Federal Tax Research, Tenth Edition Page 6-1

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CHAPTER 6
Thomson Reuters Checkpoint

DISCUSSION QUESTIONS

6-1. The function of commercial tax services is to facilitate efficient, effective, and comprehensive searches by
organizing primary and secondary tax law sources. They also provide editorial content not available
elsewhere.

Page 192

6-2. While practitioners can retrieve most primary tax sources at no cost, this free access does not translate into
more effective research. This is because there is a voluminous amount of information and this takes time to
sort, read, and comprehend, which can lead to information overload and inefficiency. All this information
must be managed; otherwise, using the Internet for tax research is not effective. Consequently, Internet
access to primary sources cannot substitute for a subscription to comprehensive tax services.

Page 192

6-3. The four primary ways to search in Checkpoint are: (1) keyword, (2) contents, (3) index and (4) citation. A
keyword search is similar to using a search engine on the Internet such as Bing or Google. One additional
step that distinguishes a Checkpoint search from a typical search is the selection of the databases from
which to search. Simply enter the key words and search the selected databases. A contents search is
similar to flipping through the table of contents in a printed book. Each of the databases in Checkpoint
(both primary and editorial) contains a table of contents that can be browsed through to identify the
“chapter” that contains the relevant information. An index search is similar to a contents search except
instead of the table of contents, the alphabetically organized index of the database can be browsed for the
topics of import. A citation search is used when the source document of importance is already known and
the researcher simply wants to go directly to that document.

Page 194

6-4. Annotated databases are organized by the numerical structure of Code. As a result, an annotated service
usually keys off a Code section. The contents of that that portion of an annotated database conveniently
contain the related regulations, explanations and annotations (which are cases and rulings that affect that
section). A topical service divides the tax law into its functional components and organizes these
components by topic.
Page 7-2 SOLUTIONS MANUAL

Page 195

6-5. Student responses may vary as the left sidebar is used like an additional tab in the search process in
Checkpoint. The left sidebar provides the following: Practice Areas (p. 192), the results list, Document
List, Contents to reveal the Breadcrumb (p. 205), and has quick access to both index and citation search
from the search screen (p. 196 and p. 210). When one of the related information buttons is used, the list of
related documents appears in the left sidebar (p. 206). The Links to related information are also located in
the sidebar (p. 207). The relevant court cases to enter into the RIA Citator are presented in the left sidebar
(p. 215).

Page 192, 196, 205, 206, 207, 210, and 215

6-6. Checkpoint subscriptions may vary and the practice areas may also vary. The table below presents some of
the more common practice areas and a description

Federal Tax A number of databases covering issues related to

federal taxation, including explanations, tools and
practice aids to assist the tax professional. It also
includes primary source material.
State & Local State tax primary and editorial information
organized by state.
Pension and Benefits Legislative and regulatory information, both
primary and editorial, related to pension and
benefits compliance areas such as ERISA, COBRA,
PBGC and other pension related issues.
Estate Planning Coverage of topics of interest to estate and financial
planning professionals.
International A variety of legal, editorial and news sources related
to international trade, tariffs, and regulations.
Accounting and Audit Various products and services covering issues
related to accounting and auditing.

Page 196

6-7. Legislative: Internal Revenue Code, various other statutes that affect tax, Public Laws that affect taxes,
archived Code, the US Constitution.
Administrative: Regulations (final proposed and temporary); Circular 230; Administrative rulings such as
Revenue Rulings and Revenue Procedures; IRS Notices, Announcements and Releases; Letter Rulings and
Memoranda.
Judicial: Trial level (Tax, District) court decisions, Appellate-level decision and Supreme Court decisions
that are tax related.

Page 197-199

6-8. Primary source materials form the backbone of tax law. Primary materials are the typically the source of
“substantial authority” relied upon by researchers. Editorial materials are those that are prepared by subject
area experts for the commercial tax service. Editorial materials are written to be more understandable and
often provide links to the primary materials when available. Often researchers will use editorial materials
to better understand the primary sources.

Page 196, 199

6-9. The three editorial services provided by Checkpoint are: Federal Tax Coordinator (FTC), United State Tax
Federal Tax Research, Tenth Edition Page 6-3

Reporter (USTR), and the Federal Tax Handbook. The FTC is the most comprehensive editorial source
provided by Checkpoint. It is organized by topic and contains a thorough explanation of each topical area
and links to primary sources. The USTR is organized by Code section and within each Code section the
regulations, explanations, committee reports and annotations (court cases dealing with the Code section)
can be found adjacent to the section itself. For tax concepts that cover multiple Code sections, the USTR
would need to be examined in each Code section for a comprehensive review. The Federal Tax Handbook
is a topically organized editorial source that provides brief explanations of most significant area of tax law.
Because it is less comprehensive, it can be much quicker to use.

Page 199-201

6-10. Performing a keyword search for all the Checkpoint databases at once is likely to produce results that
contain too many irrelevant sources rending the search useless. A more directed search increases the
probability that the researcher will find the relevant tax law more quickly.

Pages 202-203

6-11. The footnotes found in the Checkpoint editorial materials provide a trail that the researcher can follow from
editorial materials back to the primary sources. Recall that this is critical since “substantial authority” to
support a tax position generally requires primary source authority.

