Itemized deductions are subtractedfom adjusted gross income in arriving at taxable income; they may be claimed in addition to deductions for adjusted gross income (see Q 813). Itemized deductions are also referred to as "below-the-line" deductions.
Before 2010, the aggregate ofmost itemized deductions was reduced dollar-for-dollar by the lesser of: (1) 3% (but see "Adjustments to limit"below) of the amount of the individual's adjusted gross income that exceeded $166,800 in 2009 ($83,400 in 2009 in the case of a married taxpayer filing separately); or (2) 80% of the amount of such itemized deductions otherwise allowable for the taxable year. (1) The threshold income amounts at which the limit was imposed were adjusted annually for inflation. (2)
Adjustments to limit: For taxable years beginning after 2005 the limitation on itemized deductions was gradually reduced until it was completely repealed in 2010. The amended limitation amount was calculated by multiplying the otherwise applicable limitation amount by the "applicable fraction." The "application fraction" for each year was as follows: 66.6% (2/3) in 2006 and 2007; 33.3% (1/3) in 2008 and 2009; and 0% in 2010. (3) Note that the reduction of itemized deductions is scheduled to return for the 2011 tax year.
The limitation on itemized deductions is not applicable to medical expenses deductible under IRC Section 213, investment interest deductible under IRC Section 163(d), or certain casualty loss deductions. (4) The limitation also is not applicable to estates and trusts. (5) For purposes of certain other calculations, such as the limits on deduction of charitable contributions or the 2% floor on miscellaneous itemized deductions, the limitations on each separate category of deductions are applied before the overall ceiling on itemized deductions is applied. (6) The deduction limitation is not taken into account in the calculation of the alternative minimum tax. (7)
Among the itemized deductions taxpayers may be able to claim are the following:
... Interest, within limits (see Q 823).
... Personal taxes of the following types: state, local and foreign real property taxes; state and local personal property taxes; state, local and foreign income, war profits, and excess profits taxes; the generation-skipping tax imposed on income distributions; and sales taxes on certain motor vehicles. If taxes other than these are incurred in connection with the acquisition or disposition of property, they must be treated as part of the cost of such property or as a reduction in the amount realized on the disposition. (8)
... Uncompensated personal casualty and theft losses. But these are deductible only to the extent that the aggregate amount of uncompensated losses in excess of $100 (for each casualty or theft) exceeds 10% of adjusted gross income.The $100 amount increased to $500 for 2009 only. (9) The taxpayer must file a timely insurance claim for damage to property that is not business or investment property or else the deduction is disallowed to the extent that insurance would have provided compensation. (1) Uncompensated casualty and theft losses in connection with a taxpayer's business or in connection with the production of income are deductible in full (see Q 813).
... Contributions to charitable organizations, within certain limitations (see Q 824, Q 825).
... Unreimbursed medical and dental expenses and expenses for the purchase of prescribed drugs or insulin incurred by the taxpayer for himself and his spouse and dependents, to the extent that such expenses exceed 7.5% of his adjusted gross income (see Q 826).
... Expenses of an employee connected with his employment. Generally, such expenses are "miscellaneous itemized deductions" (see Q 822).
... Federal estate taxes and generation-skipping transfer taxes paid on "income in respect of a decedent" (see Q 827).
Generally, certain moving expenses permitted under IRC Section 217 are deductible directly from gross income (see Q 813).
Sales tax deduction. In 2004 through 2009, individuals are permitted to deduct state and local sales taxes instead of state and local income taxes.2 For a deduction from gross income for state sales tax on new vehicles in 2009, see Q 813.
822. What are miscellaneous itemized deductions? What limits apply?
"Miscellaneous itemized deductions" are deductions from adjusted gross income ("itemized deductions") other than the deductions for: (1) interest; (2) taxes; (3) non-business casualty losses and gambling losses; (4) charitable contributions; (5) medical and dental expenses; (6) impairment-related work expenses for handicapped employees; (7) estate taxes on income in respect of a decedent; (8) certain short sale expenses; (9) certain adjustments under the Code's claim of right provisions; (10) unrecovered investment in an annuity contract (see Q 7); (11) amortizable bond premium; and (12) certain expenses of cooperative housing corporations. (3)
"Miscellaneous itemized deductions" are allowed only to the extent that the aggregate of all such deductions for the taxable year exceeds 2% of adjusted gross income. (4) For tax years beginning before 2010, miscellaneous itemized deductions are also subject to the reduction for certain upper income taxpayers (see Q 821).
Miscellaneous itemized deductions generally include unreimbursed employee business expenses, such as professional society dues or job hunting expenses, and expenses for the production of income, such as investment advisory fees or the cost for storage of taxable securities in a safe deposit box. (5) Expenses that relate to both a trade or business activity and a production of income or tax preparation activity (see Q 814) must be allocated between the activities on a reasonable basis. (6)
The Code prohibits the indirect deduction, through pass-through entities, of amounts (i.e., miscellaneous itemized deductions) that would not be directly deductible by individuals. (7) However, publicly offered mutual funds are not subject to this rule, and "pass-through entity," for this purpose, does not include estates, trusts (except for certain common trust funds established by banks) cooperatives or real estate investment trusts. (1) Affected pass-through entities (including partnerships, S corporations, nonpublicly offered mutual funds and REMICs) must generally allocate to each investor his respective share of such expenses; the investor must then take the items into account for purposes of determining his taxable income and deductible expenses, if any. (2)
823. Is interest deductible?
The deductibility of interest depends on its classification, as described below. Furthermore, interest expense that is deductible under the rules below may be subject to the additional limitation on itemized deductions described in Q 821 (unless it is investment interest, which is not subject to that provision). Interest must be classified and is deductible within the following limitations:
(1) Investment interest. This includes any interest expense on indebtedness properly allocable to property held for investment. (3) Generally, investment interest is deductible only to the extent of investment income; however, investment interest in excess of investment income may be carried over to succeeding tax years. Under JGTRRA 2003, certain dividends are taxable at 15% rather than at higher ordinary income tax rates. See Q 815, Q 828. A dividend will be treated as investment income for purposes of determining the amount of deductible investment interest income only if the taxpayer elects to treat the dividend as not being eligible for the reduced rates. (4) For the temporary regulations relating to an election that may be made by noncorporate taxpayers to treat qualified dividend income as investment income for purposes of calculating the deduction for investment interest, see Treas. Reg. [section] 1.163(d)-1. (5)
(2) Trade or business interest. This includes any interest incurred in the conduct of a trade or business. Generally, such interest is deductible as a business expense. (6)
(3) Qualified residence interest. Qualified residence interest is interest paid or accrued during the taxable year on debt that is secured by the taxpayer's qualified residence and that is either (a) "acquisition indebtedness" (that is, debt incurred to acquire, construct or substantially improve the qualified residence, or any refinancing of such debt), or (b) "home equity indebtedness" (any other indebtedness secured by the qualified residence). There is a limitation of $1,000,000 on the aggregate amount of debt that may be treated as acquisition indebtedness, but the amount of refinanced debt that may be treated as acquisition indebtedness is limited to the amount of debt being refinanced. The aggregate amount that may be treated as "home equity indebtedness" (that is, borrowing against the fair market value of the home less the acquisition indebtedness, or refinancing to borrow against the "equity" in the home) is $100,000. (7) Indebtedness incurred on or before October 13, 1987 (and limited refinancing of it) that is secured by a qualified residence is considered acquisition indebtedness.This pre-October 14, 1987 indebtedness is not subject to the $1,000,000 aggregate limit, but is included in the aggregate limit as it applies to indebtedness incurred after October 13, 1987. (8) (For 2007 through 2010, certain mortgage insurance premiums are treated as qualified residence interest. (9))
A "qualified residence" is the taxpayer's principal residence and one other residence that the taxpayer (a) used during the year for personal purposes more than 14 days or, if greater, more than 10% of the number of days it was rented at a fair rental value, or (b) used as a residence but did not rent during the year. (1)
Subject to the above limitations, qualified residence interest is deductible. If indebtedness used to purchase a residence is secured by property other than the residence, the interest incurred on it is not residential interest but is personal interest. (2) The Tax Court denied a deduction for mortgage interest to individuals renting a home under a lease with an option to purchase the property; although the house was their principal residence, they did not have legal or equitable title to the home and the earnest money did not provide ownership status. (3) An individual member of a homeowner's association was denied a deduction for interest paid by the association on a common building because the member was not the party primarily responsible for repaying the loan and the member's principal residence was not the specific security for the loan. (4) Assuming that the loan was otherwise a bona fide debt, a taxpayer could deduct interest paid on a mortgage loan from his qualified plan, even though the amount by which the loan exceeded the $50,000 limit of IRC Section 72(p) was deemed to be a taxable distribution. (5)
(4) Interest taken into account in computing income or loss from a passive activity. A passive activity is generally an activity that involves the conduct of a trade or business but in which the taxpayer does not materially participate, or any rental activity. (6)
(5) Interest on extended payments of estate tax. Generally, this interest is deductible. See Q 851.
(6) Interest on education loans. An above-the-line deduction is available to certain taxpayers for interest paid on a "qualified education loan." (7) The deduction is subject to a limitation of $2,500 in 2010. The deduction is phased out over an income range of $30,000 for taxpayers with modified adjusted gross income (MAGI--see below) above $120,000 (married filing jointly) and over an income range of $15,000 for taxpayers with MAGI above $60,000 (single). The deduction is fully phased out at $150,000 for married taxpayers filing jointly and at $75,000 for other taxpayers. (8) Certain other requirements must be met for the deduction to be available. (9)
(7) Personal interest. This is any interest expense not described in (1) through (6) above and is often referred to as "consumer" interest. (10) Personal interest includes interest on indebtedness properly allocable to the purchase of consumer items, and interest on tax deficiencies. Personal interest is not deductible. (11)
The proper allocation of interest generally depends on the use to which the loan proceeds are put, except in the case of qualified residence interest. Detailed rules for classifying interest by tracing the use of loan proceeds are contained in temporary regulations. (12) The interest allocation rules apply to interest expense that would otherwise be deductible. (13)
Various provisions in the Code may prohibit or delay the deduction of certain types of interest expense. For example, no deduction is allowed for interest paid on a loan used to buy or carry taxexempt securities or, under certain conditions, for interest on a loan used to purchase or carry a life insurance or annuity contract (see Q 247).
