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Chapter I:7
Itemized Deductions
Discussion Questions
I:7-1 a. A taxpayer may deduct medical expenses incurred on behalf of the taxpayer, the
taxpayer's spouse, the taxpayer's dependents, and the taxpayer’s children. The taxpayer may also
deduct medical expenses paid for an individual who would otherwise qualify as a dependent
except for the fact that the gross income test is not met, even though the taxpayer may not take
an exemption for the individual.
b. No. Medical expenses incurred by the divorced parents of a child are deductible
by whichever parent incurs the expenses, even though the parent incurring the expenses is not
entitled to the dependency exemption for the child. p. I:7-2.
c. The taxpayer who is the subject of a multiple support agreement is treated as the
dependent of the taxpayer who is entitled to take the dependency exemption. Since a taxpayer
may deduct medical expenses (subject to the 7.5% of AGI limit) incurred for a dependent, the
taxpayer entitled to the dependency exemption under the multiple support agreement should be
the one who pays the medical expenses.
I:7-2 Medical care is defined as amounts paid for:
1. The diagnosis, cure, mitigation, treatment, or prevention of disease.

2. The purpose of affecting any structure or function of the body. (Medical expenses
incurred for cosmetic surgery are not deductible).
3. Transportation primarily for and essential to the first two items listed above.
4. Long-term care services for the chronically ill. Chronically ill generally is
defined as the loss of certain daily living activities such as eating, toileting,
bathing, dressing, and continence.
5. Insurance covering all of the items above. However, the deductibility of long-term
care insurance premiums is subject to a dollar ceiling based on age. pp. I:7-2
through I:7-6.
I:7-3 a. The Internal Revenue Code defines cosmetic surgery as any procedure that is
directed at improving the patient's appearance and does not meaningfully promote the proper
function of the body or prevent or treat illness or disease.
b. In general, the cost of cosmetic surgery is not deductible unless it is necessary to
ameliorate a deformity arising from or directly related to, a congenital abnormality, a personal
injury resulting from an accident or trauma, or a disfiguring disease. p. I:7-4.
I:7-4 a. In 2018, the deductible mileage rate for miles driven to receive medical care is
18 cents per mile. In addition, the cost of lodging and 50% of the cost of meals incurred en route
to obtain medical treatment generally is deductible as a medical expense. En route transportation,
50% of meals and lodging costs for a nurse, parent, or spouse are also deductible if the sick or
Copyright © 2019 Pearson Education, Inc.

I:7-1
injured individual is unable to travel alone. Note, however, that the IRS’s position is that the
cost of meals en route generally is not deductible for trips too short to warrant a stop for meals.
b. If the trip for medical purposes is long enough to warrant the deductibility of
meals, the meals are still subject to the 50% limit. Additionally, the lodging costs are limited to
$50 per person, per night. pp. I:7-4 and I:7-5.
I:7-5 Generally the cost of meals is not deductible for an individual receiving treatment as an
outpatient while away from home. The cost of lodging for an outpatient is deductible if (1) the
travel is undertaken primarily for medical care, (2) the medical care is provided by a physician in
a licensed hospital (or a facility that is related or equivalent to a licensed hospital), and (3) there
is no significant element of personal pleasure or recreation. Furthermore, the deduction for
lodging is limited to $50 per night, per person. These rules also apply to a nurse, parent, or
spouse if the sick or injured individual is unable to be alone. The cost of meals and lodging
received by an individual as an inpatient are considered part of the treatment received and are,
therefore, deductible as medical expenses. p. I:7-4.
I:7-6 a. Capital expenditures qualify for a current deduction if incurred as a medical

necessity for primary use by the taxpayer, taxpayer's spouse, or dependents in need of medical
treatment. There are three types of capital expenditures that qualify for a deduction.
1. Expenditures that relate only to the sick person and not to the permanent
improvement of the taxpayer's property. These include expenditures for items
such as wheelchairs, eyeglasses, etc.
2. Expenditures that permanently improve the taxpayer's property as well as provide
medical care.
3. Expenditures incurred in removing physical barriers in the home of a physically
handicapped individual.
b. Capital expenditures in the first and third categories are fully deductible.
However, capital expenditures in the second category are deductible only to the extent the
expenditure exceeds the increase in fair market value of the residence. p. I:7-5.
I:7-7 The cost of the trip most likely would not be deductible because of the personal
enjoyment factor. Because Bill's doctor recommended the trip specifically as treatment for his
ulcer, an argument could be made to deduct the cost of the trip as treatment for a specific
ailment. Before taking such a position, however, the taxpayer and his/her tax return preparer
should evaluate whether or not the position has a “reasonable” or “more likely than not” chance
of winning upon audit. pp. I:7-3 and I:7-4.
I:7-8 If the premiums cover more than just health care or long-term care for the chronically ill,
(i.e. coverage for loss of income or life) and the cost of the separate items are not identified as a
component of the total premium, then none of the premiums are deductible. p. I:7-6.

I:7-2
I:7-9 Medical expenses that exceed 7.5% are deductible from AGI, if the sum of this excess
and all other deductions from AGI exceeds the standard deduction. A deduction can be taken in
the year that the care is paid for; although, if the care is prepaid, the amount is deductible only
after the services are performed unless the prepayment is required by the provider of the services
or there is a legal obligation to pay. Furthermore, under certain conditions, the prepayment of
certain long-term care treatments may also be deductible when paid. pp. I:7-6 and I:7-7.
I:7-10 a. The following taxes are specifically identified as deductible under Sec. 164:
• State, local, and foreign real property taxes

• State and local personal property taxes if the tax is ad valorem
• State, local, and foreign income, war profits, and excess profits tax
• State and local sales taxes if the taxpayer makes an election to deduct
them instead of state and local income taxes.
• The federal generation-skipping transfer tax on income distributions
• Other state, local, and foreign taxes, which are paid or incurred in either a
trade or business or an income-producing activity.
• One-half of the self-employment taxes imposed on a self-employed
individual.
b. Certain taxes not specifically listed in Sec. 164 are still deductible as ordinary and
necessary expenses if incurred in the taxpayer's business or income-producing activity. Taxes
paid in connection with the acquisition of property (such as a sales tax) are treated as part of the
cost of the property and are capitalized accordingly. pp. I:7-9 and I:7-10.
I:7-11 Cash method taxpayers deduct all state taxes in the year paid or withheld. A refund of
state taxes must be included in gross income in the year of the refund to the extent a tax benefit
was received in the year the deduction was taken. p. I:7-10.
I:7-12 An ad valorem tax is a tax determined by the value of the property being taxed. A
personal property tax that is not an ad valorem tax is still deductible as an ordinary business
expense if the property is used in a trade or business. If the tax is not an ad valorem tax and the
property is not used in a trade or business or income-producing activity, the tax imposed is on
personal property and is not deductible. p. I:7-10.
I:7-13 When real estate is sold during a year, the real estate taxes on the property must be
apportioned between the buyer and seller in order to properly determine the amount of gain or
loss to the seller and the basis of the property in the hands of the buyer as well as the amount of
deduction for the property tax that the seller and buyer each may deduct. The seller of real estate
is treated as having paid the proportionate share of the real estate taxes up to the date of the sale
and the allocation of the taxes is generally properly accounted for at the closing, regardless of
who actually pays the tax. If the closing agreement does not allocate and account for the real
estate taxes and the seller does not actually pay his or her share of the taxes, the selling price of
the property will increase by the amount of the tax and the buyer's basis will increase by the
same amount. If the closing agreement does not allocate and account for the real estate taxes and
the buyer does not actually pay his or her share of the taxes, the selling price will be decreased
by the amount of the tax and the buyer's basis will decrease by the same amount. p. I:7-11.
I:7-3
I:7-14 a. For tax purposes, interest expense of an individual is divided into the following
categories: personal interest, active trade or business interest, passive activity interest,
investment interest, qualified residence interest, and student loan interest. In general, the
classification of interest is determined by the use of the borrowed money, not the nature of
the property used to secure the loan.
b. Personal interest is not deductible. Active trade or business interest is deductible
as a for AGI deduction on Schedule C. Passive activity interest is deductible against passive
income and is deductible either for or from AGI, depending on the activity in which the interest
is incurred. For example, interest incurred in a passive rental activity is a deduction for AGI.
Investment interest is deductible as a from AGI deduction, up to the amount of the taxpayer’s net
investment income for the year. Qualified residence interest is deductible as a from AGI
deduction on Schedule A. Student loan interest is a for AGI deduction. pp. I:7-12 through I:7-
20.
I:7-15 A point is equal to one percent of the loan amount. Points may represent an additional
interest expense, or a service charge. If the points represent additional interest, they are
deductible as interest. Points that represent a service fee are amortized and deducted only if
incurred in a business or for investment. pp. I:7-17 and I:7-18.
I:7-16 Points representing prepaid interest on a loan are deductible in the year that they are paid
if the loan is obtained to purchase or improve the taxpayer's principal residence. If not, the
points must be capitalized and amortized over the period to which the interest relates. pp. I:7-17
and I:7-18.
I:7-17 Section 267 requires related cash-method lenders and accrual-method borrowers to report
the results of the transactions in the same year. The restrictions imposed by Sec. 267 serve to
prevent a related accrual-method taxpayer from taking a deduction in a year earlier than the year
in which the related cash-method taxpayer reports the income. p. I:7-20.
I:7-18 a. The deduction for investment interest expense is limited to the taxpayer's net
investment income for the year.
b. Net investment income is the excess of investment income over the investment
expenses (excluding the investment interest expense) that are directly connected with the
production of investment income. Investment income is gross income from property held for
investment including items such as dividends, interest, annuities, and royalties (if not earned in a
trade or business). Investment income also includes net gain (all gains minus all losses) on the
sale of investment property, but only to the extent the net gain exceeds the net capital gain (net
long-term gains in excess of net short-term losses) on such property. Thus, a net short-term
capital gain is included. If the taxpayer elects to subject them to the regular tax rates, net capital
gains (net long-term gains in excess of short-term losses) are included in the definition to the
extent the taxpayer elects to subject them to the regular tax rates. Gains on business or personal-
use property are not included in the calculation of investment income.
c. Disallowed investment interest expense may be carried over and deducted in a
subsequent year. The carryover amount is treated as paid or accrued in the subsequent year and
is subject to the disallowance rules that pertain to the subsequent year. pp. I:7-15 and I:7-16.

