichever occurs earlier.</span>'''
+'''(f)  Holding period. In determining the period for which the taxpayer has held  property to which subsection (a) applies, there shall be included only the  period beginning at the first time his rights in such property are  transferable or are not subject to a substantial risk of forfeiture,  whichever occurs earlier.'''
-'''<span lang="EN">(g) Certain exchanges. If property to which subsection (a) applies is  exchanged for property subject to restrictions and conditions substantially  similar to those to which the property given in such exchange was subject,  and if section 354, 355, 356, or 1036 (or so much of section 1031 as relates  to section 1036) applied to such exchange, or if such exchange was pursuant  to the exercise of a conversion privilege—</span>'''
+'''(g) Certain exchanges. If property to which subsection (a) applies is  exchanged for property subject to restrictions and conditions substantially  similar to those to which the property given in such exchange was subject,  and if section 354, 355, 356, or 1036 (or so much of section 1031 as relates  to section 1036) applied to such exchange, or if such exchange was pursuant  to the exercise of a conversion privilege—'''
-'''<span lang="EN">    (1) such exchange shall be disregarded  for purposes of subsection (a), and</span>'''
+'''    (1) such exchange shall be disregarded  for purposes of subsection (a), and'''
-'''<span lang="EN">    (2) the property received shall be  treated as property to which subsection (a) applies.</span>'''
+'''    (2) the property received shall be  treated as property to which subsection (a) applies.'''
-'''<span lang="EN">(h)  Deduction by employer. In the case of a transfer of property to which this  section applies or a cancellation of a restriction described in subsection  (d), there shall be allowed as a deduction under section 162, to the person  for whom were performed the services in connection with which such property  was transferred, an amount equal to the amount included under subsection (a),  (b), or (d)(2) in the gross income of the person who performed such services.  Such deduction shall be allowed for the taxable year of such person in which  or with which ends the taxable year in which such amount is included in the  gross income of the person who performed such services.</span>'''
+'''(h)  Deduction by employer. In the case of a transfer of property to which this  section applies or a cancellation of a restriction described in subsection  (d), there shall be allowed as a deduction under section 162, to the person  for whom were performed the services in connection with which such property  was transferred, an amount equal to the amount included under subsection (a),  (b), or (d)(2) in the gross income of the person who performed such services.  Such deduction shall be allowed for the taxable year of such person in which  or with which ends the taxable year in which such amount is included in the  gross income of the person who performed such services.'''
-'''<span lang="EN">(i) Qualified equity grants</span>'''
+'''(i) Qualified equity grants'''
-'''<span lang="EN">    (1) In general. For purposes of this  subtitle—</span>'''
+'''    (1) In general. For purposes of this  subtitle—'''
-'''<span lang="EN">         (A) Timing of inclusion. If  qualified stock is transferred to a qualified employee who makes an election  with respect to such stock under this subsection, subsection (a) shall be  applied by including the amount determined under such subsection with respect  to such stock in income of the employee in the taxable year determined under  subparagraph (B) in lieu of the taxable year described in subsection (a).</span>'''
+'''         (A) Timing of inclusion. If  qualified stock is transferred to a qualified employee who makes an election  with respect to such stock under this subsection, subsection (a) shall be  applied by including the amount determined under such subsection with respect  to such stock in income of the employee in the taxable year determined under  subparagraph (B) in lieu of the taxable year described in subsection (a).'''
-'''<span lang="EN">          (B) Taxable year determined.  The taxable year determined under this subparagraph is the taxable year of  the employee which includes the earliest of—</span>'''
+'''          (B) Taxable year determined.  The taxable year determined under this subparagraph is the taxable year of  the employee which includes the earliest of—'''
-'''<span lang="EN">              (i) the first date such  qualified stock becomes transferable (including, solely for purposes of this  clause, becoming transferable to the employer),</span>'''
+'''              (i) the first date such  qualified stock becomes transferable (including, solely for purposes of this  clause, becoming transferable to the employer),'''
-'''<span lang="EN">              (ii) the date the employee  first becomes an excluded employee,</span>'''
+'''              (ii) the date the employee  first becomes an excluded employee,'''
-'''<span lang="EN">              (iii) the first date on which  any stock of the corporation which issued the qualified stock becomes readily  tradable on an established securities market (as determined by the Secretary,  but not including any market unless such market is recognized as an  established securities market by the Secretary for purposes of a provision of  this title other than this subsection),</span>'''
+'''              (iii) the first date on which  any stock of the corporation which issued the qualified stock becomes readily  tradable on an established securities market (as determined by the Secretary,  but not including any market unless such market is recognized as an  established securities market by the Secretary for purposes of a provision of  this title other than this subsection),'''
-'''<span lang="EN">              (iv) the date that is 5 years  after the first date the rights of the employee in such stock are  transferable or are not subject to a substantial risk of forfeiture,  whichever occurs earlier, or</span>'''
+'''              (iv) the date that is 5 years  after the first date the rights of the employee in such stock are  transferable or are not subject to a substantial risk of forfeiture,  whichever occurs earlier, or'''
-'''<span lang="EN">              (v) the date on which the  employee revokes (at such time and in such manner as the Secretary provides)  the election under this subsection with respect to such stock.</span>'''
+'''              (v) the date on which the  employee revokes (at such time and in such manner as the Secretary provides)  the election under this subsection with respect to such stock.'''
-'''<span lang="EN">    (2) Qualified stock</span>'''
+'''    (2) Qualified stock'''
-'''<span lang="EN">         (A) In general. For purposes of  this subsection, the term “qualified stock” means, with respect to any  qualified employee, any stock in a corporation which is the employer of such  employee, if—</span>'''
+'''         (A) In general. For purposes of  this subsection, the term “qualified stock” means, with respect to any  qualified employee, any stock in a corporation which is the employer of such  employee, if—'''
-'''<span lang="EN">              (i) such stock is received—</span>'''
+'''              (i) such stock is received—'''
-'''<span lang="EN">                   (I) in connection with  the exercise of an option, or</span>'''
+'''                   (I) in connection with  the exercise of an option, or'''
-'''<span lang="EN">                   (II) in settlement of a  restricted stock unit, and</span>'''
+'''                   (II) in settlement of a  restricted stock unit, and'''
-'''<span lang="EN">              (ii) such option or restricted  stock unit was granted by the corporation—</span>'''
+'''              (ii) such option or restricted  stock unit was granted by the corporation—'''
-'''<span lang="EN">                   (I) in connection with  the performance of services as an employee, and</span>'''
+'''                   (I) in connection with  the performance of services as an employee, and'''
-'''<span lang="EN">                   (II) during a calendar  year in which such corporation was an eligible corporation.</span>'''
+'''                   (II) during a calendar  year in which such corporation was an eligible corporation.'''
-'''<span lang="EN">         (B) Limitation. The term “qualified  stock” shall not include any stock if the employee may sell such stock to, or  otherwise receive cash in lieu of stock from, the corporation at the time  that the rights of the employee in such stock first become transferable or  not subject to a substantial risk of forfeiture.</span>'''
+'''         (B) Limitation. The term “qualified  stock” shall not include any stock if the employee may sell such stock to, or  otherwise receive cash in lieu of stock from, the corporation at the time  that the rights of the employee in such stock first become transferable or  not subject to a substantial risk of forfeiture.'''
-'''<span lang="EN">          (C) Eligible corporation. For  purposes of subparagraph (A)(ii)(II)—</span>'''
+'''          (C) Eligible corporation. For  purposes of subparagraph (A)(ii)(II)—'''
-'''<span lang="EN">              (i) In general. The term  “eligible corporation” means, with respect to any calendar year, any  corporation if—</span>'''
+'''              (i) In general. The term  “eligible corporation” means, with respect to any calendar year, any  corporation if—'''
-'''<span lang="EN">                   (I) no stock of such  corporation (or any predecessor of such corporation) is readily tradable on  an established securities market (as determined under paragraph (1)(B)(iii))  during any preceding calendar year, and</span>'''
+'''                   (I) no stock of such  corporation (or any predecessor of such corporation) is readily tradable on  an established securities market (as determined under paragraph (1)(B)(iii))  during any preceding calendar year, and'''
-'''<span lang="EN">                   (II) such corporation has  a written plan under which, in such calendar year, not less than 80 percent  of all employees who provide services to such corporation in the United  States (or any possession of the United States) are granted stock options, or  are granted restricted stock units, with the same rights and privileges to  receive qualified stock.</span>'''
+'''                   (II) such corporation has  a written plan under which, in such calendar year, not less than 80 percent  of all employees who provide services to such corporation in the United  States (or any possession of the United States) are granted stock options, or  are granted restricted stock units, with the same rights and privileges to  receive qualified stock.'''
-'''<span lang="EN">              (ii) Same rights and  privileges. For purposes of clause (i)(II)—</span>'''
+'''              (ii) Same rights and  privileges. For purposes of clause (i)(II)—'''
-'''<span lang="EN">                   (I) except as provided in  subclauses (II) and (III), the determination of rights and privileges with  respect to stock shall be made in a similar manner as under section  423(b)(5),</span>'''
+'''                   (I) except as provided in  subclauses (II) and (III), the determination of rights and privileges with  respect to stock shall be made in a similar manner as under section  423(b)(5),'''
-'''<span lang="EN">                   (II) employees shall not  fail to be treated as having the same rights and privileges to receive  qualified stock solely because the number of shares available to all  employees is not equal in amount, so long as the number of shares available  to each employee is more than a de minimis amount, and</span>'''
+'''                   (II) employees shall not  fail to be treated as having the same rights and privileges to receive  qualified stock solely because the number of shares available to all  employees is not equal in amount, so long as the number of shares available  to each employee is more than a de minimis amount, and'''
-'''<span lang="EN">                   (III) rights and  privileges with respect to the exercise of an option shall not be treated as  the same as rights and privileges with respect to the settlement of a  restricted stock unit.</span>'''
+'''                   (III) rights and  privileges with respect to the exercise of an option shall not be treated as  the same as rights and privileges with respect to the settlement of a  restricted stock unit.'''
-'''<span lang="EN">         (iii) Employee. For purposes of  clause (i)(II), the term “employee” shall not include any employee described  in section 4980E(d)(4) or any excluded employee.</span>'''
+'''         (iii) Employee. For purposes of  clause (i)(II), the term “employee” shall not include any employee described  in section 4980E(d)(4) or any excluded employee.'''
-'''<span lang="EN">          (iv) Special rule for  calendar years before 2018. In the case of any calendar year beginning before  January 1, 2018, clause (i)(II) shall be applied without regard to whether  the rights and privileges with respect to the qualified stock are the same.</span>'''
+'''          (iv) Special rule for  calendar years before 2018. In the case of any calendar year beginning before  January 1, 2018, clause (i)(II) shall be applied without regard to whether  the rights and privileges with respect to the qualified stock are the same.'''
-'''<span lang="EN">     (3) Qualified employee; excluded  employee. For purposes of this subsection—</span>'''
+'''     (3) Qualified employee; excluded  employee. For purposes of this subsection—'''
-'''<span lang="EN">         </span>'''
+'''         '''
-'''<span lang="EN">         (A) In general. The term “qualified  employee” means any individual who—</span>'''
+'''         (A) In general. The term “qualified  employee” means any individual who—'''
-'''<span lang="EN">              (i) is not an excluded  employee, and</span>'''
+'''              (i) is not an excluded  employee, and'''
-'''<span lang="EN">              (ii) agrees in the election  made under this subsection to meet such requirements as are determined by the  Secretary to be necessary to ensure that the withholding requirements of the  corporation under chapter 24 with respect to the qualified stock are met.</span>'''
+'''              (ii) agrees in the election  made under this subsection to meet such requirements as are determined by the  Secretary to be necessary to ensure that the withholding requirements of the  corporation under chapter 24 with respect to the qualified stock are met.'''
-'''<span lang="EN">         (B) Excluded employee. The term  “excluded employee” means, with respect to any corporation, any individual—</span>'''
+'''         (B) Excluded employee. The term  “excluded employee” means, with respect to any corporation, any individual—'''
-'''<span lang="EN">              (i) who is a 1-percent owner  (within the meaning of section 416(i)(1)(B)(ii)) at any time during the  calendar year or who was such a 1 percent owner at any time during the 10  preceding calendar years,</span>'''
+'''              (i) who is a 1-percent owner  (within the meaning of section 416(i)(1)(B)(ii)) at any time during the  calendar year or who was such a 1 percent owner at any time during the 10  preceding calendar years,'''
-'''<span lang="EN">              (ii) who is or has been at any prior time—</span>'''
+'''              (ii) who is or has been at any prior time—'''
-'''<span lang="EN">                   (I) the chief executive  officer of such corporation or an individual acting in such a capacity, or</span>'''
+'''                   (I) the chief executive  officer of such corporation or an individual acting in such a capacity, or'''
-'''<span lang="EN">                   (II) the chief financial  officer of such corporation or an individual acting in such a capacity,</span>'''
+'''                   (II) the chief financial  officer of such corporation or an individual acting in such a capacity,'''
-'''<span lang="EN">(iii) who bears a relationship described in section 318(a)(1) to any  individual described in subclause (I) or (II) of clause (ii), or</span>'''
+'''(iii) who bears a relationship described in section 318(a)(1) to any  individual described in subclause (I) or (II) of clause (ii), or'''
-'''<span lang="EN">              (iv) who is one of the 4  highest compensated officers of such corporation for the taxable year, or was  one of the 4 highest compensated officers of such corporation for any of the  10 preceding taxable years, determined with respect to each such taxable year  on the basis of the shareholder disclosure rules for compensation under the Securities  Exchange Act of 1934 (as if such rules applied to such corporation).</span>'''
+'''              (iv) who is one of the 4  highest compensated officers of such corporation for the taxable year, or was  one of the 4 highest compensated officers of such corporation for any of the  10 preceding taxable years, determined with respect to each such taxable year  on the basis of the shareholder disclosure rules for compensation under the Securities  Exchange Act of 1934 (as if such rules applied to such corporation).'''
-'''<span lang="EN">    (4) Election</span>'''
+'''    (4) Election'''
-'''<span lang="EN">         (A) Time for making election. An  election with respect to qualified stock shall be made under this subsection  no later than 30 days after the first date the rights of the employee in such  stock are transferable or are not subject to a substantial risk of  forfeiture, whichever occurs earlier, and shall be made in a manner similar  to the manner in which an election is made under subsection (b).</span>'''
+'''         (A) Time for making election. An  election with respect to qualified stock shall be made under this subsection  no later than 30 days after the first date the rights of the employee in such  stock are transferable or are not subject to a substantial risk of  forfeiture, whichever occurs earlier, and shall be made in a manner similar  to the manner in which an election is made under subsection (b).'''
-'''<span lang="EN">          (B) Limitations. No election  may be made under this section with respect to any qualified stock if—</span>'''
+'''          (B) Limitations. No election  may be made under this section with respect to any qualified stock if—'''
-'''<span lang="EN">              (i) the qualified employee has  made an election under subsection (b) with respect to such qualified stock,</span>'''
+'''              (i) the qualified employee has  made an election under subsection (b) with respect to such qualified stock,'''
-'''<span lang="EN">              (ii) any stock of the  corporation which issued the qualified stock is readily tradable on an  established securities market (as determined under paragraph (1)(B)(iii)) at  any time before the election is made, or</span>'''
+'''              (ii) any stock of the  corporation which issued the qualified stock is readily tradable on an  established securities market (as determined under paragraph (1)(B)(iii)) at  any time before the election is made, or'''
-'''<span lang="EN">              (iii) such corporation  purchased any of its outstanding stock in the calendar year preceding the  calendar year which includes the first date the rights of the employee in  such stock are transferable or are not subject to a substantial risk of  forfeiture, unless—</span>'''
+'''              (iii) such corporation  purchased any of its outstanding stock in the calendar year preceding the  calendar year which includes the first date the rights of the employee in  such stock are transferable or are not subject to a substantial risk of  forfeiture, unless—'''
-'''<span lang="EN">                   (I) not less than 25  percent of the total dollar amount of the stock so purchased is deferral  stock, and</span>'''
+'''                   (I) not less than 25  percent of the total dollar amount of the stock so purchased is deferral  stock, and'''
-'''<span lang="EN">                   (II) the determination of which  individuals from whom deferral stock is purchased is made on a reasonable  basis.</span>'''
+'''                   (II) the determination of which  individuals from whom deferral stock is purchased is made on a reasonable  basis.'''
-'''<span lang="EN">         (C) Definitions and special rules  related to limitation on stock redemptions</span>'''
+'''         (C) Definitions and special rules  related to limitation on stock redemptions'''
-'''<span lang="EN">              (i) Deferral stock. For purposes  of this paragraph, the term “deferral stock” means stock with respect to  which an election is in effect under this subsection.</span>'''
+'''              (i) Deferral stock. For purposes  of this paragraph, the term “deferral stock” means stock with respect to  which an election is in effect under this subsection.'''
-'''<span lang="EN">               (ii) Deferral stock with  respect to any individual not taken into account if individual holds deferral  stock with longer deferral period. Stock purchased by a corporation from any  individual shall not be treated as deferral stock for purposes of  subparagraph (B)(iii) if such individual (immediately after such purchase)  holds any deferral stock with respect to which an election has been in effect  under this subsection for a longer period than the election with respect to  the stock so purchased.</span>'''
+'''               (ii) Deferral stock with  respect to any individual not taken into account if individual holds deferral  stock with longer deferral period. Stock purchased by a corporation from any  individual shall not be treated as deferral stock for purposes of  subparagraph (B)(iii) if such individual (immediately after such purchase)  holds any deferral stock with respect to which an election has been in effect  under this subsection for a longer period than the election with respect to  the stock so purchased.'''
-'''<span lang="EN">               (iii) Purchase of all  outstanding deferral stock. The requirements of subclauses (I) and (II) of  subparagraph (B)(iii) shall be treated as met if the stock so purchased  includes all of the corporation’s outstanding deferral stock.</span>'''
+'''               (iii) Purchase of all  outstanding deferral stock. The requirements of subclauses (I) and (II) of  subparagraph (B)(iii) shall be treated as met if the stock so purchased  includes all of the corporation’s outstanding deferral stock.'''
-'''<span lang="EN">               (iv) Reporting. Any  corporation which has outstanding deferral stock as of the beginning of any  calendar year and which purchases any of its outstanding stock during such  calendar year shall include on its return of tax for the taxable year in  which, or with which, such calendar year ends the total dollar amount of its  outstanding stock so purchased during such calendar year and such other  information as the Secretary requires for purposes of administering this  paragraph.</span>'''
+'''               (iv) Reporting. Any  corporation which has outstanding deferral stock as of the beginning of any  calendar year and which purchases any of its outstanding stock during such  calendar year shall include on its return of tax for the taxable year in  which, or with which, such calendar year ends the total dollar amount of its  outstanding stock so purchased during such calendar year and such other  information as the Secretary requires for purposes of administering this  paragraph.'''
-'''<span lang="EN">     (5) Controlled groups. For  purposes of this subsection, all persons treated as a single employer under  section 414(b) shall be treated as 1 corporation.</span>'''
+'''     (5) Controlled groups. For  purposes of this subsection, all persons treated as a single employer under  section 414(b) shall be treated as 1 corporation.'''
-'''<span lang="EN">     (6) Notice requirement. Any  corporation which transfers qualified stock to a qualified employee shall, at  the time that (or a reasonable period before) an amount attributable to such  stock would (but for this subsection) first be includible in the gross income  of such employee—</span>'''
+'''     (6) Notice requirement. Any  corporation which transfers qualified stock to a qualified employee shall, at  the time that (or a reasonable period before) an amount attributable to such  stock would (but for this subsection) first be includible in the gross income  of such employee—'''
-'''<span lang="EN">         (A) certify to such employee that  such stock is qualified stock, and</span>'''
+'''         (A) certify to such employee that  such stock is qualified stock, and'''
-'''<span lang="EN">         (B) notify such employee—</span>'''
+'''         (B) notify such employee—'''
-'''<span lang="EN">              (i) that the employee may be  eligible to elect to defer income on such stock under this subsection, and</span>'''
+'''              (i) that the employee may be  eligible to elect to defer income on such stock under this subsection, and'''
-'''<span lang="EN">              (ii) that, if the employee  makes such an election—</span>'''
+'''              (ii) that, if the employee  makes such an election—'''
-'''<span lang="EN">                   (I) the amount of income  recognized at the end of the deferral period will be based on the value of  the stock at the time at which the rights of the employee in such stock first  become transferable or not subject to substantial risk of forfeiture,  notwithstanding whether the value of the stock has declined during the  deferral period,</span>'''
+'''                   (I) the amount of income  recognized at the end of the deferral period will be based on the value of  the stock at the time at which the rights of the employee in such stock first  become transferable or not subject to substantial risk of forfeiture,  notwithstanding whether the value of the stock has declined during the  deferral period,'''
-'''<span lang="EN">                   (II) the amount of such  income recognized at the end of the deferral period will be subject to  withholding under section 3401(i) at the rate determined under section  3402(t), and</span>'''
+'''                   (II) the amount of such  income recognized at the end of the deferral period will be subject to  withholding under section 3401(i) at the rate determined under section  3402(t), and'''
-'''<span lang="EN">                   (III) the  responsibilities of the employee (as determined by the Secretary under  paragraph (3)(A)(ii)) with respect to such withholding.</span>'''
+'''                   (III) the  responsibilities of the employee (as determined by the Secretary under  paragraph (3)(A)(ii)) with respect to such withholding.'''
-'''<span lang="EN">    (7) Restricted stock units. This section  (other than this subsection), including any election under subsection (b),  shall not apply to restricted stock units.</span>'''
+'''    (7) Restricted stock units. This section  (other than this subsection), including any election under subsection (b),  shall not apply to restricted stock units.'''
 |}
-'''<span lang="EN">Contingent Compensation</span>''' <span lang="EN">→ “golden handcuffs”; consideration, the full enjoyment of which is conditioned upon performance of additional services in the future; frequently come in the form of stock or equity interest.</span>
+'''Contingent Compensation''' → “golden handcuffs”; consideration, the full enjoyment of which is conditioned upon performance of additional services in the future; frequently come in the form of stock or equity interest.
-<span lang="EN">Deferred Compensation →</span>
+Deferred Compensation →
-<span lang="EN">●      401K/403B plans</span>
+●      401K/403B plans
-<span lang="EN">●      Incentive stock options → restrictive stock agreement</span>
+●      Incentive stock options → restrictive stock agreement
-<span lang="EN">●      Pension plans</span>
+●      Pension plans
-<span lang="EN">§83 Election is '''irrevocable''' - must be made within 30 days of the stock grant.</span>
+§83 Election is '''irrevocable''' - must be made within 30 days of the stock grant.
-<span lang="EN">Substantial risk of forfeiture → voluntary term → yes; “for cause” termination → no (involuntary)</span>
+Substantial risk of forfeiture → voluntary term → yes; “for cause” termination → no (involuntary)
-'''<span lang="EN">Gifts and Bequests</span>'''
+'''Gifts and Bequests'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 102 - Gifts and inheritances</span>'''
+|'''26  U.S. Code § 102 - Gifts and inheritances'''
-'''<span lang="EN">(a) General rule. Gross income does not include the value of property  acquired by gift, bequest, devise, or inheritance.</span>'''
+'''(a) General rule. Gross income does not include the value of property  acquired by gift, bequest, devise, or inheritance.'''
-'''<span lang="EN">(b) Income. Subsection (a) shall not exclude from gross income—</span>'''
+'''(b) Income. Subsection (a) shall not exclude from gross income—'''
-'''<span lang="EN">    (1) the income from any property referred  to in subsection (a); or</span>'''
+'''    (1) the income from any property referred  to in subsection (a); or'''
-'''<span lang="EN">    (2) where the gift, bequest, devise, or  inheritance is of income from property, the amount of such income.</span>'''
+'''    (2) where the gift, bequest, devise, or  inheritance is of income from property, the amount of such income.'''
-'''<span lang="EN">Where, under the terms of the gift, bequest, devise, or inheritance, the  payment, crediting, or distribution thereof is to be made at intervals, then,  to the extent that it is paid or credited or to be distributed out of income  from property, it shall be treated for purposes of paragraph (2) as a gift,  bequest, devise, or inheritance of income from property. Any amount included  in the gross income of a beneficiary under subchapter J shall be treated for  purposes of paragraph (2) as a gift, bequest, devise, or inheritance of  income from property.</span>'''
+'''Where, under the terms of the gift, bequest, devise, or inheritance, the  payment, crediting, or distribution thereof is to be made at intervals, then,  to the extent that it is paid or credited or to be distributed out of income  from property, it shall be treated for purposes of paragraph (2) as a gift,  bequest, devise, or inheritance of income from property. Any amount included  in the gross income of a beneficiary under subchapter J shall be treated for  purposes of paragraph (2) as a gift, bequest, devise, or inheritance of  income from property.'''
-'''<span lang="EN">(c)  Employee gifts</span>'''
+'''(c)  Employee gifts'''
-'''<span lang="EN">    (1) In general. Subsection (a) shall not  exclude from gross income any amount transferred by or for an employer to, or  for the benefit of, an employee.</span>'''
+'''    (1) In general. Subsection (a) shall not  exclude from gross income any amount transferred by or for an employer to, or  for the benefit of, an employee.'''
-'''<span lang="EN">    (2) Cross references. For provisions  excluding certain employee achievement awards from gross income, see section  74(c).</span>'''
+'''    (2) Cross references. For provisions  excluding certain employee achievement awards from gross income, see section  74(c).'''
-'''<span lang="EN">For provisions excluding certain de minimis fringes from gross income, see  section 132(e).</span>'''
+'''For provisions excluding certain de minimis fringes from gross income, see  section 132(e).'''
 |}
-<span lang="EN">Gifts and Bequests - §102(a) → gross income does not include the value of property acquired by gift, bequest, devise, or inheritance</span>
+Gifts and Bequests - §102(a) → gross income does not include the value of property acquired by gift, bequest, devise, or inheritance
-<span lang="EN">A → $50,000 wages → federal income tax on wages                                           '''VIOLATES HORIZONTAL'''</span>
+A → $50,000 wages → federal income tax on wages                                           '''VIOLATES HORIZONTAL'''
-<span lang="EN">B → $50,000 gift → no taxes                                                                                         '''EQUITY'''</span>
+B → $50,000 gift → no taxes                                                                                         '''EQUITY'''
-<span lang="EN">Reasoning for gift exclusion:</span>
+Reasoning for gift exclusion:
-<span lang="EN">●      Administrative convenience - hard to track, imposes into family affairs, difficult to determine value</span>
+●      Administrative convenience - hard to track, imposes into family affairs, difficult to determine value
-<span lang="EN">●      Federal wealth transfer taxes - gifted amounts already subject to tax at the hands of the donor, excessive taxation</span>
+●      Federal wealth transfer taxes - gifted amounts already subject to tax at the hands of the donor, excessive taxation
-<span lang="EN">●      Encourage generosity - donors are more willing to give if no tax</span>
+●      Encourage generosity - donors are more willing to give if no tax
-'''<span lang="EN">Tax consequences to the donor</span>''' <span lang="EN">→ the transfer of property by gift is seen as personal consumption by the donor, so there is no deduction; appreciated property will '''not''' result in any tax consequences for the donor (current value higher than what donor paid originally)</span>
+'''Tax consequences to the donor''' → the transfer of property by gift is seen as personal consumption by the donor, so there is no deduction; appreciated property will '''not''' result in any tax consequences for the donor (current value higher than what donor paid originally)
-<span lang="EN">Gifts of Income - §102(b)</span>
+Gifts of Income - §102(b)
-<span lang="EN">What is a “gift”? Code and Regulations are unclear - look to case law.</span>
+What is a “gift”? Code and Regulations are unclear - look to case law.
-<u><span lang="EN">Commissioner v. Duberstein (1960)</span></u> <span lang="EN">- SCOTUS [D got car after helping biz; Δ left church and got “pension”]</span>
+<u>Commissioner v. Duberstein (1960)</u> - SCOTUS [D got car after helping biz; Δ left church and got “pension”]
-<span lang="EN">RULE: A transfer is not a gift if made out of obligation or anticipation of future benefits</span>
+RULE: A transfer is not a gift if made out of obligation or anticipation of future benefits
-<span lang="EN">Case Notes: '''<u>DUBERSTEIN</u> STANDARD → detached and disinterested generosity''' (determines if “gift”)</span>
+Case Notes: '''<u>DUBERSTEIN</u> STANDARD → detached and disinterested generosity''' (determines if “gift”)
-<span lang="EN">●      The transfer must be entirely voluntary, but the transferor must lack any ulterior motive or desire to secure a benefit</span>
+●      The transfer must be entirely voluntary, but the transferor must lack any ulterior motive or desire to secure a benefit
-<span lang="EN">●      Transferor’s mere characterization of a transfer as a gift is insufficient</span>
+●      Transferor’s mere characterization of a transfer as a gift is insufficient
-<span lang="EN">●      Controlling factor is transferor’s intent - courts must look to the transferor's “dominant purpose” when determining the intent; case by case determination, great deference to the factfinder.</span>
+●      Controlling factor is transferor’s intent - courts must look to the transferor's “dominant purpose” when determining the intent; case by case determination, great deference to the factfinder.
 {| class="wikitable"
-|'''<u><span lang="EN">DUBERSTEIN</span></u>  <span lang="EN">STANDARD</span>'''
+|'''<u>DUBERSTEIN</u>  STANDARD'''
-'''<span lang="EN">“Detached and disinterested generosity”</span>'''
+'''“Detached and disinterested generosity”'''
-<span lang="EN">●      Donors intent to gift contemplated,, but  more than just an intent to give, many factors considered</span>
+●      Donors intent to gift contemplated,, but  more than just an intent to give, many factors considered
-<span lang="EN">●      There cannot be a legal or moral obligation  for the gift</span>
+●      There cannot be a legal or moral obligation  for the gift
-<span lang="EN">●      Gift is not taxable income to recipient but  also cannot be claimed as a deduction by the giver, either</span>
+●      Gift is not taxable income to recipient but  also cannot be claimed as a deduction by the giver, either
 |}
-<span lang="EN">Employee Gifts - §102(c)</span>
+Employee Gifts - §102(c)
-<u><span lang="EN">Olk v. United States (1976)</span></u> <span lang="EN">- 9th Cir. [π craps dealer rec’d tokes from players]</span>
+<u>Olk v. United States (1976)</u> - 9th Cir. [π craps dealer rec’d tokes from players]
-<span lang="EN">RULE: A federal taxpayer receives taxable gross income when a donor voluntarily gives the taxpayer money for the taxpayer’s personal service to the donor.</span>
+RULE: A federal taxpayer receives taxable gross income when a donor voluntarily gives the taxpayer money for the taxpayer’s personal service to the donor.
-<span lang="EN">Case Notes: Considered commercial gratuity - taxable if:</span>
+Case Notes: Considered commercial gratuity - taxable if:
-# <span lang="EN">Service included some personal    or functional conduct</span>
+# Service included some personal    or functional conduct
-# <span lang="EN">Gratuity conformed to local    practices</span>
+# Gratuity conformed to local    practices
-# <span lang="EN">Gratuity is easily valued</span>
+# Gratuity is easily valued
-<span lang="EN">§102(a) Exclusion → applies to both '''inter vivos transfers''' and '''transfers made at death'''.</span>
+§102(a) Exclusion → applies to both '''inter vivos transfers''' and '''transfers made at death'''.
-<u><span lang="EN">Wolder v. Commissioner (1974)</span></u> <span lang="EN">- 2nd Cir. [D promised legal services for life in exch. for securities from merger]</span>
+<u>Wolder v. Commissioner (1974)</u> - 2nd Cir. [D promised legal services for life in exch. for securities from merger]
-<span lang="EN">RULE: A bequest made in return for lifetime legal services constitutes taxable income</span>
+RULE: A bequest made in return for lifetime legal services constitutes taxable income
-<span lang="EN">Case Notes: if the purpose of the bequest is to compensate for services, then it is taxable</span>
+Case Notes: if the purpose of the bequest is to compensate for services, then it is taxable
-<span lang="EN">●      Property acquired by bequest does not constitute taxable income, but where a bequest is made in return for services rendered, that bequest should constitute taxable gain.</span>
+●      Property acquired by bequest does not constitute taxable income, but where a bequest is made in return for services rendered, that bequest should constitute taxable gain.
 '''Revenue Ruling 67-375 (1967)''' → a distribution of property under the terms of a will in satisfaction of a written agreement under which the taxpayers were required to perform services for the testator is compensation for services, includable in their gross income in the taxable year of receipt.
-'''<span lang="EN">Loans and the Cancellation of Debt</span>'''
+'''Loans and the Cancellation of Debt'''
-<span lang="EN">Basic rules of loans:</span>
+Basic rules of loans:
-<span lang="EN">(1)   A loan is '''not''' gross income to the borrower</span>
+(1)   A loan is '''not''' gross income to the borrower
-<span lang="EN">(2)   The lender may not deduct the amount of the loan</span>
+(2)   The lender may not deduct the amount of the loan
-<span lang="EN">(3)   The amount paid to satisfy the loan obligation is not deductive by the borrower</span>
+(3)   The amount paid to satisfy the loan obligation is not deductive by the borrower
-<span lang="EN">(4)   Repayment of the loan is '''not''' gross income to the lender</span>
+(4)   Repayment of the loan is '''not''' gross income to the lender
-<span lang="EN">(5)   Interest paid to the lender '''is included''' in the lender’s gross income</span>
+(5)   Interest paid to the lender '''is included''' in the lender’s gross income
-<span lang="EN">(6)   Interest paid to the lender '''may be deductible''' by the borrower</span>
+(6)   Interest paid to the lender '''may be deductible''' by the borrower
-<span lang="EN">Cancellation of Debt → if a lender forgives or cancels an outstanding debt, there may be income tax consequences to the borrower.</span>
+Cancellation of Debt → if a lender forgives or cancels an outstanding debt, there may be income tax consequences to the borrower.
-<u><span lang="EN">United States v. Kirby Lumber Co. (1931)</span></u> <span lang="EN">- SCOTUS [π issued bonds but bought them back that year for less]</span>
+<u>United States v. Kirby Lumber Co. (1931)</u> - SCOTUS [π issued bonds but bought them back that year for less]
-<span lang="EN">RULE: A corporation that buys back a bond at less than its issuing price realizes taxable income</span>
+RULE: A corporation that buys back a bond at less than its issuing price realizes taxable income
-<span lang="EN">Case Notes: π did not experience any loss, only gain</span>
+Case Notes: π did not experience any loss, only gain
-<span lang="EN">●      This practice essentially discharges a portion of the outstanding debt.</span>
+●      This practice essentially discharges a portion of the outstanding debt.
 {| class="wikitable"
-|<span lang="EN">26 U.S. Code § 61 - Gross income defined</span>
+|26 U.S. Code § 61 - Gross income defined
-<span lang="EN">(a) General definition. Except as otherwise provided in this subtitle, gross  income means all income from whatever source derived, including (but not  limited to) the following items:</span>
+(a) General definition. Except as otherwise provided in this subtitle, gross  income means all income from whatever source derived, including (but not  limited to) the following items:
-<span lang="EN">     (12) Income from discharge of indebtedness;</span>
+     (12) Income from discharge of indebtedness;
 |}
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 108 - Income from discharge of indebtedness</span>'''
+|'''26  U.S. Code § 108 - Income from discharge of indebtedness'''
-'''<span lang="EN">(a) Exclusion from gross income</span>'''
+'''(a) Exclusion from gross income'''
-'''<span lang="EN">    (1) In general. Gross income does not  include any amount which (but for this subsection) would be includible in  gross income by reason of the discharge (in whole or in part) of indebtedness  of the taxpayer if—</span>'''
+'''    (1) In general. Gross income does not  include any amount which (but for this subsection) would be includible in  gross income by reason of the discharge (in whole or in part) of indebtedness  of the taxpayer if—'''
-'''<span lang="EN">         (A) the discharge occurs in a title  11 case,</span>'''
+'''         (A) the discharge occurs in a title  11 case,'''
-'''<span lang="EN">         (B) the discharge occurs when the  taxpayer is insolvent,</span>'''
+'''         (B) the discharge occurs when the  taxpayer is insolvent,'''
-'''<span lang="EN">         (C) the indebtedness discharged is  qualified farm indebtedness,</span>'''
+'''         (C) the indebtedness discharged is  qualified farm indebtedness,'''
-'''<span lang="EN">         (D) in the case of a taxpayer other  than a C corporation, the indebtedness discharged is qualified real property  business indebtedness, or</span>'''
+'''         (D) in the case of a taxpayer other  than a C corporation, the indebtedness discharged is qualified real property  business indebtedness, or'''
-'''<span lang="EN">         (E) the indebtedness discharged is  qualified principal residence indebtedness which is discharged—</span>'''
+'''         (E) the indebtedness discharged is  qualified principal residence indebtedness which is discharged—'''
-'''<span lang="EN">              (i) before January 1, 2018, or</span>'''
+'''              (i) before January 1, 2018, or'''
-'''<span lang="EN">              (ii) subject to an arrangement  that is entered into and evidenced in writing before January 1, 2018.</span>'''
+'''              (ii) subject to an arrangement  that is entered into and evidenced in writing before January 1, 2018.'''
-'''<span lang="EN">…..</span>'''
+'''…..'''
-'''<span lang="EN">(d)  Meaning of terms; special rules relating to certain provisions</span>'''
+'''(d)  Meaning of terms; special rules relating to certain provisions'''
-'''<span lang="EN">    (1) Indebtedness of taxpayer For  purposes of this section, the term “indebtedness of the taxpayer” means any  indebtedness—</span>'''
+'''    (1) Indebtedness of taxpayer For  purposes of this section, the term “indebtedness of the taxpayer” means any  indebtedness—'''
-'''<span lang="EN">         (A) for which the taxpayer is  liable, or</span>'''
+'''         (A) for which the taxpayer is  liable, or'''
-'''<span lang="EN">         (B) subject to which the taxpayer  holds property.</span>'''
+'''         (B) subject to which the taxpayer  holds property.'''
 |}
-<span lang="EN">Example: B owes A $50,000 loan repayment; A agrees to accept $45,000 from various sources: compensation for services income of 10k, gain on property of 15k - basis of 20k, discharge of indebtedness income 5k</span>
+Example: B owes A $50,000 loan repayment; A agrees to accept $45,000 from various sources: compensation for services income of 10k, gain on property of 15k - basis of 20k, discharge of indebtedness income 5k
-<span lang="EN">Gain on transfer of property → 15k COUNTS AS INCOME</span>
+Gain on transfer of property → 15k COUNTS AS INCOME
-<span lang="EN">Discharge of indebtedness → 5k</span>
+Discharge of indebtedness → 5k
-<span lang="EN">Services → 10k</span>
+Services → 10k
-<span lang="EN">IF YOU WORK OFF DEBT - it counts as income</span>
+IF YOU WORK OFF DEBT - it counts as income
-'''<span lang="EN">Contested Liability Theory</span>'''
+'''Contested Liability Theory'''
-<u><span lang="EN">Zarin v. Commissioner (1990)</span></u> <span lang="EN">- 3rd Cir. [π got credit line at casino, after lawsuit, owed less]</span>
+<u>Zarin v. Commissioner (1990)</u> - 3rd Cir. [π got credit line at casino, after lawsuit, owed less]
-<span lang="EN">RULE: The discharge of indebtedness resulting from a settlement fixing the amount of a disputed debt is not taxable as income.</span>
+RULE: The discharge of indebtedness resulting from a settlement fixing the amount of a disputed debt is not taxable as income.
-<span lang="EN">Case Notes: Where a taxpayer contests his amount of debt in good faith, the resulting settlement is regarded as the amount of the debt, with no other tax consequences for the taxpayer</span>
+Case Notes: Where a taxpayer contests his amount of debt in good faith, the resulting settlement is regarded as the amount of the debt, with no other tax consequences for the taxpayer
-<span lang="EN">●      Under §108 and §61(a)(12), a taxpayer who is discharged from indebtedness realizes income in that amount where:</span>
+●      Under §108 and §61(a)(12), a taxpayer who is discharged from indebtedness realizes income in that amount where:
-<span lang="EN">(1)   Taxpayer is liable for the indebtedness; or</span>
+(1)   Taxpayer is liable for the indebtedness; or
-<span lang="EN">(2)   Taxpayer has an indebtedness by which he holds property</span>
+(2)   Taxpayer has an indebtedness by which he holds property
-<span lang="EN">Contested Liability Doctrine → if a taxpayer, in good faith, disputed the amount of debt, a subsequent settlement would be treated as the amount of debt cognizable for tax purposes.</span>
+Contested Liability Doctrine → if a taxpayer, in good faith, disputed the amount of debt, a subsequent settlement would be treated as the amount of debt cognizable for tax purposes.
-'''<span lang="EN">Gains from Dealing in Property</span>'''
+'''Gains from Dealing in Property'''
-<span lang="EN">A got stock worth 10k, by end of year was worth 18k</span>
+A got stock worth 10k, by end of year was worth 18k
-<span lang="EN">No gain on appreciation of stock unless there is a SALE - $10,000 FMV is the INCOME and the BASIS.</span>
+No gain on appreciation of stock unless there is a SALE - $10,000 FMV is the INCOME and the BASIS.
 {| class="wikitable"
-|<span lang="EN">26 U.S. Code § 61 - Gross income defined</span>
+|26 U.S. Code § 61 - Gross income defined
-<span lang="EN">(a) General definition. Except as otherwise provided in this subtitle, gross  income means all income from whatever source derived, including (but not  limited to) the following items:</span>
+(a) General definition. Except as otherwise provided in this subtitle, gross  income means all income from whatever source derived, including (but not  limited to) the following items:
-<span lang="EN">     (3) Gains derived from dealings in property;</span>
+     (3) Gains derived from dealings in property;
 |}
-<u><span lang="EN">Doyle v. Mitchell</span></u> <span lang="EN">→ no gross income until recovery of capital investment</span>
+<u>Doyle v. Mitchell</u> → no gross income until recovery of capital investment
-<span lang="EN">●      In order to determine whether there has been a '''gain''' or '''loss''', and the amount of the gain or loss, withdraw from the gross proceeds an amount sufficient to restore the capital value that existed at the start</span>
+●      In order to determine whether there has been a '''gain''' or '''loss''', and the amount of the gain or loss, withdraw from the gross proceeds an amount sufficient to restore the capital value that existed at the start
-'''<span lang="EN">Computation of Gain or Loss</span>'''
+'''Computation of Gain or Loss'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1001 - Determination of amount of and recognition of gain or loss</span>'''
+|'''26  U.S. Code § 1001 - Determination of amount of and recognition of gain or loss'''
-'''<span lang="EN">(a) Computation of gain or loss. The gain from the sale or other disposition  of property shall be the excess of the amount realized therefrom over the  adjusted basis provided in section 1011 for determining gain, and the loss  shall be the excess of the adjusted basis provided in such section for  determining loss over the amount realized.</span>'''
+'''(a) Computation of gain or loss. The gain from the sale or other disposition  of property shall be the excess of the amount realized therefrom over the  adjusted basis provided in section 1011 for determining gain, and the loss  shall be the excess of the adjusted basis provided in such section for  determining loss over the amount realized.'''
-'''<span lang="EN">(b) Amount realized. The amount realized from the sale or other disposition  of property shall be the sum of any money received plus the fair market value  of the property (other than money) received. In determining the amount  realized—</span>'''
+'''(b) Amount realized. The amount realized from the sale or other disposition  of property shall be the sum of any money received plus the fair market value  of the property (other than money) received. In determining the amount  realized—'''
-'''<span lang="EN">     (1) there shall not be taken into  account any amount received as reimbursement for real property taxes which  are treated under section 164(d) as imposed on the purchaser, and</span>'''
+'''     (1) there shall not be taken into  account any amount received as reimbursement for real property taxes which  are treated under section 164(d) as imposed on the purchaser, and'''
-'''<span lang="EN">    (2) there shall be taken into account  amounts representing real property taxes which are treated under section  164(d) as imposed on the taxpayer if such taxes are to be paid by the  purchaser.</span>'''
+'''    (2) there shall be taken into account  amounts representing real property taxes which are treated under section  164(d) as imposed on the taxpayer if such taxes are to be paid by the  purchaser.'''
-'''<span lang="EN">(c)  Recognition of gain or loss. Except as otherwise provided in this subtitle,  the entire amount of the gain or loss, determined under this section, on the  sale or exchange of property shall be recognized.</span>'''
+'''(c)  Recognition of gain or loss. Except as otherwise provided in this subtitle,  the entire amount of the gain or loss, determined under this section, on the  sale or exchange of property shall be recognized.'''
-'''<span lang="EN">(d) Installment sales. Nothing in this section shall be construed to prevent  (in the case of property sold under contract providing for payment in  installments) the taxation of that portion of any installment payment  representing gain or profit in the year in which such payment is received.</span>'''
+'''(d) Installment sales. Nothing in this section shall be construed to prevent  (in the case of property sold under contract providing for payment in  installments) the taxation of that portion of any installment payment  representing gain or profit in the year in which such payment is received.'''
-'''<span lang="EN">(e) Certain term interests</span>'''
+'''(e) Certain term interests'''
-'''<span lang="EN">    (1) In general. In determining gain or  loss from the sale or other disposition of a term interest in property, that  portion of the adjusted basis of such interest which is determined pursuant  to section 1014, 1015, or 1041 (to the extent that such adjusted basis is a  portion of the entire adjusted basis of the property) shall be disregarded.</span>'''
+'''    (1) In general. In determining gain or  loss from the sale or other disposition of a term interest in property, that  portion of the adjusted basis of such interest which is determined pursuant  to section 1014, 1015, or 1041 (to the extent that such adjusted basis is a  portion of the entire adjusted basis of the property) shall be disregarded.'''
-'''<span lang="EN">     (2) Term interest in property  defined. For purposes of paragraph (1), the term “term interest in property”  means—</span>'''
+'''     (2) Term interest in property  defined. For purposes of paragraph (1), the term “term interest in property”  means—'''
-'''<span lang="EN">         (A) a life interest in property,</span>'''
+'''         (A) a life interest in property,'''
-'''<span lang="EN">         (B) an interest in property for a  term of years, or</span>'''
+'''         (B) an interest in property for a  term of years, or'''
-'''<span lang="EN">         (C) an income interest in a trust.</span>'''
+'''         (C) an income interest in a trust.'''
-'''<span lang="EN">    (3) Exception. Paragraph (1) shall not  apply to a sale or other disposition which is a part of a transaction in  which the entire interest in property is transferred to any person or  persons.</span>'''
+'''    (3) Exception. Paragraph (1) shall not  apply to a sale or other disposition which is a part of a transaction in  which the entire interest in property is transferred to any person or  persons.'''
 |}
-<u><span lang="EN">GAIN</span></u>
+<u>GAIN</u>
-<span lang="EN">excess of '''amount realized''' over '''adjusted basis''' in the property exchanged</span>
+excess of '''amount realized''' over '''adjusted basis''' in the property exchanged
-<u><span lang="EN">LOSS</span></u>
+<u>LOSS</u>
-<span lang="EN">excess of '''adjusted basis''' over '''amount realized''' in the property exchanged</span>
+excess of '''adjusted basis''' over '''amount realized''' in the property exchanged
-<span lang="EN">Adjusted basis → the cost of what the taxpayer gives up in exchange</span>
+Adjusted basis → the cost of what the taxpayer gives up in exchange
-<span lang="EN">Amount realized → value of what the taxpayer receives in the exchange</span>
+Amount realized → value of what the taxpayer receives in the exchange
 {| class="wikitable"
-|'''<span lang="EN">Realized Gain  (RG)</span>'''
+|'''Realized Gain  (RG)'''
-|'''<span lang="EN">Realized Loss  (RL)</span>'''
+|'''Realized Loss  (RL)'''
 |-
-|<span lang="EN">Amount Realized (AR) - Adjusted Basis (AB)</span>
+|Amount Realized (AR) - Adjusted Basis (AB)
-|<span lang="EN">Adjusted Basis (AB) - Amount Realized (AR)</span>
+|Adjusted Basis (AB) - Amount Realized (AR)
 |}
-<span lang="EN">Examples: AR is 300K, anything in excess of AB is a '''gain'''</span>
+Examples: AR is 300K, anything in excess of AB is a '''gain'''
-<span lang="EN">●      Taxpayer sells building for $300K cash</span>
+●      Taxpayer sells building for $300K cash
-<span lang="EN">●      Taxpayer sells building for $250K and car for $50k</span>
+●      Taxpayer sells building for $250K and car for $50k
-<span lang="EN">●      Taxpayer sells building for $100K, another for $100K, and securities for $100K</span>
+●      Taxpayer sells building for $100K, another for $100K, and securities for $100K
-<span lang="EN">Realization event → creates an opportunity to tax a gain (or take a loss); can be a death, sale or exchange, or statutory event like the end of a taxable year; '''RECOGNIZE WHEN AN EXCHANGE HAS OCCURRED'''</span>
+Realization event → creates an opportunity to tax a gain (or take a loss); can be a death, sale or exchange, or statutory event like the end of a taxable year; '''RECOGNIZE WHEN AN EXCHANGE HAS OCCURRED'''
-'''<span lang="EN">EXAMPLES:</span>'''
+'''EXAMPLES:'''
-<u><span lang="EN">Helvering v. Bruun (1940)</span></u> <span lang="EN">- SCOTUS [tenant built improvements on landlord P’s property, evicted]</span>
+<u>Helvering v. Bruun (1940)</u> - SCOTUS [tenant built improvements on landlord P’s property, evicted]
-<span lang="EN">RULE: Under federal tax law, a taxpayer realizes a taxable gain from land improvements at the end of a lease agreement.</span>
+RULE: Under federal tax law, a taxpayer realizes a taxable gain from land improvements at the end of a lease agreement.
-<span lang="EN">Case Notes: just because P’s gain was in the form of property received, doesn’t exclude it as a gain</span>
+Case Notes: just because P’s gain was in the form of property received, doesn’t exclude it as a gain
-<span lang="EN">●      Realization does not have to occur as a cash gain from the sale of an asset, it can also occur from profit obtained at the end of a transaction</span>
+●      Realization does not have to occur as a cash gain from the sale of an asset, it can also occur from profit obtained at the end of a transaction
-<span lang="EN">●      A lease agreement is a transaction</span>
+●      A lease agreement is a transaction
 {| class="wikitable"
-| <span lang="EN">                        <u>Bruun</u> Realization  Triggering Events →</span>
+|                         <u>Bruun</u> Realization  Triggering Events →
-<span lang="EN">(1)   A property exchange (surrender interest)</span>
+(1)   A property exchange (surrender interest)
-<span lang="EN">(2)   Relief of a legal obligation owed to a third  party (<u>Old Colony</u>)</span>
+(2)   Relief of a legal obligation owed to a third  party (<u>Old Colony</u>)
-<span lang="EN">(3)   Relief of a legal obligation owed to the  party receiving property (<u>Kirby Lumber</u>)</span>
+(3)   Relief of a legal obligation owed to the  party receiving property (<u>Kirby Lumber</u>)
-<span lang="EN">(4)   “other “ profit transactions (<u>Bruun</u>)</span>
+(4)   “other “ profit transactions (<u>Bruun</u>)
 |}
-<span lang="EN">BRUUN is now '''<u>OVERRULED</u>''' by §109 and §1019</span>
+BRUUN is now '''<u>OVERRULED</u>''' by §109 and §1019
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 109 - Improvements by lessee on lessor’s property</span>'''
+|'''26  U.S. Code § 109 - Improvements by lessee on lessor’s property'''
-'''<span lang="EN">Gross income does not include income (other than rent) derived by a lessor of  real property on the termination of a lease, representing the value of such  property attributable to buildings erected or other improvements made by the  lessee.</span>'''
+'''Gross income does not include income (other than rent) derived by a lessor of  real property on the termination of a lease, representing the value of such  property attributable to buildings erected or other improvements made by the  lessee.'''
 |}
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1019 - Property on which lessee has made improvements</span>'''
+|'''26  U.S. Code § 1019 - Property on which lessee has made improvements'''
-'''<span lang="EN">Neither the basis nor the adjusted basis of any portion of real property  shall, in the case of the lessor of such property, be increased or diminished  on account of income derived by the lessor in respect of such property and  excludable from gross income under section 109 (relating to improvements by  lessee on lessor’s property).</span>'''
+'''Neither the basis nor the adjusted basis of any portion of real property  shall, in the case of the lessor of such property, be increased or diminished  on account of income derived by the lessor in respect of such property and  excludable from gross income under section 109 (relating to improvements by  lessee on lessor’s property).'''
 |}
-<span lang="EN">BUT, still good law from <u>Bruun</u> → the repossession of an asset with an enhanced value from a transaction with another party '''<u>is</u>''' gross income.</span>
+BUT, still good law from <u>Bruun</u> → the repossession of an asset with an enhanced value from a transaction with another party '''<u>is</u>''' gross income.
-'''<span lang="EN">Adjusted Basis</span>'''
+'''Adjusted Basis'''
-<span lang="EN">Adjusted basis → per §1011(a), adjusted basis is a taxpayer’s basis, as adjusted</span>
+Adjusted basis → per §1011(a), adjusted basis is a taxpayer’s basis, as adjusted
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1011 - Adjusted basis for determining gain or loss</span>'''
+|'''26  U.S. Code § 1011 - Adjusted basis for determining gain or loss'''
-'''<span lang="EN">(a) General rule. The adjusted basis for determining the gain or loss from  the sale or other disposition of property, whenever acquired, shall be the  basis (determined under section 1012 or other applicable sections of this  subchapter and subchapters C (relating to corporate distributions and  adjustments), K (relating to partners and partnerships), and P (relating to  capital gains and losses)), adjusted as provided in section 1016.</span>'''
+'''(a) General rule. The adjusted basis for determining the gain or loss from  the sale or other disposition of property, whenever acquired, shall be the  basis (determined under section 1012 or other applicable sections of this  subchapter and subchapters C (relating to corporate distributions and  adjustments), K (relating to partners and partnerships), and P (relating to  capital gains and losses)), adjusted as provided in section 1016.'''
-'''<span lang="EN">(b) Bargain sale to a charitable organization. If a deduction is allowable  under section 170 (relating to charitable contributions) by reason of a sale,  then the adjusted basis for determining the gain from such sale shall be that  portion of the adjusted basis which bears the same ratio to the adjusted  basis as the amount realized bears to the fair market value of the property.</span>'''
+'''(b) Bargain sale to a charitable organization. If a deduction is allowable  under section 170 (relating to charitable contributions) by reason of a sale,  then the adjusted basis for determining the gain from such sale shall be that  portion of the adjusted basis which bears the same ratio to the adjusted  basis as the amount realized bears to the fair market value of the property.'''
 |}
-<span lang="EN">STEP ONE: §1012 - what is “basis”?</span>
+STEP ONE: §1012 - what is “basis”?
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1012 - Basis of property—cost</span>'''
+|'''26  U.S. Code § 1012 - Basis of property—cost'''
-'''<span lang="EN">(a) In general. The basis of property shall be the cost of such property,  except as otherwise provided in this subchapter and subchapters C (relating  to corporate distributions and adjustments), K (relating to partners and  partnerships), and P (relating to capital gains and losses).</span>'''
+'''(a) In general. The basis of property shall be the cost of such property,  except as otherwise provided in this subchapter and subchapters C (relating  to corporate distributions and adjustments), K (relating to partners and  partnerships), and P (relating to capital gains and losses).'''
-'''<span lang="EN">(b) Special rule for apportioned real estate taxes. The cost of real property  shall not include any amount in respect of real property taxes which are  treated under section 164(d) as imposed on the taxpayer.</span>'''
+'''(b) Special rule for apportioned real estate taxes. The cost of real property  shall not include any amount in respect of real property taxes which are  treated under section 164(d) as imposed on the taxpayer.'''
-'''<span lang="EN">(c) Determinations by account</span>'''
+'''(c) Determinations by account'''
-'''<span lang="EN">    (1) In general. In the case of the sale,  exchange, or other disposition of a specified security on or after the  applicable date, the conventions prescribed by regulations under this section  shall be applied on an account by account basis.</span>'''
+'''    (1) In general. In the case of the sale,  exchange, or other disposition of a specified security on or after the  applicable date, the conventions prescribed by regulations under this section  shall be applied on an account by account basis.'''
-'''<span lang="EN">     (2) Application to certain  regulated investment companies</span>'''
+'''     (2) Application to certain  regulated investment companies'''
-'''<span lang="EN">         (A) In general. Except as provided  in subparagraph (B), any stock for which an average basis method is  permissible under this section which is acquired before January 1, 2012,  shall be treated as a separate account from any such stock acquired on or  after such date.</span>'''
+'''         (A) In general. Except as provided  in subparagraph (B), any stock for which an average basis method is  permissible under this section which is acquired before January 1, 2012,  shall be treated as a separate account from any such stock acquired on or  after such date.'''
-'''<span lang="EN">          (B) Election for treatment as  single account. If a regulated investment company described in subparagraph  (A) elects to have this subparagraph apply with respect to one or more of its  stockholders—</span>'''
+'''          (B) Election for treatment as  single account. If a regulated investment company described in subparagraph  (A) elects to have this subparagraph apply with respect to one or more of its  stockholders—'''
-'''<span lang="EN">              (i) subparagraph (A) shall not  apply with respect to any stock in such regulated investment company held by  such stockholders, and</span>'''
+'''              (i) subparagraph (A) shall not  apply with respect to any stock in such regulated investment company held by  such stockholders, and'''
-'''<span lang="EN">              (ii) all stock in such  regulated investment company which is held by such stockholders shall be  treated as covered securities described in section 6045(g)(3) without regard  to the date of the acquisition of such stock.</span>'''
+'''              (ii) all stock in such  regulated investment company which is held by such stockholders shall be  treated as covered securities described in section 6045(g)(3) without regard  to the date of the acquisition of such stock.'''
-'''<span lang="EN">A rule similar to the rule of the preceding sentence shall apply with respect  to a broker holding such stock as a nominee.</span>'''
+'''A rule similar to the rule of the preceding sentence shall apply with respect  to a broker holding such stock as a nominee.'''
-'''<span lang="EN">    (3) Definitions. For purposes of this  section, the terms “specified security” and “applicable date” shall have the  meaning given such terms in section 6045(g).</span>'''
+'''    (3) Definitions. For purposes of this  section, the terms “specified security” and “applicable date” shall have the  meaning given such terms in section 6045(g).'''
-'''<span lang="EN">(d) Average basis for stock acquired pursuant to a dividend reinvestment plan</span>'''
+'''(d) Average basis for stock acquired pursuant to a dividend reinvestment plan'''
-'''<span lang="EN">    (1) In general. In the case of any stock  acquired after December 31, 2011, in connection with a dividend reinvestment  plan, the basis of such stock while held as part of such plan shall be  determined using one of the methods which may be used for determining the  basis of stock in a regulated investment company.</span>'''
+'''    (1) In general. In the case of any stock  acquired after December 31, 2011, in connection with a dividend reinvestment  plan, the basis of such stock while held as part of such plan shall be  determined using one of the methods which may be used for determining the  basis of stock in a regulated investment company.'''
-'''<span lang="EN">     (2) Treatment after transfer. In  the case of the transfer to another account of stock to which paragraph (1)  applies, such stock shall have a cost basis in such other account equal to  its basis in the dividend reinvestment plan immediately before such transfer  (properly adjusted for any fees or other charges taken into account in  connection with such transfer).</span>'''
+'''     (2) Treatment after transfer. In  the case of the transfer to another account of stock to which paragraph (1)  applies, such stock shall have a cost basis in such other account equal to  its basis in the dividend reinvestment plan immediately before such transfer  (properly adjusted for any fees or other charges taken into account in  connection with such transfer).'''
-'''<span lang="EN">     (3) Separate accounts; election  for treatment as single account</span>'''
+'''     (3) Separate accounts; election  for treatment as single account'''
-'''<span lang="EN">         (A) In general. Rules similar to  the rules of subsection (c)(2) shall apply for purposes of this subsection.</span>'''
+'''         (A) In general. Rules similar to  the rules of subsection (c)(2) shall apply for purposes of this subsection.'''
-'''<span lang="EN">          (B) Average basis method.  Notwithstanding paragraph (1), in the case of an election under rules similar  to the rules of subsection (c)(2)(B) with respect to stock held in connection  with a dividend reinvestment plan, the average basis method is permissible  with respect to all such stock without regard to the date of the acquisition  of such stock.</span>'''
+'''          (B) Average basis method.  Notwithstanding paragraph (1), in the case of an election under rules similar  to the rules of subsection (c)(2)(B) with respect to stock held in connection  with a dividend reinvestment plan, the average basis method is permissible  with respect to all such stock without regard to the date of the acquisition  of such stock.'''
-'''<span lang="EN">     (4) Dividend reinvestment plan.  For purposes of this subsection—</span>'''
+'''     (4) Dividend reinvestment plan.  For purposes of this subsection—'''
-'''<span lang="EN">         (A) In general. The term “dividend  reinvestment plan” means any arrangement under which dividends on any stock  are reinvested in stock identical to the stock with respect to which the  dividends are paid.</span>'''
+'''         (A) In general. The term “dividend  reinvestment plan” means any arrangement under which dividends on any stock  are reinvested in stock identical to the stock with respect to which the  dividends are paid.'''