824. What is the maximum annual limit on the income tax deduction allowable for charitable contributions?
An individual who itemizes may take a deduction for certain contributions "to" or "for the use of" charitable organizations. The amount that may be deducted by an individual in any one year is subject to the income percentage limitations as explained below. The value that may be taken into account for various gifts of property depends on the type of property and the type of charity to which it is contributed; these rules are explained under separate headings below.
For an explanation of the phaseout of the deduction for certain upper income taxpayers, see Q 821. For an explanation of the deduction for charitable gifts of life insurance, see Q 284. For an explanation of the deduction for a contribution of a remainder interest or income interest in trust, see Q 825.
Income Percentage Limits
Fifty percent limit. An individual is allowed a charitable deduction of up to 50% of his adjusted gross income for a charitable contribution to: churches; schools; hospitals or medical research organizations; organizations that normally receive a substantial part of their support from federal, state, or local governments or from the general public and that aid any of the above organizations; federal, state, and local governments. Also included in this list is a limited category of private foundations (i.e., private operating foundations and conduit foundations (1)) that generally direct their support to public charities. (2) The above organizations are often referred to as "50%-type charitable organizations."
Thirty percent limit.The deduction for contributions of most long-term capital gain property to the above organizations, contributionsfor the use of any of the above organizations, as well as contributions (other than long-term capital gain property) to orfor the use of any other types of charitable organizations (i.e., most private foundations) is limited to the lesser of (a) 30% of the taxpayer's adjusted gross income, or (b) 50% of adjusted gross income minus the amount of charitable contributions allowed for contributions to the 50%-type charities. (3)
Twenty percent limit. The deduction for contributions of long-term capital gain property to most private foundations (see below) is limited to the lesser of (a) 20% of the taxpayer's adjusted gross income, or (b) 30% of adjusted gross income minus the amount of charitable contributions allowed for contributions to the 30%-type charities. (4)
Deductions denied because of the 50%, 30% or 20% limits may be carried over and deducted over the next five years, retaining their character as 50%, 30% or 20% type deductions. (5)
Gifts are "to" a charitable organization if made directly to the organization. "For the use of" applies to indirect contributions to a charitable organization (e.g., an income interest in property, but not the property itself; see Q 825). (6) The term "for the use of" does not refer to a gift of the right to use property. Such a gift would generally be a nondeductible gift of less than the donor's entire interest.
Gifts of Long-term Capital Gain Property
If an individual makes a charitable contribution to a 50%-type charity of property the sale of which would have resulted in long-term capital gain (other than certain tangible personal property, see below), he is generally entitled to deduct the full fair market value of the property, but the deduction will be limited to 30% of adjusted gross income. (1)
Long-term capital gain property. "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." (2)
Any portion of a gift of long-term capital gain property to a 50%-type organization that is disallowed as a result of the adjusted gross income limitation may be carried over for five years, retaining its character as a 30% type deduction. (3)
A taxpayer may elect in any year to have gifts of long-term capital gain property be subject to a 50% of adjusted gross income limit; if he does so, the gift is valued at the donor's adjusted basis. Once made, such an election applies to all contributions of capital gain property during the taxable year (except unrelated use gifts of appreciated tangible personal property, as explained below) and is generally irrevocable for that year. (4)
Gifts of Tangible Personal Property
The treatment of a contribution of appreciated tangible personal property (i.e., property which, if sold, would generate long-term capital gain) depends on whether the use of the property is related or unrelated to the purpose or function of the (public or governmental) organization. If the property is related use property (e.g., a contribution of a painting to a museum), generally the full fair market value is deductible, up to 30% of the individual's adjusted gross income; however, if the property is unrelated use property, the deduction is generally limited to the donor's adjusted basis. (5)
Gifts to Private Foundations
Most private foundations are family foundations subject to restricted contribution limits. Certain other private foundations (i.e., conduit foundations and private operating foundations), which operate much like public charities, are treated as 50%-type organizations. (6) The term "private foundations" as used under this heading refers to standard private (e.g., family) foundations.
The amount of the deduction for a contribution of appreciated property (tangible or intangible) contributed to or for the use of private foundations generally is limited to the donor's adjusted basis; however, certain gifts of qualified appreciated stock made to a private foundation are deductible at their full fair market value. (7)
Qualified appreciated stock is generally publicly traded stock which, if sold on the date of contribution at its fair market value, would result in a long-term capital gain. (8) Such a contribution will not constitute qualified appreciated stock to the extent that it exceeds 10% of the value of all outstanding stock of the corporation; family attribution rules apply in reaching the 10% level. (1) The Service has determined that shares in a mutual fund can constitute qualified appreciated stock. (2)
Other Gifts of Property
The deduction for any charitable contribution of property is reduced by the amount of gain that would not be long-term capital gain if the property were sold at its fair market value at the time of the contribution. (3)
In the case of a gift of S corporation stock, special rules (similar to those relating to the treatment of unrealized receivables and inventory items under IRC Section 751) apply in determining whether gain on such stock is long-term capital gain for purposes of determining the amount of a charitable contribution. (4)
A contribution of a partial interest in property is deductible only if the donee receives an undivided portion of the donor's entire interest in the property. Such a contribution was upheld even where the donee did not take possession of the property during the tax year. (5) Generally, a deduction is denied for the mere use of property or for any interest which is less than the donor's entire interest in the property, unless the deduction would have been allowable if the transfer had been in trust.
No charitable deduction is allowed for a contribution of a cash, check, or other monetary gift unless the donor maintains either a bank record or a written communication from the donee showing the name of the organization and the date and the amount of the contribution. (6)
Charitable contributions of $250 or more (whether in cash or property) must be substantiated by a contemporaneous written acknowledgment of the contribution supplied by the charitable organization. Substantiation is not required if certain information is reported on a return filed by the charitable organization. (7) (An organization can provide the acknowledgement electronically, such as via an e-mail addressed to the donor. (8)) Special rules apply to the substantiation and disclosure of quid pro quo contributions and contributions made by payroll deduction. (9) A qualified appraisal is generally required for contributions of nonreadily valued property for which a deduction of more than $5,000 is claimed. (10)
No charitable deduction is allowed for a contribution of clothing or a household item unless the property is in good or used condition. Regulations may deny a deduction for a contribution of clothing or a household item which has minimal monetary value. These rules do not apply to a contribution of a single item if a deduction of more than $500 is claimed and a qualified appraisal is included with the return. Household items include furniture, furnishings, electronics, linens, appliances, and similar items; but not food, art, jewelry, and collections. (11)
Special rules apply to certain types of gifts, including charitable donations of patents and intellectual property, and for donations of used motor vehicles, boats, and airplanes. (12)
825. Can a charitable deduction be taken for a contribution in trust of a remainder interest or a lead interest in property?
Yes, if certain requirements are met. An individual may make an immediately deductible gift in trust to a charity, but keep (or give to another person or persons) the right to receive regular payments from the trust, for life or a period of years, before the charity receives any amount. To receive this special treatment, the gift must be made to a charitable remainder trust, defined below, or to a pooled income fund. (1) Any individual beneficiaries must be alive when the trust is created. To be immediately deductible, the gift must be of real property or intangibles; a gift of a remainder interest in tangible personal property is deductible only when all intervening interests have expired or are held by parties unrelated to the donor. (2) The IRC also permits a deduction for a gift of an annuity or unitrust interest, generally referred to as a charitable lead trust (see below). (3)
The Code narrowly defines these trusts in order to assure that an accurate determination can be made of the value of the contribution.
A charitable remainder unitrust provides to a noncharitable beneficiary a variable payout based on the annual valuation of the trust assets.The payout is paid at least annually to a noncharitable beneficiary or beneficiaries, and must generally be a fixed percentage of not less than 5% and not more than 50% of the net fair market value of the trust assets. (4) Furthermore, the value of the remainder interest in property contributed to a unitrust must be at least 10% of the net fair market value of each contribution as of the date the property is contributed to the unitrust. (Different rules applied to transfers in trust and wills executed before July 29, 1997.) (5)
The trust instrument may limit the payout to the net income of the trust, with any deficiency to be made up in later years; this is commonly referred to as a net income unitrust. Since the trust is valued annually, the donor may make additional contributions to the trust. The payout may extend for a term of up to 20 years, or if the beneficiary is an individual, for life (or the lives of more than one beneficiary). Generally, no payments other than those described above may be made to anyone other than a qualified charity. (6) Following the termination of all payments, the remainder interest generally is transferred to the charity or retained by the trust for the benefit of the charity. (7)
A charitable remainder annuity trust provides to a noncharitable beneficiary a fixed payout at least annually of not less than 5% and not more than 50% of the initial net fair market value of all property placed in the trust. (8) The value of a remainder interest in property contributed to an annuity trust generally must be at least 10% of the initial fair market value of all property placed in the trust. (Different rules applied to transfers in trust and wills executed before July 29, 1997.) (9)
Because the payout amount is fixed at the inception of the trust, valuation occurs only once, and the payout cannot be limited to the net income of the trust. Furthermore, the donor cannot make additional payments to the trust. The payments may extend for a term of up to 20 years or, if the beneficiary is an individual, for life (or the lives of more than one beneficiary). No payments other than those described may be made to anyone other than a qualified charity. (10) Following the termination of all payments, the remainder interest is generally transferred to the charity or retained by the trust for the benefit of the charity. (1)
The IRS and Treasury Department have issued guidance providing a safe harbor procedure to avoid the disqualification of a charitable remainder trust (CRAT or CRUT) if, under applicable state law, the grantor's surviving spouse has a right of election exercisable upon the grantor's death to receive an elective, statutory share of the grantor's estate, and that share could be satisfied in whole or part from assets of the CRAT or CRUT (in violation of IRC Section 664(d)).2 The Service extended the grandfather date until further guidance is issued by the IRS. So, for now, no waiver of the spousal election is needed. But actual exercise of the right of election will cause the CRT to fail to qualify, probably resulting in recapture of taxes, with interest and penalties. In the meantime, the Service is reconsidering the waiver and other alternative safe harbors where the spouse has a right of election against a CRT. (3)
A pooled incomefund is a trust maintained by the charity into which each donor transfers property and from which each named beneficiary receives an income interest. The remainder interest ultimately passes to the charity that maintains the fund. All contributions to a pooled income fund are commingled, and all transfers to it must meet the requirements for an irrevocable remainder interest. The pooled income fund cannot accept or invest in tax-exempt securities, and no donor or beneficiary of an income interest can be a trustee of the fund. The income to the beneficiaries is determined by the rate of return earned by the trust each year. (4)
A charitable lead trust is essentially the reverse of a charitable remainder trust; the donor gives an annuity or unitrust interest to the charity, with the remainder reverting to the donor (or his named beneficiaries). Such trusts are commonly called charitable "lead" trusts because the first or leading interest is in the charitable donee. Even though a gift of such an interest in property is less than the entire interest of the donor, its value will be deductible if the interest is in the form of a "guaranteed annuity interest" or a "unitrust interest." (5)
A guaranteed annuity interest is an irrevocable right to receive at least annually payment of a determinable amount. A unitrust interest is an irrevocable right to receive payment at least annually of a fixed percentage of the fair market value of the trust assets, determined annually. In either case, payments may be made to the charity for a term of years or over the life or lives of an individual (who is living at the date of the transfer to the trust). (6) One or more of only the following individuals may be used as measuring lives: (1) the donor; (2) the donor's spouse; (3) a lineal ancestor of all the remainder beneficiaries; or (4) the spouse of a lineal ancestor of all the remainder beneficiaries. A trust will satisfy the requirement that all remainder beneficiaries are lineal descendants of the individual who is the measuring life (or that individual's spouse) if there is less than a 15% probability that individuals who are not lineal descendants will receive any trust corpus. (7)
A guaranteed annuity may be made to continue for the shorter of a term of years or lives in being plus a term of years. (8) After termination of the income interest, the remainder interest in the property is returned to the donor or his designated beneficiaries.
