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CONTENTS
PREFACE xxvii

INOIVIOUALS Problem Materials 1· 32

Discussion Quesuons l -32
Problons J.34
CH \PTER Tax Stmteg) and Critical Thinking Problem 1-36
... AN INTROOUCTION TO TAXATION l · I
Case Study Problem 1-36
History of Taution in the United St.ates 1-2 Tax Research Problem 1·36
Early Periods l -2
Revenue Aru from 1913 to the Present I· 3
Revenue Sources 1·3 CHAPTER 2
Types of Tax Rate Structures 1· 4 ... OETERMINATIONOfTAX 2- 1
The Strut:1"ure of lndividu•I Income Tax Rotes I · 4 Formula for Individual lncon• Tax 2· 2
The Strm.'tutt of Corporate Tax Rates 1-5 BaMC Formula 2-2
Marginal, A\•trage, and Effective Tax Rates for Definiuons 2-3
Taxp:aycrs l -5 Tax Formula lllu~trated 2·6
Determination ofT•xable Income and Deductions from Adjusted Gross Income 2 · 7
Tax Due 1-6 Itemized DedL1<.-tions 2 -7
Other Types of Taxes 1· 7 Standard Deduction 2-9
State and Local Income and Fr:incbi;e Taxe> I ·7 Dependenc)' Requirements 2- 12
\V~lth Transfer Taxes 1-7 Child Credit 2· 18
Other Types of Taxes 1- 11 Determm ng the Amount of Tax 2· 19
Criteria for a Tax Structure 1·12 Filing Status 2 ·20
E.quit)' 1- 12 !\famed filmgjo1ntly 2-20
Certainty I· 13 Suniving Spouse 2· 21
Convenience 1· 13 Head of Household 2-22
Economy 1-13 Single Taxpayer 2-23
Simplicity 1· 14 Ma med Filing Separately 2-23
Objecti'es of the Federal Income Tax L3w 1- 14 Abandoned Spouse 2-23
Entities in the Federal Income Tax System 1 16 Children wnh Un~rned Income 2-24
Taxpaying Entities 1· 17 Additional Medjcare Tax and Net Lnve>tment
Flow-Through Entities 1-20 Income Tax 2·27
Other Entitie; 1-23 Business Income and Business Entitiu 2 ·27
Tax Llw Sourcu 1-24 Treatment of Capital Gains and Losses 2· 30
Enactment of a Tax Law 1 ·24 Definition of Capital MSl'IS 2-30
Steps 10 the Legisbm·e Process 1-24 Tax Treatment of Gains and Los~ 2-31
Administration of the Tax Law and Tax Practice Tax Planning Comiderlltions 2 31
lssu•s 1-26 Shifting Income Between Family
Organiution of the Internal Re.-enue Membc~ 2-31
Service 1-26 Splamng Income 2-31
Enforcement Procedures 1-2 7 M:a.xamizang ltemaud Deduttaon~ 2· 32
Sclemon of Returns for Audit 1-27 Filing joint or Separate Returns 2-32
St;itute of L1m1tat1ons 1-28 Compliance and Procedural Considerations 2·34
Interest 1-28 Who Must File 2-34
Penaltie; 1-2 8 Due DateS and Exirn~ions 2-34
Administrative Appeal Procedures 1-29 Form 1040 2-35
Components of a Tax Practice 1-29 System for Reporting Income 2-35
Tax Compliance and Procedure 1-29 Problem Materials 2 · 36
T:ix Research t -30 DiscU»icm Quotaotb 2-36
Tax l>bnmng and Consulting 1-30 Issue ldentificauon Question. 2-37
f 1rl3nci:.tl Planning J•31 Problems 2 -37
Computer Applications in Tax Practice 1-31 Tax Stmtegy and Critical Thinking Problems 2-42
Tax Return Preparation l -31 Tax Fann/Return Preparation Problems 2-43
Tax Planning Applications 1-31 Case Study Problems 2-43
·rax
Research Apphcauons 1- 31 hx Research Problems 2-44

vii
vi ii Comprehen siv e ... Contents

Rental Val~ of Pmonal-Use Prope-rt)' 4-3

... CROSS 11'CO.\tf.: L'\CLUSJOM J-1 Scll11·1# Priu.• of Propm) 4-3
E< A .:o-· bn'l. and~ Concepts of Income 3·2 M~1r· Sr • rtory Exduslons '-"
uonom1.: Concepc 3-2 G1fh and lnhcntanL('j, 4-4
A..~ounung Conctpl 3·2 Life ln\urance Pro.:ccdi. 4 .5
T3>. Concept of Income 3-3 A\\arili for Mentoriou; A..hie•·cment 4.7
To VVl ,.,, Is ln.:ome Ta....abte7 3-6 lK:ho'3r"11p!o and l'ellow>h1p> 4-7
OtStnbuuon\ fn>m Qualafied Tuition Progranl\ 4.7
A>\li;nmenr of ln<"Ome J..6
J>ayment\ for Injury :tnd S1dcness 4-8
Alloc;atlng Income Betw~n M.irr~d Pe<>plc 3 6
Income of J\11nor Children 3-8 EmplO)tt 1-nnge Benefii,. 4- 10
l'ore1gn E.ameJ Income £xdu>ion 4- 19
When f·. .. >M"' T111· able7 3-8 Income from the 01~hargc of ;a Debt 4 ·20
C.Hh .\le1hod .l ·8 &du;mn for C.a1n from ~m.:all 6USU1=
Ac.oru3l Method 3- 11 !>to..!.. 4 ·22
H) hnd .\lethod J..12 Other fadu;ion; 4-ll
It · Cross Income: Sec. 61(a) 3·13 Tax P'annrng Considerations • ·23
<..ompc~bon 3. 13
l:rnplo)tt foni;e Bencf1b 4-23
8u\1ne;,s Income 3.13 !>elf Help Income and U>c of Penooall) Own<:d
C1.un; from O...al1ngs 10 Propcrt) 3.13 Property 4 24
ln1ere,1 \. IJ
Renb and Roy;al1:1ei. 3· 15 Complia nce and Procedural Consid erations 4 ·2•
01rnkndi. 3 16 l'roblern M ~te•MI . • · .
Alimony ond 5ep.1.rate Maln1erunc-e Payment\ 3 19 01>eu\>1on Quc;.11on\ 4.25
Peni.1oni. and Annu1t~s 3-20 l~ue IJenuf1cauon Que;uon~ 4-26
lncon1e from Life Insurance and Endowment l>roblem\ 4 ·26
Contract\ 3-22 Comprchen'"" Problem 4 -30
Income from 01s..:huge of lndehttdne\\ 3 ·2l Tax ~lr3tcgy ;and Crtti.:.il Thmlung Problem; 4 ·.lO
Income Pa!.>ed Through 10 Tnp>.)t'r J .2J Tax Form/Rcrurn Prq>ar:auon Problenu 4-.l I
Other ltemi. of Gr°" Income 3·.23 Ca>c StuJ) Problem> 4-32
Pn~. Award>. G.1.111bling \l:"innini:'>, ;and Tre.uure Tax Re\t'an;b Problem; 4-32
hnd; 3-24
111~1 Income 3-24 r
Uncmplo) meni Compens;anon 3.24 ... PROPUn TRANSACTIOM: CAPITAL CAL'\S ANO
~1.il 5ec-Unt) Bendit> J -24 LOSSl:.S S-1
lni.uranc-e Proc~Ji. Md Court Award\ 3 26
Ott11rm · •UOn of G.. 10 o · lo~s S· 3
R~o•ery of Prcv1oui.ly Deducted Amounr; 3 26
Rea l1Lcd Gain or Lm> 5 3
c:b1m of Right 3·27
Rttogn1Lcd G.11n or Lo;; 5.5
t.x Plannm9 Con)lderations 3 ·27
Basis Con sld.., 'ti 5 .5
'>h1fung Income J.27
Cost of Acqu11-ed 1>ropeny 5.5
01\orct' ~ttlemenr. 3-28
Property Rcccl\eJ a\ ;a Gift: G1fb After 1921 .) .7
Pref)31d lnmme J..28
Propcrt) Rece1H•d from ;a Drcedent 5-8
Taxable, r.u. hl'Dlpt, or Tax·Oderred Bond; 3 ·29
l>ropcrt) Con•crted from Pu<>onal U\t' 10 Bu>1ne>>
RcporunA ~;"111~ Bond lntetti.1 3-29
Ui.e 5· 10
DderrcJ Com~uon Arr;angcmcnb 3·.lO
Alloation of Ba;i.> 5- 11
Complia~ rocedu•ao CO"lsiderations 3·30
DefiniVon of a C " · A 13
P->I'- "'MllltPri.11, ~ ~6 lnflucnL-e of 1~ (oun> 5- 14
01;.:u;.1on Quc.r1c.1ns 3-36 Other IRC. Prov1\1on> Rdc.ant 10 Capital C:lin> and
li..ue IJcnufkauon Qubtiocu 3 .37 W>\C\ 5· 14
l>roblcm; 3 .37
Tax Treatlll'!nt f.,, C '1> 't a1 Gains and losses o f Noncorpo-
(.omprehenM•·e Problems 3-40
rat e Taxpayers 5 16
f'3x StrJte!()' and Critical Thinking Problem; 3.4 I
Capitol Ci2111\ I-16
lax hlrm/Rerurn Prcparauon Problem .l -4 I
Ad1u>teJ t'-:e1 (;3p112I Gain• (A..'lCC) 5· 18
w>c <.1udy Problems 3-44
Capit3l Lo\\t'\ 5· 19
ln Rr'ltln.h Problem 3-44
Talt Tr•· · •l"t of Capital Gains and losst!S: Corporate
Taxpayers 5·22
Sale Of fxd I · 22
... CROSS 11'C0.\1b 1:.XCLUSJONS 4-1 WonhlC>> ~utult'\ 5-23
I t - :1'\ali A ·• · .,come 4-2 Rct1rcmcn1 of Dcht lnmuments 5.23
UnrcahLCJ Income 4-2 Option> 5-26
~If Help ln<.ome 4.3 PJtcnr> 5 ·27
x Comprehensive ~ Contents

-r.x Pl•nnmg Com teforations 7 ·37 ProblrrM 8-38

l>ro.idmg 1'on13uhlr Compcm;auon to t::mplO}tts 7.3; Comprehm>l\e Problem 8-42
Rollovtti. 10 Roth IRA '"' 37 T3x Stratq:y and C.nb<31 Tl11nk1ng Problem 8-43
Com+;•"''"'• And Prou;J" ' Considerations 7·38 T3X l'onn/Return Prq>arauon Problem• 8·'43
!>ub.unti.ihng Trncl :and Bu~nr>> Mral Ex~> ; .JS Ct>e Stud) Problmu 8·'45
Rcportin~ Offae in Hon"' &pu.,.,,, ... JS Tax Rescan:.h Problem~ 8-'16
Qu;al1f1U11on of Pm.ion :and Profir Shuing PbM 7-39
,...,bl· -i r.~terials 7-40
0.s..-ui.i.ion Quci.1ioni. 7-40 ~ LOSSU A.'J) BAO 01:.BTS 9-1
lliur ldc1mf1.:auon Quollon> 7-'12
T•~O""s T"'" •.«.,, It •.. • in Lones 9·2
Problem> 7-'41
Comprrhcn>l\c Prublcm 7-'48 Sa.Ir or l::x..hangr of Proptrt) 9 l
Tax Smattg> and (.nm.al 'lllinking Problem 7-49 hpropna1td, Sc....ed, Conf1\CltN, ur ConJemned
Tax l'onn/Rcturn Prcp:ar.111un Prol>lrm 7-'49 Property 9 3
Ci>C" S1udy Pruhlcm\ .,.o4 9 AhandonrJ Property 9.3
rn Rc>ean.h Problem 7 -SO Wonhlo; ~ur1L1t\ 9.3
Otmolauon of Proptn} 9-'4
Oass1fying the losi on th• Taxpayer's Tax Return 9-4
c [ f <.. Ord1na'> Veou~ Cap1u l um 9 . ~
~ rrE.,uL.£0 oroucnoNs s-1 Dl.l.31low3nce Po\i.ih1Li110 9.6
Medical Exp.;'»..S 1-2 Passive LOSSH 9 7
Qualified lnd1v1dua l; 8-2 Conipuuuon of P;is;"e Lo;;e~ .1nJ ('rrdll\ 9 7
Qu.ilified Medical Exptn•r' 11 .l Drryovrrs 9·8
Amount and 'I 1m1ng of Deducnon 116 Otfimuon of 3 P;i\\1ve Awvi1y 9 10
Taxes 8-9 Taxp.iyer. Sub1c.:11<> l'.m1ve LcM Rub 9 12
Dcfirurion of a T:ax 8·9 Rr3I Esu1r Bmmo'>C'<! 9-1'4
DcdU<.ublr faxe; 8 9 Oth<'I' Rrnul Rul fatale A<.uviuo 9-1S
Um•tS oo ltemu.tJ ~U<.ll<)nlo for Sure .ind Local T;u.c;. 8-9 Casualty and Theft l~s 9·17
Sutt and Lu.:.il ln.:o~ ' l.lxt' 8 10 u•wlt> DdinrJ 9 . 1;
S1.i1e and Lo..al 'iale<. Tnr, 8 ·I 0 The~ Defined 9- 19
Prri.onal Property laxt> 8 · 10 Dtduwblr Amoun1 of U\Wh) LcM 9- 19
Real Ei.urc T;ixC\ 8 11 l.Jm11a.11on\ on Pe.-..onal-U~ Property 9 -20
Self 1:.mplo)mtnt l ;o; 8 -12 Xtttutg c~ualty Gam> and Lo»c> on Pcrwnal ·U)t
XonJcJ~'tlblr Int<. 8·12
Property 9 21
lntC"esl i- 12 Ct\wlt) G;um .ind W>>b Annbuubk 10 BU>J~ and
Dcfuu1ion of lntcrc<.1 li -13 ln\Nmtnl Proptn) 9-ll
d.is>1fi.::a1ion of lntttt>I 1'..xpt~ 8· 13 Tuning of C....u;alt~ Lc,.; Dcdu..rion 9.ll
l1m1ngof1hdn1rrc.1 DcJu~uun 8°19 8.d OeO''- '"2 :
c~ I' tab ( Contr,but:Ofl', 8 21 Bona h<k Dcb1or-Crtd1tor Rcb1101ulup 9 -2"
Qu.ihf) mg Organ1ubon 8 21 Taxpayu-. B..u1> in the Debi 9 .25
l) pt of Pmptn) Conrnhu1rJ 8 22 Debt Mmt ~ Worthlen 9 16
~ .... uon um11.i11on; !l-25 Nonbo>.l nb> 8.id Debt; 9-26
Appli.:anon of ( Jtryo•tt> 8·26 Business Bad Debt> 9-28
Sp«,31 Rub for Charirablr u>n1nbu11ons ~b<k hr OtposllS in lnsolvcnl 1'jn3n41;al ln .. UIUllOn\ 9·28
Corpor;iuon• 8-27 Net 01M"•at1l'9 lg,·. .. 'i'-29
Summary of C.haruablr Contribuuom Drdoc1ion Computing the Nc:t 0p<'l'uing Lo» for lndl\ldll.11!> 9-29
L1m1uuon\ 8·27 Drryover Period> 9 32
Casualty and Theft losses 1·28 Excess Business lossu 9·33
Qualified Business ln<ome Deduction 8·29 Tax Pl•nning Considerations 9 ·33
T•x Plillnnmg ConsidNations 8 ·10 B..~d Debi~ 9-H
Mrdic3I bcpcn ..r Dcdu<llOn 8 JO Casu.i ltit\ 9-J'4
lntcrr\I Exptn>r Dcdu .. tion 8 .31 Complia nce a.nd Procedural Considerations 9·34
tktlm.tion for Charitable Contnbuuon\ S·3l W>u.ilty Lm>0 9 .J4
Compl•.ina. a"d Pr"' "d ir' c.. " •d• '·•ti ,•n•. 8·33 Worthlts\ !>«urrue\ 9 ·3"
Mtd1.:al l'..xpen'>C'' 8-H Proboel"l M•teria.ls 9- ;5
Chantable Conmhuuon\ 8 -.B D&uss.ion Qutsuons 9-JS
T3xt<. 8-.15 Issue IJmufi..auon Qur,uon\ 9· l7
Problem Miit8'1a > g.37 Problrmi. 9-r
Di;cm>1on Quc>tl<ln\ 8 3i T3X Stutq,>y 3nJ C.nu..;il Thinking Problem\ 9-'4 I
l»ur liknufi.:;auun Qur>1ion\ 8 ·38 Tax fonn/Rrtum Prcp;ar:auon Problem\ 9 ·•U
 Contcnl!i • Comprehensive xi