I:7-4
I:7-19 Acquisition indebtedness is debt that is secured by the taxpayer's residence and is
incurred in acquiring, constructing, or substantially improving the qualified residence of the
taxpayer. For debt incurred on December 15, 2017 or later, acquisition indebtedness is limited to
$750,000. Acquisition debt incurred prior to that date is limited to $1,000,000. Home equity
indebtedness is any debt (other than acquisition indebtedness) that is secured by the taxpayer's
qualified residence. Beginning in 2018, the interest on home equity indebtedness is not
deductible. pp. I:7-17 and I:7-18.
I:7-20 For any taxable year, a taxpayer may have two qualified residences: (1) the taxpayer's
principal residence, and (2) one other residence selected by the taxpayer which the taxpayer
personally uses more than the greater of (1) 14 days or (2) 10% of the rental days during the
year. If the residence has not been rented by the taxpayer during the year, it may be selected by
the taxpayer as the second residence with respect to which qualified residence interest may be
deducted even though the taxpayer does not meet the 14-day or 10% test. p. I:7-18.
I:7-21 The interest is disallowed as a deduction because the taxpayer would realize a double tax
benefit if allowed to have the proceeds from the tax-exempt securities not taxed and also deduct
the interest for the debt to purchase or hold the tax-exempt securities. If the interest was allowed
to be deducted, a taxpayer could, under certain circumstances borrow money at a higher rate of
interest than the rate at which it is invested, while still generating a positive net cash flow.
p. I:7-14.
I:7-22 The cash method taxpayer normally deducts the interest expense in the year paid.
Prepaid interest relating to a period that extends beyond the end of the tax year must be
capitalized and amortized over the life of the loan. If points paid on a loan incurred to purchase
or substantially improve the taxpayer's principal residence represent prepaid interest, the
deduction can be taken in the year paid.
If a new loan with a third party is entered into to pay an existing loan, the amount of the
payment which represents interest is deductible in the year paid. If the funds used to pay the first
loan are borrowed from the same party and the purpose of the second loan is to pay the interest
on the first loan, no interest deduction is available.
A cash-method taxpayer may deduct interest on a discounted note when the note is
repaid. Personal interest, however, is not deductible. pp. I:7-19 and I:7-20.
I:7-23 a. Capital gain property is property held over one year upon which a long-term
capital gain would be recognized if it were sold at its FMV on the date of contribution. If a
capital loss or a short-term capital gain would be recognized, the property is considered ordinary
income property for purposes of the charitable contribution deduction. Ordinary income
property also includes property that would result in the recognition of ordinary income if the
property were sold.
b. It is important to make the distinction between capital gain property and ordinary
income property because of the different rules that apply in determining the amount of the
charitable contribution deduction. If capital gain property is donated to a public charity,
I:7-5
generally the amount of the contribution is its FMV except for special rules relating to tangible
personal property. Ordinary income property contributed to a public charity generally results in
a contribution amount equal to the FMV less the gain that would have been recognized if the
property had been sold. pp. I:7-22 and I:7-23.
I:7-24 In general, the amount of the charitable contribution of capital gain property donated to a
private nonoperating foundation is equal to the FMV of the property reduced by the gain that
would be recognized if the property were sold at its FMV. In the case of capital gain property
donated to a public charity, the charitable contribution is equal to the FMV of the property. In
this case, the limit on the charitable deduction is 30% of AGI. An individual may, however,
elect to have the amount of the contribution become the property's FMV reduced by the gain that
would be recognized. In this case, the limit is increased to 50% of AGI. If tangible personal
property (not realty) is donated to a public charity and is used by the charity for purposes
unrelated to the charity’s purposes, or if the property consists of certain intangibles, the amount
of the contribution equals the property’s FMV reduced by the gain which would have been
realized if the property had been sold. Special rules apply to certain types of inventory donated
by a corporation. pp. I:7-22 and I:7-23.
I:7-25 No charitable contribution deduction is available. In 2018, a married taxpayer filing a

joint return is allowed the greater of the standard deduction of $24,000 or itemized deductions.
In this situation, the itemized deductions total only $7,000 and the taxpayer would use the
standard deduction. p. I:7-2.
I:7-26 The overall deduction limitation on charitable contributions for individuals is 60% of the
taxpayer's AGI for the year (50% of AGI for property). The limitation for corporations is 10%
of taxable income computed without regard to the dividends received deduction, the charitable
contribution deduction, or any NOL or capital loss carrybacks. pp. I:7-24 and I:7-25.
I:7-27 Charitable contributions that exceed the deduction limitation may be carried over and
deducted in the subsequent five years. The carryovers are still subject to the limitations that
apply in the subsequent years. pp. I:7-25 and I:7-26.
I:7-28 Charitable contribution deductions are reported on Schedule A of the individual's tax
return. If contributions of property exceed $500, Form 8283 must also be submitted. This form
requires information about the type, location, holding period, basis, and FMV of the property.
Additionally, if contributions of $250 are made, no deduction is allowed unless the taxpayer
obtains and retains a contemporaneous, written acknowledgment by the donee organization.
This acknowledgement must include whether or not the organization provided any goods or
services in consideration for the cash or property received, including a description and good faith
estimate of the value of any goods or services provided by the organization.
Separate payments generally are treated as separate contributions for purposes of

applying the $250 threshold. Charitable contributions made in cash after August 17, 2006 are
not deductible unless the donor can show a cancelled check or credit card statement or has a
written statement from a charity verifying the contribution. pp. I:7-32 through I:7-34.

I:7-6
Issue Identification Questions
I:7-29 The primary tax issue is how Wayne and Maria can maximize their medical expense
deductions by engaging in tax planning. A secondary issue is whether the proposed medical
services (e.g., the orthodontic work) may be deducted despite the fact that the services may be
performed, in part, in a subsequent year. Because of the 7.5% of AGI limitation, it is preferable
to "bunch" the medical expenses into one year. pp. I:7-29 and I:7-30.
I:7-30 The primary tax issue is whether Chuck can use the current interest expense incurred on
his investment property to offset current year ordinary income. Chuck will not have income
from his investment in the land for at least five years and when Chuck recognizes the capital gain
it will be taxed at either 15% or 20%, depending upon Chuck’s taxable income in that year.
Without any restriction or limitation, he can currently deduct the interest against his ordinary
income, which is taxed in the current year at 24%. Thus, Chuck should take into consideration
the amount of his current year net investment income in order to determine the amount of the
current investment interest expense he can deduct. p. I:7-14.
I:7-31 The primary tax issue is whether the contribution is made to a qualified charitable
organization. The payments to a political candidate indicate that the organization may not
qualify. If the contribution is qualified, George needs to consider contribution limits and the
character of the contribution (i.e., LTCG or ordinary income property). p. I:7-22.
I:7-32 The primary tax issue is whether the charitable contribution limits (i.e., 30% of AGI for
contributions of LTCG property) will apply and whether an election should be made to reduce
the amount of the contribution to the property's basis so that the 50% limit is applied. A
secondary issue is the application of the contribution carryover rules and their effect upon the
deductibility of contributions in the current year. pp. I:7-24 and I:7-25.

I:7-7
Problems
I:7-33
Angela’s 2018 taxable income is $43,900, computed as follows:
AGI $58,000
Less itemized deductions:
Medical*: Doctor bills $11,700
Hospital bills 9,400
Health premiums 600
Total $21,700
Less: Reimbursement ( 10,000)
Less: 7.5% AGI ( 4,350)
Deductible medical expenses $ 7,350
Mortgage interest** 6,750
Total itemized deductions $14,100
Compare to standard deduction 12,000
Deduction (itemized deduction > standard deduction) ( 14,100)
Taxable income $43,900
*The legal fees do not meet the definition of medical expenses in Sec. 213 of the IRC.
**The car loan interest is considered to be personal interest and not deductible.
pp. I:7-3 through I:7-6.
I:7-34 Angela must include $2,100 in her 2019 income because of the reimbursement. In the
calculation, Angela must compute the amount of tax benefit from the medical expense deduction
for the prior year. She must compare the actual taxable income for 2018 with what the 2018
taxable income would have been if the $4,000 additional reimbursement for her medical
expenses had been received in 2018.
AGI $58,000
Medical: Doctor bills $11,700
Hospital bills 9,400
Health premiums 600
Total $21,700
Less: Reimbursement ($10,000 + $4,000) ( 14,000)
Less: 7.5% AGI ( 4,350)
Deductible medical expenses $ 3,350
Mortgage interest 6,750
Deduction ( 12,000)
Actual 2018 taxable income $43,900
Tax benefit $ 2,100

I:7-8
Thus, Angela must include $2,100 in her gross income in 2019 because of the reimbursement.
The reimbursement for the legal fees is not income to Angela because she did not originally
deduct the legal fees when they were expended in 2018. p. I:7-7.
I:7-35 Dan can deduct $1,514 as medical expenses.