826. What are the limits on the medical expense deduction?
A taxpayer who itemizes deductions can deduct unreimbursed expenses for "medical care" (the term "medical care" includes dental care) and expenses for prescribed drugs or insulin for himself, his spouse and his dependents, to the extent that such expenses exceed 7.5% of his adjusted gross income. (On a joint return, the 7.5% floor is based on the combined adjusted gross income of husband and wife.) The taxpayer first determines his net unreimbursed expenses by subtracting all reimbursements received during the year from total expenses for medical care paid during the year. He must then subtract 7.5% of his adjusted gross income from net unreimbursed medical expenses; only the balance, if any, is deductible. (1) The deduction for medical expenses is not subject to the reduction in itemized deductions for certain upper income taxpayers. (See Q 821.) For more details on the deduction of health insurance premiums, see Q 154.
"Medical care" is defined as amounts paid: (a) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body; (b) for transportation primarily for and essential to such medical care; (c) for qualified long-term services; or (d) for insurance covering such care or for any qualified long-term care insurance contract. (2)
The term "medical care" does not include cosmetic surgery or other similar procedures unless necessary to correct a deformity resulting from a congenital abnormality, a personal injury resulting from accident or trauma, or a disfiguring disease. (3) But see Al-Murshidi v. Comm. (4) (the surgical removal of excess skin from a formerly obese individual was not "cosmetic surgery" for purposes of IRC Section 213(d)(9)(A) because the procedures meaningfully promoted the proper function of the individual's body and treated her disease; thus, the costs of the surgical procedures were deductible despite the "cosmetic surgery" classification given to the procedures by the surgeon).
A taxpayer can deduct the medical expenses he pays for a dependent (within the specified limits) even though he is not entitled to a dependency exemption. The fact that the dependent's income exceeds $3,650 (in 2010) for the year is immaterial so long as the taxpayer has furnished over one-half of his support. A child of parents who are divorced (or in some situations, separated) and who between them provide more than one-half of the child's support for the calendar year and have custody of the child for more than one-half of the calendar year will be treated as a dependent of both parents for purposes of this deduction. (5) But in the case of a multiple support agreement, only the person designated to take the dependency exemption may deduct the dependent's medical expenses, and then only to the extent that he actually paid the expenses. (6) See Q 820.
Deductible medical expenses include amounts paid for lodging, up to $50 per individual per night, while away from home primarily for and essential to medical care if such care is provided by a physician in a licensed hospital (or similar medical care facility) and there is no element of personal pleasure, recreation or vacation in the travel away from home. No deduction is allowed if the lodgings are "lavish or extravagant." (7) A mother was permitted to deduct lodging expenses incurred when her child was receiving medical care away from home and her presence was essential to such care. (8) A parent's costs of attending a medical conference (i.e., registration fee, transportation costs) to obtain information about a chronic disease affecting the parent's child were deductible so long as the costs were primarily for and essential to the medical care of the dependent. However, the costs of meals and lodging incurred by the parent while attending the conference were not deductible. (9) The Service privately ruled that taxpayers could deduct special education tuition for their children as a medical care expense where the children attended a school primarily to receive medical care in the form of special education and in those years each child had been diagnosed as having a medical condition that handicapped the child's ability to learn. (1)
Generally, medical expenses are deductible only in the year they are paid, regardless of when the expenses were incurred. (But see Zipkin v. U.S., (2) holding that expenses incurred by a taxpayer to build a home to meet his wife's special health needs were properly deducted in the year the home became habitable, even though the costs had been paid in earlier years.) Costs paid by parents to modify a van used to transport their handicapped child were deductible in the year those costs were paid; however, the court held that depreciation was not a deductible medical expense. (3) However, medical expenses of a decedent paid out of his estate within one year from date of death are considered paid by the decedent at the time the expenses were incurred. (4) A decedent's medical expenses cannot be taken as an income tax deduction unless a statement is filed waiving the right to deduct them for estate tax purposes. Amounts not deductible under IRC Section 213 may not be treated as deductible medical expenses for estate tax purposes. Thus, expenses that do not exceed the 7.5% floor are not deductible. (5)
The Social Security hospital tax that an individual pays as an employee or self-employed person cannot be deducted as a medical expense. (6) But a 65-year-old who has signed up for the supplementary medical plan under Medicare can treat his monthly premiums as amounts paid for insurance covering medical care. See Q 154. (7)
The unreimbursed portion of an entrance fee for life care in a residential retirement facility that is allocable to future medical care is deductible as a medical expense in the year paid (but, if the resident leaves the facility and receives a refund, the refund is includable in gross income to the extent it is attributable to the deduction previously allowed). (8) Either the percentage method or the actuarial method may be used to calculate the portions of monthly service fees (paid for lifetime residence in a continuing care retirement community) allocable to medical care. (9) But a federal district court held that none of an entrance fee paid by married taxpayers to an assisted living facility was properly deductible as a medical expense because: (1) no portion of the entrance fee was attributable to the couple's medical care; and (2) the entrance fee was structured as a loan, which cannot serve as the basis for a deduction. (10)
Amounts paid by an individual for medicines and drugs, which can be purchased without a doctor's prescription, are not deductible. (11) However, amounts paid by an individual for equipment (e.g., crutches), supplies (e.g., bandages), or diagnostic devices (e.g., blood sugar test kits) may qualify as amounts paid for medical care and may be deductible under IRC Section 213. (In this ruling, the IRS determined that the crutches were used to mitigate the effect of the taxpayer's injured leg and the blood sugar test kits were used to monitor and assist in treating the taxpayer's diabetes.) (12)
The costs of nutritional supplements, vitamins, herbal supplements, and "natural medicines" cannot be included in medical expenses unless they are recommended by a doctor as treatment for a specific medical condition diagnosed by a doctor. (1) Certain expenses for smoking cessation programs and products are deductible as a medical expense. (2)
Amounts paid by individuals for breast reconstruction surgery following a mastectomy for cancer, and for vision correction surgery are medical care expenses and are deductible. But amounts paid by individuals to whiten teeth discolored as a result of age are not medical care expenses and are not deductible. (3)
Costs paid by individuals for participation in a weight-loss program as treatment for a specific disease or diseases (e.g., obesity, hypertension, or heart disease) diagnosed by a physician are deductible as medical expenses; however, costs of diet food are not deductible. (4) According to Publication 502 (2008), this includes fees paid by a taxpayer for membership in a weight reduction group and attendance at periodic meetings. Membership dues for a gym, health club, or spa cannot be included in medical expenses, but separate fees charged for weight loss activities can be included as medical expenses. In informational guidance, the IRS has also stated that taxpayers may deduct exercise expenses, including the cost of equipment to use in the home, if required to treat an illness (including obesity) diagnosed by a physician. For an exercise expense to be deductible, the taxpayer must establish the purpose of the expense is to treat a disease rather than to promote general health, and that the taxpayer would not have paid the expense but for this purpose. (5)
Expenses for childbirth classes were deductible as a medical expense to the extent that the class prepared the taxpayer for an active role in the process of childbirth. (6) Egg donor fees and expenses relating to obtaining a willing egg donor count as medical care expenses that are deductible. (7)
The Service has clarified that no deduction is allowed for the cost of prescription drugs illegally imported from Canada. (8)
827. What is income in respect of a decedent and how is it taxed? Is the recipient entitled to an income tax deduction for estate and generation-skipping transfer taxes paid on this income?
"Income in respect of a decedent" (IRD) refers to those amounts to which a decedent was entitled as gross income, but which were not includable in his taxable income for the year of his death. (9) It can include, for example: renewal commissions of a sales representative (see Q 803); payment for services rendered before death or under a deferred compensation agreement (see Q 135); and, proceeds from sales on the installment method (see Q 806). Effective for decedents dying after August 20, 1996, if stock is acquired in an S corporation from a decedent, the pro rata share of any income of the corporation that would have been IRD if that item had been acquired directly from the decedent is IRD. (10)
The IRS has determined that a distribution from a qualified plan of the balance as of the employee's death is IRD. (11) The Service has also privately ruled that a distribution from a 403(b) tax sheltered annuity is IRD. (12) It also concluded that a death benefit paid to beneficiaries from a deferred variable annuity would be IRD to the extent that the death benefit exceeded the owner's investment in the contract. (1) In addition, the Service has determined that distributions from a decedent's individual retirement account were IRD, including the portion of each distribution used to satisfy the decedent's estate tax obligation, since the individual retirement account was found to have automatically vested in the beneficiaries at the time of the decedent's death. (2) However, a rollover of funds from a decedent's IRA to a marital trust and then to the surviving spouse's IRA was not IRD where the surviving spouse was the sole trustee and sole beneficiary of the trust.