Ca~ ~tuJy Problenh 9.44 Chanqt in Accounting Met) · .n~ 11·25

fax Rt"<arch f)rohlem 9.45 Amounc of Change 11-26
Rq><>ning the Amounc of the Change 11 ·27
Obtaining I~ Coll>Cnl l IT'
T-Pl...nn.1Q (..,· ~,..._,.o.ons 11·21
~ l>lJ>RLOA rlON. COST RLCO\ utY, A..\ IOR I UATIOl\, A..'I>
A.:<:ounung PcnoJ. 11 ·28
l>lJ>U HO!\ I 0-1
Ac.:ountmg ~lechoch 11-28
04. • ~overy 10-2 lnsr.. 1Jmcn1 S;ib 11 -28
Gc:neul Coru.1~uuon; 10·2
Dcprn:1auon MechoJ. 10·4 Co,.,,., ""'"' :P dural Considerations 11·28
Rq><>rung ltbullmenc Sale• on form 62S2 11 ·28
Cakubuon of Deprc..:iacion IO·S
Proceduro for Changing 10 Ul-0 11-JO
MAC.:~ R.,.1rn;11on• 10··12
AMort1z.1t on · Problem Mll'l · .. I ' '· 30
O!k1M1on Quouon, I I ·.JO
Sa. 197 lncangiblt; 10· 18
l»ue lden11li<:;111on Qut"iom 11 • ll
Re~.tr<h anJ bpcnmcnc;il bpcnJ1turt> 1().19
Compuetr Software 10·21 Probltms I 1-U
Comprehcn>I\"< f)rohlem I I ·J4
Dop1etion, Int. 11• • Drl!11ng and Development Tu: !.tutrg) ;ind Cratu.:.il Thinling Prohlem' 11 3S
Costs 1(}.22 Tax form/Recurn Prcp;ir.rnon Problem 11 JS
Dcpltuon McchoJ, 10·22 Case Stud) Problem> I I JS
I rtJ1mtn1 of lnungihlt Drill mg :and Dt\·elopmcnc Tu: Resear<h Problem• 11 36
Co;ti. 10 24
Tax Planning Co,,sid.:rations 10-24
Alcernauvc Deprcdocu>n ~y~cem Under CHAPTER 12
MACRS 10-24 ~ l'ROPtJlTY I RANSACTIONS: NO:-r'JAXAllLC
U~ of Unm of ProJuwon L>cprc:<:1J11on 10-24 l:.XCHANCl:.S 12·1
~cructunng 3 Bu'"""'~ Coml>1n:a11on I0-2S like Kind Exe• "'9L. 12·2
Cnmpli.1nc8 .>nd Proced1n. Considen1tion• 10-25 Like Kmd Propcrr)' DcfmeJ 12·2
Reporting Co;c Ra:over), Dcpreuauon, Dcplet1on, 3nd A 01ttc:t E,..h;inge Mu>I <krnr 12·4
Amonu.:mon DcJuction; 10·25 Thrtt-P;irt) u-.h;ingo 12·4
Probi.:"1 Mat .. • 11• 1·1 ·26 Rececpc of Booe 12-5
015':U\}K)n Qut>llO!h 10-26 Basis of Proren> Ra:c.•ed 12·6
l~ut IJenufr<Jllon Que.non> 10-30 Ex.changes Bemten Refaced Pamo 12·7
Probltm' 10-lO lr;ullier of ~on-ule · Kind Propcrt' 12·8
Compr<"hclbl\ e Probltm I ().JS Holding PenoJ for Propcrt) Re..To cJ 12·l>
fax Stutq:y ;inJ Cmi<:;il Thmling Problem; 1().J6 Involuntary Conversions 12·9
T.uc l'onn!Rt"tum Prepar;tlion Problem.. IO-J; lmolunurv Con,er<ion 0.-fincd 12·10
<..a;e ~coJi Problem; 10-37 Tax Trea~ent of G;iin Due to lmoluncal") Comei-s1on
1.u. Rc.un;h Problem 10-31> !RI() Booe 12· 10
Repb<emenc Proren~ 12· 12
Obtaining Replau:menc Propel't)· 12· ll
Tune Reqwrl'ment> for Repl;i•cmcnt 12· 14
~ ACCOUl\ n.-.c PLRJOl>S Ml> MfTHOl>S 11 -1
54lle of Pnrc P..• Rl.ls d..,~. 12 · '.>
Account1riq p, r, .(f. 11 2 Pnnop;il Re.1Jen-.-e Defined 12 16
Requ1teJ P.ttmenh .tnJ I 1\0I Ye.tr> 11-J Sale of More chan One Pnnup.il Re.1dcn<.'t Wrthm a
Ch.tnge> an chc A<:counting PerK><l 11-4 Two-Yc;ir Pcm><! 12· 17
Recurn\ for Penoch of Le..; than 12 Monch\ 11 -S ~onqu;iltfied U•t After 2008 12 19
Ov ra.11 A((ountrng Methods 11·7 lmolunury Con•er.1on of ;i Pnn<:rp;il Re;,rdenc:e 12-20
Ca;h Ra:e1pt> jnJ D1;bu~men1> Method 11 ·7 Tu Planning Con11~r11tio"s 12 20
A<:uual MechoJ 11 9 Avordmg the L1ke-K1nJ fx<hlngc Pro\ r\ron; 12·20
llyhnJ Method 11 I0 Sale of a Prrnupal Rc;adc.1~~ 12-21
Inventories 11 11 Compliance And Procedur ol Cono,id•tations 12·22
Detennmotion of ln•·entor) Coo.t 11- 11 Rq><>rt1ng of ln>oluntar) Con•·ernon; 12·22
Spec al Accounting Mtth..\I> 1115 Reporting of Sak or Ei.~hangc of a Pnm:cpal
Long.'!crm Contr.i•t• l I IS Rcs1~n~c 12 23
lmtallntcnl Sab ~lechoJ 11 17 Problem Mat ri•ls 12-23
Deferred Pa)mtnt ~3b 11 -2 1 Dis.:ussron Qucsm>n\ 12-21
Imputed Interest 11 ·Z2 l~sue ldenufo.:.tuon Que.troll> 12"24
lmpuced ln1ere.1 01mpuuuon I 1·2J Prohltm\ 12·2S
An:nul of Inter~ 11 2J Comptthcma>e Problem 12·29
Gift, ~huehol~r. and Other Lwn• 11-24 Tax Strategy and Cnu<:al 1 hinlung Problem 12-29
xii Comprehensive ... Contents
T3X Form/Return Preparation Problems 12-30
Case Study Problem 12-31
fax Re~:irch Problems 11-3 I
C"'APTER •3
... PROPHITY TRANSACTIONS: Sl:.CTlON 1231 AN'O
R£CAPTtlllE 13-1
History or Sec. 123 I 13-2
Overview of Basic Tax Treatment for Sec. 1231 13-3
Net Gain> 13-3
Net Lossc,. l 3-3
T3X Rate for Net Sec. 1231 Cam I 3-4
Section 1231 Property 13-5
Stttion 1231 Property Defined 13-S
Real or DepTcciable Property Use<l m Trade or
Business 13-5
lnvolunt:tf)' Conversions 13-6
Condemnations 13-6
Other lnvoluntar) Con,crsions 13-7
Procedure for Sec. 1231 Treatment 13 7
Recapture Provisions of Sec. 124S 13-8
Purpose of Sec. 1245 13-9
Recapture Provisions o f Sec. 1250 13-10
Purpose or Sec. 1250 13-11
Stttion 1250 Property Defined 13-11
Unrccopturcd Section 1250 Gain 13- 12
13.xauon of Gains on Sale or E.xch:tngc of Depreciable
Real Property 13-12
low-ln~'Oml' Housing 13-15
Additional R~apture for Corporations 13-16
Summary of Secs. 1231, 1245,and 1250Gairu 13-17
Recapture Provisions-Other Applications 13-18
Gifts of Property Subject to Recapture 13-18
Transfer of Property Subject to Rcc:tpture :tt
De:ttb 13-18
Otarit3hle Conttihutions 13-18
Like-Kin<l Excbanges 13-19
lnvolun!Olf)' Con•·ersions 13-19
lnst:illment S:ilcs I 3-19
Stttion 179 Expensing EJecuon 13-20
Conservation :tnd L:tnd ae:uing Expenditures 13-20
lnt:ingible Drilling Costs an<l Depiction 13-21
Gain on Sale of Depreci:tblc Property Between Rebted
Parties 13-22
Tax Pl<inning Corsiderations 13-23
Avoiding the Recapture Provisions 13-23
Compliance and Procedural Considerations 13-24
RL"p<>rring Sec. 1231 G• ini. and L<i.ses on Form
4797 13-24
Reporring Gains Recaptured as Ordinary Income on
Form 4797 13-24
Rtportfag C:tsu31£)' or "lbtft G3m or Loss on form
4684 13-24
Problem Materials 13·28
Dii.cussion Questions 13-28
Ii.sue Identification Questions 13-29
Problems 13-30
Comprchensi\'C Problem 13-3 5
Tax Strategy and Crttical 11unkmg Problems 13-35
fax Fonn/Rcturn Prep:irouon Problems 13-36
Case Study Problems 13-36
T3X Re~arch Problem 13-37
C AP-ER 14
~ SPEClA.L TAX COMJ'ITTATION M.JolHOOS, TAX CRtOITS.
ANO PAYM£NTOFTAX 14-1
Alternative Minimum Tax 14-2
AMT Computauon 14-3
AM1 lax Rates and Br:ickcts 14-3
AM1 Exemptio n Amount 14-3
AMT T:tx Preference Items 14-4
AMT Adjustments 14-4
AMT Credits 14-6
Summary lllustration of the AMT
Computation 14-7
Self-Employment Tax 14-1
What Constitutes Self-Employment Income 14-9
Personal and Business Tax Credits 14-10
Use and lmporunce ofT•.x Credits 14- IO
V:tlue of a Credit Veri.us a Deduction 14-10
Nonrefundable Pcrson3 ( T:t.x Credits 14-11
Foreign Tax Credit 14-17
Business Related Ta>. Credits 14- 19
Refundable Personal Credits 14-23
Provisions Related to Health Insurance 14-24
Health Insurance Premium Assisunce C redit (Also
Known as Premium T•x Credit) 14-24
Payment of Taxes 14-26
Withholding ofT•.xes 14-27
Ei.timated Tax Payments 14-28
T<ix Planning Considerations 14-30
A\'Oiding the Ahernati\•C Minimum Tax 14-30
A\'01d1ng the Underpayment Penalty for Esumated
Tax 14-31
Ca•h-Flow Consider:ttions 14-3 I
Use of Gener:il Bu>mcss l:ix Credits 14-3 l
Foreign Tax Crediti. and the Foreign Earned lncoltM'
Exclusion 14-32
Complianm and Procedural Considerations 14-32
Altem:itive Minimum T:tx (A~4T) Filing
Procedures 14-32
Withholdings and fatimated Tax
Paymcnti. 14-32
General Bu>inei.i. T•.x Credits 14-33
Nonrefundable Per>on;iJ T3X Credits 14-33
Problem Materials 14-33
Discu;sion Questions 14-33
Issue Identification QucStions 14-35
Problems 14-36
Comprehenol\"e Problem 14·40
T3X Str:ttCI,')' an<l Critical Think.mg Problem 14-41
T:t.x Form/Return Preparation Problems 14-42
Case Study Problems 14-43
Tax Research Problem 14-43
 Contents "" Comprehensive xiii