Page 212

6-12. The Related Information buttons allow the researcher to quickly find related sources of tax law to the
document that currently find themselves in. By using the Related Information buttons, the researcher has
immediate access to explanations, primary sources, regulations and many other documents that can help the
researcher understand the current document.

Pages 206, 208

6-13. A Terms & Connectors search lets you search for documents by specifying words and phrases that describe
your research question, along with specialized search connectors to filter and customize the search to get
more specific results. The Natural Language search method uses regular written language phrases to
generate search results.

Page 203

6-14. The Boolean connectors are:

&, AND – Finds results that contain both terms.
OR, | – Finds results that contain either term
NOT, ^ – Finds results that contain the first term but not the second term
The proximity connectors are:
/n – Finds results where the second terms is within n words of the first term
pre/# – Finds results where the second term is within # words of the first term
/s – Finds results where the terms are within 20 words of each other (any order)
pre/s – Finds results where the terms are within 20 words of each other (exact order)
/p – Finds results where the terms are within 50 words of each other (any order)
Pre/p – Finds results where the terms are within 50 words of each other (exact order)
atleast#() - Finds results where the terms appears at least # times

Wildcard characters
* - any character or number of characters can follow the string
? – any character can appear at that position in the string
- compound words that may or may not have the hyphen (e.g., e-mail, email, e mail)
# - disables automatic use of plural
Page 7-4 SOLUTIONS MANUAL

Page 209

6-15. An index search benefits from the creation of the index which requires the tax meaning and context of the
words to be considered. For example, a keyword search finds every location that word is presented;
however an index will contextualize the word and provide subheadings under the key word to reduce the
number of irrelevant sources examined. In this way, the expertise of the individual that built the index is
utilized.

Page 210

6-16. A keyword search can be performed inside of an index search. This allows the researcher to advance
forward through the index by jumping from keyword to keyword using the Navigate by Keyword feature.

Page 212

6-17. A search for dependent results in any document with dependent or dependents. A search for “dependent”
provides the exact same result (since dependent is a single search term and not a phrase, adding quotes
results in no changes in the result). Using the wildcard version depend* expands the search to include
terms such as dependant, dependency and depending. Synonyms include child, juvenile, minor and ward.

Page 213

6-18. A contents search generally requires some experience or knowledge of the structure or organization of the
source of tax law to be searched. For example, the structure of the Federal Tax Coordinator is topical by broad
areas such as “income” and then varies across different types of entities (e.g., individual v. corporation). Some
pre-existing knowledge of the way the database is structured will prevent the researcher from having to drill down
into unrelated documents over and over again until the relevant source is found. In a similar way, a working
knowledge of the Code will assist the researcher in finding relevant tax materials using a contents search in an
annotated service such as the United States Tax Reporter.

Pages 213

6-19. A citation search is a quick way to find a specific tax law or ruling based on the citation of that law or
ruling. If for example, you are searching for a specific Code section, citation search may be the fastest way
to find that Code section – in Checkpoint, simply click Search by Citation and enter the citation. A citator,
on the other hand, allows the researcher to examine other cases or rulings that have been issued
subsequently to the document of interest that cite that document. This is used to help verify that the current
document is the most recent or prevailing law. Checkpoint uses RIA’s citator which can be accessed by
either using the Citator link from the document of interest or by finding the specific case or ruling citation
for which the analysis is required in the table of contents.

Page 205, 219

6-20. The precedential value of cases is its legal authority that considered when judges are writing opinions in
subsequent cases having similar facts or legal issues. The law attempts to maintain continuity in treatment
of similar issues so individuals can anticipate the application of the law to their own situations.

Page 218

6-21. The tax law changes daily due to new legislation, issuance of Regulations, administrative pronouncements,
and court cases. Since the tax law is constantly evolving, researchers must determine if subsequent events
have affected the legal standing of the sources upon which the tax solution relies. Checkpoint has the RIA
Citator to assist the researcher to examine any updates or changes to an area of tax law over a window of
time.

Page 219-220
Federal Tax Research, Tenth Edition Page 6-5

6-22. A citator is a research tool that allows the tax researcher to both determine the history of a case and
evaluate the strength of its holdings. A citator may also facilitate locating cases more on point with the
client’s facts.

Pages 219-220

6-23. A cited case is the case that is being analyzed for its history or precedential value. It can also be referred to
as the main case. Citing cases are those cases which have made reference to the cited case. When one case
refers to another case, it cites the latter case. The name of the cited case and where it can be found is
referred to as a citation.

Page 219

6-24. A citator does not provide all types of information about a case or a ruling. Citators do not guide the
researcher to documents related to the case or ruling that do not specifically cite it nor do they indicate
when a case or ruling is no longer effective because of changes in the Code, unless the Code itself
specifically identifies the document or a subsequent document makes specific reference to the case being
superseded by the Code.

Page 219

6-25. An article found that is on-point with the tax issues allows the practitioner to use the author of the article as
a research associate, by capitalizing on the author’s expert judgments and references on the relevant topic
thereby saving hours of research time. The article’s references can lead the practitioner to the pertinent
primary tax sources. Researchers who ignore the tax periodicals might be accused, at best, of reinventing
the wheel and, at worst, of professional malpractice.