The proceeds from the sale of real property where the decedent had failed to perform all of the substantial preconditions to the sale prior to death were not IRD. (3) Gain realized up on the cancellation at death of a note payable to a decedent has been held to be IRD to the decedent's estate.4 Payment of an alimony arrearage to the estate of a former spouse was also IRD. (5)
Generally IRD must be included in the gross income of the recipient; however, a deduction is normally permitted for estate and generation-skipping transfer taxes paid on the income.The amount of the total deduction is determined by computing the federal estate tax (or generation-skipping transfer tax) with the net IRD included and then recomputing the tax with the net IRD excluded. The difference in the two results is the amount of the income tax deduction. However, if two or more persons receive IRD of the same decedent, each recipient is entitled to only a proportional share of the income tax deduction. Similarly, if the IRD is received over more than one taxable year, only a proportional part of the deduction is allowable each year. A beneficiary was allowed to claim a deduction for IRD attributable to annuity payments that had been received even though the estate tax had not yet been paid. (6)
Where the income would have been ordinary income in the hands of the decedent, the deduction is an itemized deduction. (7) The recipient does not receive a stepped up basis. (8) See Q 816.
The Service has ruled that if the owner-annuitant of a deferred annuity contract dies before the annuity starting date, and the beneficiary receives a death benefit under the annuity contract, the amount received by the beneficiary in a lump sum in excess of the owner-annuitant's investment in the contract is includible in the beneficiary's gross income as IRD. If the death benefit is instead received in the form of a series of periodic payments, the amounts received are likewise includible in the beneficiary's gross income in an amount determined under IRC Section 72 as IRD. (9) See, e.g., Let. Rul. 200537019 (where the Service ruled that the amount equal to the excess of the contract's value over the decedent's basis, which would be received by the estate as the named beneficiary of the contract upon surrender of the contract, would constitute IRD includible by the estate in its gross income; however, the estate would be entitled to a deduction for the amounts of IRD paid to charities in the taxable year, or for the remaining amounts of IRD that would be set aside for charitable purposes).
The Tax Court determined that because a signed withdrawal request from the decedent constituted an effective exercise of the decedent's right to a lump-sum distribution during his lifetime, the lump-sum distribution from TIAA-CREF was therefore income to the decedent and properly includable in the decedent's income. Accordingly, the court held, the lump sum payment received by the decedent's son was not a death benefits payment and, thus, was not includable in the son's gross income as IRD. (10)
In Estate of Kahn, (1) the Tax Court held that in computing the gross estate value, the value of the assets held in the IRAs is not reduced by the anticipated income tax liability following the distribution of IRAs, in part because IRC Section 691(c) addresses the potential double tax issue. The Tax Court further held that a discount for lack of marketability is not warranted because the assets in the IRAs are publicly traded securities. Payment of the tax upon distribution is not a prerequisite to making the assets in the IRA marketable; consequently there is no basis for the discount. In technical advice the Service has also determined that a discount for lack of marketability is not available to an estate where the deduction for IRD is available to mitigate the potential income tax liability triggered by the IRD assets. (2)
828. What are the federal income tax rates for individuals?
EGTRRA 2001 reduced income tax rates above 15% for individuals, trusts and estates. EGTRRA 2001 also provided for subsequent rate reductions to occur in 2004 and 2006. (3) JGTRRA 2003 accelerated the reductions that were scheduled to occur in 2004 and 2006. Thus, for 2003 and thereafter, the income tax rates above 15% are lowered to 25%, 28%, 33% and 35% (down from 27%, 30%, 35%, and 38.6%). (4)
The income brackets to which each rate applies depend upon whether a separate return, joint return, head-of-household return, or single return is filed. (For an explanation of which taxpayers may file jointly or as a head-of-household, see Q 830 and Q 831.) Children under the age of 19 are generally taxed on unearned income at their parent's marginal rate (see Q 818). (5) The income brackets are indexed annually for inflation.6 Separate tax rates may apply to capital gains (see Q 815).
Larger 10% tax bracket effective through 2010. EGTRRA created a new 10% bracket that applied to the first $12,000 of taxable income for married individuals filing jointly, $6,000 for single individuals, and $10,000 for heads of households. EGTRRA 2001 also provided a scheduled increase, beginning in 2008, under which the $6,000 level would have increased to $7,000, and the $12,000 level would have increased to $14,000 (with those levels to be adjusted annually for inflation for taxable year beginning after December 31, 2008). JGTRRA 2003 accelerated the scheduled increases to 2003 and 2004. Consequently, in 2004 the taxable income levels (as indexed) were: $14,300 for married individuals filing jointly; $7,150 for single individuals and married individuals filing separately; and $10,200 for heads of households. (7) (See Income TaxTables, Appendix B.) For 2005 through 2010, the 10% brackets were scheduled to revert to the levels provided under EGTRRA 2001.Thus, in 2005 through 2007 the income levels would have dropped to $12,000 for married individuals filing jointly, $6,000 for single individuals, and $10,000 for heads of households. Not until 2008 would the income levels for the 10% brackets have once again increased to $14,000 for married individuals filing jointly and $7,000 for single individuals (with annual adjustments for inflation beginning after December 31, 2008).
WFTRA 2004 extended the expanded 10% brackets through 2010 at the 2003 levels (i.e., $14,000 for married individuals filing jointly, $7,000 for single individuals), with annual indexing from 2003. (8) In 2010, the indexed 10% brackets are $16,750 (married filing jointly), $8,375 (single and married filing separately), and $11,950 (head of household). (9)
The 10% tax bracket will "sunset" (expire) for tax years beginning after December 31, 2010, at which time the 10% tax bracket will be eliminated and the portion of the income that was taxed in the 10% bracket will once again be subject to taxation in the 15% bracket. (1)
"Marriagepenalty"relief. EGTRRA 2001 increased the size of the 15% bracket for married couples filing joint returns to twice the size of the corresponding bracket for unmarried individuals filing single returns, phasing in the increase over four years, beginning in 2005. JGTRRA 2003 accelerated those increases, making the size of the 15% bracket for married individuals filing jointly equal to twice the size of the corresponding bracket for unmarried individuals filing single returns for taxable years beginning in 2003 and 2004. For taxable years beginning after 2004, the applicable percentages were scheduled to revert to those provided under EGTRRA 2001. Under WFTRA 2004, the 15% bracket for married individuals filing jointly is twice the size (200%) of the corresponding bracket for unmarried individuals filing single returns for tax years beginning after December 31, 2003. (2) The larger 15% bracket for married individuals filing jointly will "sunset" (expire) for taxable years beginning after December 31, 2010, at which time the tax bracket that was in effect prior to the enactment of EGTRRA 2001 will become effective (i.e., the 15% bracket for single individuals will, once again, be 160% of the 15% bracket for married individuals filing jointly). (3)
829. What is the alternative minimum tax?
In addition to the tax calculated under the normal rates, it is sometimes necessary for a taxpayer to pay the alternative minimum tax (AMT).The AMT is calculated by first determining the alternative minimum taxable income (AMTI), reducing this amount by the allowable exemption to determine taxable excess, and then applying a two-tier tax rate schedule to the amount of the taxable excess. The two-tier rate schedule applies a 26% rate to taxable excess that does not exceed $175,000 ($87,500 for married taxpayers filing separately), and a 28% rate to taxable excess over that amount. The resulting amount is the taxpayer's tentative minimum tax. The preferential tax rates on certain capital gains held for more than twelve months are also used when determining the taxpayer's tentative minimum tax (see Q 815). (4)
If the tentative minimum tax reduced by the AMT foreign tax credit exceeds the regularly calculated tax (with adjustments) for the tax year, the excess is the AMT. Regularly calculated tax for AMT purposes excludes certain taxes including: (1) the alternative minimum tax; (2) the tax on benefits paid from a qualified retirement plan in excess of the plan formula to a 5% owner; (3) the 10% penalty tax for certain premature distributions from annuity contracts; (4) the 10% additional tax on certain early distributions from qualified retirement plans; (5) the 10% additional tax for certain taxable distributions from modified endowment contracts; (6) taxes relating to the recapture of the federal subsidy from use of qualified mortgage bonds and mortgage credit certificates; (7) the additional tax on certain distributions from Coverdell education savings accounts; (8) the 15% additional tax on medical savings account distributions not used for qualified medical expenses; and (9) the 10% additional tax on health savings account distributions not used for qualified medical expenses. Regularly calculated tax is reduced by the foreign tax credit, the Puerto Rico and possession tax credit, and the Puerto Rico economic activity credit. (5)
For tax years from 2000 through 2009, certain nonrefundable personal credits (see Q 832) may be used to reduce the sum of a taxpayer's regular tax liability and AMT liability. (6)
For tax years beginning after 2009, certain nonrefundable personal credits (except for the adoption expenses credit, the child tax credit, and the credit for elective deferrals and IRA contributions) may not reduce a taxpayer's regular tax liability to less than the taxpayer's tentative minimum tax. (1)
Alternative Minimum Taxable Income
Alternative minimum taxable income is taxable income, with adjustments made in the way certain items are treated for AMT purposes, and increased by any items of tax preference. (2) In 2009, a married individual filing a separate return must increase AMTI by the lesser of (a) 25% of the excess of the AMTI over $216,900, or (b) $35,475. After 2009, a married individual filing a separate return must increase AMTI by the lesser of (a) 25% of the excess of the AMTI over $165,000, or (b) $22,500. (3)
Generally, the provisions that apply in determining the regular taxable income of a taxpayer also generally apply in determining the AMTI of the taxpayer. (4) In addition, references to a noncorporate taxpayer's adjusted gross income (AGI) or modified AGI in determining the amount of items of income, exclusion, or deduction must be treated as references to the taxpayer's AGI or modified AGI as determined for regular tax purposes. (5)