-'''<span lang="EN">          (B) Initial stock acquisition  treated as acquired in connection with plan. Stock shall be treated as  acquired in connection with a dividend reinvestment plan if such stock is  acquired pursuant to such plan or if the dividends paid on such stock are  subject to such plan.</span>'''
+'''          (B) Initial stock acquisition  treated as acquired in connection with plan. Stock shall be treated as  acquired in connection with a dividend reinvestment plan if such stock is  acquired pursuant to such plan or if the dividends paid on such stock are  subject to such plan.'''
 |}
-<span lang="EN">STEP TWO: Taxpayer’s cost basis is then adjusted under §1016</span>
+STEP TWO: Taxpayer’s cost basis is then adjusted under §1016
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1016 - Adjustments to basis</span>'''
+|'''26  U.S. Code § 1016 - Adjustments to basis'''
-'''<span lang="EN">(a) General rule. Proper adjustment in respect of the property shall in all  cases be made—</span>'''
+'''(a) General rule. Proper adjustment in respect of the property shall in all  cases be made—'''
-'''<span lang="EN">    (1) for expenditures, receipts, losses,  or other items, properly chargeable to capital account, but no such  adjustment shall be made—</span>'''
+'''    (1) for expenditures, receipts, losses,  or other items, properly chargeable to capital account, but no such  adjustment shall be made—'''
-'''<span lang="EN">         (A) for—</span>'''
+'''         (A) for—'''
-'''<span lang="EN">              (i) taxes or other carrying  charges described in section 266; or</span>'''
+'''              (i) taxes or other carrying  charges described in section 266; or'''
-'''<span lang="EN">              (ii) expenditures described in  section 173 (relating to circulation expenditures),</span>'''
+'''              (ii) expenditures described in  section 173 (relating to circulation expenditures),'''
-'''<span lang="EN">for which deductions have been taken by the taxpayer in determining taxable  income for the taxable year or prior taxable years; or</span>'''
+'''for which deductions have been taken by the taxpayer in determining taxable  income for the taxable year or prior taxable years; or'''
-'''<span lang="EN">         (B) for mortality, expense, or  other reasonable charges incurred under an annuity or life insurance  contract;</span>'''
+'''         (B) for mortality, expense, or  other reasonable charges incurred under an annuity or life insurance  contract;'''
-'''<span lang="EN">    (2) in respect of any period since  February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization,  and depletion, to the extent of the amount—</span>'''
+'''    (2) in respect of any period since  February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization,  and depletion, to the extent of the amount—'''
-'''<span lang="EN">         (A) allowed as deductions in  computing taxable income under this subtitle or prior income tax laws, and</span>'''
+'''         (A) allowed as deductions in  computing taxable income under this subtitle or prior income tax laws, and'''
-'''<span lang="EN">         (B) resulting (by reason of the  deductions so allowed) in a reduction for any taxable year of the taxpayer’s  taxes under this subtitle (other than chapter 2, relating to tax on  self-employment income), or prior income, war-profits, or excess-profits tax  laws, but not less than the amount allowable under this subtitle or prior  income tax laws. Where no method has been adopted under section 167 (relating  to depreciation deduction), the amount allowable shall be determined under  the straight line method. Subparagraph (B) of this paragraph shall not apply  in respect of any period since February 28, 1913, and before January 1, 1952,  unless an election has been made under section 1020 (as in effect before the  date of the enactment of the Tax Reform Act of 1976). Where for any taxable  year before the taxable year 1932 the depletion allowance was based on  discovery value or a percentage of income, then the adjustment for depletion  for such year shall be based on the depletion which would have been allowable  for such year if computed without reference to discovery value or a  percentage of income;</span>'''
+'''         (B) resulting (by reason of the  deductions so allowed) in a reduction for any taxable year of the taxpayer’s  taxes under this subtitle (other than chapter 2, relating to tax on  self-employment income), or prior income, war-profits, or excess-profits tax  laws, but not less than the amount allowable under this subtitle or prior  income tax laws. Where no method has been adopted under section 167 (relating  to depreciation deduction), the amount allowable shall be determined under  the straight line method. Subparagraph (B) of this paragraph shall not apply  in respect of any period since February 28, 1913, and before January 1, 1952,  unless an election has been made under section 1020 (as in effect before the  date of the enactment of the Tax Reform Act of 1976). Where for any taxable  year before the taxable year 1932 the depletion allowance was based on  discovery value or a percentage of income, then the adjustment for depletion  for such year shall be based on the depletion which would have been allowable  for such year if computed without reference to discovery value or a  percentage of income;'''
-'''<span lang="EN">    (3) in respect of any period—</span>'''
+'''    (3) in respect of any period—'''
-'''<span lang="EN">         (A) before March 1, 1913,</span>'''
+'''         (A) before March 1, 1913,'''
-'''<span lang="EN">         (B) since February 28, 1913, during  which such property was held by a person or an organization not subject to  income taxation under this chapter or prior income tax laws,</span>'''
+'''         (B) since February 28, 1913, during  which such property was held by a person or an organization not subject to  income taxation under this chapter or prior income tax laws,'''
-'''<span lang="EN">         (C) since February 28, 1913, and  before January 1, 1958, during which such property was held by a person  subject to tax under part I of subchapter L (or the corresponding provisions  of prior income tax laws), to the extent that paragraph (2) does not apply,  and</span>'''
+'''         (C) since February 28, 1913, and  before January 1, 1958, during which such property was held by a person  subject to tax under part I of subchapter L (or the corresponding provisions  of prior income tax laws), to the extent that paragraph (2) does not apply,  and'''
-'''<span lang="EN">         (D) since February 28, 1913, during  which such property was held by a person subject to tax under part II [1] of  subchapter L (or the corresponding provisions of prior income tax laws), to  the extent that paragraph (2) does not apply,</span>'''
+'''         (D) since February 28, 1913, during  which such property was held by a person subject to tax under part II [1] of  subchapter L (or the corresponding provisions of prior income tax laws), to  the extent that paragraph (2) does not apply,'''
-'''<span lang="EN">for exhaustion, wear and tear, obsolescence, amortization, and depletion, to  the extent sustained;</span>'''
+'''for exhaustion, wear and tear, obsolescence, amortization, and depletion, to  the extent sustained;'''
-'''<span lang="EN">    (4) in the case of stock (to the extent  not provided for in the foregoing paragraphs) for the amount of distributions  previously made which, under the law applicable to the year in which the  distribution was made, either were tax-free or were applicable in reduction  of basis (not including distributions made by a corporation which was  classified as a personal service corporation under the provisions of the  Revenue Act of 1918 (40 Stat. 1057), or the Revenue Act of 1921 (42 Stat.  227), out of its earnings or profits which were taxable in accordance with  the provisions of section 218 of the Revenue Act of 1918 or 1921);</span>'''
+'''    (4) in the case of stock (to the extent  not provided for in the foregoing paragraphs) for the amount of distributions  previously made which, under the law applicable to the year in which the  distribution was made, either were tax-free or were applicable in reduction  of basis (not including distributions made by a corporation which was  classified as a personal service corporation under the provisions of the  Revenue Act of 1918 (40 Stat. 1057), or the Revenue Act of 1921 (42 Stat.  227), out of its earnings or profits which were taxable in accordance with  the provisions of section 218 of the Revenue Act of 1918 or 1921);'''
-'''<span lang="EN">    (5) in the case of any bond (as defined  in section 171(d)) the interest on which is wholly exempt from the tax  imposed by this subtitle, to the extent of the amortizable bond premium  disallowable as a deduction pursuant to section 171(a)(2), and in the case of  any other bond (as defined in section 171(d)) to the extent of the deductions  allowable pursuant to section 171(a)(1) (or the amount applied to reduce  interest payments under section 171(e)(2)) with respect thereto;</span>'''
+'''    (5) in the case of any bond (as defined  in section 171(d)) the interest on which is wholly exempt from the tax  imposed by this subtitle, to the extent of the amortizable bond premium  disallowable as a deduction pursuant to section 171(a)(2), and in the case of  any other bond (as defined in section 171(d)) to the extent of the deductions  allowable pursuant to section 171(a)(1) (or the amount applied to reduce  interest payments under section 171(e)(2)) with respect thereto;'''
-'''<span lang="EN">    (6) in the case of any municipal bond  (as defined in section 75(b)), to the extent provided in section 75(a)(2);</span>'''
+'''    (6) in the case of any municipal bond  (as defined in section 75(b)), to the extent provided in section 75(a)(2);'''
-'''<span lang="EN">    (7) in the case of a residence the  acquisition of which resulted, under section 1034 (as in effect on the day  before the date of the enactment of the Taxpayer Relief Act of 1997), in the  nonrecognition of any part of the gain realized on the sale, exchange, or involuntary  conversion of another residence, to the extent provided in section 1034(e)  (as so in effect);</span>'''
+'''    (7) in the case of a residence the  acquisition of which resulted, under section 1034 (as in effect on the day  before the date of the enactment of the Taxpayer Relief Act of 1997), in the  nonrecognition of any part of the gain realized on the sale, exchange, or involuntary  conversion of another residence, to the extent provided in section 1034(e)  (as so in effect);'''
-'''<span lang="EN">    (8) in the case of property pledged to  the Commodity Credit Corporation, to the extent of the amount received as a  loan from the Commodity Credit Corporation and treated by the taxpayer as  income for the year in which received pursuant to section 77, and to the  extent of any deficiency on such loan with respect to which the taxpayer has  been relieved from liability;</span>'''
+'''    (8) in the case of property pledged to  the Commodity Credit Corporation, to the extent of the amount received as a  loan from the Commodity Credit Corporation and treated by the taxpayer as  income for the year in which received pursuant to section 77, and to the  extent of any deficiency on such loan with respect to which the taxpayer has  been relieved from liability;'''
-'''<span lang="EN">    </span>'''
+'''    '''
-'''<span lang="EN">    (9) for amounts allowed as deductions as  deferred expenses under section 616(b) (relating to certain expenditures in  the development of mines) and resulting in a reduction of the taxpayer’s  taxes under this subtitle, but not less than the amounts allowable under such  section for the taxable year and prior years;</span>'''
+'''    (9) for amounts allowed as deductions as  deferred expenses under section 616(b) (relating to certain expenditures in  the development of mines) and resulting in a reduction of the taxpayer’s  taxes under this subtitle, but not less than the amounts allowable under such  section for the taxable year and prior years;'''
-'''<span lang="EN">    [(10) Repealed. Pub. L. 94–455, title  XIX, § 1901(b)(21)(G), Oct. 4, 1976, 90 Stat. 1798]</span>'''
+'''    [(10) Repealed. Pub. L. 94–455, title  XIX, § 1901(b)(21)(G), Oct. 4, 1976, 90 Stat. 1798]'''
-'''<span lang="EN">    (11) for deductions to the extent  disallowed under section 268 (relating to sale of land with unharvested  crops), notwithstanding the provisions of any other paragraph of this  subsection;</span>'''
+'''    (11) for deductions to the extent  disallowed under section 268 (relating to sale of land with unharvested  crops), notwithstanding the provisions of any other paragraph of this  subsection;'''
-'''<span lang="EN">    [(12) Repealed. Pub. L. 113–295, div. A,  title II, § 221(a)(75), Dec. 19, 2014, 128 Stat. 4049]</span>'''
+'''    [(12) Repealed. Pub. L. 113–295, div. A,  title II, § 221(a)(75), Dec. 19, 2014, 128 Stat. 4049]'''
-'''<span lang="EN">    [(13) Repealed. Pub. L. 108–357, title  IV, § 413(c)(19), Oct. 22, 2004, 118 Stat. 1509]</span>'''
+'''    [(13) Repealed. Pub. L. 108–357, title  IV, § 413(c)(19), Oct. 22, 2004, 118 Stat. 1509]'''
-'''<span lang="EN">    (14) for amounts allowed as deductions  as deferred expenses under section 174(b)(1) 1 (relating to research and  experimental expenditures) and resulting in a reduction of the taxpayers’  taxes under this subtitle, but not less than the amounts allowable under such  section for the taxable year and prior years;</span>'''
+'''    (14) for amounts allowed as deductions  as deferred expenses under section 174(b)(1) 1 (relating to research and  experimental expenditures) and resulting in a reduction of the taxpayers’  taxes under this subtitle, but not less than the amounts allowable under such  section for the taxable year and prior years;'''
-'''<span lang="EN">    (15) for deductions to the extent  disallowed under section 272 (relating to disposal of coal or domestic iron  ore), notwithstanding the provisions of any other paragraph of this  subsection;</span>'''
+'''    (15) for deductions to the extent  disallowed under section 272 (relating to disposal of coal or domestic iron  ore), notwithstanding the provisions of any other paragraph of this  subsection;'''
-'''<span lang="EN">    (16) in the case of any evidence of  indebtedness referred to in section 811(b) (relating to amortization of  premium and accrual of discount in the case of life insurance companies), to  the extent of the adjustments required under section 811(b) (or the  corresponding provisions of prior income tax laws) for the taxable year and  all prior taxable years;</span>'''
+'''    (16) in the case of any evidence of  indebtedness referred to in section 811(b) (relating to amortization of  premium and accrual of discount in the case of life insurance companies), to  the extent of the adjustments required under section 811(b) (or the  corresponding provisions of prior income tax laws) for the taxable year and  all prior taxable years;'''
-'''<span lang="EN">    (17) to the extent provided in section  1367 in the case of stock of, and indebtedness owed to, shareholders of an S  corporation;</span>'''
+'''    (17) to the extent provided in section  1367 in the case of stock of, and indebtedness owed to, shareholders of an S  corporation;'''
-'''<span lang="EN">    (18) to the extent provided in section  961 in the case of stock in controlled foreign corporations (or foreign  corporations which were controlled foreign corporations) and of property by  reason of which a person is considered as owning such stock;</span>'''
+'''    (18) to the extent provided in section  961 in the case of stock in controlled foreign corporations (or foreign  corporations which were controlled foreign corporations) and of property by  reason of which a person is considered as owning such stock;'''
-'''<span lang="EN">    (19) to the extent provided in section  50(c), in the case of expenditures with respect to which a credit has been  allowed under section 38;</span>'''
+'''    (19) to the extent provided in section  50(c), in the case of expenditures with respect to which a credit has been  allowed under section 38;'''
-'''<span lang="EN">    (20) for amounts allowed as deductions  under section 59(e) (relating to optional 10-year writeoff of certain tax  preferences);</span>'''
+'''    (20) for amounts allowed as deductions  under section 59(e) (relating to optional 10-year writeoff of certain tax  preferences);'''
-'''<span lang="EN">    (21) to the extent provided in section  1059 (relating to reduction in basis for extraordinary dividends);</span>'''
+'''    (21) to the extent provided in section  1059 (relating to reduction in basis for extraordinary dividends);'''
-'''<span lang="EN">    (22) in the case of qualified  replacement property the acquisition of which resulted under section 1042 in  the nonrecognition of any part of the gain realized on the sale or exchange  of any property, to the extent provided in section 1042(d),[2]</span>'''
+'''    (22) in the case of qualified  replacement property the acquisition of which resulted under section 1042 in  the nonrecognition of any part of the gain realized on the sale or exchange  of any property, to the extent provided in section 1042(d),[2]'''
-'''<span lang="EN">    (23) in the case of property the acquisition  of which resulted under section 1043, 1045, or 1397B in the nonrecognition of  any part of the gain realized on the sale of other property, to the extent  provided in section 1043(c), 1045(b)(3), or 1397B(b)(4), as the case may be,2</span>'''
+'''    (23) in the case of property the acquisition  of which resulted under section 1043, 1045, or 1397B in the nonrecognition of  any part of the gain realized on the sale of other property, to the extent  provided in section 1043(c), 1045(b)(3), or 1397B(b)(4), as the case may be,2'''
-'''<span lang="EN">    [(24) Repealed. Pub. L. 113–295, div. A,  title II, § 221(a)(34)(G), Dec. 19, 2014, 128 Stat. 4042]</span>'''
+'''    [(24) Repealed. Pub. L. 113–295, div. A,  title II, § 221(a)(34)(G), Dec. 19, 2014, 128 Stat. 4042]'''
-'''<span lang="EN">    [(25) Repealed. Pub. L. 113–295, div. A,  title II, § 221(a)(2)(D), Dec. 19, 2014, 128 Stat. 4037]</span>'''
+'''    [(25) Repealed. Pub. L. 113–295, div. A,  title II, § 221(a)(2)(D), Dec. 19, 2014, 128 Stat. 4037]'''
-'''<span lang="EN">    (26) to the extent provided in sections  23(g) and 137(e),2</span>'''
+'''    (26) to the extent provided in sections  23(g) and 137(e),2'''
-'''<span lang="EN">    (27) in the case of a residence with  respect to which a credit was allowed under section 1400C, to the extent  provided in section 1400C(h),2</span>'''
+'''    (27) in the case of a residence with  respect to which a credit was allowed under section 1400C, to the extent  provided in section 1400C(h),2'''
-'''<span lang="EN">    (28) in the case of a facility with  respect to which a credit was allowed under section 45F, to the extent  provided in section 45F(f)(1),2</span>'''
+'''    (28) in the case of a facility with  respect to which a credit was allowed under section 45F, to the extent  provided in section 45F(f)(1),2'''
-'''<span lang="EN">    (29) in the case of railroad track with  respect to which a credit was allowed under section 45G, to the extent  provided in section 45G(e)(3),2</span>'''
+'''    (29) in the case of railroad track with  respect to which a credit was allowed under section 45G, to the extent  provided in section 45G(e)(3),2'''
-'''<span lang="EN">    (30) to the extent provided in section  179B(c),2</span>'''
+'''    (30) to the extent provided in section  179B(c),2'''
-'''<span lang="EN">    (31) to the extent provided in section  179D(e),2</span>'''
+'''    (31) to the extent provided in section  179D(e),2'''
-'''<span lang="EN">    (32) to the extent provided in section  45L(e), in the case of amounts with respect to which a credit has been  allowed under section 45L,2</span>'''
+'''    (32) to the extent provided in section  45L(e), in the case of amounts with respect to which a credit has been  allowed under section 45L,2'''
-'''<span lang="EN">    (33) to the extent provided in section  25C(f), in the case of amounts with respect to which a credit has been  allowed under section 25C,2</span>'''
+'''    (33) to the extent provided in section  25C(f), in the case of amounts with respect to which a credit has been  allowed under section 25C,2'''
-'''<span lang="EN">    (34) to the extent provided in section  25D(f), in the case of amounts with respect to which a credit has been  allowed under section 25D,2</span>'''
+'''    (34) to the extent provided in section  25D(f), in the case of amounts with respect to which a credit has been  allowed under section 25D,2'''
-'''<span lang="EN">     (35) to the extent provided in section 30B(h)(4),2</span>'''
+'''     (35) to the extent provided in section 30B(h)(4),2'''
-'''<span lang="EN">    (36) to the extent provided in section  30C(e)(1),2</span>'''
+'''    (36) to the extent provided in section  30C(e)(1),2'''
-'''<span lang="EN">    (37) to the extent provided in section  30D(f)(1),2 and</span>'''
+'''    (37) to the extent provided in section  30D(f)(1),2 and'''
-'''<span lang="EN">    (38) to the extent provided in  subsections (b)(2) and (c) of section 1400Z–2.</span>'''
+'''    (38) to the extent provided in  subsections (b)(2) and (c) of section 1400Z–2.'''
-'''<span lang="EN">(b)  Substituted basis. Whenever it appears that the basis of property in the  hands of the taxpayer is a substituted basis, then the adjustments provided  in subsection (a) shall be made after first making in respect of such  substituted basis proper adjustments of a similar nature in respect of the  period during which the property was held by the transferor, donor, or  grantor, or during which the other property was held by the person for whom  the basis is to be determined. A similar rule shall be applied in the case of  a series of substituted bases.</span>'''
+'''(b)  Substituted basis. Whenever it appears that the basis of property in the  hands of the taxpayer is a substituted basis, then the adjustments provided  in subsection (a) shall be made after first making in respect of such  substituted basis proper adjustments of a similar nature in respect of the  period during which the property was held by the transferor, donor, or  grantor, or during which the other property was held by the person for whom  the basis is to be determined. A similar rule shall be applied in the case of  a series of substituted bases.'''
-'''<span lang="EN">(c) Increase in basis of property on which additional estate tax is imposed</span>'''
+'''(c) Increase in basis of property on which additional estate tax is imposed'''
-'''<span lang="EN">    (1) Tax imposed with respect to entire  interest. If an additional estate tax is imposed under section 2032A(c)(1)  with respect to any interest in property and the qualified heir makes an  election under this subsection with respect to the imposition of such tax,  the adjusted basis of such interest shall be increased by an amount equal to  the excess of—</span>'''
+'''    (1) Tax imposed with respect to entire  interest. If an additional estate tax is imposed under section 2032A(c)(1)  with respect to any interest in property and the qualified heir makes an  election under this subsection with respect to the imposition of such tax,  the adjusted basis of such interest shall be increased by an amount equal to  the excess of—'''
-'''<span lang="EN">         (A) the fair market value of such  interest on the date of the decedent’s death (or the alternate valuation date  under section 2032, if the executor of the decedent’s estate elected the  application of such section), over</span>'''
+'''         (A) the fair market value of such  interest on the date of the decedent’s death (or the alternate valuation date  under section 2032, if the executor of the decedent’s estate elected the  application of such section), over'''
-'''<span lang="EN">         (B) the value of such interest  determined under section 2032A(a).</span>'''
+'''         (B) the value of such interest  determined under section 2032A(a).'''
-'''<span lang="EN">    (2) Partial dispositions</span>'''
+'''    (2) Partial dispositions'''
-'''<span lang="EN">         (A) In general. In the case of any  partial disposition for which an election under this subsection is made, the  increase in basis under paragraph (1) shall be an amount—</span>'''
+'''         (A) In general. In the case of any  partial disposition for which an election under this subsection is made, the  increase in basis under paragraph (1) shall be an amount—'''
-'''<span lang="EN">              (i) which bears the same ratio  to the increase which would be determined under paragraph (1) (without regard  to this paragraph) with respect to the entire interest, as</span>'''
+'''              (i) which bears the same ratio  to the increase which would be determined under paragraph (1) (without regard  to this paragraph) with respect to the entire interest, as'''
-'''<span lang="EN">              (ii) the amount of the tax  imposed under section 2032A(c)(1) with respect to such disposition bears to  the adjusted tax difference attributable to the entire interest (as  determined under section 2032A(c)(2)(B)).</span>'''
+'''              (ii) the amount of the tax  imposed under section 2032A(c)(1) with respect to such disposition bears to  the adjusted tax difference attributable to the entire interest (as  determined under section 2032A(c)(2)(B)).'''
-'''<span lang="EN">         (B) Partial disposition. For  purposes of subparagraph (A), the term “partial disposition” means any  disposition or cessation to which subsection (c)(2)(D), (h)(1)(B), or  (i)(1)(B) of section 2032A applies.</span>'''
+'''         (B) Partial disposition. For  purposes of subparagraph (A), the term “partial disposition” means any  disposition or cessation to which subsection (c)(2)(D), (h)(1)(B), or  (i)(1)(B) of section 2032A applies.'''
-'''<span lang="EN">     (3) Time adjustment made. Any  increase in basis under this subsection shall be deemed to have occurred  immediately before the disposition or cessation resulting in the imposition  of the tax under section 2032A(c)(1).</span>'''
+'''     (3) Time adjustment made. Any  increase in basis under this subsection shall be deemed to have occurred  immediately before the disposition or cessation resulting in the imposition  of the tax under section 2032A(c)(1).'''
-'''<span lang="EN">     (4) Special rule in the case of  substituted property. If the tax under section 2032A(c)(1) is imposed with  respect to qualified replacement property (as defined in section  2032A(h)(3)(B)) or qualified exchange property (as defined in section  2032A(i)(3)), the increase in basis under paragraph (1) shall be made by  reference to the property involuntarily converted or exchanged (as the case  may be).</span>'''
+'''     (4) Special rule in the case of  substituted property. If the tax under section 2032A(c)(1) is imposed with  respect to qualified replacement property (as defined in section  2032A(h)(3)(B)) or qualified exchange property (as defined in section  2032A(i)(3)), the increase in basis under paragraph (1) shall be made by  reference to the property involuntarily converted or exchanged (as the case  may be).'''
-'''<span lang="EN">     (5) Election</span>'''
+'''     (5) Election'''
-'''<span lang="EN">         (A) In general. An election under  this subsection shall be made at such time and in such manner as the  Secretary shall by regulations prescribe. Such an election, once made, shall  be irrevocable.</span>'''
+'''         (A) In general. An election under  this subsection shall be made at such time and in such manner as the  Secretary shall by regulations prescribe. Such an election, once made, shall  be irrevocable.'''
-'''<span lang="EN">          (B) Interest on recaptured  amount. If an election is made under this subsection with respect to any  additional estate tax imposed under section 2032A(c)(1), for purposes of  section 6601 (relating to interest on underpayments), the last date  prescribed for payment of such tax shall be deemed to be the last date  prescribed for payment of the tax imposed by section 2001 with respect to the  estate of the decedent (as determined for purposes of section 6601).</span>'''
+'''          (B) Interest on recaptured  amount. If an election is made under this subsection with respect to any  additional estate tax imposed under section 2032A(c)(1), for purposes of  section 6601 (relating to interest on underpayments), the last date  prescribed for payment of such tax shall be deemed to be the last date  prescribed for payment of the tax imposed by section 2001 with respect to the  estate of the decedent (as determined for purposes of section 6601).'''
-'''<span lang="EN">(d) Reduction in basis of automobile on which gas guzzler tax was imposed.  If—</span>'''
+'''(d) Reduction in basis of automobile on which gas guzzler tax was imposed.  If—'''
-'''<span lang="EN">    (1) the taxpayer acquires any automobile  with respect to which a tax was imposed by section 4064, and</span>'''
+'''    (1) the taxpayer acquires any automobile  with respect to which a tax was imposed by section 4064, and'''
-'''<span lang="EN">    (2) the use of such automobile by the  taxpayer begins not more than 1 year after the date of the first sale for  ultimate use of such automobile, the basis of such automobile shall be  reduced by the amount of the tax imposed by section 4064 with respect to such  automobile. In the case of importation, if the date of entry or withdrawal  from warehouse for consumption is later than the date of the first sale for  ultimate use, such later date shall be substituted for the date of such first  sale in the preceding sentence.</span>'''
+'''    (2) the use of such automobile by the  taxpayer begins not more than 1 year after the date of the first sale for  ultimate use of such automobile, the basis of such automobile shall be  reduced by the amount of the tax imposed by section 4064 with respect to such  automobile. In the case of importation, if the date of entry or withdrawal  from warehouse for consumption is later than the date of the first sale for  ultimate use, such later date shall be substituted for the date of such first  sale in the preceding sentence.'''
-'''<span lang="EN">(e)  Cross reference. For treatment of separate mineral interests as one property,  see section 614.</span>'''
+'''(e)  Cross reference. For treatment of separate mineral interests as one property,  see section 614.'''
 |}
-'''<span lang="EN">Depreciation</span>''' <span lang="EN">→ the amount a taxpayer can take as a deduction for the wear and tear of an asset in a particular year; not based on “actual” or “economic” but instead on statutorily created schedules.</span>
+'''Depreciation''' → the amount a taxpayer can take as a deduction for the wear and tear of an asset in a particular year; not based on “actual” or “economic” but instead on statutorily created schedules.
-<span lang="EN">Example → taxpayer owns personal residence originally acquired for $200,000</span>
+Example → taxpayer owns personal residence originally acquired for $200,000
-<span lang="EN">●      Taxpayer constructs attached deck, cost of improvement is added to taxpayer’s basis in the residence (now $225,000)</span>
+●      Taxpayer constructs attached deck, cost of improvement is added to taxpayer’s basis in the residence (now $225,000)
-<span lang="EN">●      Taxpayer cannot deduct the $25,000 used for materials</span>
+●      Taxpayer cannot deduct the $25,000 used for materials
-<span lang="EN">Example → taxpayer spends $10,000 for business copier with a useful life of 5 years</span>
+Example → taxpayer spends $10,000 for business copier with a useful life of 5 years
-<span lang="EN">●      Can taxpayer deduct entire amount up front, or must they depreciate the cost over the expected life of the property?</span>
+●      Can taxpayer deduct entire amount up front, or must they depreciate the cost over the expected life of the property?
-<span lang="EN">●      If they must '''depreciate''' → they are entitled to deduct a portion of the cost over the 5 year period; as this is done, basis should be reduced each year by the amount of the depreciation deduction (total cost divided by usable life = $2,000 per year). This allows taxpayer to gradually get their money back in the form of a deduction.</span>
+●      If they must '''depreciate''' → they are entitled to deduct a portion of the cost over the 5 year period; as this is done, basis should be reduced each year by the amount of the depreciation deduction (total cost divided by usable life = $2,000 per year). This allows taxpayer to gradually get their money back in the form of a deduction.
-'''<span lang="EN">Adjusted Basis</span>''' <span lang="EN">→ reflects the taxpayer’s ongoing investment in an asset from a tax perspective; when the asset is sold or exchanged, the adjusted basis tells us how much unrecovered “cost” the taxpayer continues to have in the property; only to the extent the amount realized exceeds the unrecovered cost should the taxpayer have taxable gain.</span>
+'''Adjusted Basis''' → reflects the taxpayer’s ongoing investment in an asset from a tax perspective; when the asset is sold or exchanged, the adjusted basis tells us how much unrecovered “cost” the taxpayer continues to have in the property; only to the extent the amount realized exceeds the unrecovered cost should the taxpayer have taxable gain.
-'''<span lang="EN">TP generally cannot deduct the cost in year one because the copier will provide a benefit beyond the taxable year (so depreciation deduction).</span>'''
+'''TP generally cannot deduct the cost in year one because the copier will provide a benefit beyond the taxable year (so depreciation deduction).'''
-<span lang="EN">Example (copier cont.) → depreciation schedule</span>
+Example (copier cont.) → depreciation schedule
 {| class="wikitable"
-|'''<span lang="EN">Year 1</span>'''
+|'''Year 1'''
-|<span lang="EN">$10,000 FMV</span>
+|$10,000 FMV
 |-
-|'''<span lang="EN">Year 2</span>'''
+|'''Year 2'''
-|<span lang="EN">$8,000 adjusted basis</span>
+|$8,000 adjusted basis
 |-
-|'''<span lang="EN">Year 3</span>'''
+|'''Year 3'''
-|<span lang="EN">$6,000 adjusted basis</span>
+|$6,000 adjusted basis
 |-
-|'''<span lang="EN">Year 4</span>'''
+|'''Year 4'''
-|<span lang="EN">$4,000 adjusted basis</span>
+|$4,000 adjusted basis
 |-
-|'''<span lang="EN">Year 5</span>'''
+|'''Year 5'''
-|<span lang="EN">$2,000 adjusted basis</span>
+|$2,000 adjusted basis
 |-
-|'''<span lang="EN">Value after 5 Years</span>'''
+|'''Value after 5 Years'''
-|<span lang="EN">$0 ($2,000 depreciation deduction each year)</span>
+|$0 ($2,000 depreciation deduction each year)
 |}
-<span lang="EN">If business sold copier in year 6 for $1,000, the taxpayer would be taxed on $1,000 of gain (the amount realized of $1,000 less the adjusted basis of $0).</span>
+If business sold copier in year 6 for $1,000, the taxpayer would be taxed on $1,000 of gain (the amount realized of $1,000 less the adjusted basis of $0).
 {| class="wikitable"
-|<span lang="EN">26 U.S. Code § 1001 - Determination of  amount of and recognition of gain or loss</span>
+|26 U.S. Code § 1001 - Determination of  amount of and recognition of gain or loss
-<span lang="EN">(c) Recognition of gain or loss. Except as  otherwise provided in this subtitle, the entire amount of the gain or loss,  determined under this section, on the sale or exchange of property shall be  recognized.</span>
+(c) Recognition of gain or loss. Except as  otherwise provided in this subtitle, the entire amount of the gain or loss,  determined under this section, on the sale or exchange of property shall be  recognized.
 |}
-<span lang="EN">Per §1012 → taxpayer’s basis in the property is their “cost”</span>
+Per §1012 → taxpayer’s basis in the property is their “cost”
-<u><span lang="EN">Philadelphia Park Amusement Co. v. United States (1954)</span></u> <span lang="EN">- Claims [50 year franchise in exch. for bridge built]</span>
+<u>Philadelphia Park Amusement Co. v. United States (1954)</u> - Claims [50 year franchise in exch. for bridge built]
-<span lang="EN">RULE: The cost basis of property received in a taxable exchange is the fair market value of the property received.</span>
+RULE: The cost basis of property received in a taxable exchange is the fair market value of the property received.
-<span lang="EN">Case Notes: in order to prevent distorted assessments of liability against taxpayers, cost basis of property received should be the fair market value of property received</span>
+Case Notes: in order to prevent distorted assessments of liability against taxpayers, cost basis of property received should be the fair market value of property received
-<span lang="EN">●      Taxpayer’s basis in the property received is equal to the property’s FMV</span>
+●      Taxpayer’s basis in the property received is equal to the property’s FMV
-<span lang="EN">●      Each taxable year stands alone</span>
+●      Each taxable year stands alone
-<span lang="EN">●      If the value of property received is hard to value, taxpayer can look to the value of the property surrendered</span>
+●      If the value of property received is hard to value, taxpayer can look to the value of the property surrendered
-# <span lang="EN">Following a taxable exchange,    the taxpayer’s basis in property received in the exchange is always equal    to the FMV of the property received</span>
+# Following a taxable exchange,    the taxpayer’s basis in property received in the exchange is always equal    to the FMV of the property received
-## <span lang="EN">Any gain recognized in the      exchange is part of the “cost” to acquire the property received in the      exchange</span>
+## Any gain recognized in the      exchange is part of the “cost” to acquire the property received in the      exchange
-## <span lang="EN">Example:      TP sells $20 painting in exchange for $100 rug → TP '''realizes''' and '''recognizes'''      $80 gain (rug cost minus painting value - basis); IF TP sells rug for      $100 the next day, do they realize another gain? '''NO'''; TP’s “cost” is giving up the $20 painting and the      tax-cost of an $80 gain.</span>
+## Example:      TP sells $20 painting in exchange for $100 rug → TP '''realizes''' and '''recognizes'''      $80 gain (rug cost minus painting value - basis); IF TP sells rug for      $100 the next day, do they realize another gain? '''NO'''; TP’s “cost” is giving up the $20 painting and the      tax-cost of an $80 gain.
-# <span lang="EN">Each taxable year stands alone</span>
+# Each taxable year stands alone
-## <span lang="EN">Base current year tax      consequences on what should have happened in the prior year</span>
+## Base current year tax      consequences on what should have happened in the prior year
-## <span lang="EN">Example: <u>Philadelphia Park</u>;      exchange of bridge and franchise occurred the year prior to the year      where the depreciation deduction was sought -- TP should have recognized      gain in prior year; TP had FMV basis in franchise received in exchange;      they did not include in gross income but treated as though they did</span>
+## Example: <u>Philadelphia Park</u>;      exchange of bridge and franchise occurred the year prior to the year      where the depreciation deduction was sought -- TP should have recognized      gain in prior year; TP had FMV basis in franchise received in exchange;      they did not include in gross income but treated as though they did
-# <span lang="EN">Determining value of difficult    property</span>
+# Determining value of difficult    property
-## <span lang="EN">If unclear or hard to      determine, assume the value is equal to the value of the property you      gave in exchange</span>
+## If unclear or hard to      determine, assume the value is equal to the value of the property you      gave in exchange
-## <span lang="EN">Assume all transactions were at      arm’s length, absent facts to the contrary</span>
+## Assume all transactions were at      arm’s length, absent facts to the contrary
-'''<span lang="EN">Special Basis Rules</span>'''
+'''Special Basis Rules'''
-'''<span lang="EN">Basis of Property Received by Gift, Bequest, Devise, or Inheritance</span>'''
+'''Basis of Property Received by Gift, Bequest, Devise, or Inheritance'''
-<span lang="EN">Inter Vivos gifts →</span>
+Inter Vivos gifts →
-<span lang="EN">●      Donee takes the donor’s adjusted basis in the property</span>
+●      Donee takes the donor’s adjusted basis in the property
-<span lang="EN">●      A gives B asset worth $5,000 in which A has a basis of $3,000</span>
+●      A gives B asset worth $5,000 in which A has a basis of $3,000
-<span lang="EN">●      B will include nothing in gross income and have basis of $3,000</span>
+●      B will include nothing in gross income and have basis of $3,000
-<span lang="EN">●      Transferred basis, carryover basis</span>
+●      Transferred basis, carryover basis
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1015 - Basis of property acquired by gifts and transfers in trust</span>'''
+|'''26  U.S. Code § 1015 - Basis of property acquired by gifts and transfers in trust'''
-'''<span lang="EN">(a) Gifts after December 31, 1920. If the property was acquired by gift after  December 31, 1920, the basis shall be the same as it would be in the hands of  the donor or the last preceding owner by whom it was not acquired by gift,  except that if such basis (adjusted for the period before the date of the  gift as provided in section 1016) is greater than the fair market value of  the property at the time of the gift, then for the purpose of determining  loss the basis shall be such fair market value. If the facts necessary to  determine the basis in the hands of the donor or the last preceding owner are  unknown to the donee, the Secretary shall, if possible, obtain such facts  from such donor or last preceding owner, or any other person cognizant  thereof. If the Secretary finds it impossible to obtain such facts, the basis  in the hands of such donor or last preceding owner shall be the fair market  value of such property as found by the Secretary as of the date or  approximate date at which, according to the best information that the  Secretary is able to obtain, such property was acquired by such donor or last  preceding owner.</span>'''
+'''(a) Gifts after December 31, 1920. If the property was acquired by gift after  December 31, 1920, the basis shall be the same as it would be in the hands of  the donor or the last preceding owner by whom it was not acquired by gift,  except that if such basis (adjusted for the period before the date of the  gift as provided in section 1016) is greater than the fair market value of  the property at the time of the gift, then for the purpose of determining  loss the basis shall be such fair market value. If the facts necessary to  determine the basis in the hands of the donor or the last preceding owner are  unknown to the donee, the Secretary shall, if possible, obtain such facts  from such donor or last preceding owner, or any other person cognizant  thereof. If the Secretary finds it impossible to obtain such facts, the basis  in the hands of such donor or last preceding owner shall be the fair market  value of such property as found by the Secretary as of the date or  approximate date at which, according to the best information that the  Secretary is able to obtain, such property was acquired by such donor or last  preceding owner.'''
-'''<span lang="EN">(b) Transfer in trust after December 31, 1920. If the property was acquired  after December 31, 1920, by a transfer in trust (other than by a transfer in  trust by a gift, bequest, or devise), the basis shall be the same as it would  be in the hands of the grantor increased in the amount of gain or decreased  in the amount of loss recognized to the grantor on such transfer under the  law applicable to the year in which the transfer was made.</span>'''
+'''(b) Transfer in trust after December 31, 1920. If the property was acquired  after December 31, 1920, by a transfer in trust (other than by a transfer in  trust by a gift, bequest, or devise), the basis shall be the same as it would  be in the hands of the grantor increased in the amount of gain or decreased  in the amount of loss recognized to the grantor on such transfer under the  law applicable to the year in which the transfer was made.'''
-'''<span lang="EN">(c) Gift or transfer in trust before January 1, 1921. If the property was  acquired by gift or transfer in trust on or before December 31, 1920, the  basis shall be the fair market value of such property at the time of such  acquisition.</span>'''
+'''(c) Gift or transfer in trust before January 1, 1921. If the property was  acquired by gift or transfer in trust on or before December 31, 1920, the  basis shall be the fair market value of such property at the time of such  acquisition.'''
-'''<span lang="EN">(d) Increased basis for gift tax paid</span>'''
+'''(d) Increased basis for gift tax paid'''
-'''<span lang="EN">    (1) In general. If—</span>'''
+'''    (1) In general. If—'''
-'''<span lang="EN">         (A) the property is acquired by  gift on or after September 2, 1958, the basis shall be the basis determined  under subsection (a), increased (but not above the fair market value of the  property at the time of the gift) by the amount of gift tax paid with respect  to such gift, or</span>'''
+'''         (A) the property is acquired by  gift on or after September 2, 1958, the basis shall be the basis determined  under subsection (a), increased (but not above the fair market value of the  property at the time of the gift) by the amount of gift tax paid with respect  to such gift, or'''
-'''<span lang="EN">         (B) the property was acquired by  gift before September 2, 1958, and has not been sold, exchanged, or otherwise  disposed of before such date, the basis of the property shall be increased on  such date by the amount of gift tax paid with respect to such gift, but such  increase shall not exceed an amount equal to the amount by which the fair  market value of the property at the time of the gift exceeded the basis of  the property in the hands of the donor at the time of the gift.</span>'''
+'''         (B) the property was acquired by  gift before September 2, 1958, and has not been sold, exchanged, or otherwise  disposed of before such date, the basis of the property shall be increased on  such date by the amount of gift tax paid with respect to such gift, but such  increase shall not exceed an amount equal to the amount by which the fair  market value of the property at the time of the gift exceeded the basis of  the property in the hands of the donor at the time of the gift.'''
-'''<span lang="EN">    (2) Amount of tax paid with respect to  gift. For purposes of paragraph (1), the amount of gift tax paid with respect  to any gift is an amount which bears the same ratio to the amount of gift tax  paid under chapter 12 with respect to all gifts made by the donor for the  calendar year (or preceding calendar period) in which such gift is made as  the amount of such gift bears to the taxable gifts (as defined in section  2503(a) but computed without the deduction allowed by section 2521) made by  the donor during such calendar year or period. For purposes of the preceding  sentence, the amount of any gift shall be the amount included with respect to  such gift in determining (for the purposes of section 2503(a)) the total  amount of gifts made during the calendar year or period, reduced by the  amount of any deduction allowed with respect to such gift under section 2522  (relating to charitable deduction) or under section 2523 (relating to marital  deduction).</span>'''
+'''    (2) Amount of tax paid with respect to  gift. For purposes of paragraph (1), the amount of gift tax paid with respect  to any gift is an amount which bears the same ratio to the amount of gift tax  paid under chapter 12 with respect to all gifts made by the donor for the  calendar year (or preceding calendar period) in which such gift is made as  the amount of such gift bears to the taxable gifts (as defined in section  2503(a) but computed without the deduction allowed by section 2521) made by  the donor during such calendar year or period. For purposes of the preceding  sentence, the amount of any gift shall be the amount included with respect to  such gift in determining (for the purposes of section 2503(a)) the total  amount of gifts made during the calendar year or period, reduced by the  amount of any deduction allowed with respect to such gift under section 2522  (relating to charitable deduction) or under section 2523 (relating to marital  deduction).'''
-'''<span lang="EN">     (3) Gifts treated as made one-half  by each spouse. For purposes of paragraph (1), where the donor and his spouse  elected, under section 2513 to have the gift considered as made one-half by  each, the amount of gift tax paid with respect to such gift under chapter 12  shall be the sum of the amounts of tax paid with respect to each half of such  gift (computed in the manner provided in paragraph (2)).</span>'''
+'''     (3) Gifts treated as made one-half  by each spouse. For purposes of paragraph (1), where the donor and his spouse  elected, under section 2513 to have the gift considered as made one-half by  each, the amount of gift tax paid with respect to such gift under chapter 12  shall be the sum of the amounts of tax paid with respect to each half of such  gift (computed in the manner provided in paragraph (2)).'''
-'''<span lang="EN">     (4) Treatment as adjustment to  basis. For purposes of section 1016(b), an increase in basis under paragraph  (1) shall be treated as an adjustment under section 1016(a).</span>'''
+'''     (4) Treatment as adjustment to  basis. For purposes of section 1016(b), an increase in basis under paragraph  (1) shall be treated as an adjustment under section 1016(a).'''
-'''<span lang="EN">     (5) Application to gifts before  1955. With respect to any property acquired by gift before 1955, references  in this subsection to any provision of this title shall be deemed to refer to  the corresponding provision of the Internal Revenue Code of 1939 or prior  revenue laws which was effective for the year in which such gift was made.</span>'''
+'''     (5) Application to gifts before  1955. With respect to any property acquired by gift before 1955, references  in this subsection to any provision of this title shall be deemed to refer to  the corresponding provision of the Internal Revenue Code of 1939 or prior  revenue laws which was effective for the year in which such gift was made.'''
-'''<span lang="EN">     (6) Special rule for gifts made  after December 31, 1976</span>'''
+'''     (6) Special rule for gifts made  after December 31, 1976'''
-'''<span lang="EN">         (A) In general. In the case of any  gift made after December 31, 1976, the increase in basis provided by this  subsection with respect to any gift for the gift tax paid under chapter 12  shall be an amount (not in excess of the amount of tax so paid) which bears  the same ratio to the amount of tax so paid as—</span>'''
+'''         (A) In general. In the case of any  gift made after December 31, 1976, the increase in basis provided by this  subsection with respect to any gift for the gift tax paid under chapter 12  shall be an amount (not in excess of the amount of tax so paid) which bears  the same ratio to the amount of tax so paid as—'''
-'''<span lang="EN">              (i) the net appreciation in  value of the gift, bears to</span>'''
+'''              (i) the net appreciation in  value of the gift, bears to'''
-'''<span lang="EN">              (ii) the amount of the gift.</span>'''
+'''              (ii) the amount of the gift.'''
-'''<span lang="EN">    (B) Net appreciation. For purposes of  paragraph (1), the net appreciation in value of any gift is the amount by  which the fair market value of the gift exceeds the donor’s adjusted basis  immediately before the gift.</span>'''
+'''    (B) Net appreciation. For purposes of  paragraph (1), the net appreciation in value of any gift is the amount by  which the fair market value of the gift exceeds the donor’s adjusted basis  immediately before the gift.'''
-'''<span lang="EN">(e) Gifts between spouses. In the case of any property acquired by gift in a  transfer described in section 1041(a), the basis of such property in the  hands of the transferee shall be determined under section 1041(b)(2) and not  this section.</span>'''
+'''(e) Gifts between spouses. In the case of any property acquired by gift in a  transfer described in section 1041(a), the basis of such property in the  hands of the transferee shall be determined under section 1041(b)(2) and not  this section.'''
 |}
-<span lang="EN">Applicable Basis rules under §1015(a) →</span>
+Applicable Basis rules under §1015(a) →
 {| class="wikitable"
 |
-|<span lang="EN">Donee Basis for computing '''GAIN'''</span>
+|Donee Basis for computing '''GAIN'''
-|<span lang="EN">Donee basis for computing '''LOSS'''</span>
+|Donee basis for computing '''LOSS'''
 |-
-|<span lang="EN">FMV <u>></u>  donor’s adjusted basis at the time of the gift</span>
+|FMV <u>></u>  donor’s adjusted basis at the time of the gift
-|<span lang="EN">Donor’s  adjusted basis</span>
+|Donor’s  adjusted basis
-|<span lang="EN">Donor’s  adjusted basis</span>
+|Donor’s  adjusted basis
 |-
-|<span lang="EN">FMV <  donor’s adjusted basis at the time of gift</span>
+|FMV <  donor’s adjusted basis at the time of gift
-|<span lang="EN">Donor’s  adjusted basis</span>
+|Donor’s  adjusted basis
-|<span lang="EN">FMV (loss does  not carry over</span>
+|FMV (loss does  not carry over
 |}
-<span lang="EN">Property acquired from a decedent → §1014</span>
+Property acquired from a decedent → §1014
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1014 - Basis of property acquired from a decedent</span>'''
+|'''26  U.S. Code § 1014 - Basis of property acquired from a decedent'''
-'''<span lang="EN">(a) In general. Except as otherwise provided in this section, the basis of  property in the hands of a person acquiring the property from a decedent or  to whom the property passed from a decedent shall, if not sold, exchanged, or  otherwise disposed of before the decedent’s death by such person, be—</span>'''
+'''(a) In general. Except as otherwise provided in this section, the basis of  property in the hands of a person acquiring the property from a decedent or  to whom the property passed from a decedent shall, if not sold, exchanged, or  otherwise disposed of before the decedent’s death by such person, be—'''
-'''<span lang="EN">     (1) the fair market value of the  property at the date of the decedent’s death,</span>'''
+'''     (1) the fair market value of the  property at the date of the decedent’s death,'''
-'''<span lang="EN">     (2) in the case of an election  under section 2032, its value at the applicable valuation date prescribed by  such section,</span>'''
+'''     (2) in the case of an election  under section 2032, its value at the applicable valuation date prescribed by  such section,'''
-'''<span lang="EN">    (3) in the case of an election under  section 2032A, its value determined under such section, or</span>'''
+'''    (3) in the case of an election under  section 2032A, its value determined under such section, or'''
-'''<span lang="EN">    (4) to the extent of the applicability of  the exclusion described in section 2031(c), the basis in the hands of the  decedent.</span>'''
+'''    (4) to the extent of the applicability of  the exclusion described in section 2031(c), the basis in the hands of the  decedent.'''
-'''<span lang="EN">(b)  Property acquired from the decedent. For purposes of subsection (a), the  following property shall be considered to have been acquired from or to have  passed from the decedent:</span>'''
+'''(b)  Property acquired from the decedent. For purposes of subsection (a), the  following property shall be considered to have been acquired from or to have  passed from the decedent:'''
-'''<span lang="EN">    (1) Property acquired by bequest,  devise, or inheritance, or by the decedent’s estate from the decedent;</span>'''
+'''    (1) Property acquired by bequest,  devise, or inheritance, or by the decedent’s estate from the decedent;'''
-'''<span lang="EN">    (2) Property transferred by the decedent  during his lifetime in trust to pay the income for life to or on the order or  direction of the decedent, with the right reserved to the decedent at all  times before his death to revoke the trust;</span>'''
+'''    (2) Property transferred by the decedent  during his lifetime in trust to pay the income for life to or on the order or  direction of the decedent, with the right reserved to the decedent at all  times before his death to revoke the trust;'''
-'''<span lang="EN">    (3) In the case of decedents dying after  December 31, 1951, property transferred by the decedent during his lifetime  in trust to pay the income for life to or on the order or direction of the  decedent with the right reserved to the decedent at all times before his  death to make any change in the enjoyment thereof through the exercise of a  power to alter, amend, or terminate the trust;</span>'''
+'''    (3) In the case of decedents dying after  December 31, 1951, property transferred by the decedent during his lifetime  in trust to pay the income for life to or on the order or direction of the  decedent with the right reserved to the decedent at all times before his  death to make any change in the enjoyment thereof through the exercise of a  power to alter, amend, or terminate the trust;'''
-'''<span lang="EN">    (4) Property passing without full and  adequate consideration under a general power of appointment exercised by the  decedent by will;</span>'''
+'''    (4) Property passing without full and  adequate consideration under a general power of appointment exercised by the  decedent by will;'''
-'''<span lang="EN">    (5) In the case of decedents dying after  August 26, 1937, and before January 1, 2005, property acquired by bequest,  devise, or inheritance or by the decedent’s estate from the decedent, if the  property consists of stock or securities of a foreign corporation, which with  respect to its taxable year next preceding the date of the decedent’s death  was, under the law applicable to such year, a foreign personal holding  company. In such case, the basis shall be the fair market value of such  property at the date of the decedent’s death or the basis in the hands of the  decedent, whichever is lower;</span>'''
+'''    (5) In the case of decedents dying after  August 26, 1937, and before January 1, 2005, property acquired by bequest,  devise, or inheritance or by the decedent’s estate from the decedent, if the  property consists of stock or securities of a foreign corporation, which with  respect to its taxable year next preceding the date of the decedent’s death  was, under the law applicable to such year, a foreign personal holding  company. In such case, the basis shall be the fair market value of such  property at the date of the decedent’s death or the basis in the hands of the  decedent, whichever is lower;'''
-'''<span lang="EN">    (6) In the case of decedents dying after  December 31, 1947, property which represents the surviving spouse’s one-half  share of community property held by the decedent and the surviving spouse  under the community property laws of any State, or possession of the United  States or any foreign country, if at least one-half of the whole of the  community interest in such property was includible in determining the value  of the decedent’s gross estate under chapter 11 of subtitle B (section 2001  and following, relating to estate tax) or section 811 of the Internal Revenue  Code of 1939;</span>'''
+'''    (6) In the case of decedents dying after  December 31, 1947, property which represents the surviving spouse’s one-half  share of community property held by the decedent and the surviving spouse  under the community property laws of any State, or possession of the United  States or any foreign country, if at least one-half of the whole of the  community interest in such property was includible in determining the value  of the decedent’s gross estate under chapter 11 of subtitle B (section 2001  and following, relating to estate tax) or section 811 of the Internal Revenue  Code of 1939;'''
-'''<span lang="EN">    [(7) , (8) Repealed. Pub. L. 113–295,  div. A, title II, § 221(a)(74)(B), Dec. 19, 2014, 128 Stat. 4049]</span>'''
+'''    [(7) , (8) Repealed. Pub. L. 113–295,  div. A, title II, § 221(a)(74)(B), Dec. 19, 2014, 128 Stat. 4049]'''
-'''<span lang="EN">    (9) In the case of decedents dying after  December 31, 1953, property acquired from the decedent by reason of death,  form of ownership, or other conditions (including property acquired through  the exercise or non-exercise of a power of appointment), if by reason thereof  the property is required to be included in determining the value of the  decedent’s gross estate under chapter 11 of subtitle B or under the Internal  Revenue Code of 1939. In such case, if the property is acquired before the  death of the decedent, the basis shall be the amount determined under  subsection (a) reduced by the amount allowed to the taxpayer as deductions in  computing taxable income under this subtitle or prior income tax laws for  exhaustion, wear and tear, obsolescence, amortization, and depletion on such  property before the death of the decedent. Such basis shall be applicable to  the property commencing on the death of the decedent. This paragraph shall  not apply to—</span>'''
+'''    (9) In the case of decedents dying after  December 31, 1953, property acquired from the decedent by reason of death,  form of ownership, or other conditions (including property acquired through  the exercise or non-exercise of a power of appointment), if by reason thereof  the property is required to be included in determining the value of the  decedent’s gross estate under chapter 11 of subtitle B or under the Internal  Revenue Code of 1939. In such case, if the property is acquired before the  death of the decedent, the basis shall be the amount determined under  subsection (a) reduced by the amount allowed to the taxpayer as deductions in  computing taxable income under this subtitle or prior income tax laws for  exhaustion, wear and tear, obsolescence, amortization, and depletion on such  property before the death of the decedent. Such basis shall be applicable to  the property commencing on the death of the decedent. This paragraph shall  not apply to—'''
-'''<span lang="EN">         (A) annuities described in section  72;</span>'''
+'''         (A) annuities described in section  72;'''
-'''<span lang="EN">         (B) property to which paragraph (5)  would apply if the property had been acquired by bequest; and</span>'''
+'''         (B) property to which paragraph (5)  would apply if the property had been acquired by bequest; and'''
-'''<span lang="EN">         (C) property described in any other  paragraph of this subsection.</span>'''
+'''         (C) property described in any other  paragraph of this subsection.'''
-'''<span lang="EN">    (10) Property includible in the gross  estate of the decedent under section 2044 (relating to certain property for  which marital deduction was previously allowed). In any such case, the last 3  sentences of paragraph (9) shall apply as if such property were described in  the first sentence of paragraph (9).</span>'''
+'''    (10) Property includible in the gross  estate of the decedent under section 2044 (relating to certain property for  which marital deduction was previously allowed). In any such case, the last 3  sentences of paragraph (9) shall apply as if such property were described in  the first sentence of paragraph (9).'''
-'''<span lang="EN">(c)  Property representing income in respect of a decedent. This section shall not  apply to property which constitutes a right to receive an item of income in  respect of a decedent under section 691.</span>'''
+'''(c)  Property representing income in respect of a decedent. This section shall not  apply to property which constitutes a right to receive an item of income in  respect of a decedent under section 691.'''
-'''<span lang="EN">(d) Special rule with respect to DISC stock. If stock owned by a decedent in  a DISC or former DISC (as defined in section 992(a)) acquires a new basis  under subsection (a), such basis (determined before the application of this  subsection) shall be reduced by the amount (if any) which would have been  included in gross income under section 995(c) as a dividend if the decedent  had lived and sold the stock at its fair market value on the estate tax  valuation date. In computing the gain the decedent would have had if he had  lived and sold the stock, his basis shall be determined without regard to the  last sentence of section 996(e)(2) (relating to reductions of basis of DISC  stock). For purposes of this subsection, the estate tax valuation date is the  date of the decedent’s death or, in the case of an election under section  2032, the applicable valuation date prescribed by that section.</span>'''
+'''(d) Special rule with respect to DISC stock. If stock owned by a decedent in  a DISC or former DISC (as defined in section 992(a)) acquires a new basis  under subsection (a), such basis (determined before the application of this  subsection) shall be reduced by the amount (if any) which would have been  included in gross income under section 995(c) as a dividend if the decedent  had lived and sold the stock at its fair market value on the estate tax  valuation date. In computing the gain the decedent would have had if he had  lived and sold the stock, his basis shall be determined without regard to the  last sentence of section 996(e)(2) (relating to reductions of basis of DISC  stock). For purposes of this subsection, the estate tax valuation date is the  date of the decedent’s death or, in the case of an election under section  2032, the applicable valuation date prescribed by that section.'''
-'''<span lang="EN">(e) Appreciated property acquired by decedent by gift within 1 year of death</span>'''
+'''(e) Appreciated property acquired by decedent by gift within 1 year of death'''
-'''<span lang="EN">    (1) In general. In the case of a  decedent dying after December 31, 1981, if—</span>'''
+'''    (1) In general. In the case of a  decedent dying after December 31, 1981, if—'''
-'''<span lang="EN">         (A) appreciated property was  acquired by the decedent by gift during the 1-year period ending on the date  of the decedent’s death, and</span>'''
+'''         (A) appreciated property was  acquired by the decedent by gift during the 1-year period ending on the date  of the decedent’s death, and'''
-'''<span lang="EN">         (B) such property is acquired from  the decedent by (or passes from the decedent to) the donor of such property  (or the spouse of such donor), the basis of such property in the hands of  such donor (or spouse) shall be the adjusted basis of such property in the  hands of the decedent immediately before the death of the decedent.</span>'''
+'''         (B) such property is acquired from  the decedent by (or passes from the decedent to) the donor of such property  (or the spouse of such donor), the basis of such property in the hands of  such donor (or spouse) shall be the adjusted basis of such property in the  hands of the decedent immediately before the death of the decedent.'''
-'''<span lang="EN">    (2) Definitions. For purposes of  paragraph (1)—</span>'''
+'''    (2) Definitions. For purposes of  paragraph (1)—'''
-'''<span lang="EN">         (A) Appreciated property. The term  “appreciated property” means any property if the fair market value of such  property on the day it was transferred to the decedent by gift exceeds its  adjusted basis.</span>'''
+'''         (A) Appreciated property. The term  “appreciated property” means any property if the fair market value of such  property on the day it was transferred to the decedent by gift exceeds its  adjusted basis.'''
-'''<span lang="EN">          (B) Treatment of certain  property sold by estate. In the case of any appreciated property described in  subparagraph (A) of paragraph (1) sold by the estate of the decedent or by a  trust of which the decedent was the grantor, rules similar to the rules of  paragraph (1) shall apply to the extent the donor of such property (or the  spouse of such donor) is entitled to the proceeds from such sale.</span>'''
+'''          (B) Treatment of certain  property sold by estate. In the case of any appreciated property described in  subparagraph (A) of paragraph (1) sold by the estate of the decedent or by a  trust of which the decedent was the grantor, rules similar to the rules of  paragraph (1) shall apply to the extent the donor of such property (or the  spouse of such donor) is entitled to the proceeds from such sale.'''
-'''<span lang="EN">(f) Basis must be consistent with estate tax return. For purposes of this  section—</span>'''
+'''(f) Basis must be consistent with estate tax return. For purposes of this  section—'''
-'''<span lang="EN">    (1) In general. The basis of any  property to which subsection (a) applies shall not exceed—</span>'''
+'''    (1) In general. The basis of any  property to which subsection (a) applies shall not exceed—'''
-'''<span lang="EN">         (A) in the case of property the  final value of which has been determined for purposes of the tax imposed by  chapter 11 on the estate of such decedent, such value, and</span>'''
+'''         (A) in the case of property the  final value of which has been determined for purposes of the tax imposed by  chapter 11 on the estate of such decedent, such value, and'''
-'''<span lang="EN">         (B) in the case of property not  described in subparagraph (A) and with respect to which a statement has been  furnished under section 6035(a) identifying the value of such property, such  value.</span>'''
+'''         (B) in the case of property not  described in subparagraph (A) and with respect to which a statement has been  furnished under section 6035(a) identifying the value of such property, such  value.'''
-'''<span lang="EN">    (2) Exception. Paragraph (1) shall only  apply to any property whose inclusion in the decedent’s estate increased the  liability for the tax imposed by chapter 11 (reduced by credits allowable  against such tax) on such estate.</span>'''
+'''    (2) Exception. Paragraph (1) shall only  apply to any property whose inclusion in the decedent’s estate increased the  liability for the tax imposed by chapter 11 (reduced by credits allowable  against such tax) on such estate.'''
-'''<span lang="EN">     (3) Determination. For purposes of  paragraph (1), the basis of property has been determined for purposes of the  tax imposed by chapter 11 if—</span>'''
+'''     (3) Determination. For purposes of  paragraph (1), the basis of property has been determined for purposes of the  tax imposed by chapter 11 if—'''
-'''<span lang="EN">         (A) the value of such property is  shown on a return under section 6018 and such value is not contested by the  Secretary before the expiration of the time for assessing a tax under chapter  11,</span>'''
+'''         (A) the value of such property is  shown on a return under section 6018 and such value is not contested by the  Secretary before the expiration of the time for assessing a tax under chapter  11,'''
-'''<span lang="EN">         (B) in a case not described in  subparagraph (A), the value is specified by the Secretary and such value is  not timely contested by the executor of the estate, or</span>'''
+'''         (B) in a case not described in  subparagraph (A), the value is specified by the Secretary and such value is  not timely contested by the executor of the estate, or'''
-'''<span lang="EN">         (C) the value is determined by a  court or pursuant to a settlement agreement with the Secretary.</span>'''
+'''         (C) the value is determined by a  court or pursuant to a settlement agreement with the Secretary.'''
-'''<span lang="EN">    </span>'''
+'''    '''
-'''<span lang="EN">    (4) Regulations. The Secretary may by  regulations provide exceptions to the application of this subsection.</span>'''
+'''    (4) Regulations. The Secretary may by  regulations provide exceptions to the application of this subsection.'''
 |}
-<span lang="EN">“Stepped-up” basis →</span>
+“Stepped-up” basis →
-<span lang="EN">●      Basis is stepped-down to fair market value</span>
+●      Basis is stepped-down to fair market value
-<span lang="EN">●      A dies holding asset worth $20,000, B’s basis is $20,000 regardless of A’s adjusted basis in asset</span>
+●      A dies holding asset worth $20,000, B’s basis is $20,000 regardless of A’s adjusted basis in asset
-<span lang="EN">●      §1014(a) → such property shall have a basis to the recipient equal to the value of the property at the date of the decedent’s death</span>
+●      §1014(a) → such property shall have a basis to the recipient equal to the value of the property at the date of the decedent’s death
-<span lang="EN">●      §1014(f) → limits if an estate tax return is required</span>
+●      §1014(f) → limits if an estate tax return is required
-<span lang="EN">Transfers in satisfaction of an obligation - other “accessions to wealth” can constitute part of an “amount realized” → <u>Kenan v. Commissioner</u> - trustee transferred appreciated stock; trust had a real and recognized gain.</span>
+Transfers in satisfaction of an obligation - other “accessions to wealth” can constitute part of an “amount realized” → <u>Kenan v. Commissioner</u> - trustee transferred appreciated stock; trust had a real and recognized gain.
-<u><span lang="EN">United States v. Davis (1962)</span></u> <span lang="EN">- SCOTUS [π transf. appreciated shares to ex wife purs. to div. agmt]</span>
+<u>United States v. Davis (1962)</u> - SCOTUS [π transf. appreciated shares to ex wife purs. to div. agmt]
-<span lang="EN">RULE: for purpose of federal tax law, a transfer of property incident to a divorce is a taxable event</span>
+RULE: for purpose of federal tax law, a transfer of property incident to a divorce is a taxable event
-<span lang="EN">Case Notes: taxable gain should be equal to the value of the stock on the date of transfer</span>
+Case Notes: taxable gain should be equal to the value of the stock on the date of transfer
-<span lang="EN">●      A transfer of property between spouses pursuant to a divorce agreement is a taxable event.</span>
+●      A transfer of property between spouses pursuant to a divorce agreement is a taxable event.
-<span lang="EN">●      In common-law property states, spouses typically have inchoate statutory rights in one another’s separate property in the event of death or divorce</span>
+●      In common-law property states, spouses typically have inchoate statutory rights in one another’s separate property in the event of death or divorce
-<span lang="EN">●      When one spouse transfers property to the other spouse in exchange for a release from his statutory obligations, the property transfer is an income-realization event</span>
+●      When one spouse transfers property to the other spouse in exchange for a release from his statutory obligations, the property transfer is an income-realization event
-<span lang="EN">●      The transferring spouse is released from the personal liability associated with his former marital obligations and realizes a difficult-to-ascertain gain</span>
+●      The transferring spouse is released from the personal liability associated with his former marital obligations and realizes a difficult-to-ascertain gain
-<span lang="EN">●      Because a divorce is an arm’s length transaction, the value of the release of liability is presumably equal to the amount the transferring spouse paid to obtain it</span>
+●      Because a divorce is an arm’s length transaction, the value of the release of liability is presumably equal to the amount the transferring spouse paid to obtain it
-<span lang="EN">Flavor of Income</span>
+Flavor of Income
-<span lang="EN">●      Capital gains → receive favorable tax treatment (wealthy: 15-20%, less affluent: 0%)</span>
+●      Capital gains → receive favorable tax treatment (wealthy: 15-20%, less affluent: 0%)
-<span lang="EN">●      “Capital gain” → gain from the sale or exchange of “capital assets” held for '''more than one year'''.</span>
+●      “Capital gain” → gain from the sale or exchange of “capital assets” held for '''more than one year'''.
-<span lang="EN">“Capital asset” → property held for investment or for personal use; §1221(a) provides '''negative definitions''' (what is NOT a capital asset):</span>
+“Capital asset” → property held for investment or for personal use; §1221(a) provides '''negative definitions''' (what is NOT a capital asset):
-<span lang="EN">(1)   Stock in trade of taxpayer, held primarily for sale in course of business</span>
+(1)   Stock in trade of taxpayer, held primarily for sale in course of business
-<span lang="EN">(2)   Property used in trade or business</span>
+(2)   Property used in trade or business
-<span lang="EN">(3)   Intellectual property by taxpayer’s personal efforts</span>
+(3)   Intellectual property by taxpayer’s personal efforts
-<span lang="EN">(4)   Accounts or notes receivable acquired in ordinary course of business for services or property</span>
+(4)   Accounts or notes receivable acquired in ordinary course of business for services or property
-<span lang="EN">(5)   Publication of US government</span>
+(5)   Publication of US government
-<span lang="EN">(6)   Any commodities derivative financial instrument held by a dealer of commodities</span>
+(6)   Any commodities derivative financial instrument held by a dealer of commodities
-<span lang="EN">(7)   Hedging transactions</span>
+(7)   Hedging transactions
-<span lang="EN">(8)   Supplies regularly used by taxpayer in the ordinary course of business</span>
+(8)   Supplies regularly used by taxpayer in the ordinary course of business
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1221 - Capital asset defined</span>'''
+|'''26  U.S. Code § 1221 - Capital asset defined'''
-'''<span lang="EN">(a) In general. For purposes of this subtitle, the term “capital asset” means  property held by the taxpayer (whether or not connected with his trade or  business), but does not include—</span>'''
+'''(a) In general. For purposes of this subtitle, the term “capital asset” means  property held by the taxpayer (whether or not connected with his trade or  business), but does not include—'''
-'''<span lang="EN">    (1) stock in trade of the taxpayer or  other property of a kind which would properly be included in the inventory of  the taxpayer if on hand at the close of the taxable year, or property held by  the taxpayer primarily for sale to customers in the ordinary course of his  trade or business;</span>'''
+'''    (1) stock in trade of the taxpayer or  other property of a kind which would properly be included in the inventory of  the taxpayer if on hand at the close of the taxable year, or property held by  the taxpayer primarily for sale to customers in the ordinary course of his  trade or business;'''
-'''<span lang="EN">    (2) property, used in his trade or  business, of a character which is subject to the allowance for depreciation  provided in section 167, or real property used in his trade or business;</span>'''
+'''    (2) property, used in his trade or  business, of a character which is subject to the allowance for depreciation  provided in section 167, or real property used in his trade or business;'''
-'''<span lang="EN">    (3) a patent, invention, model or design  (whether or not patented), a secret formula or process, a copyright, a  literary, musical, or artistic composition, a letter or memorandum, or  similar property, held by—</span>'''
+'''    (3) a patent, invention, model or design  (whether or not patented), a secret formula or process, a copyright, a  literary, musical, or artistic composition, a letter or memorandum, or  similar property, held by—'''
-'''<span lang="EN">         (A) a taxpayer whose personal  efforts created such property,</span>'''
+'''         (A) a taxpayer whose personal  efforts created such property,'''
-'''<span lang="EN">         (B) in the case of a letter, memorandum, or similar property, a  taxpayer for whom such property was prepared or produced, or</span>'''
+'''         (B) in the case of a letter, memorandum, or similar property, a  taxpayer for whom such property was prepared or produced, or'''
-'''<span lang="EN">         (C) a taxpayer in whose hands the  basis of such property is determined, for purposes of determining gain from a  sale or exchange, in whole or part by reference to the basis of such property  in the hands of a taxpayer described in subparagraph (A) or (B);</span>'''
+'''         (C) a taxpayer in whose hands the  basis of such property is determined, for purposes of determining gain from a  sale or exchange, in whole or part by reference to the basis of such property  in the hands of a taxpayer described in subparagraph (A) or (B);'''
-'''<span lang="EN">    (4) accounts or notes receivable  acquired in the ordinary course of trade or business for services rendered or  from the sale of property described in paragraph (1);</span>'''
+'''    (4) accounts or notes receivable  acquired in the ordinary course of trade or business for services rendered or  from the sale of property described in paragraph (1);'''
-'''<span lang="EN">    (5) a publication of the United States  Government (including the Congressional Record) which is received from the  United States Government or any agency thereof, other than by purchase at the  price at which it is offered for sale to the public, and which is held by—</span>'''
+'''    (5) a publication of the United States  Government (including the Congressional Record) which is received from the  United States Government or any agency thereof, other than by purchase at the  price at which it is offered for sale to the public, and which is held by—'''
-'''<span lang="EN">         (A) a taxpayer who so received such  publication, or</span>'''
+'''         (A) a taxpayer who so received such  publication, or'''
-'''<span lang="EN">         (B) a taxpayer in whose hands the  basis of such publication is determined, for purposes of determining gain  from a sale or exchange, in whole or in part by reference to the basis of  such publication in the hands of a taxpayer described in subparagraph (A);</span>'''
+'''         (B) a taxpayer in whose hands the  basis of such publication is determined, for purposes of determining gain  from a sale or exchange, in whole or in part by reference to the basis of  such publication in the hands of a taxpayer described in subparagraph (A);'''
-'''<span lang="EN">    (6) any commodities derivative financial  instrument held by a commodities derivatives dealer, unless—</span>'''
+'''    (6) any commodities derivative financial  instrument held by a commodities derivatives dealer, unless—'''
-'''<span lang="EN">         (A) it is established to the  satisfaction of the Secretary that such instrument has no connection to the  activities of such dealer as a dealer, and</span>'''
+'''         (A) it is established to the  satisfaction of the Secretary that such instrument has no connection to the  activities of such dealer as a dealer, and'''
-'''<span lang="EN">         (B) such instrument is clearly  identified in such dealer’s records as being described in subparagraph (A)  before the close of the day on which it was acquired, originated, or entered  into (or such other time as the Secretary may by regulations prescribe);</span>'''
+'''         (B) such instrument is clearly  identified in such dealer’s records as being described in subparagraph (A)  before the close of the day on which it was acquired, originated, or entered  into (or such other time as the Secretary may by regulations prescribe);'''
-'''<span lang="EN">    (7) any hedging transaction which is  clearly identified as such before the close of the day on which it was  acquired, originated, or entered into (or such other time as the Secretary  may by regulations prescribe); or</span>'''
+'''    (7) any hedging transaction which is  clearly identified as such before the close of the day on which it was  acquired, originated, or entered into (or such other time as the Secretary  may by regulations prescribe); or'''
-'''<span lang="EN">    (8) supplies of a type regularly used or  consumed by the taxpayer in the ordinary course of a trade or business of the  taxpayer.</span>'''
+'''    (8) supplies of a type regularly used or  consumed by the taxpayer in the ordinary course of a trade or business of the  taxpayer.'''