OORPORAnoss Ai.sumpuon of the 'I r;an>fcror\ u.tb1l1nc1o 2 22

Other ConsiJen11on1o tn :a ~- .l S I h<.hange 2·25

( 1 C,.,01a of ur·t~ !itructur ; .' I

Clur.t<.tenuuon of Oblig.mon> .t> Debt or l:;quit) 2-2i
• TAX Rl:51:.ARCH 1-1
Debt Gp1tal 2·28
°"'""" •'W , I l " ~· -Brch 1•2 Eqwty up1ul 2·29
Steps In tho tax Resurch Process 1·3 Capita.I Contribution> by ~;archolJer> 2·29
Importance of the f "'' ,, t•ie r.x Consequencn 1-S Capita.I Contr1buuun; by !\omh;archolck.- 2-31
Cre;a11n11 a huu.al '>1ru;anun l';a,ur.ablt Ill the W0"1hleu'les of Stock 01 ~ t>l ' 1
' '!:gatiom 2·32
T;a"JU)« I 6 ~rt!IO 2 -32
lhe Sourcos of Tax law 1·7 Unsecured Debt Ob11iµ11on1o 2·.H
fhe ltgJ>l.l1t\'e Pru.;C!>> I· i Ta11 P.aon "'J c '"s r~ natk>ns 2·34
The lntcrn;al Revmue Cude 1-8 Av01Jmg&c 351 2·.34
TrtliUf) Rq..'Ubhun; I· 9 Corip ,,1ncr· i"n l"rnr edural Considerations 2·36
AJm1n1'>lr.l1tve Pronounamcnb. 1-11 Reporttng Requirement> Under Sc.:. 351 2·36
JuJ1Lul Dc..·1\IOn\ 1·14
lax rruLie> 1-24 Problem M<lb. · .. s 2 37
Eu. PwoJ..:31; I ·24 D1~-u»1on Quc>ltOn> 1 3 7
houe IJenttf..:auon Quc>Uon; 2·38
Tax Servkes 1-25
Problem; 2·38
The Internet •S .I R4'SC<1rch lnol 1·26 Comprehcn;,l\·e l'toblem\ 2·4.l
Keyword !>tal'l.ht\ 1-27 T;ax Strategy and Crt11c.ll l n111lmg Problem~ 2-44
~ea"h hy C11auon I 28 Cn_\e Study Prohlcm; 2·44
NorKommer<i:al Internet '>erv1ce' 1-28 Tax Re>e.irch Problem> 2·45
Citat"' s 1 28
U;ing the Cuaror 1-.lO CHt rER
Profession.ii Gu1~11 nM for T•x s.>n1icas 1·30 • TIU:. CORPORATI:: lNCOMl I AX l·I
Tre.1'Ur) Dep;1nment Circular Z JO I-JO
Corporate Elections 3 2
AICPA\ Smemenr\ on fa" '>t:anJard, 1-31
Cho<»tng a ulenJ;ar or t't...:.ll Ye;ir 3-2
s.,,,1plr v.., .. p tp• rs 11nd 0""1t ... tter 1·34 Accounting Mrthud; 3 ·4
Proo'"" Ill! 1torials 1·34 De1•"'ni'" • g n Corooration's Taxable Income and Tax
D1><u»ion Quouon; t-34 t...U.1ity 3.5
Problcrm 1-35 Corpoute Tu Rate 3.5
wmprdttmi•e Pmhkm I-JS S.ib ;anJ fuh;inizo of Propert' .l ·5
ln ~r;at~ .inJ C:r111al Th1nling Problem 1-38 Business upcntn .J-8
u~ ~tuJ) Problem I 0.19 Spc..w DeJu.:uons 3- 14
Tu R~;an.h l'roMern\ l·l9 Ex.:ept1on> for Omdy HdJ U>rpor.uion> 3·20
Controlled Gr•· .ill 'c ''PO', • .....,. l -21
Wlut I> ;a Controlled Group? 3 ·2.2
• CORPORATI ~OllMA noM ANL> c.vn AL Applu:auon of the C.ontrolleJ C.roup Tnt 3 25
STRUCl"l; Rl 2-1 Spec:i;a) Ruic.. Appl)tng to Controlled Group> 3 25
Or11.i~1z;at on I,,, 'll> Ava11able 2·2 Con.>Ol1d;ated T.u. Return; l -26
'wle Proprictor;,h1P' 2· 2 Tax PiannilllJ Considerat1u11' 1.27
PartMMI~ 23 Cornpensauon Planning for '>hareholJer-tmployth 3-27
Corporatiom 2 5
Compoance •nd Proced111 11 C "'""'' ,ations 3·29
LumteJ Liab1l11y Companie!> 2·8
E.stunated Tun 3-29
LimueJ Liab1l11y Panner;,h1P' 2-8
Requirements for hltng and f>;iymg faxe.. 3-33
Chee~ the Box Re9ulations 2·8 When the Rrtum Mu>t ~ hied 3 33
le9al Requircuncmts and Tax Considerations Related to Tu Rctum S<..hedule. 3 .33
Fom1n11 a Corporation 2·9 Financ.ial Sutement lmplic.it1•ins 3 ·37
Legal Requirement> 2·9 Scope, Obje<.'ti,-c..., and Prm.iple' of ASC 740 3 ·38
"lax Con;1ckr;ation• 2 -9 Tonpora.ry D1fftrtn1.o 3 3\1
Section 351 ~ferring Gain or Lon Upon Deferred la'< A;,e1, ;inJ 1.he \'aluauon Allowance 3.39
ln<orporntion 2 12 A•~ounung for Un<.-eruin Ta" Pmmon' 3 40
l'he Pro~rty Requirement 1 - 12 B•ltn<.'C Sheet Oa;\lf1u1ton 3 41
l"be wntrol Requirement 2· 13 Tax Pro> ii.100 Pru.;o; 3 ·41
·fhc ~tuck Rc<1u1rcmmt 2 · 16 Compreheru.t•e lx3mplc Ycar I 3·42
Ufc..'t of~. 3.S I on the lumfcron. 2ol6 Curnprehen~•e Example - )c;ar 2 .1·4.S
l.t'< Con\Ctlucn..r. to Tumfcree Corp<1ration 2·20 Other Tral\S.1ction' .l-49
xiv Comprehensiv e "' Contents
Problem Mater1a . ; 49
O.s..:u>>t<>n Q~\lion• 3-49
b~ut ldenbf1'allon Quei.uon> 3 ·50
Problem, 3 .5 I
Comprthtru.nt ProMcm 3 ·58
fu. Stratrm and (.ru1ul 'l1unJ..ing Prubkm> 3.59
l:tx form/Rtrurn Prcp:irauon Problem> 3-60
c..i~ Stud> Problem• J-6 S
Tax R~an:h Problem• J-66
"' CORPORATE ~0!1.UQLIOATL'C OISTRJBl!TlOM 4-1
Nonn4u.:" ; 01-.'.•·D .' o· · n G.;· rlll 4· 2
Earnings llnd Profits (l ~ ,, 4. ;
Current 1'3rn1n11' .ind Profm 4 3
D1stm~uon ~n.ren Current .1nJ Ac:~umul.i!N
l&P 46
Nonliqu>dl1t1n9 Property Dist,r iblitl "'s 4·8
Con>equcrn:t> of Nonliqu11b11ng Propcny D1Hnbut1oru. to
the Shareholder\ 4 ·8
Coni.cqucm:c; of Property D1;tribu11on> to the
Dl\trihuting Corpou11011 4 -9
Con>trucm·c Dividend> 4 11
Stoel< Di11 od@ndund Stock Rights 4 · 13
Nontax:ible Stc><.k D1v1Jcnili 4 14
Nontnablc Stc><.k Right> 4 14
Effe~'t of Nontauhlc St<llk D"1dcnd> on the DiHributing
Corpor.111on 4 I .S
Tauble '>tock Ol\1Jend' ;ind '>10~k R1gh1; 4- 15
Stock R~..mp11or" 4· · .,
Tax Con;,equcnc:e> of tM Redempuon 10 tht'
ShartholJer 4 I"
Altnbutton Rulo 4 °18
Suh>lanu.111, D1;proporuon.1te Re.kmpuon; 4·20
Complrtc rerm1nauon of tM Shutholder'> lntc~t 4 -21
Redemrtit>n' Not h~ntially l:.qunalcnt 10 a
D"1dend 4·H
P.1m.1l Liqu1d.1uon' 4 -23
Rt'dcmption;, to Pn Death Tu:t>> 4· 25
Eff~'t of Rt'Jempr1on> on tM Di;,u1butin11
Corporauon 4 ·26
.... ~efl"ed ~'"'k '"' llOu ttS -i-27
St'<:. 306 '>to.k Dtfinal 4 28
D1;po;1t1on> of !I«. 306 '>t0<:J.. 4 ·28
Rt'dcmpuon> of~. 306 '>mc:k 4 -29
£xcqmon> to Sc.:. 306 1 rcatmcnt 4·30
Stod. Rec:S.mption·. by R• l.1teJ Corporlltions 4-30
Brother-'>Mcr C orporauon\ 4 -.lO
Parent-Sub\IJ1lr')' Corporauc>n\ 4 -.l2
Tax Plllnning Com1df'rllt1ons 4 -ll
Av01dmg Unrta>onable Com~n;auon 4. 33
8ooL\tr;ip Au-1u"111on; 4 -34
riming of DJ\tnbuuon> 4. 35
Compnanc• and Procedu· c ..n-.. dcrations 4· 36
Corporate Repomn~ of l\ondmJt"nd
Omnhuuon> 4· l6
Agrttmcnt to Tcrmmatc lntel"C\t Under
Sa:. 302(b )(3 ) 4 -36
Problem Material"' 4-~7
Dis.:t1>s1on Ques1101n 4 .37
l~uc ldt"n1tfi~;i11on Que>bon> 4 ·38
Problem\ 4-39
Comprcht'n~\C Problem 4 .45
Tax Strategy and vm.al'llunkmg Problem 4-46
Ca>t' Study Problem. 4 ·46
Tax Roeard> ProMcrn> 4.47
r-_
"' OTHER COIU'ORAU l A,\. Lf.\U.S ~- 1
Use of C CO'pC>rator1 to A"'""d ,.., , ,.. Tnos S· 2
P...-sorll' Molding CornP"" , Tu S-3
Pt>nonal Holding Compan) Defined 5.4
Srock Owncnh1p Rt'quiremmt 5 -4
p..,""'" Income Rctiutrcment 5-4
ukuhting tht' PHC Ta>< 5 ·8
A"o1Jmg the PHC lk>1i;n.111on and lu L1.1b1l11y by
.\l.lkmg 01\IJcnJ D1m1hut1um S· 10
PHC Tax Cakulat1on S I I
Accumulated Eitrmngs l.1x 5 12
Corporation> Subj~! to chc Penalty fax 5 12
Proving a Ta.x-Arn1J.1r..:c Jlurpo>e 5 13
fa1Jence Concernmg the Ruwn.iblene>> of an 1::.arnmg;,
A~xumul.iuon 5 14
Cakulumg tht' Au:umulated f ..unmg> fa>c S- 18
Comprcht'nSl\t t.umple .S-21
TiiA Plann ·19 Consldcra' .m 5 -27
Arn1Jing the Pcr>0n:il Holding Com~ny T~x 5 ll
AunJing the Ac:..'Umulattd 1:..trnmi:> T.n 5 23
Complianc• and Procech1o··a Considerations 5·23
Pt'l'SO<tal Holdmg Compan) 1;i, S· H
Ac..-umubred 1::.:mun&- T.u. 5 ·14
Profllf!"ll t.• ~1er ~ • i; • ~
0~10n Que>uon; 5 ·24
b>ut> ldmtt6cauon Que,uon; 5-26
Problt"Sru 5 -26
ComprCMMl\C Prol>lem .S ·lO
Tax Strategy and Cntl<.'31 ThmL..1ng Prohlem\ 5 -30
Case Study Prohlcrn> 5 3 I
Tax Rt>Cm.:h Problem~ 5 32
CH, F'
"' CORPORA fl. UQUIDA1 t.r-.C OISTRIBl!TlOM t.-1
Overview of Corporllte li4..iid.1tio" ·. 6·2
Tht' ~hareholder 6 -2
Tht' Corporanon 6· .l
Defim11on of a Complete L1qu1d:1t1on 6 -4
General liqutdation Rule• 6-5
Efftt~ of L1quid.1tini; on the Sh3rcho1Jcr. 6 .S
Effttn of Liqu1d.1uni; on the L14u1Jaung Corpor.it1on 6-6
Liquidlltion ofa Controlled SulKidia , f " 10
Overvit'w 6 · 10
Rt"qulttmcnti 6· I I
Effcc:n. of Liquidating on the '>hareholder> 6 12
t::ffcc:n. of Liqu1J.11mg on the Sut...1dtal') Corporlllon 6· I 3
 Contents •Comprehensive JIV

