2011-2012 FEDERAL INCOME TAX LAW COURSE DESKBOOK November 2011 - January 2012 Deskbook Table of Contents Page Administrative Matters Faculty Biographies ............................................................................................................... ii Outlines and Materials Communicating with the IRS ............................................................................................. A-1 Professional Responsibility ................................................................................................. B-1 Casualty Tax Issues .............................................................................................................C-1 Deployment Tax Issues ....................................................................................................... D-1 Adjustments to Income ........................................................................................................ E-1 Tax Aspects of Individual Retirement Arrangements (IRAs) ............................................. F-1 Tax Aspects of Stocks & Mutual Funds ............................................................................. G-1 Tax Aspects of Real Property ............................................................................................. H-1 Tax Credits ........................................................................................................................... I-1 Sale of Rental Property ......................................................................................................... J-1 Tax Payments, Other Taxes, & Finishing the Return ......................................................... K-1 Introduction to Federal Income Taxation ............................................................................ L-1 Gross Income ...................................................................................................................... M-1 Deductions & Tax Computation ......................................................................................... N-1 State Taxation & Income Tax Aspects of the SCRA..........................................................O-1 Tax Program Management .................................................................................................. P-1 CAUTION: This document is meant only as an educational outline for training purposes and as a starting point for conducting tax research. Many of the IRS publications and forms were not finalized at the time of the drafting of this document. In addition, numerous potential changes in tax law were being debated. Tax practioners are highly encouraged to check the IRS website www.irs.gov for the latest publications reflecting the most recent tax legislation which changes constantly. If you identify material that is not accurate in this outline, please send your recommended changes and citations to [email protected]. i FACULTY BIOGRAPHIES LIEUTENANT COLONEL JANET H. FENTON, JA, Deputy, Legal Assistance Policy Division. B.A., Idaho State University, 1983; J.D., Pepperdine University School of Law, 1986; 114th Judge Advocate Officer Basic Course, 1987; Combined Arms and Services Staff School, 1995; LL.M., 44th Judge Advocate Officer Graduate Course, 1996; United States Army Command and General Staff College, 1999; LL.M. (Taxation), University of Washington School of Law, 2001. Legal Assistance Attorney, Fort Shafter, Hawaii, 1987-Oct 1988; Special Assistant U.S. Attorney, Fort Shafter, Hawaii, Oct 1988- Oct 1989; Defense Counsel, Schofield Barracks, Hawaii, Oct 1989- Dec 1990; Chief, Legal Assistance, Fort Ord, California, Dec 1990- Aug 1991; Chief, Military Justice, Fort Sam Houston, Texas, Aug 1991- 1993; 5th Recruiting Brigade Judge Advocate, Fort Sam Houston, Texas, 1993-1995; Professor, Legal Assistance Branch, Administrative and Civil Law Department, The Judge Advocate General’s School, Charlottesville, Virginia, 1996-1999; Chief, Claims, Fort Lewis, Washington, Jun 1999-Jan 2000; Chief, Military Justice, Fort Lewis, Washington, Feb 2000- Aug 2000; Deputy, Legal Assistance Policy Division, Washington D.C., 2001-2003; Executive Director, Armed Forces Tax Council, Washington, D.C., 2003-2006. Member of the Bars of Hawaii, Texas, Washington, 9th Circuit Court of Appeals, and the United States Court of Appeals for the Armed Forces. LIEUTENANT COLONEL SAMUEL W. KAN, JA, Professor and Vice Chair, Administrative and Civil Law Department. B.S., United States Military Academy, 1994; J.D., The University of Texas School of Law, 2000; LL.M. (Military Law), 54th Judge Advocate Graduate Course, 2006; LL.M. (Taxation, with Certificate in Estate Planning), Georgetown University Law Center, 2009. Air Assault, 1992; Military Police Officer Basic Course, Protective Services, and