-'''<span lang="EN">(b)  Definitions and special rules</span>'''
+'''(b)  Definitions and special rules'''
-'''<span lang="EN">    (1) Commodities derivative financial  instruments. For purposes of subsection (a)(6)—</span>'''
+'''    (1) Commodities derivative financial  instruments. For purposes of subsection (a)(6)—'''
-'''<span lang="EN">         (A) Commodities derivatives dealer.  The term “commodities derivatives dealer” means a person which [1] regularly  offers to enter into, assume, offset, assign, or terminate positions in  commodities derivative financial instruments with customers in the ordinary  course of a trade or business.</span>'''
+'''         (A) Commodities derivatives dealer.  The term “commodities derivatives dealer” means a person which [1] regularly  offers to enter into, assume, offset, assign, or terminate positions in  commodities derivative financial instruments with customers in the ordinary  course of a trade or business.'''
-'''<span lang="EN">          (B) Commodities derivative  financial instrument</span>'''
+'''          (B) Commodities derivative  financial instrument'''
-'''<span lang="EN">              (i) In general. The term  “commodities derivative financial instrument” means any contract or financial  instrument with respect to commodities (other than a share of stock in a  corporation, a beneficial interest in a partnership or trust, a note, bond,  debenture, or other evidence of indebtedness, or a section 1256 contract (as  defined in section 1256(b))), the value or settlement price of which is  calculated by or determined by reference to a specified index.</span>'''
+'''              (i) In general. The term  “commodities derivative financial instrument” means any contract or financial  instrument with respect to commodities (other than a share of stock in a  corporation, a beneficial interest in a partnership or trust, a note, bond,  debenture, or other evidence of indebtedness, or a section 1256 contract (as  defined in section 1256(b))), the value or settlement price of which is  calculated by or determined by reference to a specified index.'''
-'''<span lang="EN">               (ii) Specified index.  The term “specified index” means any one or more or any combination of—</span>'''
+'''               (ii) Specified index.  The term “specified index” means any one or more or any combination of—'''
-'''<span lang="EN">                   (I) a fixed rate, price,  or amount, or</span>'''
+'''                   (I) a fixed rate, price,  or amount, or'''
-'''<span lang="EN">                   (II) a variable rate, price, or  amount, which is based on any current, objectively determinable financial or  economic information with respect to commodities which is not within the  control of any of the parties to the contract or instrument and is not unique  to any of the parties’ circumstances.</span>'''
+'''                   (II) a variable rate, price, or  amount, which is based on any current, objectively determinable financial or  economic information with respect to commodities which is not within the  control of any of the parties to the contract or instrument and is not unique  to any of the parties’ circumstances.'''
-'''<span lang="EN">    (2) Hedging transaction</span>'''
+'''    (2) Hedging transaction'''
-'''<span lang="EN">         (A) In general. For purposes of  this section, the term “hedging transaction” means any transaction entered  into by the taxpayer in the normal course of the taxpayer’s trade or business  primarily—</span>'''
+'''         (A) In general. For purposes of  this section, the term “hedging transaction” means any transaction entered  into by the taxpayer in the normal course of the taxpayer’s trade or business  primarily—'''
-'''<span lang="EN">              (i) to manage risk of price  changes or currency fluctuations with respect to ordinary property which is  held or to be held by the taxpayer,</span>'''
+'''              (i) to manage risk of price  changes or currency fluctuations with respect to ordinary property which is  held or to be held by the taxpayer,'''
-'''<span lang="EN">              (ii) to manage risk of  interest rate or price changes or currency fluctuations with respect to  borrowings made or to be made, or ordinary obligations incurred or to be  incurred, by the taxpayer, or</span>'''
+'''              (ii) to manage risk of  interest rate or price changes or currency fluctuations with respect to  borrowings made or to be made, or ordinary obligations incurred or to be  incurred, by the taxpayer, or'''
-'''<span lang="EN">              (iii) to manage such other  risks as the Secretary may prescribe in regulations.</span>'''
+'''              (iii) to manage such other  risks as the Secretary may prescribe in regulations.'''
-'''<span lang="EN">         (B) Treatment of nonidentification  or improper identification of hedging transactions. Notwithstanding  subsection (a)(7), the Secretary shall prescribe regulations to properly  characterize any income, gain, expense, or loss arising from a transaction—</span>'''
+'''         (B) Treatment of nonidentification  or improper identification of hedging transactions. Notwithstanding  subsection (a)(7), the Secretary shall prescribe regulations to properly  characterize any income, gain, expense, or loss arising from a transaction—'''
-'''<span lang="EN">              (i) which is a hedging transaction  but which was not identified as such in accordance with subsection (a)(7), or</span>'''
+'''              (i) which is a hedging transaction  but which was not identified as such in accordance with subsection (a)(7), or'''
-'''<span lang="EN">              (ii) which was so identified  but is not a hedging transaction.</span>'''
+'''              (ii) which was so identified  but is not a hedging transaction.'''
-'''<span lang="EN">    (3) Sale or exchange of self-created  musical works. At the election of the taxpayer, paragraphs (1) and (3) of  subsection (a) shall not apply to musical compositions or copyrights in  musical works sold or exchanged by a taxpayer described in subsection (a)(3).</span>'''
+'''    (3) Sale or exchange of self-created  musical works. At the election of the taxpayer, paragraphs (1) and (3) of  subsection (a) shall not apply to musical compositions or copyrights in  musical works sold or exchanged by a taxpayer described in subsection (a)(3).'''
-'''<span lang="EN">     (4) Regulations. The Secretary  shall prescribe such regulations as are appropriate to carry out the purposes  of paragraph (6) and (7) of subsection (a) in the case of transactions  involving related parties.</span>'''
+'''     (4) Regulations. The Secretary  shall prescribe such regulations as are appropriate to carry out the purposes  of paragraph (6) and (7) of subsection (a) in the case of transactions  involving related parties.'''
 |}
-<span lang="EN">Personal property → if not used for business, usually qualifies as a capital asset</span>
+Personal property → if not used for business, usually qualifies as a capital asset
-<span lang="EN">Rationale for preferential treatment of capital gains:</span>
+Rationale for preferential treatment of capital gains:
-<span lang="EN">●      Inflation → necessary to account for taxing gains due to inflation</span>
+●      Inflation → necessary to account for taxing gains due to inflation
-<span lang="EN">●      Bunching → all gains from asset bunched into year of sale</span>
+●      Bunching → all gains from asset bunched into year of sale
-<span lang="EN">●      Stimulate savings and investment activities</span>
+●      Stimulate savings and investment activities
-<span lang="EN">●      Cure lock-up problem → encourages sale rather than holding until ones death</span>
+●      Cure lock-up problem → encourages sale rather than holding until ones death
-<span lang="EN">American Taxpayer Relief Act of 2012 (ATRA) - extended preferential rates to “qualified dividend income” → aiming to alleviate corporate double taxation (corporations are individuals, and thus taxed at the business level and again at the shareholder level); double taxation justifiable because tax is paid by two different “people”.</span>
+American Taxpayer Relief Act of 2012 (ATRA) - extended preferential rates to “qualified dividend income” → aiming to alleviate corporate double taxation (corporations are individuals, and thus taxed at the business level and again at the shareholder level); double taxation justifiable because tax is paid by two different “people”.
-'''<span lang="EN">Qualified dividend income</span>''' <span lang="EN">→ most dividends from domestic corporations; no requirement that dividends come from earnings that were previously subject to tax or attributable to dates prior to enactment.</span>
+'''Qualified dividend income''' → most dividends from domestic corporations; no requirement that dividends come from earnings that were previously subject to tax or attributable to dates prior to enactment.
-'''<span lang="EN">Timing of Income</span>'''
+'''Timing of Income'''
-<span lang="EN">Timing → Preference is to put off or defer paying tax on gross income for as long as possible.</span>
+Timing → Preference is to put off or defer paying tax on gross income for as long as possible.
 {| class="wikitable"
-|'''<span lang="EN">Claim of right doctrine</span>'''  <span lang="EN">→ causes a taxpayer to recognize income if they receive the income even if  they do not have a fixed right to the income</span>
+|'''Claim of right doctrine'''  → causes a taxpayer to recognize income if they receive the income even if  they do not have a fixed right to the income
 |}
-<u><span lang="EN">North American Oil Consolidated v. Burnet (1932)</span></u> <span lang="EN">- SCOTUS [π oil land appointed to rec’vr; won case, got profits]</span>
+<u>North American Oil Consolidated v. Burnet (1932)</u> - SCOTUS [π oil land appointed to rec’vr; won case, got profits]
-<span lang="EN">RULE: Net profits earned on a property held in receivership are taxable to the taxpayer (and not the received) in the year the taxpayer unconditionally receives the earnings.</span>
+RULE: Net profits earned on a property held in receivership are taxable to the taxpayer (and not the received) in the year the taxpayer unconditionally receives the earnings.
-<span lang="EN">Case Notes: receiver only controlled portion of property; don’t want double filing.</span>
+Case Notes: receiver only controlled portion of property; don’t want double filing.
-<span lang="EN">●      When a receiver holds only <u>part</u> of a company’s property, the net income on that property will be taxable to the company in the year it is unconditionally received</span>
+●      When a receiver holds only <u>part</u> of a company’s property, the net income on that property will be taxable to the company in the year it is unconditionally received
-<span lang="EN">●      Rev. Act of 1916 §13(c) - receivers who operate property on behalf of a company must file returns for taxable income just as the company ordinarily would</span>
+●      Rev. Act of 1916 §13(c) - receivers who operate property on behalf of a company must file returns for taxable income just as the company ordinarily would
-<span lang="EN">●      This statute only applies where the receiver operates '''<u>all</u>''' of the company’s property and essentially takes the place of the corporation</span>
+●      This statute only applies where the receiver operates '''<u>all</u>''' of the company’s property and essentially takes the place of the corporation
-<span lang="EN">●      Companies are not required to file returns for income they may never receive - filing is only required for income a company has actually or constructively received</span>
+●      Companies are not required to file returns for income they may never receive - filing is only required for income a company has actually or constructively received
-<span lang="EN">●      Income is taxable in the year that the taxpayer receives it '''without restriction'''</span>
+●      Income is taxable in the year that the taxpayer receives it '''without restriction'''
 {| class="wikitable"
-|<span lang="EN">Rev. Act of 1916 §13(c) - RETURNS</span>
+|Rev. Act of 1916 §13(c) - RETURNS
-<span lang="EN">(c) In cases wherein receivers, trustees in  bankruptcy, or assignees are operating the property or business of  corporations, joint-stock signees, companies or associations, or insurance  companies, subject to tax imposed by this title, such receivers, trustees, or  assignees shall make returns of net income as and for such corporations,  joint stock companies or associations, and insurance companies, in the same  manner and form as such organizations are hereinbefore required to make  returns, and any income tax due on the basis of such returns made by  receivers, trustees, or assingees shall be assessed and collected in the same  manner as if assessed directly against the organizations of whose businesses  or properties they have custody and control;</span>
+(c) In cases wherein receivers, trustees in  bankruptcy, or assignees are operating the property or business of  corporations, joint-stock signees, companies or associations, or insurance  companies, subject to tax imposed by this title, such receivers, trustees, or  assignees shall make returns of net income as and for such corporations,  joint stock companies or associations, and insurance companies, in the same  manner and form as such organizations are hereinbefore required to make  returns, and any income tax due on the basis of such returns made by  receivers, trustees, or assingees shall be assessed and collected in the same  manner as if assessed directly against the organizations of whose businesses  or properties they have custody and control;
 |}
-'''<span lang="EN">Advance Payments and the Issue of Deposits</span>'''
+'''Advance Payments and the Issue of Deposits'''
-<u><span lang="EN">Commissioner v. Indianapolis Power & Light Company (1990)</span></u> <span lang="EN">- SCOTUS [π collected deposit from customers]</span>
+<u>Commissioner v. Indianapolis Power & Light Company (1990)</u> - SCOTUS [π collected deposit from customers]
-<span lang="EN">RULE: a federal taxpayer has complete dominion over a deposit which subjects the deposit to income tax as an advance payment, if a taxpayer has a '''guaranteed right''' to keep the money.</span>
+RULE: a federal taxpayer has complete dominion over a deposit which subjects the deposit to income tax as an advance payment, if a taxpayer has a '''guaranteed right''' to keep the money.
-<span lang="EN">Case Notes: without a guaranteed right to keep the money, no advanced payment and no income tax</span>
+Case Notes: without a guaranteed right to keep the money, no advanced payment and no income tax
-<span lang="EN">●      Advance payments are taxable in the year of receipt; loans and security deposits are not taxable income</span>
+●      Advance payments are taxable in the year of receipt; loans and security deposits are not taxable income
-<span lang="EN">●      The key distinction is whether the taxpayer had complete dominion over the money</span>
+●      The key distinction is whether the taxpayer had complete dominion over the money
-<span lang="EN">●      Complete dominion exists where the taxpayer has a guaranteed right to keep the money</span>
+●      Complete dominion exists where the taxpayer has a guaranteed right to keep the money
-'''<span lang="EN">Assignment of Income</span>'''
+'''Assignment of Income'''
-'''<span lang="EN">Income from services</span>''' <span lang="EN">→ income from services is generally taxed to the party who performed the services (<u>Lucas</u>).</span>
+'''Income from services''' → income from services is generally taxed to the party who performed the services (<u>Lucas</u>).
-<u><span lang="EN">Lucas v. Earl (1930)</span></u> <span lang="EN">- SCOTUS [π and wife agreed any income held as joint-tenants; wife didn’t have income]</span>
+<u>Lucas v. Earl (1930)</u> - SCOTUS [π and wife agreed any income held as joint-tenants; wife didn’t have income]
-<span lang="EN">RULE: a taxpayer cannot anticipatorily divert earned income to another individual, so as to avoid tax liability</span>
+RULE: a taxpayer cannot anticipatorily divert earned income to another individual, so as to avoid tax liability
-<span lang="EN">Case Notes: the Rev. Act taxes the income of the individual who '''earns it'''.</span>
+Case Notes: the Rev. Act taxes the income of the individual who '''earns it'''.
-<span lang="EN">Teschner v. Commissioner (1962) - Tax Court [π entered education annuity contest for daughter and won]</span>
+Teschner v. Commissioner (1962) - Tax Court [π entered education annuity contest for daughter and won]
-<span lang="EN">RULE: Under federal tax law, a taxpayer does not earn income if he never had a right to the income despite performing services to acquire it for another.</span>
+RULE: Under federal tax law, a taxpayer does not earn income if he never had a right to the income despite performing services to acquire it for another.
-<span lang="EN">Case Notes: if the taxpayer is ineligible for the prize, they never had a right to it; here, taxable to daughter.</span>
+Case Notes: if the taxpayer is ineligible for the prize, they never had a right to it; here, taxable to daughter.
-'''<span lang="EN">Income from Property</span>'''
+'''Income from Property'''
-<u><span lang="EN">Helvering v. Horst (1940)</span></u> <span lang="EN">- SCOTUS [π gifted coupons of negotiable bonds to son before they were due]</span>
+<u>Helvering v. Horst (1940)</u> - SCOTUS [π gifted coupons of negotiable bonds to son before they were due]
-<span lang="EN">RULE: a gift of interest coupons detached from bonds amounts to realized income to the donor.</span>
+RULE: a gift of interest coupons detached from bonds amounts to realized income to the donor.
-<span lang="EN">Case Notes: the one who determines how the money is used is the one who realizes the income</span>
+Case Notes: the one who determines how the money is used is the one who realizes the income
-<span lang="EN">●      Coupons → bearer bonds, presented to debtor for payment</span>
+●      Coupons → bearer bonds, presented to debtor for payment
-<span lang="EN">●      Securing the right to receive income is not a taxable event because income is not taxed until it is realized - realization occurs upon receipt or when taxpayer has control over how it is used</span>
+●      Securing the right to receive income is not a taxable event because income is not taxed until it is realized - realization occurs upon receipt or when taxpayer has control over how it is used
-<span lang="EN">●      Whether taxpayer gives income before or after receipt, the income is realized because taxpayer exercises control over it</span>
+●      Whether taxpayer gives income before or after receipt, the income is realized because taxpayer exercises control over it
-<span lang="EN">●      Interest from property is distinguished from interest from earnings and coupons →</span>
+●      Interest from property is distinguished from interest from earnings and coupons →
-<span lang="EN">○      Property: interest due to property owner and tax liability follows the owner</span>
+○      Property: interest due to property owner and tax liability follows the owner
-<span lang="EN">○      Earnings and coupons: interest due to the earner or bond holders personally</span>
+○      Earnings and coupons: interest due to the earner or bond holders personally
-<span lang="EN">Transferring trees with ripe fruit → <u>Horst</u>: transfers of fruit may not be effective to shift the tax on such fruit to another, but transfers of the entire tree may.</span>
+Transferring trees with ripe fruit → <u>Horst</u>: transfers of fruit may not be effective to shift the tax on such fruit to another, but transfers of the entire tree may.
-<u><span lang="EN">Salvatore v. Commissioner (1970)</span></u> <span lang="EN">- Tax Court [π inherited biz, let sons run]</span>
+<u>Salvatore v. Commissioner (1970)</u> - Tax Court [π inherited biz, let sons run]
-<span lang="EN">RULE: The federal tax consequences of a property sale are determined by the substance, not the form, of the transaction</span>
+RULE: The federal tax consequences of a property sale are determined by the substance, not the form, of the transaction
-<span lang="EN">Case Notes: substance over form → Court Holding Co.: substance depends not only on the legal means of transferring title but also every step of sale from negotiations to transfer.</span>
+Case Notes: substance over form → Court Holding Co.: substance depends not only on the legal means of transferring title but also every step of sale from negotiations to transfer.
-<span lang="EN">●      When π accepted offer to sell biz, she was sole owner</span>
+●      When π accepted offer to sell biz, she was sole owner
-<span lang="EN">●      Transfer to children without consideration was an “artificial and intermediate step”</span>
+●      Transfer to children without consideration was an “artificial and intermediate step”
-<span lang="EN">●      $ determined not on interest but on need</span>
+●      $ determined not on interest but on need
-'''<span lang="EN">Tax Planning and Tax Avoidance</span>'''
+'''Tax Planning and Tax Avoidance'''
-<u><span lang="EN">Estate of Stranahan v. Commissioner (1973)</span></u> <span lang="EN">- 6th Cir. [π exchanged stock to son to take full adv. of int. deduction]</span>
+<u>Estate of Stranahan v. Commissioner (1973)</u> - 6th Cir. [π exchanged stock to son to take full adv. of int. deduction]
-<span lang="EN">RULE: a taxpayer may escape tax liability for future income from property if he assigns the future income in a bonafide sale for valuable consideration</span>
+RULE: a taxpayer may escape tax liability for future income from property if he assigns the future income in a bonafide sale for valuable consideration
-<span lang="EN">Case Notes: a bona fide sale for current stock value and consideration existed, π is not liable for the dividends paid out to son.</span>
+Case Notes: a bona fide sale for current stock value and consideration existed, π is not liable for the dividends paid out to son.
-<span lang="EN">●      <u>Horst</u> → typically, cannot avoid tax liability by transferring or assigning income</span>
+●      <u>Horst</u> → typically, cannot avoid tax liability by transferring or assigning income
-<u><span lang="EN">Commissioner v. Banks Commissioner v. Banaitis (2005)</span></u> <span lang="EN">- SCOTUS [π rec’d settle, claimed amt after atty fees]</span>
+<u>Commissioner v. Banks Commissioner v. Banaitis (2005)</u> - SCOTUS [π rec’d settle, claimed amt after atty fees]
-<span lang="EN">RULE: the portion of a money judgment or settlement paid to a P’s attorney under a contingent fee agreement is income to the P.</span>
+RULE: the portion of a money judgment or settlement paid to a P’s attorney under a contingent fee agreement is income to the P.
-<span lang="EN">Case Notes: A contingent fee agreement is essentially an anticipatory assignment of a plaintiff’s income, and any income transferred as a result of the agreement remains taxable to the plaintiff.</span>
+Case Notes: A contingent fee agreement is essentially an anticipatory assignment of a plaintiff’s income, and any income transferred as a result of the agreement remains taxable to the plaintiff.
-<span lang="EN">●      Income is taxed to the one who earns it. Thus, a taxpayer cannot avoid income tax by anticipatorily assigning his income to another.</span>
+●      Income is taxed to the one who earns it. Thus, a taxpayer cannot avoid income tax by anticipatorily assigning his income to another.
-<span lang="EN">●      Tax liability attaches to the one who has dominion or control over the source of the income.</span>
+●      Tax liability attaches to the one who has dominion or control over the source of the income.
-<span lang="EN">●      In the litigation context, the plaintiff might realize income in the form of a money judgment or settlement.</span>
+●      In the litigation context, the plaintiff might realize income in the form of a money judgment or settlement.
-<span lang="EN">●      The income-producing asset is the lawsuit itself, and a plaintiff exercises complete dominion and control over this asset throughout the course of litigation.</span>
+●      The income-producing asset is the lawsuit itself, and a plaintiff exercises complete dominion and control over this asset throughout the course of litigation.
-<span lang="EN">●      Any income derived from the lawsuit, therefore, is taxable to the plaintiff.</span>
+●      Any income derived from the lawsuit, therefore, is taxable to the plaintiff.
-'''<span lang="EN">Tax Treatment of Taxpayer Costs</span>'''
+'''Tax Treatment of Taxpayer Costs'''
 {| class="wikitable"
-|'''<span lang="EN">26 U.S. Code §161 - Allowance  of deductions</span>'''
+|'''26 U.S. Code §161 - Allowance  of deductions'''
-'''<span lang="EN">In computing taxable income under section 63, there shall be allowed as  deductions the items specified in this part, subject to the exceptions  provided in part IX (sec. 261 and following, relating to items not  deductible).</span>'''
+'''In computing taxable income under section 63, there shall be allowed as  deductions the items specified in this part, subject to the exceptions  provided in part IX (sec. 261 and following, relating to items not  deductible).'''
 |}
-<span lang="EN">Deductibility Factors:</span>
+Deductibility Factors:
-<span lang="EN">1)    Depends on the ''nature'' of the cost: “capital expenditure” or an “expense”</span>
+)    Depends on the ''nature'' of the cost: “capital expenditure” or an “expense”
-<span lang="EN">2)    Depends on the type of ''activity'' to which that cost related: business, investment, personal</span>
+)    Depends on the type of ''activity'' to which that cost related: business, investment, personal
-<span lang="EN">Capital expenditure → those costs that provide a long-term benefit to the taxpayer, either because they are incurred to acquire a new asset or because they materially add to the value or useful life of some pre-existing asset (costs that should be “capitalized”); generally '''ADD''' to or '''CREATE''' basis.</span>
+Capital expenditure → those costs that provide a long-term benefit to the taxpayer, either because they are incurred to acquire a new asset or because they materially add to the value or useful life of some pre-existing asset (costs that should be “capitalized”); generally '''ADD''' to or '''CREATE''' basis.
-<span lang="EN">Expense → costs that do not acquire, improve, or prolong the life of an asset; generally spent on items that last for a short period of time (less than a year); taxpayers may be able to deduct.</span>
+Expense → costs that do not acquire, improve, or prolong the life of an asset; generally spent on items that last for a short period of time (less than a year); taxpayers may be able to deduct.
-<span lang="EN">Nature of Activity:</span>
+Nature of Activity:
-<span lang="EN">●      Expenses paid or incurred with respect to business and investment are generally deductible (§§162 and 212)</span>
+●      Expenses paid or incurred with respect to business and investment are generally deductible (§§162 and 212)
-<span lang="EN">●      Expenses related to personal activities are generally not deductible (§262)</span>
+●      Expenses related to personal activities are generally not deductible (§262)
-<span lang="EN">Handling Capital Expenditures → if a taxpayer must capitalize a cost, they can recover ultimately upon the sale or disposition of the asset (capitalized cost makes up all or part of the adjusted basis in the underlying asset); taxpayer doesn’t always have to wait to recover, and the cost can be recovered over a period of years roughly equivalent to the useful life of the asset:</span>
+Handling Capital Expenditures → if a taxpayer must capitalize a cost, they can recover ultimately upon the sale or disposition of the asset (capitalized cost makes up all or part of the adjusted basis in the underlying asset); taxpayer doesn’t always have to wait to recover, and the cost can be recovered over a period of years roughly equivalent to the useful life of the asset:
-<span lang="EN">●      '''Depreciation''' → tangible property; the property must (among other things) be subject to wear and tear in the hands of the taxpayer (§§617 and 168)</span>
+●      '''Depreciation''' → tangible property; the property must (among other things) be subject to wear and tear in the hands of the taxpayer (§§617 and 168)
-<span lang="EN">●      '''Amortization''' → intangible property; statutory requirements in §197.</span>
+●      '''Amortization''' → intangible property; statutory requirements in §197.
 {| class="wikitable"
 |
-|'''<span lang="EN">Personal</span>'''
+|'''Personal'''
-|'''<span lang="EN">Business</span>'''
+|'''Business'''
-|'''<span lang="EN">Investment</span>'''
+|'''Investment'''
 |-
-|<span lang="EN">Capital  Expenditures</span>
+|Capital  Expenditures
-<span lang="EN">(those  that: (1) are used to acquire an asset or some other long-lasting benefit; or  (2) permanently improve or extend the useful life of that asset or benefit)</span>
+(those  that: (1) are used to acquire an asset or some other long-lasting benefit; or  (2) permanently improve or extend the useful life of that asset or benefit)
-|<span lang="EN">NO DEDUCTION</span>
+|NO DEDUCTION
-<span lang="EN">§263(a)</span>
+§263(a)
-<span lang="EN">(taxpayer  gets basis)</span>
+(taxpayer  gets basis)
-|<span lang="EN">NO DEDUCTION</span>
+|NO DEDUCTION
-<span lang="EN">§263(a)</span>
+§263(a)
-<span lang="EN">(taxpayer  gets basis)</span>
+(taxpayer  gets basis)
-<span lang="EN">But  the taxpayer may be able to recover the cost up front or over time</span>
+But  the taxpayer may be able to recover the cost up front or over time
-<span lang="EN">§§167(a);  168; 179; 197</span>
+§§167(a);  168; 179; 197
-|<span lang="EN">NO DEDUCTION</span>
+|NO DEDUCTION
-<span lang="EN">§263(a)</span>
+§263(a)
-<span lang="EN">(taxpayer  gets basis)</span>
+(taxpayer  gets basis)
-<span lang="EN">But  taxpayer may be able to recover the cost up front or over time</span>
+But  taxpayer may be able to recover the cost up front or over time
-<span lang="EN">§§167(a);  168; 197</span>
+§§167(a);  168; 197
 |-
-|<span lang="EN">Expenses  (outlays that are not capital expenditures)</span>
+|Expenses  (outlays that are not capital expenditures)
-|<span lang="EN">Generally, NO DEDUCTION</span>
+|Generally, NO DEDUCTION
-<span lang="EN">§262</span>
+§262
-<span lang="EN">[But  see Chapter 9]</span>
+[But  see Chapter 9]
-|<span lang="EN">DEDUCTION</span>
+|DEDUCTION
-<span lang="EN">§162(a)</span>
+§162(a)
-|<span lang="EN">DEDUCTION</span>
+|DEDUCTION
-<span lang="EN">§212</span>
+§212
 |-
-|<span lang="EN">Realized  Losses (loss recognized upon the sale, exchange, or other disposition of an  asset)</span>
+|Realized  Losses (loss recognized upon the sale, exchange, or other disposition of an  asset)
-|<span lang="EN">Generally, NO DEDUCTION</span>
+|Generally, NO DEDUCTION
-<span lang="EN">§262</span>
+§262
-<span lang="EN">[But  see §165(c)(3)]</span>
+[But  see §165(c)(3)]
-|<span lang="EN">DEDUCTION</span>
+|DEDUCTION
-<span lang="EN">§165(c)(1)</span>
+§165(c)(1)
-|<span lang="EN">DEDUCTION</span>
+|DEDUCTION
-<span lang="EN">§165(c)(2)</span>
+§165(c)(2)
 |}
-'''<span lang="EN">EXAMPLE OF DEPRECIATION</span>'''
+'''EXAMPLE OF DEPRECIATION'''
-<span lang="EN">Building → Basis of $100,000 with a 20 year useful life</span>
+Building → Basis of $100,000 with a 20 year useful life
-<span lang="EN">$100,000/20 = $5k depreciation per year</span>
+$100,000/20 = $5k depreciation per year
-<u><span lang="EN">Commissioner v. Idaho Power Co. (1974)</span></u> <span lang="EN">- SCOTUS</span>
+<u>Commissioner v. Idaho Power Co. (1974)</u> - SCOTUS
-<span lang="EN">RULE: A federal taxpayer is not entitled to a deduction from gross income for depreciation on equipment that the taxpayer owns and uses in the construction of his own capital facilities.</span>
+RULE: A federal taxpayer is not entitled to a deduction from gross income for depreciation on equipment that the taxpayer owns and uses in the construction of his own capital facilities.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      The depreciation cost of using an asset must be attributed to the tax periods that are benefitted by the use.</span>
+●      The depreciation cost of using an asset must be attributed to the tax periods that are benefitted by the use.
-<span lang="EN">●      If a taxpayer uses an asset for one year to produce income for the same year, the asset’s one-year depreciation is a business expense under § 167(a), for which the taxpayer can take a depreciation deduction in the same tax year to help replace the asset when it wears out.</span>
+●      If a taxpayer uses an asset for one year to produce income for the same year, the asset’s one-year depreciation is a business expense under § 167(a), for which the taxpayer can take a depreciation deduction in the same tax year to help replace the asset when it wears out.
-<span lang="EN">●      However, if an asset is used in one year to make a capital improvement that will produce income over many years, the accounting focus shifts from the depreciation of the asset to the cost of replacing the capital improvement itself.</span>
+●      However, if an asset is used in one year to make a capital improvement that will produce income over many years, the accounting focus shifts from the depreciation of the asset to the cost of replacing the capital improvement itself.
-<span lang="EN">●      Under general accounting principles, capital-improvement costs are computed, or capitalized, over the useful life of the capital improvement.</span>
+●      Under general accounting principles, capital-improvement costs are computed, or capitalized, over the useful life of the capital improvement.
-<span lang="EN">●      Section 263(a)(1) requires “amounts paid out” for capital improvements to be capitalized, and this section takes precedence over the business-expense deduction provisions of § 167(a).</span>
+●      Section 263(a)(1) requires “amounts paid out” for capital improvements to be capitalized, and this section takes precedence over the business-expense deduction provisions of § 167(a).
-<span lang="EN">●      Treasury Regulations §§ 1.263(a) and 2(a) and longstanding Internal Revenue Service policy treat capital-construction-related depreciation as one of the amounts paid out for capital improvements.</span>
+●      Treasury Regulations §§ 1.263(a) and 2(a) and longstanding Internal Revenue Service policy treat capital-construction-related depreciation as one of the amounts paid out for capital improvements.
-'''<span lang="EN">UNICAP Rules → § 263A (DIFFERENT FROM 263(a))</span>'''<span lang="EN">: rules require the capitalization of all direct costs and certain indirect costs allocable to real property and tangible personal property produced by the taxpayer.  For purposes of the uniform capitalization rules, to “produce” means to construct, build, install, manufacture, develop, improve, create, raise or grow. Self-constructed assets and property built under contract are treated as property “produced” by the taxpayer and the rules under § 263A(a) govern.</span>
+'''UNICAP Rules → § 263A (DIFFERENT FROM 263(a))''': rules require the capitalization of all direct costs and certain indirect costs allocable to real property and tangible personal property produced by the taxpayer.  For purposes of the uniform capitalization rules, to “produce” means to construct, build, install, manufacture, develop, improve, create, raise or grow. Self-constructed assets and property built under contract are treated as property “produced” by the taxpayer and the rules under § 263A(a) govern.
-<span lang="EN">●      If you fall under § 263A, capitalize everything</span>
+●      If you fall under § 263A, capitalize everything
-<span lang="EN">●      Exception: small business exception in § 263A(i) - any taxpayer who meets the test will be exempt from § 263A. ($25M gross receipts).</span>
+●      Exception: small business exception in § 263A(i) - any taxpayer who meets the test will be exempt from § 263A. ($25M gross receipts).
-<span lang="EN">●      § 263A requires everything to be recovered over time, not deducted NOW.</span>
+●      § 263A requires everything to be recovered over time, not deducted NOW.
-<span lang="EN">STEP ONE: Does § 263A apply? If so, capitalize everything (taxpayers don’t want this). Do we fit into an exception?</span>
+STEP ONE: Does § 263A apply? If so, capitalize everything (taxpayers don’t want this). Do we fit into an exception?
-<span lang="EN">Improvement = capitalized, capitalized = don’t recover cost right away</span>
+Improvement = capitalized, capitalized = don’t recover cost right away
-'''<span lang="EN">Improvements to Tangible Property</span>'''
+'''Improvements to Tangible Property'''
-<span lang="EN">Taxpayers must capitalize costs to improve tangible property if the costs “better” the property, restore the property to a “like-new” condition, or adapt the property to a new or different use.</span>
+Taxpayers must capitalize costs to improve tangible property if the costs “better” the property, restore the property to a “like-new” condition, or adapt the property to a new or different use.
 {| class="wikitable"
-|'''<span lang="EN">Reg.  § 1.263(a)-3 Amounts paid to improve tangible property.</span>'''
+|'''Reg.  § 1.263(a)-3 Amounts paid to improve tangible property.'''
-'''<span lang="EN">(d)  Requirement to capitalize amounts paid for improvements.</span>'''
+'''(d)  Requirement to capitalize amounts paid for improvements.'''
-'''<span lang="EN">Except  as provided in paragraph (h) or paragraph (n) of this section or under §  1.263(a)-1(f), a taxpayer generally must capitalize the related amounts (as  defined in paragraph (g)(3) of this section) paid to improve a unit of  property owned by the taxpayer. However, paragraph (f) of this section  applies to the treatment of amounts paid to improve leased property. Section  263A provides the requirement to capitalize the direct and allocable indirect  costs of property produced by the taxpayer and property acquired for resale.  Section 1016 provides for the addition of capitalized amounts to the basis of  the property, and section 168 governs the treatment of additions or  improvements for depreciation purposes. For purposes of this section, a unit  of property is improved if the amounts paid for activities performed after  the property is placed in service by the taxpayer -</span>'''
+'''Except  as provided in paragraph (h) or paragraph (n) of this section or under §  1.263(a)-1(f), a taxpayer generally must capitalize the related amounts (as  defined in paragraph (g)(3) of this section) paid to improve a unit of  property owned by the taxpayer. However, paragraph (f) of this section  applies to the treatment of amounts paid to improve leased property. Section  263A provides the requirement to capitalize the direct and allocable indirect  costs of property produced by the taxpayer and property acquired for resale.  Section 1016 provides for the addition of capitalized amounts to the basis of  the property, and section 168 governs the treatment of additions or  improvements for depreciation purposes. For purposes of this section, a unit  of property is improved if the amounts paid for activities performed after  the property is placed in service by the taxpayer -'''
-'''<span lang="EN">     (1) Are for a betterment to the  unit of property (see paragraph (j) of this section);</span>'''
+'''     (1) Are for a betterment to the  unit of property (see paragraph (j) of this section);'''
-'''<span lang="EN">     (2) Restore the unit of property  (see paragraph (k) of this section); or</span>'''
+'''     (2) Restore the unit of property  (see paragraph (k) of this section); or'''
-'''<span lang="EN">     (3) Adapt the unit of property to  a new or different use (see paragraph (l) of this section).</span>'''
+'''     (3) Adapt the unit of property to  a new or different use (see paragraph (l) of this section).'''
 |}
-<u><span lang="EN">Fedex Corp. v. United States (2003)</span></u> <span lang="EN">- Tennessee [engine shop visit to repair engine, deducted]</span>
+<u>Fedex Corp. v. United States (2003)</u> - Tennessee [engine shop visit to repair engine, deducted]
-<span lang="EN">RULE: Under federal tax law, a taxpayer must capitalize expenses used to materially add value to property or restore property to a like-new condition.</span>
+RULE: Under federal tax law, a taxpayer must capitalize expenses used to materially add value to property or restore property to a like-new condition.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      Expenses that materially add value to property or return property to a like-new condition must be capitalized on tax returns.</span>
+●      Expenses that materially add value to property or return property to a like-new condition must be capitalized on tax returns.
-<span lang="EN">●      For material valuation purposes, the unit of property in question must be determined by looking at four factors:</span>
+●      For material valuation purposes, the unit of property in question must be determined by looking at four factors:
-<span lang="EN">○      (1) whether the smaller unit is treated as part of a larger unit,</span>
+○      (1) whether the smaller unit is treated as part of a larger unit,
-<span lang="EN">○      (2) whether the economic life of the smaller property is essential for the economic life of the larger property,</span>
+○      (2) whether the economic life of the smaller property is essential for the economic life of the larger property,
-<span lang="EN">○      (3) whether the larger and smaller units can function separately, and</span>
+○      (3) whether the larger and smaller units can function separately, and
-<span lang="EN">○      (4) whether the smaller unit can be maintained without removal from the larger unit.</span>
+○      (4) whether the smaller unit can be maintained without removal from the larger unit.
-'''<span lang="EN">Betterments (Additions to Value)</span>''' <span lang="EN">→ taxpayers must capitalize costs of betterments, which generally includes costs that materially increase the value of property.</span>
+'''Betterments (Additions to Value)''' → taxpayers must capitalize costs of betterments, which generally includes costs that materially increase the value of property.
-<span lang="EN">(1)   PRE EXISTING DEFECTS: The cost ameliorates a condition or defect that existed prior to the property’s acquisition or production by the taxpayer, no matter whether the taxpayer knew of this condition or defect at the time</span>
+(1)   PRE EXISTING DEFECTS: The cost ameliorates a condition or defect that existed prior to the property’s acquisition or production by the taxpayer, no matter whether the taxpayer knew of this condition or defect at the time
-<span lang="EN">(2)   BETTERMENTS: the cost results in “betterment” of the property or a material addition to the property. This includes costs that improve the property’s quality or strength, or cause the property to be expanded or enlarged</span>
+(2)   BETTERMENTS: the cost results in “betterment” of the property or a material addition to the property. This includes costs that improve the property’s quality or strength, or cause the property to be expanded or enlarged
-<span lang="EN">(3)   INCREASED PRODUCTIVITY: The cost results in a material increase in the property’s capacity, productivity, or efficiency</span>
+(3)   INCREASED PRODUCTIVITY: The cost results in a material increase in the property’s capacity, productivity, or efficiency
-'''<span lang="EN">Revenue Ruling 2004-62</span>'''
+'''Revenue Ruling 2004-62'''
-<span lang="EN">●      It is well established that the costs incurred for silvicultural practices performed in established timber stands are deductible business expenses because they do not materially add value to the timber stand, substantially prolong its useful life or adapt the timber stand to a new or different use.</span>
+●      It is well established that the costs incurred for silvicultural practices performed in established timber stands are deductible business expenses because they do not materially add value to the timber stand, substantially prolong its useful life or adapt the timber stand to a new or different use.
-<span lang="EN">●      There is no established rule with respect to fertilization.</span>
+●      There is no established rule with respect to fertilization.
-<span lang="EN">●      The Service rules that a deduction for fertilization costs is proper, for post-establishment fertilization is akin to the deductible post-establishment silvicultural practices in that it does not add to value of the timber or prolong the useful life of any of the taxpayer’s assets (the land and the trees).</span>
+●      The Service rules that a deduction for fertilization costs is proper, for post-establishment fertilization is akin to the deductible post-establishment silvicultural practices in that it does not add to value of the timber or prolong the useful life of any of the taxpayer’s assets (the land and the trees).
-'''<span lang="EN">Restorations v. Repairs →</span>''' <span lang="EN">taxpayers must capitalize costs that “restore” a unit or property</span>
+'''Restorations v. Repairs →''' taxpayers must capitalize costs that “restore” a unit or property
 {| class="wikitable"
-|'''<span lang="EN">Reg.  § 1.263(a)-3 Amounts paid to improve tangible property.</span>'''
+|'''Reg.  § 1.263(a)-3 Amounts paid to improve tangible property.'''
-'''<span lang="EN">(k)  Capitalization of restorations -</span>'''
+'''(k)  Capitalization of restorations -'''
-'''<span lang="EN">     (1) In general. A taxpayer must  capitalize as an improvement an amount paid to restore a unit of property,  including an amount paid to make good the exhaustion for which an allowance  is or has been made. An amount restores a unit of property only if it -</span>'''
+'''     (1) In general. A taxpayer must  capitalize as an improvement an amount paid to restore a unit of property,  including an amount paid to make good the exhaustion for which an allowance  is or has been made. An amount restores a unit of property only if it -'''
-'''<span lang="EN">          (i) Is for the replacement of  a component of a unit of property for which the taxpayer has properly  deducted a loss for that component, other than a casualty loss under §  1.165-7;</span>'''
+'''          (i) Is for the replacement of  a component of a unit of property for which the taxpayer has properly  deducted a loss for that component, other than a casualty loss under §  1.165-7;'''
-'''<span lang="EN">          (ii) Is for the replacement  of a component of a unit of property for which the taxpayer has properly  taken into account the adjusted basis of the component in realizing gain or  loss resulting from the sale or exchange of the component;</span>'''
+'''          (ii) Is for the replacement  of a component of a unit of property for which the taxpayer has properly  taken into account the adjusted basis of the component in realizing gain or  loss resulting from the sale or exchange of the component;'''
-'''<span lang="EN">          (iii) Is for the restoration  of damage to a unit of property for which the taxpayer is required to take a  basis adjustment as a result of a casualty loss under section 165, or  relating to a casualty event described in section 165, subject to the  limitation in paragraph (k)(4) of this section;</span>'''
+'''          (iii) Is for the restoration  of damage to a unit of property for which the taxpayer is required to take a  basis adjustment as a result of a casualty loss under section 165, or  relating to a casualty event described in section 165, subject to the  limitation in paragraph (k)(4) of this section;'''
-'''<span lang="EN">          (iv) Returns the unit of  property to its ordinarily efficient operating condition if the property has  deteriorated to a state of disrepair and is no longer functional for its  intended use;</span>'''
+'''          (iv) Returns the unit of  property to its ordinarily efficient operating condition if the property has  deteriorated to a state of disrepair and is no longer functional for its  intended use;'''
-'''<span lang="EN">          (v) Results in the rebuilding  of the unit of property to a like-new condition as determined under paragraph  (k)(5) of this section after the end of its class life as defined in  paragraph (i)(4) of this section; or</span>'''
+'''          (v) Results in the rebuilding  of the unit of property to a like-new condition as determined under paragraph  (k)(5) of this section after the end of its class life as defined in  paragraph (i)(4) of this section; or'''
-'''<span lang="EN">          (vi) Is for the replacement of a part or  combination of parts that comprise a major component or a substantial  structural part of a unit of property as determined under paragraph (k)(6) of  this section.</span>'''
+'''          (vi) Is for the replacement of a part or  combination of parts that comprise a major component or a substantial  structural part of a unit of property as determined under paragraph (k)(6) of  this section.'''
 |}
-<span lang="EN">Restoration costs → generally either return property to its “ordinarily efficient operating condition” after the unit of property has deteriorated so much that it no longer functions as intended, or the cost returns property to a like-new condition.</span>
+Restoration costs → generally either return property to its “ordinarily efficient operating condition” after the unit of property has deteriorated so much that it no longer functions as intended, or the cost returns property to a like-new condition.
-<span lang="EN">●      When a taxpayer has previously taken a deduction for a loss on a component, costs to replace that component must be capitalized</span>
+●      When a taxpayer has previously taken a deduction for a loss on a component, costs to replace that component must be capitalized
-<span lang="EN">●      Amounts paid for repairs or maintenance to tangible property can be treated as expenses.</span>
+●      Amounts paid for repairs or maintenance to tangible property can be treated as expenses.
 {| class="wikitable"
-|'''<span lang="EN">Reg.  § 1.162-4 Repairs.</span>'''
+|'''Reg.  § 1.162-4 Repairs.'''
-'''<span lang="EN">(a)  In general. A taxpayer may deduct amounts paid for repairs and maintenance to  tangible property if the amounts paid are not otherwise required to be  capitalized. Optionally, § 1.263(a)-3(n) provides an election to capitalize  amounts paid for repair and maintenance consistent with the taxpayer's books  and records.</span>'''
+'''(a)  In general. A taxpayer may deduct amounts paid for repairs and maintenance to  tangible property if the amounts paid are not otherwise required to be  capitalized. Optionally, § 1.263(a)-3(n) provides an election to capitalize  amounts paid for repair and maintenance consistent with the taxpayer's books  and records.'''
 |}
-<span lang="EN">If the costs are deemed “repairs” then the taxpayer gets an immediate deduction under §162 or §212, assuming the costs relate to a business or investment activity. If the costs are “restorations” or “improvements”, the deduction is deferred because the cost is added to the property’s basis.</span>
+If the costs are deemed “repairs” then the taxpayer gets an immediate deduction under §162 or §212, assuming the costs relate to a business or investment activity. If the costs are “restorations” or “improvements”, the deduction is deferred because the cost is added to the property’s basis.
-<u><span lang="EN">Midland Empire Packing Company v. Commissioner (1950)</span></u> <span lang="EN">- Tax Court</span>
+<u>Midland Empire Packing Company v. Commissioner (1950)</u> - Tax Court
-<span lang="EN">RULE: An expenditure is currently deductible as a repair to property if it is made solely to keep the property in an ordinarily efficient operating condition.</span>
+RULE: An expenditure is currently deductible as a repair to property if it is made solely to keep the property in an ordinarily efficient operating condition.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      Expenditures to repair property are deductible as an ordinary and necessary business expense.</span>
+●      Expenditures to repair property are deductible as an ordinary and necessary business expense.
-<span lang="EN">●      On the other hand, expenditures for capital outlay are capitalized and deducted in installments over the capital asset’s useful life.</span>
+●      On the other hand, expenditures for capital outlay are capitalized and deducted in installments over the capital asset’s useful life.
-<span lang="EN">●      In order to determine whether expenditures are repairs or capital outlay, courts must look to the purpose of the expenditure.</span>
+●      In order to determine whether expenditures are repairs or capital outlay, courts must look to the purpose of the expenditure.
-<span lang="EN">●      If the expenditure is a replacement of the property in whole or in part, or if it is an improvement intended to add to the property’s value, prolong its life, or change its use, then it is a capital outlay.</span>
+●      If the expenditure is a replacement of the property in whole or in part, or if it is an improvement intended to add to the property’s value, prolong its life, or change its use, then it is a capital outlay.
-<span lang="EN">●      Necessary v. ordinary → ordinary does not necessarily mean regular or frequent, and that even a one-time payment can be ordinary if it is a common and accepted manner of dealing with a particular threat to a business (<u>Welch v. Helvering</u>).</span>
+●      Necessary v. ordinary → ordinary does not necessarily mean regular or frequent, and that even a one-time payment can be ordinary if it is a common and accepted manner of dealing with a particular threat to a business (<u>Welch v. Helvering</u>).
 {| class="wikitable"
-|'''<span lang="EN">Repairs</span>'''
+|'''Repairs'''
-|'''<span lang="EN">Improvements</span>'''
+|'''Improvements'''
 |-
-|<span lang="EN">Keep property in ordinary efficient working  condition</span>
+|Keep property in ordinary efficient working  condition
-|<span lang="EN">Add to value or appreciably prolong the  property’s useful life</span>
+|Add to value or appreciably prolong the  property’s useful life
 |}
-<u><span lang="EN">Mt, Morris Drive-In Theatre Co. v. Commissioner (1955)</span></u> <span lang="EN">- Tax Court</span>
+<u>Mt, Morris Drive-In Theatre Co. v. Commissioner (1955)</u> - Tax Court
-<span lang="EN">RULE: Under federal tax law, in determining whether construction expenses are deductible business expenses or non-deductible capital expenses, the decisive test is the character of the transaction that gives rise to the expenses.</span>
+RULE: Under federal tax law, in determining whether construction expenses are deductible business expenses or non-deductible capital expenses, the decisive test is the character of the transaction that gives rise to the expenses.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      In determining whether construction expenses are deductible ordinary and necessary business expenses or non-deductible capital expenses, the decisive test is the character of the transaction that gives rise to the expenses.</span>
+●      In determining whether construction expenses are deductible ordinary and necessary business expenses or non-deductible capital expenses, the decisive test is the character of the transaction that gives rise to the expenses.
-<span lang="EN">●      A business-expense deduction has been allowed in past cases for the costs of addressing an unforeseeable physical fault or external factor.</span>
+●      A business-expense deduction has been allowed in past cases for the costs of addressing an unforeseeable physical fault or external factor.
-<span lang="EN">●      The business deduction has also been allowed where a farm spent money to adopt farming techniques that were not in use when the farm began operations.</span>
+●      The business deduction has also been allowed where a farm spent money to adopt farming techniques that were not in use when the farm began operations.
-<span lang="EN">●      The business deduction might also be allowed for the expenses of restoring or rearranging an existing capital asset.</span>
+●      The business deduction might also be allowed for the expenses of restoring or rearranging an existing capital asset.
-'''<span lang="EN">Adaptations</span>''' <span lang="EN">→ taxpayers must capitalize costs that adapt a property to a new or different use.</span>
+'''Adaptations''' → taxpayers must capitalize costs that adapt a property to a new or different use.
 {| class="wikitable"
-|'''<span lang="EN">§  1.263(a)-3 Amounts paid to improve tangible property.</span>'''
+|'''§  1.263(a)-3 Amounts paid to improve tangible property.'''
-'''<span lang="EN">(l)  Capitalization of amounts to adapt property to a new or different use -</span>'''
+'''(l)  Capitalization of amounts to adapt property to a new or different use -'''
-'''<span lang="EN">     (1) In general. A taxpayer must  capitalize as an improvement an amount paid to adapt a unit of property to a  new or different use. In general, an amount is paid to adapt a unit of  property to a new or different use if the adaptation is not consistent with  the taxpayer's ordinary use of the unit of property at the time originally  placed in service by the taxpayer.</span>'''
+'''     (1) In general. A taxpayer must  capitalize as an improvement an amount paid to adapt a unit of property to a  new or different use. In general, an amount is paid to adapt a unit of  property to a new or different use if the adaptation is not consistent with  the taxpayer's ordinary use of the unit of property at the time originally  placed in service by the taxpayer.'''
-'''<span lang="EN">     (2) Application of adaption rule  to buildings. In the case of a building, an amount is paid to improve a  building if it is paid to adapt to a new or different use a property  specified under paragraph (e)(2)(ii) (building), paragraph (e)(2)(iii)(B)  (condominium), paragraph (e)(2)(iv)(B) (cooperative), or paragraph  (e)(2)(v)(B) (leased building or leased portion of building) of this section.  For example, an amount is paid to improve a building if it is paid to adapt  the building structure or any one of its buildings systems to a new or  different use.</span>'''
+'''     (2) Application of adaption rule  to buildings. In the case of a building, an amount is paid to improve a  building if it is paid to adapt to a new or different use a property  specified under paragraph (e)(2)(ii) (building), paragraph (e)(2)(iii)(B)  (condominium), paragraph (e)(2)(iv)(B) (cooperative), or paragraph  (e)(2)(v)(B) (leased building or leased portion of building) of this section.  For example, an amount is paid to improve a building if it is paid to adapt  the building structure or any one of its buildings systems to a new or  different use.'''
-'''<span lang="EN">     (3) Examples. The following  examples illustrate the application of this paragraph (l) only and do not  address whether capitalization is required under another provision of this  section or under another provision of the Code (for example, section 263A).  Unless otherwise stated, assume that the taxpayer has not properly deducted a  loss for any unit of property, asset, or component of a unit of property that  is removed and replaced.</span>'''
+'''     (3) Examples. The following  examples illustrate the application of this paragraph (l) only and do not  address whether capitalization is required under another provision of this  section or under another provision of the Code (for example, section 263A).  Unless otherwise stated, assume that the taxpayer has not properly deducted a  loss for any unit of property, asset, or component of a unit of property that  is removed and replaced.'''
 |}
 {| class="wikitable"
-|'''<span lang="EN">Betterments</span>'''
+|'''Betterments'''
-|'''<span lang="EN">Restorations</span>'''
+|'''Restorations'''
-|'''<span lang="EN">Adaptations</span>'''
+|'''Adaptations'''
 |-
-|<span lang="EN">PRE  EXISTING DEFECTS. The cost ameliorates a condition or defect that existed  prior to the property’s acquisition of production by the taxpayer, no matter  whether the taxpayer knew of this condition or defect at the time.</span>
+|PRE  EXISTING DEFECTS. The cost ameliorates a condition or defect that existed  prior to the property’s acquisition of production by the taxpayer, no matter  whether the taxpayer knew of this condition or defect at the time.
-<span lang="EN">Reg.  §1.263(a)-3(j)(1)(i).</span>
+Reg.  §1.263(a)-3(j)(1)(i).
-|<span lang="EN">PREVIOUS  DEDUCTION OR SALE. The cost is for the replacement of a component when the  taxpayer has already deducted the costs of the original item or accounted for  the basis of the item as a part of a sale or exchange.</span>
+|PREVIOUS  DEDUCTION OR SALE. The cost is for the replacement of a component when the  taxpayer has already deducted the costs of the original item or accounted for  the basis of the item as a part of a sale or exchange.
-<span lang="EN">Reg.  §1.263(a)-3(k)(1)(i), (ii), (iii)</span>
+Reg.  §1.263(a)-3(k)(1)(i), (ii), (iii)
-|<span lang="EN">DIFFERENT  USE. The cost produces a change that is not consistent with the intended  original use of the property.</span>
+|DIFFERENT  USE. The cost produces a change that is not consistent with the intended  original use of the property.
-<span lang="EN">Reg.  §1.263(a)-3(i)</span>
+Reg.  §1.263(a)-3(i)
 |-
-|<span lang="EN">MATERIAL  ADDITION. The cost results in a material addition, including enlargement,  expansion, or extension of the property.</span>
+|MATERIAL  ADDITION. The cost results in a material addition, including enlargement,  expansion, or extension of the property.
-<span lang="EN">Reg.  §1.263(a)-3(j)(1)(ii).</span>
+Reg.  §1.263(a)-3(j)(1)(ii).
-|<span lang="EN">RETURNS  TO ORDINARY OPERATION. The cost returns the property to its ordinarily  efficient operating condition and the property has deteriorated so much that  it is no longer functional for its intended use.</span>
+|RETURNS  TO ORDINARY OPERATION. The cost returns the property to its ordinarily  efficient operating condition and the property has deteriorated so much that  it is no longer functional for its intended use.
-<span lang="EN">Reg.  §1.263(a)-3(k)(1)(iv)</span>
+Reg.  §1.263(a)-3(k)(1)(iv)
 |
 |-
-|<span lang="EN">INCREASED  PRODUCTIVITY. The cost results in a material increase in the property’s  capacity, productivity, efficiency, strength, or quality.</span>
+|INCREASED  PRODUCTIVITY. The cost results in a material increase in the property’s  capacity, productivity, efficiency, strength, or quality.
-<span lang="EN">Reg.  §1.263(a)-3(j)(1)(iii)</span>
+Reg.  §1.263(a)-3(j)(1)(iii)
-|<span lang="EN">REBUILD  TO LIKE-NEW CONDITION. The cost returns the property to a new, rebuilt,  remanufactured condition.</span>
+|REBUILD  TO LIKE-NEW CONDITION. The cost returns the property to a new, rebuilt,  remanufactured condition.
-<span lang="EN">Reg.  §1.263(a)-3(k)(3).</span>
+Reg.  §1.263(a)-3(k)(3).
 |
 |-
 |
-|<span lang="EN">REPLACEMENT  OF A MAJOR COMPONENT. The cost replaces a substantial structural part of the  property. This includes components that are a large part of the structure or  that perform a discrete and critical function.</span>
+|REPLACEMENT  OF A MAJOR COMPONENT. The cost replaces a substantial structural part of the  property. This includes components that are a large part of the structure or  that perform a discrete and critical function.
-<span lang="EN">Reg.  §1.263(a)-3(k)(4).</span>
+Reg.  §1.263(a)-3(k)(4).
 |
 |}
-<span lang="EN">Problem Example →</span>
+Problem Example →
-<span lang="EN">K and F own commercial building, lease space as sole business activity; in taxable year, K and F incurred costs below, all directly related to building; current deduction or capitalized costs:</span>
+K and F own commercial building, lease space as sole business activity; in taxable year, K and F incurred costs below, all directly related to building; current deduction or capitalized costs:
-<span lang="EN">(a)   $50,000 to remove asbestos (did not affect building operations) '''→''' '''IRC 263(a)-3(j)(3) Example 2; DEDUCTIBLE'''</span>
+(a)   $50,000 to remove asbestos (did not affect building operations) '''→''' '''IRC 263(a)-3(j)(3) Example 2; DEDUCTIBLE'''
-<span lang="EN">(b)   $3,000 to restore awning that originally cost $1,000 to construct and install, current cost to construct and install is $10,000 → '''case by case basis'''</span>
+(b)   $3,000 to restore awning that originally cost $1,000 to construct and install, current cost to construct and install is $10,000 → '''case by case basis'''
-<span lang="EN">(c)   $22,000 to repair the driveway providing access from the main road to parking lot → capitalization of betterments</span>
+(c)   $22,000 to repair the driveway providing access from the main road to parking lot → capitalization of betterments
-<span lang="EN">(d)   $5,000 to add safety equipment to elevators</span>
+(d)   $5,000 to add safety equipment to elevators
-<span lang="EN">(e)   $2,500 to fix leak</span>
+(e)   $2,500 to fix leak
-'''<span lang="EN">Costs Related to <u>Intangible</u> Assets</span>'''
+'''Costs Related to <u>Intangible</u> Assets'''
-<u><span lang="EN">INDOPCO, Inc. v. Commissioner (1992)</span></u> <span lang="EN">- SCOTUS</span>
+<u>INDOPCO, Inc. v. Commissioner (1992)</u> - SCOTUS
-<span lang="EN">RULE: Corporate expenses incurred for the purpose of changing the corporate structure in order to receive future benefits are not deductible as ordinary and necessary business expenses.</span>
+RULE: Corporate expenses incurred for the purpose of changing the corporate structure in order to receive future benefits are not deductible as ordinary and necessary business expenses.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      Section 162 of the Internal Revenue Code allows current deductions for ordinary and necessary business expenses incurred during the taxable year while carrying on a trade or business.</span>
+●      Section 162 of the Internal Revenue Code allows current deductions for ordinary and necessary business expenses incurred during the taxable year while carrying on a trade or business.
-<span lang="EN">●      On the other hand, § 263 disallows deductions for capital expenditures that are intended to create or enhance an asset or to create a future benefit.</span>
+●      On the other hand, § 263 disallows deductions for capital expenditures that are intended to create or enhance an asset or to create a future benefit.
-<span lang="EN">●      Instead, such expenditures must be amortized and depreciated over a related asset’s useful life or taken as a loss upon dissolution of the entire business.</span>
+●      Instead, such expenditures must be amortized and depreciated over a related asset’s useful life or taken as a loss upon dissolution of the entire business.
-<span lang="EN">●      Deductions are only allowable if the taxpayer can clearly demonstrate an enumerated right to claim a deduction; otherwise, capitalization of expenses is the norm.</span>
+●      Deductions are only allowable if the taxpayer can clearly demonstrate an enumerated right to claim a deduction; otherwise, capitalization of expenses is the norm.
-<span lang="EN">●      In Commissioner v. Lincoln Savings & Loan Association, 403 U.S. 345 (1971), this Court held that a taxpayer’s expenditures that create or enhance a distinct asset should be capitalized.</span>
+●      In Commissioner v. Lincoln Savings & Loan Association, 403 U.S. 345 (1971), this Court held that a taxpayer’s expenditures that create or enhance a distinct asset should be capitalized.
-<span lang="EN">●      However, the ruling does not mean that capital expenditures are limited to only those that create or enhance a distinct asset.</span>
+●      However, the ruling does not mean that capital expenditures are limited to only those that create or enhance a distinct asset.
-<span lang="EN">●      This Court also stated in Lincoln Savings that the presence of some future benefit is not necessarily a controlling factor that determines whether an expenditure should be capitalized.</span>
+●      This Court also stated in Lincoln Savings that the presence of some future benefit is not necessarily a controlling factor that determines whether an expenditure should be capitalized.
-<span lang="EN">●      However, that ruling does not preclude a court’s reliance on the presence of a significant future benefit in order to designate an expenditure as a capital outlay.</span>
+●      However, that ruling does not preclude a court’s reliance on the presence of a significant future benefit in order to designate an expenditure as a capital outlay.
-<span lang="EN">The test from <u>INDOPCO</u> is sometimes referred to as the “significant future benefits test.” If an expenditure creates a significant future benefit, it should be capitalized.</span>
+The test from <u>INDOPCO</u> is sometimes referred to as the “significant future benefits test.” If an expenditure creates a significant future benefit, it should be capitalized.
-<span lang="EN">Revenue Ruling 92-80 → advertising expenses still deductible</span>
+Revenue Ruling 92-80 → advertising expenses still deductible
-<span lang="EN">Revenue Ruling 94-38 → hazardous waste clean-up costs still deductible, except that construction of groundwater treatment facilities would capitalized</span>
+Revenue Ruling 94-38 → hazardous waste clean-up costs still deductible, except that construction of groundwater treatment facilities would capitalized
-<span lang="EN">Revenue Ruling 94-77 → severance benefits still deductible</span>
+Revenue Ruling 94-77 → severance benefits still deductible
-<span lang="EN">Revenue Ruling 95-32 → certain conservation expenditures still deductible</span>
+Revenue Ruling 95-32 → certain conservation expenditures still deductible
-<span lang="EN">Revenue Ruling 96-62 → training costs still deductible</span>
+Revenue Ruling 96-62 → training costs still deductible
-<span lang="EN">The INDOPCO Regulations → generally require capitalization of certain amounts paid to acquire or create intangible assets, and require capitalization of expenses that create or enhance a separate and distinct capital asset.</span>
+The INDOPCO Regulations → generally require capitalization of certain amounts paid to acquire or create intangible assets, and require capitalization of expenses that create or enhance a separate and distinct capital asset.
-'''<span lang="EN">Deduction for Expenses</span>'''
+'''Deduction for Expenses'''
-<span lang="EN">STEP ONE: Is it an expense or capital expenditure?</span>
+STEP ONE: Is it an expense or capital expenditure?
-<span lang="EN">STEP TWO: assuming it is an expense, is that expense deductible? Find specific provision</span>
+STEP TWO: assuming it is an expense, is that expense deductible? Find specific provision
-<span lang="EN">STEP THREE: assuming there is a deduction, where on the tax ladder can the deduction come in?</span>
+STEP THREE: assuming there is a deduction, where on the tax ladder can the deduction come in?
-<span lang="EN">STEP FOUR: check 263A and then 263(a)</span>
+STEP FOUR: check 263A and then 263(a)
-<span lang="EN">Look to Sec. 62(a) → tells you where on the tax ladder the deduction falls, but you still need to look to the specific deduction’s provision to see if you qualify.</span>
+Look to Sec. 62(a) → tells you where on the tax ladder the deduction falls, but you still need to look to the specific deduction’s provision to see if you qualify.
-<span lang="EN">●      Above the line deductions always preferable (second to tax credits)</span>
+●      Above the line deductions always preferable (second to tax credits)
-<span lang="EN">●      If not under 62(a), look at ITEMIZED DEDUCTIONS</span>
+●      If not under 62(a), look at ITEMIZED DEDUCTIONS
-<span lang="EN">No catch-all for deductions, need to find a specific deduction existing in the code; all in different provisions, no master list</span>
+No catch-all for deductions, need to find a specific deduction existing in the code; all in different provisions, no master list
-<span lang="EN">In general →</span>
+In general →
-<span lang="EN">●      Expenses are deductible if they relate to a taxpayer’s “trade or business” activity, or if the expense is paid or incurred in the production or collection of income from an activity that does not rise to the level of a trade or business (an “investment activity”).</span>
+●      Expenses are deductible if they relate to a taxpayer’s “trade or business” activity, or if the expense is paid or incurred in the production or collection of income from an activity that does not rise to the level of a trade or business (an “investment activity”).
-'''<span lang="EN">Trade or Business Expenses</span>'''
+'''Trade or Business Expenses'''
 {| class="wikitable"
-|'''<span lang="EN">§  162(a) - Trade or business expenses</span>'''
+|'''§  162(a) - Trade or business expenses'''
-'''<span lang="EN">(a)  In general. There shall be allowed as a deduction all the ordinary and  necessary expenses paid or incurred during the taxable year in carrying on  any trade or business, including—</span>'''
+'''(a)  In general. There shall be allowed as a deduction all the ordinary and  necessary expenses paid or incurred during the taxable year in carrying on  any trade or business, including—'''
-'''<span lang="EN">    (1) a reasonable allowance for salaries  or other compensation for personal services actually rendered;</span>'''
+'''    (1) a reasonable allowance for salaries  or other compensation for personal services actually rendered;'''
-'''<span lang="EN">    (2) traveling expenses (including  amounts expended for meals and lodging other than amounts which are lavish or  extravagant under the circumstances) while away from home in the pursuit of a  trade or business; and</span>'''
+'''    (2) traveling expenses (including  amounts expended for meals and lodging other than amounts which are lavish or  extravagant under the circumstances) while away from home in the pursuit of a  trade or business; and'''
-'''<span lang="EN">    (3) rentals or other payments required  to be made as a condition to the continued use or possession, for purposes of  the trade or business, of property to which the taxpayer has not taken or is  not taking title or in which he has no equity.</span>'''
+'''    (3) rentals or other payments required  to be made as a condition to the continued use or possession, for purposes of  the trade or business, of property to which the taxpayer has not taken or is  not taking title or in which he has no equity.'''