Special Repon1nq l"ufl 6-15 Tax Attrobutes 7·43

PcrtJ1n1ng m '>h;ireholdcl'\ 6 IS Assumpuon or T;i" Atmbutc\ 7-4.l
Pc:rt:unmg 10 I~ uquid.aung C..orpur31ion 6- 16 L1mu;iuon on U1oc or Tax Anrihucc. 7-43
RecO'ln:tion of Gain or loss Wh. · Pr perty Is Distributed in Tax Plann · ; Cvnsld9fations 7-46
R11t1~ment 1f 0.-ht &17 'X"hy U1oc a Rcorg;am.uuon ln>te;ad or 3 Tnablc
~nttal Ruic 6· I - Tra.ru.;a<.·tion? 7·46
S;i11,fau1on or 1hc '>u~1J1;11') \ Dch1 Obhg;auons 6· t 7 A•Olding the Re-ocgan1u11on Pro\l\ICl•h 7-47
Tax Planning Cons• ' · ... ""'' 6· 18 Conpl -."c' ind Procedural Conside11tions 7-47
liming 1hc LKjuiJ311on T r;iin'3,hon 6 - 18 S«uon 338 l:J~·uon 7-4 7
R...:c11:nouon or Ore.Ion.ii") ~~>\'<!hen a Liquuh1:1on Plan or Rcorganu.111on 7-47
Ou:un 6 19 Parl) to :a Rcorg:aniu11on 7-48
Obu1n11~ so•,.O"nttjhip 10 Aduc:u~ ~- 332 Ruling RcqUC>t> 7-18
Scntfil• 6 - 1'J Fi n1~ Statement 1moliartion1 7-48
A•o1d1ng St.:. H2 co Re.:ognuc Lo\>b 6-20 l '""hie AsSct A.:qu.-111on 7-48
Co· I' · 10- ''d P oced1.- · • der1tions 6-20 1'ont.uahlt As1oc1 A.:quo>uoun 7.49
C~neral Liqu1J.iuon Pni.:cdurc> 6-20 S10ll Acqu1\lt1on ., SO
Sc.cuon 332 L1qu1d.111om 6 21 Priclllg l~ A•qw>lllon .,·SO
Plan or L1qu1J3tion 6 21 NCI Operating lo>i.c> 7· SI
Prob •m Maten.11, 6-21 Problem Ma••·ial1 7·51
Dos.:uS\lon Que<>1101l\ 6-21 D1s.uss1on Qucsuon\ 7 -S I
l'>-\ue ldenufic:111on Quc\cion'> 6-23 Issue ldcnulic;iuon Quc>IUlll\ 7 H
Prohktm 6 24 Prohlcms 7-53
Compreheru.hc Probkm 6-30 Comprehcn.ive Problem 7 -61
T3x Stra1cgy .ind Cricic;il Thonk.ing Problem• 6-31 Tax Strategy and Cr111.:al ·1 hinkmg Problem'> 7 62
Ca.e S1udy Problem• 6 B Case Stud) Problems 7. 63
13" Rc~ar.:h Problem• 6 H T:a>. R~rch Prohlcm\ 7-64

('" i p CH
.. COllPORATF.ACQUISITIO~S AND Rf.ORCMIZATIONS 7-1 .. CO~SOUOATl:.DTAX Rl:.TUR.'S 11-1
T,.....b A~q"' ~I\ · •· .t1 7 2 Defmiti\AI of ,.. At· .ited G• p "2
A>i.ct Alqw•n1<1m ;.2 Requirement> 8 -2
SuxL. Alqu1.,110n• 7-4 Comp;imon with Con1rollcJ Group Defin111om 8-4
CoMpamon ot I ixabla and ~t • blc Acqu•sit>ons 7· 10 CO"'to O.tedlaxR turn Election a.:
T3ublc :and :-lonuuhlc A'»<'I Acqu1>111ons - - 10 Consol1da1cJ Rccum Rcgubuons S -4
(;omp:an.on 0'1u<1hlc 3nJ ~ontu.able S10lk Tttmmauon or Con•ohd.ucJ T.a" Return hhng 8-S
A.:qU1>11ion~ 7-11
Consolicfatl!d lllxable Income 8·6
1)'pes of ReorQanizations and Their Tax Consequ~.s 7· 14 Ac-counting Pcrio<h anJ Method> 8 6
The fargct or I r.an.fcror {;orpt>r3Uon 7-14 ln•-omc lnduJcJ 1n 1he Conwl1J.i1cJ Tu Rerurn 8-6
Ilic A~qumng or fr.an.fertt Corpor:uion - IS ulculabon or Conwl1J.i1cJ 'f.iuMc lnLC>mC
Shareholder. ;1nd '>c..uril) Holc.lcn 7-16 and Ta, 8-&
Acq, rn1v " ·a,. z ''O"I' 7 ·19 lntercomp "Y ·. ·1SOCtlons U
'f>1>eARcocpnia1ion 7·19 B:a~c Co~cpc> 8·8
' ltpc C Rwc-g.anu.mon 7-25 Matdung and Acxdcuuon Ruic. 8 10
lypc D Rcurg;inwuon 7-28 Appl1c.auon> or ~b1,hmg and A•xtkrauon
' ltpc 6 Rcorg3n1u11on 7.2'J Rule> 8 12
re
T) (i Rcorpn1z:111on 7-33 RcJc,•.in~c or Mai.hong and A.:~dcr;iiuon Rule; 8-18
Div11•ve ft, 11.omz 1tlons 7 Jl Items Compu1ed on 1 Conf< lida'1"d h"s 1·18
D""ivc fype D Rcorgan11a11on 7-33 Clunuble C()nmbuuon Ded~mm 8 19
DM~ive fypt G Rcorgani1.a11on 7-38
Net Sa:. 1231 Gnin or U>\s 8 19
Other Rt.iorg"· 11zat1om 7 "18 CnpiuJ Gn1ru 3nd Lm1oc> 8 19
·1yrc I:. Rcorgan11a11on 7°.38 D1"idends·R~t,.ed Deduwon 8·20
r) ('C ~ Rcorg3n1.t.1llOn 7-40 Rcgul.u T~x L1.1h1l1tr 8 22
J'"''< R_. ··ct om on the Use of Corporate 1.ix CrWit~ 8 ·22
Reorganizations 7 -40 Esn11131cJ ra .. PJ)'nicnr;. 8-23
ConbnWI) or lntcre>I 7-41 Net Operalin11 L~-~ (NOul 8 -24
ConbnWl) or Rll•inc:>> £ntcrpruc 7°41 Curren! Yc<1r NOL 8-2S
Bu;.1~> Purp<>i.c Requiremcn1 7-42 Carr~ o' ers or ConwhJ..ccJ 1'0 L. 8 2 5
~tcp Tr.anuu1on Do.:1r1nc 7·42 Spcc~I Loss L1m11a11on;. 8-26
xvi Comprehen sive " Contents
Stock Basis Ad1u~tmenu 8-30
l 1tt1ng Up of Stock &su Ad1~tmrnh S- l 1
u•c-> le»> Ac•ount 8-31
lllx PlaMing ( o~de<ations 8·32
AJv2nt2ge~ o( l'llmg a Consoh<bttd Ta" Re1urn 8·U
01'.iJv.intagei. of hl1ng .a Consoli<btcJ Tax
Return 8 -33
Col"lplo.>nce and Procedural Considerations 8-33
The 83\IC lle~11on and Return 8 -3.l
Parent Corpor:mon as Agent for rhc Comolid:HeJ
Coroup 8-34
Separate lnruy Treatment of lntcrwmpan'
Tr.ln'hl•llon> 8-35
u.ib1l11y for T.uo. Due 8-35
fjnmul.al C:~ten-f'1t "'" utions 8-35
lntcn;ompan) Tra!lilctiOn> 8-35
SRLY UMO 8-3.,
Probk. ...... ,. ,, . . .38
O."'-u'i.t0n Quci.ooni. 8 -38
l\\ue ldenuf1cauon Quesuons 8-39
Problem\ 8-40
Comprehen>1ve Problems 8-4 7
rax StratcS)' nnd Critic:il Thinking Problem> 8 ·48
T.u form/Rerurn Prepar:it1on Problem 8 -49
Cai.c Stud) Problem 8 -50
lax Rci.un:h Prublem5 8 -50
c &m lffe.:1> of 01\lribu1t0n• 10-4
.. PARTNUlSHIP •OR.\lATION A.''D OPE.RATION 9-1
DI.' · ,' ·· P¥tr111Bh'P 9-2
(ic:neul anJ l.Jm1ttd Putnerslup> 9 -2
Overview of Taxation of PartneBli1p ~- :ome t-4
Parmer.hip Profits and Los~ 9 -4
The Panner'> Bai.a. 9-4
l'.irtner~h1p Dl!.trabuuons 9 -5
Ta11 lmphcati<lns of Formation of a Partnership 9·5
<.:onmbu11on of Property 9-6
Conmbut1on of Services 9- 10
Organ1t3Uunal and Synd1CJllOn
b:penJ11urei. 9- 11
PMtnenh1p Elections 9· 12
P.inncnh1p 1.u. y.,;ar 9 -11
Other Partner.hip Eltctions 9 - 15
p,.rtn('nhip R~ing of Income 9-16
P.trmcr.Jt1p Tax.oable Income 9- 16
Scparatdr Stated Items 9 - I 6
Partncr~h1p Ordinary Income 9- I 7
Sp«ial DeJui:t1om and Limit:itioru. 9· I 7
Partner R"porting of Income 9 -20
l>artncr\ Dl\trabuuve Sh.tre 9·20
Spa:ul All(><:a11ons 9-2 I
II.'" t f "ilrtnenhip Interest 9·24
Bq:innmi,: &'"' 9 -14
tffc..l> of uabtlit~ 9-24
lffc..~> of {)ptt.tllOru. 9-1 7
Special Los' Lil" •llvors 9-29
AJ . Rt•k lo<.• um1l3hOn 9 -19
P.t\\l\·e Act1HfY um1ut10ns 9 -19
Lim1t.ttt0n on l:.xL't'" Bui.me» Lo..e' 9 ·30
Tri11'\HCt.1ons letwccn a Partner and the Pilrtnenhip 9 ·31
Sales of Prorerr> 9 ·.l I
GuarantttJ P.iymmh 9 -31
Famny Pdrtn ·>I' 1•s 9 ·33
up1ul Owner.hip 9 .33
Dunor-Dontt Allo<·21ioni. of lnc-ome 9.34
Tax Pl<tl"'1"'9 0 '"'id• · ,,;.,ns 9-35
Tunong of Uh\ Rccogn1uon 9.35
Guu3n tttd P.tyment\ 9.35
CofTlpl1ance and Pr• o<.. dural Considerations 9 ·36
Rc.'porung to the IRS and the P.trmer> 9·36
00 AuJ11 Pr~c..lur~ 9 -37
ProbJet"'I M•t • ., (, '~
Dis<:uss1on Que.uoni. 9·38
Issue ldcn116...i11on Qucsnon. 9.39
Problem' 9-40
Comprcheni.a.c Problttn• 9-48
Tax Strat~y anJ Criti<.31 thinking Problem 9 -49
Tax form/Return Prciurauon Problem> 9-50
use Study Problem> 9. 54
Tax Resear<.h Prohle1m 9-55
CH P (
.. SPECIAL PARTM.RSHIP ISSUES I D-1
Nonliqu1dat " ; Di .t· ' lfl '"' 10-2
Ra:og111uon of (,un 10-1
Holding PertOJ and Clurh'tt'r of DtStnbuttd
PrOpert) 10·7
Non 1q1. rl •tin · ·' . t • ' .Jtions w ith Sec 751 10.7
Sa.-uon 75 I A>i.ct> Dd'incJ 10· -
Exchange of~ . .,51 Ai..eti. ;ind Other Property 10-9
tJquidatil'll) or ~··I, ng a Par1n..-ship Interest 10· 11
L1qu1d;i1111g Dmributmn\ 10-12
Sole of a J)anner.h1p lntcrc>t I 0- I 6
Other Partn"1f'>h1p r,.. m,., ttion Issues 10·19
Rrt1rement or ~.tth of• Partner 10- 19
Exchange of .t Par1nenh1p lntero.t I0-10
In.come Rr.vg.n111on ;inJ Trarufers of ;a P.utncrship
lntert'!>t 10-22
Terminarion of a P.irmer>h1p I 0-22
~lert:rn 2nJ Conwhwnon' I 0-13
D"'"on of a P.inncri.hip 10-14
Option .. and Mandatory Basl·, Adjustments 10-24
Ad1uwncnt!. on J'ran;fer1. 10-15
Ad1u>1ment~ on Dt\lribuuons I 0-27
Spea<\I fom'ls of Part·1erships 10 28
Tn>. Shelter\ 3ntl um1ted l'annersh1p~ 10-28
r•ubln..l)' rradcd 1>armeri.hip• 10-28
l1m1tcd Lt•l>ilny Companie• 10-19
LurutcJ uabtlny Partncr>h1~ 10·30
LurutcJ Li.ib1l11y Limotc:J Partnership 10·3 I
Tax Planning Consideration• '.,. 31
Liqui<bting D1\lt1btit11>n or »le to Partners 10-.l 1
Problem M~ ., · • · · ~'12
o.,,cu.-100 Quauom 10-31
!Moue IJenufi.:auon Que.noru. 10-33
Problem> I 0 -33
 Contents "' Com pre h ensive xvii