Master Fitness, 1994; 153rd Judge Advocate Basic Course, 2000; Combined Arms and Services Staff School, 2002; Intermediate Level Education, 2008. Platoon Leader and Executive Officer, 401st Military Police Company, 720th Military Police Battalion, 89th Military Police Brigade, Fort Hood, Texas, with a deployment to Panama, 1995-1997; Administrative Law Attorney and Chief of Administrative Law, 2nd Infantry Division, South Korea, 2001-2002; Trial Counsel, Chief of Claims, and Chief of Legal Assistance, 25th Infantry Division, Schofield Barracks, Hawaii, with a deployment to Afghanistan with CJTF-76, 2002- 2005; Senior Defense Counsel, Fort Stewart, Georgia, 2006-2008. Member of the Bars of Texas, the United States Supreme Court, and the United States Court of Federal Claims. ii LIEUTENANT COLONEL DON F. SVENDSEN, JR., is an Air Force Reserve attorney attached to the Air Force Judge Advocate School, Maxwell, Alabama. Upon graduation from the College of William and Mary in 1990, Lieutenant Colonel Svendsen was commissioned an active duty second lieutenant in the US Army field artillery. He served as a fire support officer with the 1/72 Armored Tank Battalion, 2d Infantry Division, Camp Casey, Korea, transferred to the Finance Corps and continued to serve with various increasingly responsible positions at Fort Belvoir, Virginia, the Army Staff at the Pentagon, and finally with the Eighth Quadrennial Review of Military Compensation with the Office of the Secretary of Defense. Upon leaving active duty, Lieutenant Colonel Svendsen worked at the accounting firm, Coopers & Lybrand LLP (later PricewaterhouseCoopers LLP) as a tax manager, at a small law firm specializing in estate tax planning, and as the Chief of Enforcement for the Internal Revenue Service Office of Professional Responsibility. Lieutenant Colonel Svendsen is a graduate of the George Washington University law school, the Air Command and Staff College, and the Air War College. In his civilian capacity, Lieutenant Colonel Svendsen currently serves as the Assistant Director for Military Compensation in the Office of the Secretary of Defense. iii CHAPTER A COMMUNICATING WITH THE IRS I. REFERENCES. A. Primary. 1. Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.). 2. United States Tax Court Rules of Practice and Procedure. B. Secondary. 1. IRS Pub. 1, Your Rights as a Taxpayer. 2. IRS Pub. 5, Your Appeal Rights and How to Prepare a Protest if you Don't Agree. 3. IRS Pub. 552, Recordkeeping for Individuals. 4. IRS Pub. 556, Examination of Returns, Appeal Rights and Claims for Refund. 5. IRS Pub. 594, The IRS Collection Process. 6. IRS Pub. 947, Practice Before the IRS and Power of Attorney. 7. IRS Pub. 1035, Extending the Tax Assessment Period. 8. Treasury Department Circular No. 230, Regulations Governing the Practice before the Internal Revenue Service. 9. IRS Notice 746, Information About Your Notice, Penalty and Interest. II. INTRODUCTION. III. GETTING STARTED A. Review the Taxpayers Records. A-1 Federal Income Tax Law Course For Tax Year 2011 Last Revised: 11/4/2011 1. Organize the Data and Create a Retrievable Records System. a. Tax Returns. In most cases you will need copies of State and Federal returns filed both before and after the return in controversy. b. IRS Correspondence. Is this the first Notice? Has the issue been previously raised/resolved/disputed? Is the current problem part of a more significant issue? c. Client Correspondence. Is the client presently represented? What position has the client or the client’s representative previously taken? 2. Obtaining the Taxpayer’s Computer File. The Taxpayer is entitled to a transcript of the taxpayer’s account. This document shows the dates the IRS claims the return was filed and the dates of the assessments of penalties, interest and any payments credited to the account. 3. Obtaining Income Information. The Information Returns Program (IRP) will provide all data the IRS has with regard to income reported to the taxpayer on Forms W-2, 1099 and the like. This information can be matched against the taxpayer’s records for an initial discrepancies check. 4. Obtaining Tax Returns. The IRS will provide a free Tax Return Transcript or summary of the tax return. This form shows most line items on the tax return filed, including any accompanying forms or schedules. It does not include any changes the taxpayer or the IRS made after the return was filed. A tax account transcript will show any later adjustments made after the return was filed. IRS Form 4506-T is the best method to request this information. The Form 4506 (not Form 4506-T) allows the taxpayer to request an actual photocopy of the return at a fixed charge. While the photocopy may be helpful, it seldom provides any additional information not