-'''<span lang="EN">For  purposes of the preceding sentence, the place of residence of a Member of  Congress (including any Delegate and Resident Commissioner) within the State,  congressional district, or possession which he represents in Congress shall  be considered his home, but amounts expended by such Members within each  taxable year for living expenses shall not be deductible for income tax  purposes. For purposes of paragraph (2), the taxpayer shall not be treated as  being temporarily away from home during any period of employment if such  period exceeds 1 year. The preceding sentence shall not apply to any Federal  employee during any period for which such employee is certified by the  Attorney General (or the designee thereof) as traveling on behalf of the  United States in temporary duty status to investigate or prosecute, or  provide support services for the investigation or prosecution of, a Federal  crime.</span>'''
+'''For  purposes of the preceding sentence, the place of residence of a Member of  Congress (including any Delegate and Resident Commissioner) within the State,  congressional district, or possession which he represents in Congress shall  be considered his home, but amounts expended by such Members within each  taxable year for living expenses shall not be deductible for income tax  purposes. For purposes of paragraph (2), the taxpayer shall not be treated as  being temporarily away from home during any period of employment if such  period exceeds 1 year. The preceding sentence shall not apply to any Federal  employee during any period for which such employee is certified by the  Attorney General (or the designee thereof) as traveling on behalf of the  United States in temporary duty status to investigate or prosecute, or  provide support services for the investigation or prosecution of, a Federal  crime.'''
 |}
-<span lang="EN">Six elements required for a deduction →</span>
+Six elements required for a deduction →
-<span lang="EN">1)    It must be an '''ordinary'''</span>
+)    It must be an '''ordinary'''
-<span lang="EN">2)    And '''necessary'''</span>
+)    And '''necessary'''
-<span lang="EN">3)    '''Expense'''</span>
+)    '''Expense'''
-<span lang="EN">4)    That was '''paid or incurred during the taxable year'''</span>
+)    That was '''paid or incurred during the taxable year'''
-<span lang="EN">5)    '''In carrying on'''</span>
+)    '''In carrying on'''
-<span lang="EN">6)    A '''trade or business''' activity</span>
+)    A '''trade or business''' activity
-'''<span lang="EN">Ordinary and Necessary</span>''' <span lang="EN">→ routine and directly related to the business activity; can be extraordinary and unusual, but the expense must have a business purpose and be related to the activity.</span>
+'''Ordinary and Necessary''' → routine and directly related to the business activity; can be extraordinary and unusual, but the expense must have a business purpose and be related to the activity.
-<u><span lang="EN">Welch v. Helvering (1933)</span></u> <span lang="EN">- SCOTUS [π grain co. secretary repaid company debts and deducted]</span>
+<u>Welch v. Helvering (1933)</u> - SCOTUS [π grain co. secretary repaid company debts and deducted]
-<span lang="EN">RULE: Expenditures for ordinary and necessary business expenses may be deducted from gross income if incurred while carrying on a trade or business.</span>
+RULE: Expenditures for ordinary and necessary business expenses may be deducted from gross income if incurred while carrying on a trade or business.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      Section 162 of the Tax Code states that expenses for ordinary and necessary business expenses may be deducted from gross income if incurred while carrying on a trade or business.</span>
+●      Section 162 of the Tax Code states that expenses for ordinary and necessary business expenses may be deducted from gross income if incurred while carrying on a trade or business.
-<span lang="EN">●      Many payments may be deemed a necessary expense, but not all necessary payments are ordinary.</span>
+●      Many payments may be deemed a necessary expense, but not all necessary payments are ordinary.
-<span lang="EN">●      An expense does not need to be a regular and recurring event in order to be ordinary.</span>
+●      An expense does not need to be a regular and recurring event in order to be ordinary.
-<span lang="EN">●      Even one-time payments can be ordinary -- For instance, if a company defends itself in a lawsuit by hiring an attorney, the attorney’s fees is probably an ordinary expense within the meaning of § 162.</span>
+●      Even one-time payments can be ordinary -- For instance, if a company defends itself in a lawsuit by hiring an attorney, the attorney’s fees is probably an ordinary expense within the meaning of § 162.
-<span lang="EN">●      But ultimately, whether an expense is both necessary and ordinary is a determination based on the specific facts at hand.</span>
+●      But ultimately, whether an expense is both necessary and ordinary is a determination based on the specific facts at hand.
-<u><span lang="EN">Jenkins v. Commissioner (1983)</span></u> <span lang="EN">- Tax Court [twitty burger failed, repaid investors]</span>
+<u>Jenkins v. Commissioner (1983)</u> - Tax Court [twitty burger failed, repaid investors]
-<span lang="EN">RULE: Under federal tax law, a taxpayer may deduct payments for expenses incurred by another if the taxpayer’s primary motivation is business in nature and there is a sufficient relationship between the expenses and the taxpayer’s business.</span>
+RULE: Under federal tax law, a taxpayer may deduct payments for expenses incurred by another if the taxpayer’s primary motivation is business in nature and there is a sufficient relationship between the expenses and the taxpayer’s business.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      A taxpayer may deduct an expense if it is an ordinary and necessary expense of the taxpayer’s business.</span>
+●      A taxpayer may deduct an expense if it is an ordinary and necessary expense of the taxpayer’s business.
-<span lang="EN">●      Generally, a taxpayer may not deduct the expenses of another.</span>
+●      Generally, a taxpayer may not deduct the expenses of another.
-<span lang="EN">●      However, an exception exists for expenses that are primarily motivated by business and have a sufficient relationship with the taxpayer’s business.</span>
+●      However, an exception exists for expenses that are primarily motivated by business and have a sufficient relationship with the taxpayer’s business.
-<u><span lang="EN">Lohrke</span></u> <span lang="EN">Test: A payment may be deducted if it is an ordinary and necessary expense of a trade or business of the shareholder.</span>
+<u>Lohrke</u> Test: A payment may be deducted if it is an ordinary and necessary expense of a trade or business of the shareholder.
-'''<span lang="EN">In carrying on</span>''' <span lang="EN">→ continuing business; start-up costs not entirely deductible, a portion of such costs may be deducted in the year in which the new business begins and the balance of such costs are to be amortized (deducted on a pro rata basis) over 15 years.</span>
+'''In carrying on''' → continuing business; start-up costs not entirely deductible, a portion of such costs may be deducted in the year in which the new business begins and the balance of such costs are to be amortized (deducted on a pro rata basis) over 15 years.
-<u><span lang="EN">Estate of Rockefeller v. Commissioner (1985)</span></u> <span lang="EN">- 2nd Cir. [deducted costs rel. to commissioned position]</span>
+<u>Estate of Rockefeller v. Commissioner (1985)</u> - 2nd Cir. [deducted costs rel. to commissioned position]
-<span lang="EN">RULE: A federal taxpayer may deduct business expenses incurred to change positions with substantially similar job duties within the same trade or business.</span>
+RULE: A federal taxpayer may deduct business expenses incurred to change positions with substantially similar job duties within the same trade or business.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      A taxpayer may deduct business expenses used to carry on a trade or business, even if the expenses are not for his current position.</span>
+●      A taxpayer may deduct business expenses used to carry on a trade or business, even if the expenses are not for his current position.
-<span lang="EN">●      The new position sought by the taxpayer must have substantially similar job duties to his current position.</span>
+●      The new position sought by the taxpayer must have substantially similar job duties to his current position.
-<span lang="EN">●      An unemployed taxpayer is still viewed as carrying on the trade or business of his most recent position, unless there is a significant lack of continuity.</span>
+●      An unemployed taxpayer is still viewed as carrying on the trade or business of his most recent position, unless there is a significant lack of continuity.
-<span lang="EN">●      For there to be a lack of continuity, the taxpayer must demonstrate an intent to return to a position with substantially similar duties.</span>
+●      For there to be a lack of continuity, the taxpayer must demonstrate an intent to return to a position with substantially similar duties.
-<span lang="EN">●      The time lapse cannot be too great.</span>
+●      The time lapse cannot be too great.
-'''<span lang="EN">Trade or business</span>''' <span lang="EN">→ if an activity is not a “trade or business” it is either an “investment” activity or a “personal” activity.</span>
+'''Trade or business''' → if an activity is not a “trade or business” it is either an “investment” activity or a “personal” activity.
-<u><span lang="EN">Commissioner v. Groetzinger (1987)</span></u> <span lang="EN">- SCOTUS [lived on gambling wages, loss was tablable]</span>
+<u>Commissioner v. Groetzinger (1987)</u> - SCOTUS [lived on gambling wages, loss was tablable]
-<span lang="EN">RULE: A federal taxpayer’s expenses are tax deductible if they arise from a trade or business that the taxpayer conducts primarily for income or profit, and not from an activity in which the taxpayer engages sporadically, or as a hobby, or for amusement.</span>
+RULE: A federal taxpayer’s expenses are tax deductible if they arise from a trade or business that the taxpayer conducts primarily for income or profit, and not from an activity in which the taxpayer engages sporadically, or as a hobby, or for amusement.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      A federal taxpayer’s expenses are tax deductible if the facts show that those expenses arise from a trade or business that the taxpayer conducts primarily for income or profit, and not from an activity in which the taxpayer engages sporadically, or as a hobby, or for amusement.</span>
+●      A federal taxpayer’s expenses are tax deductible if the facts show that those expenses arise from a trade or business that the taxpayer conducts primarily for income or profit, and not from an activity in which the taxpayer engages sporadically, or as a hobby, or for amusement.
-<span lang="EN">●      This Court now makes this rule explicit because the federal tax code lacks any clear definition of “trade or business,” even though this phrase appears many times throughout the tax code.</span>
+●      This Court now makes this rule explicit because the federal tax code lacks any clear definition of “trade or business,” even though this phrase appears many times throughout the tax code.
-<span lang="EN">●      Also, this Court’s earlier trade-or-business tests are not fully satisfactory.</span>
+●      Also, this Court’s earlier trade-or-business tests are not fully satisfactory.
-<span lang="EN">●      In <u>Higgins v. Commissioner, 312 U.S. 212 (1941)</u>, this Court held that the existence of a trade or business must be determined on the facts of each case, and that a trade or business must be engaged in for profit.</span>
+●      In <u>Higgins v. Commissioner, 312 U.S. 212 (1941)</u>, this Court held that the existence of a trade or business must be determined on the facts of each case, and that a trade or business must be engaged in for profit.
-<span lang="EN">●      A year earlier in <u>Deputy v. DuPont, 308 U.S. 488 (1940)</u>, this Court assumed that trade or business expenses could include a taxpayer’s expenses from simply managing his or her own estate.</span>
+●      A year earlier in <u>Deputy v. DuPont, 308 U.S. 488 (1940)</u>, this Court assumed that trade or business expenses could include a taxpayer’s expenses from simply managing his or her own estate.
-<span lang="EN">●      <u>Higgins</u>, however, specifically found that personal estate-management expenses did not amount to a trade or business.</span>
+●      <u>Higgins</u>, however, specifically found that personal estate-management expenses did not amount to a trade or business.
-<span lang="EN">●      Justice Frankfurter suggested in his <u>DuPont</u> concurrence that trade or business necessarily “involves holding oneself out to others as engaged in selling goods and services.”</span>
+●      Justice Frankfurter suggested in his <u>DuPont</u> concurrence that trade or business necessarily “involves holding oneself out to others as engaged in selling goods and services.”
-<span lang="EN">●      However, Justice Frankfurter’s concurrence has never been adopted by this Court.</span>
+●      However, Justice Frankfurter’s concurrence has never been adopted by this Court.
-<span lang="EN">●      In this case, Justice Frankfurter’s test is rejected because the meanings of “holding oneself out,” “goods,” and “services” are too vague to be useful.</span>
+●      In this case, Justice Frankfurter’s test is rejected because the meanings of “holding oneself out,” “goods,” and “services” are too vague to be useful.
-'''<span lang="EN">Treatment of Capital Expenditures</span>'''
+'''Treatment of Capital Expenditures'''
-'''<span lang="EN">Cost Recovery</span>'''
+'''Cost Recovery'''
-<span lang="EN">A taxpayer generally cannot recover the cost of a capital expenditure for federal income tax purposes until the improved property is sold, exchanged, or otherwise disposed of in some form.</span>
+A taxpayer generally cannot recover the cost of a capital expenditure for federal income tax purposes until the improved property is sold, exchanged, or otherwise disposed of in some form.
 {| class="wikitable"
-|'''<span lang="EN">Depreciation</span>'''
+|'''Depreciation'''
-|'''<span lang="EN">Amortization</span>'''
+|'''Amortization'''
 |-
-|<span lang="EN">●      Tangible assets (i.e. real property)</span>
+|●      Tangible assets (i.e. real property)
-<span lang="EN">●      Cost recovery system governed by §167 and  §168</span>
+●      Cost recovery system governed by §167 and  §168
-<span lang="EN">●      Eligible tangible property must be described  in §167(a)</span>
+●      Eligible tangible property must be described  in §167(a)
-<span lang="EN">●      Property must be held for use in a trade or  business or for the production of income; personal-use property is not eligible  for cost recovery over its useful life</span>
+●      Property must be held for use in a trade or  business or for the production of income; personal-use property is not eligible  for cost recovery over its useful life
-|<span lang="EN">●      Intangible assets (i.e. loans)</span>
+|●      Intangible assets (i.e. loans)
-<span lang="EN">●      Cost recovery system governed by §191</span>
+●      Cost recovery system governed by §191
-<span lang="EN">●      Eligible intangible property must be  described in §197(c)(1) and §197(d)</span>
+●      Eligible intangible property must be  described in §197(c)(1) and §197(d)
-<span lang="EN">●      Property must be held for use in a trade or  business or for the production of income; personal-use property is not  eligible for cost recovery over its useful life</span>
+●      Property must be held for use in a trade or  business or for the production of income; personal-use property is not  eligible for cost recovery over its useful life
 |}
-'''<span lang="EN">Depreciation of Tangible Property</span>'''
+'''Depreciation of Tangible Property'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 167 - Depreciation</span>'''
+|'''26  U.S. Code § 167 - Depreciation'''
-'''<span lang="EN">(a) General rule. There shall be allowed as a depreciation deduction a reasonable  allowance for the exhaustion, wear and tear (including a reasonable allowance  for obsolescence)—</span>'''
+'''(a) General rule. There shall be allowed as a depreciation deduction a reasonable  allowance for the exhaustion, wear and tear (including a reasonable allowance  for obsolescence)—'''
-'''<span lang="EN">    (1) of property used in the trade or  business, or</span>'''
+'''    (1) of property used in the trade or  business, or'''
-'''<span lang="EN">    (2) of property held for the production  of income.</span>'''
+'''    (2) of property held for the production  of income.'''
-'''<span lang="EN">(b)  Cross reference. For determination of depreciation deduction in case of  property to which section 168 applies, see section 168.</span>'''
+'''(b)  Cross reference. For determination of depreciation deduction in case of  property to which section 168 applies, see section 168.'''
-'''<span lang="EN">(c) Basis for depreciation</span>'''
+'''(c) Basis for depreciation'''
-'''<span lang="EN">    (1) In general. The basis on which  exhaustion, wear and tear, and obsolescence are to be allowed in respect of  any property shall be the adjusted basis provided in section 1011, for the  purpose of determining the gain on the sale or other disposition of such  property.</span>'''
+'''    (1) In general. The basis on which  exhaustion, wear and tear, and obsolescence are to be allowed in respect of  any property shall be the adjusted basis provided in section 1011, for the  purpose of determining the gain on the sale or other disposition of such  property.'''
-'''<span lang="EN">     (2) Special rule for property  subject to lease. If any property is acquired subject to a lease—</span>'''
+'''     (2) Special rule for property  subject to lease. If any property is acquired subject to a lease—'''
-'''<span lang="EN">         (A) no portion of the adjusted basis shall  be allocated to the leasehold interest, and</span>'''
+'''         (A) no portion of the adjusted basis shall  be allocated to the leasehold interest, and'''
-'''<span lang="EN">         (B) the entire adjusted basis shall  be taken into account in determining the depreciation deduction (if any) with  respect to the property subject to the lease.</span>'''
+'''         (B) the entire adjusted basis shall  be taken into account in determining the depreciation deduction (if any) with  respect to the property subject to the lease.'''
-'''<span lang="EN">(d)  Life tenants and beneficiaries of trusts and estates. In the case of property  held by one person for life with remainder to another person, the deduction  shall be computed as if the life tenant were the absolute owner of the  property and shall be allowed to the life tenant. In the case of property  held in trust, the allowable deduction shall be apportioned between the  income beneficiaries and the trustee in accordance with the pertinent  provisions of the instrument creating the trust, or, in the absence of such  provisions, on the basis of the trust income allocable to each. In the case  of an estate, the allowable deduction shall be apportioned between the estate  and the heirs, legatees, and devisees on the basis of the income of the  estate allocable to each.</span>'''
+'''(d)  Life tenants and beneficiaries of trusts and estates. In the case of property  held by one person for life with remainder to another person, the deduction  shall be computed as if the life tenant were the absolute owner of the  property and shall be allowed to the life tenant. In the case of property  held in trust, the allowable deduction shall be apportioned between the  income beneficiaries and the trustee in accordance with the pertinent  provisions of the instrument creating the trust, or, in the absence of such  provisions, on the basis of the trust income allocable to each. In the case  of an estate, the allowable deduction shall be apportioned between the estate  and the heirs, legatees, and devisees on the basis of the income of the  estate allocable to each.'''
-'''<span lang="EN">(e) Certain term interests not depreciable</span>'''
+'''(e) Certain term interests not depreciable'''
-'''<span lang="EN">    (1) In general. No depreciation  deduction shall be allowed under this section (and no depreciation or  amortization deduction shall be allowed under any other provision of this  subtitle) to the taxpayer for any term interest in property for any period  during which the remainder interest in such property is held (directly or  indirectly) by a related person.</span>'''
+'''    (1) In general. No depreciation  deduction shall be allowed under this section (and no depreciation or  amortization deduction shall be allowed under any other provision of this  subtitle) to the taxpayer for any term interest in property for any period  during which the remainder interest in such property is held (directly or  indirectly) by a related person.'''
-'''<span lang="EN">     (2) Coordination with other  provisions</span>'''
+'''     (2) Coordination with other  provisions'''
-'''<span lang="EN">         (A) Section 273. This subsection  shall not apply to any term interest to which section 273 applies.</span>'''
+'''         (A) Section 273. This subsection  shall not apply to any term interest to which section 273 applies.'''
-'''<span lang="EN">          (B) Section 305(e). This  subsection shall not apply to the holder of the dividend rights which were  separated from any stripped preferred stock to which section 305(e)(1)  applies.</span>'''
+'''          (B) Section 305(e). This  subsection shall not apply to the holder of the dividend rights which were  separated from any stripped preferred stock to which section 305(e)(1)  applies.'''
-'''<span lang="EN">     (3) Basis adjustments. If, but for this  subsection, a depreciation or amortization deduction would be allowable to  the taxpayer with respect to any term interest in property—</span>'''
+'''     (3) Basis adjustments. If, but for this  subsection, a depreciation or amortization deduction would be allowable to  the taxpayer with respect to any term interest in property—'''
-'''<span lang="EN">         (A) the taxpayer’s basis in such  property shall be reduced by any depreciation or amortization deductions  disallowed under this subsection, and</span>'''
+'''         (A) the taxpayer’s basis in such  property shall be reduced by any depreciation or amortization deductions  disallowed under this subsection, and'''
-'''<span lang="EN">         (B) the basis of the remainder  interest in such property shall be increased by the amount of such disallowed  deductions (properly adjusted for any depreciation deductions allowable under  subsection (d) to the taxpayer).</span>'''
+'''         (B) the basis of the remainder  interest in such property shall be increased by the amount of such disallowed  deductions (properly adjusted for any depreciation deductions allowable under  subsection (d) to the taxpayer).'''
-'''<span lang="EN">    (4) Special rules</span>'''
+'''    (4) Special rules'''
-'''<span lang="EN">         (A) Denial of increase in basis of  remainderman. No increase in the basis of the remainder interest shall be  made under paragraph (3)(B) for any disallowed deductions attributable to  periods during which the term interest was held—</span>'''
+'''         (A) Denial of increase in basis of  remainderman. No increase in the basis of the remainder interest shall be  made under paragraph (3)(B) for any disallowed deductions attributable to  periods during which the term interest was held—'''
-'''<span lang="EN">              (i) by an organization exempt  from tax under this subtitle, or</span>'''
+'''              (i) by an organization exempt  from tax under this subtitle, or'''
-'''<span lang="EN">              (ii) by a nonresident alien  individual or foreign corporation but only if income from the term interest  is not effectively connected with the conduct of a trade or business in the  United States.</span>'''
+'''              (ii) by a nonresident alien  individual or foreign corporation but only if income from the term interest  is not effectively connected with the conduct of a trade or business in the  United States.'''
-'''<span lang="EN">         (B) Coordination with subsection  (d). If, but for this subsection, a depreciation or amortization deduction  would be allowable to any person with respect to any term interest in  property, the principles of subsection (d) shall apply to such person with  respect to such term interest.</span>'''
+'''         (B) Coordination with subsection  (d). If, but for this subsection, a depreciation or amortization deduction  would be allowable to any person with respect to any term interest in  property, the principles of subsection (d) shall apply to such person with  respect to such term interest.'''
-'''<span lang="EN">     (5) Definitions. For purposes of  this subsection—</span>'''
+'''     (5) Definitions. For purposes of  this subsection—'''
-'''<span lang="EN">         (A) Term interest in property. The  term “term interest in property” has the meaning given such term by section  1001(e)(2).</span>'''
+'''         (A) Term interest in property. The  term “term interest in property” has the meaning given such term by section  1001(e)(2).'''
-'''<span lang="EN">          (B) Related person. The term  “related person” means any person bearing a relationship to the taxpayer  described in subsection (b) or (e) of section 267.</span>'''
+'''          (B) Related person. The term  “related person” means any person bearing a relationship to the taxpayer  described in subsection (b) or (e) of section 267.'''
-'''<span lang="EN">     (6) Regulations. The Secretary  shall prescribe such regulations as may be necessary to carry out the  purposes of this subsection, including regulations preventing avoidance of  this subsection through cross-ownership arrangements or otherwise.</span>'''
+'''     (6) Regulations. The Secretary  shall prescribe such regulations as may be necessary to carry out the  purposes of this subsection, including regulations preventing avoidance of  this subsection through cross-ownership arrangements or otherwise.'''
-'''<span lang="EN">(f) Treatment of certain property excluded from section 197</span>'''
+'''(f) Treatment of certain property excluded from section 197'''
-'''<span lang="EN">    (1) Computer software</span>'''
+'''    (1) Computer software'''
-'''<span lang="EN">         (A) In general. If a depreciation  deduction is allowable under subsection (a) with respect to any computer  software, such deduction shall be computed by using the straight line method  and a useful life of 36 months.</span>'''
+'''         (A) In general. If a depreciation  deduction is allowable under subsection (a) with respect to any computer  software, such deduction shall be computed by using the straight line method  and a useful life of 36 months.'''
-'''<span lang="EN">          (B) Computer software. For  purposes of this section, the term “computer software” has the meaning given  to such term by section 197(e)(3)(B); except that such term shall not include  any such software which is an amortizable section 197 intangible.</span>'''
+'''          (B) Computer software. For  purposes of this section, the term “computer software” has the meaning given  to such term by section 197(e)(3)(B); except that such term shall not include  any such software which is an amortizable section 197 intangible.'''
-'''<span lang="EN">          (C) Tax-exempt use property  subject to lease. In the case of computer software which would be tax-exempt  use property as defined in subsection (h) of section 168 if such section  applied to computer software, the useful life under subparagraph (A) shall  not be less than 125 percent of the lease term (within the meaning of section  168(i)(3)).</span>'''
+'''          (C) Tax-exempt use property  subject to lease. In the case of computer software which would be tax-exempt  use property as defined in subsection (h) of section 168 if such section  applied to computer software, the useful life under subparagraph (A) shall  not be less than 125 percent of the lease term (within the meaning of section  168(i)(3)).'''
-'''<span lang="EN">     (2) Certain interests or rights  acquired separately. If a depreciation deduction is allowable under  subsection (a) with respect to any property described in subparagraph (B),  (C), or (D) of section 197(e)(4), such deduction shall be computed in  accordance with regulations prescribed by the Secretary. If such property  would be tax-exempt use property as defined in subsection (h) of section 168  if such section applied to such property, the useful life under such  regulations shall not be less than 125 percent of the lease term (within the  meaning of section 168(i)(3)).</span>'''
+'''     (2) Certain interests or rights  acquired separately. If a depreciation deduction is allowable under  subsection (a) with respect to any property described in subparagraph (B),  (C), or (D) of section 197(e)(4), such deduction shall be computed in  accordance with regulations prescribed by the Secretary. If such property  would be tax-exempt use property as defined in subsection (h) of section 168  if such section applied to such property, the useful life under such  regulations shall not be less than 125 percent of the lease term (within the  meaning of section 168(i)(3)).'''
-'''<span lang="EN">     (3) Mortgage servicing rights. If  a depreciation deduction is allowable under subsection (a) with respect to  any right described in section 197(e)(6), such deduction shall be computed by  using the straight line method and a useful life of 108 months.</span>'''
+'''     (3) Mortgage servicing rights. If  a depreciation deduction is allowable under subsection (a) with respect to  any right described in section 197(e)(6), such deduction shall be computed by  using the straight line method and a useful life of 108 months.'''
-'''<span lang="EN">(g) Depreciation under income forecast method</span>'''
+'''(g) Depreciation under income forecast method'''
-'''<span lang="EN">    (1) In general. If the depreciation  deduction allowable under this section to any taxpayer with respect to any  property is determined under the income forecast method or any similar  method—</span>'''
+'''    (1) In general. If the depreciation  deduction allowable under this section to any taxpayer with respect to any  property is determined under the income forecast method or any similar  method—'''
-'''<span lang="EN">         (A) the income from the property to  be taken into account in determining the depreciation deduction under such  method shall be equal to the amount of income earned in connection with the  property before the close of the 10th taxable year following the taxable year  in which the property was placed in service,</span>'''
+'''         (A) the income from the property to  be taken into account in determining the depreciation deduction under such  method shall be equal to the amount of income earned in connection with the  property before the close of the 10th taxable year following the taxable year  in which the property was placed in service,'''
-'''<span lang="EN">         (B) the adjusted basis of the  property shall only include amounts with respect to which the requirements of  section 461(h) are satisfied,</span>'''
+'''         (B) the adjusted basis of the  property shall only include amounts with respect to which the requirements of  section 461(h) are satisfied,'''
-'''<span lang="EN">         (C) the depreciation deduction  under such method for the 10th taxable year beginning after the taxable year  in which the property was placed in service shall be equal to the adjusted  basis of such property as of the beginning of such 10th taxable year, and</span>'''
+'''         (C) the depreciation deduction  under such method for the 10th taxable year beginning after the taxable year  in which the property was placed in service shall be equal to the adjusted  basis of such property as of the beginning of such 10th taxable year, and'''
-'''<span lang="EN">         (D) such taxpayer shall pay (or be  entitled to receive) interest computed under the look-back method of  paragraph (2) for any recomputation year.</span>'''
+'''         (D) such taxpayer shall pay (or be  entitled to receive) interest computed under the look-back method of  paragraph (2) for any recomputation year.'''
-'''<span lang="EN">    (2) Look-back method. The interest  computed under the look-back method of this paragraph for any recomputation  year shall be determined by—</span>'''
+'''    (2) Look-back method. The interest  computed under the look-back method of this paragraph for any recomputation  year shall be determined by—'''
-'''<span lang="EN">         (A) first determining the  depreciation deductions under this section with respect to such property  which would have been allowable for prior taxable years if the determination  of the amounts so allowable had been made on the basis of the sum of the  following (instead of the estimated income from such property)—</span>'''
+'''         (A) first determining the  depreciation deductions under this section with respect to such property  which would have been allowable for prior taxable years if the determination  of the amounts so allowable had been made on the basis of the sum of the  following (instead of the estimated income from such property)—'''
-'''<span lang="EN">              (i) the actual income earned  in connection with such property for periods before the close of the  recomputation year, and</span>'''
+'''              (i) the actual income earned  in connection with such property for periods before the close of the  recomputation year, and'''
-'''<span lang="EN">              (ii) an estimate of the future  income to be earned in connection with such property for periods after the  recomputation year and before the close of the 10th taxable year following  the taxable year in which the property was placed in service,</span>'''
+'''              (ii) an estimate of the future  income to be earned in connection with such property for periods after the  recomputation year and before the close of the 10th taxable year following  the taxable year in which the property was placed in service,'''
-'''<span lang="EN">         (B) second, determining (solely for  purposes of computing such interest) the overpayment or underpayment of tax  for each such prior taxable year which would result solely from the  application of subparagraph (A), and</span>'''
+'''         (B) second, determining (solely for  purposes of computing such interest) the overpayment or underpayment of tax  for each such prior taxable year which would result solely from the  application of subparagraph (A), and'''
-'''<span lang="EN">         (C) then using the adjusted  overpayment rate (as defined in section 460(b)(7)), compounded daily, on the  overpayment or underpayment determined under subparagraph (B).</span>'''
+'''         (C) then using the adjusted  overpayment rate (as defined in section 460(b)(7)), compounded daily, on the  overpayment or underpayment determined under subparagraph (B).'''
-'''<span lang="EN">For purposes of the preceding sentence, any cost incurred after the property  is placed in service (which is not treated as a separate property under  paragraph (5)) shall be taken into account by discounting (using the Federal  mid-term rate determined under section 1274(d) as of the time such cost is  incurred) such cost to its value as of the date the property is placed in  service. The taxpayer may elect with respect to any property to have the  preceding sentence not apply to such property.</span>'''
+'''For purposes of the preceding sentence, any cost incurred after the property  is placed in service (which is not treated as a separate property under  paragraph (5)) shall be taken into account by discounting (using the Federal  mid-term rate determined under section 1274(d) as of the time such cost is  incurred) such cost to its value as of the date the property is placed in  service. The taxpayer may elect with respect to any property to have the  preceding sentence not apply to such property.'''
-'''<span lang="EN">    (3) Exception from look-back method.  Paragraph (1)(D) shall not apply with respect to any property which had a  cost basis of $100,000 or less.</span>'''
+'''    (3) Exception from look-back method.  Paragraph (1)(D) shall not apply with respect to any property which had a  cost basis of $100,000 or less.'''
-'''<span lang="EN">     (4) Recomputation year. For  purposes of this subsection, except as provided in regulations, the term  “recomputation year” means, with respect to any property, the 3d and the 10th  taxable years beginning after the taxable year in which the property was  placed in service, unless the actual income earned in connection with the  property for the period before the close of such 3d or 10th taxable year is  within 10 percent of the income earned in connection with the property for  such period which was taken into account under paragraph (1)(A).</span>'''
+'''     (4) Recomputation year. For  purposes of this subsection, except as provided in regulations, the term  “recomputation year” means, with respect to any property, the 3d and the 10th  taxable years beginning after the taxable year in which the property was  placed in service, unless the actual income earned in connection with the  property for the period before the close of such 3d or 10th taxable year is  within 10 percent of the income earned in connection with the property for  such period which was taken into account under paragraph (1)(A).'''
-'''<span lang="EN">     (5) Special rules</span>'''
+'''     (5) Special rules'''
-'''<span lang="EN">         (A) Certain costs treated as separate  property. For purposes of this subsection, the following costs shall be  treated as separate properties:</span>'''
+'''         (A) Certain costs treated as separate  property. For purposes of this subsection, the following costs shall be  treated as separate properties:'''
-'''<span lang="EN">              (i) Any costs incurred with  respect to any property after the 10th taxable year beginning after the  taxable year in which the property was placed in service.</span>'''
+'''              (i) Any costs incurred with  respect to any property after the 10th taxable year beginning after the  taxable year in which the property was placed in service.'''
-'''<span lang="EN">              (ii) Any costs incurred after  the property is placed in service and before the close of such 10th taxable  year if such costs are significant and give rise to a significant increase in  the income from the property which was not included in the estimated income  from the property.</span>'''
+'''              (ii) Any costs incurred after  the property is placed in service and before the close of such 10th taxable  year if such costs are significant and give rise to a significant increase in  the income from the property which was not included in the estimated income  from the property.'''
-'''<span lang="EN">         (B) Syndication income from  television series. In the case of property which is 1 or more episodes in a  television series, income from syndicating such series shall not be required  to be taken into account under this subsection before the earlier of—</span>'''
+'''         (B) Syndication income from  television series. In the case of property which is 1 or more episodes in a  television series, income from syndicating such series shall not be required  to be taken into account under this subsection before the earlier of—'''
-'''<span lang="EN">              (i) the 4th taxable year  beginning after the date the first episode in such series is placed in  service, or</span>'''
+'''              (i) the 4th taxable year  beginning after the date the first episode in such series is placed in  service, or'''
-'''<span lang="EN">              (ii) the earliest taxable year  in which the taxpayer has an arrangement relating to the future syndication  of such series.</span>'''
+'''              (ii) the earliest taxable year  in which the taxpayer has an arrangement relating to the future syndication  of such series.'''
-'''<span lang="EN">         (C) Special rules for financial  exploitation of characters, etc. For purposes of this subsection, in the case  of television and motion picture films, the income from the property shall  include income from the exploitation of characters, designs, scripts, scores,  and other incidental income associated with such films, but only to the  extent that such income is earned in connection with the ultimate use of such  items by, or the ultimate sale of merchandise to, persons who are not related  persons (within the meaning of section 267(b)) to the taxpayer.</span>'''
+'''         (C) Special rules for financial  exploitation of characters, etc. For purposes of this subsection, in the case  of television and motion picture films, the income from the property shall  include income from the exploitation of characters, designs, scripts, scores,  and other incidental income associated with such films, but only to the  extent that such income is earned in connection with the ultimate use of such  items by, or the ultimate sale of merchandise to, persons who are not related  persons (within the meaning of section 267(b)) to the taxpayer.'''
-'''<span lang="EN">          (D) Collection of interest.  For purposes of subtitle F (other than sections 6654 and 6655), any interest  required to be paid by the taxpayer under paragraph (1) for any recomputation  year shall be treated as an increase in the tax imposed by this chapter for  such year.</span>'''
+'''          (D) Collection of interest.  For purposes of subtitle F (other than sections 6654 and 6655), any interest  required to be paid by the taxpayer under paragraph (1) for any recomputation  year shall be treated as an increase in the tax imposed by this chapter for  such year.'''
-'''<span lang="EN">          (E) Treatment of distribution  costs. For purposes of this subsection, the income with respect to any  property shall be the taxpayer’s gross income from such property.</span>'''
+'''          (E) Treatment of distribution  costs. For purposes of this subsection, the income with respect to any  property shall be the taxpayer’s gross income from such property.'''
-'''<span lang="EN">          (F) Determinations. For  purposes of paragraph (2), determinations of the amount of income earned in  connection with any property shall be made in the same manner as for purposes  of applying the income forecast method; except that any income from the  disposition of such property shall be taken into account.</span>'''
+'''          (F) Determinations. For  purposes of paragraph (2), determinations of the amount of income earned in  connection with any property shall be made in the same manner as for purposes  of applying the income forecast method; except that any income from the  disposition of such property shall be taken into account.'''
-'''<span lang="EN">          (G) Treatment of pass-thru  entities. Rules similar to the rules of section 460(b)(4) shall apply for  purposes of this subsection.</span>'''
+'''          (G) Treatment of pass-thru  entities. Rules similar to the rules of section 460(b)(4) shall apply for  purposes of this subsection.'''
-'''<span lang="EN">     (6) Limitation on property for  which income forecast method may be used. The depreciation deduction  allowable under this section may be determined under the income forecast  method or any similar method only with respect to—</span>'''
+'''     (6) Limitation on property for  which income forecast method may be used. The depreciation deduction  allowable under this section may be determined under the income forecast  method or any similar method only with respect to—'''
-'''<span lang="EN">         (A) property described in paragraph  (3) or (4) of section 168(f),</span>'''
+'''         (A) property described in paragraph  (3) or (4) of section 168(f),'''
-'''<span lang="EN">         (B) copyrights,</span>'''
+'''         (B) copyrights,'''
-'''<span lang="EN">         (C) books,</span>'''
+'''         (C) books,'''
-'''<span lang="EN">         (D) patents, and</span>'''
+'''         (D) patents, and'''
-'''<span lang="EN">         (E) other property specified in  regulations. Such methods may not be used with respect to any amortizable  section 197 intangible (as defined in section 197(c)).</span>'''
+'''         (E) other property specified in  regulations. Such methods may not be used with respect to any amortizable  section 197 intangible (as defined in section 197(c)).'''
-'''<span lang="EN">    (7) Treatment of participations and  residuals</span>'''
+'''    (7) Treatment of participations and  residuals'''
-'''<span lang="EN">         (A) In general. For purposes of  determining the depreciation deduction allowable with respect to a property  under this subsection, the taxpayer may include participations and residuals  with respect to such property in the adjusted basis of such property for the  taxable year in which the property is placed in service, but only to the  extent that such participations and residuals relate to income estimated (for  purposes of this subsection) to be earned in connection with the property  before the close of the 10th taxable year referred to in paragraph (1)(A).</span>'''
+'''         (A) In general. For purposes of  determining the depreciation deduction allowable with respect to a property  under this subsection, the taxpayer may include participations and residuals  with respect to such property in the adjusted basis of such property for the  taxable year in which the property is placed in service, but only to the  extent that such participations and residuals relate to income estimated (for  purposes of this subsection) to be earned in connection with the property  before the close of the 10th taxable year referred to in paragraph (1)(A).'''
-'''<span lang="EN">          (B) Participations and  residuals. For purposes of this paragraph, the term “participations and  residuals” means, with respect to any property, costs the amount of which by  contract varies with the amount of income earned in connection with such  property.</span>'''
+'''          (B) Participations and  residuals. For purposes of this paragraph, the term “participations and  residuals” means, with respect to any property, costs the amount of which by  contract varies with the amount of income earned in connection with such  property.'''
-'''<span lang="EN">          (C) Special rules relating to  recomputation years. If the adjusted basis of any property is determined  under this paragraph, paragraph (4) shall be applied by substituting “for  each taxable year in such period” for “for such period”.</span>'''
+'''          (C) Special rules relating to  recomputation years. If the adjusted basis of any property is determined  under this paragraph, paragraph (4) shall be applied by substituting “for  each taxable year in such period” for “for such period”.'''
-'''<span lang="EN">          (D) Other special rules</span>'''
+'''          (D) Other special rules'''
-'''<span lang="EN">              (i) Participations and  residuals. Notwithstanding subparagraph (A), the taxpayer may exclude  participations and residuals from the adjusted basis of such property and  deduct such participations and residuals in the taxable year that such  participations and residuals are paid.</span>'''
+'''              (i) Participations and  residuals. Notwithstanding subparagraph (A), the taxpayer may exclude  participations and residuals from the adjusted basis of such property and  deduct such participations and residuals in the taxable year that such  participations and residuals are paid.'''
-'''<span lang="EN">               (ii) Coordination with  other rules. Deductions computed in accordance with this paragraph shall be  allowable notwithstanding paragraph (1)(B), section 263, 263A, 404, 419, or  461(h).</span>'''
+'''               (ii) Coordination with  other rules. Deductions computed in accordance with this paragraph shall be  allowable notwithstanding paragraph (1)(B), section 263, 263A, 404, 419, or  461(h).'''
-'''<span lang="EN">          (E) Authority to make  adjustments. The Secretary shall prescribe appropriate adjustments to the  basis of property and to the look-back method for the additional amounts  allowable as a deduction solely by reason of this paragraph.</span>'''
+'''          (E) Authority to make  adjustments. The Secretary shall prescribe appropriate adjustments to the  basis of property and to the look-back method for the additional amounts  allowable as a deduction solely by reason of this paragraph.'''
-'''<span lang="EN">     (8) Special rules for certain  musical works and copyrights</span>'''
+'''     (8) Special rules for certain  musical works and copyrights'''
-'''<span lang="EN">         (A) In general. If an election is  in effect under this paragraph for any taxable year, then, notwithstanding  paragraph (1), any expense which—</span>'''
+'''         (A) In general. If an election is  in effect under this paragraph for any taxable year, then, notwithstanding  paragraph (1), any expense which—'''
-'''<span lang="EN">              (i) is paid or incurred by the taxpayer  in creating or acquiring any applicable musical property placed in service  during the taxable year, and</span>'''
+'''              (i) is paid or incurred by the taxpayer  in creating or acquiring any applicable musical property placed in service  during the taxable year, and'''
-'''<span lang="EN">              (ii) is otherwise properly  chargeable to capital account,</span>'''
+'''              (ii) is otherwise properly  chargeable to capital account,'''
-'''<span lang="EN">shall be amortized ratably over the 5-year period beginning with the month in  which the property was placed in service. The preceding sentence shall not  apply to any expense which, without regard to this paragraph, would not be  allowable as a deduction.</span>'''
+'''shall be amortized ratably over the 5-year period beginning with the month in  which the property was placed in service. The preceding sentence shall not  apply to any expense which, without regard to this paragraph, would not be  allowable as a deduction.'''
-'''<span lang="EN">         (B) Exclusive method. Except as  provided in this paragraph, no depreciation or amortization deduction shall  be allowed with respect to any expense to which subparagraph (A) applies.</span>'''
+'''         (B) Exclusive method. Except as  provided in this paragraph, no depreciation or amortization deduction shall  be allowed with respect to any expense to which subparagraph (A) applies.'''
-'''<span lang="EN">          (C) Applicable musical  property. For purposes of this paragraph—</span>'''
+'''          (C) Applicable musical  property. For purposes of this paragraph—'''
-'''<span lang="EN">              (i) In general. The term  “applicable musical property” means any musical composition (including any  accompanying words), or any copyright with respect to a musical composition,  which is property to which this subsection applies without regard to this  paragraph.</span>'''
+'''              (i) In general. The term  “applicable musical property” means any musical composition (including any  accompanying words), or any copyright with respect to a musical composition,  which is property to which this subsection applies without regard to this  paragraph.'''
-'''<span lang="EN">               (ii) Exceptions. Such  term shall not include any property—</span>'''
+'''               (ii) Exceptions. Such  term shall not include any property—'''
-'''<span lang="EN">                   (I) with respect to which  expenses are treated as qualified creative expenses to which section 263A(h)  applies,</span>'''
+'''                   (I) with respect to which  expenses are treated as qualified creative expenses to which section 263A(h)  applies,'''
-'''<span lang="EN">                   (II) to which a  simplified procedure established under section 263A(i)(2) [1] applies, or</span>'''
+'''                   (II) to which a  simplified procedure established under section 263A(i)(2) [1] applies, or'''
-'''<span lang="EN">                   (III) which is an  amortizable section 197 intangible (as defined in section 197(c)).</span>'''
+'''                   (III) which is an  amortizable section 197 intangible (as defined in section 197(c)).'''
-'''<span lang="EN">         (D) Election. An election under  this paragraph shall be made at such time and in such form as the Secretary  may prescribe and shall apply to all applicable musical property placed in  service during the taxable year for which the election applies.</span>'''
+'''         (D) Election. An election under  this paragraph shall be made at such time and in such form as the Secretary  may prescribe and shall apply to all applicable musical property placed in  service during the taxable year for which the election applies.'''
-'''<span lang="EN">          (E) Termination. An election  may not be made under this paragraph for any taxable year beginning after  December 31, 2010.</span>'''
+'''          (E) Termination. An election  may not be made under this paragraph for any taxable year beginning after  December 31, 2010.'''
-'''<span lang="EN">(h) Amortization of geological and geophysical expenditures</span>'''
+'''(h) Amortization of geological and geophysical expenditures'''
-'''<span lang="EN">    (1) In general. Any geological and  geophysical expenses paid or incurred in connection with the exploration for,  or development of, oil or gas within the United States (as defined in section  638) shall be allowed as a deduction ratably over the 24-month period  beginning on the date that such expense was paid or incurred.</span>'''
+'''    (1) In general. Any geological and  geophysical expenses paid or incurred in connection with the exploration for,  or development of, oil or gas within the United States (as defined in section  638) shall be allowed as a deduction ratably over the 24-month period  beginning on the date that such expense was paid or incurred.'''
-'''<span lang="EN">     (2) Half-year convention. For  purposes of paragraph (1), any payment paid or incurred during the taxable  year shall be treated as paid or incurred on the mid-point of such taxable  year.</span>'''
+'''     (2) Half-year convention. For  purposes of paragraph (1), any payment paid or incurred during the taxable  year shall be treated as paid or incurred on the mid-point of such taxable  year.'''
-'''<span lang="EN">     (3) Exclusive method. Except as  provided in this subsection, no depreciation or amortization deduction shall  be allowed with respect to such payments.</span>'''
+'''     (3) Exclusive method. Except as  provided in this subsection, no depreciation or amortization deduction shall  be allowed with respect to such payments.'''
-'''<span lang="EN">     (4) Treatment upon abandonment. If  any property with respect to which geological and geophysical expenses are  paid or incurred is retired or abandoned during the 24-month period described  in paragraph (1), no deduction shall be allowed on account of such retirement  or abandonment and the amortization deduction under this subsection shall  continue with respect to such payment.</span>'''
+'''     (4) Treatment upon abandonment. If  any property with respect to which geological and geophysical expenses are  paid or incurred is retired or abandoned during the 24-month period described  in paragraph (1), no deduction shall be allowed on account of such retirement  or abandonment and the amortization deduction under this subsection shall  continue with respect to such payment.'''
-'''<span lang="EN">     (5) Special rule for major  integrated oil companies</span>'''
+'''     (5) Special rule for major  integrated oil companies'''
-'''<span lang="EN">         (A) In general. In the case of a  major integrated oil company, paragraphs (1) and (4) shall be applied by  substituting “7-year” for “24 month”.</span>'''
+'''         (A) In general. In the case of a  major integrated oil company, paragraphs (1) and (4) shall be applied by  substituting “7-year” for “24 month”.'''
-'''<span lang="EN">          (B) Major integrated oil  company. For purposes of this paragraph, the term “major integrated oil  company” means, with respect to any taxable year, a producer of crude oil—</span>'''
+'''          (B) Major integrated oil  company. For purposes of this paragraph, the term “major integrated oil  company” means, with respect to any taxable year, a producer of crude oil—'''
-'''<span lang="EN">              (i) which has an average daily  worldwide production of crude oil of at least 500,000 barrels for the taxable  year,</span>'''
+'''              (i) which has an average daily  worldwide production of crude oil of at least 500,000 barrels for the taxable  year,'''
-'''<span lang="EN">              (ii) which had gross receipts  in excess of $1,000,000,000 for its last taxable year ending during calendar  year 2005, and</span>'''
+'''              (ii) which had gross receipts  in excess of $1,000,000,000 for its last taxable year ending during calendar  year 2005, and'''
-'''<span lang="EN">              (iii) to which subsection (c)  of section 613A does not apply by reason of paragraph (4) of section 613A(d),  determined—</span>'''
+'''              (iii) to which subsection (c)  of section 613A does not apply by reason of paragraph (4) of section 613A(d),  determined—'''
-'''<span lang="EN">                   (I) by substituting “15  percent” for “5 percent” each place it occurs in paragraph (3) of section  613A(d), and</span>'''
+'''                   (I) by substituting “15  percent” for “5 percent” each place it occurs in paragraph (3) of section  613A(d), and'''
-'''<span lang="EN">                   (II) without regard to  whether subsection (c) of section 613A does not apply by reason of paragraph  (2) of section 613A(d).</span>'''
+'''                   (II) without regard to  whether subsection (c) of section 613A does not apply by reason of paragraph  (2) of section 613A(d).'''
-'''<span lang="EN">For  purposes of clauses (i) and (ii), all persons treated as a single employer  under subsections (a) and (b) of section 52 shall be treated as 1 person and,  in case of a short taxable year, the rule under section 448(c)(3)(B) shall  apply.</span>'''
+'''For  purposes of clauses (i) and (ii), all persons treated as a single employer  under subsections (a) and (b) of section 52 shall be treated as 1 person and,  in case of a short taxable year, the rule under section 448(c)(3)(B) shall  apply.'''
-'''<span lang="EN">(i)  Cross references</span>'''
+'''(i)  Cross references'''
-'''<span lang="EN">    (1) For additional rule applicable to  depreciation of improvements in the case of mines, oil and gas wells, other  natural deposits, and timber, see section 611.</span>'''
+'''    (1) For additional rule applicable to  depreciation of improvements in the case of mines, oil and gas wells, other  natural deposits, and timber, see section 611.'''
-'''<span lang="EN">    (2) For amortization of goodwill and  certain other intangibles, see section 197.</span>'''
+'''    (2) For amortization of goodwill and  certain other intangibles, see section 197.'''
 |}
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 168 - Accelerated cost recovery system</span>'''
+|'''26  U.S. Code § 168 - Accelerated cost recovery system'''
-'''<span lang="EN">(a) General rule. Except as otherwise provided in this section, the  depreciation deduction provided by section 167(a) for any tangible property  shall be determined by using—</span>'''
+'''(a) General rule. Except as otherwise provided in this section, the  depreciation deduction provided by section 167(a) for any tangible property  shall be determined by using—'''
-'''<span lang="EN">    (1) the applicable depreciation method,</span>'''
+'''    (1) the applicable depreciation method,'''
-'''<span lang="EN">    (2) the applicable recovery period, and</span>'''
+'''    (2) the applicable recovery period, and'''
-'''<span lang="EN">    (3) the applicable convention.</span>'''
+'''    (3) the applicable convention.'''
-'''<span lang="EN">(b)  Applicable depreciation method. For purposes of this section—</span>'''
+'''(b)  Applicable depreciation method. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. Except as provided in  paragraphs (2) and (3), the applicable depreciation method is—</span>'''
+'''    (1) In general. Except as provided in  paragraphs (2) and (3), the applicable depreciation method is—'''
-'''<span lang="EN">         (A) the 200 percent declining  balance method,</span>'''
+'''         (A) the 200 percent declining  balance method,'''
-'''<span lang="EN">         (B) switching to the straight line  method for the 1st taxable year for which using the straight line method with  respect to the adjusted basis as of the beginning of such year will yield a  larger allowance.</span>'''
+'''         (B) switching to the straight line  method for the 1st taxable year for which using the straight line method with  respect to the adjusted basis as of the beginning of such year will yield a  larger allowance.'''
-'''<span lang="EN">    (2) 150 percent declining balance method  in certain cases. Paragraph (1) shall be applied by substituting “150  percent” for “200 percent” in the case of—</span>'''
+'''    (2) 150 percent declining balance method  in certain cases. Paragraph (1) shall be applied by substituting “150  percent” for “200 percent” in the case of—'''
-'''<span lang="EN">         (A) any 15-year or 20-year property  not referred to in paragraph (3),</span>'''
+'''         (A) any 15-year or 20-year property  not referred to in paragraph (3),'''
-'''<span lang="EN">         (B) any property (other than  property described in paragraph (3)) which is a qualified smart electric  meter or qualified smart electric grid system, or</span>'''
+'''         (B) any property (other than  property described in paragraph (3)) which is a qualified smart electric  meter or qualified smart electric grid system, or'''
-'''<span lang="EN">         (C) any property (other than  property described in paragraph (3)) with respect to which the taxpayer  elects under paragraph (5) to have the provisions of this paragraph apply.</span>'''
+'''         (C) any property (other than  property described in paragraph (3)) with respect to which the taxpayer  elects under paragraph (5) to have the provisions of this paragraph apply.'''
-'''<span lang="EN">    (3) Property to which straight line  method applies. The applicable depreciation method shall be the straight line  method in the case of the following property:</span>'''
+'''    (3) Property to which straight line  method applies. The applicable depreciation method shall be the straight line  method in the case of the following property:'''
-'''<span lang="EN">         (A) Nonresidential real property.</span>'''
+'''         (A) Nonresidential real property.'''
-'''<span lang="EN">         (B) Residential rental property.</span>'''
+'''         (B) Residential rental property.'''
-'''<span lang="EN">         (C) Any railroad grading or tunnel  bore.</span>'''
+'''         (C) Any railroad grading or tunnel  bore.'''
-'''<span lang="EN">         (D) Property with respect to which  the taxpayer elects under paragraph (5) to have the provisions of this  paragraph apply.</span>'''
+'''         (D) Property with respect to which  the taxpayer elects under paragraph (5) to have the provisions of this  paragraph apply.'''
-'''<span lang="EN">         (E) Property described in  subsection (e)(3)(D)(ii).</span>'''
+'''         (E) Property described in  subsection (e)(3)(D)(ii).'''
-'''<span lang="EN">         (F) Water utility property  described in subsection (e)(5).</span>'''
+'''         (F) Water utility property  described in subsection (e)(5).'''
-'''<span lang="EN">         (G) Qualified improvement property  described in subsection (e)(6).</span>'''
+'''         (G) Qualified improvement property  described in subsection (e)(6).'''
-'''<span lang="EN">    (4) Salvage value treated as zero.  Salvage value shall be treated as zero.</span>'''
+'''    (4) Salvage value treated as zero.  Salvage value shall be treated as zero.'''
-'''<span lang="EN">     (5) Election. An election under  paragraph (2)(D) or (3)(D) may be made with respect to 1 or more classes of  property for any taxable year and once made with respect to any class shall  apply to all property in such class placed in service during such taxable  year. Such an election, once made, shall be irrevocable.</span>'''
+'''     (5) Election. An election under  paragraph (2)(D) or (3)(D) may be made with respect to 1 or more classes of  property for any taxable year and once made with respect to any class shall  apply to all property in such class placed in service during such taxable  year. Such an election, once made, shall be irrevocable.'''
-'''<span lang="EN">(c) Applicable recovery period. For purposes of this section, the applicable  recovery period shall be determined in accordance with the following table:  In the case of _____ the applicable recovery period is:</span>'''
+'''(c) Applicable recovery period. For purposes of this section, the applicable  recovery period shall be determined in accordance with the following table:  In the case of _____ the applicable recovery period is:'''
-'''<span lang="EN">3-year property -- 3 years  </span>'''
+'''3-year property -- 3 years  '''
-'''<span lang="EN">5-year property -- 5 years  </span>'''
+'''5-year property -- 5 years  '''
-'''<span lang="EN">7-year property -- 7 years  </span>'''
+'''7-year property -- 7 years  '''
-'''<span lang="EN">10-year property -- 10 years  </span>'''
+'''10-year property -- 10 years  '''
-'''<span lang="EN">15-year property -- 15 years  </span>'''
+'''15-year property -- 15 years  '''
-'''<span lang="EN">20-year property -- 20 years  </span>'''
+'''20-year property -- 20 years  '''
-'''<span lang="EN">Water utility property -- 25 years  </span>'''
+'''Water utility property -- 25 years  '''
-'''<span lang="EN">Residential rental property -- 27.5 years  </span>'''
+'''Residential rental property -- 27.5 years  '''
-'''<span lang="EN">Nonresidential real property -- 39 years.</span>'''
+'''Nonresidential real property -- 39 years.'''
-'''<span lang="EN">Any railroad grading or tunnel bore -- 50 years.</span>'''
+'''Any railroad grading or tunnel bore -- 50 years.'''
-'''<span lang="EN">(d) Applicable convention. For purposes of this section—</span>'''
+'''(d) Applicable convention. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. Except as otherwise  provided in this subsection, the applicable convention is the half-year  convention.</span>'''
+'''    (1) In general. Except as otherwise  provided in this subsection, the applicable convention is the half-year  convention.'''
-'''<span lang="EN">     (2) Real property. In the case of—</span>'''
+'''     (2) Real property. In the case of—'''
-'''<span lang="EN">         (A) nonresidential real property,</span>'''
+'''         (A) nonresidential real property,'''
-'''<span lang="EN">         (B) residential rental property,  and</span>'''
+'''         (B) residential rental property,  and'''
-'''<span lang="EN">         (C) any railroad grading or tunnel  bore, the applicable convention is the mid-month convention.</span>'''
+'''         (C) any railroad grading or tunnel  bore, the applicable convention is the mid-month convention.'''
-'''<span lang="EN">    (3) Special rule where substantial  property placed in service during last 3 months of taxable year</span>'''
+'''    (3) Special rule where substantial  property placed in service during last 3 months of taxable year'''
-'''<span lang="EN">         (A) In general. Except as provided  in regulations, if during any taxable year—</span>'''
+'''         (A) In general. Except as provided  in regulations, if during any taxable year—'''
-'''<span lang="EN">              (i) the aggregate bases of  property to which this section applies placed in service during the last 3  months of the taxable year, exceed</span>'''
+'''              (i) the aggregate bases of  property to which this section applies placed in service during the last 3  months of the taxable year, exceed'''
-'''<span lang="EN">              (ii) 40 percent of the  aggregate bases of property to which this section applies placed in service  during such taxable year, the applicable convention for all property to which  this section applies placed in service during such taxable year shall be the  mid-quarter convention.</span>'''
+'''              (ii) 40 percent of the  aggregate bases of property to which this section applies placed in service  during such taxable year, the applicable convention for all property to which  this section applies placed in service during such taxable year shall be the  mid-quarter convention.'''
-'''<span lang="EN">         (B) Certain property not taken into  account. For purposes of subparagraph (A), there shall not be taken into  account—</span>'''
+'''         (B) Certain property not taken into  account. For purposes of subparagraph (A), there shall not be taken into  account—'''
-'''<span lang="EN">              (i) any nonresidential real  property [1] residential rental property, and railroad grading or tunnel  bore, and</span>'''
+'''              (i) any nonresidential real  property [1] residential rental property, and railroad grading or tunnel  bore, and'''
-'''<span lang="EN">              (ii) any other property placed  in service and disposed of during the same taxable year.</span>'''
+'''              (ii) any other property placed  in service and disposed of during the same taxable year.'''
-'''<span lang="EN">    (4) Definitions</span>'''
+'''    (4) Definitions'''
-'''<span lang="EN">         (A) Half-year convention. The  half-year convention is a convention which treats all property placed in  service during any taxable year (or disposed of during any taxable year) as  placed in service (or disposed of) on the mid-point of such taxable year.</span>'''
+'''         (A) Half-year convention. The  half-year convention is a convention which treats all property placed in  service during any taxable year (or disposed of during any taxable year) as  placed in service (or disposed of) on the mid-point of such taxable year.'''
-'''<span lang="EN">          (B) Mid-month convention. The  mid-month convention is a convention which treats all property placed in  service during any month (or disposed of during any month) as placed in  service (or disposed of) on the mid-point of such month.</span>'''
+'''          (B) Mid-month convention. The  mid-month convention is a convention which treats all property placed in  service during any month (or disposed of during any month) as placed in  service (or disposed of) on the mid-point of such month.'''
-'''<span lang="EN">          (C) Mid-quarter convention.  The mid-quarter convention is a convention which treats all property placed  in service during any quarter of a taxable year (or disposed of during any  quarter of a taxable year) as placed in service (or disposed of) on the  mid-point of such quarter.</span>'''
+'''          (C) Mid-quarter convention.  The mid-quarter convention is a convention which treats all property placed  in service during any quarter of a taxable year (or disposed of during any  quarter of a taxable year) as placed in service (or disposed of) on the  mid-point of such quarter.'''
-'''<span lang="EN">(e) Classification of property. For purposes of this section—</span>'''
+'''(e) Classification of property. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. Except as otherwise  provided in this subsection, property shall be classified under the following  table: Property shall be treated as _____ if such property has a class life  (in years) of ____</span>'''
+'''    (1) In general. Except as otherwise  provided in this subsection, property shall be classified under the following  table: Property shall be treated as _____ if such property has a class life  (in years) of ____'''
-'''<span lang="EN">3-year property -- 4 or less</span>'''
+'''3-year property -- 4 or less'''
-'''<span lang="EN">5-year property -- More than 4 but less than 10</span>'''
+'''5-year property -- More than 4 but less than 10'''
-'''<span lang="EN">7-year property -- 10 or more but less than 16</span>'''
+'''7-year property -- 10 or more but less than 16'''
-'''<span lang="EN">10-year property -- 16 or more but less than 20</span>'''
+'''10-year property -- 16 or more but less than 20'''
-'''<span lang="EN">15-year property -- 20 or more but less than 25</span>'''
+'''15-year property -- 20 or more but less than 25'''
-'''<span lang="EN">20-year property -- 25 or more.</span>'''
+'''20-year property -- 25 or more.'''
-'''<span lang="EN">     (2) Residential rental or  nonresidential real property</span>'''
+'''     (2) Residential rental or  nonresidential real property'''
-'''<span lang="EN">         (A) Residential rental property</span>'''
+'''         (A) Residential rental property'''
-'''<span lang="EN">              (i) Residential rental  property. The term “residential rental property” means any building or  structure if 80 percent or more of the gross rental income from such building  or structure for the taxable year is rental income from dwelling units.</span>'''
+'''              (i) Residential rental  property. The term “residential rental property” means any building or  structure if 80 percent or more of the gross rental income from such building  or structure for the taxable year is rental income from dwelling units.'''
-'''<span lang="EN">               (ii) Definitions. For  purposes of clause (i)—</span>'''
+'''               (ii) Definitions. For  purposes of clause (i)—'''
-'''<span lang="EN">                   (I) the term “dwelling  unit” means a house or apartment used to provide living accommodations in a  building or structure, but does not include a unit in a hotel, motel, or  other establishment more than one-half of the units in which are used on a  transient basis, and</span>'''
+'''                   (I) the term “dwelling  unit” means a house or apartment used to provide living accommodations in a  building or structure, but does not include a unit in a hotel, motel, or  other establishment more than one-half of the units in which are used on a  transient basis, and'''
-'''<span lang="EN">                   (II) if any portion of  the building or structure is occupied by the taxpayer, the gross rental  income from such building or structure shall include the rental value of the  portion so occupied.</span>'''
+'''                   (II) if any portion of  the building or structure is occupied by the taxpayer, the gross rental  income from such building or structure shall include the rental value of the  portion so occupied.'''
-'''<span lang="EN">         (B) Nonresidential real property.  The term “nonresidential real property” means section 1250 property which is  not—</span>'''
+'''         (B) Nonresidential real property.  The term “nonresidential real property” means section 1250 property which is  not—'''
-'''<span lang="EN">              (i) residential rental  property, or</span>'''
+'''              (i) residential rental  property, or'''
-'''<span lang="EN">              (ii) property with a class  life of less than 27.5 years.</span>'''
+'''              (ii) property with a class  life of less than 27.5 years.'''
-'''<span lang="EN">    (3) Classification of certain property</span>'''
+'''    (3) Classification of certain property'''
-'''<span lang="EN">         (A) 3-year property. The term  “3-year property” includes—</span>'''
+'''         (A) 3-year property. The term  “3-year property” includes—'''
-'''<span lang="EN">              (i) any race horse—</span>'''
+'''              (i) any race horse—'''
-'''<span lang="EN">                   (I) which is placed in  service before January 1, 2018, and</span>'''
+'''                   (I) which is placed in  service before January 1, 2018, and'''
-'''<span lang="EN">                   (II) which is placed in  service after December 31, 2017, and which is more than 2 years old at the  time such horse is placed in service by such purchaser,</span>'''
+'''                   (II) which is placed in  service after December 31, 2017, and which is more than 2 years old at the  time such horse is placed in service by such purchaser,'''
-'''<span lang="EN">              (ii) any horse other than a  race horse which is more than 12 years old at the time it is placed in  service, and</span>'''
+'''              (ii) any horse other than a  race horse which is more than 12 years old at the time it is placed in  service, and'''
-'''<span lang="EN">              (iii) any qualified  rent-to-own property.</span>'''
+'''              (iii) any qualified  rent-to-own property.'''
-'''<span lang="EN">         (B) 5-year property. The term  “5-year property” includes—</span>'''
+'''         (B) 5-year property. The term  “5-year property” includes—'''
-'''<span lang="EN">              (i) any automobile or light  general purpose truck,</span>'''
+'''              (i) any automobile or light  general purpose truck,'''
-'''<span lang="EN">              (ii) any semiconductor manufacturing  equipment,</span>'''
+'''              (ii) any semiconductor manufacturing  equipment,'''
-'''<span lang="EN">              (iii) any computer-based  telephone central office switching equipment,</span>'''
+'''              (iii) any computer-based  telephone central office switching equipment,'''
-'''<span lang="EN">              (iv) any qualified  technological equipment,</span>'''
+'''              (iv) any qualified  technological equipment,'''
-'''<span lang="EN">              (v) any section 1245 property  used in connection with research and experimentation,</span>'''
+'''              (v) any section 1245 property  used in connection with research and experimentation,'''
-'''<span lang="EN">              (vi) any property which—</span>'''
+'''              (vi) any property which—'''
-'''<span lang="EN">                   (I) is described in  subparagraph (A) of section 48(a)(3) (or would be so described if “solar or  wind energy” were substituted for “solar energy” in clause (i) thereof and  the last sentence of such section did not apply to such subparagraph),</span>'''
+'''                   (I) is described in  subparagraph (A) of section 48(a)(3) (or would be so described if “solar or  wind energy” were substituted for “solar energy” in clause (i) thereof and  the last sentence of such section did not apply to such subparagraph),'''
-'''<span lang="EN">                   (II) is described in  paragraph (15) of section 48(l) (as in effect on the day before the date of  the enactment of the Revenue Reconciliation Act of 1990) and is a qualifying  small power production facility within the meaning of section 3(17)(C) of the  Federal Power Act (16 U.S.C. 796(17)(C)), as in effect on September 1, 1986,  or</span>'''
+'''                   (II) is described in  paragraph (15) of section 48(l) (as in effect on the day before the date of  the enactment of the Revenue Reconciliation Act of 1990) and is a qualifying  small power production facility within the meaning of section 3(17)(C) of the  Federal Power Act (16 U.S.C. 796(17)(C)), as in effect on September 1, 1986,  or'''
-'''<span lang="EN">                   (III) is described in  section 48(l)(3)(A)(ix) (as in effect on the day before the date of the  enactment of the Revenue Reconciliation Act of 1990), and</span>'''
+'''                   (III) is described in  section 48(l)(3)(A)(ix) (as in effect on the day before the date of the  enactment of the Revenue Reconciliation Act of 1990), and'''
-'''<span lang="EN">              (vii) any machinery or  equipment (other than any grain bin, cotton ginning asset, fence, or other  land improvement) which is used in a farming business (as defined in section  263A(e)(4)), the original use of which commences with the taxpayer after  December 31, 2017.</span>'''
+'''              (vii) any machinery or  equipment (other than any grain bin, cotton ginning asset, fence, or other  land improvement) which is used in a farming business (as defined in section  263A(e)(4)), the original use of which commences with the taxpayer after  December 31, 2017.'''
-'''<span lang="EN">Nothing in any provision of law shall be construed to treat property as not  being described in clause (vi)(I) (or the corresponding provisions of prior  law) by reason of being public utility property (within the meaning of  section 48(a)(3)).</span>'''
+'''Nothing in any provision of law shall be construed to treat property as not  being described in clause (vi)(I) (or the corresponding provisions of prior  law) by reason of being public utility property (within the meaning of  section 48(a)(3)).'''
-'''<span lang="EN">         (C) 7-year property. The term  “7-year property” includes—</span>'''
+'''         (C) 7-year property. The term  “7-year property” includes—'''
-'''<span lang="EN">              (i) any railroad track, and </span>'''
+'''              (i) any railroad track, and '''
-'''<span lang="EN">              (ii) any motorsports  entertainment complex,</span>'''
+'''              (ii) any motorsports  entertainment complex,'''
-'''<span lang="EN">              (iii) any Alaska natural gas  pipeline,</span>'''
+'''              (iii) any Alaska natural gas  pipeline,'''
-'''<span lang="EN">              (iv) any natural gas gathering  line the original use of which commences with the taxpayer after April 11,  2005, and</span>'''
+'''              (iv) any natural gas gathering  line the original use of which commences with the taxpayer after April 11,  2005, and'''
-'''<span lang="EN">              </span>'''
+'''              '''
-'''<span lang="EN">              (v) any property which—</span>'''
+'''              (v) any property which—'''
-'''<span lang="EN">                   (I) does not have a class  life, and</span>'''
+'''                   (I) does not have a class  life, and'''
-'''<span lang="EN">                   (II) is not otherwise  classified under paragraph (2) or this paragraph.</span>'''
+'''                   (II) is not otherwise  classified under paragraph (2) or this paragraph.'''