Comprehcnsi\'e Problems 10-43 Case Stud)• Problem 11-54

Tax Strategy and Critical Thinking Problem 10-44 Tax Research Problems I 1.54
Case Study Problem 10-44
Tax Research Problems I 0-45
CHP.PTER 12
.,_THE CJl'T TAX 12-1
CHP.PTER 11 The Unified Transfer Tax System 12·2
.,_ SCORl'ORATIONS 11-1 History and Purpose of Transfer Taxes 12·2
Should 11n S Election Be Made? 11 ·3 Unified Rate Sc:.hedule 12-3
Ad\•antages of S Corporation Treatment 11-3 Impact of Taxable Gifts on Death Tax Base 12-3
D1sad\'antages of S Corporauon Treatment 11-3 Unified Cretin 12-3
S Corporation Requirements 11·4 Gift Tax Formula 12-4
Shareholder-Rebted Requirements 11-4 Determina uon of Gifu. 12·4
Corpor3tion-Related Requirements 11 -5 Exdus.ion> and Deductions 12-4
Election of S Corpol'lltion Status 11·7 Gifr-Splitting Election 12-4
Making the Election 11-8 Cumulative l':ature of Gift Tax 12-6
Termination of the Election 11 -9 Unified Credn 12-6
S Corporation Operations 11· 13 Transfers Subject to the Gift Tax 12·7
Taxable Year 11 -13 Tram.fers for Inadequate Con>idernt1on 12-7
Accounting Mctbod Electioru 11- 14 Statutory Exemption~ from the Gift Tax 12-8
Ordinal")' Income or Loss and Separately St:ited Cessation of Donor'• Dominion :ind Control 12- 10
Items 11-14 Valuation of Gifts ll· 11
Special S Corporation Taxes 11- 15 Gift Tax Consequences of Ceruin
Transfers 12- 13
Taxation of the Shareholder 11· 19
Income Allocauon l)rocedures. 11- 19 Exclusions 12·16
Income Pa;.;-Though to Shareholders 11 -20 Amount of the Exdus1on 12- 16
Lo;;, and Deduction Pa>>·Through to Shareholders 11-21 Present Interest Requirement 12- 16
family S Corpontions 11-25 Gift T~ Deductions 12- 18
Buis Adjustments 11 ·25 Marital DeducllOn 12- 19
Basis Ad1ustments to S Corporation Stock 11-25 Charitable Contrtbut1on Deducuon 12-21
Basis Ad1ustments ro Shareholder Debt 11 -27 The Gift-Splitting Election 12·22
S Corporation Distributions 11·28 Computation of thee Gift Tax liabil ity 12· 23
Corporauons Having No Earnings and Profits 11-28 flfect of Previous Taxable Gifu. 12-23
Corporations H:i ving Accumul.ued Earnings and Unified Credit Avail:ible 12-24
Profits 11 -29 Comprehensive Illustration 12-25
Other Rules 11 -33 Basis Considerations fOI' a lifetime Giving Plan 12·26
Ta.x Preference Items and Other AMT Adjustments 11-34 Pro~rty Received by Gift 12-26
TransoettC>nS ln\'Olving Shareholders and Other Related Pro~rty Received :11 Death 12-27
Parues 11 -34 Below-Market loans: Gift and Income Tax
fringe Benefits Paid to a Shareholder-£mpl<>)CC 11-34 Consequences 12·28
Tax Planning Considerations 11 ·35 General Rules 12-28
Elect1on to Allocate Income Based on the S Co rporation·, Dt' Minimis Rules 12-28
Accounting Methods 11-35 Tax Planni ng Considerations 12-29
Increasing the Benefits from S Corporation Losses 11 -36 lax-Saving Feature> of Inter Viuos Gifts 12-29
Salar) Levels 11 -37 Neg,.ttive A•pectS of Gifts 12-30
Pass"~ Income Reqmrements I 1.37
Compliance and Procedural Cons1del'lltions 12·30
Compliance and Procedural Considerations 11·38 Filing Requirements 12-30
Making the Election 11-38 Due Date 12-31
filing the CorPorate fax Return 11°39 Gift-Splitting Election 12-3 I
Estimated Tax Payment>. 11-39 Liab1l1ty for lax 12-3 I
ConsistenC) Rules 11-40 Determinauon of Value 12-32
Sample S Corporation Tax Return 11-40 S~tutc of Limit3tions 12·32

Problem Materials 11·41 Problem Materials 12-33

Discussion Quesuons 11 -4 1 Discussion Quesuons 12-33
Issue ldentificauon Questions 11-42 Issue ldenuficanon Questions 12-34
Problems I 1-43 Problems 12- 34
Comprehem i\'e Problems 11-49 Comprehensive Problem 12-37
Tax Strategy and CritieaJ Thinking Problems 11-51 Tax Strategy and Cririeal Thinking
Tax Form/Return Prep:iration Problems I 1-51 Problems 12-38
xviii Comprehensive .,. Contents
rn 1-orm/Rtturn Preparation Prol>lcrru. I 2-.l8
U\C \tud) Problems 12-39
T;u; Rc,,.,3n:h Problems 11-39
CH
... THE lc.STAU TAX IJ-1
Esu1t• l..x F0<•mul• 13-2
Coro\\ ht;ue 13-2
Dcc.luwon• 13-3
Ac.l1um~d l:t>.3hle Gift> nnc.I T:ix 8.J\C 13.4
TcnUU\e fax on El.talc Tax 113,.,, I 3 -4
Rcdu.:uon for Po>t· I 9 - 6 Gift Tn"' 13.4
Un1f~ C~11 13·5
The Gros • · · V•luation ll-6
03tr-<>f-~th Valu.ouon 13-6
Altcrn31c Valwuon Da~ 13.;
Th Gro" ht,ite Inclusions 13·8
U>mp3mon of Gro"'' E..utc w•th ProNtc btalc 13-9
Property an Whu:h the Dttc.'dent Had .1n ln1crc>1 13·9
Demer or Curtc•r Rjghts 13- 10
Tran,feror Prov1>1ons 13- 10
Annu111~ and Other Rcurcmcnt Benefit\ I .l · U
jo1mly Owned Pro~ny 13- 14
C.Cncr31 Power> of Appuantrncnt 13-15
Lafe ln>ur3Dc.:c 13 16
Cun.,dcrauon Off-.c1 13- t7
Rc..1p1cnt SpulbC"> lntcrtSt UI QTIPlru>t U - 17
°""' . 1
0...bb anJ foncul and Adm1m>1ra11on bpcn\n I J.. I 8
Lu~· 13 19
Chantablc Contnbunon Dcdu~"t1on 13· I 9
~brual Dcdu(tton 13-20
Cori"'O " ·ion 01 T•:· 1.i.b1lity 13·23
laxahle L>me ;and Tax 83se 13 .23
l~n1amc b>. .1nd ~doction for Po>t · I 976 Gift
lnxe> 13-23
Unified C~1t I 3. 23
Pon;ah1ht)' lktwttn Spou>t> of Excmpuon Amount 13·24
Other CrWii. 13-24
Comprchcm"e lllustration 13-25
Li'! ."111y c onccms 13-28
Deferral of Pa,mait of btate Tne> 13·28
Sto..k Rcdcmpuoni. 10 Pa) Death Ta,e> 13·29
Spcaal U>e \'alu.ttion of hrm Rc:il Proper!) 13·29
G. · · , ' · · ~5 • 1)f>U"9 TrMtsfer Tu 13· lO
Tax Planning Comider•tJons 13-31
U\C of ,,,,,., v...os G1r1s 13-32
u,e of B.~'" l:.l<dus1on Amount I 3-32
What ~ILC Mari1.1I Detluetaon I> Be..t? 13-33
Ui.e of D1;d:iimcr. 13.33
Role of Ltfc lni.unn~ 13.33
Qu.thf)IO!i the ~t11c for lnruallmtnt
P:1vmenb 13-34
Whtt~ 10 Dcdu.:1 Admmis1r.1t1on b pcn'IC\ 13.34
Compli;; · · · ;), co., . ·a Considerations 13·35
hlang Rcqutrcmmb 13.35
Due Date 13 35
\'a IU.111on 13 35
l::le.:11on of Al~m:itc Valuaoon Date 11· H
Problem MAteriak 13-36
D1s.:u»1<>n Quc.uom U -36
I.we tdcn11fi..a11on Quc,oon' 13.3;
Prohlemi. 13.37
Comprd>en.i\c Problem.. 13-4 I
Tu Str31q:v ;ind Crot1<.al Thinking Problcmi. U 42 0
Tu form/Rccum Preparation Problem> 13-43
Case Study Problem' I J-44
fox Re;ear<.h Pruhle1rn. I 3-45
CH ~ r 4
... l"CO.\ tE TA..'-ATJON Of l RUSTS AND !:STATES 14- 1
lk>IC Conc1 ;.11 1 1 .l
ln.:epuon oflru\b 14 2
ln.:cpt1on of butc. 14·2
Rea~ for Creaung i ·r usb 14-3
S;as,. PnnL iplc\ of hdu.:iary Tax:ition 14-3
Principles of f"tdudi ") A Cl nting 14-4
The lmponanc.:e of ltkntif)uig Income and
Pnnc1p;il 14 ·4
Pnncipal and Income: The Uniform Al't 14 5
Ca1cgor1tat1C111 of Deprec.:1a11on I 4 -0
Formula for Tax•bl1> lrt< •m1 and Tu liabibty 14·7
Cro..- lnmn>e 14-7
Dedu.:uon> for El.pen~• 14-7
D..1nhu11on Dedu ..'lion 14·9
Penon:il Exem('l.100 14·9
C~1t> 14- 10
Oin-;buable N4"t IC ' 4•10
Sigrufi.:a11<.e o f Dl\I 14- 10
Defimtion of DNI I 4- I I
Manner of Compuung D:-11 14· I I
Dete"man1n<1 • ~;, .. ;110 Trtnt's Ta,.dble lnco..,e 14-13
AUoouc>n of Expcn>e> to T.ix · Exempt
Income 14 14
Dctemuna 1ion of DN I and thc Distribuuon
Detlul'tlOn 14 15
Tax Tre:itn>ent for 8enef1o:iry 14- IS
Shurt<.ut Approoth 10 Proving Corrtttne» ofT:ixahle
111<.ornc 14 16
l:fftt."t oLt ~ct Opcr:iung Lu.i. I 4· I 6
EH~"t ol a :-;ct up11:1l Lo.;. 14-16
Comprehcn"' c tllum:1uon: Dctcnnirung a !.unrJc
Tru>t\ l.u.3hlc ln~ome 14· I i
Deter-;.,;ng Taxabt- ·-~or'"- for COMplex Trusts and
Estate• 14 19
Dcterman:inon of DNI 3nd the D1>tnbuuon
Detlumon 14 20
True Trc:itmrnt for Bcncflc.:13')' 14-21
Efftt.1 of a Net Operaung Lo.; 14-24
Effec.:t of a Net C3p11al L.oss 14-24
ComprehenY\ e lllu>rrauon: Dttermanmg a (;omple~
TruY'• fax:ihle lnromc 14-24
lncome in Respect of• Doccdor t 14-27
Defan111on and Common Exampl~ 14-27
S1gmlic:in.:c o f IRD 14 28
Grani... r TtUst Prevo_,, ,. 14-30
Purpo>e :ind Ul~1 14 ·30
Revoahle Tru\h 14-3 I
 Contents .,. Comprehensive xix

Post-1986 Revcrsionar) Interest Trusts 14-31 Statute of Limitations 15-24

Retenuon of Admin1suauve Powers 14-31 Gcnernl Three-Year Ruic 15· 24
Retention of Econonuc Benefits 14-31 Six· Year Ruic for Substantial O m1ss1ons 15-24
Control of Others' Enjoyment 14-32 When No Return 1s filed 15-26
Tax Planning Considerations 14-33 Other Exceptions to Three· Year Rule 15-26
Ability to Sbjft Income 14-33 Refund Claims 15-27
Tuning of Diwibutions 14-33 Uabihty for Tax 15-27
PropcMy Distnbuuons 14-34 jocnt Returns 15-27
Choice of Year-End for £.~tatcs 14-34 'I rnnsferee Liability 15-29
Deducuon of Adm1mstrauon Expenses 14-34 Tax Practice lss~s 15·29
Compliance and Procedural Considerations 14·35 St:itutory Provisions Conce rning Tax Return
filing Requirements 14-35 Preparers 15-29
Due Date for Return and T:ix 14-35 Reportable Transac.:tion Disclosures 15-30
Documents to Be furnished to IRS 14-35 Rules of Circular 230 15-3 1
Sample Simple and Complex Trust Returns 14-35 Statement~ on Standards for Tax Service~ 15-32
Problem Materials 14-36 Tax Accounting and Tax Law 15.35
Discussion Questions I 4-36 Accountant-Client rri,•1lege 15-36
lliue Identification Quc>tion> 14-37 Problem Materials 15· 37
Problems 14-37 Discussion Questions 15-37
Comprehensi\e Problem 14-40 Issue ldenuficauon Quemons 15-38
Tax Strategy and Critical Thinking Problems 14-4 I Problems 15-38
fox form/Return Preparation Problems 1441 Comprehensive Problem 154 1
Case Study Problems 14-43 hx Strategy and Criucal Thinking Problem 154 1
fax Research Problem> 1443 C:i!.e Study Problem 15-41
Tax R=rch Problems 15-41
CH\PTER 15
.. AOMJNJSTRATIVE PROCEDURES 15-1
Role of the Internal Revanue Service 15-2 QU I CK REFERENCE
Enforcement and CoUcction 15-2 2019 Tax Rate Schedules and Other Key Numbers Q-1
Interpretation of the Starutc 15·2
Audits of Tax Returns 15-3
Percentage of Returns Examined 15·3
Sdei.·uon of Returns for Audit 15·3
TAB L ES
Di>do;ure of Unce1tain T:ix Po.itions 15·5 2018 Tax Tables and Rate Schedules and 2019 Withholding
Alternatives for a Taxpayer Whose Rerurn Is Audjted 15-5 TablM (Partial) T· 1
90-D.ay ~tter 15-7
Liugauon 15-7
Requests for Rulings 15· 9 APP[ND'CES
lnforrnatfon to Be Incl uded in Taxpa)'er's Request 15-9
Will the IRS Rule? 15-10 .. APPENDIX A
When Rulings Are Desirable 15-10 Tax Research Working Paper File A-1
Due Datu 15· 10
Due Dates for Rerurns 15- 10
.. APPENDIX II
Extensions 15-11
Due Date> for P:iymenr of the Tax 15-11 Tax forms B 1
Interest on Tax Not Timely P:tid 15-12
failure-to-file and Failure-to-Pay Penalties 15· 13
failure IO file 15-15 .. APPl!NDIX C
failure to Pay 15-16 MACRS Tables C· 1
Estimated Taxes 15-17
Payment Requirements 15-17
Ptnalt)' for Underpaying fatimattd Tan!> 15· I 8 • AJ>PlcNDIXD
E.xcepuons to tbe Penalty 15-19 Glossary [).1
Other More Severe Penalties 15· 20
Negligence 15-20
Subsunual Understatement 15-2 1 .. APPENDIX E
Transacuons without Economic Sub..iance 15-22 AICPA Statements on Sandards for Tax Services
Civil fraud 15·22 Nos . 1- 7 E-1
Criminal fraud 15-23
xx Compre h e n sive ., Contents