Exemption amounts of $70,950 (in 2009; $45,000 after 2009) on a joint return (or for a surviving spouse), $46,200 (in 2009; $33,750 after 2009) on a single return, $35,475 (in 2009; $22,500 after 2009) on a married filing separate return, and $22,500 on an estate or trust return, are available in calculating the taxable excess. These exemption amounts are reduced by 25% of the amount by which the AMTI exceeds $150,000 on a joint return, $112,500 on a single return and $75,000 on a separate return or in the case of an estate or trust. (6) For children subject to the "kiddie tax" (Q 818) the exemption is the lesser of the above amounts or the child's earned income plus $6,700 (as indexed for 2010). (7)
In general, the following adjustments are made to taxable income in computing alternative minimum taxable income: (1) generally, property must be depreciated using a less accelerated method or the straight line method over a period that is longer than that used for regular tax purposes, except that a longer period is not required for property placed in service after 1998; (2) the AMT net operating loss is deductible only up to 90% of AMTI determined without regard to such net operating loss; (3) no deduction is allowed for miscellaneous itemized deductions; (4) generally, no deduction is allowed for state and local taxes unless attributable to a trade or business, or property held for the production of income (recovery of state tax disallowed for AMT purposes in a previous year is not added to AMTI in the year recovered); (5) medical expenses are allowed as a deduction only to the extent such expenses exceed 10% of adjusted gross income; (6) interest on indebtedness secured by a primary or second residence is generally deductible (within dollar limitations) if incurred in acquiring, constructing, or substantially improving the residence; however, the amount of refinanced indebtedness with regard to which interest is deductible is limited to the amount of indebtedness immediately prior to refinancing; (7) no standard deduction is allowed; (8) no deduction for personal exemptions is allowed; (9) the limitation on itemized deductions for upper-income taxpayers does not apply; (10) the taxpayer will include any amount realized due to a transfer of stock pursuant to the exercise of an incentive stock option; (11) AMTI is determined using losses from any tax shelter farm activity (determined by taking into account the AMTI adjustments and tax preferences) only to the extent that the taxpayer is insolvent or when the tax shelter farm activity is disposed of; and (12) passive activity losses (determined by taking into account the adjustments to AMTI and tax preferences) are not allowed in determining AMTI except to the extent that the taxpayer is insolvent. (1)
Items of tax preference that must be added to AMTI include: (1) the excess of depletion over the adjusted basis of property (except in the case of certain independent producers and royalty owners); (2) the excess of intangible drilling costs expensed (other than drilling costs of a nonproductive well) over the amount allowable for the year if the intangible drilling costs had been amortized over a 10 year period to the extent the excess is greater than 65% of the net income from oil, gas, and geothermal properties (with an exception for certain independent producers); (3) tax-exempt interest on specified private activity bonds (but reduced by any deduction not allowed in computing the regular tax if the deduction would have been allowable if the tax-exempt interest were includable in gross income) (ARRA 2009 provides that tax-exempt interest from private activity bonds issued during 2009 and 2010 is not a tax preference); (4) accelerated depreciation or amortization on certain property placed in service before 1987; and (5) seven percent of the amount excluded under IRC Section 1202 (gain on sales of certain small business stock). (2)
Credit for Prior Year Minimum Tax Liability
A taxpayer subject to the AMT in one year may be allowed a minimum tax credit against regular tax liability in subsequent years. The credit is equal to the total of the adjusted minimum taxes imposed in prior years reduced by the amount of minimum tax credits allowable in prior years. However, the amount of the credit cannot be greater than the excess of the taxpayer's regular tax liability (reduced by certain credits such as certain business related credits and certain investment credits) over the tentative minimum tax. The adjusted net minimum tax for any year is the AMT for that year reduced by the amount that would be the AMT if: (1) the only adjustments were those concerning the limitations on certain deductions (such as state taxes, certain itemized deductions, the standard deduction and personal exemptions); and (2) the only preferences were those dealing with depletion, tax-exempt interest, and small business stock. The adjusted net minimum tax is increased by the amount of the qualified electric vehicles credit that was not allowed for that year due to the AMT. For tax years after 2006 and before 2013, if an individual has minimum tax credits that have not been usable for three years, those long-term unused credits may be treated as a refundable credit. (3)
830. Who may file a joint return?
(1) A husband and wife. Gross income and deductions of both spouses are included; however, a joint return may be filed even though one spouse has no income. (2) A widow or widower with a dependent child for two years after the taxable year in which the spouse died. Thus, the surviving spouse with a child continues to get the benefit of joint rates for these two years. But no personal exemption is allowed for the deceased spouse except in the year of death. (4)
831. Who may use head-of-household rates?
An individual who meets the four requirements below.
1. He must be (a) unmarried, or legally separated from his spouse under a decree of divorce or of separate maintenance, or (c) married, living apart from his spouse during the last six months of the taxable year, and maintain as his home a household that constitutes the principal place of abode for a "qualifying child"1 (see Q 820) with respect to whom the individual is entitled to claim a deduction, and with respect to whom the taxpayer furnishes over one-half the cost of maintaining such household during the taxable year. (2)
2. He must maintain as his home a household in which one or more of the following persons lives: (a) a qualifying child (if that individual is unmarried, it is not necessary that he have less than $3,650 (in 2010) of income or that the head-of-household furnish more than one-half his support; if the qualifying child is married, he must qualify as a dependent of the taxpayer claiming head-ofhousehold status or would qualify except for the waiver of the exemption by the custodial parent (see Q 820)), or (b) any other person for whom the taxpayer can claim a dependency exemption except a cousin or unrelated person living in the household. (3) An exception to this rule is made with respect to a taxpayer's dependent mother or father: so long as he maintains the household in which the dependent parent lives, it need not be his home. (4)
3. He must contribute over one-half the cost of maintaining the home. (5)
4. He must not be a nonresident alien. (6)
832. What credits may be taken against the tax?
After rates have been applied to compute the tax, certain payments and credits may be subtracted from the tax to arrive at the amount of tax payable. The refundable credits include taxes withheld from salaries and wages, payments of estimated tax, excess Social Security withheld (two or more employers), the earned income credit, and the 65% health care tax credit for uninsured workers displaced by trade competition. Refundable credits are recoverable regardless of the amount of the taxpayer's tax liability for the taxable year. For 2009 and 2010, the Making Work Pay Credit is available equal to the lesser of (1) 6.2% of earned income or (2) $800 for a joint return and $400 for all others. The credit is reduced by 2% of the taxpayer's modified adjusted gross income in excess of $150,000 for a joint return and $75,000 for all others. The credit is also reduced by certain other benefits provided by ARRA 2009. The credit is not available for nonresident aliens, for persons for whom a personal exemption is claimed on another person's return, or an estate or trust. (7)
The nonrefundable credits are as follows: (1) the personal credits - such as the child and dependent care credit; (8) the credit for the elderly and the permanently and totally disabled (9)--see Q 833), the qualified adoption credit, (10) the Hope Scholarship and Lifetime Learning Credits (11)--see Q 835); the credit for elective deferrals and IRA contributions (the "saver's credit" (12) (which became permanent under PPA 200613); the credit for certain non-business energy property--that is, energy efficient improvements to existing homes (expires December 31, 2007, but is then allowed for property placed in service in 2009) (1); the credit for residential energy efficient property; (2) (2) other non-business credits; and (3) the general business credit. (3) A portion of the child tax credit may be refundable for certain taxpayers (see Q 834). (4)
A first-time homebuyer credit is available for a home purchased after April 8, 2008 and before May 2010 (July 2010 for certain binding contracts) by a first-time homebuyer. For a home purchased after November 6, 2009: the dollar limit is $8,000 ($4,000 (for a married individual filing separate); the credit is phased out based on AGI of $125,000 to $145,000 ($225,000 to $245,000 for a joint return); and a lesser credit may be available for long-time residents of the same principal residence. For a home purchased in 2008, the credit is recaptured over a 15-year period starting with the second year after purchase. For a home purchased in 2009 or 2010, credit recapture does not apply unless the home is disposed of or ceases to be used as a primary residence within three years of purchase. (5) Different rules applied before November 7, 2009.
ETIA 2005 provides a new alternative motor vehicle credit for qualified fuel cell vehicles, advanced lean-burn technology vehicles, qualified hybrid vehicles; and qualified alternative fuel vehicles. (6) (This new credit replaces the prior deduction for qualified clean-fuel vehicle property, which sunset on December 31, 2005. (7)) The portion of the credit attributable to vehicles of a character subject to an allowance for depreciation is treated as a portion of the general business credit; (8) the remainder of the credit is a personal credit allowable to the extent of the excess of the regular tax (reduced by certain other credits) over the alternative minimum tax for the taxable year. (9)
For new qualified plug-in electric drive motor vehicles acquired and placed in service after 2009, a new credit is available. The credit can vary from $2,500 to $5,000 depending on battery capacity (and subject to phaseout based on number of vehicles sold by the manufacturer). The portion of the credit attributable to property of a character subject to an allowance for depreciation is treated as part of the general business credit. The balance of the credit is generally treated as a nonrefundable personal credit.10An alternative credit is available for certain plug-in electric cars placed in service after February 17, 2009 and before 2011. This credit is equal to 10% of cost, up to $2,500. (11)
Beginning in 2010, the only nonrefundable personal credits available for offset against the regular income tax and the alternative minimum tax are the (1) nonrefundable adoption credit, (2) nonrefundable child tax credit; and (3) the saver's credit. (For tax years beginning in 2000 through 2009, all of the nonrefundable personal credits are available for offset against the regular income tax and the alternative minimum tax. (12))
See Q 834. A credit may also be allowed for prior years' alternative minimum tax liability (see Q 829).
833. Who qualifies for the tax credit for the elderly and the permanently and totally disabled and how is the credit computed?