-'''<span lang="EN">         (D) 10-year property. The term  “10-year property” includes—</span>'''
+'''         (D) 10-year property. The term  “10-year property” includes—'''
-'''<span lang="EN">              (i) any single purpose  agricultural or horticultural structure (within the meaning of subsection  (i)(13)),</span>'''
+'''              (i) any single purpose  agricultural or horticultural structure (within the meaning of subsection  (i)(13)),'''
-'''<span lang="EN">              (ii) any tree or vine bearing  fruit or nuts,</span>'''
+'''              (ii) any tree or vine bearing  fruit or nuts,'''
-'''<span lang="EN">               (iii) any qualified smart electric meter, and</span>'''
+'''               (iii) any qualified smart electric meter, and'''
-'''<span lang="EN">              (iv) any qualified smart  electric grid system.</span>'''
+'''              (iv) any qualified smart  electric grid system.'''
-'''<span lang="EN">         (E) 15-year property. The term  “15-year property” includes—</span>'''
+'''         (E) 15-year property. The term  “15-year property” includes—'''
-'''<span lang="EN">              (i) any municipal wastewater  treatment plant,</span>'''
+'''              (i) any municipal wastewater  treatment plant,'''
-'''<span lang="EN">              (ii) any telephone  distribution plant and comparable equipment used for 2-way exchange of voice  and data communications,</span>'''
+'''              (ii) any telephone  distribution plant and comparable equipment used for 2-way exchange of voice  and data communications,'''
-'''<span lang="EN">              (iii) any section 1250  property which is a retail motor fuels outlet (whether or not food or other  convenience items are sold at the outlet),</span>'''
+'''              (iii) any section 1250  property which is a retail motor fuels outlet (whether or not food or other  convenience items are sold at the outlet),'''
-'''<span lang="EN">              (iv) initial clearing and  grading land improvements with respect to gas utility property,</span>'''
+'''              (iv) initial clearing and  grading land improvements with respect to gas utility property,'''
-'''<span lang="EN">              (v) any section 1245 property  (as defined in section 1245(a)(3)) used in the transmission at 69 or more  kilovolts of electricity for sale and the original use of which commences  with the taxpayer after April 11, 2005, and</span>'''
+'''              (v) any section 1245 property  (as defined in section 1245(a)(3)) used in the transmission at 69 or more  kilovolts of electricity for sale and the original use of which commences  with the taxpayer after April 11, 2005, and'''
-'''<span lang="EN">              (vi) any natural gas  distribution line the original use of which commences with the taxpayer after  April 11, 2005, and which is placed in service before January 1, 2011.</span>'''
+'''              (vi) any natural gas  distribution line the original use of which commences with the taxpayer after  April 11, 2005, and which is placed in service before January 1, 2011.'''
-'''<span lang="EN">         (F) 20-year property. The term  “20-year property” means initial clearing and grading land improvements with  respect to any electric utility transmission and distribution plant.</span>'''
+'''         (F) 20-year property. The term  “20-year property” means initial clearing and grading land improvements with  respect to any electric utility transmission and distribution plant.'''
-'''<span lang="EN">     (4) Railroad grading or tunnel  bore. The term “railroad grading or tunnel bore” means all improvements  resulting from excavations (including tunneling), construction of  embankments, clearings, diversions of roads and streams, sodding of slopes,  and from similar work necessary to provide, construct, reconstruct, alter,  protect, improve, replace, or restore a roadbed or right-of-way for railroad  track.</span>'''
+'''     (4) Railroad grading or tunnel  bore. The term “railroad grading or tunnel bore” means all improvements  resulting from excavations (including tunneling), construction of  embankments, clearings, diversions of roads and streams, sodding of slopes,  and from similar work necessary to provide, construct, reconstruct, alter,  protect, improve, replace, or restore a roadbed or right-of-way for railroad  track.'''
-'''<span lang="EN">     (5) Water utility property. The  term “water utility property” means property—</span>'''
+'''     (5) Water utility property. The  term “water utility property” means property—'''
-'''<span lang="EN">         (A) which is an integral part of  the gathering, treatment, or commercial distribution of water, and which,  without regard to this paragraph, would be 20-year property, and</span>'''
+'''         (A) which is an integral part of  the gathering, treatment, or commercial distribution of water, and which,  without regard to this paragraph, would be 20-year property, and'''
-'''<span lang="EN">         (B) any municipal sewer.</span>'''
+'''         (B) any municipal sewer.'''
-'''<span lang="EN">    (6) Qualified improvement property</span>'''
+'''    (6) Qualified improvement property'''
-'''<span lang="EN">         (A) In general. The term “qualified  improvement property” means any improvement to an interior portion of a  building which is nonresidential real property if such improvement is placed  in service after the date such building was first placed in service.</span>'''
+'''         (A) In general. The term “qualified  improvement property” means any improvement to an interior portion of a  building which is nonresidential real property if such improvement is placed  in service after the date such building was first placed in service.'''
-'''<span lang="EN">         </span>'''
+'''         '''
-'''<span lang="EN">         (B) Certain improvements not included.  Such term shall not include any improvement for which the expenditure is  attributable to—</span>'''
+'''         (B) Certain improvements not included.  Such term shall not include any improvement for which the expenditure is  attributable to—'''
-'''<span lang="EN">              (i) the enlargement of the  building,</span>'''
+'''              (i) the enlargement of the  building,'''
-'''<span lang="EN">              (ii) any elevator or  escalator, or</span>'''
+'''              (ii) any elevator or  escalator, or'''
-'''<span lang="EN">              (iii) the internal structural  framework of the building.</span>'''
+'''              (iii) the internal structural  framework of the building.'''
-'''<span lang="EN">(f)  Property to which section does not apply [EXCLUDED]</span>'''
+'''(f)  Property to which section does not apply [EXCLUDED]'''
-'''<span lang="EN">(g) Alternative depreciation system for certain property</span>'''
+'''(g) Alternative depreciation system for certain property'''
-'''<span lang="EN">    (1) In general. In the case of—</span>'''
+'''    (1) In general. In the case of—'''
-'''<span lang="EN">         (A) any tangible property which  during the taxable year is used predominantly outside the United States,</span>'''
+'''         (A) any tangible property which  during the taxable year is used predominantly outside the United States,'''
-'''<span lang="EN">         (B) any tax-exempt use property,</span>'''
+'''         (B) any tax-exempt use property,'''
-'''<span lang="EN">         (C) any tax-exempt bond financed  property,</span>'''
+'''         (C) any tax-exempt bond financed  property,'''
-'''<span lang="EN">         (D) any imported property covered  by an Executive order under paragraph (6),</span>'''
+'''         (D) any imported property covered  by an Executive order under paragraph (6),'''
-'''<span lang="EN">         (E) any property to which an  election under paragraph (7) applies,</span>'''
+'''         (E) any property to which an  election under paragraph (7) applies,'''
-'''<span lang="EN">         (F) any property described in  paragraph (8), and</span>'''
+'''         (F) any property described in  paragraph (8), and'''
-'''<span lang="EN">         (G) any property with a recovery  period of 10 years or more which is held by an electing farming business (as  defined in section 163(j)(7)(C)), the depreciation deduction provided by  section 167(a) shall be determined under the alternative depreciation system.</span>'''
+'''         (G) any property with a recovery  period of 10 years or more which is held by an electing farming business (as  defined in section 163(j)(7)(C)), the depreciation deduction provided by  section 167(a) shall be determined under the alternative depreciation system.'''
-'''<span lang="EN">    (2) Alternative depreciation system. For  purposes of paragraph (1), the alternative depreciation system is  depreciation determined by using—</span>'''
+'''    (2) Alternative depreciation system. For  purposes of paragraph (1), the alternative depreciation system is  depreciation determined by using—'''
-'''<span lang="EN">         (A) the straight line method  (without regard to salvage value),</span>'''
+'''         (A) the straight line method  (without regard to salvage value),'''
-'''<span lang="EN">         (B) the applicable convention  determined under subsection (d), and</span>'''
+'''         (B) the applicable convention  determined under subsection (d), and'''
-'''<span lang="EN">         (C) a recovery period determined  under the following table: In the case of __________ the recovery period  shall be ______</span>'''
+'''         (C) a recovery period determined  under the following table: In the case of __________ the recovery period  shall be ______'''
-'''<span lang="EN">               (i) Property not  described in clause (ii) or (iii) -- The class life.</span>'''
+'''               (i) Property not  described in clause (ii) or (iii) -- The class life.'''
-'''<span lang="EN">               (ii) Personal property  with no class life -- 12 years.</span>'''
+'''               (ii) Personal property  with no class life -- 12 years.'''
-'''<span lang="EN">               (iii) Residential rental  property -- 30 years</span>'''
+'''               (iii) Residential rental  property -- 30 years'''
-'''<span lang="EN">               (iv) Nonresidential real  property -- 40 years</span>'''
+'''               (iv) Nonresidential real  property -- 40 years'''
-'''<span lang="EN">               (v) Any railroad grading  or tunnel bore or water utility property -- 50 years</span>'''
+'''               (v) Any railroad grading  or tunnel bore or water utility property -- 50 years'''
-'''<span lang="EN">     (3) Special rules for determining  class life</span>'''
+'''     (3) Special rules for determining  class life'''
-'''<span lang="EN">         (A) Tax-exempt use property subject  to lease. In the case of any tax-exempt use property subject to a lease, the  recovery period used for purposes of paragraph (2) shall (notwithstanding any  other subparagraph of this paragraph) in no event be less than 125 percent of  the lease term.</span>'''
+'''         (A) Tax-exempt use property subject  to lease. In the case of any tax-exempt use property subject to a lease, the  recovery period used for purposes of paragraph (2) shall (notwithstanding any  other subparagraph of this paragraph) in no event be less than 125 percent of  the lease term.'''
-'''<span lang="EN">          (B) Special rule for certain  property assigned to classes. For purposes of paragraph (2), in the case of  property described in any of the following subparagraphs of subsection  (e)(3), the class life shall be determined as follows:If property is  described in subparagraph _____, the class life is ____</span>'''
+'''          (B) Special rule for certain  property assigned to classes. For purposes of paragraph (2), in the case of  property described in any of the following subparagraphs of subsection  (e)(3), the class life shall be determined as follows:If property is  described in subparagraph _____, the class life is ____'''
-'''<span lang="EN">(A)(iii), 4   </span>'''
+'''(A)(iii), 4   '''
-'''<span lang="EN">(B)(ii), 5   </span>'''
+'''(B)(ii), 5   '''
-'''<span lang="EN">(B)(iii), 9.5</span>'''
+'''(B)(iii), 9.5'''
-'''<span lang="EN">(B)(vii), 10   </span>'''
+'''(B)(vii), 10   '''
-'''<span lang="EN">(C)(i), 10   </span>'''
+'''(C)(i), 10   '''
-'''<span lang="EN">(C)(iii), 22   </span>'''
+'''(C)(iii), 22   '''
-'''<span lang="EN">(C)(iv), 14   </span>'''
+'''(C)(iv), 14   '''
-'''<span lang="EN">(D)(i), 15   </span>'''
+'''(D)(i), 15   '''
-'''<span lang="EN">(D)(ii), 20   </span>'''
+'''(D)(ii), 20   '''
-'''<span lang="EN">(D)(v), 20   </span>'''
+'''(D)(v), 20   '''
-'''<span lang="EN">(E)(i), 24   </span>'''
+'''(E)(i), 24   '''
-'''<span lang="EN">(E)(ii), 24   </span>'''
+'''(E)(ii), 24   '''
-'''<span lang="EN">(E)(iii), 20   </span>'''
+'''(E)(iii), 20   '''
-'''<span lang="EN">(E)(iv), 20   </span>'''
+'''(E)(iv), 20   '''
-'''<span lang="EN">(E)(v), 30   </span>'''
+'''(E)(v), 30   '''
-'''<span lang="EN">(E)(vi), 35   </span>'''
+'''(E)(vi), 35   '''
-'''<span lang="EN">(F), 25   </span>'''
+'''(F), 25   '''
-'''<span lang="EN">          (C) Qualified technological  equipment. In the case of any qualified technological equipment, the recovery  period used for purposes of paragraph (2) shall be 5 years.</span>'''
+'''          (C) Qualified technological  equipment. In the case of any qualified technological equipment, the recovery  period used for purposes of paragraph (2) shall be 5 years.'''
-'''<span lang="EN">          (D) Automobiles, etc. In the  case of any automobile or light general purpose truck, the recovery period  used for purposes of paragraph (2) shall be 5 years.</span>'''
+'''          (D) Automobiles, etc. In the  case of any automobile or light general purpose truck, the recovery period  used for purposes of paragraph (2) shall be 5 years.'''
-'''<span lang="EN">          (E) Certain real property. In  the case of any section 1245 property which is real property with no class  life, the recovery period used for purposes of paragraph (2) shall be 40  years.</span>'''
+'''          (E) Certain real property. In  the case of any section 1245 property which is real property with no class  life, the recovery period used for purposes of paragraph (2) shall be 40  years.'''
-'''<span lang="EN">     (4) Exception for certain property  used outside United States. Subparagraph (A) of paragraph (1) shall not apply  to—</span>'''
+'''     (4) Exception for certain property  used outside United States. Subparagraph (A) of paragraph (1) shall not apply  to—'''
-'''<span lang="EN">         (A) any aircraft which is  registered by the Administrator of the Federal Aviation Agency and which is  operated to and from the United States or is operated under contract with the  United States;</span>'''
+'''         (A) any aircraft which is  registered by the Administrator of the Federal Aviation Agency and which is  operated to and from the United States or is operated under contract with the  United States;'''
-'''<span lang="EN">         (B) rolling stock which is used  within and without the United States and which is—</span>'''
+'''         (B) rolling stock which is used  within and without the United States and which is—'''
-'''<span lang="EN">              (i) of a rail carrier subject  to part A of subtitle IV of title 49, or</span>'''
+'''              (i) of a rail carrier subject  to part A of subtitle IV of title 49, or'''
-'''<span lang="EN">              (ii) of a United States person  (other than a corporation described in clause (i)) but only if the rolling  stock is not leased to one or more foreign persons for periods aggregating  more than 12 months in any 24-month period;</span>'''
+'''              (ii) of a United States person  (other than a corporation described in clause (i)) but only if the rolling  stock is not leased to one or more foreign persons for periods aggregating  more than 12 months in any 24-month period;'''
-'''<span lang="EN">         (C) any vessel documented under the  laws of the United States which is operated in the foreign or domestic  commerce of the United States;</span>'''
+'''         (C) any vessel documented under the  laws of the United States which is operated in the foreign or domestic  commerce of the United States;'''
-'''<span lang="EN">         (D) any motor vehicle of a United  States person (as defined in section 7701(a)(30)) which is operated to and  from the United States;</span>'''
+'''         (D) any motor vehicle of a United  States person (as defined in section 7701(a)(30)) which is operated to and  from the United States;'''
-'''<span lang="EN">         (E) any container of a United  States person which is used in the transportation of property to and from the  United States;</span>'''
+'''         (E) any container of a United  States person which is used in the transportation of property to and from the  United States;'''
-'''<span lang="EN">         (F) any property (other than a  vessel or an aircraft) of a United States person which is used for the  purpose of exploring for, developing, removing, or transporting resources  from the outer Continental Shelf (within the meaning of section 2 of the  Outer Continental Shelf Lands Act, as amended and supplemented; (43 U.S.C.  1331));</span>'''
+'''         (F) any property (other than a  vessel or an aircraft) of a United States person which is used for the  purpose of exploring for, developing, removing, or transporting resources  from the outer Continental Shelf (within the meaning of section 2 of the  Outer Continental Shelf Lands Act, as amended and supplemented; (43 U.S.C.  1331));'''
-'''<span lang="EN">         (G) any property which is owned by  a domestic corporation (other than a corporation which has an election in  effect under section 936) or by a United States citizen (other than a citizen  entitled to the benefits of section 931 or 933) and which is used  predominantly in a possession of the United States by such a corporation or  such a citizen, or by a corporation created or organized in, or under the law  of, a possession of the United States;</span>'''
+'''         (G) any property which is owned by  a domestic corporation (other than a corporation which has an election in  effect under section 936) or by a United States citizen (other than a citizen  entitled to the benefits of section 931 or 933) and which is used  predominantly in a possession of the United States by such a corporation or  such a citizen, or by a corporation created or organized in, or under the law  of, a possession of the United States;'''
-'''<span lang="EN">         (H) any communications satellite  (as defined in section 103(3) of the Communications Satellite Act of 1962, 47  U.S.C. 702(3)), or any interest therein, of a United States person;</span>'''
+'''         (H) any communications satellite  (as defined in section 103(3) of the Communications Satellite Act of 1962, 47  U.S.C. 702(3)), or any interest therein, of a United States person;'''
-'''<span lang="EN">         (I) any cable, or any interest  therein, of a domestic corporation engaged in furnishing telephone service to  which section 168(i)(10)(C) applies (or of a wholly owned domestic subsidiary  of such a corporation), if such cable is part of a submarine cable system  which constitutes part of a communication link exclusively between the United  States and one or more foreign countries;</span>'''
+'''         (I) any cable, or any interest  therein, of a domestic corporation engaged in furnishing telephone service to  which section 168(i)(10)(C) applies (or of a wholly owned domestic subsidiary  of such a corporation), if such cable is part of a submarine cable system  which constitutes part of a communication link exclusively between the United  States and one or more foreign countries;'''
-'''<span lang="EN">         (J) any property (other than a  vessel or an aircraft) of a United States person which is used in  international or territorial waters within the northern portion of the  Western Hemisphere for the purpose of exploring for, developing, removing, or  transporting resources from ocean waters or deposits under such waters;</span>'''
+'''         (J) any property (other than a  vessel or an aircraft) of a United States person which is used in  international or territorial waters within the northern portion of the  Western Hemisphere for the purpose of exploring for, developing, removing, or  transporting resources from ocean waters or deposits under such waters;'''
-'''<span lang="EN">         (K) any property described in  section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment  of the Revenue Reconciliation Act of 1990) which is owned by a United States  person and which is used in international or territorial waters to generate  energy for use in the United States; and</span>'''
+'''         (K) any property described in  section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment  of the Revenue Reconciliation Act of 1990) which is owned by a United States  person and which is used in international or territorial waters to generate  energy for use in the United States; and'''
-'''<span lang="EN">         (L) any satellite (not described in  subparagraph (H)) or other spacecraft (or any interest therein) held by a  United States person if such satellite or other spacecraft was launched from  within the United States.</span>'''
+'''         (L) any satellite (not described in  subparagraph (H)) or other spacecraft (or any interest therein) held by a  United States person if such satellite or other spacecraft was launched from  within the United States.'''
-'''<span lang="EN">For purposes of subparagraph (J), the term “northern portion of the Western  Hemisphere” means the area lying west of the 30th meridian west of Greenwich,  east of the international dateline, and north of the Equator, but not  including any foreign country which is a country of South America.</span>'''
+'''For purposes of subparagraph (J), the term “northern portion of the Western  Hemisphere” means the area lying west of the 30th meridian west of Greenwich,  east of the international dateline, and north of the Equator, but not  including any foreign country which is a country of South America.'''
-'''<span lang="EN">    (5) Tax-exempt bond financed property.  For purposes of this subsection—</span>'''
+'''    (5) Tax-exempt bond financed property.  For purposes of this subsection—'''
-'''<span lang="EN">         (A) In general. Except as otherwise  provided in this paragraph, the term “tax-exempt bond financed property”  means any property to the extent such property is financed (directly or  indirectly) by an obligation the interest on which is exempt from tax under  section 103(a).</span>'''
+'''         (A) In general. Except as otherwise  provided in this paragraph, the term “tax-exempt bond financed property”  means any property to the extent such property is financed (directly or  indirectly) by an obligation the interest on which is exempt from tax under  section 103(a).'''
-'''<span lang="EN">          (B) Allocation of bond  proceeds. For purposes of subparagraph (A), the proceeds of any obligation  shall be treated as used to finance property acquired in connection with the  issuance of such obligation in the order in which such property is placed in  service.</span>'''
+'''          (B) Allocation of bond  proceeds. For purposes of subparagraph (A), the proceeds of any obligation  shall be treated as used to finance property acquired in connection with the  issuance of such obligation in the order in which such property is placed in  service.'''
-'''<span lang="EN">          (C) Qualified residential  rental projects. The term “tax-exempt bond financed property” shall not  include any qualified residential rental project (within the meaning of section  142(a)(7)).</span>'''
+'''          (C) Qualified residential  rental projects. The term “tax-exempt bond financed property” shall not  include any qualified residential rental project (within the meaning of section  142(a)(7)).'''
-'''<span lang="EN">     (6) Imported property</span>'''
+'''     (6) Imported property'''
-'''<span lang="EN">         (A) Countries maintaining trade  restrictions or engaging in discriminatory acts. If the President determines  that a foreign country—</span>'''
+'''         (A) Countries maintaining trade  restrictions or engaging in discriminatory acts. If the President determines  that a foreign country—'''
-'''<span lang="EN">              (i) maintains nontariff trade  restrictions, including variable import fees, which substantially burden  United States commerce in a manner inconsistent with provisions of trade  agreements, or</span>'''
+'''              (i) maintains nontariff trade  restrictions, including variable import fees, which substantially burden  United States commerce in a manner inconsistent with provisions of trade  agreements, or'''
-'''<span lang="EN">              (ii) engages in discriminatory  or other acts (including tolerance of international cartels) or policies  unjustifiably restricting United States commerce, the President may by  Executive order provide for the application of paragraph (1)(D) to any  article or class of articles manufactured or produced in such foreign country  for such period as may be provided by such Executive order. Any period  specified in the preceding sentence shall not apply to any property ordered  before (or the construction, reconstruction, or erection of which began  before) the date of the Executive order unless the President determines an  earlier date to be in the public interest and specifies such date in the  Executive order.</span>'''
+'''              (ii) engages in discriminatory  or other acts (including tolerance of international cartels) or policies  unjustifiably restricting United States commerce, the President may by  Executive order provide for the application of paragraph (1)(D) to any  article or class of articles manufactured or produced in such foreign country  for such period as may be provided by such Executive order. Any period  specified in the preceding sentence shall not apply to any property ordered  before (or the construction, reconstruction, or erection of which began  before) the date of the Executive order unless the President determines an  earlier date to be in the public interest and specifies such date in the  Executive order.'''
-'''<span lang="EN">         (B) Imported property. For purposes  of this subsection, the term “imported property” means any property if—</span>'''
+'''         (B) Imported property. For purposes  of this subsection, the term “imported property” means any property if—'''
-'''<span lang="EN">              (i) such property was completed  outside the United States, or</span>'''
+'''              (i) such property was completed  outside the United States, or'''
-'''<span lang="EN">              (ii) less than 50 percent of  the basis of such property is attributable to value added within the United  States. For purposes of this subparagraph, the term “United States” includes  the Commonwealth of Puerto Rico and the possessions of the United States.</span>'''
+'''              (ii) less than 50 percent of  the basis of such property is attributable to value added within the United  States. For purposes of this subparagraph, the term “United States” includes  the Commonwealth of Puerto Rico and the possessions of the United States.'''
-'''<span lang="EN">    (7) Election to use alternative  depreciation system</span>'''
+'''    (7) Election to use alternative  depreciation system'''
-'''<span lang="EN">         (A) In general. If the taxpayer  makes an election under this paragraph with respect to any class of property  for any taxable year, the alternative depreciation system under this  subsection shall apply to all property in such class placed in service during  such taxable year. Notwithstanding the preceding sentence, in the case of  nonresidential real property or residential rental property, such election  may be made separately with respect to each property.</span>'''
+'''         (A) In general. If the taxpayer  makes an election under this paragraph with respect to any class of property  for any taxable year, the alternative depreciation system under this  subsection shall apply to all property in such class placed in service during  such taxable year. Notwithstanding the preceding sentence, in the case of  nonresidential real property or residential rental property, such election  may be made separately with respect to each property.'''
-'''<span lang="EN">          (B) Election irrevocable. An  election under subparagraph (A), once made, shall be irrevocable.</span>'''
+'''          (B) Election irrevocable. An  election under subparagraph (A), once made, shall be irrevocable.'''
-'''<span lang="EN">     (8) Electing real property trade  or business. The property described in this paragraph shall consist of any  nonresidential real property, residential rental property, and qualified  improvement property held by an electing real property trade or business (as  defined in 163(j)(7)(B)).</span>'''
+'''     (8) Electing real property trade  or business. The property described in this paragraph shall consist of any  nonresidential real property, residential rental property, and qualified  improvement property held by an electing real property trade or business (as  defined in 163(j)(7)(B)).'''
-'''<span lang="EN">(h) Tax-exempt use property [EXCLUDED]</span>'''
+'''(h) Tax-exempt use property [EXCLUDED]'''
-'''<span lang="EN">(i) Definitions and special rules [EXCLUDED]</span>'''
+'''(i) Definitions and special rules [EXCLUDED]'''
-'''<span lang="EN">(j) Property on Indian reservations [EXCLUDED]</span>'''
+'''(j) Property on Indian reservations [EXCLUDED]'''
-'''<span lang="EN">(k) Special allowance for certain property [EXCLUDED]</span>'''
+'''(k) Special allowance for certain property [EXCLUDED]'''
-'''<span lang="EN">(l) Special allowance for second generation biofuel plant property [EXCLUDED]</span>'''
+'''(l) Special allowance for second generation biofuel plant property [EXCLUDED]'''
-'''<span lang="EN">(m) Special allowance for certain reuse and recycling property [EXCLUDED]</span>'''
+'''(m) Special allowance for certain reuse and recycling property [EXCLUDED]'''
-'''<span lang="EN">(n)  Special allowance for qualified disaster assistance property [EXCLUDED]</span>'''
+'''(n)  Special allowance for qualified disaster assistance property [EXCLUDED]'''
 |}
 {| class="wikitable"
-|<span lang="EN">Treas. Reg. § 1.167(a)-2 Tangible property.</span>
+|Treas. Reg. § 1.167(a)-2 Tangible property.
-<span lang="EN">The depreciation allowance in the case of tangible property applies only to  that part of the property which is subject to wear and tear, to decay or  decline from natural causes, to exhaustion, and to obsolescence. The  allowance '''does not apply to inventories  or stock in trade, or to land apart from the improvements or physical  development added to it'''. The allowance does not apply to natural  resources which are subject to the allowance for depletion provided in  section 611. No deduction for depreciation shall be allowed on automobiles or  other vehicles used solely for pleasure, on a building used by the taxpayer  solely as his residence, or on furniture or furnishings therein, personal  effects, or clothing; but properties and costumes used exclusively in a business,  such as a theatrical business, may be depreciated.</span>
+The depreciation allowance in the case of tangible property applies only to  that part of the property which is subject to wear and tear, to decay or  decline from natural causes, to exhaustion, and to obsolescence. The  allowance '''does not apply to inventories  or stock in trade, or to land apart from the improvements or physical  development added to it'''. The allowance does not apply to natural  resources which are subject to the allowance for depletion provided in  section 611. No deduction for depreciation shall be allowed on automobiles or  other vehicles used solely for pleasure, on a building used by the taxpayer  solely as his residence, or on furniture or furnishings therein, personal  effects, or clothing; but properties and costumes used exclusively in a business,  such as a theatrical business, may be depreciated.
 |}
-'''<span lang="EN">Property Eligible for Deduction</span>'''
+'''Property Eligible for Deduction'''
-<span lang="EN">§167(a) → permits a deduction for the “exhaustion, wear and tear” and for the “obsolescence” of property used in a trade or business or held for the production of income; two required features:</span>
+§167(a) → permits a deduction for the “exhaustion, wear and tear” and for the “obsolescence” of property used in a trade or business or held for the production of income; two required features:
-<span lang="EN">(1)   It has a useful life beyond the taxable year (the reason it was capitalized in the first place); and</span>
+(1)   It has a useful life beyond the taxable year (the reason it was capitalized in the first place); and
-<span lang="EN">(2)   It wears out, decays, declines in value due to natural causes, or is subject to exhaustion or obsolescence</span>
+(2)   It wears out, decays, declines in value due to natural causes, or is subject to exhaustion or obsolescence
-<u><span lang="EN">Simon v. Commissioner (1994)</span></u> <span lang="EN">- Tax Court [violin bows depreciated for wear and tear]</span>
+<u>Simon v. Commissioner (1994)</u> - Tax Court [violin bows depreciated for wear and tear]
-<span lang="EN">RULE: A federal taxpayer may take depreciation deductions for recovery property under the accelerated cost recovery system.</span>
+RULE: A federal taxpayer may take depreciation deductions for recovery property under the accelerated cost recovery system.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      Taxpayers may take depreciation deductions for recovery property under the ACRS.</span>
+●      Taxpayers may take depreciation deductions for recovery property under the ACRS.
-<span lang="EN">●      Recovery property must be:</span>
+●      Recovery property must be:
-<span lang="EN">○      (1) tangible,</span>
+○      (1) tangible,
-<span lang="EN">○      (2) placed in service after 1980,</span>
+○      (2) placed in service after 1980,
-<span lang="EN">○      (3) used in a trade or business, and</span>
+○      (3) used in a trade or business, and
-<span lang="EN">○      (4) of a character subject to the allowance for depreciation.</span>
+○      (4) of a character subject to the allowance for depreciation.
-<span lang="EN">●      A comparison between current and previous tax law indicates that Congress used the term “depreciation” to mean '''exhaustion, wear and tear, or obsolescence'''.</span>
+●      A comparison between current and previous tax law indicates that Congress used the term “depreciation” to mean '''exhaustion, wear and tear, or obsolescence'''.
-<u><span lang="EN">Simon v. Commissioner (1995)</span></u> <span lang="EN">- 2nd Cir. Ct. of Appeals [PART II]</span>
+<u>Simon v. Commissioner (1995)</u> - 2nd Cir. Ct. of Appeals [PART II]
-<span lang="EN">RULE: Demonstration of a business asset’s useful life is not required to take depreciation deductions under the Accelerated Recovery Tax Act (ARTA).</span>
+RULE: Demonstration of a business asset’s useful life is not required to take depreciation deductions under the Accelerated Recovery Tax Act (ARTA).
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      The ACRS, under § 168, allows taxpayers to take depreciation deductions for recovery property.</span>
+●      The ACRS, under § 168, allows taxpayers to take depreciation deductions for recovery property.
-<span lang="EN">●      Recovery property is “tangible property of a character subject to the allowance for depreciation,” used in the course of carrying on a trade or business.</span>
+●      Recovery property is “tangible property of a character subject to the allowance for depreciation,” used in the course of carrying on a trade or business.
-<span lang="EN">●      The requirement that the business asset also have a determinable useful life, was a determination required for depreciation deductions prior to the implementation of ACRS.</span>
+●      The requirement that the business asset also have a determinable useful life, was a determination required for depreciation deductions prior to the implementation of ACRS.
-<span lang="EN">●      Not all business assets are subject to wear and tear. For instance, paintings hung on the wall of a business office or violin bows kept as collector’s items in a for-profit museum are technically business assets that do not undergo wear and tear.</span>
+●      Not all business assets are subject to wear and tear. For instance, paintings hung on the wall of a business office or violin bows kept as collector’s items in a for-profit museum are technically business assets that do not undergo wear and tear.
-<span lang="EN">●      Previously, a determination of a business asset’s determinable useful life was required in order to take a depreciation deduction.</span>
+●      Previously, a determination of a business asset’s determinable useful life was required in order to take a depreciation deduction.
-<span lang="EN">●      Depreciation deductions allow taxpayers to offset their taxable income by deducting the cost of a business asset over its useful life.</span>
+●      Depreciation deductions allow taxpayers to offset their taxable income by deducting the cost of a business asset over its useful life.
-<span lang="EN">●      The allowable depreciation allowance for each year could not be calculated without first establishing the asset’s useful life.</span>
+●      The allowable depreciation allowance for each year could not be calculated without first establishing the asset’s useful life.
-<span lang="EN">●      The introduction of the ACRS, however, eliminated the need to determine the useful life of an asset.</span>
+●      The introduction of the ACRS, however, eliminated the need to determine the useful life of an asset.
-<span lang="EN">●      In an effort to stimulate economic growth, the ACRS provides for accelerated depreciation periods that are unrelated to the useful life of an asset.</span>
+●      In an effort to stimulate economic growth, the ACRS provides for accelerated depreciation periods that are unrelated to the useful life of an asset.
-<span lang="EN">●      The determination of an asset’s useful life is no longer essential to calculate depreciation allowances.</span>
+●      The determination of an asset’s useful life is no longer essential to calculate depreciation allowances.
-<span lang="EN">●      In fact, depreciation periods under the ACRS are usually shorter than the asset’s true useful life.</span>
+●      In fact, depreciation periods under the ACRS are usually shorter than the asset’s true useful life.
-<span lang="EN">●      Congress also sought to simplify depreciation deductions by de-emphasizing concepts such as useful life and salvage value.</span>
+●      Congress also sought to simplify depreciation deductions by de-emphasizing concepts such as useful life and salvage value.
-<span lang="EN">●      §168 only requires that a business asset be subject to wear and tear to be eligible for depreciation deductions.</span>
+●      §168 only requires that a business asset be subject to wear and tear to be eligible for depreciation deductions.
-<span lang="EN">Some tangible assets, like works of art, are not depreciable even though they are used in a trade or business (i.e. painting on the wall of a law office to attract clients).</span>
+Some tangible assets, like works of art, are not depreciable even though they are used in a trade or business (i.e. painting on the wall of a law office to attract clients).
-'''<span lang="EN">Legislative History</span>'''
+'''Legislative History'''
-'''<span lang="EN">ADR → Asset depreciation range</span>''' <span lang="EN">-- Asset depreciation range was an accounting method established by the Internal Revenue Service in 1971 to determine the useful life of specific classes of depreciable assets. It was replaced with the accelerated cost recovery system ('''ACRS''') in 1981, which in turn was replaced by the modified accelerated cost recovery system ('''MACRS''') in 1986.</span>
+'''ADR → Asset depreciation range''' -- Asset depreciation range was an accounting method established by the Internal Revenue Service in 1971 to determine the useful life of specific classes of depreciable assets. It was replaced with the accelerated cost recovery system ('''ACRS''') in 1981, which in turn was replaced by the modified accelerated cost recovery system ('''MACRS''') in 1986.
-'''<span lang="EN">ERTA</span>''' <span lang="EN">→ The Economic Recovery Tax Act of 1981 (Pub.L. 97–34), also known as the ERTA or "Kemp–Roth Tax Cut", was a federal law enacted in the United States in 1981. [August 31, 2018]</span>
+'''ERTA''' → The Economic Recovery Tax Act of 1981 (Pub.L. 97–34), also known as the ERTA or "Kemp–Roth Tax Cut", was a federal law enacted in the United States in 1981. [August 31, 2018]
-<span lang="EN">●      It was an act "to amend the Internal Revenue Code of 1954 to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings, and for other purposes".</span>
+●      It was an act "to amend the Internal Revenue Code of 1954 to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings, and for other purposes".
-<span lang="EN">●      Included in the act was an across-the-board decrease in the marginal income tax rates in the United States by 25% over three years, with the top rate falling from 70% to 50% and the bottom rate dropping from 14% to 11%.</span>
+●      Included in the act was an across-the-board decrease in the marginal income tax rates in the United States by 25% over three years, with the top rate falling from 70% to 50% and the bottom rate dropping from 14% to 11%.
-<span lang="EN">●      This act slashed estate taxes and trimmed taxes paid by business corporations by $150 billion over a five-year period.</span>
+●      This act slashed estate taxes and trimmed taxes paid by business corporations by $150 billion over a five-year period.
-<span lang="EN">●      Additionally the tax rates were indexed for inflation, though the indexing was delayed until 1985.</span>
+●      Additionally the tax rates were indexed for inflation, though the indexing was delayed until 1985.
-<span lang="EN">●      In the year after enactment of ERTA, the deficit ballooned, which in turn, drove interest rates from around 12% to over 20%, which, in turn, drove the economy into the second dip of the 1978-82 "double dip recession".</span>
+●      In the year after enactment of ERTA, the deficit ballooned, which in turn, drove interest rates from around 12% to over 20%, which, in turn, drove the economy into the second dip of the 1978-82 "double dip recession".
-'''<span lang="EN">ACRS</span>''' <span lang="EN">→ The Accelerated Cost Recovery System (ACRS) was a major component of the ERTA and was amended in 1986 to become the '''Modified Accelerated cost Recovery System''' ('''MACRS''').</span>
+'''ACRS''' → The Accelerated Cost Recovery System (ACRS) was a major component of the ERTA and was amended in 1986 to become the '''Modified Accelerated cost Recovery System''' ('''MACRS''').
-<span lang="EN">●      The system changed the way that depreciation deductions are allowed for tax purposes.</span>
+●      The system changed the way that depreciation deductions are allowed for tax purposes.
-<span lang="EN">●      Instead of basing the depreciation deduction on an estimate of the expected useful life of assets, the assets were placed into categories: 3, 5, 10, or 15 years of life.</span>
+●      Instead of basing the depreciation deduction on an estimate of the expected useful life of assets, the assets were placed into categories: 3, 5, 10, or 15 years of life.
-<span lang="EN">●      For example, the agriculture industry saw a re-evaluation of their farming assets. Items such as automobiles and swine were given 3 year depreciation values, and things like buildings and land had a 15-year depreciation value.</span>
+●      For example, the agriculture industry saw a re-evaluation of their farming assets. Items such as automobiles and swine were given 3 year depreciation values, and things like buildings and land had a 15-year depreciation value.
-<span lang="EN">●      The idea was that there would be a rise in tax cuts due to the optimistic consideration of depreciating values -- this would in turn put more cash into the pockets of business owners to promote investment and economic growth.</span>
+●      The idea was that there would be a rise in tax cuts due to the optimistic consideration of depreciating values -- this would in turn put more cash into the pockets of business owners to promote investment and economic growth.
-<span lang="EN">'''Modified Accelerated Cost Recovery System (MACRS)''' → MACRS is a depreciation system which allows the capitalized cost basis of assets to be recovered over a specified life of the asset by annual deductions for value depreciation. MACRS is the depreciation system used in the United States, and was created after the release of the Tax Reform Act of 1986.</span>
+'''Modified Accelerated Cost Recovery System (MACRS)''' → MACRS is a depreciation system which allows the capitalized cost basis of assets to be recovered over a specified life of the asset by annual deductions for value depreciation. MACRS is the depreciation system used in the United States, and was created after the release of the Tax Reform Act of 1986.
 {| class="wikitable"
-| colspan="2" |'''<span lang="EN">Table of  Property Types and Class Lives</span>'''
+| colspan="2" |'''Table of  Property Types and Class Lives'''
 |-
-|'''<span lang="EN">Description of  Assets</span>'''
+|'''Description of  Assets'''
-|'''<span lang="EN">Useful Life  (Years)</span>'''
+|'''Useful Life  (Years)'''
 |-
-|<span lang="EN">Tractors, racehorses, rent-to-own property,  etc.</span>
+|Tractors, racehorses, rent-to-own property,  etc.
-|<span lang="EN">3</span>
+|3
 |-
-|<span lang="EN">Automobiles, buses, trucks, computers,  office machinery, breeding cattle, furniture, etc.</span>
+|Automobiles, buses, trucks, computers,  office machinery, breeding cattle, furniture, etc.
-|<span lang="EN">5</span>
+|5
 |-
-|<span lang="EN">Office furniture, fixtures, agricultural  machinery, railroad track, etc.</span>
+|Office furniture, fixtures, agricultural  machinery, railroad track, etc.
-|<span lang="EN">7</span>
+|7
 |-
-|<span lang="EN">Vessels, tugs, agricultural structure, tree  or vine bearing fruits or nuts, etc.</span>
+|Vessels, tugs, agricultural structure, tree  or vine bearing fruits or nuts, etc.
-|<span lang="EN">10</span>
+|10
 |-
-|<span lang="EN">Municipal wastewater treatment plant,  restaurant property, natural gas distribution line, land improvements, such  as shrubbery, fences, and sidewalks, etc.</span>
+|Municipal wastewater treatment plant,  restaurant property, natural gas distribution line, land improvements, such  as shrubbery, fences, and sidewalks, etc.
-|<span lang="EN">15</span>
+|15
 |-
-|<span lang="EN">Farm buildings, certain municipal sewers,  etc.</span>
+|Farm buildings, certain municipal sewers,  etc.
-|<span lang="EN">20</span>
+|20
 |-
-|<span lang="EN">Water utility property, certain municipal  sewers, etc.</span>
+|Water utility property, certain municipal  sewers, etc.
-|<span lang="EN">25</span>
+|25
 |-
-|<span lang="EN">Any building or structure where 80% or more  of its gross rental income is from dwelling units</span>
+|Any building or structure where 80% or more  of its gross rental income is from dwelling units
-|<span lang="EN">27.5</span>
+|27.5
 |-
-|<span lang="EN">An office building, store, or warehouse that  is not residential property or has a class life of less than 27.5 years</span>
+|An office building, store, or warehouse that  is not residential property or has a class life of less than 27.5 years
-|<span lang="EN">39</span>
+|39
 |}
-'''<span lang="EN">The Mechanics of Depreciation</span>'''
+'''The Mechanics of Depreciation'''
-<span lang="EN">Variables affecting depreciation deductions under §168(a):</span>
+Variables affecting depreciation deductions under §168(a):
-<span lang="EN">(1)   '''Depreciation base''' → the depreciation base for all assets is its cost basis; because the statute assumes that all depreciable assets have no salvage value under §168(b)(4), a taxpayer may recover his or her entire basis in the asset.</span>
+(1)   '''Depreciation base''' → the depreciation base for all assets is its cost basis; because the statute assumes that all depreciable assets have no salvage value under §168(b)(4), a taxpayer may recover his or her entire basis in the asset.
-<span lang="EN">(2)   '''Class life''' → the estimated life expectancy of the asset; established in Revenue Procedure 87-56.</span>
+(2)   '''Class life''' → the estimated life expectancy of the asset; established in Revenue Procedure 87-56.
 {| class="wikitable"
-|'''<span lang="EN">Rev.  Proc. 87-56</span>'''
+|'''Rev.  Proc. 87-56'''
-'''<span lang="EN">SECTION  1. PURPOSE</span>'''
+'''SECTION  1. PURPOSE'''
-'''<span lang="EN">The  purpose of this revenue procedure is to set forth the class lives of property  that are necessary to compute the depreciation allowances available under  section 168 of the Internal Revenue Code, as amended by section 201(a) of the  Tax Reform Act of 1986 (Act), 1986-3 (Vol. 1) C.B. 38. Rev. Proc. 87-57, page  17, this Bulletin, describes the applicable depreciation methods, applicable  recovery periods, and applicable conventions that must be used in computing  depreciation allowances under section 168.</span>'''
+'''The  purpose of this revenue procedure is to set forth the class lives of property  that are necessary to compute the depreciation allowances available under  section 168 of the Internal Revenue Code, as amended by section 201(a) of the  Tax Reform Act of 1986 (Act), 1986-3 (Vol. 1) C.B. 38. Rev. Proc. 87-57, page  17, this Bulletin, describes the applicable depreciation methods, applicable  recovery periods, and applicable conventions that must be used in computing  depreciation allowances under section 168.'''
-'''<span lang="EN">SEC.  2. GENERAL RULES OF APPLICATION</span>'''
+'''SEC.  2. GENERAL RULES OF APPLICATION'''
-'''<span lang="EN">01 IN GENERAL. This revenue procedure specifies class lives and recovery  periods for property subject to depreciation under the general depreciation  system provided in section 168(a) of the Code or the alternative depreciation  system provided in section 168(g).</span>'''
+'''01 IN GENERAL. This revenue procedure specifies class lives and recovery  periods for property subject to depreciation under the general depreciation  system provided in section 168(a) of the Code or the alternative depreciation  system provided in section 168(g).'''
-'''<span lang="EN">SEC.  5. TABLES OF CLASS LIVES AND RECOVERY PERIODS</span>'''
+'''SEC.  5. TABLES OF CLASS LIVES AND RECOVERY PERIODS'''
-'''<span lang="EN">.01  Except for property described in section 5.02, below, the class lives (if  any) and recovery periods for property subject to depreciation under section  168 of the Code appear in the tables below. These tables are based on the  definition of class life in section 2.02 of this revenue procedure and the  assigned items described in section 3 of this revenue procedure.</span>'''
+'''.01  Except for property described in section 5.02, below, the class lives (if  any) and recovery periods for property subject to depreciation under section  168 of the Code appear in the tables below. These tables are based on the  definition of class life in section 2.02 of this revenue procedure and the  assigned items described in section 3 of this revenue procedure.'''
-'''<span lang="EN">.02  For purposes of depreciation under the general depreciation system,  residential rental property has a recovery period of 27.5 years and  nonresidential real property has a recovery period of 31.5 years. For  purposes of the alternative depreciation system, residential rental and  nonresidential real property each has a recovery period of 40 years.</span>'''
+'''.02  For purposes of depreciation under the general depreciation system,  residential rental property has a recovery period of 27.5 years and  nonresidential real property has a recovery period of 31.5 years. For  purposes of the alternative depreciation system, residential rental and  nonresidential real property each has a recovery period of 40 years.'''
-'''<span lang="EN">[TABLE  EXCLUDED]</span>'''
+'''[TABLE  EXCLUDED]'''
 |}
-<span lang="EN">(3)   '''Applicable Recovery Period''' → under §168(a)(2)</span>
+(3)   '''Applicable Recovery Period''' → under §168(a)(2)
-<span lang="EN">(a)   The table in §168(e)(1) uses the asset’s class life to classify it as one of six different types of property</span>
+(a)   The table in §168(e)(1) uses the asset’s class life to classify it as one of six different types of property
-<span lang="EN">(b)   Then, the table in §168(c) lists the recovery period for each type of property (subject to the four exceptions noted at the end of the table)</span>
+(b)   Then, the table in §168(c) lists the recovery period for each type of property (subject to the four exceptions noted at the end of the table)
-<span lang="EN">(c)   The recovery period represents the number of taxable years over which the taxpayer may claim depreciation deductions</span>
+(c)   The recovery period represents the number of taxable years over which the taxpayer may claim depreciation deductions
-<span lang="EN">(d)   Taxpayers typically prefer shorter recovery periods, because that means bigger deductions and quicker recovery of the asset’s basis</span>
+(d)   Taxpayers typically prefer shorter recovery periods, because that means bigger deductions and quicker recovery of the asset’s basis
-<span lang="EN">(4)   '''Applicable depreciation method''' →</span>
+(4)   '''Applicable depreciation method''' →
-<span lang="EN">(a)   “Straight-line method” -- where the cost is recovered ratably, one divides the depreciation base by the applicable recovery period '''[FRAY WILL ONLY ASK US TO DO THIS]'''</span>
+(a)   “Straight-line method” -- where the cost is recovered ratably, one divides the depreciation base by the applicable recovery period '''[FRAY WILL ONLY ASK US TO DO THIS]'''
-<span lang="EN">(b)   Accelerated methods -- “Declining balance methods” -- §168(b) lists them; used more frequently than any other method.</span>
+(b)   Accelerated methods -- “Declining balance methods” -- §168(b) lists them; used more frequently than any other method.
-<span lang="EN">                                  (i)       “Double declining balance method” -- a taxpayer may claim double the percentage of the declining balance in the depreciation base; taxpayer would never fully recover the cost of the asset, statute says to switch to the straight-line method in the first year when that method yields a larger result</span>
+                                  (i)       “Double declining balance method” -- a taxpayer may claim double the percentage of the declining balance in the depreciation base; taxpayer would never fully recover the cost of the asset, statute says to switch to the straight-line method in the first year when that method yields a larger result
-<span lang="EN">                                 (ii)       “150 percent declining balance method”</span>
+                                 (ii)       “150 percent declining balance method”
-<span lang="EN">EXAMPLE:</span>
+EXAMPLE:
 {| class="wikitable"
-|<span lang="EN">Year</span>
+|Year
-|<span lang="EN">Declining Balance</span>
+|Declining Balance
-|<span lang="EN">40% DDB</span>
+|40% DDB
-|<span lang="EN">Straight-Line</span>
+|Straight-Line
-|<span lang="EN">Deduction</span>
+|Deduction
-|<span lang="EN">Adjusted Basis</span>
+|Adjusted Basis
 |-
-|<span lang="EN">1</span>
+|1
-|<span lang="EN">$5,000</span>
+|$5,000
-|<span lang="EN">$2,000</span>
+|$2,000
-|<span lang="EN">$1,000</span>
+|$1,000
 |
 |
 |-
-|<span lang="EN">2</span>
+|2
-|<span lang="EN">$3,000</span>
+|$3,000
-|<span lang="EN">$1,200</span>
+|$1,200
-|<span lang="EN">$750*</span>
+|$750*
 |
 |
 |-
-|<span lang="EN">3</span>
+|3
-|<span lang="EN">$1,800</span>
+|$1,800
-|<span lang="EN">$720</span>
+|$720
 |
 |
 |
 |-
-|<span lang="EN">4</span>
+|4
-|<span lang="EN">$1,080</span>
+|$1,080
-|<span lang="EN">$432</span>
+|$432
 |
 |
 |
 |-
-|<span lang="EN">5</span>
+|5
-|<span lang="EN">$540</span>
+|$540
-|<span lang="EN">$216</span>
+|$216
 |
 |
@@ Line 4,169: / Line 4,165: @@
 |}
-'''<span lang="EN">Losses</span>'''
+'''Losses'''
-'''<span lang="EN">Business and Investment Losses</span>'''
+'''Business and Investment Losses'''
 {| class="wikitable"
-|<span lang="EN">62(a)(3), 165(a)-(d)</span>
+|62(a)(3), 165(a)-(d)
 |}
-<span lang="EN">§1001(a) → defines a loss from the sale or exchange of property as the excess of TP’s adjusted basis over the amount realized</span>
+§1001(a) → defines a loss from the sale or exchange of property as the excess of TP’s adjusted basis over the amount realized
-<span lang="EN">§1001(c) → all realized losses are recognized (deductible) except as provided elsewhere in the Code</span>
+§1001(c) → all realized losses are recognized (deductible) except as provided elsewhere in the Code
-<span lang="EN">●      FOR INDIVIDUALS, §165(c) is the major limitation; only permits the deduction of three types of uncompensated losses:</span>
+●      FOR INDIVIDUALS, §165(c) is the major limitation; only permits the deduction of three types of uncompensated losses:
-<span lang="EN">(1)   Losses incurred in a trade or business;</span>
+(1)   Losses incurred in a trade or business;
-<span lang="EN">(2)   Losses incurred in profit-motivated transactions; and</span>
+(2)   Losses incurred in profit-motivated transactions; and
-<span lang="EN">(3)   Casualty and theft losses with respect to personal-use property</span>
+(3)   Casualty and theft losses with respect to personal-use property
-<span lang="EN">If a realized loss is not described in §165(c), an individual taxpayer cannot deduct the loss.</span>
+If a realized loss is not described in §165(c), an individual taxpayer cannot deduct the loss.
-<span lang="EN">§165(a) → two additional limitations</span>
+§165(a) → two additional limitations
-<span lang="EN">(1)   The loss must be “sustained” -- for example, a decline in the FMV of an asset cannot be claimed as a loss until the asset is sold or otherwise disposed of in a completed transaction</span>
+(1)   The loss must be “sustained” -- for example, a decline in the FMV of an asset cannot be claimed as a loss until the asset is sold or otherwise disposed of in a completed transaction
-<span lang="EN">(2)   The taxpayer must not have been “compensated” for the loss -- if a TP receives insurance proceeds or other compensation for a loss (e.g. homeowners insurance), it would be a windfall to permit a loss deduction on top of recovery</span>
+(2)   The taxpayer must not have been “compensated” for the loss -- if a TP receives insurance proceeds or other compensation for a loss (e.g. homeowners insurance), it would be a windfall to permit a loss deduction on top of recovery
-<u><span lang="EN">Miller v. Commissioner (1984)</span></u> <span lang="EN">- 6th Cir. [boat damaged, did not file insurance claim, claimed loss]</span>
+<u>Miller v. Commissioner (1984)</u> - 6th Cir. [boat damaged, did not file insurance claim, claimed loss]
-<span lang="EN">RULE: Taxpayers are allowed to claim deductions for economic detriments which are a loss and not compensated for by insurance or otherwise regardless whether the property was insured or not.</span>
+RULE: Taxpayers are allowed to claim deductions for economic detriments which are a loss and not compensated for by insurance or otherwise regardless whether the property was insured or not.
-''<span lang="EN">Facts:</span>''
+''Facts:''
-<span lang="EN">●      ''Plaintiff taxpayer had an undamaged boat and a friend who is a bad captain.''</span>
+●      ''Plaintiff taxpayer had an undamaged boat and a friend who is a bad captain.''
-<span lang="EN">●      ''Unfortunately he lent his boat to this friend who then ran taxpayer's boat into the ground.''</span>
+●      ''Unfortunately he lent his boat to this friend who then ran taxpayer's boat into the ground.''
-<span lang="EN">●      ''Taxpayer was able to collect $200.00 from his friend, reducing taxpayer's actual loss to $642.55.''</span>
+●      ''Taxpayer was able to collect $200.00 from his friend, reducing taxpayer's actual loss to $642.55.''
-<span lang="EN">●      ''After taking into account the $100.00 limitation under 26 U.S.C. § 165(c)(3), taxpayer claimed a $542.22 casualty loss deduction on his 1976 return.''</span>
+●      ''After taking into account the $100.00 limitation under 26 U.S.C. § 165(c)(3), taxpayer claimed a $542.22 casualty loss deduction on his 1976 return.''
-<span lang="EN">●      ''While the taxpayer's boat was insured, he did not file an insurance claim for fear of having his insurance policy revoked.''</span>
+●      ''While the taxpayer's boat was insured, he did not file an insurance claim for fear of having his insurance policy revoked.''
-<span lang="EN">●      ''26 U.S.C. § 165(c)allows a deduction for private parties for losses resulting from a shipwreck.''</span>
+●      ''26 U.S.C. § 165(c)allows a deduction for private parties for losses resulting from a shipwreck.''
-<span lang="EN">●      ''The court considered whether a taxpayer's voluntary election not to file an insurance claim for a loss precludes the taxpayer from taking a casualty loss deduction according to 26 U.S.C. § 165.''</span>
+●      ''The court considered whether a taxpayer's voluntary election not to file an insurance claim for a loss precludes the taxpayer from taking a casualty loss deduction according to 26 U.S.C. § 165.''
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      If you damage something that is insured or under warranty but don't make a claim and don't receive compensation, can you still deduct the loss according to 26 U.S.C. § 165.</span>
+●      If you damage something that is insured or under warranty but don't make a claim and don't receive compensation, can you still deduct the loss according to 26 U.S.C. § 165.
-<span lang="EN">●      Plain language example: Someone backs into your car while you are away and breaks a taillight. While you have insurance for the taillight, you don't make a claim because you might lose your insurance or don't want to deal with the paperwork. The loss in excess of the limit in 26 U.S.C. § 165(c)3 (currently $100) may be deducted.</span>
+●      Plain language example: Someone backs into your car while you are away and breaks a taillight. While you have insurance for the taillight, you don't make a claim because you might lose your insurance or don't want to deal with the paperwork. The loss in excess of the limit in 26 U.S.C. § 165(c)3 (currently $100) may be deducted.
-<span lang="EN">●      Previously, <u>Kentucky Utilities</u> rule → In order to claim a deduction, the court required the taxpayer to a) exhaust all reasonable prospects for insurance indemnification before claiming a sustained loss or (b) that 26 U.S.C. § 165 equated "not compensated by" with "not covered by."</span>
+●      Previously, <u>Kentucky Utilities</u> rule → In order to claim a deduction, the court required the taxpayer to a) exhaust all reasonable prospects for insurance indemnification before claiming a sustained loss or (b) that 26 U.S.C. § 165 equated "not compensated by" with "not covered by."
-<span lang="EN">●      Avoiding the <u>Kentucky Utilities</u> rule</span>
+●      Avoiding the <u>Kentucky Utilities</u> rule
-<span lang="EN">○      First, it allows insured taxpayers to decline insurance indemnification without the penalty of not being able to deduct the loss as if they did not have insurance.</span>
+○      First, it allows insured taxpayers to decline insurance indemnification without the penalty of not being able to deduct the loss as if they did not have insurance.
-<span lang="EN">○      There are many valid reasons for not involving insurance companies and the tax law should not work against them.</span>
+○      There are many valid reasons for not involving insurance companies and the tax law should not work against them.
-<span lang="EN">○      Second, taxpayers who carry no insurance or are under-insured are not rewarded with an additional deduction not available to their colleagues who carry the proper amount of insurance coverage.</span>
+○      Second, taxpayers who carry no insurance or are under-insured are not rewarded with an additional deduction not available to their colleagues who carry the proper amount of insurance coverage.
-<span lang="EN">●      Kentucky Utilities was overruled by Hills, which recognized that "compensated" is distinct from "covered."</span>
+●      Kentucky Utilities was overruled by Hills, which recognized that "compensated" is distinct from "covered."
-<span lang="EN">Individual Losses</span>
+Individual Losses
-<span lang="EN">●      §165(b) → If a TP receives no consideration for a realized loss (whether as payment or compensation), the loss deduction is limited to the TP’s basis in the loss property</span>
+●      §165(b) → If a TP receives no consideration for a realized loss (whether as payment or compensation), the loss deduction is limited to the TP’s basis in the loss property
-<span lang="EN">●      Thus if a TP is unable to collect on an account receivable (in which a TP has a zero basis except in very limited cases), there is no deduction under §165(a)</span>
+●      Thus if a TP is unable to collect on an account receivable (in which a TP has a zero basis except in very limited cases), there is no deduction under §165(a)
-<span lang="EN">●      §165(d) → limits the deduction for gambling losses to the amount of the TP’s gambling winnings; it does not matter whether gambling is a business, investment, or personal activity of the TP</span>
+●      §165(d) → limits the deduction for gambling losses to the amount of the TP’s gambling winnings; it does not matter whether gambling is a business, investment, or personal activity of the TP
-'''<span lang="EN">Net Operating Losses</span>'''
+'''Net Operating Losses'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 172 - Net operating loss deduction</span>'''
+|'''26  U.S. Code § 172 - Net operating loss deduction'''
-'''<span lang="EN">(a) Deduction allowed. There shall be allowed as a deduction for the taxable  year an amount equal to the lesser of—</span>'''
+'''(a) Deduction allowed. There shall be allowed as a deduction for the taxable  year an amount equal to the lesser of—'''
-'''<span lang="EN">    (1) the aggregate of the net operating  loss carryovers to such year, plus the net operating loss carrybacks to such  year, or</span>'''
+'''    (1) the aggregate of the net operating  loss carryovers to such year, plus the net operating loss carrybacks to such  year, or'''
-'''<span lang="EN">    (2) 80 percent of taxable income  computed without regard to the deduction allowable under this section. For  purposes of this subtitle, the term “net operating loss deduction” means the  deduction allowed by this subsection.</span>'''
+'''    (2) 80 percent of taxable income  computed without regard to the deduction allowable under this section. For  purposes of this subtitle, the term “net operating loss deduction” means the  deduction allowed by this subsection.'''
-'''<span lang="EN">(b)  Net operating loss carrybacks and carryovers</span>'''
+'''(b)  Net operating loss carrybacks and carryovers'''
-'''<span lang="EN">    (1) Years to which loss may be carried</span>'''
+'''    (1) Years to which loss may be carried'''
-'''<span lang="EN">         (A) General rule. Except as  otherwise provided in this paragraph, a net operating loss for any taxable  year—</span>'''
+'''         (A) General rule. Except as  otherwise provided in this paragraph, a net operating loss for any taxable  year—'''
-'''<span lang="EN">              (i) except as otherwise  provided in this paragraph, shall not be a net operating loss carryback to  any taxable year preceding the taxable year of such loss, and</span>'''
+'''              (i) except as otherwise  provided in this paragraph, shall not be a net operating loss carryback to  any taxable year preceding the taxable year of such loss, and'''
-'''<span lang="EN">              (ii) shall be a net operating  loss carryover to each taxable year following the taxable year of the loss.</span>'''
+'''              (ii) shall be a net operating  loss carryover to each taxable year following the taxable year of the loss.'''
-'''<span lang="EN">         (B) Farming losses</span>'''
+'''         (B) Farming losses'''
-'''<span lang="EN">              (i) In general. In the case of  any portion of a net operating loss for the taxable year which is a farming  loss with respect to the taxpayer, such loss shall be a net operating loss  carryback to each of the 2 taxable years preceding the taxable year of such  loss.</span>'''
+'''              (i) In general. In the case of  any portion of a net operating loss for the taxable year which is a farming  loss with respect to the taxpayer, such loss shall be a net operating loss  carryback to each of the 2 taxable years preceding the taxable year of such  loss.'''
-'''<span lang="EN">               (ii) Farming loss. For  purposes of this section, the term “farming loss” means the lesser of—</span>'''
+'''               (ii) Farming loss. For  purposes of this section, the term “farming loss” means the lesser of—'''
-'''<span lang="EN">                   (I) the amount which  would be the net operating loss for the taxable year if only income and deductions  attributable to farming businesses (as defined in section 263A(e)(4)) are  taken into account, or</span>'''
+'''                   (I) the amount which  would be the net operating loss for the taxable year if only income and deductions  attributable to farming businesses (as defined in section 263A(e)(4)) are  taken into account, or'''
-'''<span lang="EN">                   (II) the amount of the  net operating loss for such taxable year.</span>'''
+'''                   (II) the amount of the  net operating loss for such taxable year.'''
-'''<span lang="EN">              (iii) Coordination with  paragraph (2). For purposes of applying paragraph (2), a farming loss for any  taxable year shall be treated as a separate net operating loss for such  taxable year to be taken into account after the remaining portion of the net  operating loss for such taxable year.</span>'''
+'''              (iii) Coordination with  paragraph (2). For purposes of applying paragraph (2), a farming loss for any  taxable year shall be treated as a separate net operating loss for such  taxable year to be taken into account after the remaining portion of the net  operating loss for such taxable year.'''
-'''<span lang="EN">               (iv) Election. Any taxpayer entitled to a  2-year carryback under clause (i) from any loss year may elect not to have  such clause apply to such loss year. Such election shall be made in such  manner as prescribed by the Secretary and shall be made by the due date  (including extensions of time) for filing the taxpayer’s return for the  taxable year of the net operating loss. Such election, once made for any  taxable year, shall be irrevocable for such taxable year.</span>'''
+'''               (iv) Election. Any taxpayer entitled to a  2-year carryback under clause (i) from any loss year may elect not to have  such clause apply to such loss year. Such election shall be made in such  manner as prescribed by the Secretary and shall be made by the due date  (including extensions of time) for filing the taxpayer’s return for the  taxable year of the net operating loss. Such election, once made for any  taxable year, shall be irrevocable for such taxable year.'''
-'''<span lang="EN">          (C) Insurance companies. In  the case of an insurance company (as defined in section 816(a)) other than a  life insurance company, the net operating loss for any taxable year—</span>'''
+'''          (C) Insurance companies. In  the case of an insurance company (as defined in section 816(a)) other than a  life insurance company, the net operating loss for any taxable year—'''
-'''<span lang="EN">              (i) shall be a net operating  loss carryback to each of the 2 taxable years preceding the taxable year of  such loss, and</span>'''
+'''              (i) shall be a net operating  loss carryback to each of the 2 taxable years preceding the taxable year of  such loss, and'''
-'''<span lang="EN">              (ii) shall be a net operating  loss carryover to each of the 20 taxable years following the taxable year of  the loss.</span>'''
+'''              (ii) shall be a net operating  loss carryover to each of the 20 taxable years following the taxable year of  the loss.'''
-'''<span lang="EN">    (2) Amount of carrybacks and carryovers.  The entire amount of the net operating loss for any taxable year (hereinafter  in this section referred to as the “loss year”) shall be carried to the  earliest of the taxable years to which (by reason of paragraph (1)) such loss  may be carried. The portion of such loss which shall be carried to each of  the other taxable years shall be the excess, if any, of the amount of such  loss over the sum of the taxable income for each of the prior taxable years  to which such loss may be carried. For purposes of the preceding sentence,  the taxable income for any such prior taxable year shall—</span>'''
+'''    (2) Amount of carrybacks and carryovers.  The entire amount of the net operating loss for any taxable year (hereinafter  in this section referred to as the “loss year”) shall be carried to the  earliest of the taxable years to which (by reason of paragraph (1)) such loss  may be carried. The portion of such loss which shall be carried to each of  the other taxable years shall be the excess, if any, of the amount of such  loss over the sum of the taxable income for each of the prior taxable years  to which such loss may be carried. For purposes of the preceding sentence,  the taxable income for any such prior taxable year shall—'''
-'''<span lang="EN">         (A) be computed with the  modifications specified in subsection (d) other than paragraphs (1), (4), and  (5) thereof, and by determining the amount of the net operating loss  deduction without regard to the net operating loss for the loss year or for  any taxable year thereafter,</span>'''
+'''         (A) be computed with the  modifications specified in subsection (d) other than paragraphs (1), (4), and  (5) thereof, and by determining the amount of the net operating loss  deduction without regard to the net operating loss for the loss year or for  any taxable year thereafter,'''
-'''<span lang="EN">         (B) not be considered to be less  than zero, and</span>'''
+'''         (B) not be considered to be less  than zero, and'''
-'''<span lang="EN">         (C) not exceed the amount  determined under subsection (a)(2) for such prior taxable year.</span>'''
+'''         (C) not exceed the amount  determined under subsection (a)(2) for such prior taxable year.'''
-'''<span lang="EN">    (3) Election to waive carryback. Any  taxpayer entitled to a carryback period under paragraph (1) may elect to  relinquish the entire carryback period with respect to a net operating loss  for any taxable year. Such election shall be made in such manner as may be  prescribed by the Secretary, and shall be made by the due date (including  extensions of time) for filing the taxpayer’s return for the taxable year of  the net operating loss for which the election is to be in effect. Such  election, once made for any taxable year, shall be irrevocable for such  taxable year.</span>'''
+'''    (3) Election to waive carryback. Any  taxpayer entitled to a carryback period under paragraph (1) may elect to  relinquish the entire carryback period with respect to a net operating loss  for any taxable year. Such election shall be made in such manner as may be  prescribed by the Secretary, and shall be made by the due date (including  extensions of time) for filing the taxpayer’s return for the taxable year of  the net operating loss for which the election is to be in effect. Such  election, once made for any taxable year, shall be irrevocable for such  taxable year.'''
-'''<span lang="EN">(c) Net operating loss defined. For purposes of this section, the term “net  operating loss” means the excess of the deductions allowed by this chapter  over the gross income. Such excess shall be computed with the modifications  specified in subsection (d).</span>'''
+'''(c) Net operating loss defined. For purposes of this section, the term “net  operating loss” means the excess of the deductions allowed by this chapter  over the gross income. Such excess shall be computed with the modifications  specified in subsection (d).'''