Mileage (12 trips x 400 miles x 0.18 per mile) $864
Lodging (12 trips x $85 per night limited
to $50 per night) 600
Meals ($100 en route x 0.50) 50*
Dan's qualified medical expense for the year $1,514
* Note that the IRS's position is that the meals en route are not deductible but the Tax Court and
the Sixth Circuit Court of Appeals have ruled that the meals are deductible.
p. I:7-4.
I:7-36 Chad’s deductible medical expenses are $3,400.

Orthodontic work for Sara $3,000
Broken leg for Brett 2,000
Health insurance premium for Chad, Brett, Sara (not deductible) 0*
Prescription drugs for Chad 400
Doctor bills for Chad 1,000
$6,400
Minus: 7.5% of $40,000 AGI (3,000)
Medical expense deduction $3,400
* Health insurance premiums paid on a pre-tax basis have already been deducted for tax
purposes from Chad’s salary.
I:7-37 a. Charla’s 2018 taxable income is $19,420, computed as follows:
AGI $38,000
Medical: Hospital bills $14,000
Excess cost of pool over increased
value of home ($25,000 - $22,000) 3,000
Maintenance of pool 930
Medical premiums 1,200
Wheelchair 2,300
Total expenses $21,430
Less: 7.5% AGI ( 2,850)
$18,580
Total deduction ( 18,580)
Net taxable income $19,420

I:7-9
b. In 2019, Charla must include the $6,580 reimbursement in her taxable income to
the extent that it provided tax benefit in 2018.
Amount Reported Amount if Reimbursement
In 2018 Were Received in 2018
$38,000 $38,000
Total AGI
Medical expenses $21,430 $21,430
Less: Reimbursement --- ( 9,000)
Less: 7.5% of AGI ( 2,850) ( 2,850)
Total medical $18,580 $ 9,580
Compare to standard deduction 12,000 12,000
Total Itemized deductions (18,580) ( 12,000)
Net Taxable income $19,420 $26,000
Increase in taxable income from reimbursement ($26,000 – 19,420) = $6,580 (included in

income in 2019).
In 2019, Charla’s AGI is $49,580 ($43,000 + $6,580) and her medical expense deduction
is $5,102, computed as follows:
Fees paid to physical therapist $ 4,000
Hospital bed 3,800
Medical premiums 1,200
Pool maintenance 1,060
Total Expenses $10,060
Minus: 10% AGI ( 4,958)
Qualified medical expense deduction in 2019: $ 5,102
pp. I:7-3 through I:7-6
I:7-38 a. In 2017, Joyce may deduct $1,720 in state income tax, the $120 she paid with her
2016 state tax return and the $1,600 withheld from her paychecks during 2017.
b. In 2018, Joyce may deduct $2,300 in state income tax, the $200 she paid with her
2017 state tax return and the $2,100 withheld from her paychecks during 2018.
c. Joyce’s taxable income for 2018 is $38,200, computed as follows:
AGI $51,000
State tax deduction $2,300
Mortgage interest
10,500
Total itemized deductions 12,800
Deduction for 2018 ( 12,800)

I:7-10
I:7-39 a. Dawn’s available deduction for her taxes is $2,927, computed as follows:
State income taxes $2,000
Ad valorem property tax on the car ($20,000 x 0.02) 400
Dawn’s portion of the house property taxes (104/365 x $1,850) 527
Total $2,927
b. Dawn will report this deduction on Form 1040 Schedule A. pp. I:7-9 through I: 7-11.
I:7-40 July 1 of the prior year through April 30 of the current year equals 304 days. Thus,
$4,997 ($6,000 x 304/365) of the taxes are apportioned to Tara, even though Janet (the buyer)
pays the full $6,000 in property taxes on September 1. The remainder of the taxes of $1,003
($6,000 - $4,997) are apportioned to Janet.
a. Janet may deduct $1,003 in the current year.

b. Tara may deduct $4,997 in the current year.
c. The total selling price of the building and the cost basis to Janet (the buyer) is
$504,997 ($500,000 + $4,997). This increase in the selling price occurs because (1) no
apportionment of the real property taxes is made in the sales agreement in order to withhold the
$4,997 in property taxes that are apportioned to Tara, and (2) Janet is the one who pays all
$6,000 of the property taxes (including the $4,997 that is apportioned to Tara). Thus, in essence,
Janet is actually paying $4,997 more for the building. p. I:7-10.
I:7-41 Scott's interest expense for the year is classified as follows:
Jan. 1 - Mar. 31 100% investment interest

Apr. 1 - Jun. 30 93.75% passive interest ($75,000/$80,000)
6.25% investment interest ($5,000/$80,000)
Jul. 1 - Nov. 30 93.75% passive interest
6.25% personal interest
Dec. 1 - Dec. 31 100% passive interest


I:7-11
I:7-42 Travis’ taxable income for the current year is $139,400, computed as follows:
AGI before investments $130,000

Long-term capital gains 8,600
Short-term capital gains 7,300
Dividends 10,000
Interest Income 2,100
AGI $158,000
Qualified Residence Interest $7,800

Investment Interest expense: ($30,000/40,000 x $3,200) $2,400
Possible limitation:
Net Investment Inc. ($7,300 + 2,100) 9,400
Invest. Interest exp. Deduction (lesser amount) 2,400
State Income Taxes 8,400
Total Itemized deductions (18,600)
Taxable Income $139,400
*Because the long-term capital gains and the dividends are subject to the 15% preferential tax
rate, Travis should not make the election to include them as investment income in calculating the
deduction limit for investment interest expense. Thus, Travis has $9,400 of investment income
($7,300 short-term capital gains and $2,100 of interest income). As the investment expenses of
$8,000 are not deductible in 2018, they are not considered when calculating net investment
income. Travis’ net investment income is greater than his investment interest expense of $2,400,
so the deduction for the investment interest expense is not limited. pp. I:7-14 and I:7-15.
I:7-43 Tina may deduct interest on a total indebtedness of $750,000, based on the following:
Tina is limited to interest expense deductions on a total of $750,000 acquisition indebtedness
incurred on December 15. 2017 or thereafter. Thus, Tina may deduct interest paid on the
$700,000 acquisition debt secured by the principal residence, and $50,000 of the acquisition debt
secured by the condominium. pp. I:7-16 through I:7-18.

I:7-12
I:7-44
Brett Jeremy
Susie
55%
40% 60%
45%
Crown
BJ
a. Crown can deduct the entire interest accrued because it and BJ Partnership are not
related parties. The same person does not own over 50% of both the partnership and corporation.
b. Crown cannot deduct any of the interest in the current year. If Jeremy were
Brett’s brother, Brett would constructively own 100% of BJ Partnership. Thus, Brett would own
over 50% of both Crown Corp. and BJ Partnership. Crown could only deduct the interest in the
period in which BJ Partnership would recognize the interest income, which would be the next
year. p.I:7-20.
I:7-45 a. Henry can deduct $900 of interest in the current year. Since Henry is a cash
method taxpayer, he must deduct the interest expense as the loan is repaid. Thus, the total
amount of the interest expense of $1,800 ($12,000 - $10,200) is deductible as the loan is repaid.
Four payments are to be made. Henry makes two payments in the current year (on July 1 and
October 1). Thus, $900 (0.50 x $1,800) of the interest expense is deductible in the current year.
b. Henry can’t deduct any of the interest in the current year. Since none of the loan
is repaid during the current year, none of the interest is deductible during the current year. It will
all be deductible by Henry when the loan is paid off in subsequent years.
c. Henry can deduct $1,350 of interest in the current year. Since Henry is an accrual
method taxpayer, he may deduct the interest as it accrues. The loan is to be outstanding for one year.
Three-fourths of the loan period occurs during the current year. Thus, $1,350 (0.75 x $1,800) of the
interest expense is deductible during the current year. p. I:7-19.
I:7-46 Doug’s 2018 taxable income is $23,000, computed as follows:
AGI $35,000
Itemized Deductions:
Medical expenses $ 800
Minus: 7.5% of AGI (2,625) $ -0-
State income taxes 2,300
Local property taxes 3,000
Charitable contributions 2,000
Minus: Greater of itemized deductions ($7,300) or
standard deduction ($12,000) ( 12,000)
I:7-13
I:7-47
a. James’ 2018 taxable income is $43,375, computed as follows:
Income:
Salary $70,000
Interest 7,000
Net capital gain ($23,000 - $15,000) 8,000
AGI $85,000
Deductions:
Medical $ 8,000
Minus: ($85,000 x 0.075) ( 6,375) $ 1,625
Taxes: Lesser of:
a. $7,000 + $4,000
b. $10,000 10,000
Qualified residence interest 12,000
Investment interest (limited to net investment
income of $15,000*) 15,000
Charitable contributions 3,000
Total itemized deductions ($41,625)

*$7,000 interest + $8,000 net capital gain.
b. James can carry over $1,000 of excess investment interest expense. James’ excess
investment interest expense of $1,000 ($16,000 - $15,000) is carried over to the next year. pp. I:7-
2 through I:7-30.