The credit is available to taxpayers age 65 or older, or who are under age 65, retired on disability and were considered permanently and totally disabled when they retired. (1)
"An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require." (2)
The credit equals 15% of an individual's IRC Section 22 amount for the taxable year, but may not exceed the amount of tax. This IRC Section 22 base amount is $5,000 for a single taxpayer or married taxpayers filing jointly if only one spouse qualifies for the credit; $7,500 for married taxpayers filing jointly if both qualify; and $3,750 for a married taxpayer filing separately. (3) Married taxpayers must file a joint return to claim the credit, unless they lived apart for the entire taxable year. (4)
This base figure is limited for individuals under age 65 to the amount of the disability income (taxable amount an individual receives under an employer plan as wages or payments in lieu of wages for the period he is absent from work on account of permanent and total disability) received during the taxable year. (5) (Proof of continuing permanent and total disability may be required. (6)) For married taxpayers who are both qualified and who file jointly, the base figure cannot exceed the total of both spouses' disability income if both are under age 65 or if only one is under age 65, the sum of $5,000 plus the disability income of the spouse who is under 65. (7)
The base figure (or the amount of disability income in the case of individuals under age 65, if lower) is reduced dollar-for-dollar by one-half of adjusted gross income in excess of $7,500 (single taxpayers), $10,000 (joint return), or $5,000 (married filing separately). (8) A reduction is also made for Social Security and railroad retirement benefits that are excluded from gross income, and certain other tax-exempt income. (9)
834. What is the child tax credit?
A child tax credit is available for each "qualifying child" (defined below) of eligible taxpayers who meet certain income requirements. The child tax credit is $1,000 through 2010. (10) However, the increased child tax credit will "sunset" (expire) for tax years beginning after December 31, 2010, at which time the child tax credit will return to its pre-EGTRRA level (i.e., $500). (11)
The term qualifying child means a "qualifying child" of the taxpayer (as defined under IRC Section 152(c)--see below) who has not attained the age of 17. (12)
"Qualifying child" means, with respect to any taxpayer for any taxable year, an individual:
(1) who is the taxpayer's "child" (see below), or a descendant of such a child, or the taxpayer's brother, sister, stepbrother, or stepsister or a descendant of any such relative;
(2) who has the same principal place of abode as the taxpayer for more than one-half of the taxable year;
(3) who has not provided over one-half of such individual's own support for the calendar year in which the taxpayer's taxable year begins; and
(4) (beginning in 2009) who has not filed a joint return with the individual's spouse (except to claim a refund). (1)
Additionally, a qualifying child must be either a citizen or a resident of the United States. (2)
The term "child" means an individual who is: (1) a son, daughter, stepson, or stepdaughter of the taxpayer; or (2) an "eligible foster child" of the taxpayer. (3) An "eligible foster child" means an individual who is placed with the taxpayer by an authorized placement agency or by judgment decree, or other order of any court of competent jurisdiction. (4) Any adopted children of the taxpayer are treated the same as natural born children. (5)
The amount of the credit is reduced for taxpayers whose modified adjusted gross income (MAGI) exceeds certain levels. A taxpayer's MAGI is his adjusted gross income without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions.The credit amount is reduced by $50 for every $1000 or fraction thereof, by which the taxpayer's MAGI exceeds the following threshold amounts: $110,000 for married taxpayers filing jointly, $75,000 for unmarried individuals, and $55,000 for married taxpayers filing separately. (6)
The child tax credit is generally refundable to the extent of 15% of the taxpayer's earned income in excess of $10,000 (as indexed--see below). (7) For families with three or more qualifying children, the credit is refundable to the extent that the taxpayer's Social Security taxes exceed the taxpayer's earned income credit if that amount is greater than the refundable credit based on the taxpayer's earned income in excess of $10,000 (as indexed--see below). (8) The $10,000 amount is indexed for inflation. But ARRA 2009 reduces the dollar amount to $3,000 for 2009 and 2010. (9) (Prior to 2001, the child tax credit was refundable only for individuals with three or more qualifying children. (10))
The nonrefundable child tax credit can be claimed against the individual's regular income tax and alternative minimum tax (see Q 832). The nonrefundable child tax credit cannot exceed the excess of (i) the sum of the taxpayer's regular tax plus the alternative minimum tax over (ii) the sum of the taxpayer's nonrefundable personal credits (other than the child tax credit, the adoption credit, and the saver's credit) and the foreign tax credit for the taxable year. (11) For tax years beginning after 2001, the refundable child tax credit is not required to be reduced by the amount of the taxpayer's alternative minimum tax. (12) The nonrefundable credit must be reduced by the amount of the refundable credit. (13)
Some additional restrictions applying to the child tax credit include: (1) an individual's tax return must identify the name and taxpayer identification number (Social Security number) of the child for whom the credit is claimed; and (2) the credit may be claimed only for a full taxable year, unless the taxable year is cut short by the death of the taxpayer. (1)
For purposes of applying a uniform method of determining when a child attains a specific age, the Service has ruled that a child attains a given age on the anniversary of the date that the child was born (e.g., a child born on January 1, 1992, attains the age of 17 on January 1, 2009). (2)
The supplemental child tax credit, which was available before 2002 to certain lower income taxpayers, has been repealed. (3)
835. What are the Hope Scholarship and Lifetime Learning Credits?
The Hope Scholarship Credit and the Lifetime Learning Credit are education incentives available to certain eligible taxpayers who pay qualified tuition and related expenses. (4) The Hope Scholarship Credit applies to expenses paid after December 31, 1997 for education furnished in academic periods beginning after December 31, 1997. The Lifetime Learning Credit applies to expenses paid after June 30, 1998 for education furnished in academic periods beginning after June 30, 1998.
Hope Scholarship Credit
The Hope Scholarship Credit provides a credit for each eligible student equal to the sum of: (1) 100% of qualified tuition and related expenses up to $2,000 (in 2009 and 2010); plus (2) 25% of qualified tuition and related expenses in excess of $2,000, up to the applicable limit. The applicable limit ($4,000 in 2009 and 2010) is two times the $2,000 amount. (5) ARRA 2009 increased the credit amounts for 2009 and 2010. In other years, the amounts used to calculate the credit are adjusted for inflation and rounded to the next lowest multiple of $100.6 The maximum credit for 2010 is $2,500 ($2,000 + (25% X $2,000).
The Hope Scholarship Credit is available only for the first two years (AARA 2009 expands to four years for 2009 and 2010) of postsecondary education, and can be used in only two (four) taxable years. (7) To qualify for the credit, the student must carry at least half of a full-time academic workload for an academic period during the taxable year. (8)
An eligible student generally means a student who: (1) for at least one academic period beginning in the calendar year, is enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential and is enrolled in one of the first two years (four years for 2009 and 2010) of postsecondary education, and (2) is free of any conviction for federal or state felony offenses consisting of the possession of a controlled substance. (9)
Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer (for whom he is allowed a dependency exemption) at an"eligible education institution." (10) Qualified tuition and related expenses do not include nonacademic fees such as room and board, medical expenses (including required student health fees), transportation, student activity fees, athletic fees, insurance expenses, and similar personal, living or family expenses unrelated to a student's academic course of instruction. (1) Additionally, qualified tuition and related expenses do not include expenses for a course involving sports, games or hobbies, unless it is part of the student's degree program. (2) AARA 2009 expands qualified tuition and related expenses to include required course materials for 2009 and 2010.
An eligible educational institution generally means a postsecondary educational institution that: (a) provides an educational program for which it awards a bachelor's degree, or a 2-year program that would be accepted for credit towards a bachelor's degree; (b) has at least a one year program that trains students for gainful employment in a recognized profession; (c) participates in a federal financial aid program under Title IV of the Higher Education Act of 1965 or is certified by the Department of Education as eligible to participate in such a program; or (d) meets requirements for certain postsecondary vocational, proprietary institutions of higher learning and certain institutions outside the United States. In any event, the institution must also be accredited or have been granted pre-accreditation status. (3)
An academic period means a quarter, semester, trimester or other period of study (such as summer school session) as reasonably determined by an eligible educational institution. (4)
Lifetime Learning Credit
The Lifetime Learning Credit is available in an amount equal to 20% of "qualified tuition and related expenses" (defined above) paid by the taxpayer during the taxable year for any course of instruction at an "eligible educational institution" (defined above) taken to acquire or improve the job skills of the taxpayer, his spouse or dependents. The Lifetime Learning Credit is a per-taxpayer credit and the maximum credit available does not vary with the number of students in the family. The maximum amount of the credit is $2,000 (20% of up to $10,000 of qualified tuition and related expenses). (5)
Qualified tuition and related expenses, for the purposes of the Lifetime Learning Credit, include expenses for graduate as well as undergraduate courses. The Lifetime Learning Credit applies regardless of whether the individual is enrolled on a full-time, half-time, or less than half-time basis. Additionally, the Lifetime Learning Credit is available for an unlimited number of taxable years. (6)
Limitations and Phaseouts
The Code sets forth special rules coordinating the interaction of these credits. The Lifetime Learning Credit is not available with respect to a student for whom an election is made to take the Hope Scholarship Credit during the same taxable year. (7) However, the taxpayer may use the Hope Scholarship Credit for one student and the Lifetime Learning Credit for other students in the same taxable year.
Both credits are subject to the same phaseout rules based on the taxpayer's modified adjusted gross income (MAGI). MAGI is the taxpayer's adjusted gross income without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions. The maximum credit in each case is reduced by the credit multiplied by a ratio. For single taxpayers, the ratio equals the excess of (i) the taxpayers MAGI over $40,000 to (ii) $10,000. For married taxpayers filing jointly, the ratio equals (a) the excess of the taxpayer's MAGI over $80,000 to (b) $20,000.1 The $40,000 and $80,000 amounts are adjusted for inflation and rounded to the next lowest multiple of $1,000. (2) For 2010, the threshold amounts are $50,000 for single taxpayers and $100,000 for married taxpayers filing jointly for the Lifetime Learning Credit. ARRA 2009 increases the threshold amounts in 2009 and 2010 for the Hope Scholarship Credit to $160,000 for married taxpayers filing jointly and $80,000 for single taxpayers. (3)
The amount of qualified tuition and related expenses for both credits is limited by the sum of the amounts paid for the benefit of the student, such as scholarships, education assistance advances, and payments (other than a gift, bequest, devise, or inheritance) received by an individual for educational expenses attributable to enrollment.4 The IRS has determined that qualified tuition and related expenses paid with distributions of educational benefits from a trust could be used to compute Hope Scholarship and Lifetime Learning Credits if the distributions were included in the taxable income of the beneficiaries. (5)
Neither credit is allowed unless a taxpayer elects to claim it on a timely filed (including extensions) federal income tax return for the taxable year in which the credit is claimed. The election is made by completing and attaching Form 8863, Education Credits (Hope and Lifetime Learning Credits), to the return. (6) Neither credit is allowed unless the taxpayer provides the name and the taxpayer identification (i.e., Social Security) number of the student for whom the credit is claimed. (7)
If the student is claimed as a dependent on another individual's tax return (e.g., parents) he cannot claim either credit for himself, even if he paid the expenses himself. (8) (The Service has privately ruled that a student was entitled to claim a Hope Scholarship Credit on his own return even though his parents were eligible to claim him as a dependent, but chose not to do so. (9)) However, if another individual is eligible to claim the student as a dependent, but does not do so, only the student may claim the Hope or Lifetime Learning Credit for his own qualified tuition and related expenses. (10) Both credits are unavailable to married taxpayers filing separately. (11) Neither of these credits is allowed for any expenses for which there is a deduction available. (12) Taxpayers are not eligible to claim a Hope or Lifetime Learning Credit and the deduction for qualified higher education expenses in the same year with respect to the same student. (13)
A taxpayer may claim a Hope Scholarship or Lifetime Learning Credit and exclude distributions from a qualified tuition program on behalf of the same student in the same taxable year ifthe distribution is not used to pay the same educational expenses for which the credit was claimed. (14) See Q 811.