-'''<span lang="EN">(d) Modifications. The modifications referred to in this section are as  follows:</span>'''
+'''(d) Modifications. The modifications referred to in this section are as  follows:'''
-'''<span lang="EN">    (1) Net operating loss deduction. No net  operating loss deduction shall be allowed.</span>'''
+'''    (1) Net operating loss deduction. No net  operating loss deduction shall be allowed.'''
-'''<span lang="EN">    (2) Capital gains and losses of  taxpayers other than corporations. In the case of a taxpayer other than a  corporation—</span>'''
+'''    (2) Capital gains and losses of  taxpayers other than corporations. In the case of a taxpayer other than a  corporation—'''
-'''<span lang="EN">         (A) the amount deductible on  account of losses from sales or exchanges of capital assets shall not exceed  the amount includable on account of gains from sales or exchanges of capital  assets; and</span>'''
+'''         (A) the amount deductible on  account of losses from sales or exchanges of capital assets shall not exceed  the amount includable on account of gains from sales or exchanges of capital  assets; and'''
-'''<span lang="EN">         (B) the exclusion provided by section 1202  shall not be allowed.</span>'''
+'''         (B) the exclusion provided by section 1202  shall not be allowed.'''
-'''<span lang="EN">    (3) Deduction for personal exemptions.  No deduction shall be allowed under section 151 (relating to personal  exemptions). No deduction in lieu of any such deduction shall be allowed.</span>'''
+'''    (3) Deduction for personal exemptions.  No deduction shall be allowed under section 151 (relating to personal  exemptions). No deduction in lieu of any such deduction shall be allowed.'''
-'''<span lang="EN">    (4) Nonbusiness deductions of taxpayers  other than corporations. In the case of a taxpayer other than a corporation,  the deductions allowable by this chapter which are not attributable to a  taxpayer’s trade or business shall be allowed only to the extent of the  amount of the gross income not derived from such trade or business. For  purposes of the preceding sentence—</span>'''
+'''    (4) Nonbusiness deductions of taxpayers  other than corporations. In the case of a taxpayer other than a corporation,  the deductions allowable by this chapter which are not attributable to a  taxpayer’s trade or business shall be allowed only to the extent of the  amount of the gross income not derived from such trade or business. For  purposes of the preceding sentence—'''
-'''<span lang="EN">         (A) any gain or loss from the sale  or other disposition of—</span>'''
+'''         (A) any gain or loss from the sale  or other disposition of—'''
-'''<span lang="EN">              (i) property, used in the  trade or business, of a character which is subject to the allowance for  depreciation provided in section 167, or</span>'''
+'''              (i) property, used in the  trade or business, of a character which is subject to the allowance for  depreciation provided in section 167, or'''
-'''<span lang="EN">              (ii) real property used in the  trade or business, shall be treated as attributable to the trade or business;</span>'''
+'''              (ii) real property used in the  trade or business, shall be treated as attributable to the trade or business;'''
-'''<span lang="EN">         (B) the modifications specified in  paragraphs (1), (2)(B), and (3) shall be taken into account;</span>'''
+'''         (B) the modifications specified in  paragraphs (1), (2)(B), and (3) shall be taken into account;'''
-'''<span lang="EN">         (C) any deduction for casualty or  theft losses allowable under paragraph (2) or (3) of section 165(c) shall be  treated as attributable to the trade or business; and</span>'''
+'''         (C) any deduction for casualty or  theft losses allowable under paragraph (2) or (3) of section 165(c) shall be  treated as attributable to the trade or business; and'''
-'''<span lang="EN">         (D) any deduction allowed under  section 404 to the extent attributable to contributions which are made on  behalf of an individual who is an employee within the meaning of section  401(c)(1) shall not be treated as attributable to the trade or business of such  individual.</span>'''
+'''         (D) any deduction allowed under  section 404 to the extent attributable to contributions which are made on  behalf of an individual who is an employee within the meaning of section  401(c)(1) shall not be treated as attributable to the trade or business of such  individual.'''
-'''<span lang="EN">    (5) Computation of deduction for  dividends received. The deductions allowed by section [1] 243 (relating to  dividends received by corporations) and 245 (relating to dividends received  from certain foreign corporations) shall be computed without regard to  section 246(b) (relating to limitation on aggregate amount of deductions).</span>'''
+'''    (5) Computation of deduction for  dividends received. The deductions allowed by section [1] 243 (relating to  dividends received by corporations) and 245 (relating to dividends received  from certain foreign corporations) shall be computed without regard to  section 246(b) (relating to limitation on aggregate amount of deductions).'''
-'''<span lang="EN">    (6) Modifications related to real estate  investment trusts. In the case of any taxable year for which part II of  subchapter M (relating to real estate investment trusts) applies to the  taxpayer—</span>'''
+'''    (6) Modifications related to real estate  investment trusts. In the case of any taxable year for which part II of  subchapter M (relating to real estate investment trusts) applies to the  taxpayer—'''
-'''<span lang="EN">         (A) the net operating loss for such  taxable year shall be computed by taking into account the adjustments  described in section 857(b)(2) (other than the deduction for dividends paid  described in section 857(b)(2)(B));</span>'''
+'''         (A) the net operating loss for such  taxable year shall be computed by taking into account the adjustments  described in section 857(b)(2) (other than the deduction for dividends paid  described in section 857(b)(2)(B));'''
-'''<span lang="EN">         (B) where such taxable year is a  “prior taxable year” referred to in paragraph (2) of subsection (b), the term  “taxable income” in such paragraph shall mean “real estate investment trust  taxable income” (as defined in section 857(b)(2)); and</span>'''
+'''         (B) where such taxable year is a  “prior taxable year” referred to in paragraph (2) of subsection (b), the term  “taxable income” in such paragraph shall mean “real estate investment trust  taxable income” (as defined in section 857(b)(2)); and'''
-'''<span lang="EN">         (C) subsection (a)(2) shall be  applied by substituting “real estate investment trust taxable income (as  defined in section 857(b)(2) but without regard to the deduction for  dividends paid (as defined in section 561))” for “taxable income”.</span>'''
+'''         (C) subsection (a)(2) shall be  applied by substituting “real estate investment trust taxable income (as  defined in section 857(b)(2) but without regard to the deduction for  dividends paid (as defined in section 561))” for “taxable income”.'''
-'''<span lang="EN">    [(7) Repealed. Pub. L. 115–97, title I,  § 13305(b)(3), Dec. 22, 2017, 131 Stat. 2126.]</span>'''
+'''    [(7) Repealed. Pub. L. 115–97, title I,  § 13305(b)(3), Dec. 22, 2017, 131 Stat. 2126.]'''
-'''<span lang="EN">    (8) Qualified business income deduction.  The deduction under section 199A shall not be allowed.</span>'''
+'''    (8) Qualified business income deduction.  The deduction under section 199A shall not be allowed.'''
-'''<span lang="EN">     (9) Deduction for foreign-derived  intangible income. The deduction under section 250 shall not be allowed.</span>'''
+'''     (9) Deduction for foreign-derived  intangible income. The deduction under section 250 shall not be allowed.'''
-'''<span lang="EN">(e) Law applicable to computations. In determining the amount of any net  operating loss carryback or carryover to any taxable year, the necessary  computations involving any other taxable year shall be made under the law  applicable to such other taxable year.</span>'''
+'''(e) Law applicable to computations. In determining the amount of any net  operating loss carryback or carryover to any taxable year, the necessary  computations involving any other taxable year shall be made under the law  applicable to such other taxable year.'''
-'''<span lang="EN">(f) Special rule for insurance companies. In the case of an insurance company  (as defined in section 816(a)) other than a life insurance company—</span>'''
+'''(f) Special rule for insurance companies. In the case of an insurance company  (as defined in section 816(a)) other than a life insurance company—'''
-'''<span lang="EN">    (1) the amount of the deduction allowed  under subsection (a) shall be the aggregate of the net operating loss  carryovers to such year, plus the net operating loss carrybacks to such year,  and</span>'''
+'''    (1) the amount of the deduction allowed  under subsection (a) shall be the aggregate of the net operating loss  carryovers to such year, plus the net operating loss carrybacks to such year,  and'''
-'''<span lang="EN">    (2) subparagraph (C) of subsection  (b)(2) shall not apply.</span>'''
+'''    (2) subparagraph (C) of subsection  (b)(2) shall not apply.'''
-'''<span lang="EN">(g)  Cross references</span>'''
+'''(g)  Cross references'''
-'''<span lang="EN">    (1) For treatment of net operating loss  carryovers in certain corporate acquisitions, see section 381.</span>'''
+'''    (1) For treatment of net operating loss  carryovers in certain corporate acquisitions, see section 381.'''
-'''<span lang="EN">    (2) For special limitation on net  operating loss carryovers in case of a corporate change of ownership, see  section 382.</span>'''
+'''    (2) For special limitation on net  operating loss carryovers in case of a corporate change of ownership, see  section 382.'''
 |}
-<span lang="EN">EXAMPLE → A and B operate similar businesses</span>
+EXAMPLE → A and B operate similar businesses
-<span lang="EN">●      A’s business income is very steady; in year 1 and year 2, A has a net business income of $10k</span>
+●      A’s business income is very steady; in year 1 and year 2, A has a net business income of $10k
-<span lang="EN">●      B’s business income is more volatile; in year 1, B had a new business LOSS of $10K and in year 2, B had a net business income of $30K</span>
+●      B’s business income is more volatile; in year 1, B had a new business LOSS of $10K and in year 2, B had a net business income of $30K
-<span lang="EN">●      During the combined two-year operating period, both A and B had a net income of $20K, but they will not be treated the same.</span>
+●      During the combined two-year operating period, both A and B had a net income of $20K, but they will not be treated the same.
 {| class="wikitable"
 |
-|<span lang="EN">A</span>
+|A
-|<span lang="EN">B</span>
+|B
 |-
-|<span lang="EN">Year 1</span>
+|Year 1
-|<span lang="EN">$10,000</span>
+|$10,000
-|<span lang="EN">($10,000)</span>
+|($10,000)
 |-
-|<span lang="EN">Year 2</span>
+|Year 2
-|<span lang="EN">$10,000</span>
+|$10,000
-|<span lang="EN">$30,000</span>
+|$30,000
 |-
-|'''<span lang="EN">Total</span>'''
+|'''Total'''
-|'''<span lang="EN">$20,000</span>'''
+|'''$20,000'''
-|'''<span lang="EN">$20,000</span>'''
+|'''$20,000'''
 |}
-<span lang="EN">Section 172 → designed to ameliorate the different tax treatments</span>
+Section 172 → designed to ameliorate the different tax treatments
-<span lang="EN">●      A will pay tax on $10K in each of years 1 and 2</span>
+●      A will pay tax on $10K in each of years 1 and 2
-<span lang="EN">●      B will pay no tax in year 1 but will also not be entitled to a return</span>
+●      B will pay no tax in year 1 but will also not be entitled to a return
-<span lang="EN">●      In year 2, B will pay tax on $30K</span>
+●      In year 2, B will pay tax on $30K
-<span lang="EN">●      UNDER §172 → B could '''carry''' his $10K “net operating loss” from year 1 over to year 2; by doing so, B’s year 2 taxable income would be reduced by $10K; by allowing a deduction on B’s year 2 income, equitable treatment is closer to achievable</span>
+●      UNDER §172 → B could '''carry''' his $10K “net operating loss” from year 1 over to year 2; by doing so, B’s year 2 taxable income would be reduced by $10K; by allowing a deduction on B’s year 2 income, equitable treatment is closer to achievable
-<span lang="EN">§172(b) → carryover</span>
+§172(b) → carryover
-<span lang="EN">●      Taxpayers can carry forward net operating losses</span>
+●      Taxpayers can carry forward net operating losses
-<span lang="EN">●      Under §172(a), any net operating loss deduction cannot exceed 80% of a TP’s taxable income</span>
+●      Under §172(a), any net operating loss deduction cannot exceed 80% of a TP’s taxable income
-<span lang="EN">●      TCJA removed carryback provisions</span>
+●      TCJA removed carryback provisions
-'''<span lang="EN">Loss Limitations</span>'''
+'''Loss Limitations'''
-<span lang="EN">Other limitations on the deductibility of losses</span>
+Other limitations on the deductibility of losses
-<span lang="EN">●      §465 → a TP’s losses from business and investment activities are limited to the amount the TP is “at risk” in such activities</span>
+●      §465 → a TP’s losses from business and investment activities are limited to the amount the TP is “at risk” in such activities
-<span lang="EN">○      If a TP invests $10K in an investment activity (like an ILP in a real estate LP), the TP can only claim up to $10K in losses from the activity</span>
+○      If a TP invests $10K in an investment activity (like an ILP in a real estate LP), the TP can only claim up to $10K in losses from the activity
-<span lang="EN">●      §469 → Losses from “passive” activities can only be deducted to the extent of income from passive activities</span>
+●      §469 → Losses from “passive” activities can only be deducted to the extent of income from passive activities
-<span lang="EN">●      §1091 → with respect to sales of marketable securities, 1091 disallows losses from so called “wash sales”, where a TP sells shares of stock at a loss and then, within a short period following the sale, purchases shares in the same corporation in anticipation of an upturn in the stock price</span>
+●      §1091 → with respect to sales of marketable securities, 1091 disallows losses from so called “wash sales”, where a TP sells shares of stock at a loss and then, within a short period following the sale, purchases shares in the same corporation in anticipation of an upturn in the stock price
-'''<span lang="EN">Transactions with Related Persons</span>'''
+'''Transactions with Related Persons'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 267 - Losses, expenses, and interest with respect to transactions  between related taxpayers</span>'''
+|'''26  U.S. Code § 267 - Losses, expenses, and interest with respect to transactions  between related taxpayers'''
-'''<span lang="EN">(a) In general</span>'''
+'''(a) In general'''
-'''<span lang="EN">    (1) Deduction for losses disallowed. No  deduction shall be allowed in respect of any loss from the sale or exchange  of property, directly or indirectly, between persons specified in any of the  paragraphs of subsection (b). The preceding sentence shall not apply to any  loss of the distributing corporation (or the distributee) in the case of a  distribution in complete liquidation.</span>'''
+'''    (1) Deduction for losses disallowed. No  deduction shall be allowed in respect of any loss from the sale or exchange  of property, directly or indirectly, between persons specified in any of the  paragraphs of subsection (b). The preceding sentence shall not apply to any  loss of the distributing corporation (or the distributee) in the case of a  distribution in complete liquidation.'''
-'''<span lang="EN">     (2) Matching of deduction and  payee income item in the case of expenses and interest. If—</span>'''
+'''     (2) Matching of deduction and  payee income item in the case of expenses and interest. If—'''
-'''<span lang="EN">         (A) by reason of the method of  accounting of the person to whom the payment is to be made, the amount  thereof is not (unless paid) includible in the gross income of such person,  and</span>'''
+'''         (A) by reason of the method of  accounting of the person to whom the payment is to be made, the amount  thereof is not (unless paid) includible in the gross income of such person,  and'''
-'''<span lang="EN">         (B) at the close of the taxable  year of the taxpayer for which (but for this paragraph) the amount would be  deductible under this chapter, both the taxpayer and the person to whom the  payment is to be made are persons specified in any of the paragraphs of  subsection (b), then any deduction allowable under this chapter in respect of  such amount shall be allowable as of the day as of which such amount is  includible in the gross income of the person to whom the payment is made (or,  if later, as of the day on which it would be so allowable but for this  paragraph). For purposes of this paragraph, in the case of a personal service  corporation (within the meaning of section 441(i)(2)), such corporation and  any employee-owner (within the meaning of section 269A(b)(2), as modified by  section 441(i)(2)) shall be treated as persons specified in subsection (b).</span>'''
+'''         (B) at the close of the taxable  year of the taxpayer for which (but for this paragraph) the amount would be  deductible under this chapter, both the taxpayer and the person to whom the  payment is to be made are persons specified in any of the paragraphs of  subsection (b), then any deduction allowable under this chapter in respect of  such amount shall be allowable as of the day as of which such amount is  includible in the gross income of the person to whom the payment is made (or,  if later, as of the day on which it would be so allowable but for this  paragraph). For purposes of this paragraph, in the case of a personal service  corporation (within the meaning of section 441(i)(2)), such corporation and  any employee-owner (within the meaning of section 269A(b)(2), as modified by  section 441(i)(2)) shall be treated as persons specified in subsection (b).'''
-'''<span lang="EN">    (3) Payments to foreign persons</span>'''
+'''    (3) Payments to foreign persons'''
-'''<span lang="EN">         (A) In general. The Secretary shall  by regulations apply the matching principle of paragraph (2) in cases in  which the person to whom the payment is to be made is not a United States  person.</span>'''
+'''         (A) In general. The Secretary shall  by regulations apply the matching principle of paragraph (2) in cases in  which the person to whom the payment is to be made is not a United States  person.'''
-'''<span lang="EN">          (B) Special rule for certain  foreign entities</span>'''
+'''          (B) Special rule for certain  foreign entities'''
-'''<span lang="EN">              (i) In general.  Notwithstanding subparagraph (A), in the case of any item payable to a  controlled foreign corporation (as defined in section 957) or a passive  foreign investment company (as defined in section 1297), a deduction shall be  allowable to the payor with respect to such amount for any taxable year  before the taxable year in which paid only to the extent that an amount  attributable to such item is includible (determined without regard to  properly allocable deductions and qualified deficits under section  952(c)(1)(B)) during such prior taxable year in the gross income of a United  States person who owns (within the meaning of section 958(a)) stock in such  corporation.</span>'''
+'''              (i) In general.  Notwithstanding subparagraph (A), in the case of any item payable to a  controlled foreign corporation (as defined in section 957) or a passive  foreign investment company (as defined in section 1297), a deduction shall be  allowable to the payor with respect to such amount for any taxable year  before the taxable year in which paid only to the extent that an amount  attributable to such item is includible (determined without regard to  properly allocable deductions and qualified deficits under section  952(c)(1)(B)) during such prior taxable year in the gross income of a United  States person who owns (within the meaning of section 958(a)) stock in such  corporation.'''
-'''<span lang="EN">               (ii) Secretarial  authority. The Secretary may by regulation exempt transactions from the  application of clause (i), including any transaction which is entered into by  a payor in the ordinary course of a trade or business in which the payor is  predominantly engaged and in which the payment of the accrued amounts occurs  within 8½ months after accrual or within such other period as the Secretary  may prescribe.</span>'''
+'''               (ii) Secretarial  authority. The Secretary may by regulation exempt transactions from the  application of clause (i), including any transaction which is entered into by  a payor in the ordinary course of a trade or business in which the payor is  predominantly engaged and in which the payment of the accrued amounts occurs  within 8½ months after accrual or within such other period as the Secretary  may prescribe.'''
-'''<span lang="EN">(b) Relationships. The persons referred to in subsection (a) are:</span>'''
+'''(b) Relationships. The persons referred to in subsection (a) are:'''
-'''<span lang="EN">    (1) Members of a family, as defined in  subsection (c)(4);</span>'''
+'''    (1) Members of a family, as defined in  subsection (c)(4);'''
-'''<span lang="EN">    (2) An individual and a corporation more  than 50 percent in value of the outstanding stock of which is owned, directly  or indirectly, by or for such individual;</span>'''
+'''    (2) An individual and a corporation more  than 50 percent in value of the outstanding stock of which is owned, directly  or indirectly, by or for such individual;'''
-'''<span lang="EN">    (3) Two corporations which are members  of the same controlled group (as defined in subsection (f));</span>'''
+'''    (3) Two corporations which are members  of the same controlled group (as defined in subsection (f));'''
-'''<span lang="EN">    (4) A grantor and a fiduciary of any  trust;</span>'''
+'''    (4) A grantor and a fiduciary of any  trust;'''
-'''<span lang="EN">    (5) A fiduciary of a trust and a  fiduciary of another trust, if the same person is a grantor of both trusts;</span>'''
+'''    (5) A fiduciary of a trust and a  fiduciary of another trust, if the same person is a grantor of both trusts;'''
-'''<span lang="EN">    (6) A fiduciary of a trust and a  beneficiary of such trust;</span>'''
+'''    (6) A fiduciary of a trust and a  beneficiary of such trust;'''
-'''<span lang="EN">    (7) A fiduciary of a trust and a  beneficiary of another trust, if the same person is a grantor of both trusts;</span>'''
+'''    (7) A fiduciary of a trust and a  beneficiary of another trust, if the same person is a grantor of both trusts;'''
-'''<span lang="EN">    (8) A fiduciary of a trust and a  corporation more than 50 percent in value of the outstanding stock of which  is owned, directly or indirectly, by or for the trust or by or for a person  who is a grantor of the trust;</span>'''
+'''    (8) A fiduciary of a trust and a  corporation more than 50 percent in value of the outstanding stock of which  is owned, directly or indirectly, by or for the trust or by or for a person  who is a grantor of the trust;'''
-'''<span lang="EN">    (9) A person and an organization to  which section 501 (relating to certain educational and charitable  organizations which are exempt from tax) applies and which is controlled  directly or indirectly by such person or (if such person is an individual) by  members of the family of such individual;</span>'''
+'''    (9) A person and an organization to  which section 501 (relating to certain educational and charitable  organizations which are exempt from tax) applies and which is controlled  directly or indirectly by such person or (if such person is an individual) by  members of the family of such individual;'''
-'''<span lang="EN">    (10) A corporation and a partnership if  the same persons own—</span>'''
+'''    (10) A corporation and a partnership if  the same persons own—'''
-'''<span lang="EN">         (A) more than 50 percent in value  of the outstanding stock of the corporation, and</span>'''
+'''         (A) more than 50 percent in value  of the outstanding stock of the corporation, and'''
-'''<span lang="EN">         (B) more than 50 percent of the  capital interest, or the profits interest, in the partnership;</span>'''
+'''         (B) more than 50 percent of the  capital interest, or the profits interest, in the partnership;'''
-'''<span lang="EN">    (11) An S corporation and another S  corporation if the same persons own more than 50 percent in value of the  outstanding stock of each corporation;</span>'''
+'''    (11) An S corporation and another S  corporation if the same persons own more than 50 percent in value of the  outstanding stock of each corporation;'''
-'''<span lang="EN">    (12) An S corporation and a C  corporation, if the same persons own more than 50 percent in value of the  outstanding stock of each corporation; or</span>'''
+'''    (12) An S corporation and a C  corporation, if the same persons own more than 50 percent in value of the  outstanding stock of each corporation; or'''
-'''<span lang="EN">    (13) Except in the case of a sale or  exchange in satisfaction of a pecuniary bequest, an executor of an estate and  a beneficiary of such estate.</span>'''
+'''    (13) Except in the case of a sale or  exchange in satisfaction of a pecuniary bequest, an executor of an estate and  a beneficiary of such estate.'''
-'''<span lang="EN">(c)  Constructive ownership of stock. For purposes of determining, in applying  subsection (b), the ownership of stock—</span>'''
+'''(c)  Constructive ownership of stock. For purposes of determining, in applying  subsection (b), the ownership of stock—'''
-'''<span lang="EN">    (1) Stock owned, directly or indirectly,  by or for a corporation, partnership, estate, or trust shall be considered as  being owned proportionately by or for its shareholders, partners, or  beneficiaries;</span>'''
+'''    (1) Stock owned, directly or indirectly,  by or for a corporation, partnership, estate, or trust shall be considered as  being owned proportionately by or for its shareholders, partners, or  beneficiaries;'''
-'''<span lang="EN">    (2) An individual shall be considered as  owning the stock owned, directly or indirectly, by or for his family;</span>'''
+'''    (2) An individual shall be considered as  owning the stock owned, directly or indirectly, by or for his family;'''
-'''<span lang="EN">    (3) An individual owning (otherwise than  by the application of paragraph (2)) any stock in a corporation shall be  considered as owning the stock owned, directly or indirectly, by or for his  partner;</span>'''
+'''    (3) An individual owning (otherwise than  by the application of paragraph (2)) any stock in a corporation shall be  considered as owning the stock owned, directly or indirectly, by or for his  partner;'''
-'''<span lang="EN">    (4) The family of an individual shall  include only his brothers and sisters (whether by the whole or half blood),  spouse, ancestors, and lineal descendants; and</span>'''
+'''    (4) The family of an individual shall  include only his brothers and sisters (whether by the whole or half blood),  spouse, ancestors, and lineal descendants; and'''
-'''<span lang="EN">    (5) Stock constructively owned by a  person by reason of the application of paragraph (1) shall, for the purpose  of applying paragraph (1), (2), or (3), be treated as actually owned by such  person, but stock constructively owned by an individual by reason of the  application of paragraph (2) or (3) shall not be treated as owned by him for  the purpose of again applying either of such paragraphs in order to make  another the constructive owner of such stock.</span>'''
+'''    (5) Stock constructively owned by a  person by reason of the application of paragraph (1) shall, for the purpose  of applying paragraph (1), (2), or (3), be treated as actually owned by such  person, but stock constructively owned by an individual by reason of the  application of paragraph (2) or (3) shall not be treated as owned by him for  the purpose of again applying either of such paragraphs in order to make  another the constructive owner of such stock.'''
-'''<span lang="EN">(d)  Amount of gain where loss previously disallowed</span>'''
+'''(d)  Amount of gain where loss previously disallowed'''
-'''<span lang="EN">    (1) In general. If—</span>'''
+'''    (1) In general. If—'''
-'''<span lang="EN">         (A) in the case of a sale or  exchange of property to the taxpayer a loss sustained by the transferor is  not allowable to the transferor as a deduction by reason of subsection  (a)(1), and</span>'''
+'''         (A) in the case of a sale or  exchange of property to the taxpayer a loss sustained by the transferor is  not allowable to the transferor as a deduction by reason of subsection  (a)(1), and'''
-'''<span lang="EN">         (B) the taxpayer sells or otherwise  disposes of such property (or of other property the basis of which in the  taxpayer’s hands is determined directly or indirectly by reference to such  property) at a gain,</span>'''
+'''         (B) the taxpayer sells or otherwise  disposes of such property (or of other property the basis of which in the  taxpayer’s hands is determined directly or indirectly by reference to such  property) at a gain,'''
-'''<span lang="EN">then such gain shall be recognized only to the extent that it exceeds so much  of such loss as is properly allocable to the property sold or otherwise  disposed of by the taxpayer.</span>'''
+'''then such gain shall be recognized only to the extent that it exceeds so much  of such loss as is properly allocable to the property sold or otherwise  disposed of by the taxpayer.'''
-'''<span lang="EN">    (2) Exception for wash sales. Paragraph  (1) shall not apply if the loss sustained by the transferor is not allowable  to the transferor as a deduction by reason of section 1091 (relating to wash  sales).</span>'''
+'''    (2) Exception for wash sales. Paragraph  (1) shall not apply if the loss sustained by the transferor is not allowable  to the transferor as a deduction by reason of section 1091 (relating to wash  sales).'''
-'''<span lang="EN">     (3) Exception for transfers from  tax indifferent parties. Paragraph (1) shall not apply to the extent any loss  sustained by the transferor (if allowed) would not be taken into account in  determining a tax imposed under section 1 or 11 or a tax computed as provided  by either of such sections.</span>'''
+'''     (3) Exception for transfers from  tax indifferent parties. Paragraph (1) shall not apply to the extent any loss  sustained by the transferor (if allowed) would not be taken into account in  determining a tax imposed under section 1 or 11 or a tax computed as provided  by either of such sections.'''
-'''<span lang="EN">(e) Special rules for pass-thru entities</span>'''
+'''(e) Special rules for pass-thru entities'''
-'''<span lang="EN">    (1) In general. In the case of any  amount paid or incurred by, to, or on behalf of, a pass-thru entity, for  purposes of applying subsection (a)(2)—</span>'''
+'''    (1) In general. In the case of any  amount paid or incurred by, to, or on behalf of, a pass-thru entity, for  purposes of applying subsection (a)(2)—'''
-'''<span lang="EN">         (A) such entity,</span>'''
+'''         (A) such entity,'''
-'''<span lang="EN">         (B) in the case of—</span>'''
+'''         (B) in the case of—'''
-'''<span lang="EN">              (i) a partnership, any person  who owns (directly or indirectly) any capital interest or profits interest of  such partnership, or</span>'''
+'''              (i) a partnership, any person  who owns (directly or indirectly) any capital interest or profits interest of  such partnership, or'''
-'''<span lang="EN">              (ii) an S corporation, any  person who owns (directly or indirectly) any of the stock of such corporation,</span>'''
+'''              (ii) an S corporation, any  person who owns (directly or indirectly) any of the stock of such corporation,'''
-'''<span lang="EN">         (C) any person who owns (directly  or indirectly) any capital interest or profits interest of a partnership in  which such entity owns (directly or indirectly) any capital interest or  profits interest, and</span>'''
+'''         (C) any person who owns (directly  or indirectly) any capital interest or profits interest of a partnership in  which such entity owns (directly or indirectly) any capital interest or  profits interest, and'''
-'''<span lang="EN">         (D) any person related (within the  meaning of subsection (b) of this section or section 707(b)(1)) to a person  described in subparagraph (B) or (C), shall be treated as persons specified  in a paragraph of subsection (b). Subparagraph (C) shall apply to a  transaction only if such transaction is related either to the operations of  the partnership described in such subparagraph or to an interest in such  partnership.</span>'''
+'''         (D) any person related (within the  meaning of subsection (b) of this section or section 707(b)(1)) to a person  described in subparagraph (B) or (C), shall be treated as persons specified  in a paragraph of subsection (b). Subparagraph (C) shall apply to a  transaction only if such transaction is related either to the operations of  the partnership described in such subparagraph or to an interest in such  partnership.'''
-'''<span lang="EN">    (2) Pass-thru entity. For purposes of  this section, the term “pass-thru entity” means—</span>'''
+'''    (2) Pass-thru entity. For purposes of  this section, the term “pass-thru entity” means—'''
-'''<span lang="EN">         (A) a partnership, and</span>'''
+'''         (A) a partnership, and'''
-'''<span lang="EN">         (B) an S corporation.</span>'''
+'''         (B) an S corporation.'''
-'''<span lang="EN">    (3) Constructive ownership in the case  of partnerships. For purposes of determining ownership of a capital interest  or profits interest of a partnership, the principles of subsection (c) shall  apply, except that—</span>'''
+'''    (3) Constructive ownership in the case  of partnerships. For purposes of determining ownership of a capital interest  or profits interest of a partnership, the principles of subsection (c) shall  apply, except that—'''
-'''<span lang="EN">         (A) paragraph (3) of subsection (c)  shall not apply, and</span>'''
+'''         (A) paragraph (3) of subsection (c)  shall not apply, and'''
-'''<span lang="EN">         (B) interests owned (directly or  indirectly) by or for a C corporation shall be considered as owned by or for  any shareholder only if such shareholder owns (directly or indirectly) 5  percent or more in value of the stock of such corporation.</span>'''
+'''         (B) interests owned (directly or  indirectly) by or for a C corporation shall be considered as owned by or for  any shareholder only if such shareholder owns (directly or indirectly) 5  percent or more in value of the stock of such corporation.'''
-'''<span lang="EN">    (4) Subsection (a)(2) not to apply to  certain guaranteed payments of partnerships. In the case of any amount paid  or incurred by a partnership, subsection (a)(2) shall not apply to the extent  that section 707(c) applies to such amount.</span>'''
+'''    (4) Subsection (a)(2) not to apply to  certain guaranteed payments of partnerships. In the case of any amount paid  or incurred by a partnership, subsection (a)(2) shall not apply to the extent  that section 707(c) applies to such amount.'''
-'''<span lang="EN">     (5) Exception for certain expenses  and interest of partnerships owning low-income housing</span>'''
+'''     (5) Exception for certain expenses  and interest of partnerships owning low-income housing'''
-'''<span lang="EN">         (A) In general. This subsection  shall not apply with respect to qualified expenses and interest paid or  incurred by a partnership owning low-income housing to—</span>'''
+'''         (A) In general. This subsection  shall not apply with respect to qualified expenses and interest paid or  incurred by a partnership owning low-income housing to—'''
-'''<span lang="EN">              (i) any qualified 5-percent or  less partner of such partnership, or</span>'''
+'''              (i) any qualified 5-percent or  less partner of such partnership, or'''
-'''<span lang="EN">              (ii) any person related  (within the meaning of subsection (b) of this section or section 707(b)(1))  to any qualified 5-percent or less partner of such partnership.</span>'''
+'''              (ii) any person related  (within the meaning of subsection (b) of this section or section 707(b)(1))  to any qualified 5-percent or less partner of such partnership.'''
-'''<span lang="EN">         (B) Qualified 5-percent or less  partner. For purposes of this paragraph, the term “qualified 5-percent or  less partner” means any partner who has (directly or indirectly) an interest  of 5 percent or less in the aggregate capital and profits interests of the  partnership but only if—</span>'''
+'''         (B) Qualified 5-percent or less  partner. For purposes of this paragraph, the term “qualified 5-percent or  less partner” means any partner who has (directly or indirectly) an interest  of 5 percent or less in the aggregate capital and profits interests of the  partnership but only if—'''
-'''<span lang="EN">              (i) such partner owned the  low-income housing at all times during the 2-year period ending on the date  such housing was transferred to the partnership, or</span>'''
+'''              (i) such partner owned the  low-income housing at all times during the 2-year period ending on the date  such housing was transferred to the partnership, or'''
-'''<span lang="EN">              (ii) such partnership acquired  the low-income housing pursuant to a purchase, assignment, or other transfer  from the Department of Housing and Urban Development or any State or local  housing authority. For purposes of the preceding sentence, a partner shall be  treated as holding any interest in the partnership which is held (directly or  indirectly) by any person related (within the meaning of subsection (b) of  this section or section 707(b)(1)) to such partner.</span>'''
+'''              (ii) such partnership acquired  the low-income housing pursuant to a purchase, assignment, or other transfer  from the Department of Housing and Urban Development or any State or local  housing authority. For purposes of the preceding sentence, a partner shall be  treated as holding any interest in the partnership which is held (directly or  indirectly) by any person related (within the meaning of subsection (b) of  this section or section 707(b)(1)) to such partner.'''
-'''<span lang="EN">         (C) Qualified expenses and  interest. For purpose of this paragraph, the term “qualified expenses and  interest” means any expense or interest incurred by the partnership with  respect to low-income housing held by the partnership but—</span>'''
+'''         (C) Qualified expenses and  interest. For purpose of this paragraph, the term “qualified expenses and  interest” means any expense or interest incurred by the partnership with  respect to low-income housing held by the partnership but—'''
-'''<span lang="EN">              (i) only if the amount of such expense  or interest (as the case may be) is unconditionally required to be paid by  the partnership not later than 10 years after the date such amount was  incurred, and</span>'''
+'''              (i) only if the amount of such expense  or interest (as the case may be) is unconditionally required to be paid by  the partnership not later than 10 years after the date such amount was  incurred, and'''
-'''<span lang="EN">              (ii) in the case of such  interest, only if such interest is incurred at an annual rate not in excess  of 12 percent.</span>'''
+'''              (ii) in the case of such  interest, only if such interest is incurred at an annual rate not in excess  of 12 percent.'''
-'''<span lang="EN">         (D) Low-income housing. For  purposes of this paragraph, the term “low-income housing” means—</span>'''
+'''         (D) Low-income housing. For  purposes of this paragraph, the term “low-income housing” means—'''
-'''<span lang="EN">              (i) any interest in property  described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B), and</span>'''
+'''              (i) any interest in property  described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B), and'''
-'''<span lang="EN">              (ii) any interest in a  partnership owning such property.</span>'''
+'''              (ii) any interest in a  partnership owning such property.'''
-'''<span lang="EN">    (6) Cross reference. For additional  rules relating to partnerships, see section 707(b).</span>'''
+'''    (6) Cross reference. For additional  rules relating to partnerships, see section 707(b).'''
-'''<span lang="EN">(f) Controlled group defined; special rules applicable to controlled groups</span>'''
+'''(f) Controlled group defined; special rules applicable to controlled groups'''
-'''<span lang="EN">    (1) Controlled group defined. For  purposes of this section, the term “controlled group” has the meaning given  to such term by section 1563(a), except that—</span>'''
+'''    (1) Controlled group defined. For  purposes of this section, the term “controlled group” has the meaning given  to such term by section 1563(a), except that—'''
-'''<span lang="EN">         (A) “more than 50 percent” shall be  substituted for “at least 80 percent” each place it appears in section  1563(a), and</span>'''
+'''         (A) “more than 50 percent” shall be  substituted for “at least 80 percent” each place it appears in section  1563(a), and'''
-'''<span lang="EN">         (B) the determination shall be made  without regard to subsections (a)(4) and (e)(3)(C) of section 1563.</span>'''
+'''         (B) the determination shall be made  without regard to subsections (a)(4) and (e)(3)(C) of section 1563.'''
-'''<span lang="EN">    (2) Deferral (rather than denial) of  loss from sale or exchange between membersIn the case of any loss from the  sale or exchange of property which is between members of the same controlled  group and to which subsection (a)(1) applies (determined without regard to  this paragraph but with regard to paragraph (3))—</span>'''
+'''    (2) Deferral (rather than denial) of  loss from sale or exchange between membersIn the case of any loss from the  sale or exchange of property which is between members of the same controlled  group and to which subsection (a)(1) applies (determined without regard to  this paragraph but with regard to paragraph (3))—'''
-'''<span lang="EN">         (A) subsections (a)(1) and (d)  shall not apply to such loss, but</span>'''
+'''         (A) subsections (a)(1) and (d)  shall not apply to such loss, but'''
-'''<span lang="EN">         (B) such loss shall be deferred  until the property is transferred outside such controlled group and there  would be recognition of loss under consolidated return principles or until  such other time as may be prescribed in regulations.</span>'''
+'''         (B) such loss shall be deferred  until the property is transferred outside such controlled group and there  would be recognition of loss under consolidated return principles or until  such other time as may be prescribed in regulations.'''
-'''<span lang="EN">    (3) Loss deferral rules not to apply in  certain cases</span>'''
+'''    (3) Loss deferral rules not to apply in  certain cases'''
-'''<span lang="EN">         (A) Transfer to DISC. For purposes  of applying subsection (a)(1), the term “controlled group” shall not include  a DISC.</span>'''
+'''         (A) Transfer to DISC. For purposes  of applying subsection (a)(1), the term “controlled group” shall not include  a DISC.'''
-'''<span lang="EN">          (B) Certain sales of  inventory, Except to the extent provided in regulations prescribed by the  Secretary, subsection (a)(1) shall not apply to the sale or exchange of  property between members of the same controlled group (or persons described  in subsection (b)(10)) if—</span>'''
+'''          (B) Certain sales of  inventory, Except to the extent provided in regulations prescribed by the  Secretary, subsection (a)(1) shall not apply to the sale or exchange of  property between members of the same controlled group (or persons described  in subsection (b)(10)) if—'''
-'''<span lang="EN">              (i) such property in the hands  of the transferor is property described in section 1221(a)(1),</span>'''
+'''              (i) such property in the hands  of the transferor is property described in section 1221(a)(1),'''
-'''<span lang="EN">              (ii) such sale or exchange is  in the ordinary course of the transferor’s trade or business,</span>'''
+'''              (ii) such sale or exchange is  in the ordinary course of the transferor’s trade or business,'''
-'''<span lang="EN">              (iii) such property in the  hands of the transferee is property described in section 1221(a)(1), and</span>'''
+'''              (iii) such property in the  hands of the transferee is property described in section 1221(a)(1), and'''
-'''<span lang="EN">              (iv) the transferee or the  transferor is a foreigncorporation.</span>'''
+'''              (iv) the transferee or the  transferor is a foreigncorporation.'''
-'''<span lang="EN">         (C) Certain foreign currency  losses. To the extent provided in regulations, subsection (a)(1) shall not  apply to any loss sustained by a member of a controlled group on the  repayment of a loan made to another member of such group if such loan is  payable in a foreign currency or is denominated in such a currency and such  loss is attributable to a reduction in value of such foreign currency.</span>'''
+'''         (C) Certain foreign currency  losses. To the extent provided in regulations, subsection (a)(1) shall not  apply to any loss sustained by a member of a controlled group on the  repayment of a loan made to another member of such group if such loan is  payable in a foreign currency or is denominated in such a currency and such  loss is attributable to a reduction in value of such foreign currency.'''
-'''<span lang="EN">          (D) Redemptions by  fund-of-funds regulated investment companies. Except to the extent provided  in regulations prescribed by the Secretary, subsection (a)(1) shall not apply  to any distribution in redemption of stock of a regulated investment company  if—</span>'''
+'''          (D) Redemptions by  fund-of-funds regulated investment companies. Except to the extent provided  in regulations prescribed by the Secretary, subsection (a)(1) shall not apply  to any distribution in redemption of stock of a regulated investment company  if—'''
-'''<span lang="EN">              (i) such company issues only  stock which is redeemable upon the demand of the stockholder, and</span>'''
+'''              (i) such company issues only  stock which is redeemable upon the demand of the stockholder, and'''
-'''<span lang="EN">              (ii) such redemption is upon  the demand of another regulated investment company.</span>'''
+'''              (ii) such redemption is upon  the demand of another regulated investment company.'''
-'''<span lang="EN">    (4) Determination of relationship  resulting in disallowance of loss, for purposes of other provisions. For  purposes of any other section of this title which refers to a relationship  which would result in a disallowance of losses under this section, deferral  under paragraph (2) shall be treated as disallowance.</span>'''
+'''    (4) Determination of relationship  resulting in disallowance of loss, for purposes of other provisions. For  purposes of any other section of this title which refers to a relationship  which would result in a disallowance of losses under this section, deferral  under paragraph (2) shall be treated as disallowance.'''
-'''<span lang="EN">(g) Coordination with section 1041. Subsection (a)(1) shall not apply to any  transfer described in section 1041(a) (relating to transfers of property  between spouses or incident to divorce).</span>'''
+'''(g) Coordination with section 1041. Subsection (a)(1) shall not apply to any  transfer described in section 1041(a) (relating to transfers of property  between spouses or incident to divorce).'''
 |}
-<span lang="EN">Related party sales</span>
+Related party sales
-<span lang="EN">●      267(a) prevents manipulation by disallowing any otherwise deductible loss if the loss results from the sale or exchange of property to a related person</span>
+●      267(a) prevents manipulation by disallowing any otherwise deductible loss if the loss results from the sale or exchange of property to a related person
-<span lang="EN">●      267(b) spells out specific relationships that will trigger disallowance (in-laws are not related)</span>
+●      267(b) spells out specific relationships that will trigger disallowance (in-laws are not related)
-'''<span lang="EN">Limitation on the Deductibility of Capital Losses</span>'''
+'''Limitation on the Deductibility of Capital Losses'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1211 - Limitation on capital losses</span>'''
+|'''26  U.S. Code § 1211 - Limitation on capital losses'''
-'''<span lang="EN">(a) Corporations. In the case of a corporation, losses from sales or  exchanges of capital assets shall be allowed only to the extent of gains from  such sales or exchanges.</span>'''
+'''(a) Corporations. In the case of a corporation, losses from sales or  exchanges of capital assets shall be allowed only to the extent of gains from  such sales or exchanges.'''
-'''<span lang="EN">(b) Other taxpayers. In the case of a taxpayer other than a corporation,  losses from sales or exchanges of capital assets shall be allowed only to the  extent of the gains from such sales or exchanges, plus (if such losses exceed  such gains) the lower of—</span>'''
+'''(b) Other taxpayers. In the case of a taxpayer other than a corporation,  losses from sales or exchanges of capital assets shall be allowed only to the  extent of the gains from such sales or exchanges, plus (if such losses exceed  such gains) the lower of—'''
-'''<span lang="EN">    (1) $3,000 ($1,500 in the case of a married  individual filing a separate return), or</span>'''
+'''    (1) $3,000 ($1,500 in the case of a married  individual filing a separate return), or'''
-'''<span lang="EN">    (2) the excess of such losses over such  gains.</span>'''
+'''    (2) the excess of such losses over such  gains.'''
 |}
-<span lang="EN">Deducting Capital Losses: The $3,000 Bonus</span>
+Deducting Capital Losses: The $3,000 Bonus
-<span lang="EN">●      Capital loss → a loss arising from the sale or exchange of a capital asset</span>
+●      Capital loss → a loss arising from the sale or exchange of a capital asset
-<span lang="EN">●      If the capital asset was held by the TP for more than one year prior to the sale or exchange, the TP has a '''long-term capital loss'''.</span>
+●      If the capital asset was held by the TP for more than one year prior to the sale or exchange, the TP has a '''long-term capital loss'''.
-<span lang="EN">●      If the TP held the asset for one year or less, the TP has a '''short-term capital loss'''.</span>
+●      If the TP held the asset for one year or less, the TP has a '''short-term capital loss'''.
-<span lang="EN">1211(b) → generally limits the deductibility of capital losses to the extent of capital gains; also contains a TP-friendly bonus, if capital losses '''exceed''' capital gains (statute: “net capital loss”), up to $3,000 of the excess can be deducted (i.e., up to $3,000 of net capital loss can be used to offset a TP’s ordinary income).</span>
+(b) → generally limits the deductibility of capital losses to the extent of capital gains; also contains a TP-friendly bonus, if capital losses '''exceed''' capital gains (statute: “net capital loss”), up to $3,000 of the excess can be deducted (i.e., up to $3,000 of net capital loss can be used to offset a TP’s ordinary income).
-'''<span lang="EN">Carryover of Excess Capital Losses</span>'''
+'''Carryover of Excess Capital Losses'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1212 - Capital loss carrybacks and carryovers</span>'''
+|'''26  U.S. Code § 1212 - Capital loss carrybacks and carryovers'''
-'''<span lang="EN">(a) Corporations</span>'''
+'''(a) Corporations'''
-'''<span lang="EN">    (1) In general. If a corporation has a  net capital loss for any taxable year (hereinafter in this paragraph referred  to as the “loss year”), the amount thereof shall be—</span>'''
+'''    (1) In general. If a corporation has a  net capital loss for any taxable year (hereinafter in this paragraph referred  to as the “loss year”), the amount thereof shall be—'''
-'''<span lang="EN">         (A) a capital loss carryback to  each of the 3 taxable years preceding the loss year, but only to the extent—</span>'''
+'''         (A) a capital loss carryback to  each of the 3 taxable years preceding the loss year, but only to the extent—'''
-'''<span lang="EN">              (i) such loss is not  attributable to a foreign expropriation capital loss, and</span>'''
+'''              (i) such loss is not  attributable to a foreign expropriation capital loss, and'''
-'''<span lang="EN">              (ii) the carryback of such  loss does not increase or produce a net operating loss (as defined in section  172(c)) for the taxable year to which it is being carried back;</span>'''
+'''              (ii) the carryback of such  loss does not increase or produce a net operating loss (as defined in section  172(c)) for the taxable year to which it is being carried back;'''
-'''<span lang="EN">         (B) except as provided in  subparagraph (C), a capital loss carryover to each of the 5 taxable years  succeeding the loss year; and</span>'''
+'''         (B) except as provided in  subparagraph (C), a capital loss carryover to each of the 5 taxable years  succeeding the loss year; and'''
-'''<span lang="EN">         (C) a capital loss carryover to  each of the 10 taxable years succeeding the loss year, but only to the extent  such loss is attributable to a foreign expropriation loss, and shall be  treated as a short-term capital loss in each such taxable year. The entire  amount of the net capital loss for any taxable year shall be carried to the  earliest of the taxable years to which such loss may be carried, and the  portion of such loss which shall be carried to each of the other taxable  years to which such loss may be carried shall be the excess, if any, of such  loss over the total of the capital gain net income for each of the prior  taxable years to which such loss may be carried. For purposes of the  preceding sentence, the capital gain net income for any such prior taxable  year shall be computed without regard to the net capital loss for the loss year  or for any taxable year thereafter. In the case of any net capital loss which  cannot be carried back in full to a preceding taxable year by reason of  clause (ii) of subparagraph (A), the capital gain net income for such prior  taxable year shall in no case be treated as greater than the amount of such  loss which can be carried back to such preceding taxable year upon the  application of such clause (ii).</span>'''
+'''         (C) a capital loss carryover to  each of the 10 taxable years succeeding the loss year, but only to the extent  such loss is attributable to a foreign expropriation loss, and shall be  treated as a short-term capital loss in each such taxable year. The entire  amount of the net capital loss for any taxable year shall be carried to the  earliest of the taxable years to which such loss may be carried, and the  portion of such loss which shall be carried to each of the other taxable  years to which such loss may be carried shall be the excess, if any, of such  loss over the total of the capital gain net income for each of the prior  taxable years to which such loss may be carried. For purposes of the  preceding sentence, the capital gain net income for any such prior taxable  year shall be computed without regard to the net capital loss for the loss year  or for any taxable year thereafter. In the case of any net capital loss which  cannot be carried back in full to a preceding taxable year by reason of  clause (ii) of subparagraph (A), the capital gain net income for such prior  taxable year shall in no case be treated as greater than the amount of such  loss which can be carried back to such preceding taxable year upon the  application of such clause (ii).'''
-'''<span lang="EN">    </span>'''
+'''    '''
-'''<span lang="EN">    (2) Definitions and special rules</span>'''
+'''    (2) Definitions and special rules'''
-'''<span lang="EN">         (A) Foreign expropriation capital  loss defined. For purposes of this subsection, the term “foreign  expropriation capital loss” means, for any taxable year, the sum of the  losses taken into account in computing the net capital loss for such year  which are—</span>'''
+'''         (A) Foreign expropriation capital  loss defined. For purposes of this subsection, the term “foreign  expropriation capital loss” means, for any taxable year, the sum of the  losses taken into account in computing the net capital loss for such year  which are—'''
-'''<span lang="EN">              (i) losses sustained directly by  reason of the expropriation, intervention, seizure, or similar taking of  property by the government of any foreign country, any political subdivision  thereof, or any agency or instrumentality of the foregoing, or</span>'''
+'''              (i) losses sustained directly by  reason of the expropriation, intervention, seizure, or similar taking of  property by the government of any foreign country, any political subdivision  thereof, or any agency or instrumentality of the foregoing, or'''
-'''<span lang="EN">              (ii) losses (treated under  section 165(g)(1) as losses from the sale or exchange of capital assets) from  securities which become worthless by reason of the expropriation,  intervention, seizure, or similar taking of property by the government of any  foreign country, any political subdivision thereof, or any agency or  instrumentality of the foregoing.</span>'''
+'''              (ii) losses (treated under  section 165(g)(1) as losses from the sale or exchange of capital assets) from  securities which become worthless by reason of the expropriation,  intervention, seizure, or similar taking of property by the government of any  foreign country, any political subdivision thereof, or any agency or  instrumentality of the foregoing.'''
-'''<span lang="EN">         (B) Portion of loss attributable to  foreign expropriation capital loss. For purposes of paragraph (1), the  portion of any net capital loss for any taxable year attributable to a  foreign expropriation capital loss is the amount of the foreign expropriation  capital loss for such year (but not in excess of the net capital loss for  such year).</span>'''
+'''         (B) Portion of loss attributable to  foreign expropriation capital loss. For purposes of paragraph (1), the  portion of any net capital loss for any taxable year attributable to a  foreign expropriation capital loss is the amount of the foreign expropriation  capital loss for such year (but not in excess of the net capital loss for  such year).'''
-'''<span lang="EN">          (C) Priority of application.  For purposes of paragraph (1), if a portion of a net capital loss for any  taxable year is attributable to a foreign expropriation capital loss, such  portion shall be considered to be a separate net capital loss for such year  to be applied after the other portion of such net capital loss.</span>'''
+'''          (C) Priority of application.  For purposes of paragraph (1), if a portion of a net capital loss for any  taxable year is attributable to a foreign expropriation capital loss, such  portion shall be considered to be a separate net capital loss for such year  to be applied after the other portion of such net capital loss.'''
-'''<span lang="EN">     (3) Regulated investment companies</span>'''
+'''     (3) Regulated investment companies'''
-'''<span lang="EN">         (A) In general. If a regulated  investment company has a net capital loss for any taxable year—</span>'''
+'''         (A) In general. If a regulated  investment company has a net capital loss for any taxable year—'''
-'''<span lang="EN">              (i) paragraph (1) shall not  apply to such loss,</span>'''
+'''              (i) paragraph (1) shall not  apply to such loss,'''
-'''<span lang="EN">              (ii) the excess of the net  short-term capital loss over the net long-term capital gain for such year  shall be a short-term capital loss arising on the first day of the next  taxable year, and</span>'''
+'''              (ii) the excess of the net  short-term capital loss over the net long-term capital gain for such year  shall be a short-term capital loss arising on the first day of the next  taxable year, and'''
-'''<span lang="EN">              (iii) the excess of the net  long-term capital loss over the net short-term capital gain for such year  shall be a long-term capital loss arising on the first day of the next  taxable year.</span>'''
+'''              (iii) the excess of the net  long-term capital loss over the net short-term capital gain for such year  shall be a long-term capital loss arising on the first day of the next  taxable year.'''
-'''<span lang="EN">         (B) Coordination with general rule.  If a net capital loss to which paragraph (1) applies is carried over to a  taxable year of a regulated investment company—</span>'''
+'''         (B) Coordination with general rule.  If a net capital loss to which paragraph (1) applies is carried over to a  taxable year of a regulated investment company—'''
-'''<span lang="EN">              (i) Losses to which this  paragraph applies. Clauses (ii) and (iii) of subparagraph (A) shall be  applied without regard to any amount treated as a short-term capital loss  under paragraph (1).</span>'''
+'''              (i) Losses to which this  paragraph applies. Clauses (ii) and (iii) of subparagraph (A) shall be  applied without regard to any amount treated as a short-term capital loss  under paragraph (1).'''
-'''<span lang="EN">    </span>'''
+'''    '''
-'''<span lang="EN">               (ii) Losses to which  general rule applies. Paragraph (1) shall be applied by substituting “net  capital loss for the loss year or any taxable year thereafter (other than a  net capital loss to which paragraph (3)(A) applies)” for “net capital loss  for the loss year or any taxable year thereafter”.</span>'''
+'''               (ii) Losses to which  general rule applies. Paragraph (1) shall be applied by substituting “net  capital loss for the loss year or any taxable year thereafter (other than a  net capital loss to which paragraph (3)(A) applies)” for “net capital loss  for the loss year or any taxable year thereafter”.'''
-'''<span lang="EN">     (4) Special rules on carrybacks. A  net capital loss of a corporation shall not be carried back under paragraph  (1)(A) to a taxable year—</span>'''
+'''     (4) Special rules on carrybacks. A  net capital loss of a corporation shall not be carried back under paragraph  (1)(A) to a taxable year—'''
-'''<span lang="EN">         (A) for which it is a regulated  investment company (as defined in section 851), or</span>'''
+'''         (A) for which it is a regulated  investment company (as defined in section 851), or'''
-'''<span lang="EN">         (B) for which it is a real estate  investment trust (as defined in section 856).</span>'''
+'''         (B) for which it is a real estate  investment trust (as defined in section 856).'''
-'''<span lang="EN">(b)  Other taxpayers</span>'''
+'''(b)  Other taxpayers'''
-'''<span lang="EN">    (1) In general. If a taxpayer other than  a corporation has a net capital loss for any taxable year—</span>'''
+'''    (1) In general. If a taxpayer other than  a corporation has a net capital loss for any taxable year—'''
-'''<span lang="EN">         (A) the excess of the net  short-term capital loss over the net long-term capital gain for such year  shall be a short-term capital loss in the succeeding taxable year, and</span>'''
+'''         (A) the excess of the net  short-term capital loss over the net long-term capital gain for such year  shall be a short-term capital loss in the succeeding taxable year, and'''
-'''<span lang="EN">         (B) the excess of the net long-term  capital loss over the net short-term capital gain for such year shall be a  long-term capital loss in the succeeding taxable year.</span>'''
+'''         (B) the excess of the net long-term  capital loss over the net short-term capital gain for such year shall be a  long-term capital loss in the succeeding taxable year.'''
-'''<span lang="EN">    (2) Treatment of amounts allowed under  section 1211(b)(1) or (2)</span>'''
+'''    (2) Treatment of amounts allowed under  section 1211(b)(1) or (2)'''
-'''<span lang="EN">         (A) In general. For purposes of  determining the excess referred to in subparagraph (A) or (B) of paragraph  (1), there shall be treated as a short-term capital gain in the taxable year  an amount equal to the lesser of—</span>'''
+'''         (A) In general. For purposes of  determining the excess referred to in subparagraph (A) or (B) of paragraph  (1), there shall be treated as a short-term capital gain in the taxable year  an amount equal to the lesser of—'''
-'''<span lang="EN">              (i) the amount allowed for the  taxable year under paragraph (1) or (2) of section 1211(b), or</span>'''
+'''              (i) the amount allowed for the  taxable year under paragraph (1) or (2) of section 1211(b), or'''
-'''<span lang="EN">              (ii) the adjusted taxable  income for such taxable year.</span>'''
+'''              (ii) the adjusted taxable  income for such taxable year.'''
-'''<span lang="EN">         (B) Adjusted taxable income. For  purposes of subparagraph (A), the term “adjusted taxable income” means  taxable income increased by the sum of—</span>'''
+'''         (B) Adjusted taxable income. For  purposes of subparagraph (A), the term “adjusted taxable income” means  taxable income increased by the sum of—'''
-'''<span lang="EN">              (i) the amount allowed for the  taxable year under paragraph (1) or (2) of section 1211(b), and</span>'''
+'''              (i) the amount allowed for the  taxable year under paragraph (1) or (2) of section 1211(b), and'''
-'''<span lang="EN">              (ii) the deduction allowed for  such year under section 151 or any deduction in lieu thereof.</span>'''
+'''              (ii) the deduction allowed for  such year under section 151 or any deduction in lieu thereof.'''
-'''<span lang="EN">For purposes of the preceding sentence, any excess of the deductions allowed  for the taxable year over the gross income for such year shall be taken into  account as negative taxable income.</span>'''
+'''For purposes of the preceding sentence, any excess of the deductions allowed  for the taxable year over the gross income for such year shall be taken into  account as negative taxable income.'''
-'''<span lang="EN">(c)  Carryback of losses from section 1256 contracts to offset prior gains from  such contracts</span>'''
+'''(c)  Carryback of losses from section 1256 contracts to offset prior gains from  such contracts'''
-'''<span lang="EN">    (1) In general. If a taxpayer (other  than a corporation) has a net section 1256 contracts loss for the taxable  year and elects to have this subsection apply to such taxable year, the  amount of such net section 1256 contracts loss—</span>'''
+'''    (1) In general. If a taxpayer (other  than a corporation) has a net section 1256 contracts loss for the taxable  year and elects to have this subsection apply to such taxable year, the  amount of such net section 1256 contracts loss—'''
-'''<span lang="EN">         (A) shall be a carryback to each of  the 3 taxable years preceding the loss year, and</span>'''
+'''         (A) shall be a carryback to each of  the 3 taxable years preceding the loss year, and'''
-'''<span lang="EN">         (B) to the extent that, after the  application of paragraphs (2) and (3), such loss is allowed as a carryback to  any such preceding taxable year—</span>'''
+'''         (B) to the extent that, after the  application of paragraphs (2) and (3), such loss is allowed as a carryback to  any such preceding taxable year—'''
-'''<span lang="EN">              (i) 40 percent of the amount  so allowed shall be treated as a short-term capital loss from section 1256  contracts, and</span>'''
+'''              (i) 40 percent of the amount  so allowed shall be treated as a short-term capital loss from section 1256  contracts, and'''
-'''<span lang="EN">              (ii) 60 percent of the amount  so allowed shall be treated as a long-term capital loss from section 1256  contracts.</span>'''
+'''              (ii) 60 percent of the amount  so allowed shall be treated as a long-term capital loss from section 1256  contracts.'''
-'''<span lang="EN">    (2) Amount carried to each taxable year.  The entire amount of the net section 1256 contracts loss for any taxable year  shall be carried to the earliest of the taxable years to which such loss may  be carried back under paragraph (1). The portion of such loss which shall be  carried to each of the 2 other taxable years to which such loss may be  carried back shall be the excess (if any) of such loss over the portion of  such loss which, after the application of paragraph (3), was allowed as a  carryback for any prior taxable year.</span>'''
+'''    (2) Amount carried to each taxable year.  The entire amount of the net section 1256 contracts loss for any taxable year  shall be carried to the earliest of the taxable years to which such loss may  be carried back under paragraph (1). The portion of such loss which shall be  carried to each of the 2 other taxable years to which such loss may be  carried back shall be the excess (if any) of such loss over the portion of  such loss which, after the application of paragraph (3), was allowed as a  carryback for any prior taxable year.'''
-'''<span lang="EN">     (3) Amount which may be used in  any prior taxable year. An amount shall be allowed as a carryback under  paragraph (1) to any prior taxable year only to the extent—</span>'''
+'''     (3) Amount which may be used in  any prior taxable year. An amount shall be allowed as a carryback under  paragraph (1) to any prior taxable year only to the extent—'''
-'''<span lang="EN">         (A) such amount does not exceed the  net section 1256 contract gain for such year, and</span>'''
+'''         (A) such amount does not exceed the  net section 1256 contract gain for such year, and'''
-'''<span lang="EN">         (B) the allowance of such carryback  does not increase or produce a net operating loss (as defined in section  172(c)) for such year.</span>'''
+'''         (B) the allowance of such carryback  does not increase or produce a net operating loss (as defined in section  172(c)) for such year.'''
-'''<span lang="EN">    (4) Net section 1256 contracts loss. For  purposes of paragraph (1), the term “net section 1256 contracts loss” means  the lesser of—</span>'''
+'''    (4) Net section 1256 contracts loss. For  purposes of paragraph (1), the term “net section 1256 contracts loss” means  the lesser of—'''
-'''<span lang="EN">         (A) the net capital loss for the  taxable year determined by taking into account only gains and losses from  section 1256 contracts, or</span>'''
+'''         (A) the net capital loss for the  taxable year determined by taking into account only gains and losses from  section 1256 contracts, or'''
-'''<span lang="EN">         (B) the sum of the amounts which,  but for paragraph (6)(A), would be treated as capital losses in the  succeeding taxable year under subparagraphs (A) and (B) of subsection (b)(1).</span>'''
+'''         (B) the sum of the amounts which,  but for paragraph (6)(A), would be treated as capital losses in the  succeeding taxable year under subparagraphs (A) and (B) of subsection (b)(1).'''
-'''<span lang="EN">    (5) Net section 1256 contract gain. For  purposes of paragraph (1)—</span>'''
+'''    (5) Net section 1256 contract gain. For  purposes of paragraph (1)—'''
-'''<span lang="EN">         (A) In general. The term “net section 1256  contract gain” means the lesser of—</span>'''
+'''         (A) In general. The term “net section 1256  contract gain” means the lesser of—'''
-'''<span lang="EN">              (i) the capital gain net  income for the taxable year determined by taking into account only gains and  losses from section 1256 contracts, or</span>'''
+'''              (i) the capital gain net  income for the taxable year determined by taking into account only gains and  losses from section 1256 contracts, or'''
-'''<span lang="EN">              (ii) the capital gain net  income for the taxable year.</span>'''
+'''              (ii) the capital gain net  income for the taxable year.'''
-'''<span lang="EN">         (B) Special rule. The net section  1256 contract gain for any taxable year before the loss year shall be  computed without regard to the net section 1256 contracts loss for the loss  year or for any taxable year thereafter.</span>'''
+'''         (B) Special rule. The net section  1256 contract gain for any taxable year before the loss year shall be  computed without regard to the net section 1256 contracts loss for the loss  year or for any taxable year thereafter.'''
-'''<span lang="EN">     (6) Coordination with carryforward  provisions of subsection (b)(1)</span>'''
+'''     (6) Coordination with carryforward  provisions of subsection (b)(1)'''
-'''<span lang="EN">         (A) Carryforward amount reduced by  amount used as carryback. For purposes of applying subsection (b)(1), if any  portion of the net section 1256 contracts loss for any taxable year is  allowed as a carryback under paragraph (1) to any preceding taxable year—</span>'''
+'''         (A) Carryforward amount reduced by  amount used as carryback. For purposes of applying subsection (b)(1), if any  portion of the net section 1256 contracts loss for any taxable year is  allowed as a carryback under paragraph (1) to any preceding taxable year—'''
-'''<span lang="EN">              (i) 40 percent of the amount  allowed as a carryback shall be treated as a short-term capital gain for the  loss year, and</span>'''
+'''              (i) 40 percent of the amount  allowed as a carryback shall be treated as a short-term capital gain for the  loss year, and'''
-'''<span lang="EN">              (ii) 60 percent of the amount  allowed as a carryback shall be treated as a long-term capital gain for the  loss year.</span>'''
+'''              (ii) 60 percent of the amount  allowed as a carryback shall be treated as a long-term capital gain for the  loss year.'''
-'''<span lang="EN">         (B) Carryover loss retains  character as attributable to section 1256 contract. Any amount carried  forward as a short-term or long-term capital loss to any taxable year under  subsection (b)(1) (after the application of subparagraph (A)) shall, to the  extent attributable to losses from section 1256 contracts, be treated as loss  from section 1256 contracts for such taxable year.</span>'''
+'''         (B) Carryover loss retains  character as attributable to section 1256 contract. Any amount carried  forward as a short-term or long-term capital loss to any taxable year under  subsection (b)(1) (after the application of subparagraph (A)) shall, to the  extent attributable to losses from section 1256 contracts, be treated as loss  from section 1256 contracts for such taxable year.'''
-'''<span lang="EN">     (7) Other definitions and special  rules. For purposes of this subsection—</span>'''
+'''     (7) Other definitions and special  rules. For purposes of this subsection—'''
-'''<span lang="EN">         (A)Section 1256 contract. The term  “section 1256 contract” means any section 1256 contract (as defined in  section 1256(b)) to which section 1256 applies.</span>'''
+'''         (A)Section 1256 contract. The term  “section 1256 contract” means any section 1256 contract (as defined in  section 1256(b)) to which section 1256 applies.'''
-'''<span lang="EN">          (B) Exclusion for estates and  trusts. This subsection shall not apply to any estate or trust.</span>'''
+'''          (B) Exclusion for estates and  trusts. This subsection shall not apply to any estate or trust.'''
 |}
-<span lang="EN">Carryover of Excess Capital Losses → under 1212(b)(1), if the TP’s net capital loss exceeds the $3,000 bonus amount, then the non-deductible portion carries over to the next taxable year.</span>
+Carryover of Excess Capital Losses → under 1212(b)(1), if the TP’s net capital loss exceeds the $3,000 bonus amount, then the non-deductible portion carries over to the next taxable year.
-<span lang="EN">EXAMPLE → For Year One, TP, an individual, recognized $5,000 in long-term capital gains and $3,000 in long-term capital losses; TP has no other capital gains or losses; the long-term capital losses are fully deductible and offset the long-term capital gains; TP has a “net capital gain” of $2,000 (which will be taxed at a preferential rate under 1(h).</span>
+EXAMPLE → For Year One, TP, an individual, recognized $5,000 in long-term capital gains and $3,000 in long-term capital losses; TP has no other capital gains or losses; the long-term capital losses are fully deductible and offset the long-term capital gains; TP has a “net capital gain” of $2,000 (which will be taxed at a preferential rate under 1(h).