.. Al'l'l:.NOIX F .. APPENDIXJ
Comparison of Tax Attl'ibutes for C Corporations, Index of Government Promulgations J-1
Partnerships, and S Corporations F· 1

.. AJ'Pfl\1)1X I(
.. Al'Pt.NDIX G
Index of Court Cases K· 1
Actuarial Tables G· 1

.. Al'PENDIX L
... APPE.'llDIX H
Subject Index L·1
Index of Code Sections H·1

.. Al'PENDIX I
Index of Treasury Regulations 1-1
ABOUT THE EDITORS

Timothy J. Rupert is a Professor at the D' Amore-McKim School of Business at Northeastern

University. He received bis B.S. in Accounting and bis Master of Taxation from the Uni-
versity of Akron. He also e:uned his Ph.D. from Penn Stare Uni,·ersity. Professor Rupert's
research has been published in such journals as The Acco1111ting Review, The ]011mal
of the American Taxation Association, Behavioral Research in Acco1mti11g, Advances in
Taxatio11, Applied Cognitive Psychology, Adva11ces i11 Acco11nting Ed11catio11, and ]011rnal
of Accounting Education. ln 2010, be received the Outstanding Educator Award from the
i\1assachusens Society of CPAs. He also tins received the University's Excellence in Teach-
ing Award and the D'Amore-McKim School's Best Teacher of the Year award multiple
times. He is active in the American Accounting Association and the American Taxation
TIMOTHY J. RUPERT
Association (ATA) and has served as president, vice president, and secretary of the ATA.

Kennetll E. Anderson is the Pugh CPAs Professor of Accounting at the University of Tennes-
see. He earned a B.B.A. from the University of Wisconsin-Mi lwaukee and subsequently
attained the level of tax manager with Arthur Young (now part of Ernst & Young). He
then earned a Ph.D. from Indiana University. He reaches corporate taxation, partner-
ship taxation, and tax strategy. He has published articles in The Acco1111ting Review,
The Journal of the American Taxation Association, Advances in Taxation, the Journal
of Acco1111tancy, the ]011mal of Fi11ancial Service Professionals, and a number of other
journals.

KENNETH E. ANDERSON

David S. Hulse is an As.sociate Professor of Accountancy at the Uni,·ersiry of Kentucky,

where he teaches introductory and corporate taxation courses. He received an undergrad-
uate degree from Shippensburg University, an MS from Louisiana State University, and a
Ph.D. from the Pennsy(,•ania State University. Professor Hulse has published a number of
articles on tax issues in academic and professional journals, including The ]011mal of the
America11 Taxation Association, Advances i11 Taxation, the journal of Fina11cial Service
Professionals, the Journal of Financial Planning, and Tax Notes.

DAVID S. HULSE

xxi
This page is i11te11tio11ally left blank
ABOUT THE AUTHORS

Thomas R. Pope is the Em.~ & Young Professor of Accounting at the Univers ity of
Kentucky. He rece i\·ed a B.S. from the Univer;ity of Louisville and an M.S. and D.B.A.
in Business Administration from rhe University of Kentucky. He teaches international
raxation, parrnership and S corporation taxation, tax research and policy, and introduc·
rory taxation and has won o utsranding reaching awards ar rhe Universiry, College, and
School of Accounrancy levels. He has published articles in The Acco1111ting Revieru, the
Tax Adviser, Taxes, Tax Notes, and a number of other journals. Professor Pope's exrensive
professional experience includes eight years with Big Four accounting firms. Five of those
years were with Ernsr & Whinney (now part of Ernsr & Young), including rwo years with
rheir National Tax Department in Washington, D.C. He subsequently held the position
of Senior Manager in charge of the T:ix Depa rrn1ent in Lexington, Kentucky. Professor
Pope also has been a leader and speaker ar professional rax conferences all over the United
Scates and is acti,·e as a tax consultant.

D. Dale Bandy is the Professor Emeritus in the School of Accounti ng at the University of
Central Florida. He received a B.S. from the University of Tulsa, an M .B.A. from the
University of Arkansas, and a Ph.D. from the University of Texas ar Austin. He helped to
establish the Master of Science in Taxation programs at the University of Central Florida
and California State University, Fullerton, where he previously taught. In 1985, he was
selected by rhe California Society of Certified Public Accountants as the Accounting
Educator of the year. Professor Bandy has published 8 books and more than 30 arti·
des in accounting and raxarion. H is articles have appeared in the Journal of Taxation,
rhe Journal of Acco1111ta11cy, Advances in Taxation, the Tax Adviser, The CPA Journal,
Ma11ageme11t Acco11nti11g, and a number of other journals.

N. Allen Ford is rhe Larry D. Homer/KPMG Pear Marw ick Distinguished Teaching Professor
of Professional Accounting ar the Univers ity of Kansas. He received an undergraduare de·
gree from Ci.'ntenary College in Shreveport, Louisiana, and borh the M.B.A. and Ph.D. in
Business from the University of Arkansas. He has published over 40 articles related to tax·
ation, financial accounting, and accounting education in journals such as The Acco11nti11g
Ret•iew, The Joumal of the American Taxation Association, and The Journal of Taxation.
He served as president of rhe American Taxation Association in 1979-80. Professor Ford
has received numerous reaching awards, ar the college and un iversity levels. ln 1993, he
received the Byron T. Shutt Award for Distinguished Teaching in Economics and Business.
ln 1996, he received the Ray M. Sommerfeld Outstanding Tax Educaror Award, which is
jointly sponsored by the America n Taxation Association and Ernst & Young, and in 1998
he received the Kans:is Society of CPAs Outstanding Education Award.

xx Iii
xxlv Comprehensive ,. About the Authors

Anna C. Fowler is the John Arch White Professor Emerirus in the Department of Account-
ing at the University of Texas ar Austin. She received her B.S. in accounting from the
Universiey of Alabama and her M.B.A. and Ph.D. from the University of Texas at Austin.
Active in rhe American Taxation Association rhroughout her academic career, she served
on the editorial board of its journal and held many positions, including president. She is a
fom1er member of the American lnstitute of CPA's Tax Execucive Commjrree and a former
chair of the AJCPA's Regulationffax Sulx:ommittee for the CPA exam. She has published a
number of articles, most of which haw dea lt with estate planning or real estate transaction
issues. In 1999, she received the Outstanding Accounting Educator Award of the Texas
Society of CPAs and in 2002 the Ray M. Sommerfeld Outstanding Educator Award, co-
sponsored by the American Taxation Association and Ernsr & Young.

Richard J. Joseph is the past President and Chief Executive Officer of Babson Global,
lnc., a wholly owned education subsidiary of Babson College. At Babson Global, he was
responsible for financial and operational management, client relationships, and executive
decision making. Dr. Joseph is former Provost-for-Term and Chief Academic Officer of
Bryant University, Rhode Island. In this role, he oversaw Bryant's faculty aff::iirs, academic
programs, College of Arts and Sciences, College of Business, and School of Healeh Sciences.
Before joining Bryant, he was Provose and Global Dean of Huie lnternational Business
School. There, he played a major role in establishing Huie academic centers in Shanghai,
Dubai, London, and San Francisco. Before his term at Hult, he served 13 years on rhe Tax
Faculty and Administration of the University of Tex-as at Austin. Prior eo embarking on
his academic career, Dr. Joseph worked as an international banker ae Citibank, Riyadh; an
invesnnent banker at Lehman Brothers, New York; a securities trader at Becker Paribas,
Dallas, and Bear Stearns, New York; and a mergers and acquisitions lawyer for the Bass
Group, Fort Worth. A graduate magna cum la11de of Harvard College, Oxford Universiry,
and the University of Texas at Austin School of Law, Dr. Joseph is co..roitor of rhe Hand-
book of Mergers a11d Acquisitio11s (Oxford University Press) and author of The Origi11s of
the America" /,,come Tax (Syracuse Universiry Press). He has written numerous commen-
taries in the Financial Times, The CJJfistian Science Monitor, Tax Notes, and Tax Notes
International.

LeAnn Luna is a Professor of Accounting at the University of Tennessee. She is a CPA and
holds an undergradu:ite degree from Sourhem Methodist Un iversiry, an M.T. from the
Uni\'ersiry of Denver College of Law, and a Ph.D. from rhe Un iversiry of Tennessee. She
has taught introductory taxation, corporate and partnership taxation, and tax research.
Professor Luna also holds a joinr appointment with the Center for Busjness and Econornjc
Research at the University of Tennessee, where she interacts frequently with state poliq·-
makers on a variery of pol icy-related issues. She has published articles in the joumal of
Acco1111ti11g a11d Economics, Natio11al Tax joumal, The joumal of the American Taxatio"
Association, and State Tax Notes.
 About the Authors • Comprehensive xxv

Charlene Henderson is a faculty member in the Department of Accounting at Louisiana

State University. She earned undergraduate and master's degrees in accounting from
Mississipp i Seate Un iversity. After working in public accounting :ind b:in king, she
ea med a Ph.D. from Arizona Seate University. She has caught introductory taxation,
corporate taxation, and tax research. Her research has appeared in several journals,
including Journal of rbe American Taxation Association, Jomnal of Accormting
Auditing and Finance, Auditing: A Journal of Practice and Theory, and a number of
other journa Is.

Jared Moore is the Mary Ellen Phillips A~sociace Professo r of Accou nting at Oregon State
Un iversity (OSU). He earned his undergraduate, Master of Taxation, and PhD. degrees
at Arizona State University. He is a CPA (AZ-inactive) and worked in both public and
private accounting before pursuing his doctoral degree. Professor M oore has received sev·
eral teaching awards, including the Byron L. Newton Awa rd for Excellence in Teaching
at OSU, and has caught individual and business taxation, introductory and intermediate
financial accounting, and doctoral-level financial accounting research. His research inter-
ests include both tax and financia l accounting, and be bas published in journals including
the Journal of the American Taxation Association and the National Tax Journal.