A taxpayer can claim a Hope Scholarship or Lifetime Learning Credit and exclude distributions from a Coverdell Education Savings Account (ESA; see Q 810) on behalf of the same student in the same taxable year if the distribution is not used to pay the same educational expenses for which the credit was claimed. (1) A taxpayer may elect not to have the Hope Scholarship or Lifetime Learning Credit apply with respect to the qualified higher education expenses of an individual for any taxable year. (2)
For 2009 and 2010, AARA 2009 makes the Hope Scholarship Credit allowable against the alternative minimum tax and a portion of the credit is made refundable.
Reporting. For the reporting requirements for higher education tuition and related expenses, see IRC Sec. 6050S. For the reporting requirements for qualified tuition and related expenses, see Treas. Reg. [section] 1.6050S-1; TD 9029. (3)
Social Security Taxes
836. What are the Social Security tax rates?
The rates for 2010, as adjusted by an automatic cost-of-living increase in the earnings base, are:
Self-employment tax: 15.30% (12.40% OASDI and 2.90% hospital insurance). In 2010, the OASDI tax is imposed on up to $106,800 of self-employment income for a maximum tax of $13,243.20. This is unchanged from 2009. The hospital insurance tax is imposed on all of a taxpayer's self-employment income. However, an above-the-line deduction is permitted for one-half of self-employment taxes paid by an individual and attributable to a trade or business carried on by the individual (not as an employee). (4)
FICA tax (on employer and employee, each): 7.65% (6.20% OASDI and 1.45% hospital insurance). In 2010, the OASDI tax is imposed on up to $106,800 of wages for a maximum tax of $6,621.60 for the employer and $6,621.60 for the employee, or $13,243.20 for employer and employee together. This is unchanged from 2009. The hospital insurance tax is imposed on all of a taxpayer's wages. (5)
Back wages paid as the result of a settlement agreement are subject to FICA and FUTA taxes in the year the wages are actually paid, not in the year the wages were earned or should have been paid. (6)
837. Who must pay the self-employment tax?
An individual whose net earnings from self-employment are $400 or more for the taxable year must pay the self-employment tax. (7) In 2010, such an individual must file a Schedule SE and pay Social Security taxes on up to $106,800 (which is unchanged from 2009) of self-employment income. (The hospital insurance tax is imposed on all of a taxpayer's self-employment income.) However, an abovethe-line deduction is permitted for one-half of the self-employment tax paid by an individual and attributable to a trade or business carried on by the individual (not as an employee). (8) If the individual also works in covered employment as an employee, his self-employment income (subject to the selfemployment tax) is only the difference, if any, between his "wages" as an employee and the maximum Social Security earnings base.
(1.) IRC Sec. 68(a).
(2.) IRC Sec. 68(b); Rev. Proc. 2008-66, 2008-45 IRB 1107.
(3.) IRC Sec. 68(f).
(4.) IRC Sec. 68(c).
(5.) IRC Sec. 68(e).
(6.) IRC Sec. 68(d).
(7.) IRC Sec. 56(b)(1)(F).
(8.) IRC Sec. 164(a), as amended by ARRA 2009.
(9.) IRC Sec. 165(h).
(1.) IRC Sec. 165(h)(5)(E).
(2.) See IRC Sec. 164(b)(5). See also Notice 2005-31, 2005-14 IRB 830, IRS Fact Sheet FS-2005-6, and Pub. 600, Optional State Sales Tax Tables, (2006).
(3.) IRC Sec. 67(b).
(4.) IRC Sec. 67(a).
(5.) Temp. Treas. Reg. [section] 1.67-1T(a)(1).
(6.) Temp. Treas. Reg. [section] 1.67-1T(c).
(7.) IRC Sec. 67(c)(1); Temp. Treas. Reg. [section] 1.67-2T.
(1.) IRC Sec. 67(c); Temp. Treas. Reg. [section]1.67-2T(g)(2).
(2.) Temp. Treas. Reg. [section]1.67-2T(a).
(3.) IRC Sec. 163(d)(3).
(4.) IRC Secs. 1(h)(11)(D)(i), 163(d)(4)(B).
(5.) 69 Feg. Reg. 47364 (8-5-2004). See also, 70 Fed. Reg. 13100 (3-18-2005).
(6.) IRC Sec. 162.
(7.) IRC Sec. 163(h)(3).
(8.) IRC Sec. 163(h)(3)(D).
(9.) IRC Sec. 163(h)(3)(E).
(1.) IRC Sec. 163(h)(4)(A). See, e.g., FSA 200137033.
(2.) Let. Ruls. 8743063 and 8742025.
(3.) Blanche v. Comm.,TC Memo 2001-63, aff'd without opinion, 2002 U.S. App. LEXIS 6379 (5th Cir. 2002).
(4.) Let. Rul 200029018.
(5.) FSA 200047022.
(6.) IRC Secs. 163(d), 469(c).
(7.) IRC Secs. 163(h)(2)(F), 221.
(8.) IRC Sec. 221(b); Rev. Proc. 2009-50, 2009-45 IRB 617.
(9.) See IRC Sec. 221; Treas. Reg. [section] 1.221-1.
(10.) IRC Sec. 163(h)(2).
(11.) IRC Sec. 163(h)(1).
(12.) See Temp. Treas. Reg. [section] 1.163-8T.
(13.) Temp. Treas. Reg. [section] 1.163-8T(m)(2).
(1.) See IRC Sec. 170(b)(1)(E).
(2.) IRC Sec. 170(b)(1)(A).
(3.) IRC Secs. 170(b)(1)(B), 170(b)(1)(C).
(4.) IRC Sec. 170(b)(1)(D).
(5.) IRC Secs. 170(d)(1), 170(b)(1)(D)(ii).
(6.) See Treas. Reg. [section] 1.170A-8(a)(2).
(1.) IRC Sec. 170(b)(1)(C).
(2.) IRC Sec. 1222(3).
(3.) IRC Sec. 170(b)(1)(C)(ii).
(4.) IRC Sec. 170(b)(1)(C)(iii); Woodbury v. Comm., TC Memo 1988-272, affd, 90-1 USTC [paragraph] 50,199 (10th Cir. 1990).
(5.) IRC Secs. 170(e)(1)(B), 170(b)(1)(C); Treas. Reg. [section] 1.170A-4(b).
(6.) See IRC Secs. 170(b)(1)(E), 170(b)(1)(A)(vii).
(7.) IRC Sec. 170(e)(5).
(8.) IRC Sec. 170(e)(5).
(1.) IRC Sec. 170(e)(5)(C).
(2.) Let. Rul. 199925029. See also Let. Rul. 200322005 (ADRs are qualified appreciated stock).
(3.) IRC Sec. 170(e)(1)(A).
(4.) IRC Sec. 170(e)(1).
(5.) Winokur v. Comm., 90 TC 733 (1988), acq. 1989-1 CB 1.
(6.) IRC Sec. 170(f)(17).
(7.) IRC Sec. 170(f)(8).
(8.) IRS Pub. 1771 (March 2008), p. 6.
(9.) Treas. Regs. [subsection] 1.170A-13(f), 1.6115-1.
(10.) IRC Sec. 170(f)(11).
(11.) IRC Sec. 170(f)(16).
(12.) See IRC Secs. 170(e)(1)(B), 170(f)(11), 170(f)(12), 170(m); Notice 2005-44, 2005-25 IRB 1287.
(1.) IRC Sec. 170(f)(2)(A).
(2.) IRC Sec. 170(a)(3); Treas. Reg. [section] 1.170A-5(a)(1).
(3.) IRC Sec. 170(f)(2)(B).
(4.) IRC Sec. 664(d)(2)(A).
(5.) IRC Sec. 664(d)(2)(D).
(6.) IRC Sec. 664(d)(2)(B).
(7.) IRC Sec. 664(d)(1)(C).
(8.) IRC Sec. 664(d)(1)(A).
(9.) IRC Sec. 664(d)(1)(D).
(10.) IRC Sec. 664(d)(1)(B).
(1.) IRC Sec. 664(d)(1)(C).
(2.) See Rev. Proc. 2005-24, 2005-16 IRB 909.
(3.) See Notice 2006-15, 2006-8 IRB 501.
(4.) IRC Sec. 642(c)(5); Treas. Reg. [section] 1.642(c)-5.
(5.) IRC Sec. 170(f)(2)(B).
(6.) Treas. Reg. [section] 1.170A-6(c)(2).
(7.) Treas. Reg. [section] 1.170A-6(c)(2).
(8.) Rev. Rul. 85-49, 1985-1 CB 330.
(1.) IRC Sec. 213.
(2.) IRC Sec. 213(d)(1).
(3.) IRC Sec. 213(d)(9); see, e.g., Let. Rul. 200344010.
(4.) TC Summary Opinion 2001-185.
(5.) IRC Sec. 213(d)(5).
(6.) Treas. Reg. [section] 1.213-1(a)(3)(i).
(7.) IRC Sec. 213(d)(2).
(8.) Let. Rul. 8516025.
(9.) Rev. Rul. 2000-24, 2000-19 IRB 963.
(1.) See Let. Rul. 200521003. See also Let. Rul. 200729019.
(2.) 2000-2 USTC [paragraph] 50,863 (D. Minn. 2000).