Page 225

6-26. Generally only primary sources of tax law, such as the Code, Regulations, or Revenue Rulings, are cited as
authority in professional tax research. Tax journals and newsletters are considered secondary sources of the
tax law. Traditionally, citing articles in professional tax research is limited to two situations: (1) If the
researcher is referring to the author's analysis and conclusions as stated in an article, (2) if the researcher
cannot find any controlling primary sources of law and a secondary source addresses the issue.

Pages 225

EXERCISES
The answers to the exercises are valid as of December, 2013. It is likely that there will be changes in the legal
services and the tax law after this manual is published. Further, it is likely that the services available to the students
will not be identical to the services available to the authors of this manual. Consequently, the student responses may
vary from those provided.

6-27. a. The RIA Checkpoint thesaurus alternatives for like-kind are: 1031, like kind, likeclass, and
likekind.
b. Expanding the Federal Tax Coordinator reveals the following subheadings: Analysis (FTC),
Checklists, Client Letters.
c. 1954.
d. The three points for accessing Current Legislation are: 1. Search Left sidebar: Legislation
Search; 2. Primary Source Materials: Current Pending/Enacted Legislation (RIA); 3. Legislation
(Editorial Analysis and Source Material).
Page 7-6 SOLUTIONS MANUAL

6-28. a. Student responses will vary date of search.

b. The first two choices that are made when using the USTR Code Section are: 1. Choose the
USTR Tax Type (Income, Estate & Gift, and Excise) and 2. Choose Current or Repealed (Current
or Repealed).
c. The templates available in the Form/Line Finder are: Tax Year, Form Number, Form/Schedule
Line Number and Schedule
d. The “i-Tables” include: AFR Tables and IRS Valuation Tables, which includes Table B –
Interest for a term certain; Table R(2) – Two –life factors(other than CRUTs); Table S – Single
life factors; Table U(2) – Two-life factors (CRUTs)..

6-29. a. The templates for Estate Planning Practice Area are: Current Code, Final & Temporary
Regulations, Preambles to Final Regulations and Proposed Regulations. The templates for Payroll
Area are: Final & Temporary Regulations, and Proposed Regulations.
b. The oldest available General Council Memorandum available is from 1962.
c. The exact date is January 8, 1962.
d. The Date Range Search only applies to Federal cases. The oldest cases available are:
AFTR – 1860; TC & BTA – 1924; and TC & BTA Memos – 1928.
e. The 2 Revenue Rulings discussing §1250 are the following: 77-21 and 72-550.

6-30. a. Estimate your income tax for the upcoming year.

b. Using the Don’t Delay Your savings Tool with the following inputs: Years to wait = 5, Starting
amount =$0, Years = 30, Rate = 6% and constributions = $200, the difference is $59,935.
c. The 15 year term saves $23,529 in interest but will cost $304 extra per month.
d. Student responses will vary depending on the tax year that the research was performed. In 2013,
the marginal rate = 25%, the average rate = 10.76%.

6-31. a. The title of §178 is: Amortization of cost of acquiring a lease.

b. The Regulations issued on § §178are as follows:
Reg §1.178-1. Depreciation or amortization of improvements on leased property and cost of acquiring a
lease
Prop Reg §1.178-1. Depreciation or amortization of improvements on leased property and cost of acquiring
a lease
Reg §1.178-2. Related lessee and lessor
Reg §1.178-3. Reasonable certainty test.
c. §168
d. The FTC paragraph that furnishes an analysis of §178(a) is: L-6504
The Explanations paragraphs linked to all of §178 are: L-6504, L-7971, L-12501, and L-17028
e. The case can be found in annotations (e.g., Related Information btton for annotations) and is Kermit Eucker
et al. (1983) 81 TC 983.
Federal Tax Research, Tenth Edition Page 6-7

6-32. a. The Checkpoint primary databases with indexes are: The Current Code, Final & Temporary
Regulations and Proposed Regulations. The Federal Tax Coordinator, USTR and Federal tax
handbook also have indexes but they are not primary materials
b. The FTC paragraphs discussing the excise tax for racing tires are W-2605 and W-2606.
c. Rev Rul 57-218, 1957-1 CB 369.
d. §4131
e. August 5, 1997
f. According to the house report (COMREP ¶41,311.03): Amounts equal to net revenues from this
excise tax are deposited in the Vaccine Injury Compensation Trust Fund to finance compensation
awards under the Federal Vaccine Injury Compensation Program for individuals who suffer
certain injuries following administration of the taxable vaccines. This program provides a substitute
Federal, “no fault” insurance system for the State-law tort and private liability insurance systems otherwise
applicable to vaccine manufacturers. All persons immunized after September 30, 1998, with covered
vaccines must pursue compensation under this Federal program before bringing civil tort actions under
State law.

6-33. a. The FTC paragraph introducing expensing advanced mine safety equipment is ¶L-9940.
b. The FTC paragraph that defines advanced mine safety equipment is ¶L-9943.
c. The USTR paragraph that discusses this topic is ¶EXP179E4
d. The primary source is cited by both the FTR and USTR as the source is §179E
e. Not very detailed. It simply states “Taxpayers can elect to expense 50% of the cost of qualified
advanced mine safety equipment property placed in service after Dec. 20, 2006 and before 2014.”

