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RECENT DEVELOPMENTS in FEDERAL INCOME TAXATION “Recent Developments Are Just Like Ancient History, Except They Happened Less Long Ago.”

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RECENT DEVELOPMENTS in FEDERAL INCOME TAXATION “Recent Developments Are Just Like Ancient History, Except They Happened Less Long Ago.” RECENT DEVELOPMENTS IN FEDERAL INCOME TAXATION “Recent developments are just like ancient history, except they happened less long ago.” By Bruce A. McGovern Professor of Law and Director, Tax Clinic South Texas College of Law Houston Houston, Texas 77002 Tele: 713-646-2920 e-mail: [email protected] State Bar of Texas Tax Section First Wednesday Tax Update December 4, 2019 Note: This outline was prepared jointly with Cassady V. (“Cass”) Brewer, Associate Professor of Law, Georgia State University College of Law, Atlanta, GA. I. ACCOUNTING ................................................................................................................ 3 Accounting Methods .................................................................................................... 3 Inventories .................................................................................................................... 3 Installment Method ...................................................................................................... 3 Year of Inclusion or Deduction .................................................................................... 3 II. BUSINESS INCOME AND DEDUCTIONS ................................................................. 5 Income .......................................................................................................................... 5 Deductible Expenses versus Capitalization ................................................................. 5 Reasonable Compensation ........................................................................................... 5 Miscellaneous Deductions ........................................................................................... 5 Depreciation & Amortization....................................................................................... 5 Credits .......................................................................................................................... 8 Natural Resources Deductions & Credits .................................................................... 8 Loss Transactions, Bad Debts, and NOLs ................................................................... 8 At-Risk and Passive Activity Losses ........................................................................... 8 III. INVESTMENT GAIN AND INCOME .......................................................................... 8 Gains and Losses .......................................................................................................... 8 Interest, Dividends, and Other Current Income ......................................................... 19 Profit-Seeking Individual Deductions ........................................................................ 19 Section 121 ................................................................................................................. 19 Section 1031 ............................................................................................................... 19 Section 1033 ............................................................................................................... 19 Section 1035 ............................................................................................................... 19 Miscellaneous ............................................................................................................ 19 IV. COMPENSATION ISSUES .......................................................................................... 19 Fringe Benefits ........................................................................................................... 19 Qualified Deferred Compensation Plans.................................................................... 19 Nonqualified Deferred Compensation, Section 83, and Stock Options ..................... 20 Individual Retirement Accounts ................................................................................ 20 V. PERSONAL INCOME AND DEDUCTIONS ............................................................. 20 Rates ........................................................................................................................... 20 Miscellaneous Income ............................................................................................... 20 Hobby Losses and § 280A Home Office and Vacation Homes ................................. 20 Deductions and Credits for Personal Expenses .......................................................... 20 Divorce Tax Issues ..................................................................................................... 20 Education ................................................................................................................... 20 Alternative Minimum Tax ......................................................................................... 20 VI. CORPORATIONS ......................................................................................................... 20 Entity and Formation ................................................................................................. 20 Distributions and Redemptions .................................................................................. 20 Liquidations ............................................................................................................... 20 S Corporations ........................................................................................................... 20 Mergers, Acquisitions and Reorganizations .............................................................. 21 Corporate Divisions ................................................................................................... 21 Affiliated Corporations and Consolidated Returns .................................................... 21 Miscellaneous Corporate Issues ................................................................................. 21 VII. PARTNERSHIPS ........................................................................................................... 21 Formation and Taxable Years .................................................................................... 21 Allocations of Distributive Share, Partnership Debt, and Outside Basis ................... 21 Distributions and Transactions Between the Partnership and Partners ...................... 21 Sales of Partnership Interests, Liquidations and Mergers .......................................... 21 Inside Basis Adjustments ........................................................................................... 21 Partnership Audit Rules ............................................................................................. 21 Miscellaneous ............................................................................................................ 21 VIII. TAX SHELTERS ........................................................................................................... 24 IX. EXEMPT ORGANIZATIONS AND CHARITABLE GIVING ................................ 24 Exempt Organizations ................................................................................................ 24 Charitable Giving ....................................................................................................... 25 X. TAX PROCEDURE ....................................................................................................... 25 Interest, Penalties, and Prosecutions .......................................................................... 25 Discovery: Summonses and FOIA ............................................................................. 26 Litigation Costs .......................................................................................................... 26 Statutory Notice of Deficiency .................................................................................. 26 Statute of Limitations ................................................................................................. 26 Liens and Collections ................................................................................................. 26 Innocent Spouse ......................................................................................................... 26 Miscellaneous ............................................................................................................ 26 XI. WITHHOLDING AND EXCISE TAXES ................................................................... 26 Employment Taxes .................................................................................................... 26 Self-employment Taxes ............................................................................................. 27 Excise Taxes .............................................................................................................. 27 XII. TAX LEGISLATION .................................................................................................... 27 Enacted ....................................................................................................................... 27 2 I. ACCOUNTING Accounting Methods Inventories Installment Method Year of Inclusion or Deduction Accrual-method taxpayers may have to recognize income sooner as a result of legislative changes. The 2017 Tax Cuts and Jobs Act, § 13221, amended Code § 451 to make two changes that affect the recognition of income and the treatment of advance payments by accrual method taxpayers. Both changes apply to taxable years beginning after 2017. Any change in method
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