(3.) Henderson v. Comm.,TC Memo 2000-321.
(4.) IRC Sec. 213(c).
(5.) Rev. Rul. 77-357, 1977-2 CB 328.
(6.) See IRC Sec. 213(d).
(7.) Rev. Rul. 66-216, 1966-2 CB 100.
(8.) Rev. Rul. 76-481, 1976-2 CB 82, as clarified by Rev. Rul. 93-72, 1993-2 CB 77; Let. Rul. 8641037.
(9.) Baker v. Coomm., 122 TC 143 (2004).
(10.) Finzer v. United States, No. 1:06-cv-2176 (N.D. Ill. 2007), citing Comm. v. Tufts, 461 U.S. 300, 307 (1983).
(11.) Rev. Rul. 2003-58, 2003-22 IRB 959.
(12.) Rev. Rul. 2003-58, above; see also IRS Information Letter INFO-2003-169 (6-13-2003).
(1.) Pub. 502, Medical and Dental Expenses (2007).
(2.) See Rev. Rul. 99-28, 1999-25 IRB 6.
(3.) Rev. Rul. 2003-57, 2003-22 IRB 959.
(4.) Rev. Rul. 2002-19, 2002-16 IRB 778.
(5.) Information Letter INFO 2003-0202.
(6.) Let. Rul. 8919009.
(7.) Let. Rul. 200318017; see also Information Letter INFO 2005-0102 (3-29-2005).
(8.) See Information Letter INFO 2005-0011 (3-14-2005); see also Pub. 502 (2008).
(9.) IRC Sec. 691(a).
(10.) IRC Sec. 1367(b).
(11.) Rev. Rul. 69-297, 1969-1 CB 131; Rev. Rul. 75-125, 1975-1 CB 254.
(12.) Let. Rul. 9031046.
(1.) Let. Rul. 200041018.
(2.) Let. Rul. 9132021. See also Let. Rul. 200336020.
(3.) Est. of Napolitano v. Comm.,TC Memo 1992-316.
(4.) Est. ofFrane v. Comm., 998 F.2d 567 (8th Cir. 1993).
(5.) Kitch v. Coomm., 97-1 USTC [paragraph] 50,124 (10th Cir. 1996).
(6.) FSA 200011023.
(7.) IRC Sec. 691(c); Rev. Rul. 78-203, 1978-1 CB 199.
(8.) IRC Sec. 1014(c).
(9.) Rev. Rul. 2005-30, 2005-20 IRB 1015.
(10.) Eberly v. Comm., TC Summary Op. 2006-45.
(1.) 125 TC 227 (2005).
(2.) TAM 200247001; see also TAM 200303010.
(3.) IRC Secs. 1(i)(2), prior to amendment by JGTRRA 2003.
(4.) IRC Sec. 1(i)(2).
(5.) IRC Sec. 1(g).
(6.) IRC Sec. 1(f).
(7.) Rev. Proc. 2003-85, 2003-2 CB 1184.
(8.) IRC Sec. 1(i)(1)(B).
(9.) Rev. Proc. 2009-50, 2009-45 IRB 617.
(1.) IRC Sec. WFTRA 2004 Sec. 105; JGTRRA 2003 Sec. 107.
(2.) IRC Sec. 1(f)(8).
(3.) WFTRA 2004 Sec. 105; JGTRRA 2003 Sec. 107.
(4.) IRC Secs. 55(a), 55(b).
(5.) IRC Secs. 55(c)(1), 26(b).
(6.) IRC Sec. 26(a), as amended by ARRA 2009.
(1.) IRC Sec. 26(a), as amended by ARRA 2009.
(2.) IRC Sec. 55(b)(2).
(3.) See IRC Sec. 55(d), as amended by ARRA 2009.
(4.) Treas. Reg. [section] 1.55-1(a).
(5.) Treas. Reg. [section] 1.55-1(b).
(6.) IRC Sec. 55(d), as amended by ARRA 2009.
(7.) IRC Sec. 59(j); Rev. Proc. 2009-50, 2009-45 IRB 617.
(1.) IRC Secs. 56, 58.
(2.) IRC Sec. 57(a).
(3.) IRC Sec. 53.
(4.) IRC Secs. 2(a), 6013(a).
(1.) As defined in IRC Sec. 152(c).
(2.) IRC Sec. 2(b)(1); IRC Secs. 2(c), 7703(b).
(3.) IRC Sec. 2(b)(1); Treas. Reg. [section] 1.2-2(b).
(4.) IRC Sec. 2(b)(1).
(5.) IRC Sec. 2(b)(1).
(6.) IRC Sec. 2(b); IRC Sec. 2(d).
(7.) IRC Sec. 36A, as amended by ARRA 2009.
(8.) IRC Sec. 21.
(9.) IRC Sec. 22.
(10.) IRC Sec. 23.
(11.) IRC Sec. 25A.
(12.) IRC Sec. 25B.
(13.) See P.L. 109-280, Sec. 812; IRC Sec. 25B.
(1.) IRC Sec. 25C, as amended by EIEA 2008.
(2.) IRC Sec. 25D.
(3.) IRC Sec. 38.
(4.) IRC Sec. 24.
(5 ) IRC Sec. 36, as amended by ARRA 2009 and WHBAA 2009.
(6.) IRC Sec. 30B.
(7.) See Sec. 1348, ETIA 2005; IRC Sec. 179A.
(8.) IRC Sec. 38.
(9.) See IRC Sec. 30B(g).
(10.) IRC Sec. 30D, as amended by ARRA 2009.
(11.) IRC Sec. 30, as amended by ARRA 2009.
(12.) IRC Sec. 26(a), as amended by ARRA 2009.
(1.) IRC Sec. 22(b).
(2.) IRC Sec. 22(e)(3).
(3.) IRC Sec. 22(c).
(4.) IRC Sec. 22(e)(1).
(5.) IRC Sec. 22(c)(2)(B)(i).
(6.) GCM 39269 (8-2-84).
(7.) IRC Sec. 22(c)(2)(B)(ii).
(8.) IRC Sec. 22(d).
(9.) IRC Sec. 22(c)(3).
(10.) IRC Sec. 24(a).
(11.) WFTRA 2004 Sec. 105; JGTRRA 2003 Sec. 107; IRC Sec. 6429.
(12.) IRC Sec. 24(c)(1).
(1.) IRC Sec. 152(c), as amended by FCSIIA 2008.
(2.) IRC Sec. 24(c)(2).
(3.) IRC Sec. 152(f)(1).
(4.) IRC Sec. 152(f)(1)(C).
(5.) IRC Sec. 152(f)(1)(B).
(6.) IRC Sec. 24(b)(2).
(7.) IRC Sec. 24(d)(1)(B).
(8.) IRC Sec. 24(d)(1).
(9.) IRC Sec. 24(d)(3).
(10.) IRC Sec. 24(d), prior to amendment by EGTRRA 2001.
(11.) IRC Sec. 24(b)(3).
(12.) IRC Sec. 24(d).
(13.) IRC Sec. 24(d)(1).
(1.) IRC Secs. 24(e), 24(f).
(2.) Rev. Rul. 2003-72, 2003-33 IRB 346.
(3.) IRC Sec. 32(n), repealed by EGTRRA 2001.
(4.) IRC Sec. 25A.
(5.) IRC Secs. 25A(b)(1), 25A(b)(4); Treas. Reg. [section] 1.25A-3(a).
(6.) IRC Sec. 25A(h)(1).
(7.) Treas. Reg. [section] 1.25A-3(c).
(8.) IRC Sec. 25A(b)(2); Treas. Reg. [section] 1.25A-3(d)(ii).
(9.) IRC Sec. 25A(b)(3); Notice 97-60, 1997-46 IRB 310 (Sec. 1, A3); Treas. Reg. [section] 1.25A-3(d)(1).
(10.) Treas. Reg. [section] 1.25A-2(d)(1).
(1.) Treas. Reg. [section] 1.25A-2(d)(3).
(2.) IRC Sec. 25A(f)(1); Treas. Reg. [section] 1.25A-2(d)(5).
(3.) See IRC Sec. 25A(f)(2); HEA 1965 Sec. 481; Treas. Reg. [section] 1.25A-2(b).
(4.) Treas. Reg. [section] 1.25A-2(c).
(5.) IRC Sec. 25A(c); Treas. Reg. [section] 1.25A-4(a).
(6.) Treas. Regs. [subsection] 1.25A-4(b), 1.25A-4(c).
(7.) IRC Sec. 25A(c)(2)(A); Treas. Reg. [section] 1.25A-1(b).
(1.) IRC Sec. 25A(d); Treas. Reg. [section] 1.25A-1(c).
(2.) IRC Sec. 25A(h)(2); Treas. Reg. [section] 1.25A-1(c)(3).
(3.) Rev. Proc. 2008-66, 2008-45 IRB 1107.
(4.) IRC Sec. 25A(g)(2); Treas. Reg. [section] 1.25A-5(c).
(5.) Let. Rul. 9839037.
(6.) Treas. Reg. [section] 1.25A-1(d).
(7.) Treas. Reg. [section] 1.25A-1(e).
(8.) IRC Sec. 25A(g)(3); Treas. Reg. [section] 1.25A-1(f)(1).
(9.) Let. Rul. 200236001.
(10.) Treas. Reg. [section] 1.25A-1(f)(1).
(11.) IRC Sec. 25A(g)(6); Treas. Reg. [section] 1.25A-1(g).
(12.) IRC Sec. 25A(g)(5); Treas. Reg. [section] 1.25A-5(d).
(13.) IRC Sec. 222(c)(2)(A).
(14.) See IRC Sec. 529(c)(3)(B)(v).
(1.) See IRC Sec. 530(d)(2)(C).
(2.) IRC Sec. 25A(e).
(3.) 67 Fed. Reg. 77678 (12-19-02). See also Notice 2006-72, 2006-36 IRB 363.
(4.) IRC Sec. 164(f).
(5.) IRC Secs. 3101(b), 3121(u).
(6.) U.S. v. Cleveland Indians Baseball Co., 87 AFTR2d [paragraph] 2001-798 (U.S. 2001). See also The Phillies v. U.S. 87 AFTR2d 2001-983 (E.D. PA. 2001).
(7.) IRC Sec. 6017.
(8.) IRC Sec. 164(f).