6-34. a. The directions for line 36 on 2012 Form 1040 are found in paragraph number ¶142; Total
Adjustments
b. EXP ¶1794.02 discusses what qualified real property is for purposes of §179.
c. Committee Reports, Regulations, Explanations, Annotations and Advanced Annotations are all
presented.
d. The Supreme Court cases issued in 2012 with Scalia as the judge are:
U.S. v. Home Concrete & Supply, LLC et al. 132 S. Ct. 1836 4/25/2012.
Nat’l Fed. Of Independent Business, et al. v Sebelius 132 S. Ct. 2566 6/28/2012

6-35. a. The practice areas will vary depending on the library’s subscriptions. Possible responses are:
Federal, State & Local, Estate Planning, Pension & Benefits, International, Payroll, Accounting,
Audit & Corporate Finance, All Practice Areas.
b. The materials offered in the Archive Materials for 2011 are: Annotations, Explanations, Federal
Tax Handbook, and Internal Revenue Code History.
c. It would be useful to use the archive materials if the practitioner had a client with a return audited
for a prior year or a client that had not filed returns for a particular previous year.
d. The repealed §341 covered collapsible corporations and was repealed by §302(e)(4)(A) of P.L.
108-27, effective for tax years beginning after 12/31/2002.
Page 7-8 SOLUTIONS MANUAL

6-36. a. Student responses will vary. Possible responses include: Accelerated Debt Payoff, Consolidation
Loan Investment, Credit Card Optimizer, Credit Card Pay Off, How Much Do You Owe?,
Personal Debt Consolidation, Rolldown Your Credit Card Debt!
b. From the Training and Support area on the Home tab or from the Help button at the top of the
screen.
c. a nickname for a transaction in which a partner contributes an asset which is combined and
managed with the other assets of the partnership, followed by a distribution of another asset out of
the partnership to the partner.

6-37. a. McCarthy et al v. US with parallel citations of 807 F.2d 1306 and 87-1 USTC ¶9101.
b. US Court of Appeals, 6th Circuit
c. The court examined the amortization of broadcast rights and the amortization of certain
fees incurred in acquiring a business
d. The two types of fees are the legal fees associated with the loan to purchase the Yankees
and the fees incurred to organize the partnership that owned the Yankees. The loan fees
were permitted as amortizable over the life of the loan. The partnership organization
costs are considered part of the basis of the Yankees and must be capitalized.
e. McCarthy has not been cited in the RIA Citator. It modifies its previous judicial history
– the District Court case on the same issues (56 AFTR 2d 85-5612).
f. In 2004, Sec. 886(a) of PL 108-357 amended §197(e)(6) thus opening the door for the
amortization of broadcast rights for sports franchises.

6-38. a. The citation for the case is 106 AFTR 2d 2010-7370.

b. There are four cases listed by the RIA Citator (as of 2013 – this may change if the case
continues through the system). Of these, only 1 (107 AFTR 2d 2011-402) deals with the
self-incrimination issued discussed in the 2010 case.

6-39. a. Parker v. Comm. Is 79 AFTR 2d 97-2889 or 117 F3d 785 or 97-1 USTC ¶50480.

b. Only once, in Marino 93 AFTR 2d 2004-906.

c. The RIA Citator lists only one case: Stuart M Smith Jr. TC Memo 2000-244. Strangely, there is
no link for that case.

6-40. a. The citator covers Revenue Procedures, Tax Court Memoranda, Announcements and Notices , all
of which may have 2009-47.
b. The title of Rev. Proc. 2009-47 is High-low per diem method for lodging meal and incidental
expenses
c. This Procedure superseded Notice 2008-59.
d. This Procedure was modified by Rev. Proc. 2010-39.
e. Rev. Proc. 2010-39 is not longer in effect and was superseded by Rev. Proc 2011-47. This this
Revenue Procedure relates to a changing per diem amount, it is likely to be superseded each year.

6-41. a. The citation for the Gwendolyn A. Ewing case is 118 TC 494 and it addresses §6015, innocent
spouse relief, jurisdiction of the Tax Court for equity relief.
b. The original Gwendolyn A. Ewing, case (118 TC 494) is the same case as Gwendolyn A. Ewing,
122 TC 32. Upon appeal, the Tax Court findings were reversed in Gwendolyn A. Ewing, 97 AFTR
2d 2006-1224 , 439 F3d 1009 (CA9, 2/28/2006). Lastly, the original Tax Court decision was
overruled by legislation as discussed in David Bruce Billings (127 TC 7).
Federal Tax Research, Tenth Edition Page 6-9

c. The Gwendolyn A. Ewing case is annotated in the United States Tax Reporter at: ¶60,155.01(5),
¶60,155.04(5), and ¶60,155.04(10). To find this information, use the related information links for
Annotations from the case.
d. The Haag case favorably discusses the Ewing case at 94 AFTR 2d 2004-6667.