-<span lang="EN">TP also recognized $4,000 in short-term capital gains and $9,000 in short-term capital losses in Year One; the total capital losses in Year One ($12,000) exceed the total capital gains ($9,000) by $3,000. Under 1211(b), however, TP may deduct all of the capital losses in Year One because this excess does not exceed $3,000; the $12,000 deduction will offset all of TP’s capital gains ($9,000) and even $3,000 of ordinary income from Year One.</span>
+TP also recognized $4,000 in short-term capital gains and $9,000 in short-term capital losses in Year One; the total capital losses in Year One ($12,000) exceed the total capital gains ($9,000) by $3,000. Under 1211(b), however, TP may deduct all of the capital losses in Year One because this excess does not exceed $3,000; the $12,000 deduction will offset all of TP’s capital gains ($9,000) and even $3,000 of ordinary income from Year One.
 {| class="wikitable"
 |
-|<span lang="EN">Long-Term</span>
+|Long-Term
-|<span lang="EN">Short-Term</span>
+|Short-Term
-|<span lang="EN">TOTALS</span>
+|TOTALS
 |-
-|<span lang="EN">Gains</span>
+|Gains
-|<span lang="EN">$5,000</span>
+|$5,000
-|<span lang="EN">$4,000</span>
+|$4,000
-|<span lang="EN">$9,000</span>
+|$9,000
 |-
-|<span lang="EN">Losses</span>
+|Losses
-|<span lang="EN">($3,000)</span>
+|($3,000)
-|<span lang="EN">($9,000)</span>
+|($9,000)
-|<span lang="EN">$12,000</span>
+|$12,000
 |-
-|<span lang="EN">Net</span>
+|Net
-|<span lang="EN">$2,000</span>
+|$2,000
-|<span lang="EN">($5,000)</span>
+|($5,000)
-|<span lang="EN">($3,000)</span>
+|($3,000)
 |}
-<span lang="EN">If total capital losses exceeds total capital gains by more than $3,000, under 1211(b), TP can deduct $3,000 of this excess in Year One; the remaining $$ comproses TP’s “net capital loss” → under 1212(b), that net capital loss will carry over to Year Two; to determine the flavor of the carryover amount 1212(b)(2)(A) tells us to treat the $3,000 bonus as a short-term capital gain.</span>
+If total capital losses exceeds total capital gains by more than $3,000, under 1211(b), TP can deduct $3,000 of this excess in Year One; the remaining $$ comproses TP’s “net capital loss” → under 1212(b), that net capital loss will carry over to Year Two; to determine the flavor of the carryover amount 1212(b)(2)(A) tells us to treat the $3,000 bonus as a short-term capital gain.
-<span lang="EN">●      In Year Two, the entire $$ carryover will be flavored as a short-term capital loss and TP can use that carryover amount to offset capital gains (and maybe up to $3,000 of ordinary income) recognized in Year Two.</span>
+●      In Year Two, the entire $$ carryover will be flavored as a short-term capital loss and TP can use that carryover amount to offset capital gains (and maybe up to $3,000 of ordinary income) recognized in Year Two.
-'''<span lang="EN">Transactions in Property</span>'''
+'''Transactions in Property'''
 {| class="wikitable"
-|<span lang="EN">Amount Realized (AR)</span>
+|Amount Realized (AR)
-<span lang="EN">- Adjusted Basis (AB)</span>
+- Adjusted Basis (AB)
-<span lang="EN">------------------------------</span>
+------------------------------
-<span lang="EN">Realized Gain (RG)</span>
+Realized Gain (RG)
 |}
 {| class="wikitable"
-| <span lang="EN">Adjusted Basis (AB)</span>
+| Adjusted Basis (AB)
-<span lang="EN">- Amount Realized (AR)</span>
+- Amount Realized (AR)
-<span lang="EN">------------------------------</span>
+------------------------------
-<span lang="EN">Realized Loss (RL)</span>
+Realized Loss (RL)
 |}
-'''<span lang="EN">The Impact of Debt Relief on Amount Realized</span>'''
+'''The Impact of Debt Relief on Amount Realized'''
-''<span lang="EN">1001; 1012; 1014(a); 1016(a)</span>''
+''1001; 1012; 1014(a); 1016(a)''
-<span lang="EN">Recourse debt → one in which the lender has recourse against more than just property securing the loan; the borrower is personally on the hook for the money</span>
+Recourse debt → one in which the lender has recourse against more than just property securing the loan; the borrower is personally on the hook for the money
-<span lang="EN">Nonrecourse debt → debt where the lender can go after the collateral on the loan (usually property) but not the borrower individually.</span>
+Nonrecourse debt → debt where the lender can go after the collateral on the loan (usually property) but not the borrower individually.
-'''''<span lang="EN">Debt incurred is included in basis and any relief from that debt is included in amount realized.</span>'''''
+'''''Debt incurred is included in basis and any relief from that debt is included in amount realized.'''''
-'''<span lang="EN">For recourse debt…</span>'''
+'''For recourse debt…'''
-<span lang="EN">EXAMPLE → A borrows $200 from the bank and uses $300 of her own funds to purchase a capital asset for $500 (agreed to recourse debt)</span>
+EXAMPLE → A borrows $200 from the bank and uses $300 of her own funds to purchase a capital asset for $500 (agreed to recourse debt)
-# <span lang="EN">Borrowing $200 from the bank    does not give rise to gross income for A, because A’s repayment obligation    offsets any “accession to wealth” from receipt of the loan proceeds</span>
+# Borrowing $200 from the bank    does not give rise to gross income for A, because A’s repayment obligation    offsets any “accession to wealth” from receipt of the loan proceeds
-# <span lang="EN">Because A’s repayment obligation    to Bank is part of her “cost” in acquiring the purchased asset, A’s basis    in the asset is now $500.</span>
+# Because A’s repayment obligation    to Bank is part of her “cost” in acquiring the purchased asset, A’s basis    in the asset is now $500.
-# <span lang="EN">IF    A sells the purchased asset 13 months later to an unrelated buyer and the    FMV is $900 →</span>
+# IF    A sells the purchased asset 13 months later to an unrelated buyer and the    FMV is $900 →
-# <span lang="EN">STEP
+# STEP
-ONE: GROSS INCOME</span>
+ONE: GROSS INCOME
-## '''''<span lang="EN">How much will the buyer pay for      the asset?</span>''''' <span lang="EN">Since the asset still secures A’s repayment      obligation, the buyer will not pay the full $900 to A; if A defaults, the      Bank would foreclose on the asset and the buyer could lose $200 of the      asset’s value to the bank; buyer will either '''assume the debt''' and pay the seller an amount of cash equal to      the excess of the asset’s value over the amount of the debt, or the buyer      will take the property '''subject to      the seller’s liability''' and pay the seller an amount of cash equal to      the seller’s equity</span>
+## '''''How much will the buyer pay for      the asset?''''' Since the asset still secures A’s repayment      obligation, the buyer will not pay the full $900 to A; if A defaults, the      Bank would foreclose on the asset and the buyer could lose $200 of the      asset’s value to the bank; buyer will either '''assume the debt''' and pay the seller an amount of cash equal to      the excess of the asset’s value over the amount of the debt, or the buyer      will take the property '''subject to      the seller’s liability''' and pay the seller an amount of cash equal to      the seller’s equity
-### <span lang="EN">Buyer here would pay $700 to A      and either assume the liability to the Bank or take the property subject      to the risk of A’s default</span>
+### Buyer here would pay $700 to A      and either assume the liability to the Bank or take the property subject      to the risk of A’s default
-## '''''<span lang="EN">What is the amount realized by      A?</span>'''''      <span lang="EN">The amount of a recourse liability secured by transferred property is      included in the seller’s amount realized; the liability has shifted to      the buyer and is no longer the seller’s problem.</span>
+## '''''What is the amount realized by      A?'''''      The amount of a recourse liability secured by transferred property is      included in the seller’s amount realized; the liability has shifted to      the buyer and is no longer the seller’s problem.
-### <span lang="EN">A’s amount realized is $900      ($700 cash and $200 debt relief) no matter whether the buyer assumes the      debt or takes the asset subject to the debt</span>
+### A’s amount realized is $900      ($700 cash and $200 debt relief) no matter whether the buyer assumes the      debt or takes the asset subject to the debt
-## '''''<span lang="EN">What is the flavor of A’s gain?</span>''''' <span lang="EN">By disposing of the      debt in the same transaction as the underlying capital asset, the gain      allocable to the debt relief piggybacks onto the flavor of the      transferred asset.</span>
+## '''''What is the flavor of A’s gain?''''' By disposing of the      debt in the same transaction as the underlying capital asset, the gain      allocable to the debt relief piggybacks onto the flavor of the      transferred asset.
-### <span lang="EN">With an amount realized of      $900, A realizes a gain of $400 on the sale (amount realized of $900      less adjusted basis of $500); treated as a long-term capital gain since      it was held for 13 months and will get preferential tax treatment under      1(h)</span>
+### With an amount realized of      $900, A realizes a gain of $400 on the sale (amount realized of $900      less adjusted basis of $500); treated as a long-term capital gain since      it was held for 13 months and will get preferential tax treatment under      1(h)
-### <span lang="EN">The entire gain is eligible      for the preferential tax treatment even though a portion is allocable to      A’s debt relief, this is different than if the Bank forgave or cancelled      the debt (treated as COD income and ordinary income under 1).</span>
+### The entire gain is eligible      for the preferential tax treatment even though a portion is allocable to      A’s debt relief, this is different than if the Bank forgave or cancelled      the debt (treated as COD income and ordinary income under 1).
-<span lang="EN">IF the amount of the debt is higher than the value of the asset → if the lender agrees not to pursue a claim against the seller for the difference, the lender effectively relieves the seller of the excess debt which would then be treated as COD income.</span>
+IF the amount of the debt is higher than the value of the asset → if the lender agrees not to pursue a claim against the seller for the difference, the lender effectively relieves the seller of the excess debt which would then be treated as COD income.
-'''<span lang="EN">BUT for nonrecourse debt...</span>'''
+'''BUT for nonrecourse debt...'''
-<u><span lang="EN">Crane v. Commissioner (1947)</span></u> <span lang="EN">- SCOTUS</span>
+<u>Crane v. Commissioner (1947)</u> - SCOTUS
-<span lang="EN">RULE: The amount realized in the disposition of property subject to an unassumed mortgage includes the amount of the mortgage.</span>
+RULE: The amount realized in the disposition of property subject to an unassumed mortgage includes the amount of the mortgage.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      A taxpayer’s gain from the disposition of property is calculated by subtracting the adjusted basis from the amount realized.</span>
+●      A taxpayer’s gain from the disposition of property is calculated by subtracting the adjusted basis from the amount realized.
-<span lang="EN">●      The adjusted basis is found by adjusting the original basis for certain factors, such as depreciation; the amount realized is calculated by adding any money and property received.</span>
+●      The adjusted basis is found by adjusting the original basis for certain factors, such as depreciation; the amount realized is calculated by adding any money and property received.
-<span lang="EN">●      Where the taxpayer receives the property from a decedent’s estate, the original basis is the fair market value at the time of receipt.</span>
+●      Where the taxpayer receives the property from a decedent’s estate, the original basis is the fair market value at the time of receipt.
-<span lang="EN">●      In order to ascertain the adjusted basis and amount realized for the property, it is first necessary to determine what the term “property” refers to.</span>
+●      In order to ascertain the adjusted basis and amount realized for the property, it is first necessary to determine what the term “property” refers to.
-<span lang="EN">○      First, the plain meaning of the term suggests that “property” refers to the physical thing that is owned.</span>
+○      First, the plain meaning of the term suggests that “property” refers to the physical thing that is owned.
-<span lang="EN">○      Second, administrative regulations have used the term to refer to physical property.</span>
+○      Second, administrative regulations have used the term to refer to physical property.
-<span lang="EN">○      Third, in other provisions of the Revenue Code, Congress clearly distinguishes between property and equity and there is no indication that Congress interchanges the two terms.</span>
+○      Third, in other provisions of the Revenue Code, Congress clearly distinguishes between property and equity and there is no indication that Congress interchanges the two terms.
-<span lang="EN">○      Finally, if property referred to equity, depreciation deductions based on equity would be miniscule; or, if depreciation deductions were based on the actual value of the property and deducted from an equity basis, negative deductions would result.</span>
+○      Finally, if property referred to equity, depreciation deductions based on equity would be miniscule; or, if depreciation deductions were based on the actual value of the property and deducted from an equity basis, negative deductions would result.
-<span lang="EN">●      Interpreting the term to mean equity would negate the purpose of allowing depreciation deductions in the first place.</span>
+●      Interpreting the term to mean equity would negate the purpose of allowing depreciation deductions in the first place.
-<span lang="EN">●      If property is based on equity, the taxpayer’s basis would change every time a mortgage payment is made, causing a great administrative burden on both the Commissioner and taxpayers.</span>
+●      If property is based on equity, the taxpayer’s basis would change every time a mortgage payment is made, causing a great administrative burden on both the Commissioner and taxpayers.
-<span lang="EN">●      It makes no difference whether the taxpayer is personally liable for the mortgage or not. A taxpayer who sells property subject to a mortgage receives a benefit equal to the value of the mortgage.</span>
+●      It makes no difference whether the taxpayer is personally liable for the mortgage or not. A taxpayer who sells property subject to a mortgage receives a benefit equal to the value of the mortgage.
-<span lang="EN">●      It is not unconstitutional to adjust TP’s cost basis by the amount of the depreciation deductions TP took on the property, in order to determine how much TP has gained from the sale.</span>
+●      It is not unconstitutional to adjust TP’s cost basis by the amount of the depreciation deductions TP took on the property, in order to determine how much TP has gained from the sale.
-<u><span lang="EN">Commissioner v. Tufts (1983)</span></u> <span lang="EN">- SCOTUS</span>
+<u>Commissioner v. Tufts (1983)</u> - SCOTUS
-<span lang="EN">RULE: The amount realized in the disposition of property subject to a nonrecourse mortgage includes the entire amount of the mortgage regardless of whether the mortgage exceeds the fair market value of the property.</span>
+RULE: The amount realized in the disposition of property subject to a nonrecourse mortgage includes the entire amount of the mortgage regardless of whether the mortgage exceeds the fair market value of the property.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      In <u>Crane</u>, this Court held that a taxpayer who sells property subject to a nonrecourse mortgage must include the unpaid balance of the mortgage in the amount realized.</span>
+●      In <u>Crane</u>, this Court held that a taxpayer who sells property subject to a nonrecourse mortgage must include the unpaid balance of the mortgage in the amount realized.
-<span lang="EN">●      Generally, with a nonrecourse mortgage, the mortgager is not personally liable for the loan. The mortgage is secured by property, so that the mortgager is only liable up to the fair market value of the property.</span>
+●      Generally, with a nonrecourse mortgage, the mortgager is not personally liable for the loan. The mortgage is secured by property, so that the mortgager is only liable up to the fair market value of the property.
-<span lang="EN">●      Upon sale of the property subject to a nonrecourse loan, the mortgager must calculate the amount realized.</span>
+●      Upon sale of the property subject to a nonrecourse loan, the mortgager must calculate the amount realized.
-<span lang="EN">●      The amount realized includes the sum of money and property received, as well as any debts the mortgager is relieved of through the transaction.</span>
+●      The amount realized includes the sum of money and property received, as well as any debts the mortgager is relieved of through the transaction.
-<span lang="EN">●      Though a taxpayer could technically only be relieved of liability equal in value to the fair market value of the property, the mortgager must include the entire amount of the unpaid mortgage in the amount realized. This is because the taxpayer receives certain benefits based on the assumption that the taxpayer is obligated to repay the entire nonrecourse mortgage.</span>
+●      Though a taxpayer could technically only be relieved of liability equal in value to the fair market value of the property, the mortgager must include the entire amount of the unpaid mortgage in the amount realized. This is because the taxpayer receives certain benefits based on the assumption that the taxpayer is obligated to repay the entire nonrecourse mortgage.
-<span lang="EN">●      For instance, the taxpayer receives a nonrecourse mortgage tax-free, since it is money the taxpayer must eventually pay back. If, after receiving the mortgage tax-free, the taxpayer does not include the entire unpaid loan in the amount realized upon disposition of the property, he receives the amount in excess of the fair market value of the property tax-free.</span>
+●      For instance, the taxpayer receives a nonrecourse mortgage tax-free, since it is money the taxpayer must eventually pay back. If, after receiving the mortgage tax-free, the taxpayer does not include the entire unpaid loan in the amount realized upon disposition of the property, he receives the amount in excess of the fair market value of the property tax-free.
-<span lang="EN">●      A taxpayer is allowed to include the entire amount of a nonrecourse loan in his cost basis of the property because he is expected to repay the entire loan. If he is not correspondingly required to include the entire unpaid loan in the amount realized, the taxpayer would receive an untaxed increase in basis.</span>
+●      A taxpayer is allowed to include the entire amount of a nonrecourse loan in his cost basis of the property because he is expected to repay the entire loan. If he is not correspondingly required to include the entire unpaid loan in the amount realized, the taxpayer would receive an untaxed increase in basis.
-<span lang="EN">●      To prevent such incongruities, a taxpayer must include the entire unpaid amount of a nonrecourse mortgage in his amount realized, regardless of whether the mortgage exceeds the fair market value of the property.</span>
+●      To prevent such incongruities, a taxpayer must include the entire unpaid amount of a nonrecourse mortgage in his amount realized, regardless of whether the mortgage exceeds the fair market value of the property.
-'''<span lang="EN">Flavor</span>'''
+'''Flavor'''
-'''<span lang="EN">Capital Assets</span>'''
+'''Capital Assets'''
-''<span lang="EN">1221(a); 1222; 1223</span>''
+''1221(a); 1222; 1223''
-<span lang="EN">Capital Assets --</span>
+Capital Assets --
-<span lang="EN">●      Defined in 1221(a); “negative definition” - if not included in list, it '''<u>IS</u>''' a capital asset</span>
+●      Defined in 1221(a); “negative definition” - if not included in list, it '''<u>IS</u>''' a capital asset
-<span lang="EN">●      Overarching themes:</span>
+●      Overarching themes:
-<span lang="EN">○      Assets that are held to '''produce ordinary income''' are generally not capital assets (this includes inventory and other property held for sale to customers, buildings and equipment used in a business activity, certain IP rights that generate royalties, and supplies consumed in the ordinary course of business)</span>
+○      Assets that are held to '''produce ordinary income''' are generally not capital assets (this includes inventory and other property held for sale to customers, buildings and equipment used in a business activity, certain IP rights that generate royalties, and supplies consumed in the ordinary course of business)
-<span lang="EN">○      Assets where '''gain results from the efforts of the TP''' and not from the mere passage of time are likely not capital assets (such as works of art, etc.)</span>
+○      Assets where '''gain results from the efforts of the TP''' and not from the mere passage of time are likely not capital assets (such as works of art, etc.)
-<span lang="EN">Section 1221(a)(1) lists three assets that do not qualify as capital assets:</span>
+Section 1221(a)(1) lists three assets that do not qualify as capital assets:
-<span lang="EN">(1)   Stock in trade; ''(raw materials used to manufacture or produce inventory property)''</span>
+(1)   Stock in trade; ''(raw materials used to manufacture or produce inventory property)''
-<span lang="EN">(2)   Inventory property; and</span>
+(2)   Inventory property; and
-<span lang="EN">(3)   Property held primarily for sale to customers in the ordinary course of business</span>
+(3)   Property held primarily for sale to customers in the ordinary course of business
-<u><span lang="EN">Byram v. United States (1983)</span></u> <span lang="EN">- 5th Cir.</span>
+<u>Byram v. United States (1983)</u> - 5th Cir.
-<span lang="EN">RULE: For federal tax purposes, property held primarily for sale to customers in the ordinary course of business is ordinary income rather than a capital asset.</span>
+RULE: For federal tax purposes, property held primarily for sale to customers in the ordinary course of business is ordinary income rather than a capital asset.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      Property held primarily for sale to customers in the ordinary course of a taxpayer’s business is not a capital asset, thus subjecting it to a higher rate of taxation as ordinary income.</span>
+●      Property held primarily for sale to customers in the ordinary course of a taxpayer’s business is not a capital asset, thus subjecting it to a higher rate of taxation as ordinary income.
-<span lang="EN">●      The issue of whether a taxpayer is holding property for sale to customers in the ordinary course of business is a factual issue of intent.</span>
+●      The issue of whether a taxpayer is holding property for sale to customers in the ordinary course of business is a factual issue of intent.
-<span lang="EN">●      Seven-factor test to determine that TP’s purpose for holding the realty was not primarily for sale to customers in the ordinary course of his business; “seven pillars of capital gains treatment”</span>
+●      Seven-factor test to determine that TP’s purpose for holding the realty was not primarily for sale to customers in the ordinary course of his business; “seven pillars of capital gains treatment”
-<span lang="EN">(1)   The nature and purpose of the acquisition of the property and the duration of the ownership;</span>
+(1)   The nature and purpose of the acquisition of the property and the duration of the ownership;
-<span lang="EN">(2)   The extent and nature of the TP’s efforts to sell the property;</span>
+(2)   The extent and nature of the TP’s efforts to sell the property;
-<span lang="EN">(3)   The number, extent, continuity and substantiality of the sales; (IMPORTANT)</span>
+(3)   The number, extent, continuity and substantiality of the sales; (IMPORTANT)
-<span lang="EN">(4)   The extent of subdividing, developing, and advertising to increase sales;</span>
+(4)   The extent of subdividing, developing, and advertising to increase sales;
-<span lang="EN">(5)   The use of a business office for the sale of the property;</span>
+(5)   The use of a business office for the sale of the property;
-<span lang="EN">(6)   The character and degree of supervision or control exercised by the TP over any representative selling the property; and</span>
+(6)   The character and degree of supervision or control exercised by the TP over any representative selling the property; and
-<span lang="EN">(7)   The time and effort the TP habitually devoted to the sales.</span>
+(7)   The time and effort the TP habitually devoted to the sales.
-<span lang="EN">●      These factors are known as the <u>Winthrop</u> factors and are not all weighed the same</span>
+●      These factors are known as the <u>Winthrop</u> factors and are not all weighed the same
-<span lang="EN">●       </span>
+●
 {| class="wikitable"
-|'''<u><span lang="EN">Winthrop</span></u> <span lang="EN">Factors</span>'''
+|'''<u>Winthrop</u> Factors'''
-<span lang="EN">(1)   The nature and purpose of  the acquisition of the property and the duration of the ownership;</span>
+(1)   The nature and purpose of  the acquisition of the property and the duration of the ownership;
-<span lang="EN">(2)   The extent and nature of  the TP’s efforts to sell the property;</span>
+(2)   The extent and nature of  the TP’s efforts to sell the property;
-<span lang="EN">(3)   The number, extent, continuity  and substantiality of the sales; (IMPORTANT)</span>
+(3)   The number, extent, continuity  and substantiality of the sales; (IMPORTANT)
-<span lang="EN">(4)   The extent of subdividing,  developing, and advertising to increase sales;</span>
+(4)   The extent of subdividing,  developing, and advertising to increase sales;
-<span lang="EN">(5)   The use of a business  office for the sale of the property;</span>
+(5)   The use of a business  office for the sale of the property;
-<span lang="EN">(6)   The character and degree of  supervision or control exercised by the TP over any representative selling  the property; and</span>
+(6)   The character and degree of  supervision or control exercised by the TP over any representative selling  the property; and
-<span lang="EN">(7)   The time and effort the TP  habitually devoted to the sales.</span>
+(7)   The time and effort the TP  habitually devoted to the sales.
 |}
-'''<span lang="EN">Futures contract→ a contract to buy a fixed amount of a commodity at a set price at some specific date in the future (e.g. a buyer promises to buy a seller’s corn at $10 per bushel in three months); the seller benefits because the seller knows the prices at which the product can be sold, and the buyer benefits because there is a fixed price for the manufacturing inputs and the buyer can plan accordingly.</span>'''
+'''Futures contract→ a contract to buy a fixed amount of a commodity at a set price at some specific date in the future (e.g. a buyer promises to buy a seller’s corn at $10 per bushel in three months); the seller benefits because the seller knows the prices at which the product can be sold, and the buyer benefits because there is a fixed price for the manufacturing inputs and the buyer can plan accordingly.'''
-<span lang="EN">Many investors buy futures, not for the product, but for the bet on whether the price of the underlying commodity will rise or fall</span>
+Many investors buy futures, not for the product, but for the bet on whether the price of the underlying commodity will rise or fall
-<span lang="EN">●       if the price of a commodity goes up, the long future is worth more because a person could purchase the product for less than the sales price agreed to in the contract</span>
+●       if the price of a commodity goes up, the long future is worth more because a person could purchase the product for less than the sales price agreed to in the contract
-<span lang="EN">●      if the price goes down, below the future price, the future is worthless because you can buy the product on the open market</span>
+●      if the price goes down, below the future price, the future is worthless because you can buy the product on the open market
-<u><span lang="EN">Corn Products Refining Co. v. Commissioner (1955)</span></u> <span lang="EN">- SCOTUS</span>
+<u>Corn Products Refining Co. v. Commissioner (1955)</u> - SCOTUS
-<span lang="EN">RULE: For federal tax purposes, assets held by a business to hedge operating risks are not capital assets.</span>
+RULE: For federal tax purposes, assets held by a business to hedge operating risks are not capital assets.
-<span lang="EN">Case Notes:</span>
+Case Notes:
-<span lang="EN">●      Assets bought and sold to hedge risks associated with an operating business are not capital assets under 26 U.S.C. § 1221.</span>
+●      Assets bought and sold to hedge risks associated with an operating business are not capital assets under 26 U.S.C. § 1221.
-<span lang="EN">●      If a taxpayer’s ordinary business activities involve hedging what might otherwise be considered capital assets, such as real estate or securities, the taxpayer’s gains or losses from the sale of those assets constitute ordinary income or losses, not capital gains or losses.</span>
+●      If a taxpayer’s ordinary business activities involve hedging what might otherwise be considered capital assets, such as real estate or securities, the taxpayer’s gains or losses from the sale of those assets constitute ordinary income or losses, not capital gains or losses.
-<span lang="EN">●      Investments, including investments in futures-commodity contracts, are capital assets.</span>
+●      Investments, including investments in futures-commodity contracts, are capital assets.
-<span lang="EN">●      <u>Corn Products</u> does not create a common-law exception to the definition of capital asset but instead found that the futures were surrogates for inventory</span>
+●      <u>Corn Products</u> does not create a common-law exception to the definition of capital asset but instead found that the futures were surrogates for inventory
-<span lang="EN">●      Definition of “capital asset” must be construed narrowly and its exceptions defined broadly</span>
+●      Definition of “capital asset” must be construed narrowly and its exceptions defined broadly
-<u><span lang="EN">Arkansas Best</span></u> <span lang="EN">→ motivation of the customer is irrelevant; if it falls within the definition, the gain or sale will be capital</span>
+<u>Arkansas Best</u> → motivation of the customer is irrelevant; if it falls within the definition, the gain or sale will be capital
-'''<span lang="EN">Section 1221(a)(7)</span>''' <span lang="EN">→ now specifically excludes from the definition of capital asset “hedging transactions” identified by the TP</span>
+'''Section 1221(a)(7)''' → now specifically excludes from the definition of capital asset “hedging transactions” identified by the TP
-'''<span lang="EN">Section 1221(a)(8)</span>''' <span lang="EN">→ excludes supplies regularly used by the TP in a trade or business.</span>
+'''Section 1221(a)(8)''' → excludes supplies regularly used by the TP in a trade or business.
-'''<span lang="EN">Section 1237</span>''' <span lang="EN">→ Safe harbor for those who own real property to retain investment status rather than being treated like a broker.</span>
+'''Section 1237''' → Safe harbor for those who own real property to retain investment status rather than being treated like a broker.
-'''<span lang="EN">Holding Periods</span>'''
+'''Holding Periods'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1222 - Other terms relating to capital gains and losses</span>'''
+|'''26  U.S. Code § 1222 - Other terms relating to capital gains and losses'''
-'''<span lang="EN">For purposes of this subtitle—</span>'''
+'''For purposes of this subtitle—'''
-'''<span lang="EN">(1)  Short-term capital gain. The term “short-term capital gain” means gain from  the sale or exchange of a capital asset held for not more than 1 year, if and  to the extent such gain is taken into account in computing gross income.</span>'''
+'''(1)  Short-term capital gain. The term “short-term capital gain” means gain from  the sale or exchange of a capital asset held for not more than 1 year, if and  to the extent such gain is taken into account in computing gross income.'''
-'''<span lang="EN">(2) Short-term capital loss. The term “short-term capital loss” means loss  from the sale or exchange of a capital asset held for not more than 1 year,  if and to the extent that such loss is taken into account in computing  taxable income.</span>'''
+'''(2) Short-term capital loss. The term “short-term capital loss” means loss  from the sale or exchange of a capital asset held for not more than 1 year,  if and to the extent that such loss is taken into account in computing  taxable income.'''
-'''<span lang="EN">(3) Long-term capital gain. The term “long-term capital gain” means gain from  the sale or exchange of a capital asset held for more than 1 year, if and to  the extent such gain is taken into account in computing gross income.</span>'''
+'''(3) Long-term capital gain. The term “long-term capital gain” means gain from  the sale or exchange of a capital asset held for more than 1 year, if and to  the extent such gain is taken into account in computing gross income.'''
-'''<span lang="EN">(4) Long-term capital loss. The term “long-term capital loss” means loss from  the sale or exchange of a capital asset held for more than 1 year, if and to  the extent that such loss is taken into account in computing taxable income.</span>'''
+'''(4) Long-term capital loss. The term “long-term capital loss” means loss from  the sale or exchange of a capital asset held for more than 1 year, if and to  the extent that such loss is taken into account in computing taxable income.'''
-'''<span lang="EN">(5) Net short-term capital gain. The term “net short-term capital gain” means  the excess of short-term capital gains for the taxable year over the  short-term capital losses for such year.</span>'''
+'''(5) Net short-term capital gain. The term “net short-term capital gain” means  the excess of short-term capital gains for the taxable year over the  short-term capital losses for such year.'''
-'''<span lang="EN">(6) Net short-term capital loss. The term “net short-term capital loss” means  the excess of short-term capital losses for the taxable year over the  short-term capital gains for such year.</span>'''
+'''(6) Net short-term capital loss. The term “net short-term capital loss” means  the excess of short-term capital losses for the taxable year over the  short-term capital gains for such year.'''
-'''<span lang="EN">(7) Net long-term capital gain. The term “net long-term capital gain” means  the excess of long-term capital gains for the taxable year over the long-term  capital losses for such year.</span>'''
+'''(7) Net long-term capital gain. The term “net long-term capital gain” means  the excess of long-term capital gains for the taxable year over the long-term  capital losses for such year.'''
-'''<span lang="EN">(8) Net long-term capital loss. The term “net long-term capital loss” means  the excess of long-term capital losses for the taxable year over the  long-term capital gains for such year.</span>'''
+'''(8) Net long-term capital loss. The term “net long-term capital loss” means  the excess of long-term capital losses for the taxable year over the  long-term capital gains for such year.'''
-'''<span lang="EN">(9) Capital gain net income. The term “capital gain net income” means the  excess of the gains from sales or exchanges of capital assets over the losses  from such sales or exchanges.</span>'''
+'''(9) Capital gain net income. The term “capital gain net income” means the  excess of the gains from sales or exchanges of capital assets over the losses  from such sales or exchanges.'''
-'''<span lang="EN">(10) Net capital loss. The term “net capital loss” means the excess of the  losses from sales or exchanges of capital assets over the sum allowed under  section 1211. In the case of a corporation, for the purpose of determining  losses under this paragraph, amounts which are short-term capital losses  under section 1212(a)(1) shall be excluded.</span>'''
+'''(10) Net capital loss. The term “net capital loss” means the excess of the  losses from sales or exchanges of capital assets over the sum allowed under  section 1211. In the case of a corporation, for the purpose of determining  losses under this paragraph, amounts which are short-term capital losses  under section 1212(a)(1) shall be excluded.'''
-'''<span lang="EN">(11) Net capital gain. The term “net capital gain” means the excess of the  net long-term capital gain for the taxable year over the net short-term  capital loss for such year.</span>'''
+'''(11) Net capital gain. The term “net capital gain” means the excess of the  net long-term capital gain for the taxable year over the net short-term  capital loss for such year.'''
 |}
-<span lang="EN">Section 1222 → requires netting of “long-term” and “short-term” capital gains and losses; in certain situations, a TP may add the holding period of another owner or add the holding period from another asset. (TACKING RELEVANT FOR DETERMINING WHETHER THE 13 MONTH MINIMUM FOR LONG TERM HAS BEEN MET)</span>
+Section 1222 → requires netting of “long-term” and “short-term” capital gains and losses; in certain situations, a TP may add the holding period of another owner or add the holding period from another asset. (TACKING RELEVANT FOR DETERMINING WHETHER THE 13 MONTH MINIMUM FOR LONG TERM HAS BEEN MET)
-<span lang="EN">Section 1223 → lists various situations where “tacking” of holding periods is allowed; unless one of these situations is present, a TP’s holding period begins upon acquisition.</span>
+Section 1223 → lists various situations where “tacking” of holding periods is allowed; unless one of these situations is present, a TP’s holding period begins upon acquisition.
-<span lang="EN">●      For example, if a TP exchanges one capital asset for another in a transaction in which the taxpayer does not recognize gain or loss (a so-called “nonrecognition transaction” → NRT), the TP usually takes the new asset with a basis equal to the TP’s basis in the property surrendered (i.e. the gain or loss from the surrendered asset is preserved in the acquired asset”</span>
+●      For example, if a TP exchanges one capital asset for another in a transaction in which the taxpayer does not recognize gain or loss (a so-called “nonrecognition transaction” → NRT), the TP usually takes the new asset with a basis equal to the TP’s basis in the property surrendered (i.e. the gain or loss from the surrendered asset is preserved in the acquired asset”
-<span lang="EN">●      1223(1) → the TP’s holding period in the surrendered asset also carries over to the acquired asset; if a TP exchanges an asset held for five years for another capital asset in a NRT, the newly acquired asset is deemed to have been held for five years (and immediate sale would produce long-term cap gain or loss).</span>
+●      1223(1) → the TP’s holding period in the surrendered asset also carries over to the acquired asset; if a TP exchanges an asset held for five years for another capital asset in a NRT, the newly acquired asset is deemed to have been held for five years (and immediate sale would produce long-term cap gain or loss).
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1223 - Holding period of property</span>'''
+|'''26  U.S. Code § 1223 - Holding period of property'''
-'''<span lang="EN">For purposes of this subtitle—</span>'''
+'''For purposes of this subtitle—'''
-'''<span lang="EN">(1)  In determining the period for which the taxpayer has held property received  in an exchange, there shall be included the period for which he held the  property exchanged if, under this chapter, the property has, for the purpose  of determining gain or loss from a sale or exchange, the same basis in whole  or in part in his hands as the property exchanged, and, in the case of such  exchanges the property exchanged at the time of such exchange was a capital  asset as defined in section 1221 or property described in section 1231. For  purposes of this paragraph—</span>'''
+'''(1)  In determining the period for which the taxpayer has held property received  in an exchange, there shall be included the period for which he held the  property exchanged if, under this chapter, the property has, for the purpose  of determining gain or loss from a sale or exchange, the same basis in whole  or in part in his hands as the property exchanged, and, in the case of such  exchanges the property exchanged at the time of such exchange was a capital  asset as defined in section 1221 or property described in section 1231. For  purposes of this paragraph—'''
-'''<span lang="EN">    (A) an involuntary conversion described  in section 1033 shall be considered an exchange of the property converted for  the property acquired, and</span>'''
+'''    (A) an involuntary conversion described  in section 1033 shall be considered an exchange of the property converted for  the property acquired, and'''
-'''<span lang="EN">    (B) a distribution to which section 355  (or so much of section 356 as relates to section 355) applies shall be  treated as an exchange.</span>'''
+'''    (B) a distribution to which section 355  (or so much of section 356 as relates to section 355) applies shall be  treated as an exchange.'''
-'''<span lang="EN">(2)  In determining the period for which the taxpayer has held property however  acquired there shall be included the period for which such property was held  by any other person, if under this chapter such property has, for the purpose  of determining gain or loss from a sale or exchange, the same basis in whole  or in part in his hands as it would have in the hands of such other person.</span>'''
+'''(2)  In determining the period for which the taxpayer has held property however  acquired there shall be included the period for which such property was held  by any other person, if under this chapter such property has, for the purpose  of determining gain or loss from a sale or exchange, the same basis in whole  or in part in his hands as it would have in the hands of such other person.'''
-'''<span lang="EN">(3)  In determining the period for which the taxpayer has held stock or securities  the acquisition of which (or the contract or option to acquire which)  resulted in the nondeductibility (under section 1091 relating to wash sales)  of the loss from the sale or other disposition of substantially identical  stock or securities, there shall be included the period for which he held the  stock or securities the loss from the sale or other disposition of which was  not deductible.</span>'''
+'''(3)  In determining the period for which the taxpayer has held stock or securities  the acquisition of which (or the contract or option to acquire which)  resulted in the nondeductibility (under section 1091 relating to wash sales)  of the loss from the sale or other disposition of substantially identical  stock or securities, there shall be included the period for which he held the  stock or securities the loss from the sale or other disposition of which was  not deductible.'''
-'''<span lang="EN">(4)  In determining the period for which the taxpayer has held stock or rights to  acquire stock received on a distribution, if the basis of such stock or  rights is determined under section 307, there shall (under regulations  prescribed by the Secretary) be included the period for which he held the  stock in the distributing corporation before the receipt of such stock or  rights upon such distribution.</span>'''
+'''(4)  In determining the period for which the taxpayer has held stock or rights to  acquire stock received on a distribution, if the basis of such stock or  rights is determined under section 307, there shall (under regulations  prescribed by the Secretary) be included the period for which he held the  stock in the distributing corporation before the receipt of such stock or  rights upon such distribution.'''
-'''<span lang="EN">(5)  In determining the period for which the taxpayer has held stock or securities  acquired from a corporation by the exercise of rights to acquire such stock  or securities, there shall be included only the period beginning with the  date on which the right to acquire was exercised.</span>'''
+'''(5)  In determining the period for which the taxpayer has held stock or securities  acquired from a corporation by the exercise of rights to acquire such stock  or securities, there shall be included only the period beginning with the  date on which the right to acquire was exercised.'''
-'''<span lang="EN">[(6)  Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(80)(C), Dec. 19, 2014,  128 Stat. 4049.]</span>'''
+'''[(6)  Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(80)(C), Dec. 19, 2014,  128 Stat. 4049.]'''
-'''<span lang="EN">(7)  In determining the period for which the taxpayer has held a commodity  acquired in satisfaction of a commodity futures contract (other than a  commodity futures contract to which section 1256 applies) there shall be  included the period for which he held the commodity futures contract if such  commodity futures contract was a capital asset in his hands.</span>'''
+'''(7)  In determining the period for which the taxpayer has held a commodity  acquired in satisfaction of a commodity futures contract (other than a  commodity futures contract to which section 1256 applies) there shall be  included the period for which he held the commodity futures contract if such  commodity futures contract was a capital asset in his hands.'''
-'''<span lang="EN">[(8)  Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(80)(C), Dec. 19, 2014,  128 Stat. 4049.]</span>'''
+'''[(8)  Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(80)(C), Dec. 19, 2014,  128 Stat. 4049.]'''
-'''<span lang="EN">(9)  In the case of a person acquiring property from a decedent or to whom  property passed from a decedent (within the meaning of section 1014(b)), if—</span>'''
+'''(9)  In the case of a person acquiring property from a decedent or to whom  property passed from a decedent (within the meaning of section 1014(b)), if—'''
-'''<span lang="EN">    (A) the basis of such property in the  hands of such person is determined under section 1014, and</span>'''
+'''    (A) the basis of such property in the  hands of such person is determined under section 1014, and'''
-'''<span lang="EN">    (B) such property is sold or otherwise  disposed of by such person within 1 year after the decedent’s death,</span>'''
+'''    (B) such property is sold or otherwise  disposed of by such person within 1 year after the decedent’s death,'''
-'''<span lang="EN">then such person shall be considered to have held such property for more than  1 year.</span>'''
+'''then such person shall be considered to have held such property for more than  1 year.'''
-'''<span lang="EN">(10)  If—</span>'''
+'''(10)  If—'''
-'''<span lang="EN">    (A) property is acquired by any person  in a transfer to which section 1040 applies,</span>'''
+'''    (A) property is acquired by any person  in a transfer to which section 1040 applies,'''
-'''<span lang="EN">    (B) such property is sold or otherwise  disposed of by such person within 1 year after the decedent’s death, and</span>'''
+'''    (B) such property is sold or otherwise  disposed of by such person within 1 year after the decedent’s death, and'''
-'''<span lang="EN">    (C) such sale or disposition is to a  person who is a qualified heir (as defined in section 2032A(e)(1)) with  respect to the decedent,</span>'''
+'''    (C) such sale or disposition is to a  person who is a qualified heir (as defined in section 2032A(e)(1)) with  respect to the decedent,'''
-'''<span lang="EN">then the person making such sale or other disposition shall be considered to  have held such property for more than 1 year.</span>'''
+'''then the person making such sale or other disposition shall be considered to  have held such property for more than 1 year.'''
-'''<span lang="EN">(11)  In determining the period for which the taxpayer has held qualified  replacement property (within the meaning of section 1042(b)) the acquisition  of which resulted under section 1042 in the nonrecognition of any part of the  gain realized on the sale of qualified securities (within the meaning of  section 1042(b)), there shall be included the period for which such qualified  securities had been held by the taxpayer.</span>'''
+'''(11)  In determining the period for which the taxpayer has held qualified  replacement property (within the meaning of section 1042(b)) the acquisition  of which resulted under section 1042 in the nonrecognition of any part of the  gain realized on the sale of qualified securities (within the meaning of  section 1042(b)), there shall be included the period for which such qualified  securities had been held by the taxpayer.'''
-'''<span lang="EN">(12)  In determining the period for which the taxpayer has held property the  acquisition of which resulted under section 1043 in the nonrecognition of any  part of the gain realized on the sale of other property, there shall be  included the period for which such other property had been held as of the  date of such sale.</span>'''
+'''(12)  In determining the period for which the taxpayer has held property the  acquisition of which resulted under section 1043 in the nonrecognition of any  part of the gain realized on the sale of other property, there shall be  included the period for which such other property had been held as of the  date of such sale.'''
-'''<span lang="EN">(13)  Except for purposes of sections 1202(a)(2), 1202(c)(2)(A), 1400B(b), and  1400F(b), in determining the period for which the taxpayer has held property  the acquisition of which resulted under section 1045 or 1397B in the  nonrecognition of any part of the gain realized on the sale of other  property, there shall be included the period for which such other property  has been held as of the date of such sale.</span>'''
+'''(13)  Except for purposes of sections 1202(a)(2), 1202(c)(2)(A), 1400B(b), and  1400F(b), in determining the period for which the taxpayer has held property  the acquisition of which resulted under section 1045 or 1397B in the  nonrecognition of any part of the gain realized on the sale of other  property, there shall be included the period for which such other property  has been held as of the date of such sale.'''
-'''<span lang="EN">(14)  If the security to which a securities futures contract (as defined in section  1234B) relates (other than a contract to which section 1256 applies) is  acquired in satisfaction of such contract, in determining the period for  which the taxpayer has held such security, there shall be included the period  for which the taxpayer held such contract if such contract was a capital  asset in the hands of the taxpayer.</span>'''
+'''(14)  If the security to which a securities futures contract (as defined in section  1234B) relates (other than a contract to which section 1256 applies) is  acquired in satisfaction of such contract, in determining the period for  which the taxpayer has held such security, there shall be included the period  for which the taxpayer held such contract if such contract was a capital  asset in the hands of the taxpayer.'''
-'''<span lang="EN">(15)  Cross reference.— For special holding period provision relating to certain  partnership distributions, see section 735(b).</span>'''
+'''(15)  Cross reference.— For special holding period provision relating to certain  partnership distributions, see section 735(b).'''
 |}
-'''<span lang="EN">The Sale or Exchange Requirement</span>'''
+'''The Sale or Exchange Requirement'''
-''<span lang="EN">1222</span>''
+''1222''
-<span lang="EN">Section 1222 → states that a capital gain or capital loss arises only upon the “sale or exchange” of a capital asset</span>
+Section 1222 → states that a capital gain or capital loss arises only upon the “sale or exchange” of a capital asset
-<span lang="EN">●      If a TP disposes of a capital asset in a transaction not properly characterized as a sale or exchange, any resulting fain would be ordinary income (BAD) any any realized loss would be ordinary loss (OK, GOOD).</span>
+●      If a TP disposes of a capital asset in a transaction not properly characterized as a sale or exchange, any resulting fain would be ordinary income (BAD) any any realized loss would be ordinary loss (OK, GOOD).
-<span lang="EN">●      The requirement '''must be narrower''' than the requirement of a “sale or disposition of property” under 1001(a) (the provision providing the basic formula for computing realized gains and losses)</span>
+●      The requirement '''must be narrower''' than the requirement of a “sale or disposition of property” under 1001(a) (the provision providing the basic formula for computing realized gains and losses)
-<span lang="EN">●      There are ways to dispose of property other than by sale or exchange (abandonment, forfeiture, etc.)</span>
+●      There are ways to dispose of property other than by sale or exchange (abandonment, forfeiture, etc.)
-<span lang="EN">●      There are no overt rationale for limiting capital gain or loss characterization only to property dispositions that constitute a sale or exchange.</span>
+●      There are no overt rationale for limiting capital gain or loss characterization only to property dispositions that constitute a sale or exchange.
-'''<span lang="EN">Depreciation Recapture</span>'''
+'''Depreciation Recapture'''
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1245 - Gain from dispositions of certain depreciable property</span>'''
+|'''26  U.S. Code § 1245 - Gain from dispositions of certain depreciable property'''
-'''<span lang="EN">(a) General rule</span>'''
+'''(a) General rule'''
-'''<span lang="EN">    (1) Ordinary income. Except as otherwise  provided in this section, if section 1245 property is disposed of the amount  by which the lower of—</span>'''
+'''    (1) Ordinary income. Except as otherwise  provided in this section, if section 1245 property is disposed of the amount  by which the lower of—'''
-'''<span lang="EN">         (A) the recomputed basis of the  property, or</span>'''
+'''         (A) the recomputed basis of the  property, or'''
-'''<span lang="EN">         (B)</span>'''
+'''         (B)'''
-'''<span lang="EN">              (i) in the case of a sale,  exchange, or involuntary conversion, the amount realized, or</span>'''
+'''              (i) in the case of a sale,  exchange, or involuntary conversion, the amount realized, or'''
-'''<span lang="EN">              (ii) in the case of any other  disposition, the fair market value of such property,</span>'''
+'''              (ii) in the case of any other  disposition, the fair market value of such property,'''
-'''<span lang="EN">exceeds the adjusted basis of such property shall be treated as ordinary  income. Such gain shall be recognized notwithstanding any other provision of  this subtitle.</span>'''
+'''exceeds the adjusted basis of such property shall be treated as ordinary  income. Such gain shall be recognized notwithstanding any other provision of  this subtitle.'''
-'''<span lang="EN">    (2) Recomputed basis. For purposes of  this section—</span>'''
+'''    (2) Recomputed basis. For purposes of  this section—'''
-'''<span lang="EN">         (A) In general. The term “recomputed  basis” means, with respect to any property, its adjusted basis recomputed by  adding thereto all adjustments reflected in such adjusted basis on account of  deductions (whether in respect of the same or other property) allowed or  allowable to the taxpayer or to any other person for depreciation or  amortization.</span>'''
+'''         (A) In general. The term “recomputed  basis” means, with respect to any property, its adjusted basis recomputed by  adding thereto all adjustments reflected in such adjusted basis on account of  deductions (whether in respect of the same or other property) allowed or  allowable to the taxpayer or to any other person for depreciation or  amortization.'''
-'''<span lang="EN">          (B) Taxpayer may establish  amount allowed. For purposes of subparagraph (A), if the taxpayer can  establish by adequate records or other sufficient evidence that the amount  allowed for depreciation or amortization for any period was less than the  amount allowable, the amount added for such period shall be the amount  allowed.</span>'''
+'''          (B) Taxpayer may establish  amount allowed. For purposes of subparagraph (A), if the taxpayer can  establish by adequate records or other sufficient evidence that the amount  allowed for depreciation or amortization for any period was less than the  amount allowable, the amount added for such period shall be the amount  allowed.'''
-'''<span lang="EN">          (C) Certain deductions  treated as amortization. Any deduction allowable under section 179, 179B,  179C, 179D, 179E, 181, 190, 193, or 194 shall be treated as if it were a  deduction allowable for amortization.</span>'''
+'''          (C) Certain deductions  treated as amortization. Any deduction allowable under section 179, 179B,  179C, 179D, 179E, 181, 190, 193, or 194 shall be treated as if it were a  deduction allowable for amortization.'''
-'''<span lang="EN">     (3) Section 1245 property. For  purposes of this section, the term “section 1245 property” means any property  which is or has been property of a character subject to the allowance for  depreciation provided in section 167 and is either—</span>'''
+'''     (3) Section 1245 property. For  purposes of this section, the term “section 1245 property” means any property  which is or has been property of a character subject to the allowance for  depreciation provided in section 167 and is either—'''
-'''<span lang="EN">         (A) personal property,</span>'''
+'''         (A) personal property,'''
-'''<span lang="EN">         (B) other property (not including a  building or its structural components) but only if such other property is  tangible and has an adjusted basis in which there are reflected adjustments  described in paragraph (2) for a period in which such property (or other  property)—</span>'''
+'''         (B) other property (not including a  building or its structural components) but only if such other property is  tangible and has an adjusted basis in which there are reflected adjustments  described in paragraph (2) for a period in which such property (or other  property)—'''
-'''<span lang="EN">              (i) was used as an integral  part of manufacturing, production, or extraction or of furnishing  transportation, communications, electrical energy, gas, water, or sewage  disposal services,</span>'''
+'''              (i) was used as an integral  part of manufacturing, production, or extraction or of furnishing  transportation, communications, electrical energy, gas, water, or sewage  disposal services,'''
-'''<span lang="EN">              (ii) constituted a research  facility used in connection with any of the activities referred to in clause  (i), or</span>'''
+'''              (ii) constituted a research  facility used in connection with any of the activities referred to in clause  (i), or'''
-'''<span lang="EN">              (iii) constituted a facility  used in connection with any of the activities referred to in clause (i) for  the bulk storage of fungible commodities (including commodities in a liquid  or gaseous state),</span>'''
+'''              (iii) constituted a facility  used in connection with any of the activities referred to in clause (i) for  the bulk storage of fungible commodities (including commodities in a liquid  or gaseous state),'''
-'''<span lang="EN">         (C) so much of any real property  (other than any property described in subparagraph (B)) which has an adjusted  basis in which there are reflected adjustments for amortization under section  169, 179, 179B, 179C, 179D, 179E, 185,[1] 188 (as in effect before its repeal  by the Revenue Reconciliation Act of 1990), 190, 193, or 194,[2]</span>'''
+'''         (C) so much of any real property  (other than any property described in subparagraph (B)) which has an adjusted  basis in which there are reflected adjustments for amortization under section  169, 179, 179B, 179C, 179D, 179E, 185,[1] 188 (as in effect before its repeal  by the Revenue Reconciliation Act of 1990), 190, 193, or 194,[2]'''
-'''<span lang="EN">         (D) a single purpose agricultural  or horticultural structure (as defined in section 168(i)(13)),</span>'''
+'''         (D) a single purpose agricultural  or horticultural structure (as defined in section 168(i)(13)),'''
-'''<span lang="EN">         (E) a storage facility (not including a building or its structural  components) used in connection with the distribution of petroleum or any  primary product of petroleum, or</span>'''
+'''         (E) a storage facility (not including a building or its structural  components) used in connection with the distribution of petroleum or any  primary product of petroleum, or'''
-'''<span lang="EN">         (F) any railroad grading or tunnel  bore (as defined in section 168(e)(4)).</span>'''
+'''         (F) any railroad grading or tunnel  bore (as defined in section 168(e)(4)).'''
-'''<span lang="EN">(b)  Exceptions and limitations</span>'''
+'''(b)  Exceptions and limitations'''
-'''<span lang="EN">    (1) Gifts. Subsection (a) shall not  apply to a disposition by gift.</span>'''
+'''    (1) Gifts. Subsection (a) shall not  apply to a disposition by gift.'''
-'''<span lang="EN">     (2) Transfers at death. Except as  provided in section 691 (relating to income in respect of a decedent),  subsection (a) shall not apply to a transfer at death.</span>'''
+'''     (2) Transfers at death. Except as  provided in section 691 (relating to income in respect of a decedent),  subsection (a) shall not apply to a transfer at death.'''
-'''<span lang="EN">     (3) Certain tax-free transactions.  If the basis of property in the hands of a transferee is determined by  reference to its basis in the hands of the transferor by reason of the  application of section 332, 351, 361, 721, or 731, then the amount of gain  taken into account by the transferor under subsection (a)(1) shall not exceed  the amount of gain recognized to the transferor on the transfer of such  property (determined without regard to this section). Except as provided in  paragraph (6), this paragraph shall not apply to a disposition to an  organization (other than a cooperative described in section 521) which is  exempt from the tax imposed by this chapter.</span>'''
+'''     (3) Certain tax-free transactions.  If the basis of property in the hands of a transferee is determined by  reference to its basis in the hands of the transferor by reason of the  application of section 332, 351, 361, 721, or 731, then the amount of gain  taken into account by the transferor under subsection (a)(1) shall not exceed  the amount of gain recognized to the transferor on the transfer of such  property (determined without regard to this section). Except as provided in  paragraph (6), this paragraph shall not apply to a disposition to an  organization (other than a cooperative described in section 521) which is  exempt from the tax imposed by this chapter.'''
-'''<span lang="EN">     (4) Like kind exchanges;  involuntary conversions, etc.If property is disposed of and gain (determined  without regard to this section) is not recognized in whole or in part under  section 1031 or 1033, then the amount of gain taken into account by the  transferor under subsection (a)(1) shall not exceed the sum of—</span>'''
+'''     (4) Like kind exchanges;  involuntary conversions, etc.If property is disposed of and gain (determined  without regard to this section) is not recognized in whole or in part under  section 1031 or 1033, then the amount of gain taken into account by the  transferor under subsection (a)(1) shall not exceed the sum of—'''
-'''<span lang="EN">         (A) the amount of gain recognized on such disposition (determined  without regard to this section), plus</span>'''
+'''         (A) the amount of gain recognized on such disposition (determined  without regard to this section), plus'''
-'''<span lang="EN">         (B) the fair market value of  property acquired which is not section 1245 property and which is not taken  into account under subparagraph (A).</span>'''
+'''         (B) the fair market value of  property acquired which is not section 1245 property and which is not taken  into account under subparagraph (A).'''
-'''<span lang="EN">    (5) Property distributed by a  partnership to a partner</span>'''
+'''    (5) Property distributed by a  partnership to a partner'''
-'''<span lang="EN">         (A) In general. For purposes of  this section, the basis of section 1245 property distributed by a partnership  to a partner shall be deemed to be determined by reference to the adjusted  basis of such property to the partnership.</span>'''
+'''         (A) In general. For purposes of  this section, the basis of section 1245 property distributed by a partnership  to a partner shall be deemed to be determined by reference to the adjusted  basis of such property to the partnership.'''
-'''<span lang="EN">          (B) Adjustments added back.  In the case of any property described in subparagraph (A), for purposes of  computing the recomputed basis of such property the amount of the adjustments  added back for periods before the distribution by the partnership shall be—</span>'''
+'''          (B) Adjustments added back.  In the case of any property described in subparagraph (A), for purposes of  computing the recomputed basis of such property the amount of the adjustments  added back for periods before the distribution by the partnership shall be—'''
-'''<span lang="EN">              (i) the amount of the gain to  which subsection (a) would have applied if such property had been sold by the  partnership immediately before the distribution at its fair market value at  such time, reduced by</span>'''
+'''              (i) the amount of the gain to  which subsection (a) would have applied if such property had been sold by the  partnership immediately before the distribution at its fair market value at  such time, reduced by'''
-'''<span lang="EN">              (ii) the amount of such gain  to which section 751(b) applied.</span>'''
+'''              (ii) the amount of such gain  to which section 751(b) applied.'''
-'''<span lang="EN">    (6) Transfers to tax-exempt organization  where property will be used in unrelated business</span>'''
+'''    (6) Transfers to tax-exempt organization  where property will be used in unrelated business'''
-'''<span lang="EN">         (A) In general. The second sentence  of paragraph (3) shall not apply to a disposition of section 1245 property to  an organization described in section 511(a)(2) or 511(b)(2) if, immediately  after such disposition, such organization uses such property in an unrelated  trade or business (as defined in section 513).</span>'''
+'''         (A) In general. The second sentence  of paragraph (3) shall not apply to a disposition of section 1245 property to  an organization described in section 511(a)(2) or 511(b)(2) if, immediately  after such disposition, such organization uses such property in an unrelated  trade or business (as defined in section 513).'''
-'''<span lang="EN">          (B) Later change in use. If  any property with respect to the disposition of which gain is not recognized  by reason of subparagraph (A) ceases to be used in an unrelated trade or  business of the organization acquiring such property, such organization shall  be treated for purposes of this section as having disposed of such property  on the date of such cessation.</span>'''
+'''          (B) Later change in use. If  any property with respect to the disposition of which gain is not recognized  by reason of subparagraph (A) ceases to be used in an unrelated trade or  business of the organization acquiring such property, such organization shall  be treated for purposes of this section as having disposed of such property  on the date of such cessation.'''
-'''<span lang="EN">     (7) Timber property. In  determining, under subsection (a)(2), the recomputed basis of property with  respect to which a deduction under section 194 was allowed for any taxable  year, the taxpayer shall not take into account adjustments under section 194  to the extent such adjustments are attributable to the amortizable basis of  the taxpayer acquired before the 10th taxable year preceding the taxable year  in which gain with respect to the property is recognized.</span>'''
+'''     (7) Timber property. In  determining, under subsection (a)(2), the recomputed basis of property with  respect to which a deduction under section 194 was allowed for any taxable  year, the taxpayer shall not take into account adjustments under section 194  to the extent such adjustments are attributable to the amortizable basis of  the taxpayer acquired before the 10th taxable year preceding the taxable year  in which gain with respect to the property is recognized.'''
-'''<span lang="EN">     (8) Disposition of amortizable  section 197 intangibles</span>'''
+'''     (8) Disposition of amortizable  section 197 intangibles'''
-'''<span lang="EN">         (A) In general. If a taxpayer  disposes of more than 1 amortizable section 197 intangible (as defined in  section 197(c)) in a transaction or a series of related transactions, all  such amortizable 197 intangibles shall be treated as 1 section 1245 property  for purposes of this section.</span>'''
+'''         (A) In general. If a taxpayer  disposes of more than 1 amortizable section 197 intangible (as defined in  section 197(c)) in a transaction or a series of related transactions, all  such amortizable 197 intangibles shall be treated as 1 section 1245 property  for purposes of this section.'''
-'''<span lang="EN">          (B) Exception. Subparagraph  (A) shall not apply to any amortizable section 197 intangible (as so defined)  with respect to which the adjusted basis exceeds the fair market value.</span>'''
+'''          (B) Exception. Subparagraph  (A) shall not apply to any amortizable section 197 intangible (as so defined)  with respect to which the adjusted basis exceeds the fair market value.'''
-'''<span lang="EN">(c) Adjustments to basis. The Secretary shall prescribe such regulations as  he may deem necessary to provide for adjustments to the basis of property to  reflect gain recognized under subsection (a).</span>'''
+'''(c) Adjustments to basis. The Secretary shall prescribe such regulations as  he may deem necessary to provide for adjustments to the basis of property to  reflect gain recognized under subsection (a).'''
-'''<span lang="EN">(d) Application of section. This section shall apply notwithstanding any  other provision of this subtitle.</span>'''
+'''(d) Application of section. This section shall apply notwithstanding any  other provision of this subtitle.'''
 |}
-<span lang="EN">Section 1245 → error-correcting device</span>
+Section 1245 → error-correcting device
-<span lang="EN">●      When a TP takes a depreciation on property, the TP’s basis is reduced by the amount of the depreciation</span>
+●      When a TP takes a depreciation on property, the TP’s basis is reduced by the amount of the depreciation
-<span lang="EN">●      If the TP later sells that asset for more than the basis, at least some of that gain is, by definition, due to the previously taken depreciation</span>
+●      If the TP later sells that asset for more than the basis, at least some of that gain is, by definition, due to the previously taken depreciation
-<span lang="EN">●      The TP took more depreciation than economic depreciation would have allowed so now they must pay tax on the difference</span>
+●      The TP took more depreciation than economic depreciation would have allowed so now they must pay tax on the difference
-<span lang="EN">●      Applies to machines, equipment, and vehicles</span>
+●      Applies to machines, equipment, and vehicles
-<span lang="EN">FIRST calculate your realized gain</span>
+FIRST calculate your realized gain
-<span lang="EN">THEN calculate your recapture amount (amount realized - recomputed basis)</span>
+THEN calculate your recapture amount (amount realized - recomputed basis)
-<span lang="EN">RESULTING NUMBER tells you how much is allowed to be treated as capital gain (rather than ordinary income)</span>
+RESULTING NUMBER tells you how much is allowed to be treated as capital gain (rather than ordinary income)
-<span lang="EN">Recomputed basis amount → take current actual basis and add it to any depreciation deductions you have received.</span>
+Recomputed basis amount → take current actual basis and add it to any depreciation deductions you have received.
-<span lang="EN">If RESULTING NUMBER is a negative/loss (below zero) → all of your gain will be ordinary income</span>
+If RESULTING NUMBER is a negative/loss (below zero) → all of your gain will be ordinary income
-<span lang="EN">Recapture only comes into play when you have a gain, it does not apply where there is a loss (if the realized gain/first calculation comes up as a loss, don’t even move on to recapture amount)</span>
+Recapture only comes into play when you have a gain, it does not apply where there is a loss (if the realized gain/first calculation comes up as a loss, don’t even move on to recapture amount)
-<span lang="EN">EXAMPLE → A acquires depreciable equipment for use in their business at a cost of $100,000, makes no 179 election, and properly plans to claim straight-line depreciation deductions of $10,000 each year for 10 years; after 3 years of depreciation deductions, and ignoring the half-year convention, the TP’s basis in the equipment is $70,000.</span>
+EXAMPLE → A acquires depreciable equipment for use in their business at a cost of $100,000, makes no 179 election, and properly plans to claim straight-line depreciation deductions of $10,000 each year for 10 years; after 3 years of depreciation deductions, and ignoring the half-year convention, the TP’s basis in the equipment is $70,000.
-<span lang="EN">If TP sells the equipment to an unrelated buyer for $80,000 cash, TP realizes and recognizes $10,000 of gain (but what is the flavor?)</span>
+If TP sells the equipment to an unrelated buyer for $80,000 cash, TP realizes and recognizes $10,000 of gain (but what is the flavor?)
-<span lang="EN">●      Under 1221(a)(2) → not a capital asset</span>
+●      Under 1221(a)(2) → not a capital asset
-<span lang="EN">●      BUT because TP held the equipment for more than a year, the gain is properly treated as a 1231 gain</span>
+●      BUT because TP held the equipment for more than a year, the gain is properly treated as a 1231 gain
-<span lang="EN">●      That means '''there is a chance''' the gain could be treated as long-term capital gain under 1231(a)(1)</span>
+●      That means '''there is a chance''' the gain could be treated as long-term capital gain under 1231(a)(1)
-<span lang="EN">BUT the $10,000 gain is entirely due to the fact that TP received a $10,000 deduction that offset '''ordinary income'''; to the extent the depreciation deduction was used to offset ordinary income, fairness dictates that gain attributable solely to depreciation should be treated as ordinary income and not long-term capital gain.</span>
+BUT the $10,000 gain is entirely due to the fact that TP received a $10,000 deduction that offset '''ordinary income'''; to the extent the depreciation deduction was used to offset ordinary income, fairness dictates that gain attributable solely to depreciation should be treated as ordinary income and not long-term capital gain.
-<span lang="EN">In this example, 1245 would recharacterize the flavor of the gain as ordinary income</span>
+In this example, 1245 would recharacterize the flavor of the gain as ordinary income
-<span lang="EN">●      Under 1245(a)(1) → gain attributable to depreciation deductions (and not economic appreciation) '''must be''' taxed as ordinary income</span>
+●      Under 1245(a)(1) → gain attributable to depreciation deductions (and not economic appreciation) '''must be''' taxed as ordinary income
-<span lang="EN">●      This recharacterization of the gain is known as “'''depreciation recapture'''” → it is triggered by the need to account for the fact that prior depreciation deductions offset ordinary income</span>
+●      This recharacterization of the gain is known as “'''depreciation recapture'''” → it is triggered by the need to account for the fact that prior depreciation deductions offset ordinary income
-<span lang="EN">Depreciation recapture and 1245</span>
+Depreciation recapture and 1245
-<span lang="EN">●      Under 1245 is limited to “section 1245” property (defined in 1245(a)(3)).</span>
+●      Under 1245 is limited to “section 1245” property (defined in 1245(a)(3)).
-<span lang="EN">●      1245(a)(3)(A) encompasses all depreciable personal property</span>
+●      1245(a)(3)(A) encompasses all depreciable personal property
-<span lang="EN">●      In order to determine the portion of a realized gain that is attributable to prior depreciation deductions, the statute creates a device called '''recomputed basis'''.</span>
+●      In order to determine the portion of a realized gain that is attributable to prior depreciation deductions, the statute creates a device called '''recomputed basis'''.
-'''<span lang="EN">Recomputed Basis</span>''' <span lang="EN">→ calculated by adding to the adjusted basis all deductions allowed or allowable to the taxpayer or to any other person for depreciation or amortization</span>
+'''Recomputed Basis''' → calculated by adding to the adjusted basis all deductions allowed or allowable to the taxpayer or to any other person for depreciation or amortization
-<span lang="EN">→ the recomputed basis is then compared to the '''amount realized''' (in the event of a sale, exchange, or involuntary conversion of the property) or the '''fair market value''' of the property (in the case of any other disposition)</span>
+→ the recomputed basis is then compared to the '''amount realized''' (in the event of a sale, exchange, or involuntary conversion of the property) or the '''fair market value''' of the property (in the case of any other disposition)
-'''''<span lang="EN">The smaller number is then applied against the taxpayer’s adjusted basis to determine the recapture amount, the portion of the gain that must be treated as ordinary income</span>'''''<span lang="EN">.</span>
+'''''The smaller number is then applied against the taxpayer’s adjusted basis to determine the recapture amount, the portion of the gain that must be treated as ordinary income'''''.