I:7-14
I:7-48 James’ 2018 taxable income is $113,000, computed as follows:
Income:
Salary $130,000
Interest 7,000
Net capital gain ($23,000 - $15,000) 8,000
AGI $145,000
Deductions:
Medical $ 8,000
Minus: 7.5% AGI ($145,000 x 0.075) ( 10,875) $ -0-
Taxes: Lesser of:
a. ($7,000 + $4,000)
b. $10,000 10,000
Qualified residence 12,000
Investment interest (limited to net
investment income of $7,000 7,000*
Charitable contributions
3,000
Total itemized deductions (32,000)
Taxable income $ 113,000
*The net LTCG is not included in investment income.
The excess investment interest of $9,000 ($16,000 - $7,000) is carried over to next year. pp. I:7-
2 through I:7-34.
I:7-49 Donna’s charitable contribution deduction for the year is $800. When services are
rendered to a qualified charitable organization only the unreimbursed expenses incurred while
performing the services are deductible. p. I:7-24.
I:7-50 a. The charitable contribution is $40,000, subject to a limitation of 30% of AGI.

b. The charitable contribution is $10,000, subject to a limitation of 50% of AGI.
c. The charitable contribution is $100,000, subject to a limitation of 30% of AGI.
d. The charitable contribution is $50,000, subject to a limitation of 50% of AGI.
e. The charitable contribution is $500, subject to a limitation of 50% of AGI.
pp. I:7-24 and I:7-25.
I:7-51 a. The charitable contribution is $10,000 limited to the lesser of (1) 20% of the
taxpayer's AGI or (2) 30% of AGI, reduced by any contributions of capital gain property donated
to a public charity.
b. The charitable contribution is still $10,000 subject to a limitation of 30% of AGI.
c. The charitable contribution is $50,000 limited to the lesser of (1) 20% of AGI or
(2) 30% of AGI, reduced by capital gain property donated to a public charity.
I:7-15
d. Same as (c) above.
e. The charitable contribution is $500 limited to 30% of AGI.
I:7-52 The maximum charitable contribution deduction Helen can take for this year is $40,000.
Under the regular rules, the charitable contribution is $50,000, subject to an overall 30% of AGI
limit. Therefore, the charitable contribution would be $30,000 (0.30 x $100,000 AGI). Helen
would have a $20,000 carryover of excess contributions under the general rule. If she elects to
reduce the amount of the contribution by the long-term capital gain, the charitable contribution is
$40,000 [$50,000 - ($50,000 - $40,000)] subject to an overall 50% of AGI limit. The amount of
the charitable contribution deduction would be $40,000 for this year (50% of AGI limit is
$50,000). If the election is made, there will be no carryover of unused contributions since all of
the contribution is deductible in the current year. pp. I:7-24 and I:7-25.
I:7-53 a. Although she has contributed a total of $95,000, Melissa’s charitable contribution
deduction for the year is $60,000 ($30,000 to Middle State University and $30,000 to the private
nonoperating foundation) because of the limitations imposed on the deductibility of these
contributions. The first limit imposed is the 60% of AGI overall limit (60% x $200,000 =
$120,000) imposed on the donation to Middle State Univ. Thus, this donation is fully
deductible. The deduction for the donation to the private nonoperating foundation is limited to
the lesser of three amounts:
The remaining 60% limit: ($120,000 - $30,000) $90,000

The actual contribution $65,000
The 30% limit on contributions to
private nonoperating foundations ($200,000 x 30%) $60,000
Reduced by cash contribution ( 30,000)
Deductible contribution $30,000
Thus, her charitable deduction for the current year is limited to $60,000 ($30,000 +
$30,000) and she has a $35,000 ($65,000 - $30,000) charitable contribution carryover. The
carryover will be limited to 30% of AGI in the future years.
b. Melissa’s charitable contribution deduction for the year is $60,000, computed as

follows:
Contribution to Middle State (limited to 60% of AGI) $ 45,000
Contribution to private nonoperation foundation 65,000
30% limit: $ 60,000
Reduced by cash contribution $ 45,000
Deductible contribution 15,000
Total contribution $60,000
Melissa will have a $50,000 ($65,000 - $15,000) charitable contribution carryover. As

above in a., the carryover will be limited to 30% of AGI in the future years. pp. I:7-24 and
I:7-25.

I:7-16
I:7-54 Circle’s total charitable contribution deduction is $575,000. Because Circle
(1) manufactured the computer and the computer is included in Circle’s inventory, (2) the
computer is donated to a higher education institution that will use the computer for research, and
(3) City College certifies that it will use the computer in its research, Circle can deduct the
computer’s basis plus ½ of the gain it would have recognized if it had sold the computer (not to
exceed twice the computer’s basis). Thus,
a. Circle's contribution for the current year is as follows:
Donation of main-frame $475,000 ($650,000 - [$350,000 x 0.50])

Donation of stock 100,000
Total charitable contribution $575,000
b. Circle may deduct $400,000 ($4,000,000 x 0.10) and $175,000 may be carried
forward for five years. p. I:7-24.
I:7-55
2018 2019 2020 2021

Amount of deduction $30,000 $36,000 $34,800 $13,200
Amount of carryover
from 2019 10,000 10,000 200 -0-
from 2020 3,000 3,000 -0-
pp. I:7-25 and I:7-26.

I:7-17
Comprehensive Problem
I:7-56
The Nelsons’ taxable income for 2018 is $97,427, computed as follows:
Wages ($150,000 + 3,888) $153,888
Capital Gains/Losses: Cabinets, Inc. ( 2,700)

The Outdoor Corporation 3,900
1,200
Total AGI $155,088
Medical expenses $ 4,900
Reduced by 7.5% AGI ( 11,632) -0-
State income taxes

Withheld from Tim 8,500
Withheld from Monica 85
Paid with 2017 return 250
$ 8,835
Charitable contribution
FMV donated asset $ 96,000
Limited to 30% AGI $ 46,526
Allowed deduction $46,526
Mortgage interest
Paid on original loan $ 2,300
($57,661)
Net taxable income $ 97,427

I:7-18
Tax Strategy Problems
I:7-57 If the stock is donated directly, the contribution deduction would be the $30,000 FMV of
the stock. The tax benefit would be $10,500 (0.35 x $30,000), for a net positive cash
flow of $10,500. If the stock is sold and the $30,000 proceeds are donated, the following
would result:
Selling price $30,000 Contribution deduction $ 30,000

Minus: Basis 10,000 Times: rate x 0.35
Gain $20,000 Tax savings $ 10,500
Times: rate x 0.15
Increase in taxes $ 3,000
Net tax benefit $10,500 - $3,000 = $7,500
The direct contribution would result in positive cash flow of $10,500. If the stock is sold
and the proceeds are donated to the college, the positive cash flow is only $7,500. This is due to
the fact that Dean must report the gain on the sale of the stock in his income tax return. pp. I:7-31
and I:7-32.
I:7-58 Rebecca should donate part of the Sycamore stock to charity. If she donates the
Redwood stock, she would only be allowed to deduct the adjusted basis, $4,900, in the stock
because she held the stock for less than one year. She should not donate the Oak stock because
she would permanently lose the tax benefit of a capital loss.
FMV on Adjusted Date Unrealized

Corporation Dec. 1 Basis Purchased Gain/Loss Character
Sycamore 9,600 7,800 5/22/13 1,800 LTCG
Oak 2,900 3,800 9/10/14 ( 900) LTCL
Redwood 5,400 4,900 6/15/18 500 STCG
Rebecca should also consider bunching her donations into one year. Her present habit of making
an annual $5,000 donation provides no tax benefit in the form of a deduction because the
standard deduction for a single individual is greater than $5,000. If she combines three
donations in one year, the $15,000 total would exceed the standard deduction for the year of
donation and provide tax savings. p. I:7-32.
Tax Form/Return Preparation Problems
I:7-59 (See Instructor’s Resource Manual)
I:7-60 (See Instructor’s Resource Manual)

I:7-19
Case Study Problems
I:7-61 Mr. Brian Brown
100 East Rosebrook
Mesa, Arizona 85203
Dear Mr. Brown:
Pursuant to your request, we have determined the tax consequences of your donation of
land to the Rosepark Community College. As we understand them, the facts are as
follows:
1. Your estimated adjusted gross income for the current year is $100,000. Since you
plan on retiring next year, you anticipate that your adjusted gross income will be
$35,000 for all future years.
2. For federal income tax purposes, you file a joint return with your wife.
3. You purchased the land 14 months ago for $50,000. The land's current appraised
value is $58,000.
4. Selling the land and donating the cash is not an alternative.
5. You do not anticipate making any additional large charitable contributions in the
future.
6. You feel that an appropriate discount rate is 10%.
Because the results of our analysis are based upon these facts as we understand them, if
the facts are not as stated, please notify us immediately.
In general, the amount of a contribution of long-term capital property is the fair market
value of the property. Thus, under the general rule, the amount of your contribution is
$58,000. However, such deductions are subject to an annual limitation of 30% of your
adjusted gross income. Any excess is carried over and deducted in subsequent years.