6-42. a. Corn Products can be cited as 47 AFTR 1789, 350 US 46, 76 S.Ct. 20, and 55-2 USTC ¶9746.
b. Using the Filter by US option, 9 Supreme Court cases have cited Corn Products.
c. The court cites Bittker, Federal Taxation of Income, Estates and Gifts
d. Excepting Alderson, virtually all the cases citing Arkansas Best follow or cite favorably the
decision. As a result, the ruling would appear to remain valid.
e. The tax law was changed first through the regulations and then through the Code itself rendering
application of Arkansas Best and Corn Products to a reduced number of situations.

6-43. a. The tax years considered in Deluxe Check Printers, Inc. (15 Cl Ct 175) are 1976, 1977, and 1978.
Upon appeal, the Federal Circuit Court of Appeals (64 AFTR 2d 89-5327; 885 F2d 848) reversed
the liability and affirmed as to the interest payment.
b. The doctrine that is the basis for part B. of the Court of Federal Claims case is the Doctrine of
Variance and is discussed at T-6802 & T-6802.1in the FTC.
c. The cases and rulings distinguish themselves from the Deluxe Check Printers Court of Federal
Claims decision are as follows: BCS Financial Corp v. U.S., 78 AFTR 2d 96-5766, 930 F Supp
1279; and Sierra Pacific Resources and Subs. v. U.S., 90 AFTR 2d 2002-7511 , 56 Fed Cl 376;
PLR 9643001 & 9702002 (Listed as PLRs in the citator but are actually TAMs).
d. The number of cases cited by the Deluxe Check Printers decision could be from 21 to 23
depending if the students count every case or leave out cases with the same name (Rockefeller,
Winthrop) and the Deluxe Check Printers. This seems like a reasonable number for a case to cite.

6-44. a. The complete citation is Rev Rul 2001-60, 2001-2 CB 587.

b. Rev Rul 2001-60 modified and amplified Rev Proc 99-49 (199-2 CB 725) and Modified and
superseded Rev Rul 55-290 (1955-1 CB 320).
c. The documents that favorably cite Rev Rul 2001-60 are: Rev Proc 2002-1 (2002-1 CB 41), Rev
Proc 2002-3 (2002-1 CB 125), Rev Proc 2002-9 (2002-1 CB 353), and 2011-14 (2011-4 IRB
330).
d. Rev Rul 2001-60 discusses capital expenditures – improvements to business or property – golf
course greens.

RESEARCH CASES
The solutions to the research cases are valid as of December 2013. It is likely that there will be changes in the Code,
Regulations, Administrative Pronouncements, and Case law after this manual is published. Further, it is likely that
the services available to the students will not be identical to those available to the authors of this manual. All
possible citations are not included; only a sample of the citations most likely to be reported by students is presented.
Consequently, the students’ responses may vary from those listed for each question.

The information provided in the parentheses at the end of each solution is a search path that could be utilized to find
the answer to the research case. This is not the only research path; it is merely one of many possible methods.

6-45. The IRS can collect from Frances the $150,000 towards Beatrice’s unpaid taxes. Since the transfer of the
home was for a token value ($1,000), the transfer was constructively fraudulent because the IRS claim for
unpaid taxes arose before the transfer and Beatrice was insolvent at the time of the transfer. (FTC ¶9105
and 9106 – Keywords: family transfer, IRS, lien, unpaid, taxes, insolvent).

Code §6901
Page 7-10 SOLUTIONS MANUAL

Case Rubenstein, 134 TC No. 13 (2010)

6-46. In determining whether the 6-year period for auditing applies there must be an omission from gross income
that is greater than 25 percent. In determining gross income no deductions are made. Thus, the product
returns does not reduce the sales. Since the actual gross sales were $100,000 and they reported $80,000, the
omission was only 20 percent and the IRS cannot audit five years ago. (USTR Indexes: Omission from
gross income, gross income defined)

Code §6501(a) & (e)

Ruling CCA 201023053

6-47. Expenses for in vitro fertilization and amounts paid to carries of the fertilized eggs are not deductible as
medical expenses for males who are capable of reproducing without this procedure. If there is a medical
reason for the procedure it may be deductible. (§213 Medical and Dental Expenses, FTC Index Medical
Expenses, egg donor fees and expenses (¶K-2110. Keywords: medical expense fertility treatment).

Code §213

Cases Magdain, 105 AFTR 2d 2010-442 (Note: Some RIA links for this citation go to Morgan)
Denied certiorari by US Supreme Court 2010 and cited favorably by Longino TC Memo
2013-723

Ruling PLR 200318017

6-48 To: Files

From: Student

Date: Today’s date

Subject Deduction for Tuition and Travel for Special Boarding School

Facts:

Ozzie and Sherrie Johnson enrolled their son Jack in Lonely Bridge, a special school for troubled teens
where therapy is provided. In 2012, the Johnson’s paid tuition of $48,000. In addition, in order to attend
mandatory parent therapy sessions at the school, the Johnson’s incurred travel costs associated with airfare,
rental cars and lodging of $12,000 in 2013. Lastly, the Johnson’s were required to keep a personal account
at the school to cover expenses associated with therapy. During Jack’s tenure at Lonely Bridge, the
Johnson’s were under the impression that the program at Lonely Bridge was an accredited program for
education and drug-addiction related therapy.

