Bus. 225K - Advanced Individual Taxes

Introduction to the course - access the two files (pdf and audio) on Canvas

Introductory quiz (no point value) - complete this before you listen to the audio file!

Audio file (60 minutes)

Review of Itemized Deductions - see links on Canvas and syllabus for this assignment

Interest Expense Limitations - the items below are best accessed on Canvas

Review the IRC sections and other materials noted below before watching the video. You should stop the video when you need to review the IRC, regulations or Notices being referred to. You will most likely want to watch all or portions of the video more than once and be sure to read the materials.

Video  (72 minutes) +   Powerpoint file    [quiz is on Canvas]

• IRC 163
• Joint Committee on Taxation, Blue Book of the Tax Reform Act of 1986, text pages 262-270
• Interest Tracing Regulations and Preamble - 1.163-8T
• Notice 89-35 and FSA 200011025 on 1.163-8T
• IRS Pub. 535 - Business Expenses (just look at pages 10 - 15 on interest expense)
• IRC 221 - Interest on Education Loans
• Investment Interest Limitations - �163(d)
  • Form 4952 - Investment Interest Expense Deduction
  • Reg 1.163(d)-1 - elections
  • IRS Pub. 550 - Investment Income and Expenses (just read pages 31-34)
  • Rev. Rul. 93-68
  • Rev. Rul. 95-16
  • Rev. Rul. 2008-12 - limited partner    +   amplified by Rev. Rul. 2008-38

Home Mortgage Interest & Personal Interest - Section 163(a), Regs. 1.163-9T, 1.163-10T

Note: After the TCJA, acquisition debt is limited to $750,000 with a grandfather rule, and QRI only includes acquisition debt; not home equity debt. Thus, to know the tax treatment of interest expense on home equity debt, apply the tracing rules of Reg. 1.163-8T. But, if the proceeds were used to substantially improve the home (principal or second) that secures the debt, it is acquisition debt.

• IRS Pub. 936 - Home Mortgage Interest Deduction (only need to print pages 1 - 12; or read online)

• Legislative history to the Revenue Reconciliation Act of 1987 that changed the mortgage interest deduction rules

• Personal Interest and Home Mortgage Regulations and Preamble - 1.163-9T & 1.163-10T

• Notice 88-74

• Revenue Ruling 2010-25 on mortgage interest limitations; not relevant for 2018 through 2025

  • Pau, TC Memo 1997-43 - debt over $1 million to acquire home (but also see Sec. 163(h)(3) definitions and Pub 936 (although not binding authority))

• Voss (9th Cir,. 2015) how does 163(h) apply to unmarried co-owners when the debt limits are exceeded? (note that this case overturns the Tax Court decision of 2013)

• AOD 2016-02 - IRS acq to the Voss case

• Form 1098 (look at pages 4 - 6)

• Rev. Rul. 87-22 on points

• Rev. Proc. 87-15 on points

• Rev. Proc. 94-27 on points

• Rev. Rul. 92-91 on treatment of refund from adjustable rate mortgage

• Information on home equity loans from the FDIC (skim)

• Joint Committee on Taxation report - Present Law, Data, and Analysis Relating to Tax Incentives For Homeownership, 9/30/11 (reference only)

  • In 2009, $421 billion of itemized deductions for home mortgage interest were claimed on about 36.5 million tax returns.

  • In the U.S. about 65% of homes are owner-occupied. In 2010, it is estimated that the homeownership rate in the US was 67%. It was 68% in Canada (2006) and averaged 73.5% (2009) in the EU. Most countries do not have as generous tax provisions for home ownership as in the US.  "The United States and many other countries have favorable tax treatment for homeownership, though the extent of tax preference varies across countries. Among the 33 countries that are members of the Organization for Economic Cooperation and Development (OECD), 18 provide a deduction for mortgage interest. Only nine impose some form of taxation on imputed rental income on owner-occupied housing. Every country except Switzerland provides some special treatment under the income tax for capital gain on the sale of a principal residence." (pages 25-26)

• GAO July 2009 report - Home Mortgage Interest Deduction (reference only)

• Check-in video on Canvas with review of homework and recent developments.

Passive Activity Loss Limitation - Section 469

Presentations: The time indicated below for the length of the videos does not include the time you'll need in pausing the video periodically to delve deeper into the primary authority mentioned in the video. To get the best understanding of the passive activity loss limitation rules, you need to read and re-read the regulations as supplemented by the preamble to the 1988 regulations (see link in list below).

NOTE: The videos are only accessible from your 225K Canvas website.