I:7-20
If you choose this general rule, your discounted tax savings are as follows (assuming the
current year is 2018):
Deduction Marginal
Year Limited: 30% AGI X Tax Rate X Discount = Savings
2018 $ 30,000 .22 1.00 $ 6,600

2019 10,500 .12* 0.91 1,147
2020 10,500 .12* 0.83 1,046
2021 7,000 .12* 0.75 630
Total $ 58,000 $ 9,423
*Depending on other itemized deductions, this rate could be 10%. You may receive no
benefit if your itemized deductions do not exceed the $24,000 standard deduction.
Alternatively, you may make an election to reduce the amount of the contribution from
the property's fair market value to your cost in the property. If you make the election, the
amount of your contribution would be reduced from $58,000 to $50,000. However, if
this election is made, the annual limitation increases to 50% of your adjusted gross
income.
If you choose this alternative, your discounted tax savings are as follows (assuming the
current year is 2018):
Deduction Marginal
Year Limited: 50% AGI X Tax Rate X Discount = Savings
2018 $50,000 .22 1.00 $11,000
By making the election, your discounted tax savings are $1,577 higher than if you were
to use the general rule. Thus, our recommendation is that you make the election.
We will be happy to help you make this election, as well as help you in any other tax
matter or question you may have. If you have any questions, please feel free to call.
Sincerely,
p. I:7-32 and I:7-33.
I:7-62 You know that an accrual-method corporation can take a charitable contribution in the
year the contribution is pledged as long as the amount is actually paid within two and one-half
months from the end of the tax year.
The circumstances, however, indicate that the pledge probably was not actually
authorized until after the year's end, thus, requiring the deduction to be taken in the subsequent
year. Statement on Standards for Tax Services (SSTS) No. 3, states:
I:7-21
In preparing or signing a return, a member may in good faith rely, without
verification, on information furnished by the taxpayer or by third parties.
However, a member should not ignore the implications of information furnished
and should make reasonable inquiries if the information furnished appears to be
incorrect, incomplete, or inconsistent either on its face or on the basis of other
facts known to a member. (Emphasis added.)
This is a difficult situation. You don't want to offend or possibly lose a valuable client. At the
same time, however, you recognize your ethical obligations and responsibilities. One possible
action you could take is to request a conference with Bill in order to explain your position. In
this conference, you could outline the risks (penalties) to both him and you that taking such a
position would create. You might also do some forecasting of next year's income in order to
demonstrate that the difference between taking the deduction this year or next is merely the
difference in the present values of the tax savings (next year's being discounted only one year).
At a constant 0.35 tax rate and a discount rate of 10%, the present value of next year's tax
savings is $6,365 ($20,000 x 0.35 x 0.909) while trying to rationalize taking the deduction this
year would result in present value savings of $7,000 ($20,000 x 0.35). Thus, the difference
amounts to only $637 ($7,000 - $6,363).
If Bill continues to insist on taking the deduction this year, and if you know that the
authorization for the pledge was backdated, you should resign from the engagement.
p. I:7-26.
Tax Research Problems

I:7-63 A taxpayer can deduct ordinary business expenditures, but cannot deduct personal
interest (§162,163(h)(1)). Personal interest includes interest paid on “underpayments of
individual Federal, State, or local income taxes” (Reg. §1.163-9T(b)(2)(i)(A)). Such an
underpayment does not constitute a business expense, even when the “income underlying the
deficiency originates from the taxpayer’s business” (Kikalos v. Comm., 84 AFTR 2d 99-5933).
Thus, Mr. Hancock’s $18,000 interest payment is non-deductible personal interest, even though
the interest related to his business as a lawyer.
I:7-64 The total amount of medical expenses that Smith may claim in the current year is 0
([$1,800 + $500] - [$60,000 X 0.075]). The $500 spent for pool maintenance and the $1,800 of
other medical expenses qualify as medical expenses, but they do not exceed the 7.5% of AGI
floor. The $8,000 (the increase in the value of the home due to the pool) does not qualify as a
medical expense.
The Regulations under Sec. 213 state that a capital expenditure for a permanent
improvement or betterment of property may "qualify as a medical expense to the extent that the
expenditure exceeds the increase in the value of the related property, if the particular expenditure
is related directly to medical care" [Reg. Sec. 1.213-1(e)(1)(iii)]. In other words, a deduction is
allowed for capital expenditures only if the taxpayer pays more than the increase in FMV. In the
case at hand, it must be determined if Smith paid more than the FMV of the property.
I:7-22
In P.A. Lerew [1982 PH T.C. Memo ¶82,483, 44 TCM 918] and J.H. Robbins [1982 PH
T.C. Memo ¶82,565, 44 TCM 1254], the taxpayers were denied medical deductions for existing
pools in homes they had purchased. The courts held that the actual price paid for the home and
pool (assuming an arm's length transaction) should be exactly equal to its FMV. Based on these
and other discussions and the income tax regulations, it appears that Mr. Smith may deduct the
$12,000 ($20,000 - $8,000) only if he can show that he paid $12,000 more than the increase in
the FMV of the property.
“What Would You Do In This Situation?” Solution
Ch. I:7, p. I:7-36.
According to the AICPA SSTS and Treasury Department Circular 230, you should only
take a position on the return, which has a reasonable possibility of being sustained on its merits if
it is challenged administratively or judicially. This is particularly true on so-called "hot-button"
issues like charitable donations of goods, which are subject to intense scrutiny by the IRS
because of widespread valuation abuses in the past. Furthermore, under current law, a taxpayer
can only take a deduction for clothing and household items that are in “good” condition.
Assuming these items are considered in good condition, several valuation and compliance
procedures must be met in order for you to qualify Mr. and Mrs. Nice's donations to Goodwill as
a charitable deduction on their tax return. First you must show that the donee is a qualified
organization.
Second, you must identify the type of property donated and how it is to be used by the
qualified organization. Here the reasonable assumption is that Goodwill will resell the goods in
one of its thrift stores in the U.S. Your clients’ records already indicate the listing of goods
contributed, original purchase prices, and condition of the goods at the time of contribution made
in the current tax year. Because the total original cost basis in the goods was approximately
$15,000, you will most likely use Form 8283 in conjunction with Mr. and Mrs. Nice's Schedule
A on their joint 1040 return.
The real issue, which remains, is valuation. Most accountants use a rule of thumb, which
says to claim ten percent of the original value of the items being donated. But does this rule best
serve your client's interest? And would it be ethical to claim a higher value? According to the
IRS publication 561 Determining the Value of Donated Property, certain guidelines may be
used. First, if the total value of the donation claim is over $5,000, an independent outside
appraisal will be required to be submitted with the return. In addition, comparable sales may be
used to find out what the donated goods will sell for in the Goodwill Thrift Shops. For example,
the average price of jeans sold is $7 while bridal gowns sell for $25. In addition, you might
consult valuation guides such as Cash for Your Used Clothing, by William R. Lewis or other
valuation texts.

I:7-23
Another random document with
no related content on Scribd:
WASHINGTON AT THE CONSTITUTIONAL
CONVENTION.
By Violet Oakley
Copyright by Violet Oakley. From a Copley Print,