Issue:

Can the Johnson’s deduct the cost of tuition, travel and the personal account as medical expenses?

Analysis:

The deduction for medical expenses is covered under §213 which permits a deduction for expenses paid for
medical care for the taxpayer, spouse or dependents. Under §213(d)(1), medical care is defined as amounts
paid for “the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting
any structure or function of the body [and] for transportation primarily for and essential to medical care.”
Under §213(d)(2), “amounts paid for lodging while away from home primarily for and essential to medical
care” if “the medical care referred to…is provided by a physician in a licensed hospital (or in a medical
Federal Tax Research, Tenth Edition Page 6-11

care facility which is related to, or the equivalent of, a licensed hospital) shall be deductible as medical
costs,” but limited to $50 per person per night.

Reg. §1.213-1(e)(1)(ii) states that “an expenditure which is merely beneficial to the general health of an
individual, such as an expenditure for a vacation, is not an expenditure for medical care.” Furthermore, in
Reg. §1,213-1(e)(1)(v), the issue of a deduction for the costs of having an individual in an institution
because of his condition are considered by the Treasury. The regulations states that the expenses for care in
an institution which is regularly engaged in providing medical care or services are deductible; however, the
regulations also state that “where an individual is in an institution, and his conditions is such that the
availability of medical care in such institution is not a principal reason for his presence there, only the part
of the cost of care in the institution as is attributable to medical care.”
Reg. §1.213-1(e)(1)(v)(a)) further states:

While ordinary education is not medical care, the cost of medical care includes the cost of
attending a special school for a mentally or physically handicapped individual, if his condition is
such that the resources of the institution for alleviating such mental or physical handicap are a
principal reason for his presence there.

and

In such a case, the cost of attending such a special school will include the cost of meals and
lodging, if supplied, and the cost of ordinary education furnished which is incidental to the special
services furnished by the school. Thus, the cost of medical care includes the cost of attending a
special school designed to compensate for or overcome a physical handicap, in order to qualify the
individual for future normal education or for normal living, such as a school for the teaching of
braille or lip reading. Similarly, the cost of care and supervision, or of treatment and training, of a
mentally retarded or physically handicapped individual at an institution is within the meaning of
the term "medical care."

Two related Revenue Rulings have been issued on the topic of institutional care for drugs and alcohol.
Rev. Rul. 72-226 states that “amounts actually paid by the taxpayer to maintain his dependent in a
therapeutic center for drug addicts including the cost of the dependent’s meals and lodging at the center
which were furnished as a necessary incident to his treatment, are expenses for medical care.” Rev. Rul.
73-325 holds that “amounts paid by the taxpayer to the therapeutic center for alcoholism, including the cost
of the taxpayer’s meals and lodging at the center which are furnished as a necessary incident to his
treatment, are expenses for medical care.”

Rev. Rul. 63-91 states that,

amounts paid for medical services rendered by practitioners, such as chiropractors,

psychotherapists, and others rendering similar type services, constitute expenses for “medical
care”…even though the practitioners who perform the services are not required by law to be, or
are not (even though required by law) licensed, certified, or otherwise qualified to perform such
services.

The ruling also cites Wendell (12 TC 161, 1949) in stating that “the determination of what is medical care
depends on the nature of the services rendered, not on the experience, qualifications, or title of the person
rendering them.” Rev. Rul. 63-91 also states

The Code and the regulations do not require a taxpayer to ascertain whether a practitioner is
qualified, is authorized under state law, or is licensed to practice, before obtaining his services or
claiming a medical expense deduction. Where it can be shown that an individual paid an amount
for a purpose defined in the Code as “medical care,” such amount qualifies as a medical expense.

A 1992 Tax Court case, Urbauer (63 TCM 2492, 1992), the court held that the taxpayers could “deduct
Page 7-12 SOLUTIONS MANUAL

amounts spent in connection with the treatment of their son for behavioral and drug problems at a college-
preparatory school that addressed the educational and emotional needs of its students. Since the son
attended the school principally to benefit from its medical program and the costs of his education were
incidental to the special services provided by the school, his enrollment costs were deductible as medical
expenses.” In addition, the court held that since his personal account was tantamount to his continued
attendance at the institution, those expenses were also deductible. However, the court also held in Urbauer
that the cost of lodging was not deductible since the travel was for care that was not provided by a
physician in a licensed hospital as required under §213(d)(2).

Conclusion:

In the Johnson’s case, the tuition for John at Lonely Bridge meets the standard to be treated as “medical
care” under §213. The definition of medical care under Reg. 1.213-1 as including John’s therapy at Lonely
Bridge is also supported by Rev. Rul. 72-226 and Rev. Rul. 73-325. Lastly, the facts in Urbauer closely
resemble the facts in the instant case, making it difficult to distinguish between the two. Under Rev. Rul.
63-91, it does not appear relevant that Lonely Bridge was not acting in good faith with respect to
qualifications or credentials. The Johnson’s travel costs are deductible under §213, however, any part of
the travel costs related to lodging are not deductible by the Johnson’s as Reg. 1.213-1 and Urbauer make it
clear that such costs are not associated with services provided by a physician in a licensed hospital. Lastly,
the court in Urbauer held that the personal account expenses are deductible due to the close association
those costs have with the rendering of medical services at the school.