-<span lang="EN">More 1245 rules →</span>
+More 1245 rules →
-<span lang="EN">●      1245 does not apply where the taxpayer has a realized loss</span>
+●      1245 does not apply where the taxpayer has a realized loss
-<span lang="EN">●      1245 requires the recognition of ordinary income even where the transaction would not otherwise be taxable</span>
+●      1245 requires the recognition of ordinary income even where the transaction would not otherwise be taxable
-'''<span lang="EN">Depreciation Recapture for Real Property: Section 1250</span>'''
+'''Depreciation Recapture for Real Property: Section 1250'''
-<span lang="EN">Review:</span>
+Review:
-<span lang="EN">●      TPs can depreciate the cost of real property used in a trade or business activity or held for investment</span>
+●      TPs can depreciate the cost of real property used in a trade or business activity or held for investment
-<span lang="EN">●      While the underlying land is not depreciable, structures on the land are subject to “exhaustion” or “wear and tear” and thus qualify for depreciation deductions</span>
+●      While the underlying land is not depreciable, structures on the land are subject to “exhaustion” or “wear and tear” and thus qualify for depreciation deductions
-<span lang="EN">●      The depreciation deductions offset ordinary income and reduce the taxpayer’s basis in the subject property</span>
+●      The depreciation deductions offset ordinary income and reduce the taxpayer’s basis in the subject property
-<span lang="EN">●      When the taxpayer sells the real property, at least some portion of any resulting gain will be attributable to the prior depreciation deductions</span>
+●      When the taxpayer sells the real property, at least some portion of any resulting gain will be attributable to the prior depreciation deductions
-<span lang="EN">●      FAIRNESS dictates that the portion of the realized gain attributable to prior depreciation deductions should be treated as ordinary income</span>
+●      FAIRNESS dictates that the portion of the realized gain attributable to prior depreciation deductions should be treated as ordinary income
-<span lang="EN">●      Although real property used in a trade or business activity is not a capital asset under 1221(a)(2), gain from the sale of such property qualifies as 1231 gain if the taxpayer has held the property for more than one year under 1231(b)</span>
+●      Although real property used in a trade or business activity is not a capital asset under 1221(a)(2), gain from the sale of such property qualifies as 1231 gain if the taxpayer has held the property for more than one year under 1231(b)
-<span lang="EN">●      If the taxpayer’s section 1231 gains exceed the taxpayer’s 1231 losses for the taxable year, the gains and losses are treated as long-term capital gains and losses, meaning any net gain will qualify for preferential tax treatment pursuant to 1231(a)(1).</span>
+●      If the taxpayer’s section 1231 gains exceed the taxpayer’s 1231 losses for the taxable year, the gains and losses are treated as long-term capital gains and losses, meaning any net gain will qualify for preferential tax treatment pursuant to 1231(a)(1).
-<span lang="EN">If the subject real property is held as '''investment property''', it is a capital asset to begin with and the resulting gain is automatically eligible for preferential tax rates if the subject property was held for more than a year, even though the property was depreciable in the hands of the taxpayer.</span>
+If the subject real property is held as '''investment property''', it is a capital asset to begin with and the resulting gain is automatically eligible for preferential tax rates if the subject property was held for more than a year, even though the property was depreciable in the hands of the taxpayer.
-<span lang="EN">To permit preferential tax treatment to a gain caused only by the taxpayer’s taking depreciation deductions to offset ordinary income is an unjustified double benefit → 1245 recapture does not apply to most depreciable real property like buildings and their permanent fixtures, SO…</span>
+To permit preferential tax treatment to a gain caused only by the taxpayer’s taking depreciation deductions to offset ordinary income is an unjustified double benefit → 1245 recapture does not apply to most depreciable real property like buildings and their permanent fixtures, SO…
-<span lang="EN">1250</span>
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1250 - Gain from dispositions of certain depreciable realty</span>'''
+|'''26  U.S. Code § 1250 - Gain from dispositions of certain depreciable realty'''
-'''<span lang="EN">(a) General rule. Except as otherwise provided in this section—</span>'''
+'''(a) General rule. Except as otherwise provided in this section—'''
-'''<span lang="EN">    (1) Additional depreciation after  December 31, 1975</span>'''
+'''    (1) Additional depreciation after  December 31, 1975'''
-'''<span lang="EN">         (A) In general. If section 1250  property is disposed of after December 31, 1975, then the applicable  percentage of the lower of—</span>'''
+'''         (A) In general. If section 1250  property is disposed of after December 31, 1975, then the applicable  percentage of the lower of—'''
-'''<span lang="EN">               (i) that portion of the  additional depreciation (as defined in subsection (b)(1) or (4)) attributable  to periods after December 31, 1975, in respect of the property, or</span>'''
+'''               (i) that portion of the  additional depreciation (as defined in subsection (b)(1) or (4)) attributable  to periods after December 31, 1975, in respect of the property, or'''
-'''<span lang="EN">              (ii) the excess of the amount  realized (in the case of a sale, exchange, or involuntary conversion), or the  fair market value of such property (in the case of any other disposition),  over the adjusted basis of such property,</span>'''
+'''              (ii) the excess of the amount  realized (in the case of a sale, exchange, or involuntary conversion), or the  fair market value of such property (in the case of any other disposition),  over the adjusted basis of such property,'''
-'''<span lang="EN">shall be treated as gain which is ordinary income. Such gain shall be  recognized notwithstanding any other provision of this subtitle.</span>'''
+'''shall be treated as gain which is ordinary income. Such gain shall be  recognized notwithstanding any other provision of this subtitle.'''
-'''<span lang="EN">         (B) Applicable percentage. For  purposes of subparagraph (A), the term “applicable percentage” means—</span>'''
+'''         (B) Applicable percentage. For  purposes of subparagraph (A), the term “applicable percentage” means—'''
-'''<span lang="EN">              (i) in the case of section  1250 property with respect to which a mortgage is insured under section  221(d)(3) or 236 of the National Housing Act, or housing financed or assisted  by direct loan or tax abatement under similar provisions of State or local  laws and with respect to which the owner is subject to the restrictions  described in section 1039(b)(1)(B) (as in effect on the day before the date  of the enactment of the Revenue Reconciliation Act of 1990), 100 percent  minus 1 percentage point for each full month the property was held after the  date the property was held 100 full months;</span>'''
+'''              (i) in the case of section  1250 property with respect to which a mortgage is insured under section  221(d)(3) or 236 of the National Housing Act, or housing financed or assisted  by direct loan or tax abatement under similar provisions of State or local  laws and with respect to which the owner is subject to the restrictions  described in section 1039(b)(1)(B) (as in effect on the day before the date  of the enactment of the Revenue Reconciliation Act of 1990), 100 percent  minus 1 percentage point for each full month the property was held after the  date the property was held 100 full months;'''
-'''<span lang="EN">              (ii) in the case of dwelling  units which, on the average, were held for occupancy by families or individuals  eligible to receive subsidies under section 8 of the United States Housing  Act of 1937, as amended, or under the provisions of State or local law  authorizing similar levels of subsidy for lower-income families, 100 percent  minus 1 percentage point for each full month the property was held after the  date the property was held 100 full months;</span>'''
+'''              (ii) in the case of dwelling  units which, on the average, were held for occupancy by families or individuals  eligible to receive subsidies under section 8 of the United States Housing  Act of 1937, as amended, or under the provisions of State or local law  authorizing similar levels of subsidy for lower-income families, 100 percent  minus 1 percentage point for each full month the property was held after the  date the property was held 100 full months;'''
-'''<span lang="EN">              (iii) in the case of section  1250 property with respect to which a depreciation deduction for  rehabilitation expenditures was allowed under section 167(k), 100 percent  minus 1 percentage point for each full month in excess of 100 full months  after the date on which such property was placed in service;</span>'''
+'''              (iii) in the case of section  1250 property with respect to which a depreciation deduction for  rehabilitation expenditures was allowed under section 167(k), 100 percent  minus 1 percentage point for each full month in excess of 100 full months  after the date on which such property was placed in service;'''
-'''<span lang="EN">              (iv) in the case of section  1250 property with respect to which a loan is made or insured under title V  of the Housing Act of 1949, 100 percent minus 1 percentage point for each  full month the property was held after the date the property was held 100  full months; and</span>'''
+'''              (iv) in the case of section  1250 property with respect to which a loan is made or insured under title V  of the Housing Act of 1949, 100 percent minus 1 percentage point for each  full month the property was held after the date the property was held 100  full months; and'''
-'''<span lang="EN">              (v) in the case of all other  section 1250 property, 100 percent. In the case of a building (or a portion  of a building devoted to dwelling units), if, on the average, 85 percent or  more of the dwelling units contained in such building (or portion thereof)  are units described in clause (ii), such building (or portion thereof) shall  be treated as property described in clause (ii). Clauses (i), (ii), and (iv)  shall not apply with respect to the additional depreciation described in  subsection (b)(4) which was allowed under section 167(k).</span>'''
+'''              (v) in the case of all other  section 1250 property, 100 percent. In the case of a building (or a portion  of a building devoted to dwelling units), if, on the average, 85 percent or  more of the dwelling units contained in such building (or portion thereof)  are units described in clause (ii), such building (or portion thereof) shall  be treated as property described in clause (ii). Clauses (i), (ii), and (iv)  shall not apply with respect to the additional depreciation described in  subsection (b)(4) which was allowed under section 167(k).'''
-'''<span lang="EN">    (2) Additional depreciation after  December 31, 1969, and before January 1, 1976</span>'''
+'''    (2) Additional depreciation after  December 31, 1969, and before January 1, 1976'''
-'''<span lang="EN">         (A) In general. If section 1250  property is disposed of after December 31, 1969, and the amount determined  under paragraph (1)(A)(ii) exceeds the amount determined under paragraph (1)(A)(i),  then the applicable percentage of the lower of—</span>'''
+'''         (A) In general. If section 1250  property is disposed of after December 31, 1969, and the amount determined  under paragraph (1)(A)(ii) exceeds the amount determined under paragraph (1)(A)(i),  then the applicable percentage of the lower of—'''
-'''<span lang="EN">              (i) that portion of the  additional depreciation attributable to periods after December 31, 1969, and  before January 1, 1976, in respect of the property, or</span>'''
+'''              (i) that portion of the  additional depreciation attributable to periods after December 31, 1969, and  before January 1, 1976, in respect of the property, or'''
-'''<span lang="EN">              (ii) the excess of the amount  determined under paragraph (1)(A)(ii) over the amount determined under  paragraph (1)(A)(i), shall also be treated as gain which is ordinary income.  Such gain shall be recognized notwithstanding any other provision of this  subtitle.</span>'''
+'''              (ii) the excess of the amount  determined under paragraph (1)(A)(ii) over the amount determined under  paragraph (1)(A)(i), shall also be treated as gain which is ordinary income.  Such gain shall be recognized notwithstanding any other provision of this  subtitle.'''
-'''<span lang="EN">          (B) Applicable percentage. For  purposes of subparagraph (A), the term “applicable percentage” means—</span>'''
+'''          (B) Applicable percentage. For  purposes of subparagraph (A), the term “applicable percentage” means—'''
-'''<span lang="EN">              (i) in the case of section  1250 property disposed of pursuant to a written contract which was, on July  24, 1969, and at all times thereafter, binding on the owner of the property,  100 percent minus 1 percentage point for each full month the property was  held after the date the property was held 20 full months;</span>'''
+'''              (i) in the case of section  1250 property disposed of pursuant to a written contract which was, on July  24, 1969, and at all times thereafter, binding on the owner of the property,  100 percent minus 1 percentage point for each full month the property was  held after the date the property was held 20 full months;'''
-'''<span lang="EN">              (ii) in the case of section  1250 property with respect to which a mortgage is insured under section  221(d)(3) or 236 of the National Housing Act, or housing financed or assisted  by direct loan or tax abatement under similar provisions of State or local  laws, and with respect to which the owner is subject to the restrictions  described in section 1039(b)(1)(B) (as in effect on the day before the date  of the enactment of the Revenue Reconciliation Act of 1990), 100 percent  minus 1 percentage point for each full month the property was held after the  date the property was held 20 full months;</span>'''
+'''              (ii) in the case of section  1250 property with respect to which a mortgage is insured under section  221(d)(3) or 236 of the National Housing Act, or housing financed or assisted  by direct loan or tax abatement under similar provisions of State or local  laws, and with respect to which the owner is subject to the restrictions  described in section 1039(b)(1)(B) (as in effect on the day before the date  of the enactment of the Revenue Reconciliation Act of 1990), 100 percent  minus 1 percentage point for each full month the property was held after the  date the property was held 20 full months;'''
-'''<span lang="EN">              (iii) in the case of  residential rental property (as defined in section 167(j)(2)(B)) other than  that covered by clauses (i) and (ii), 100 percent minus 1 percentage point  for each full month the property was held after the date the property was  held 100 full months;</span>'''
+'''              (iii) in the case of  residential rental property (as defined in section 167(j)(2)(B)) other than  that covered by clauses (i) and (ii), 100 percent minus 1 percentage point  for each full month the property was held after the date the property was  held 100 full months;'''
-'''<span lang="EN">              (iv) in the case of section  1250 property with respect to which a depreciation deduction for  rehabilitation expenditures was allowed under section 167(k), 100 percent  minus 1 percentage point for each full month in excess of 100 full months  after the date on which such property was placed in service; and</span>'''
+'''              (iv) in the case of section  1250 property with respect to which a depreciation deduction for  rehabilitation expenditures was allowed under section 167(k), 100 percent  minus 1 percentage point for each full month in excess of 100 full months  after the date on which such property was placed in service; and'''
-'''<span lang="EN">              (v) in the case of all other  section 1250 property, 100 percent. Clauses (i), (ii), and (iii) shall not  apply with respect to the additional depreciation described in subsection  (b)(4).</span>'''
+'''              (v) in the case of all other  section 1250 property, 100 percent. Clauses (i), (ii), and (iii) shall not  apply with respect to the additional depreciation described in subsection  (b)(4).'''
-'''<span lang="EN">    (3) Additional depreciation before January  1, 1970</span>'''
+'''    (3) Additional depreciation before January  1, 1970'''
-'''<span lang="EN">         (A) In general. If section 1250  property is disposed of after December 31, 1963, and the amount determined  under paragraph (1)(A)(ii) exceeds the sum of the amounts determined under  paragraphs (1)(A)(i) and (2)(A)(i), then the applicable percentage of the  lower of—</span>'''
+'''         (A) In general. If section 1250  property is disposed of after December 31, 1963, and the amount determined  under paragraph (1)(A)(ii) exceeds the sum of the amounts determined under  paragraphs (1)(A)(i) and (2)(A)(i), then the applicable percentage of the  lower of—'''
-'''<span lang="EN">              (i) that portion of the  additional depreciation attributable to periods before January 1, 1970, in  respect of the property, or</span>'''
+'''              (i) that portion of the  additional depreciation attributable to periods before January 1, 1970, in  respect of the property, or'''
-'''<span lang="EN">              (ii) the excess of the amount  determined under paragraph (1)(A)(ii) over the sum of the amounts determined  under paragraphs (1)(A)(i) and (2)(A)(i), shall also be treated as gain which  is ordinary income. Such gain shall be recognized notwithstanding any other  provision of this subtitle.</span>'''
+'''              (ii) the excess of the amount  determined under paragraph (1)(A)(ii) over the sum of the amounts determined  under paragraphs (1)(A)(i) and (2)(A)(i), shall also be treated as gain which  is ordinary income. Such gain shall be recognized notwithstanding any other  provision of this subtitle.'''
-'''<span lang="EN">         (B) Applicable percentage. For  purposes of subparagraph (A), the term “applicable percentage” means 100  percent minus 1 percentage point for each full month the property was held  after the date on which the property was held for 20 full months.</span>'''
+'''         (B) Applicable percentage. For  purposes of subparagraph (A), the term “applicable percentage” means 100  percent minus 1 percentage point for each full month the property was held  after the date on which the property was held for 20 full months.'''
-'''<span lang="EN">     (4) Special rule. For purposes of  this subsection, any reference to section 167(k) or 167(j)(2)(B) shall be  treated as a reference to such section as in effect on the day before the  date of the enactment of the Revenue Reconciliation Act of 1990.</span>'''
+'''     (4) Special rule. For purposes of  this subsection, any reference to section 167(k) or 167(j)(2)(B) shall be  treated as a reference to such section as in effect on the day before the  date of the enactment of the Revenue Reconciliation Act of 1990.'''
-'''<span lang="EN">     (5) Cross reference. For reduction  in the case of corporations on capital gain treatment under this section, see  section 291(a)(1).</span>'''
+'''     (5) Cross reference. For reduction  in the case of corporations on capital gain treatment under this section, see  section 291(a)(1).'''
-'''<span lang="EN">(b) Additional depreciation defined. For purposes of this section—</span>'''
+'''(b) Additional depreciation defined. For purposes of this section—'''
-'''<span lang="EN">    (1) In general. The term “additional  depreciation” means, in the case of any property, the depreciation  adjustments in respect of such property; except that, in the case of property  held more than one year, it means such adjustments only to the extent that  they exceed the amount of the depreciation adjustments which would have resulted  if such adjustments had been determined for each taxable year under the  straight line method of adjustment.</span>'''
+'''    (1) In general. The term “additional  depreciation” means, in the case of any property, the depreciation  adjustments in respect of such property; except that, in the case of property  held more than one year, it means such adjustments only to the extent that  they exceed the amount of the depreciation adjustments which would have resulted  if such adjustments had been determined for each taxable year under the  straight line method of adjustment.'''
-'''<span lang="EN">     (2) Property held by lessee. In  the case of a lessee, in determining the depreciation adjustments which would  have resulted in respect of any building erected (or other improvement made)  on the leased property, or in respect of any cost of acquiring the lease, the  lease period shall be treated as including all renewal periods. For purposes  of the preceding sentence—</span>'''
+'''     (2) Property held by lessee. In  the case of a lessee, in determining the depreciation adjustments which would  have resulted in respect of any building erected (or other improvement made)  on the leased property, or in respect of any cost of acquiring the lease, the  lease period shall be treated as including all renewal periods. For purposes  of the preceding sentence—'''
-'''<span lang="EN">         (A) the term “renewal period” means  any period for which the lease may be renewed, extended, or continued  pursuant to an option exercisable by the lessee, but</span>'''
+'''         (A) the term “renewal period” means  any period for which the lease may be renewed, extended, or continued  pursuant to an option exercisable by the lessee, but'''
-'''<span lang="EN">         (B) the inclusion of renewal  periods shall not extend the period taken into account by more than ⅔ of the  period on the basis of which the depreciation adjustments were allowed.</span>'''
+'''         (B) the inclusion of renewal  periods shall not extend the period taken into account by more than ⅔ of the  period on the basis of which the depreciation adjustments were allowed.'''
-'''<span lang="EN">    (3) Depreciation adjustments. The term  “depreciation adjustments” means, in respect of any property, all adjustments  attributable to periods after December 31, 1963, reflected in the adjusted  basis of such property on account of deductions (whether in respect of the  same or other property) allowed or allowable to the taxpayer or to any other  person for exhaustion, wear and tear, obsolescence, or amortization (other  than amortization under section 168 (as in effect before its repeal by the  Tax Reform Act of 1976), 169, 185 (as in effect before its repeal by the Tax  Reform Act of 1986), 188 (as in effect before its repeal by the Revenue  Reconciliation Act of 1990), 190, or 193). For purposes of the preceding  sentence, if the taxpayer can establish by adequate records or other  sufficient evidence that the amount allowed as a deduction for any period was  less than the amount allowable, the amount taken into account for such period  shall be the amount allowed.</span>'''
+'''    (3) Depreciation adjustments. The term  “depreciation adjustments” means, in respect of any property, all adjustments  attributable to periods after December 31, 1963, reflected in the adjusted  basis of such property on account of deductions (whether in respect of the  same or other property) allowed or allowable to the taxpayer or to any other  person for exhaustion, wear and tear, obsolescence, or amortization (other  than amortization under section 168 (as in effect before its repeal by the  Tax Reform Act of 1976), 169, 185 (as in effect before its repeal by the Tax  Reform Act of 1986), 188 (as in effect before its repeal by the Revenue  Reconciliation Act of 1990), 190, or 193). For purposes of the preceding  sentence, if the taxpayer can establish by adequate records or other  sufficient evidence that the amount allowed as a deduction for any period was  less than the amount allowable, the amount taken into account for such period  shall be the amount allowed.'''
-'''<span lang="EN">     (4) Additional depreciation  attributable to rehabilitation expenditures. The term “additional  depreciation” also means, in the case of section 1250 property with respect  to which a depreciation or amortization deduction for rehabilitation  expenditures was allowed under section 167(k) (as in effect on the day before  the date of the enactment of the Revenue Reconciliation Act of 1990) or 191  (as in effect before its repeal by the Economic Recovery Tax Act of 1981),  the depreciation or amortization adjustments allowed under such section to  the extent attributable to such property, except that, in the case of such  property held for more than one year after the rehabilitation expenditures so  allowed were incurred, it means such adjustments only to the extent that they  exceed the amount of the depreciation adjustments which would have resulted  if such adjustments had been determined under the straight line method of  adjustment without regard to the useful life permitted under section 167(k)  (as in effect on the day before the date of the enactment of the Revenue  Reconciliation Act of 1990) or 191 (as in effect before its repeal by the  Economic Recovery Tax Act of 1981).</span>'''
+'''     (4) Additional depreciation  attributable to rehabilitation expenditures. The term “additional  depreciation” also means, in the case of section 1250 property with respect  to which a depreciation or amortization deduction for rehabilitation  expenditures was allowed under section 167(k) (as in effect on the day before  the date of the enactment of the Revenue Reconciliation Act of 1990) or 191  (as in effect before its repeal by the Economic Recovery Tax Act of 1981),  the depreciation or amortization adjustments allowed under such section to  the extent attributable to such property, except that, in the case of such  property held for more than one year after the rehabilitation expenditures so  allowed were incurred, it means such adjustments only to the extent that they  exceed the amount of the depreciation adjustments which would have resulted  if such adjustments had been determined under the straight line method of  adjustment without regard to the useful life permitted under section 167(k)  (as in effect on the day before the date of the enactment of the Revenue  Reconciliation Act of 1990) or 191 (as in effect before its repeal by the  Economic Recovery Tax Act of 1981).'''
-'''<span lang="EN">     (5) Method of computing straight  line adjustments. For purposes of paragraph (1), the depreciation adjustments  which would have resulted for any taxable year under the straight line method  shall be determined—</span>'''
+'''     (5) Method of computing straight  line adjustments. For purposes of paragraph (1), the depreciation adjustments  which would have resulted for any taxable year under the straight line method  shall be determined—'''
-'''<span lang="EN">         (A) in the case of property to  which section 168 applies, by determining the adjustments which would have  resulted for such year if the taxpayer had elected the straight line method  for such year using the recovery period applicable to such property, and</span>'''
+'''         (A) in the case of property to  which section 168 applies, by determining the adjustments which would have  resulted for such year if the taxpayer had elected the straight line method  for such year using the recovery period applicable to such property, and'''
-'''<span lang="EN">         (B) in the case any property to  which section 168 does not apply, if a useful life (or salvage value) was  used in determining the amount allowable as a deduction for any taxable year,  by using such life (or value).</span>'''
+'''         (B) in the case any property to  which section 168 does not apply, if a useful life (or salvage value) was  used in determining the amount allowable as a deduction for any taxable year,  by using such life (or value).'''
-'''<span lang="EN">(c)  Section 1250 property. For purposes of this section, the term “section 1250  property” means any real property (other than section 1245 property, as  defined in section 1245(a)(3)) which is or has been property of a character  subject to the allowance for depreciation provided in section 167.</span>'''
+'''(c)  Section 1250 property. For purposes of this section, the term “section 1250  property” means any real property (other than section 1245 property, as  defined in section 1245(a)(3)) which is or has been property of a character  subject to the allowance for depreciation provided in section 167.'''
-'''<span lang="EN">(d) Exceptions and limitations</span>'''
+'''(d) Exceptions and limitations'''
-'''<span lang="EN">    </span>'''
+'''    '''
-'''<span lang="EN">    (1) Gifts. Subsection (a) shall not apply  to a disposition by gift.</span>'''
+'''    (1) Gifts. Subsection (a) shall not apply  to a disposition by gift.'''
-'''<span lang="EN">     (2) Transfers at death. Except as  provided in section 691 (relating to income in respect of a decedent),  subsection (a) shall not apply to a transfer at death.</span>'''
+'''     (2) Transfers at death. Except as  provided in section 691 (relating to income in respect of a decedent),  subsection (a) shall not apply to a transfer at death.'''
-'''<span lang="EN">    (3) Certain tax-free transactions. If  the basis of property in the hands of a transferee is determined by reference  to its basis in the hands of the transferor by reason of the application of  section 332, 351, 361, 721, or 731, then the amount of gain taken into  account by the transferor under subsection (a) shall not exceed the amount of  gain recognized to the transferor on the transfer of such property  (determined without regard to this section). Except as provided in paragraph  (9), this paragraph shall not apply to a disposition to an organization  (other than a cooperative described in section 521) which is exempt from the  tax imposed by this chapter.</span>'''
+'''    (3) Certain tax-free transactions. If  the basis of property in the hands of a transferee is determined by reference  to its basis in the hands of the transferor by reason of the application of  section 332, 351, 361, 721, or 731, then the amount of gain taken into  account by the transferor under subsection (a) shall not exceed the amount of  gain recognized to the transferor on the transfer of such property  (determined without regard to this section). Except as provided in paragraph  (9), this paragraph shall not apply to a disposition to an organization  (other than a cooperative described in section 521) which is exempt from the  tax imposed by this chapter.'''
-'''<span lang="EN">     (4) Like kind exchanges;  involuntary conversions, etc.</span>'''
+'''     (4) Like kind exchanges;  involuntary conversions, etc.'''
-'''<span lang="EN">         (A) Recognition limit. If property  is disposed of and gain (determined without regard to this section) is not  recognized in whole or in part under section 1031 or 1033, then the amount of  gain taken into account by the transferor under subsection (a) shall not  exceed the greater of the following:</span>'''
+'''         (A) Recognition limit. If property  is disposed of and gain (determined without regard to this section) is not  recognized in whole or in part under section 1031 or 1033, then the amount of  gain taken into account by the transferor under subsection (a) shall not  exceed the greater of the following:'''
-'''<span lang="EN">              (i) the amount of gain recognized  on the disposition (determined without regard to this section), increased as  provided in subparagraph (B), or</span>'''
+'''              (i) the amount of gain recognized  on the disposition (determined without regard to this section), increased as  provided in subparagraph (B), or'''
-'''<span lang="EN">              (ii) the amount determined  under subparagraph (C).</span>'''
+'''              (ii) the amount determined  under subparagraph (C).'''
-'''<span lang="EN">         (B) Increase for certain stock.  With respect to any transaction, the increase provided by this subparagraph  is the amount equal to the fair market value of any stock purchased in a  corporation which (but for this paragraph) would result in nonrecognition of  gain under section 1033(a)(2)(A).</span>'''
+'''         (B) Increase for certain stock.  With respect to any transaction, the increase provided by this subparagraph  is the amount equal to the fair market value of any stock purchased in a  corporation which (but for this paragraph) would result in nonrecognition of  gain under section 1033(a)(2)(A).'''
-'''<span lang="EN">         (C) Adjustment where insufficient  section 1250 property is acquired. With respect to any transaction, the  amount determined under this subparagraph shall be the excess of—</span>'''
+'''         (C) Adjustment where insufficient  section 1250 property is acquired. With respect to any transaction, the  amount determined under this subparagraph shall be the excess of—'''
-'''<span lang="EN">              (i) the amount of gain which  would (but for this paragraph) be taken into account under subsection (a),  over</span>'''
+'''              (i) the amount of gain which  would (but for this paragraph) be taken into account under subsection (a),  over'''
-'''<span lang="EN">              (ii) the fair market value (or  cost in the case of a transaction described in section 1033(a)(2)) of the  section 1250 property acquired in the transaction.</span>'''
+'''              (ii) the fair market value (or  cost in the case of a transaction described in section 1033(a)(2)) of the  section 1250 property acquired in the transaction.'''
-'''<span lang="EN">         (D) Basis of property acquired. In  the case of property purchased by the taxpayer in a transaction described in  section 1033(a)(2), in applying section 1033(b)(2), such sentence [1] shall  be applied—</span>'''
+'''         (D) Basis of property acquired. In  the case of property purchased by the taxpayer in a transaction described in  section 1033(a)(2), in applying section 1033(b)(2), such sentence [1] shall  be applied—'''
-'''<span lang="EN">              (i) first solely to section  1250 properties and to the amount of gain not taken into account under  subsection (a) by reason of this paragraph, and</span>'''
+'''              (i) first solely to section  1250 properties and to the amount of gain not taken into account under  subsection (a) by reason of this paragraph, and'''
-'''<span lang="EN">              (ii) then to all purchased  properties to which such sentence applies and to the remaining gain not  recognized on the transaction as if the cost of the section 1250 properties  were the basis of such properties computed under clause (i). In the case of  property acquired in any other transaction to which this paragraph applies,  rules consistent with the preceding sentence shall be applied under  regulations prescribed by the Secretary.</span>'''
+'''              (ii) then to all purchased  properties to which such sentence applies and to the remaining gain not  recognized on the transaction as if the cost of the section 1250 properties  were the basis of such properties computed under clause (i). In the case of  property acquired in any other transaction to which this paragraph applies,  rules consistent with the preceding sentence shall be applied under  regulations prescribed by the Secretary.'''
-'''<span lang="EN">         (E) Additional depreciation with  respect to property disposed of. In the case of any transaction described in  section 1031 or 1033, the additional depreciation in respect of the section  1250 property acquired which is attributable to the section 1250 property  disposed of shall be an amount equal to the amount of the gain which was not  taken into account under subsection (a) by reason of the application of this  paragraph.</span>'''
+'''         (E) Additional depreciation with  respect to property disposed of. In the case of any transaction described in  section 1031 or 1033, the additional depreciation in respect of the section  1250 property acquired which is attributable to the section 1250 property  disposed of shall be an amount equal to the amount of the gain which was not  taken into account under subsection (a) by reason of the application of this  paragraph.'''
-'''<span lang="EN">     (5) Property distributed by a partnership  to a partner</span>'''
+'''     (5) Property distributed by a partnership  to a partner'''
-'''<span lang="EN">         (A) In general. For purposes of  this section, the basis of section 1250 property distributed by a partnership  to a partner shall be deemed to be determined by reference to the adjusted  basis of such property to the partnership.</span>'''
+'''         (A) In general. For purposes of  this section, the basis of section 1250 property distributed by a partnership  to a partner shall be deemed to be determined by reference to the adjusted  basis of such property to the partnership.'''
-'''<span lang="EN">          (B) Additional depreciation.  In respect of any property described in subparagraph (A), the additional  depreciation attributable to periods before the distribution by the  partnership shall be—</span>'''
+'''          (B) Additional depreciation.  In respect of any property described in subparagraph (A), the additional  depreciation attributable to periods before the distribution by the  partnership shall be—'''
-'''<span lang="EN">              (i) the amount of the gain to which  subsection (a) would have applied if such property had been sold by the  partnership immediately before the distribution at its fair market value at  such time and the applicable percentage for the property had been 100  percent, reduced by</span>'''
+'''              (i) the amount of the gain to which  subsection (a) would have applied if such property had been sold by the  partnership immediately before the distribution at its fair market value at  such time and the applicable percentage for the property had been 100  percent, reduced by'''
-'''<span lang="EN">              (ii) if section 751(b) applied  to any part of such gain, the amount of such gain to which section 751(b)  would have applied if the applicable percentage for the property had been 100  percent.</span>'''
+'''              (ii) if section 751(b) applied  to any part of such gain, the amount of such gain to which section 751(b)  would have applied if the applicable percentage for the property had been 100  percent.'''
-'''<span lang="EN">    (6) Transfers to tax-exempt organization  where property will be used in unrelated business</span>'''
+'''    (6) Transfers to tax-exempt organization  where property will be used in unrelated business'''
-'''<span lang="EN">         (A) In general. The second sentence  of paragraph (3) shall not apply to a disposition of section 1250 property to  an organization described in section 511(a)(2) or 511(b)(2) if, immediately  after such disposition, such organization uses such property in an unrelated  trade or business (as defined in section 513).</span>'''
+'''         (A) In general. The second sentence  of paragraph (3) shall not apply to a disposition of section 1250 property to  an organization described in section 511(a)(2) or 511(b)(2) if, immediately  after such disposition, such organization uses such property in an unrelated  trade or business (as defined in section 513).'''
-'''<span lang="EN">          (B) Later change in use. If  any property with respect to the disposition of which gain is not recognized  by reason of subparagraph (A) ceases to be used in an unrelated trade or  business of the organization acquiring such property, such organization shall  be treated for purposes of this section as having disposed of such property  on the date of such cessation.</span>'''
+'''          (B) Later change in use. If  any property with respect to the disposition of which gain is not recognized  by reason of subparagraph (A) ceases to be used in an unrelated trade or  business of the organization acquiring such property, such organization shall  be treated for purposes of this section as having disposed of such property  on the date of such cessation.'''
-'''<span lang="EN">     (7) Foreclosure dispositions. If  any section 1250 property is disposed of by the taxpayer pursuant to a bid  for such property at foreclosure or by operation of an agreement or of  process of law after there was a default on indebtedness which such property  secured, the applicable percentage referred to in paragraph (1)(B), (2)(B),  or (3)(B) of subsection (a), as the case may be, shall be determined as if  the taxpayer ceased to hold such property on the date of the beginning of the  proceedings pursuant to which the disposition occurred, or, in the event  there are no proceedings, such percentage shall be determined as if the  taxpayer ceased to hold such property on the date, determined under  regulations prescribed by the Secretary, on which such operation of an  agreement or process of law, pursuant to which the disposition occurred,  began.</span>'''
+'''     (7) Foreclosure dispositions. If  any section 1250 property is disposed of by the taxpayer pursuant to a bid  for such property at foreclosure or by operation of an agreement or of  process of law after there was a default on indebtedness which such property  secured, the applicable percentage referred to in paragraph (1)(B), (2)(B),  or (3)(B) of subsection (a), as the case may be, shall be determined as if  the taxpayer ceased to hold such property on the date of the beginning of the  proceedings pursuant to which the disposition occurred, or, in the event  there are no proceedings, such percentage shall be determined as if the  taxpayer ceased to hold such property on the date, determined under  regulations prescribed by the Secretary, on which such operation of an  agreement or process of law, pursuant to which the disposition occurred,  began.'''
-'''<span lang="EN">(e) Holding period. For purposes of determining the applicable percentage  under this section, the provisions of section 1223 shall not apply, and the  holding period of section 1250 property shall be determined under the  following rules:</span>'''
+'''(e) Holding period. For purposes of determining the applicable percentage  under this section, the provisions of section 1223 shall not apply, and the  holding period of section 1250 property shall be determined under the  following rules:'''
-'''<span lang="EN">    (1) Beginning of holding period. The  holding period of section 1250 property shall be deemed to begin—</span>'''
+'''    (1) Beginning of holding period. The  holding period of section 1250 property shall be deemed to begin—'''
-'''<span lang="EN">         (A) in the case of property  acquired by the taxpayer, on the day after the date of acquisition, or</span>'''
+'''         (A) in the case of property  acquired by the taxpayer, on the day after the date of acquisition, or'''
-'''<span lang="EN">         (B) in the case of property  constructed, reconstructed, or erected by the taxpayer, on the first day of  the month during which the property is placed in service.</span>'''
+'''         (B) in the case of property  constructed, reconstructed, or erected by the taxpayer, on the first day of  the month during which the property is placed in service.'''
-'''<span lang="EN">    (2) Property with transferred basis. If  the basis of property acquired in a transaction described in paragraph (1),  (2), or (3) of subsection (d) is determined by reference to its basis in the  hands of the transferor, then the holding period of the property in the hands  of the transferee shall include the holding period of the property in the  hands of the transferor.</span>'''
+'''    (2) Property with transferred basis. If  the basis of property acquired in a transaction described in paragraph (1),  (2), or (3) of subsection (d) is determined by reference to its basis in the  hands of the transferor, then the holding period of the property in the hands  of the transferee shall include the holding period of the property in the  hands of the transferor.'''
-'''<span lang="EN">(f) Special rules for property which is substantially improved</span>'''
+'''(f) Special rules for property which is substantially improved'''
-'''<span lang="EN">    (1) Amount treated as ordinary income.  If, in the case of a disposition of section 1250 property, the property is  treated as consisting of more than one element by reason of paragraph (3),  then the amount taken into account under subsection (a) in respect of such  section 1250 property as ordinary income shall be the sum of the amounts  determined under paragraph (2).</span>'''
+'''    (1) Amount treated as ordinary income.  If, in the case of a disposition of section 1250 property, the property is  treated as consisting of more than one element by reason of paragraph (3),  then the amount taken into account under subsection (a) in respect of such  section 1250 property as ordinary income shall be the sum of the amounts  determined under paragraph (2).'''
-'''<span lang="EN">    (2) Ordinary income attributable to an  element. For purposes of paragraph (1), the amount taken into account for any  element shall be the sum of a series of amounts determined for the periods  set forth in subsection (a), with the amount for any such period being  determined by multiplying—</span>'''
+'''    (2) Ordinary income attributable to an  element. For purposes of paragraph (1), the amount taken into account for any  element shall be the sum of a series of amounts determined for the periods  set forth in subsection (a), with the amount for any such period being  determined by multiplying—'''
-'''<span lang="EN">         (A) the amount which bears the same  ratio to the lower of the amounts specified in clause (i) or (ii) of  subsection (a)(1)(A), in clause (i) or (ii) of subsection (a)(2)(A), or in  clause (i) or (ii) of subsection (a)(3)(A), as the case may be, for the  section 1250 property as the additional depreciation for such element  attributable to such period bears to the sum of the additional depreciation  for all elements attributable to such period, by</span>'''
+'''         (A) the amount which bears the same  ratio to the lower of the amounts specified in clause (i) or (ii) of  subsection (a)(1)(A), in clause (i) or (ii) of subsection (a)(2)(A), or in  clause (i) or (ii) of subsection (a)(3)(A), as the case may be, for the  section 1250 property as the additional depreciation for such element  attributable to such period bears to the sum of the additional depreciation  for all elements attributable to such period, by'''
-'''<span lang="EN">         (B) the applicable percentage for such  element for such period.</span>'''
+'''         (B) the applicable percentage for such  element for such period.'''
-'''<span lang="EN">For purposes of this paragraph, determinations with respect to any element  shall be made as if it were a separate property.</span>'''
+'''For purposes of this paragraph, determinations with respect to any element  shall be made as if it were a separate property.'''
-'''<span lang="EN">    (3) Property consisting of more than one  element. In applying this subsection in the case of any section 1250  property, there shall be treated as a separate element—</span>'''
+'''    (3) Property consisting of more than one  element. In applying this subsection in the case of any section 1250  property, there shall be treated as a separate element—'''
-'''<span lang="EN">         (A) each separate improvement,</span>'''
+'''         (A) each separate improvement,'''
-'''<span lang="EN">         (B) if, before completion of  section 1250 property, units thereof (as distinguished from improvements)  were placed in service, each such unit of section 1250 property, and</span>'''
+'''         (B) if, before completion of  section 1250 property, units thereof (as distinguished from improvements)  were placed in service, each such unit of section 1250 property, and'''
-'''<span lang="EN">         (C) the remaining property which is  not taken into account under subparagraphs (A) and (B).</span>'''
+'''         (C) the remaining property which is  not taken into account under subparagraphs (A) and (B).'''
-'''<span lang="EN">    (4) Property which is substantially  improved. For purposes of this subsection—</span>'''
+'''    (4) Property which is substantially  improved. For purposes of this subsection—'''
-'''<span lang="EN">         (A) In general. The term “separate  improvement” means each improvement added during the 36–month period ending  on the last day of any taxable year to the capital account for the property,  but only if the sum of the amounts added to such account during such period  exceeds the greatest of—</span>'''
+'''         (A) In general. The term “separate  improvement” means each improvement added during the 36–month period ending  on the last day of any taxable year to the capital account for the property,  but only if the sum of the amounts added to such account during such period  exceeds the greatest of—'''
-'''<span lang="EN">              (i) 25 percent of the adjusted  basis of the property,</span>'''
+'''              (i) 25 percent of the adjusted  basis of the property,'''
-'''<span lang="EN">              (ii) 10 percent of the  adjusted basis of the property, determined without regard to the adjustments  provided in paragraphs (2) and (3) of section 1016(a), or</span>'''
+'''              (ii) 10 percent of the  adjusted basis of the property, determined without regard to the adjustments  provided in paragraphs (2) and (3) of section 1016(a), or'''
-'''<span lang="EN">              (iii) $5,000. For purposes of  clauses (i) and (ii), the adjusted basis of the property shall be determined  as of the beginning of the first day of such 36–month period, or of the  holding period of the property (within the meaning of subsection (e)),  whichever is the later.</span>'''
+'''              (iii) $5,000. For purposes of  clauses (i) and (ii), the adjusted basis of the property shall be determined  as of the beginning of the first day of such 36–month period, or of the  holding period of the property (within the meaning of subsection (e)),  whichever is the later.'''
-'''<span lang="EN">         (B) Exception. Improvements in any  taxable year shall be taken into account for purposes of subparagraph (A)  only if the sum of the amounts added to the capital account for the property  for such taxable year exceeds the greater of—</span>'''
+'''         (B) Exception. Improvements in any  taxable year shall be taken into account for purposes of subparagraph (A)  only if the sum of the amounts added to the capital account for the property  for such taxable year exceeds the greater of—'''
-'''<span lang="EN">              (i) $2,000, or</span>'''
+'''              (i) $2,000, or'''
-'''<span lang="EN">              (ii) one percent of the  adjusted basis referred to in subparagraph (A)(ii), determined, however, as  of the beginning of such taxable year. For purposes of this section, if the  amount added to the capital account for any separate improvement does not  exceed the greater of clause (i) or (ii), such improvement shall be treated  as placed in service on the first day, of a calendar month, which is closest  to the middle of the taxable year.</span>'''
+'''              (ii) one percent of the  adjusted basis referred to in subparagraph (A)(ii), determined, however, as  of the beginning of such taxable year. For purposes of this section, if the  amount added to the capital account for any separate improvement does not  exceed the greater of clause (i) or (ii), such improvement shall be treated  as placed in service on the first day, of a calendar month, which is closest  to the middle of the taxable year.'''
-'''<span lang="EN">    (C) Improvement. The term “improvement”  means, in the case of any section 1250 property, any addition to capital  account for such property after the initial acquisition or after completion of  the property.</span>'''
+'''    (C) Improvement. The term “improvement”  means, in the case of any section 1250 property, any addition to capital  account for such property after the initial acquisition or after completion of  the property.'''
-'''<span lang="EN">(g) Adjustments to basis. The Secretary shall prescribe such regulations as  he may deem necessary to provide for adjustments to the basis of property to  reflect gain recognized under subsection (a).</span>'''
+'''(g) Adjustments to basis. The Secretary shall prescribe such regulations as  he may deem necessary to provide for adjustments to the basis of property to  reflect gain recognized under subsection (a).'''
-'''<span lang="EN">(h) Application of section. This section shall apply notwithstanding any  other provision of this subtitle.</span>'''
+'''(h) Application of section. This section shall apply notwithstanding any  other provision of this subtitle.'''
 |}
-<span lang="EN">Section 1250 → appears to provide a recapture mechanism (but it does not)</span>
+Section 1250 → appears to provide a recapture mechanism (but it does not)
-<span lang="EN">●      '''1250(a)(1)(A)''' → In order to trigger a 1250 recapture, TP must have taken “additional depreciation” on depreciable real property</span>
+●      '''1250(a)(1)(A)''' → In order to trigger a 1250 recapture, TP must have taken “additional depreciation” on depreciable real property
-<span lang="EN">●      '''1250(b)(1) → Additional depreciation''' → generally defined as the excess of the amount of accelerated depreciation deductions allowed to the taxpayer over the amount that would have been allowed had the property been depreciated using the straight-line method</span>
+●      '''1250(b)(1) → Additional depreciation''' → generally defined as the excess of the amount of accelerated depreciation deductions allowed to the taxpayer over the amount that would have been allowed had the property been depreciated using the straight-line method
-<span lang="EN">●      BUT pursuant to 168(b)(3), TPs with depreciable real property are required to use the straight-line method</span>
+●      BUT pursuant to 168(b)(3), TPs with depreciable real property are required to use the straight-line method
-<span lang="EN">1250 is no longer effective to provide recapture for depreciable real property sold at a gain, but an indirect form of recapture sits in 1(h)(1)(D):</span>
+is no longer effective to provide recapture for depreciable real property sold at a gain, but an indirect form of recapture sits in 1(h)(1)(D):
 {| class="wikitable"
-|'''<span lang="EN">26  U.S. Code § 1 - Tax imposed</span>'''
+|'''26  U.S. Code § 1 - Tax imposed'''
-'''<span lang="EN">(h)  Maximum capital gains rate</span>'''
+'''(h)  Maximum capital gains rate'''
-'''<span lang="EN">    (1) In general. If a taxpayer has a net  capital gain for any taxable year, the tax imposed by this section for such  taxable year shall not exceed the sum of—</span>'''
+'''    (1) In general. If a taxpayer has a net  capital gain for any taxable year, the tax imposed by this section for such  taxable year shall not exceed the sum of—'''
-'''<span lang="EN">         (A) a tax computed at the rates and  in the same manner as if this subsection had not been enacted on the greater  of—</span>'''
+'''         (A) a tax computed at the rates and  in the same manner as if this subsection had not been enacted on the greater  of—'''
-'''<span lang="EN">              (i) taxable income reduced by  the net capital gain; or</span>'''
+'''              (i) taxable income reduced by  the net capital gain; or'''
-'''<span lang="EN">              (ii) the lesser of—</span>'''
+'''              (ii) the lesser of—'''
-'''<span lang="EN">                   (I) the amount of taxable  income taxed at a rate below 25 percent; or</span>'''
+'''                   (I) the amount of taxable  income taxed at a rate below 25 percent; or'''
-'''<span lang="EN">                   (II) taxable income  reduced by the adjusted net capital gain;</span>'''
+'''                   (II) taxable income  reduced by the adjusted net capital gain;'''
-'''<span lang="EN">         (B) 0 percent of so much of the  adjusted net capital gain (or, if less, taxable income) as does not exceed  the excess (if any) of—</span>'''
+'''         (B) 0 percent of so much of the  adjusted net capital gain (or, if less, taxable income) as does not exceed  the excess (if any) of—'''
-'''<span lang="EN">              (i) the amount of taxable  income which would (without regard to this paragraph) be taxed at a rate below  25 percent, over</span>'''
+'''              (i) the amount of taxable  income which would (without regard to this paragraph) be taxed at a rate below  25 percent, over'''
-'''<span lang="EN">              (ii) the taxable income  reduced by the adjusted net capital gain;</span>'''
+'''              (ii) the taxable income  reduced by the adjusted net capital gain;'''
-'''<span lang="EN">         (C) 15 percent of the lesser of—</span>'''
+'''         (C) 15 percent of the lesser of—'''
-'''<span lang="EN">              (i) so much of the adjusted  net capital gain (or, if less, taxable income) as exceeds the amount on which  a tax is determined under subparagraph (B), or</span>'''
+'''              (i) so much of the adjusted  net capital gain (or, if less, taxable income) as exceeds the amount on which  a tax is determined under subparagraph (B), or'''
-'''<span lang="EN">              (ii) the excess of—</span>'''
+'''              (ii) the excess of—'''
-'''<span lang="EN">                   (I) the amount of taxable  income which would (without regard to this paragraph) be taxed at a rate  below 39.6 percent, over</span>'''
+'''                   (I) the amount of taxable  income which would (without regard to this paragraph) be taxed at a rate  below 39.6 percent, over'''
-'''<span lang="EN">                   (II) the sum of the  amounts on which a tax is determined under subparagraphs (A) and (B),</span>'''
+'''                   (II) the sum of the  amounts on which a tax is determined under subparagraphs (A) and (B),'''
-'''<span lang="EN">         (D) 20 percent of the adjusted net  capital gain (or, if less, taxable income) in excess of the sum of the  amounts on which tax is determined under subparagraphs (B) and (C),</span>'''
+'''         (D) 20 percent of the adjusted net  capital gain (or, if less, taxable income) in excess of the sum of the  amounts on which tax is determined under subparagraphs (B) and (C),'''
-'''<span lang="EN">         (E) 25 percent of the excess (if  any) of—</span>'''
+'''         (E) 25 percent of the excess (if  any) of—'''
-'''<span lang="EN">              (i) the unrecaptured section  1250 gain (or, if less, the net capital gain (determined without regard to  paragraph (11))), over</span>'''
+'''              (i) the unrecaptured section  1250 gain (or, if less, the net capital gain (determined without regard to  paragraph (11))), over'''
-'''<span lang="EN">              (ii) the excess (if any) of—</span>'''
+'''              (ii) the excess (if any) of—'''
-'''<span lang="EN">                   (I) the sum of the amount  on which tax is determined under subparagraph (A) plus the net capital gain,  over</span>'''
+'''                   (I) the sum of the amount  on which tax is determined under subparagraph (A) plus the net capital gain,  over'''
-'''<span lang="EN">                   (II) taxable income; and</span>'''
+'''                   (II) taxable income; and'''
-'''<span lang="EN">         (F) 28 percent of the amount of  taxable income in excess of the sum of the amounts on which tax is determined  under the preceding subparagraphs of this paragraph.</span>'''
+'''         (F) 28 percent of the amount of  taxable income in excess of the sum of the amounts on which tax is determined  under the preceding subparagraphs of this paragraph.'''
-'''<span lang="EN">    (2) Net capital gain taken into account  as investment income</span>'''
+'''    (2) Net capital gain taken into account  as investment income'''
-'''<span lang="EN">For purposes of this subsection, the net capital gain for any taxable year  shall be reduced (but not below zero) by the amount which the taxpayer takes  into account as investment income under section 163(d)(4)(B)(iii).</span>'''
+'''For purposes of this subsection, the net capital gain for any taxable year  shall be reduced (but not below zero) by the amount which the taxpayer takes  into account as investment income under section 163(d)(4)(B)(iii).'''
-'''<span lang="EN">     (3) Adjusted net capital gain. For  purposes of this subsection, the term “adjusted net capital gain” means the  sum of—</span>'''
+'''     (3) Adjusted net capital gain. For  purposes of this subsection, the term “adjusted net capital gain” means the  sum of—'''
-'''<span lang="EN">         (A) net capital gain (determined  without regard to paragraph (11)) reduced (but not below zero) by the sum of—</span>'''
+'''         (A) net capital gain (determined  without regard to paragraph (11)) reduced (but not below zero) by the sum of—'''
-'''<span lang="EN">              (i) unrecaptured section 1250  gain, and</span>'''
+'''              (i) unrecaptured section 1250  gain, and'''
-'''<span lang="EN">              (ii) 28-percent rate gain,  plus</span>'''
+'''              (ii) 28-percent rate gain,  plus'''
-'''<span lang="EN">         (B) qualified dividend income (as  defined in paragraph (11)).</span>'''
+'''         (B) qualified dividend income (as  defined in paragraph (11)).'''
-'''<span lang="EN">    (4) 28-percent rate gain. For purposes  of this subsection, the term “28-percent rate gain” means the excess (if any)  of—</span>'''
+'''    (4) 28-percent rate gain. For purposes  of this subsection, the term “28-percent rate gain” means the excess (if any)  of—'''
-'''<span lang="EN">         (A) the sum of—</span>'''
+'''         (A) the sum of—'''
-'''<span lang="EN">              (i) collectibles gain; and</span>'''
+'''              (i) collectibles gain; and'''
-'''<span lang="EN">              (ii) section 1202 gain, over</span>'''
+'''              (ii) section 1202 gain, over'''
-'''<span lang="EN">         (B) the sum of—</span>'''
+'''         (B) the sum of—'''
-'''<span lang="EN">              (i) collectibles loss;</span>'''
+'''              (i) collectibles loss;'''
-'''<span lang="EN">              (ii) the net short-term  capital loss; and</span>'''
+'''              (ii) the net short-term  capital loss; and'''
-'''<span lang="EN">              (iii) the amount of long-term  capital loss carried under section 1212(b)(1)(B) to the taxable year.</span>'''
+'''              (iii) the amount of long-term  capital loss carried under section 1212(b)(1)(B) to the taxable year.'''
-'''<span lang="EN">    (5) Collectibles gain and loss. For  purposes of this subsection—</span>'''
+'''    (5) Collectibles gain and loss. For  purposes of this subsection—'''
-'''<span lang="EN">         (A) In general. The terms  “collectibles gain” and “collectibles loss” mean gain or loss (respectively)  from the sale or exchange of a collectible (as defined in section 408(m)  without regard to paragraph (3) thereof) which is a capital asset held for  more than 1 year but only to the extent such gain is taken into account in  computing gross income and such loss is taken into account in computing  taxable income.</span>'''
+'''         (A) In general. The terms  “collectibles gain” and “collectibles loss” mean gain or loss (respectively)  from the sale or exchange of a collectible (as defined in section 408(m)  without regard to paragraph (3) thereof) which is a capital asset held for  more than 1 year but only to the extent such gain is taken into account in  computing gross income and such loss is taken into account in computing  taxable income.'''
-'''<span lang="EN">          (B) Partnerships, etc. For  purposes of subparagraph (A), any gain from the sale of an interest in a  partnership, S corporation, or trust which is attributable to unrealized  appreciation in the value of collectibles shall be treated as gain from the  sale or exchange of a collectible. Rules similar to the rules of section 751  shall apply for purposes of the preceding sentence.</span>'''
+'''          (B) Partnerships, etc. For  purposes of subparagraph (A), any gain from the sale of an interest in a  partnership, S corporation, or trust which is attributable to unrealized  appreciation in the value of collectibles shall be treated as gain from the  sale or exchange of a collectible. Rules similar to the rules of section 751  shall apply for purposes of the preceding sentence.'''
-'''<span lang="EN">     (6) Unrecaptured section 1250  gain. For purposes of this subsection—</span>'''
+'''     (6) Unrecaptured section 1250  gain. For purposes of this subsection—'''
-'''<span lang="EN">         (A) In general. The term  “unrecaptured section 1250 gain” means the excess (if any) of—</span>'''
+'''         (A) In general. The term  “unrecaptured section 1250 gain” means the excess (if any) of—'''
-'''<span lang="EN">              (i) the amount of long-term  capital gain (not otherwise treated as ordinary income) which would be  treated as ordinary income if section 1250(b)(1) included all depreciation  and the applicable percentage under section 1250(a) were 100 percent, over</span>'''
+'''              (i) the amount of long-term  capital gain (not otherwise treated as ordinary income) which would be  treated as ordinary income if section 1250(b)(1) included all depreciation  and the applicable percentage under section 1250(a) were 100 percent, over'''
-'''<span lang="EN">              (ii) the excess (if any) of—</span>'''
+'''              (ii) the excess (if any) of—'''
-'''<span lang="EN">                   (I) the amount described  in paragraph (4)(B); over</span>'''
+'''                   (I) the amount described  in paragraph (4)(B); over'''
-'''<span lang="EN">                   (II) the amount described  in paragraph (4)(A).</span>'''
+'''                   (II) the amount described  in paragraph (4)(A).'''
-'''<span lang="EN">         (B) Limitation with respect to  section 1231 property. The amount described in subparagraph (A)(i) from  sales, exchanges, and conversions described in section 1231(a)(3)(A) for any  taxable year shall not exceed the net section 1231 gain (as defined in  section 1231(c)(3)) for such year.</span>'''
+'''         (B) Limitation with respect to  section 1231 property. The amount described in subparagraph (A)(i) from  sales, exchanges, and conversions described in section 1231(a)(3)(A) for any  taxable year shall not exceed the net section 1231 gain (as defined in  section 1231(c)(3)) for such year.'''
-'''<span lang="EN">    (7)Section 1202 gain. For purposes of  this subsection, the term “section 1202 gain” means the excess of—</span>'''
+'''    (7)Section 1202 gain. For purposes of  this subsection, the term “section 1202 gain” means the excess of—'''
-'''<span lang="EN">         (A) the gain which would be  excluded from gross income under section 1202 but for the percentage  limitation in section 1202(a), over</span>'''
+'''         (A) the gain which would be  excluded from gross income under section 1202 but for the percentage  limitation in section 1202(a), over'''
-'''<span lang="EN">         (B) the gain excluded from gross  income under section 1202.</span>'''
+'''         (B) the gain excluded from gross  income under section 1202.'''
-'''<span lang="EN">    (8) Coordination with recapture of net  ordinary losses under section 1231. If any amount is treated as ordinary  income under section 1231(c), such amount shall be allocated among the  separate categories of net section 1231 gain (as defined in section  1231(c)(3)) in such manner as the Secretary may by forms or regulations  prescribe.</span>'''
+'''    (8) Coordination with recapture of net  ordinary losses under section 1231. If any amount is treated as ordinary  income under section 1231(c), such amount shall be allocated among the  separate categories of net section 1231 gain (as defined in section  1231(c)(3)) in such manner as the Secretary may by forms or regulations  prescribe.'''
-'''<span lang="EN">     (9) Regulations. The Secretary may  prescribe such regulations as are appropriate (including regulations  requiring reporting) to apply this subsection in the case of sales and  exchanges by pass-thru entities and of interests in such entities.</span>'''
+'''     (9) Regulations. The Secretary may  prescribe such regulations as are appropriate (including regulations  requiring reporting) to apply this subsection in the case of sales and  exchanges by pass-thru entities and of interests in such entities.'''
-'''<span lang="EN">     (10) Pass-thru entity defined. For  purposes of this subsection, the term “pass-thru entity” means—</span>'''
+'''     (10) Pass-thru entity defined. For  purposes of this subsection, the term “pass-thru entity” means—'''
-'''<span lang="EN">         (A) a regulated investment company;</span>'''
+'''         (A) a regulated investment company;'''
-'''<span lang="EN">         (B) a real estate investment trust;</span>'''
+'''         (B) a real estate investment trust;'''
-'''<span lang="EN">         (C) an S corporation;</span>'''
+'''         (C) an S corporation;'''
-'''<span lang="EN">         (D) a partnership;</span>'''
+'''         (D) a partnership;'''
-'''<span lang="EN">         (E) an estate or trust;</span>'''
+'''         (E) an estate or trust;'''
-'''<span lang="EN">         (F) a common trust fund; and</span>'''
+'''         (F) a common trust fund; and'''
-'''<span lang="EN">         (G) a qualified electing fund (as  defined in section 1295).</span>'''
+'''         (G) a qualified electing fund (as  defined in section 1295).'''
-'''<span lang="EN">    (11) Dividends taxed as net capital gain</span>'''
+'''    (11) Dividends taxed as net capital gain'''
-'''<span lang="EN">         (A) In general. For purposes of  this subsection, the term “net capital gain” means net capital gain  (determined without regard to this paragraph) increased by qualified dividend  income.</span>'''
+'''         (A) In general. For purposes of  this subsection, the term “net capital gain” means net capital gain  (determined without regard to this paragraph) increased by qualified dividend  income.'''
-'''<span lang="EN">          (B) Qualified dividend  income. For purposes of this paragraph—</span>'''
+'''          (B) Qualified dividend  income. For purposes of this paragraph—'''
-'''<span lang="EN">              (i) In general. The term  “qualified dividend income” means dividends received during the taxable year  from—</span>'''
+'''              (i) In general. The term  “qualified dividend income” means dividends received during the taxable year  from—'''
-'''<span lang="EN">                   (I) domestic  corporations, and</span>'''
+'''                   (I) domestic  corporations, and'''
-'''<span lang="EN">                   (II) qualified foreign  corporations.</span>'''
+'''                   (II) qualified foreign  corporations.'''
-'''<span lang="EN">              (ii) Certain dividends  excluded. Such term shall not include—</span>'''
+'''              (ii) Certain dividends  excluded. Such term shall not include—'''
-'''<span lang="EN">                   (I) any dividend from a  corporation which for the taxable year of the corporation in which the  distribution is made, or the preceding taxable year, is a corporation exempt  from tax under section 501 or 521,</span>'''
+'''                   (I) any dividend from a  corporation which for the taxable year of the corporation in which the  distribution is made, or the preceding taxable year, is a corporation exempt  from tax under section 501 or 521,'''
-'''<span lang="EN">                   (II) any amount allowed  as a deduction under section 591 (relating to deduction for dividends paid by  mutual savings banks, etc.), and</span>'''
+'''                   (II) any amount allowed  as a deduction under section 591 (relating to deduction for dividends paid by  mutual savings banks, etc.), and'''
-'''<span lang="EN">                   (III) any dividend  described in section 404(k).</span>'''
+'''                   (III) any dividend  described in section 404(k).'''
-'''<span lang="EN">              (iii) Coordination with  section 246(c)Such term shall not include any dividend on any share of stock—</span>'''
+'''              (iii) Coordination with  section 246(c)Such term shall not include any dividend on any share of stock—'''
-'''<span lang="EN">                   (I) with respect to which  the holding period requirements of section 246(c) are not met (determined by  substituting in section 246(c) “60 days” for “45 days” each place it appears  and by substituting “121-day period” for “91-day period”), or</span>'''
+'''                   (I) with respect to which  the holding period requirements of section 246(c) are not met (determined by  substituting in section 246(c) “60 days” for “45 days” each place it appears  and by substituting “121-day period” for “91-day period”), or'''
-'''<span lang="EN">                   (II) to the extent that  the taxpayer is under an obligation (whether pursuant to a short sale or  otherwise) to make related payments with respect to positions in substantially  similar or related property.</span>'''
+'''                   (II) to the extent that  the taxpayer is under an obligation (whether pursuant to a short sale or  otherwise) to make related payments with respect to positions in substantially  similar or related property.'''
-'''<span lang="EN">         (C) Qualified foreign corporations</span>'''
+'''         (C) Qualified foreign corporations'''
-'''<span lang="EN">              (i) In general. Except as  otherwise provided in this paragraph, the term “qualified foreign  corporation” means any foreign corporation if—</span>'''
+'''              (i) In general. Except as  otherwise provided in this paragraph, the term “qualified foreign  corporation” means any foreign corporation if—'''
-'''<span lang="EN">                   (I) such corporation is incorporated in a  possession of the United States, or</span>'''
+'''                   (I) such corporation is incorporated in a  possession of the United States, or'''
-'''<span lang="EN">                   (II) such corporation is  eligible for benefits of a comprehensive income tax treaty with the United  States which the Secretary determines is satisfactory for purposes of this  paragraph and which includes an exchange of information program.</span>'''
+'''                   (II) such corporation is  eligible for benefits of a comprehensive income tax treaty with the United  States which the Secretary determines is satisfactory for purposes of this  paragraph and which includes an exchange of information program.'''
-'''<span lang="EN">              (ii) Dividends on stock  readily tradable on United States securities market. A foreign corporation  not otherwise treated as a qualified foreign corporation under clause (i)  shall be so treated with respect to any dividend paid by such corporation if  the stock with respect to which such dividend is paid is readily tradable on  an established securities market in the United States.</span>'''
+'''              (ii) Dividends on stock  readily tradable on United States securities market. A foreign corporation  not otherwise treated as a qualified foreign corporation under clause (i)  shall be so treated with respect to any dividend paid by such corporation if  the stock with respect to which such dividend is paid is readily tradable on  an established securities market in the United States.'''
-'''<span lang="EN">               (iii) Exclusion of  dividends of certain foreign corporations. Such term shall not include—</span>'''
+'''               (iii) Exclusion of  dividends of certain foreign corporations. Such term shall not include—'''
-'''<span lang="EN">                   (I) any foreign  corporation which for the taxable year of the corporation in which the  dividend was paid, or the preceding taxable year, is a passive foreign investment  company (as defined in section 1297), and</span>'''
+'''                   (I) any foreign  corporation which for the taxable year of the corporation in which the  dividend was paid, or the preceding taxable year, is a passive foreign investment  company (as defined in section 1297), and'''
-'''<span lang="EN">                   (II) any corporation  which first becomes a surrogate foreign corporation (as defined in section  7874(a)(2)(B)) after the date of the enactment of this subclause, other than  a foreign corporation which is treated as a domestic corporation under  section 7874(b).</span>'''
+'''                   (II) any corporation  which first becomes a surrogate foreign corporation (as defined in section  7874(a)(2)(B)) after the date of the enactment of this subclause, other than  a foreign corporation which is treated as a domestic corporation under  section 7874(b).'''
-'''<span lang="EN">              (iv) Coordination with foreign  tax credit limitation. Rules similar to the rules of section 904(b)(2)(B)  shall apply with respect to the dividend rate differential under this  paragraph.</span>'''
+'''              (iv) Coordination with foreign  tax credit limitation. Rules similar to the rules of section 904(b)(2)(B)  shall apply with respect to the dividend rate differential under this  paragraph.'''
-'''<span lang="EN">          (D) Special rules</span>'''
+'''          (D) Special rules'''
-'''<span lang="EN">              (i) Amounts taken into account  as investment income. Qualified dividend income shall not include any amount  which the taxpayer takes into account as investment income under section  163(d)(4)(B).</span>'''
+'''              (i) Amounts taken into account  as investment income. Qualified dividend income shall not include any amount  which the taxpayer takes into account as investment income under section  163(d)(4)(B).'''
-'''<span lang="EN">               (ii) Extraordinary  dividends. If a taxpayer to whom this section applies receives, with respect  to any share of stock, qualified dividend income from 1 or more dividends  which are extraordinary dividends (within the meaning of section 1059(c)),  any loss on the sale or exchange of such share shall, to the extent of such  dividends, be treated as long-term capital loss.</span>'''
+'''               (ii) Extraordinary  dividends. If a taxpayer to whom this section applies receives, with respect  to any share of stock, qualified dividend income from 1 or more dividends  which are extraordinary dividends (within the meaning of section 1059(c)),  any loss on the sale or exchange of such share shall, to the extent of such  dividends, be treated as long-term capital loss.'''
-'''<span lang="EN">               (iii) Treatment of  dividends from regulated investment companies and real estate investment  trusts. A dividend received from a regulated investment company or a real  estate investment trust shall be subject to the limitations prescribed in  sections 854 and 857</span>'''
+'''               (iii) Treatment of  dividends from regulated investment companies and real estate investment  trusts. A dividend received from a regulated investment company or a real  estate investment trust shall be subject to the limitations prescribed in  sections 854 and 857'''
 |}
-<span lang="EN">199A → Qualified Business Income</span>
+A → Qualified Business Income
-<span lang="EN">●      Reduction offered in 11 for C Corporations</span>
+●      Reduction offered in 11 for C Corporations
-<span lang="EN">●      No reduction for businesses operated as sole proprietorships, noncorporate entities like partnerships and LLCs, or S Corporations</span>
+●      No reduction for businesses operated as sole proprietorships, noncorporate entities like partnerships and LLCs, or S Corporations
 ●      Deduction will terminate at the end of 2025 and unavailable on 2026 tax returns unless Congress extends it -- 199A(i)

Income Tax
Authors	James Freeland Daniel Lathrope Stephen Lind Richard Stephens
Text	Fundamentals of Federal Income Taxation: Cases and Materials (University Casebook)
Taught by	Julian M. Fray
Taught at
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Income Tax Freeland/Outline: Difference between revisions

Revision as of 18:56, May 31, 2022

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