William 0. Brink, Ph. D., CPA, C FP is an Assistant Professor in the Dep:irtment of Accoun·
tancy at the Farmer School of Business at Miami Unh•ersiry in Oxford, Ohio. He received
his B.S. from Appalachian State University in 2005 and his Masters in Accountancy from
T he University of North Carolina Wilmingto n in 2007. Before attending the University of
South Carolina to obtain bis Ph.D. in Accountancy in 2014, be worked in public accounr-
ing for RSM .McGladrey. He teaches tax courses at both the undergraduate and graduate
level focusing on individual taxation, busi ness taxation, tax policy, tax academic research,
and tax legal research. He has co-authored articles in Jo11rnal of Business Ethics, ]011rnal
of the American Taxation Association, Behavioral Research in Accounting, Advances in
Accormting Education, Advances i11 Taxation, The Conversation, CGMA Magazine, and
The Tax Advisor. He was the Winner of the Outsranding Au thor Contribution in the 2017
Emerald Literati ecwork Awards for Excellence for an article published in Adva11ces i11
Accounting Ed11catio11 and has rece ived numerous reach ing awards.
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gold and scarlet and crimson and russet blended by the misty
autumn haze; but whether near or far always a splendor of color. The
cornfields along the way were dotted with great sheaves of the
harvested corn, among which the orange spheres of the pumpkins
lay thick, and where the huskers were busy stripping the husks from
the yellow ears that overflowed baskets and heaped wagons.
Orchards, too, there were, fruity with scent of the red-cheeked
apples which loaded the trees. Occasionally they met loads of
apples on the way to be made into cider. Once they passed a cider
mill by the roadside, and stopped for a drink of the sweet juice as it
came fresh from the press. At another time they drove under a tree
overgrown by a wild grapevine, and Ben, standing on the seat, had
gathered his hands full of the little, spicy-flavored, frost grapes. While
scattered along the way were clumps of woodbine, its leaves flushed
russet crimson; bittersweet with its clustered orange berries
beginning to show their scarlet hearts; with lingering sprays of
golden rod, and lavender drifts of the wild aster. The farmhouses at
which Ben stopped to trade—for he was too faithful an employee to
forget his business for any pleasure—had for the most part, it
seemed to Posey, a cozy, homelike air, the yards of many gay with
fall flowers that the frosts had not yet killed.
And how their tongues did run! Ben Pancost had to hear in its
fullest detail Posey’s whole story, with especial interest in that part of
her life with Madam Atheldena Sharpe.
“How many different cities you have seen!” he exclaimed once
with an accent of almost envy.
“No, I never saw very much of them after all. You see, we always
lived in a crowded part, so one was a good deal like another.”
“And how did you use to feel when you were pretending to be a
spirit?”
“Oh, sometimes I thought it was sort of fun. One day, I remember,
at school the teacher had us put our hands up and up as we sang,
higher and higher, like this,” and she raised her arms in a gently
undulating motion. “That evening I did it again as I came out, and the
people at the séance all held their breath and whispered, ‘Oh, how
beautiful!’ You ought to have heard them,” and Posey laughed as
she recalled the incident. “Yes, sometimes it was no end of fun, but
most times I was tired and sleepy and it was so tiresome. The
changing dresses, and wigs, and all that, and I used to think how
stupid the folks were not to know that it was only me.”
“And were you frightened when they found you out?”
“Frightened? Well, I guess I was! I knew the Madam would be in a
rage, and I didn’t know what they would do to me, either. They tore
my wig off, and crowded round me, and everybody was talking at
once, but I pulled away, somehow, and ran. My, how I did run; ’way
up into the attic! I’d never been there before, but it was some place
to hide, and it wasn’t so bad, for I stumbled onto an old mattress,
only I was afraid there might be rats. But I wasn’t as afraid of the rats
as I was of the people downstairs, and by and by, when it was all
still, I went to sleep. Then in the morning when I waked up and went
down the Madam was gone. She knew that I had no other place in
the world to go to; but she never did care for anybody but herself. I
tell you, it was awful to be turned out so, and not know what to do. I
felt almost as bad as when you saw me this morning.”
“It was a shame,” Ben agreed heartily. “But then she couldn’t have
been a very good woman, anyway. And don’t you think it was just as
wrong as lying to deceive people so?”
“I suppose it was,” Posey admitted simply. “My mamma always
told me never to tell lies, and I don’t mean to; but I began to
‘manifest,’ as she always called it, when I was so little that I didn’t
think anything about its being right or wrong. I should have had to
done it whether I wanted to or not, for when Madam was cross I tell
you I had to stand round. Besides, that was the way we made our
living, and in the city folks have to have money to live. Here in the
country you don’t know anything about it. Look at the apples in that
orchard. I used to go to the market for Madam and buy a quart of
apples. Just six or seven, you know. Sometimes I could get a
market-woman to put on one more, and then I had that to eat for
myself. And milk! Why, we never bought more than a pint at a time,
more often half a pint; and a half a pound or a pound of butter. You
don’t know how strange it did seem to go out and pick things off as
they grew, and to see so much of everything.”
“I wouldn’t want to live that way,” admitted Ben.
“I guess not. Sometimes I felt so much older than the other girls of
my age at Horsham. They had fathers and mothers who bought
them everything. They never thought about the cost, and they all had
spending money—not a great deal, but some—to use as they
pleased. And I—why I can hardly remember when I didn’t have to
think about the price of everything. When Madam gave me money to
go out and buy things she used to say, ‘Now see how far you can
make this go.’ She was always telling me how much my shoes and
clothes and what I ate cost. And as for ever having any money to
spend for my very own self, why I wouldn’t know what that was.” She
paused and an accent of bitterness crept into her next words: “You
may say what you please, but I believe God cares a lot more for
some folks than He does for others. He gives them such a sight
more. At any rate, I’m ‘most certain He doesn’t care anything for
me,” and she gave the red dashboard a little kick by way of
emphasis.
“Why, Posey!” Ben cried in astonishment, “God cares for
everybody!”
“Well, then,” protested Posey fiercely, “why did He make my
mother die, and why doesn’t He give me a home somewhere?”
Ben looked puzzled for a moment, then he brightened. “Did you
ever ask Him to take care of you?”
“Yes, I did last night. I asked Him to help me, and take care of me.
And where would I be now if it wasn’t for you?”
“Why, Posey!” cried Ben triumphantly. “Don’t you see that He sent
me?”
“Do you think He did?” A sudden seriousness had come into
Posey’s face.
 “Of course. I know it. Why, once when I was a little boy I had a
bow and arrow. One day I shot my arrow away so far I couldn’t find
it, though I hunted and hunted. Finally I knelt right down in the grass
and asked God to help me find my arrow; and do you believe me,
when I opened my eyes the first thing I saw was my arrow, only a
little way from me. Perhaps if you had asked God to help you before
he would have done so.”
“But,” persisted Posey, “sometimes it doesn’t help people any
when they do pray. There was a woman in Horsham whose daughter
was sick this summer, and she had folks come and pray for her to
get well, but she died all the same.”
As she was speaking Ben drew out a handsome pocketknife. “Isn’t
that knife a dandy?” he asked, holding it out in his hand. “Five
blades, all the very best steel, and the handle inlaid. When I was
seven years old my Uncle Ben, in Nebraska, that I was named for,
sent it to me. Father said I was too little to have such a knife then,
that I would be apt to break it, and to cut me with it, so he laid it away
till I was older. Well, I wanted it then, and I used to tease and tease
father for it, and almost think it was unkind and mean in him to keep
my own knife away from me. The day I was ten years old he said:
“‘Ben, here is your knife. If I had given it to you at the first, as you
wanted me to, very likely it would by this time be broken or lost, and
you might have been badly hurt with it. Now you are old enough to
value and use it carefully. And when you look at it remember this, my
boy, that God often has to do by us as I have by you—refuse us the
thing we ask for because it might hurt us, or because the time has
not yet come when we are ready for it. Refuses us simply because
He loves us.’”
“Why, Ben!” exclaimed Posey with wide-open eyes, “I never heard
anything like that before. And you talk just like a minister.”
“I’m only telling you what my father said. Perhaps because he died
so soon afterwards is one reason I’ve always remembered it. And he
was good as any minister. I don’t believe there ever was a better
father,” and there was a tremble in Ben’s voice.
 “Tell me about yourself now; I’ve told you all about myself,” urged
Posey.
 CHAPTER X
BEN’S STORY

“I haven’t much of anything to tell,” Ben answered slowly. “You

see, I always lived in the country, and in just one place till father and
mother died four years ago. But, oh, it was so pleasant there! Back
of the house was the orchard, and beyond that a long hill where we
went coasting in the winter, Theodore and I—he’s my brother three
years older. At the foot of the hill was a little creek where we used to
go fishing in spring. The fish were mostly suckers. I suppose some
folks wouldn’t have cooked ’em; but then mothers will do ’most
anything for boys; at any rate, such a mother as ours would, and my,
but they did taste good! We used to skate on the creek, too, in the
winter. But you’ve never been in the country in the winter; you don’t
know what fun it is: sliding down hill, sleighriding, and snowballing,
all such fun,” and Ben’s eyes sparkled as he named them.
“The house, too, was so cozy. A red house with a trumpet-vine
growing over it, and a long porch in front. I always like to see a red
house because it makes me think of home. And out in the orchard
there were strawberry apples, and seek-no-furthers, and
nonesuches. A big grapevine ran all along the woodhouse. There
was a black-walnut tree in the back yard, some chestnut trees in the
pasture, beside hickory trees in the north woods. And didn’t we go
nutting in the fall, just didn’t we! Whole bags of nuts to crack in the
winter evenings and eat with apples, though the getting ’em is better
than the eating, after all.
“On the edge of the creek was the sugar bush, and in the spring
we used to help father gather the maple sap from the trees and boil it
down in the old sugar house. It was hard work, but there was fun
with it—the sugaring off, and making wax on the snow, and stirring
the warm sugar. I tell you I feel awful sorry for boys who have never
lived in the country and had any of the good times. Of course we
went to school, not quite a mile over the hill, and Sundays we went
three miles to church.
“And best of all were father and mother! I couldn’t begin to tell you
how good they were. Mother used to tell us stories, and help us
make balls and kites; and father would take us with him, and let us
follow him about the farm, when I suppose we hindered a good deal
more than we helped. He was always ready to answer our questions,
too, and to help us with a hard lesson, and he used to give us calves
and lambs for our very own. I don’t believe there ever was a father
and mother did more to make two boys happy,” and Ben drew a
tremulous sigh.
“Mother was always delicate,” he went on after a moment’s pause,
“and father and we boys used to do all we could to help her. But one
fall she took a hard cold—none of us once thought of it being
anything more than a cold. All winter she coughed so hard, and
nothing the doctor gave her did any good. Theodore and I used to
say to each other, ‘When it comes spring then mother will be well
again,’ and we were so glad of the warm days, for they would make
mother better. She didn’t get better, though; she kept growing
weaker and weaker, and the children at school began to ask me did I
know my mother was going to die? It made me so angry to have
them say such things; and sometimes I would wake up in the night
and find Theodore crying, for he is older, you know, and realized
more what was coming. Then I would put my arms around his neck
and say, ‘Don’t cry, Theodore; of course mother will get well. Why,
we can’t live without her!’
“So it went on till September, and by that time she could only walk
around the house a little, and had to lie on the sitting-room lounge
most of the time; but so sweet and patient, there was never any one
like her, I’m sure. Father used to come in from his work every little
while and sit beside her, and when he went out I would see the tears
in his eyes, for I suppose it was hardest of all for him. In September
the men came with the thrashing-machine to thrash the wheat and
oats. It was a chilly day for that time of the year, with one of those
raw, sharp winds that cuts right through you. The dust of the
thrashing always made father about sick, and with that and the
weather he took a sudden cold that settled on his lungs. That night
he was so sick Theodore had to go for the doctor, and, Posey, he
only lived three days.
“I couldn’t believe it. He had always been so strong and well that I
had never thought of his dying. I knew the doctor thought he was
very sick, and we were all frightened, but I didn’t once think he was
going to die. And when he called us to him to bid us good-by, and
told us to do all we could for mother, and to be good boys and good
men, and live so that we should be ready for God’s call when it came
for us—I didn’t believe it even then—I didn’t believe it till he was—
gone.”
Ben’s voice had grown husky, and he stopped for a little before he
could go on. “For about two weeks after that mother kept about as
she had been, and what with the shock and excitement even
seemed a little stronger. But one night we had to help her into her
room and the next morning she said she felt so weak she wouldn’t
try to get up. And she never left her room again. She failed so fast it
seemed as though we could just see her slipping away from us; and
she was so happy to go, except as she was sorry to leave us boys.
She told us how we had better manage, and what she wanted us to
do and be; and I don’t believe either Theodore or I will ever forget
what she said to us or the promises we made to her.
“When father died it was hard enough, though there was mother
left. But when she went, only three weeks after him, I tell you it was
awful. I never shall forget as long as I live the evening after mother’s
funeral. You see, father had only one brother, Uncle Ben, out in
Nebraska, so of course he couldn’t come. Uncle John, mother’s only
brother, lived fifty miles away, and George, his boy, was sick with a
fever, so he had to go right back; that left us all alone with Matty, the
girl. And after we had looked after the chores and went in and sat
down everything was so strange and empty and lonesome, I never
shall forget it.
“Every night since we could remember father, or mother if he was
away, had read a chapter in the Bible and had prayers. After father
died Theodore had read the chapter and mother had prayed, if it was
only a word or two, till the very last night she lived. She had said she
hoped we would try and do as near as we could as we always had
when she and father were with us, so Theodore thought we’d better
have prayers; that they’d want us to. He read the chapter—I don’t
see how he did it—and said he thought we could say the Lord’s
prayer, anyway, and we kneeled down and began. But all at once it
came over us like a great wave how everything was changed and
always would be, and it broke us all up so we couldn’t go through
with it.” And Ben’s voice choked and failed him at the recollection,
while unchecked tears of sympathy ran down Posey’s cheeks.
“When Uncle John went away he told us to do the best we could
and as soon as George was better and he could leave home he
would come and help us settle everything up. There wasn’t so very
much to do beside the everyday work except to gather the apples
and harvest the corn. We had a big field of corn that year, but we
managed to get it cut up and began to husk it. But it was slow work,
for I was only a little shaver—not quite eleven years old, and
Theodore isn’t strong like I am. It came on cold early that fall and we
got pretty discouraged. One night there was a circle round the moon,
and Theodore said he was afraid we were goin’ to have a
snowstorm. That would make the husking harder, and we both felt
real worried. But what do you think? When we went out in the field
the next morning the corn was all husked and in heaps ready to draw
in! It had been a moonlight night and the neighbors had all turned in
and done it for us. They were all so good to us I shall never forget it
of them.
“As soon as he could Uncle John came back, and then we sold the
farm. We hated to, but he thought that was best, for though it was
only a small one we were too young to manage it. When everything
was settled there was eight hundred dollars apiece for Theodore and
me. Uncle John put this out at interest for us, secured by mortgage
so it should be safe, and took us home with him. But Uncle John isn’t
rich by any means, and he has five children of his own, so though
they are all kind as can be we didn’t want to live on him. For two
years now, I’ve been driving this tin-cart summers. I get twenty
dollars a month and my expenses, and I’ve a hundred dollars in the
bank I earned myself. Winters I live at Uncle John’s and go to
school. He won’t take anything for my board, but I buy dresses and
things for Aunt Eunice and my cousins; they are so good to me I
want to do what I can for them. With what I earn and the interest on
my own money, as soon as I’m old enough I mean to buy a farm. I
would like a store, but Uncle John thinks a farm is safer, and perhaps
I’ll buy the old farm back.”
“How nice that would be!” cried Posey.
“Why, see here, Posey,” with the force of a sudden idea, “when I
get a farm I shall need somebody to keep the house, and I’ll tell you
what I’ll do, I’ll marry you. Then you can have a home, too; we’re
both orphans and haven’t either of us one now.”
Posey clapped her hands. “That will be splendid! I know I should
just love to live on a farm, and I will learn to make butter, and do all
the things they do on farms. But,” and her face sobered, “won’t your
brother want to live with you?”
“No; Theodore doesn’t take to farming. He’s teaching now, a
summer school up in Michigan. His plan is to go to college and then
be a minister. He’ll make a tiptop one, too.”
“I think you ought to be a minister,” said Posey. “You talk good
enough for one.”
“Me? Shucks,” and Ben gave a long whistle. “I ain’t good enough
for a minister. Besides, I never could talk before folks as Theodore
can. I wish you could hear him lead the Endeavor meeting. I tried to
once, and my, I was so scared I didn’t know whether I was afoot or
horseback.”
Posey’s eyes had grown wide. “Why, I thought it was only grown-
up people who were Christians and dreadfully good, like old Deacon
Piper and Mr. Hagood, who spoke in meetings.”
 “When I get a farm I shall need somebody to keep the
house.”—Page 143.