copyright by Curtis & Cameron, Boston. Reproduced
by permission.
The men who took a prominent part in this The Fathers of the
convention performed a service of such value Republic.
and permanence that their names can never be forgotten.
Washington, who headed the delegation from Virginia, was chosen
by the convention to be its presiding officer. This debarred him from
taking an active part in the discussions on the floor, but his great
personal influence was on many occasions exerted in the interests of
harmony. Benjamin Franklin, the wisest man of his time, was the
senior member of the Pennsylvania delegation. His broad knowledge
of men and affairs, gained through a long life of more than eighty
years, made him one of the most valuable members. Then there was
James Madison, still a young man but already a thorough scholar in
matters of government. Among all the delegates Madison ranked first
in point of active helpfulness and fully earned the distinction which
posterity has given him as the Father of the Constitution. Alexander
Hamilton, of New York, young and brilliant, with plenty of imagination
and strong political opinions, was the orator of the convention; but
oratory did not carry far with the delegates. They listened with rapt
attention to Hamilton’s impassioned speeches and applauded him
generously at the end; but when the question was put to a vote he
sometimes got nobody’s vote but his own. Arguments counted for
more than eloquence in this gathering. Among the delegates of
ability and prominence were Robert Morris and James Wilson, of
Pennsylvania, the former a wizard in financial matters, the latter a
hard-headed Scotchman of great political sense; Roger Sherman,
the shoemaker-statesman, of Connecticut; the two Pinckneys, of
South Carolina, John Dickinson, of Delaware, and a dozen others
whose names were known throughout the nation in their day. They
were not all of the same mind on political questions, not by any
means; some were conservative and some were radical; some
looked far into the future and others only to the needs of the hour;
some were always willing to compromise and others were not ready
to compromise at all; but taken as a whole they formed an able, well-
balanced group of men, fairly reflecting the intelligence and
patriotism of their time.[106]
How the Convention Solved its Difficulties. The obstacles and
—In a body made up of men who held such the compromises.
widely-differing opinions it was inevitable that bitter controversies
should arise. And that is what happened. Delegates from the smaller
states disagreed with the delegates from the larger states on the
question whether, under the new constitution, the voting power of the
states should be equal, as it had been under the Articles of
Confederation. Delegates from the North clashed with delegates
from the South on the question of giving the new government power
to regulate trade; for the South did not want export taxes placed
upon tobacco, cotton, and the other plantation staples. The
divergence of opinion was often very wide, and on one occasion the
convention almost broke off its proceedings because there seemed
to be no hope that any agreement could be reached. But patience
and public spirit finally prevailed on all points and by means of one
compromise after another the convention managed to finish its work
without splitting its ranks wide open.[107]
When all the main features had been agreed The constitution
upon they were put together into a constitution drafted.
which thirty-nine of the delegates were willing to sign. Of the others,
some were absent; some refused to put their names to it. Even
among those who signed it there were many who did so without the
least enthusiasm. The provisions of the new constitution were not
what any individual delegate wanted, but merely what a majority
could be induced to agree upon. What influenced the delegates most
of all was the fact that everyone knew the existing situation to be
bad; the new constitution, whatever its defects, was sure to be an
improvement. The immediate thing was to get the states headed
towards the center and not towards the circumference of a circle.
This being accomplished, the leaders of the convention believed the
future might be trusted to take care of itself. It was in this broad and
patriotic spirit that thirty-nine men appended their names to what the
English statesman, Gladstone, once called “the greatest
achievement ever struck off in a given time by the hand and brain of
man”,—the constitution of the United States.
The Final Step.—But by signing their names Ratification by the
to this document the members of the convention states.
did not make it the law of the land. Before the constitution could go
into force it must be submitted to the states and adopted by them.
And there was grave danger that several of the states would reject it.
Public sentiment seemed to be about evenly divided; the small
farmers were largely opposed to accepting the new government,
while the people of the towns and the large property-owners were in
favor of it. Some of those who had been leaders The Federalist.
in the convention, notably Hamilton and
Madison, organized a campaign to influence public opinion in favor
of the new constitution, in the course of which they wrote numerous
letters to the newspapers explaining and defending the various
provisions. These letters were subsequently compiled into book form
and published under the title of The Federalist. Even today they form
an admirable exposition of what the various provisions of the
constitution express and imply. In the end the campaign for
ratification was successful and notwithstanding strong opposition in
some of the states all were finally induced to accept the constitution.
This being accomplished the Congress of the Confederation
dissolved and in 1789 the new federal government came into office
with New York City as the temporary capital.[108]
The Constitution as a Whole.—The A notable
constitution of the United States as framed by document.
the convention is a relatively short document. It is printed in the back
of this book and can be read in about twenty minutes. It is the oldest
and the shortest among republican constitutions in the great
countries of the world. Napoleon Bonaparte once said that a good
constitution should be “short and obscure”, short, so that people
would not have to waste time in reading it, and obscure so that rulers
could interpret it in any way they chose. The constitution of the
United States fulfils the first of Napoleon’s requirements but not the
second. It is a remarkably clear document, well-arranged, saying in a
few words exactly what it means, and couched in admirable English.
Let anyone read the first six lines of it, for example, and see if he can
put the purposes of a free government into fewer and more telling
words. It is the supreme law of the land, the last word on all
questions of American government. No one can claim to know how
the affairs of the United States are administered without mastering,
at least in a general way, the contents of the constitution.
How the Constitution has Developed.—But Factors in the
the constitution today is not what it was a development of the
hundred and twenty-odd years ago. Were that constitution:
the case, it would be sadly out of touch with the needs of the nation.
To be satisfactory a constitution must be capable of steady
expansion and development; it must be able to keep step with
political, social, and economic progress. This the constitution of the
United States has been able to do through various agencies of
development, usage, judicial interpretation, and amendment.
Established for thirteen states containing four million people it has
been expanded to cover the needs of nearly four times as many
states and more than twenty-five times as many people. Framed in
days of stage coaches and sailing ships, hand-industry and primitive
methods of agriculture, it has carried through into the days of
airships and tractors, giant factories and miracles of industry. It is
endowed with dynamic qualities.
Let us look a little more closely at these 1. Usage.
agencies of development. Usage is one of them.
Alongside the written document there have grown up many practices
which have practically the strength of written provisions. Take the
method of electing the President, for example. Indirect election is
provided in the constitution; by usage the election has become
direct. The constitution provides that the President shall make
appointments with the “advice and consent” of the Senate; but as a
matter of usage its advice is never asked and its consent, in some
cases, is never refused (see p. 298). The constitution says not a
word about the Cabinet, but by usage a Cabinet system has grown
up in the United States as in England. Nor does it say a word about
political parties, nevertheless usage has given them a large part in
government. These illustrations could be multiplied. Why does no
President seek a third term? Why does a President usually consult
individual representatives before making local appointments? Why
are non-residents in a congressional district practically never elected
to represent it? Usage answers these and many other questions.
The constitution has also been modified by 2. Interpretation.
decisions of the courts. The courts cannot
change a single word in the constitution; they merely interpret its
meaning. Their function is jus dicere, non dare (to interpret the law,
not to make it), as the saying goes. But the fact remains that
changes in the meaning of words are equivalent for all practical
purposes to changes in the words themselves. The Supreme Court,
in a long series of decisions, has greatly expanded the powers of the
national government by the interpretation of words and clauses in
the written constitution. It has decided that the power to borrow
money includes the power to establish banks, that the power to
regulate commerce includes the power to fix railroad rates, that the
power to establish post-offices includes the power to punish those
who use the mails for a fraudulent purpose, and so on. It has been
the function of the court to make the words spell out new meanings
to fit new situations. One cannot today obtain an adequate
knowledge of what these words and phrases mean by merely
reading the document; it is necessary to go through the decisions of
the Supreme Court and find out just how this great tribunal has
interpreted them.
The constitution has been developed by law. 3. Statutes.
Many things were left in general terms in order
that the details might be settled by Congress or by the state
legislature. Nothing is said in the constitution about the organization
or procedure of the federal courts. All this has been built up by laws.
Nor is anything said about the method of nominating congressmen,
or the form of the ballot, or the duties of election officials. That, too,