6-49. For tax purposes, the term “home” has a specific meaning – the taxpayer's principal place of employment;
not the home that the taxpayers considers their personal residence. When taxpayers choose not to live some
place other than where their employment is, this is a personal choice, thus, those expenditures are not
ordinary and necessary business expenses. There is an exception when the taxpayer is away from the
personal residence for business on a temporary basis. (USTR EXP ¶1624.125 – Keywords: “away from
home” residence)

Code §162(a)(2)

Cases Many to choose from but most refer back to:

Kroll 49 TC 557
Six 71-2 USTC ¶9694, 450 F2d 66
Cerny, 62 TC Memo 1991-526
Minick TC Memo 2010-12

Ruling Rev Rul 73-529, 1973-2 CB 37

6-50. Generally, emotional distress is not a physical injury or illness for the damages exclusion under the Code
even when there are physical symptoms such as headaches high blood pressure or sleeping disorders.
However, damages are excluded when there is a physical injury or illness exacerbated a physical illness.
Fibromyalgia is a disorder meeting the definition of a physical injury. Depression; however, was found to
be too similar to the characteristics of emotional distress that is specifically excluded from physical injury.
(USTR - ¶1045.02(30) Settlements )

Code §104 (a)(2)

Regulations Reg. §1.104-1(c)

Cases Domeny, TC Memo 2010-9

Blackwood, TC Memo 2012-190
Federal Tax Research, Tenth Edition Page 6-13

Reports H Rept No. 104-586 (PL 104-188) p. 144

6-51. Amounts diverted from political campaigns for personal use are gross income to the candidate in the year
diverted. (FTC Index Gross Income, political contributions - keywords: funds personal use political
campaign)

Code §§61, 527

Regulations Reg. §1.527-5(a)(1)

Rulings FSA 0887

Rev. Rul. 71-449
Rev. Rul. 74-22

6-52. Alimony payments are deductible by the payor and taxable to the recipient. Alimony is defined simply as
amounts paid to a spouse or former spouse under a divorce or separation agreement. Child support is not
deductible to the payor and not taxable to the recipient. If payment is less than the full amount required by
the divorce decree, the payments are first treated as child support and the remainder as alimony. Therefore,
$1,000 of each payment is considered alimony. (USTR Index Minors, Support Payments, Less than
periodic - Keywords: “child support” alimony, ¶715.16(5)

Code §71(c)(3)

Regulations Reg. §1.71-1(e)

Cases Blyth 21 TC 275 (1953) acq

6-53. To: Files

From: Student

Date: Today’s date

Subject Allocation between Alimony and Child Support

Facts:

Tom and Katie were divorced in 2011. The divorce decree stipulates that Tom will pay child support (they
had a daughter Suri) of $2,000 per month and alimony of $3,000 per month. In 2013, Suri came into a
large amount of wealth through her marriage and the child support payments were no longer necessary.
There is written documentation (e-mails) between Suri and Tom to that effect; however, Katie’s assent to
the reduction in child support is oral. Tom continued to pay only the alimony as required under the decree.

Issue:

How much alimony can Tom deduct?

Analysis:

Under §71, gross income includes amounts received as alimony. In a symmetric fashion, §215 allows a
deduction for amounts paid for alimony. The term “alimony” is defined in §71(b) as a payment in cash
received by a spouse under a divorce or separation agreement. A divorce or separation instrument is
defined in §71(b)(2) as “a decree of divorce or separation maintenance or a written instrument incident to
such a decree, a written separation agreement, or a decree…requiring a spouse to make payments for the
Page 7-14 SOLUTIONS MANUAL

support or maintenance of the other spouse.

Frequently, in addition to alimony, divorce decrees also call for payments made to the custodial parent to
support children. Under §71(c), a taxpayer may not treat a payment or any part of a payment for child
support as alimony. Under §71(c)(2) if the divorce or separation instrument calls for any reductions in
child support due to the occurrence of an event relating to the child (e.g., attaining a certain age, marriage,
leaving school, etc.), then the amount of that reduction for any payment prior to the contingent event
occurring, shall also be treated as child support. Lastly, with regards to child support payments, §71(c)(3)
states that “if any payment is less than the amount specified in the instrument, then so much of such
payment as does not exceed the sum payable for support shall be considered a payment for such support.”

Reg. §1.71-1(e) provides an example of the intent of §71(c)(3).

For example, if the husband is by terms of the decree, instrument, or agreement required to pay
$200 a month to his divorced wife, $100 of which is designated by the decree, instrument, or
agreement to be for the support of their minor children, and the husband pays only $150 to his
wife, $100 is nevertheless considered to be a payment by the husband for the support of his
children.