“This was just Endeavor meeting. But then that isn’t so at all.”
Ben’s tone was emphatic. “Boys and girls can be Christians; mother
explained that to me years ago. It’s just loving God best of all, and
trying to do as He wants us to. Folks don’t have to wait till they are
grown up to do that, or are awfully good, either. I’m glad they don’t,
or there wouldn’t be much show for me; my temper boils over about
as quick as Aunt Eunice’s teakettle. But I keep pegging away at it,
and I can hold on better than I could, I know, for some of the folks I
trade with are enough to provoke a saint. But that’s the only way to
grow good—keep trying. You can do that as well as anybody. And
you love God, don’t you?”
She shook her head as she answered mournfully, “I’m afraid not. I
know I don’t feel about Him as you do.”
“I’m sorry,” Ben said simply. “I wish you did. You don’t know what a
comfort it is when you get in a tight place and things seem to be
mixed up all in a tangle, to feel that God will make everything come
out just as is best for you. I really wish you did.”
Posey made no answer. She only reached up and caught a
handful of leaves from a tree they were passing under, and asked
Ben what kind of leaves they were. At the same time the fact that
Ben Pancost, a boy who had a freckled face, who laughed and joked
and told funny stories, who loved to skate, to coast, to play baseball,
and in short enjoyed all the things that boys did, should talk about
loving God, and God’s taking care of him, as though this was the
most natural thing in the world, made a deep impression on her
mind, and one that never was forgotten.
 CHAPTER XI
A STORM, AND A SHELTER

Ben’s story, here given as a whole, had really been interrupted by

one or two business calls. It was evident, even to Posey, that Ben
was a decided favorite along the route; for in addition to his boyish
good-humor, his obliging ways, as well as his truthfulness and
honesty, had won for him many customers, and many friends among
his customers. Posey could hardly have told if she more admired or
was amused by the brisk, alert way in which he sorted over the bags
of rags brought out to him, made his bargains, and marshalled his
array of tinware.
“The fact of the matter is,” he explained to Posey as he was
making a memorandum in his note-book of one quart, and one two-
quart basin to be brought the next trip, “I’m pretty well sold out of
stock, except milk pails, tin dippers, and nutmeg graters and the
graters are a fancy kind at twenty-five cents. That’s a little too high
for them to go easily. I guess I’ll tell Mr. Bruce—he’s the man I work
for—that he’d better not order any more; things that run from ten to
twenty cents sell the best. That’s about what a common bag of rags
comes to, and folks would rather not pay money besides. I’d rather
not pay money, either, for, you see, besides the profit on the rags I
buy, there’s the profit on the goods I sell; so when I haven’t what
they want, if they will wait I bring it next time I come, and I always
take pains to pick out what I think will suit, too.”
As it drew towards noon Posey suggested that they share the rest
of the contents of her basket. But Ben urged, “Wait a little.” And
when a few moments later coming over a hill they entered a small
country village he drew up before its modest hotel with a flourish,
remarking as he did so, “This train stops twenty minutes for
refreshments.”
 “But, Ben,” expostulated Posey, “I’m sure there’s enough for us
both in the basket.”
“That will do for lunch this afternoon. I tell you, the afternoons are
pretty long.”
“But you know,” and Posey hesitated over the words, “we will have
to pay if we eat here, and I haven’t any money.”
“Ho!” scoffed Ben. “I guess when I ask a young lady to take a ride
with me I can get her a bite to eat; that’s the proper thing to do.
Besides, I never took a girl riding before, that is, except my cousins,
and I want to do it up swell. Why, lots of the boys I know are always
asking the girls to go somewhere, though what they can find to say
to each other is more than I can imagine. And Fred Flood, only a
year older’n I am, has been engaged. He was engaged to Millie Grey
for two weeks, then they quarreled out, he burned all her letters in
the back yard, and they haven’t spoken to each other since.
“I s’pose, though,” Ben’s tone was reflective, “I shall come to it
some day; write notes to the girls, and go after ’em in my best
clothes an’ with a choke collar, as Cousin George does. But I guess
it will be some time first,” and Ben laughed.
“It must make one feel real grown-up-like, though, to have a
written invitation,” remarked Posey. “I had a letter from a boy once,”
the dimples in her cheeks showing at the recollection.
“What was in it?”
“Oh, there was a shield made with red and blue crayons, and ‘U.
S.’ in big letters at the top and bottom of the paper; then it said,
“‘Dear Posey,

‘If you love me,

As I love you,
No knife can cut
Our love in two.’

The boy sent it to me in school one day.”

“What did you write back?”
 “Nothing. I didn’t like the boy, anyway. Besides, I shouldn’t have
known what to write.”
“You might have written,

“‘The rose is red,

The violet blue,
Tansy is horrid,
And so are you.’”

And then they both laughed.

By this time a leisurely landlord in his shirtsleeves had made his
appearance, and with a hand on each hip, stood calmly looking them
over. “I would like my horse fed, and dinner for myself and this lady.”
Ben’s tone had its business accent as he jumped down and helped
Posey from the high seat to the ground.
“All right,” and stepping forward the landlord took the lines. “But
seems to me you’re rather a young couple. Wedding trip, I s’pose?”
“Tin wedding!” and Ben gave a jerk of his thumb towards the cart.
What a sumptuous banquet to Posey seemed that dinner. Surely
fried chicken was never before so good, and baked potatoes and
squash so toothsome, or peaches and cream so delicious; even the
decidedly slabby cake she ate with a relish. She had recovered from
her fatigue, her eyes shone, her cheeks were flushed with pleasant
excitement; she was ready to laugh at all of Ben’s nonsense, and the
pleasantries of the good-natured landlord who served them. While
Ben, delighted at her happy mood, as he looked at her and listened
to her merry laugh, could hardly realize that this was the same
woeful little figure he had met so few hours before.
They had not been long on the road again when Ben began to
cast doubtful glances at a dark cloud swiftly rising in the west. “I’m
afraid we’re going to have a shower,” he said at last. And then after a
few moments, “I know we are. I see the rain coming over those
woods now. It’s a mile or more away, but it’s working this way fast.”
“What will you do?” Posey questioned anxiously.
 “I must try and get in somewhere. I’m pretty well fixed for storms,
with a big umbrella and oilcloth apron. I’ve a cover for the load, too,
but the trouble is I’ve got so many rags on now it won’t go over, so I
must find some place to drive in. Hurry up, Billy,” and he shook the
lines over the stout bay’s back. “I don’t know this road, either. I
always go the one next south; it has more houses, but the landlord
said there was a bridge down on it an’ I would have to come this
way.”
“It’s beginning to sprinkle,” and Posey held out her hand. “I feel the
drops. But there’s a house just ahead; perhaps you can find a place
there.”
As they neared the white farmhouse they saw that a long
woodhouse stretched from one side, its old-fashioned arched
opening toward the road. “Can I drive under your shed?” Ben
shouted to an old lady he saw just inside. And then as the first gust
of the swift-coming storm began to patter thick about them, hardly
waiting for a reply, he turned Billy at a swinging trot up the drive, and
in another moment they were safe under shelter, while a whitely
driving sheet of rain blotted out all the outer world.
“You was just in the nick o’ time, wasn’t you?” said the little round-
faced old lady, who was busy catching and putting in a box a flock of
little turkeys that flew about the woodhouse squawking and fluttering,
while the mother turkey shook her red head and uttered a dissonant
protest.
“You see,” she explained, “if turkey chicks get wet it’s almost sure
to kill ’em. They’re the tenderest little creatures that ever was to
raise, an’ the hen turk’s no more sense than to trail out in the rain
with ’em, so I’m goin’ to put ’em where they’ll be safe. It’s dreffle late
to have little turks, but that hen beats all to steal her nest, an’ seein’
she’s hatched ’em I thought I’d try an’ help her raise ’em. They’ll be
good eatin’ along in the winter.”
When the last scantily-feathered, long-necked turkey chick had,
with Ben and Posey’s help, been captured and placed in the box,
and the mother turkey had mounted the edge of it, they had time to
notice the neat rows in which the wood was piled, the ground swept
hard and clean as a floor, and the tin wash-basin hanging over a
bench beside the pump scoured till it shone like silver. “I guess it
ain’t nothin’ but a shower,” chirruped their hostess; “come into the
house an’ hev some cheers while you wait. I’m glad you happened
along, not that I’m afraid, but it’s sort o’ lonesome-like to be alone in
a storm.”
As she talked she led the way through the kitchen into a big
sitting-room, where a new rag carpet made dazzling stripes on the
floor, and the lounge and rocking-chair were gay with the brightest of
chintz. Posey had already decided that this was almost the nicest old
lady she had ever seen; there was something at once placid and
cheerful in both tone and manner, and a kindly good-nature seemed
to radiate even from her black silk apron. “I declare, for’t, if the rain
isn’t blowin’ in at that winder,” she exclaimed as she lowered a sash.
“Aren’t you afraid the wind will blow down those great trees on the
house?” asked Posey, as she glanced out a little fearfully at the
branches bending and twisting in the storm.
“La, no, child,” was the placid answer; “they’ve stood worse storms
than this. I don’t know what you would have done to have lived here
as I did when I was your age. Right in the woods we was then, with
the tall trees all around the log house; an’ in a big storm you could
hear crash, crash—the trees comin’ down in the woods, an’ didn’t
know what minute one would fall on the house. Once there come a
real tornado—a windfall, they called it them days; a man in the next
town just stepped to the door to look out, an’ a tree struck an’ killed
him. Father cleared away around our house, so there shouldn’t be
any danger, as soon as he could.”
“And did you live here when it was new as that?” asked Ben,
whose interest was at once aroused by anything that smacked of
old-time stories.
“To be sure I did. This part of Ohio was all woods when I come
here. We come all the way from Connecticut in a wagon, for there
wasn’t any other way o’ comin’ then; my father drove a ‘spike team,’
that is, a horse ahead of a yoke of oxen; we brought what housen
goods we could in the wagon, an’ was forty days on the way. There
wasn’t a family in two miles at first, an’ nights we used to hear the
wolves howlin’ ’round the house.”
“And how did you feel?” asked Posey breathlessly.
The old lady laughed. “I was some scared along at first, though we
hadn’t no great call to be afraid o’ them, it was the sheep an’ young
cattle they was after. Why, along the first o’ father’s keepin’ sheep he
had to shut ’em up every night in a high pen; an’ after neighbors got
so thick we had a school a bear caught a pig one day, right in sight o’
the schoolhouse.”
“What did you do?” questioned Ben.
“Oh, some of the boys ran for Mr. James, who lived nearest. He
came with his gun, but the bear got away.”
“I wish I could have lived in those days,” and Ben gave a long-
drawn sigh over the safe, commonplace period in which his lot had
been cast.
“I think myself mebby we took more comfort then,” the old lady
agreed with fond retrospection. “We spun an’ wove all the cloth we
had; the shoemaker came around from house to house to make the
shoes—‘whippin’ the cat,’ they called it; when a deer was killed all
the neighbors had a share of the venison, cooked before the big
fireplace. To be sure, there were some things that wasn’t so
pleasant. I remember once we went without shoes till into December
’cause the shoemaker couldn’t get around before; an’ another time
father went to mill—twenty miles through the woods it was—he had
to wait three days for his grist to be ground; we hadn’t a mite o’ flour
or meal in the house, an’ mother sifted some bran to get the finest
an’ made it into bran bread. I tell you, the boys an’ girls o’ to-day
hain’t much idee o’ them times.”
She paused and looking at her listeners asked Ben abruptly, “Is
this your sister?”
Posey’s heart went pit-a-pat, but Ben answered promptly, “No,
ma’am, but she wanted to go my way, so I’m giving her a ride.”
She nodded. “I thought you didn’t favor one another.”
 At that moment the slamming of a blind in an adjoining room called
the old lady away for a moment, and Posey seized the opportunity to
whisper to Ben, “She looks so nice and kind, do you suppose she
would let me live with her?”
“Can’t say,” he whispered back, “but it won’t do any harm to ask
her.”
So when she returned, bringing a plate of seed cookies for her
guests, Posey hesitatingly made the request.
“La, child, I don’t live alone,” was the smiling answer. “My daughter
Manda, an’ Henry Scott, her husband, have lived with me ever since
my husband died. Not that I couldn’t live alone,” she added quickly,
“for though I’m seventy-five I hold my age pretty well, an’ chore
about a considerable. The reason I’m alone to-day is that Henry’s
mother is here on a visit. She’s one o’ them wimmen that’s always on
the go, an’ to-day there wa’n’t no hold up but they must go over to
see Manda’s cousin Jane. They wanted me to go with ’em, but I said
no, I wasn’t gwine joltin’ off ten mile as long as I had a comfortable
place to stay in. When folks got to my age home was the best place
for ’em, and I was gwine to stay there,” and she gave a chirruping
little laugh.
“Henry’s mother is younger’n I be—three years, five months an’
fifteen days younger, but she don’t begin to be so spry. Has to have
a nap every day; an’ she’s got eight different medicines with her, an’
what she don’t take she rubs on. It keeps her pretty busy a takin’ an’
a rubbin’ on,” and she chuckled again at what evidently seemed to
her very amusing in one younger than herself.
“How old be you?” she asked, her mind coming back from Henry’s
mother to Posey, who was waiting with wondering eagerness.
“I shall be fourteen in December.”
“You ain’t very big of your age.”
“But I’m real strong,” urged Posey, who experienced a sudden
sense of mortification that she was not larger.
 “You look as though you might be,” and the old lady looked over
her glasses at the well-knit, rounded little figure. “Where have you
been livin’?”
“Some fifteen miles from here,” answered Posey, who felt that
exact information would not be prudent. “But I couldn’t stay there any
longer,” she hastily added, “and as I haven’t any father or mother, I’d
like to find some nice people who wanted a girl to live with and help
them.”
“I really wish I knew of such a place for you, but Mandy, my
daughter, has all the family she can see to; and none of the
neighbors needs any one. But I dare presume you won’t have no
trouble in findin’ some one who wants just such a little girl.” So the
old lady cheerfully dismissed the subject without dreaming how
absolutely homeless she really was; and as the storm had now
passed over filled both their hands with cookies and with a smiling
face watched the tin-wagon on its way again.