is arranged by law. Much of what we call the machinery of American
government today rests upon ordinary laws which can be changed
by Congress or the state legislatures at any time.
Finally, the constitution can be changed, and 4. Amendments.
on nineteen matters has been changed by
amending it. The constitution provides four possible methods of
making and ratifying amendments,—two of initiating and two of
ratifying. These various ways are stated in the document (Article V)
more briefly and more clearly than they can be recapitulated here.
But every one of the amendments thus far made has been proposed
and adopted in one and the same way, namely, proposal by
Congress and ratification by three-fourths of the state legislatures.
The other plan of proposing amendments, that is by calling a
constitutional convention, would open the gates Method of making
for a general revision or for the submission of an amendments.
entirely new constitution, which is something that public opinion has
not yet seemed to favor. If, however, Congress should at any time
endeavor to thwart the will of the people by declining to propose an
amendment strongly demanded by public opinion its hand could be
forced by resort to the convention method.
The Nineteen Amendments.—Of the Nature of the
nineteen amendments which have been made nineteen
since the constitution went into force, the first amendments.
ten were added in 1791. When the convention of 1787 finished its
work and sent the document to the states for their approval there
was a chorus of protest because no Bill of Rights had been included.
“Where are there in this document”, the objectors cried out, “any
provisions guaranteeing us free speech, trial by jury, freedom of the
press, and the other securities against oppression?” The reply was
that the people needed no guarantees against their own government
but only against governments imposed upon them from outside. But
this explanation did not satisfy, and assurance was given that if the
constitution were adopted in its original form a Bill of Rights would be
added. The first ten amendments represent the keeping of that
pledge. The last of these amendments is of particular importance in
explicitly proclaiming that all powers not given to the national
government by the constitution, or prohibited to the states, are
reserved to the states, respectively, and to the people.
The latest nine amendments require little comment although some
are of great importance. Three of them, the thirteenth, fourteenth,
and fifteenth, were needed to make permanent the results of the
Civil War. One of these, the fourteenth, contains provisions, relating
to the rights of citizens, which have been given a wide application
and have been the cause of a great deal of litigation before the
Supreme Court. Intended to protect the negro they have been used,
in large measure, to secure for business corporations the equal
protection of the laws. As for the negro he has gained very little from
amendments which were primarily made for his benefit. The fifteenth
amendment was intended to secure him the right to vote; but in
many of the states it has not succeeded in doing so. The two latest
amendments, namely, the eighteenth, which established national
prohibition, and the nineteenth, which provides for woman suffrage,
have both been ratified since the World War.
Twenty years ago it was commonly urged that the process of
amending the constitution ought to be made easier. It was pointed
out in those days that no amendment had been made for more than
a generation. But the adoption of four amendments during the past
ten years seems to indicate that when the people demand an
amendment the process of getting it is not too difficult. In each of
these instances there was a strong popular demand.
Why Men Honor the Constitution.—Americans have a great
respect for the constitution of their country even though many of
them would like to see some changes made in it. And why should
they not honor it? Its reign has been long in the land. No king ever
ruled his people so long or kept faith with them so well. Under it the
country has waxed great and prosperous; the government which it
established has become increasingly democratic in form and in spirit;
it has grown strong enough to protect its citizens at home and
abroad, and it has become the model upon which several other
governments of the world have been patterned.
It is easy enough to pick flaws in the constitution of the United
States—or in the constitution of any country for that matter—but
where are the Washingtons, Madisons, and Hamiltons of today
whom we would trust with the task of making a better one? During
the past few years a dozen countries of the world have framed new
republican constitutions,—Germany, Austria, Poland, Czecho-
Slovakia, and so on. They have had the experience of an additional
century to draw upon and the combined political wisdom of the world
at their disposal. Is there any constitution in this list which the rank
and file of the American people would prefer to their own? You can
pick a line out of Shakespeare, here and there, and improve upon it.
But when it comes to improving upon the whole of Shakespeare’s
work,—ah, that is quite a different proposition.
General References
James Bryce, The American Commonwealth, Vol. I, pp. 15-31; 360-410
(Abridged Edition, pp. 224-284);
Charles A. Beard, American Government and Politics, 3d edition, pp. 1-77;
Ibid., Readings in American Government and Politics, pp. 1-69; Ibid., History of the
United States, pp. 139-161;
Everett Kimball, National Government of the United States, pp. 1-46;
W. B. Munro, The Government of the United States, pp. 1-70; Ibid., Selections
from the Federalist, pp. 1-17; 56-86;
Max Farrand, The Framing of the Constitution of the United States, especially
pp. 42-67.
Group Problems
1. The means of securing co-operation among states and men as
illustrated by the American government before, during, and after the
Revolution. The obstacles to union. The cohesive forces. The influence and
nature of leadership. Historical analogies in other parts of the world. The problem
of forming a league of states compared with that of forming a league of nations.
References: Woodrow Wilson, The State, pp. 267-298; John Fiske, The
Critical Period, pp. 50-89; Max Farrand, The Framing of the Constitution, pp. 65-
112; A. C. McLaughlin, Confederation and the Constitution, pp. 35-52.
2. The Declaration of Independence: its origin, its importance, and an
analysis of its political principles. References: C. H. Van Tyne, The American
Revolution, pp. 50-87; John Fiske, The American Revolution, Vol. I, pp. 147-197;
The Madison Papers, Vol. I, pp. 19-27; H. Friedenwald, The Declaration of
Independence, an Interpretation and Analysis, pp. 121-151.
3. From what sources did the framers of the constitution borrow their
ideas? References: C. E. Stevens, The Sources of the Constitution, pp. 35-116;
J. H. Robinson, The Original and Derived Features of the Constitution, pp. 203-
210; S. G. Fisher, The Evolution of the Constitution, pp. 11-25.
4. How the constitution has developed. References: James Bryce, The
American Commonwealth, Vol. I, pp. 360-410; W. B. Munro, Government of the
United States, pp. 57-70; C. G. Tiedeman, The Unwritten Constitution of the
United States, pp. 16-53.
Short Studies
1. The spirit of America. Woodrow Wilson, History of the American People,
Vol. II, pp. 98-126.
2. How England controlled the Colonies. G. C. Lewis, The Government of
Dependencies, pp. 189-240.
3. The New England Confederation. Edward Channing, History of the United
States, Vol. I, pp. 414-436.
4. The Stamp Act. Edward Channing, History of the United States, Vol. III, pp.
46-79.
5. The Articles of Confederation. C. H. Van Tyne, The American Revolution,
pp. 175-202.
6. The weakness of the Confederation. John Fiske, The Critical Period of
American History, pp. 90-133.
7. The personnel of the constitutional convention. Max Farrand, The
Framing of the Constitution of the United States, pp. 14-41.
8. The difficulties which confronted the convention. The Federalist, No.
XXXVI; (in W. B. Munro, Selections from the Federalist, pp. 109-116; also in C. A.
Beard, Readings on American Government and Politics, pp. 44-47).
9. Contemporary objections to the constitution. A. C. McLaughlin,
Confederation and the Constitution, pp. 277-281; 287-288; P. L. Ford, Pamphlets
on the Constitution of the United States, especially pp. 3-23.
10. The political ideas of the Fathers. H. J. Ford, Rise and Growth of
American Politics, pp. 17-34.
11. Outstanding features of the constitution as a document. W. B. Munro,
Government of the United States, pp. 44-56.
12 How amendments are made. C. A. Beard, Readings in American
Government and Politics, pp. 56-61.
Questions
1. Show how the form of government established by England in the American
colonies compares with the form of government maintained by the United States in
Alaska, Hawaii, and Porto Rico today.
2. In what respects did the colonies differ from one another and in what respects
were they pretty much alike?
3. Make a critical examination of the four great political principles enunciated in
the Declaration of Independence. How would you apply them today in the case of
(a) Ireland; (b) the Philippines; (c) India?
4. Name the chief weaknesses of the Confederation.
5. Who is commonly called the “Father of the Constitution”? Does he deserve
this title, and if so, why?
6. Read the constitution carefully and then answer the following questions, “yes”
or “no,” pointing out the provision on which you base your answer: (a) Must the
Vice President be a natural-born citizen? (b) May an American citizen accept a
foreign order of nobility? (c) May any one who is not a citizen vote at presidential
elections? (d) May Congress pass a law impairing the obligations of contracts? (e)
May the President and Vice President both be residents of the same state? (f) May
the President pardon a person convicted of treason? May he pardon a federal
official convicted of bribery?
7. What did you find in the constitution that you did not expect to find there?
What did you expect and fail to find? What seems to you to be the most important
section of the whole document?
8. Explain the procedure by which the constitution may be amended. Classify
the nineteen amendments into four groups and give a general title to each group.
9. Give some examples of constitutional development (a) by law; (b) by usage;
(c) by judicial interpretation.
10. If we were to revise the entire constitution today what changes would
probably be made?
Topics for Debate
1. A national convention should be called to revise the constitution.
2. The process of amending the constitution should be made easier.
CHAPTER XIV
CONGRESS AT WORK
The purpose of this chapter is to explain how the nation’s laws are made.
Congress.—The lawmaking branch of the The reason for two