The Tax Court in Blyth (21 TC 31 (1953)) examined the ordering rules in §71(c)(3) which dictate that
anytime the combined alimony and child support payments are less than the amounts per the divorce
instrument, payments are first characterized as child support (note that Blyth deals with the IRC of 1954
and §71’s predecessor, §22). In Blyth, the divorce agreement called for $100 in alimony and $50 in child
support per month. Due to a change in circumstances, the husband reduced the child support to $0 per
month but maintained the $100 alimony. The court held that $50 of his “alimony” payment represents the
child support and that alimony was therefore reduced to only $50 per month also. In Blyth, the divorce
decree was not modified in writing and the child support adjustment appears to have been unilaterally
decided by the husband. This lack of agreement on the wife’s part is made evident by the financial
settlement between husband and wife for unpaid child support during the period in question.

In Hazam (79 TCM 1597; TC Memo 2000-71, (2000)), an ex-husband altered the terms of child support
alimony payments to his ex-wife through an oral agreement. In Hazam, the ex-wife reduced the income
from alimony she reported each year by the amount of the child support prescribed in the divorce
instrument (i.e., she made the §71(c)(3) adjustment herself) while the husband deducted the alimony in full.
The divorce instrument in Hazam stated that the child support amounts were, in fact, subject to change
based on a change in circumstances; however, the instrument also stated that the agreement was subject to
modification only if both parties agreed to such change in writing.

In Blair (56 TCM 923; TC Memo 1988-581 (1988)), the Tax Court examined another allocation of
payments between alimony and child support in which the wife orally agreed to the adjustment in child
support but again, such modification of the original decree was not made in writing. In Blair the court is
not ambiguous in its interpretation of §71 and finds that even in cases where the former spouse agrees to
the reduction in child support, without a commensurate written modification of the divorce agreement, the
oral modification will not be sustained for tax treatment.

Conclusion:

Tom and Katie modified the original terms of the divorce decree but did so only orally. The rules under
§71(c)(3) and the regulations thereunder are clear that in situations where the combined alimony and child
support payments are less than the amount stipulated by the divorce instrument, payments are first
characterized as child support. The Tax Court has repeatedly (Blyth, Hazam and Blair) held that in such
situations, irrespective of the intent of both parties to agree or disagree with the modification of the divorce
instrument, if such modification is not reduced to writing, no such modification will be recognized under
tax law. Tom’s documentation with Suri would not appear to qualify as a written modification to the
Federal Tax Research, Tenth Edition Page 6-15

divorce agreement as it is clear that Katie (the counterparty in the original divorce agreement) was not part
of these written documents and in no way agreed to the changes in writing, in spite of seemingly agreeing
with the changes.

In addition, although the adjustment to child support occurred as a result of a contingent event relating to
the child (Suri’s marriage and accretion of vast wealth), such contingency was not part of the divorce
agreement and thus does not affect the amount of alimony under §71(c)(2). Tom’s payment of $3,000 per
month subsequent to the modification of child support must be recharacterized to the extent of $2,000 as
child support. As stated in Blair, “had [the husband] gone back to the divorce court for a modification of
the decree, the result in this case may well have been different.”

6-54 Child care costs include all expenses for household services while care is provided for qualifying
individuals. The care needn't be provided in the least expensive available way. Therefore, all items paid by
Rodriguez qualify for the credit, including the employee-FICA-share and the vacation, if the vacation is
part of the nanny’s compensation package. (FTC ¶4322 – Keywords: household services employment
related expense child care credit)

Code §§21(b);

Regulations Reg. §1.21-1(d)

Cases Perry, 92 TC 470 (1989)

Rulings Rev Rul 74-176, 1974-1 CB 68

6-55. A meal provided to an employee can be excluded from gross income in at least 3 ways: (1) as a no
additional cost service, (2) as a qualified employee discount, (3) as a de minimis fringe or (4) as a meal
provided for the convenience of the employer. The first 3 are derived from §132 and the last from §119.
Since Kenny is receiving food, unless the Burger Pitt product cost is insignificant as compared to the labor
cost (which seems unlikely), this is not a no-cost service. A qualified employee discount can be excluded
from income if (for the sale of property), the discount does not exceed the gross profit when sold to
customers. Basically, if the Burget Pitt charges Kenny less than cost, the portion of the discount below cost
is includable in income. A de minimis fringe is one that the value of which is so small as to make
accounting for it unreasonable. In this case, for example, perhaps a serving of French fries provided
occasionally to Kenny seems to fit de minimis; however since The Pitt charges Kenny for 40% of the cost,
the business can obviously track the amount of the discount and thus it is not likely to qualify as de
minimis. Under §119, meals provided to wait staff can be excluded from income if (1) the meals are
furnished on the business premises and (2) the meals are for the convenience of the employer. When the
employee is required to pay for the meal (as in Kenny’s case) and the employee may or may not purchase
the meal, the meal will not be considered for the convenience of the employer under Reg. §1.119-1(a)(3).
Unless Kenny can establish that the meals provided on his working days are for the convenience of the
Burger Pitt (e.g., there are no other nearby lunch facilities, the manager prefers the staff to limit lunch to a
fairly short period since lunch is also busy), the discount is not excludable under §119. Unless the
employee discount exemption can apply, the discount provided to Kenny on days he is not working is
almost certainly taxable. (FTC and USTR – Keywords: employee discount meal)

Code §§61, 119, 132

Regulations Reg §1.61-21(a)

Reg §1.119-1
Reg §1.132-2
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