• Presentation 1  -  ppt file     Video (73 minutes)  [+ quiz]

  • Note: There is an error on the audio for slide 27 on material participation test 3.  Where two individuals each work over 100 hours in an activity and they work the same exact number of hours, they are both material participants per 1.469-5T(a)(3); also see Example (3) at 1.469-5T(k).  On the audio, I say if two people work 200 hours, neither is a MP; that is incorrect. They are both MPs.  Sorry for the confusion.

• Presentation 2 - ppt file  Video  (44 minutes)

• Additional reading to assist in understanding Section 469 - preamble to TD 8175 (1988) which included the bulk of the regs, but was issued prior to 1.469-4 on "activity." The TD 8175 regs were slightly modified, which is why some regs do not have a "T" for temporary. That is, regs modifying a few parts of the TD 8175 regs were issued after 1988 when the 3-year expiration date for temporary regs went into effect. You will find that the preamble provides helpful background to understanding information on the first two videos and it will help with subsequent videos as well.  TD 8175 preamble

• Presentation 3 - ppt file    Video (57 minutes)   [+ quiz]

• Presentation 4 - ppt file    Video  (85 minutes)   [+ quiz]

• Presentation 5 - ppt file    Video  (38 minutes) + Example from IRS Pub 925 (2009) - a review of some of the rules and more on Form 8582

• Check-in video on Canvas with review of homework and recent developments.

• IRS Pub. 925 - Passive Activity and At-Risk Rules (only need to print pages 1 - 23; or read online) (provides broad overview to Passive Activity Loss rules, but there are no references to the substantive law)
• IRC 469
• Regulations (obtain from RIA Checkpoint or CCH)
• Joint Committee on Taxation, Blue Book of the Tax Reform Act of 1986, text pages 208-254
• 1993 legislative history to IRC 469(c)(7) on real estate professionals
• Form 8582 - Passive Activity Loss Limitations: (1) form   (2) instructions
• Rev. Rul. 92-92 on treatment of COD income under 469
• Rev. Proc. 2010-13 on info to provide to IRS for regrouping of activities (reference only)
• Article: "Taxation of LLC Members as General Partners" The Tax Adviser, Sept. 2010 - on Canvas
• Material participation and trusts  TAM 200733023
• Avoiding the Self-Rental Trap by Anthony Constantine, AICPA Corporate Taxation Insider, 8/28/07
• IRS Audit Technique Guide on 469 (skim) [note that there are some errors in this]

Alternative Minimum Tax - Sections 53 - 59

Video (30 minutes)  +  Powerpoint    [quiz is on Canvas] 

• IRC  53-59
• Joint Committee on Taxation, Blue Book of the Tax Reform Act of 1986, text pages 429-473 (skip the part on the corporate adjustments)
• Joint Committee on Taxation, Overview of 2013 Law (this excerpt explains the AMT as modified by the ATRA2012 and how it fits with other individual taxes)
• Form 6251 - Alternative Minimum Tax - Individuals:  (1) form   (2) instructions
• Form 8801 - Credit for Prior Year Minimum Tax: (1) form   (2) instructions
• Rev. Rul. 2005-11 - home mortgage refinancings
• IRS online AMT calculator
• The 1040 instructions include a worksheet to help individuals know if they need to include Form 6251

Net Operating Losses - Section 172

Video  (37 minutes)  +   Powerpoint file   [quiz on Canvas]

Note - The TCJA changed the carryover years for NOLs (no carryback, indefinite carryforward but cannot reduce taxable income in the carryover year by more than 80%); video has old carryforward rule. There was no change in how an NOL is calculated.

• IRS Pub 536 - Net Operating Losses (NOLs) for Individuals (only need to print page 1 - 18; or read online)
• Read Section 172 (access on RIA or CCH)
• BNA Portfolio #539, Net Operating Losses - Concepts and Computations, sections I. and II.A.   [access through library - here]
• "Carry your losses (further) forward," Journal of Accountancy article on the TCJA changes to NOL carryovers, May 2018
• NOL Carryovers: Loophole or Legit? AICPA Tax Insider, 12/11/08 (reference) 

Miscellaneous Topics

• Student presentation topics - view all prior to the final exam [posted to Canvas]
• Video lecture on Sections 1411 and 469
• IRS FAQs on Section 1411 NIIT
• "Check-in" videos on Canvas - you'll be notified by email when these are posted
  (generally they are posted after homework is submitted to provide a review or to cover recent developments)

Course Review Information (to prepare for final exam)

• Q&A from prior class for review
• Interest expense outline and ppt from a presentation Professor Nellen delivered in Nov 2012 that you may find useful for review - on Canvas (tracing rules have only had one change since 2012 - Reg. 1.163-15 to replace 30 day rule of Notice 89-35; finalized in 2021!)