national government is made up of two chambers:
chambers, the Senate and the House of Representatives. The
Congress of the Confederation consisted of one chamber only; but
the members of the constitutional convention were strongly
impressed with the desirability of establishing a bicameral legislative
body. There is a story that Thomas Jefferson, who believed a single
chamber to be sufficient, was engaged in a friendly argument with
Washington on this matter shortly after the constitution had been
completed. The two were taking tea together and Jefferson, following
a common practice of the time, poured some of his tea from his cup
into the saucer. “Why do you do that?” asked the Father of his
Country. “To cool it”, replied Jefferson. “Quite so”, added
Washington, “and the Senate is to be the saucer into which the laws
which come hot from the House of Representatives will be poured to
cool.” That story may or may not be true; but it gives a clue to the
principal reason why there are two branches of Congress instead of
one. There is some significance, moreover, in the fact that every
state of the Union, and every foreign country, has a legislature or
parliament of two chambers.
The bicameral system is commonly justified 1. To provide a
on two grounds. In the first place, it is believed safeguard.
to afford a safeguard against hasty and unwise legislation. A single
chamber might be moved by a passing wave of prejudice or
enthusiasm to take action without sufficient reflection. When all
measures have to be considered by two legislative bodies, this
danger is not nearly so great. One chamber serves as a check on
the other. A second reason is found in the 2. To permit two
desirability of having the lawmakers chosen in types of
different ways, some by small districts and some representation.
by large districts, some for long terms and some for short terms. A
good lawmaking body should be thoroughly representative; it should
represent the whole country and all parts of the country; it should be
kept in close touch with public opinion by frequent elections, but the
entire body of lawmakers ought not to be changed at short intervals,
for there would then be no steadiness of policy. The framers of the
constitution tried to meet all these requirements by providing for a
Senate, whose members should be chosen by the states for six-year
terms, and a House of Representatives, made up of members
elected by the people every two years.[109] The former represents the
states on a basis of equality; the other affords them representation
according to their respective populations.
The Senate: Its Organization.—In the Method of choosing
constitution, as originally adopted, it was senators.
provided that each state should have two senators, elected “by the
legislature thereof”. For more than a hundred years that method of
election was followed. The two houses of the state legislature chose
the senators. But this plan became unpopular and in 1913 the
constitution was amended to provide that the senators should be
chosen in each state by popular vote. The term remains fixed at six
years, but one-third of the senators retire every second year.[110]
Every state, large or small, has two senators. Nevada, with only
80,000 population has equal representation in the Senate with New
York, which has above ten million people. Proportionally, New York
ought to have about two hundred and fifty senators. This may seem
to be unfair to the larger states, but it was a necessary concession to
the smaller states at the time the union was formed. Population,
moreover, is not the only thing that should be The principle of
taken into consideration. A state may be large in equality.
area, with great natural resources and a splendid future before it,
and yet be very thinly settled. The Senate was created to represent
the states as such, and all the states are equal in rights, if they are
not equal in area or population. At any rate the provision for equal
representation is in the constitution and if you read the provision, you
will see that it cannot be easily changed (Article V, last clause).
The Senate holds regular sessions each year The Senate’s
at Washington. It may be called in special procedure.
session, even when the House of Representatives is not sitting. This
is because the Senate has some special powers apart from those
which it shares equally with the lower house. It makes its own rules
of procedure, decides any disputes as to the qualifications of its own
members, and has power, by a two-thirds vote, to expel any senator
from its membership. Most of the Senate’s routine work is done by
committees, the members of which are assigned every second year
by an unofficial “Committee on Committees” subject to the approval
of the whole chamber. There are about thirty of these committees,
but many of them are of small importance. The more important are
those which deal with revenue measures, appropriations, foreign
relations, and interstate commerce. Each committee has its own
chairman.
The Senate: Its Exclusive Powers.—The Senate has three
special powers in which the House of Representatives possesses no
share. These powers relate to impeachments, the confirming of
appointments, and the ratification of treaties.
The Senate, as the constitution declares, has 1. Trial of
“the sole power to try all impeachments”. The impeachments.
procedure known as impeachment is of English origin and goes back
to mediaeval times when the only way of holding a king to account
was to impeach and punish his advisors. The framers of the
American constitution regarded impeachment as a useful means of
checking any arbitrary use of executive power and they, therefore,
made provision that “the President, Vice President, and all civil
officers of the United States” should be subject to impeachment
before the Senate in case of wrong-doing. The term “civil officers”
includes members of the cabinet, judges, ambassadors, even
postmasters; but it does not include the members of either branch of
Congress nor, of course, does it include either state or local
officeholders. Civil officers of the United States can be impeached
only for “treason, bribery, or other high crimes and misdemeanors”;
and if convicted can be punished only to the extent of being removed
from office as well as disqualified from ever holding any federal
position again. They cannot be put to death, or imprisoned, or fined.
When it is desired to impeach any civil officer, the charges against
him are laid before the Senate by the House of Representatives. The
Senate sets a date for hearing the case; the evidence is presented;
and the Senate then frames its verdict behind closed doors.[111] A
two-thirds majority is necessary for a conviction.[112]
All the more important appointments made by 2. Confirmation of
the President require the confirmation of the appointments.
Senate. The President sends to the presiding officer of the Senate
the names of his proposed appointees and the Senate thereupon
refers them to the appropriate committees for consideration. When
the committees make their report the Senate then votes to confirm or
reject. A bare majority, not a two-thirds vote, suffices. Rejections take
place at times, but the great majority of the President’s nominations
are confirmed without delay. The Senate understands that the chief
responsibility for selecting federal officers rests with the executive
branch of the government and that confirmation should not be
refused without good reason. There is, however, a practice known as
“senatorial courtesy”, which has frequently led to the rejection of
names proposed by the President. According to this custom the
Senate will not confirm the appointment of any local officer, such as
postmaster or internal revenue officer, unless the person named for
the appointment is satisfactory to the senator or senators from the
state concerned, provided, of course, that these senators are of the
same political party as the President himself. Or, to put it more
concretely, if a Republican President nominates as internal revenue
officer at Philadelphia someone who is not approved by the
Republican Senators from Pennsylvania, the Republican majority in
the Senate will not permit the appointment to be confirmed. This
unwritten rule of senatorial courtesy has been enforced at some
times and not at others. Some presidents have been able to
persuade the Senate to disregard it; but in general it is a custom
which ties the hands of all presidents to a considerable extent. When
the Senate is not in session, the President is free to make
appointments at his own discretion. These are known as “recess
appointments” and are temporary only. If the Senate, at its next
session, fails to confirm them, these recess appointments lapse and
the appointees get no pay for the time they may have served.
All treaties between the United States and 3. Ratification of
other countries must be approved by a two- treaties.
thirds vote of the Senate before they can go into effect. This gives
the Senate an important influence in the control and direction of
foreign affairs because the relations between the United States and
other countries are fixed, to a considerable extent, by treaties. The
whole subject of treaties and foreign relations is so complicated,
however, that it may best be reserved for study in a later chapter.
The Senate: Its Concurrent Powers.—In all Powers which are
other matters, apart from impeachments, jointly exercised
appointments, and treaties, the Senate has with the House.
concurrent power with the House of Representatives. There is a
provision in the constitution to the effect that all bills for raising
revenue must “originate” in the House of Representatives, but that
the Senate may amend such bills as it pleases. This is a partial
reproduction of an ancient rule in the unwritten constitution of Great
Britain which gives the House of Commons the initiative in all
financial matters. By usage, also, all bills for spending money
originate in the lower house. But the Senate, as a practical matter,
uses its amending power so freely that it can virtually originate
measures of either sort whenever it desires to do so. When a bill
comes up from the lower chamber it can strike out virtually the whole
measure, put a new bill in its place, and send this back to the House
of Representatives. In matters which do not relate to revenue or
expenditure the powers of the two chambers are precisely the same
both in theory and in practice.
The House of Representatives: Its How the size of the
Organization.—The House of Representatives House is
is nearly five times as large as the Senate, determined.
having 435 members at the present time. It is much too large for the
effective debating of measures.[113] Every ten years, after the
population of each state has been determined by the census bureau,
Congress by law fixes the total membership of the House for the
ensuing decade. Dividing this figure into the total population of the
country gives a “ratio of representation”, that is the uniform quota of
population which is entitled to one representative. For example, if the
population of the country is one hundred millions and the
membership of the House is fixed at 400, the ratio would be one
representative for every 250,000 people. Having found this ratio, it is
a simple matter to determine how many representatives each state
shall have. New York, with ten million people, would be allotted forty
congressmen; Maine, with seven hundred and fifty thousand people,
would get only three. Nevada, Wyoming and Delaware would not get
any, if the ratio were strictly applied, but the constitution requires that
every state, no matter what its population, shall be given at least one
representative in the House. When the quota to which each state is
entitled has been figured the several states proceed, through their
legislatures, to lay out congressional districts and from each such
district one congressman is chosen at the next election.
This work of “redistricting” the state gave rise Congressional
at an early date to a practice commonly known districts.
as “gerrymandering”.[114] The national laws require that all
congressional districts within a state shall be approximately equal in
population and that they shall be composed of contiguous territory.
Apart from these restrictions, the state legislatures are free to map
out the districts as they see fit and they do this, very frequently, with
an eye to gaining advantage for the political party which happens to
control the legislature. By adding one county or town and taking off
another, always with party motives in mind, it is possible to
“gerrymander” a district into such form that the candidate of the
favored party will have an advantage over his opponent. True
enough, these gerrymandered congressional districts, when drawn
on the map, often look like a lizard or a starfish, but there is nothing
in the constitution or the laws of the United States which requires
congressional districts to be uniform in shape.
How Representatives are Chosen.—Every The method of
second year elections are held in all the choosing
congressional districts of the country and one congressmen.
congressman is chosen from each. Each state determines how the
nominations are made and is responsible for conducting the election.
The qualifications for voting are the same as those established at
state elections. There is no legal requirement that a representative
must be a resident of the district which elects him; it is enough that
he be a resident of the state in which the district is located. But as a
matter of practice congressmen are nearly always residents of their
districts. American usage in this respect differs from that of some
other countries, particularly Great Britain, where members of the
House of Commons are frequently chosen from districts in which
they do not reside. The advantage of this plan is The residence
that a capable statesman can secure a seat in requirement.
the lawmaking body even though his own home district may be one
which the opposite party controls. In the United States, on the other
hand, if a capable man belonging to the Democratic party happens
to live in a strongly Republican district, there is practically no chance
of his ever being a member of the national House of Representatives
no matter how strong his personal qualifications may be. One
congressional district, moreover, especially in the residential portion
of a large city, may have many capable men living in it. But only one
of them, under American usage, can sit in the House. The argument
that, in order to know the needs of his district, a congressman must
actually live in it, is on everyone’s tongue, but it deserves no
considerable weight. The first duty of a congressman is to promote
the interests of the whole people and not merely those of his own
district.
The Speaker and the Committees.—The House of
Representatives elects its own presiding officer, who is known as the
Speaker. He has general charge of the proceedings and until a few
years ago appointed all the committees. All questions of procedure
are decided by him and he determines which member of the House
shall be “recognized”, that is, permitted to speak, when several
members desire to have the floor. The Speaker is always a
prominent member of the majority party and usually one of its
leaders. He has a considerable influence on the work of the House.
In a body of more than four hundred members, it stands to reason
that a great deal of the business must be done by committees. There
are now nearly sixty of these committees, the most important being
those on rules, appropriations, ways and means, interstate and
foreign commerce, post-offices, military affairs, naval affairs, and
agriculture. Since 1910 these committees have The committees:
been appointed by a complicated plan which how selected.
places the selection in the hands of the whole House.[115] The
majority party in the House obtains a majority on each important
committee.
The Process of Lawmaking.—The work of Stages in the
the committees may best be explained by making of a law:
describing the various stages through which a bill passes before it
becomes a law. In the first place, any member of 1. Introduction of
the House may introduce a bill (which is a draft bill.
of a proposed law) either for himself or for someone else. He does
this by writing his name on the back of the bill and dropping it into a
large basket at the Speaker’s table. During the course of each
session many thousand bills are placed in this “hopper” as it is
called. One of the Speaker’s assistants takes each bill from the
basket and refers it to the proper committee. If the bill relates to
taxation it goes to the Ways and Means Committee; if it relates to
railroads it goes to the Committee on Foreign and Interstate
Commerce. Every bill goes to some committee before the House
looks at it.
When the various committees receive their 2. Consideration by
bills they place them on a list for consideration a committee.
and each is taken up in order unless the committee decides to give
some bills the right of way. Hearings on the important measures are
then held. The members of the committee meet in their committee
room and listen to the arguments of those who desire to support or
oppose the bill. Any citizen has the right to appear and be heard.
Sometimes, in the case of some important bills, such as a tariff
measure, the hearings may continue for several days or even for
weeks. The committee hearings, however, are usually held in the
mornings only, for the House is in session during the afternoons.
When the hearings are concluded the committee decides what
action it will take. It may recommend to the House that the bill ought
to be passed, either with or without changes. Sometimes a
committee completely redrafts a bill and reports it to the House in the
entirely new form. But in the great majority of cases the committees
feel unfavorably towards the bills and make no report or
recommendation on these bills at all. Such How bills are killed
measures are merely “killed in committee” and in committee.
never get before the House. The House can, of course, require any
committee to send up a bill; but this it hardly ever does. Most of the
bills introduced by congressmen are put to death in this way; in fact
more than eighty per cent of them never survive the committee
stage.[116] One committee acquired such a reputation for slaughtering
bills that its committee room was nicknamed the “legislative morgue”.
But let us suppose that a bill is favorably 3. The committee’s
regarded by a committee and duly reported to report.
the House. What happens next? It is placed on one of the calendars
or lists; printed copies are made; and when its turn comes, it is laid
before the House. A debate on the bill may take place, amendments
may be proposed, and votes taken.
In considering measures, the House often sits 4. Consideration in
as a Committee of the Whole. This merely the House.
means that the entire membership forms a great committee, but
there are some important differences between the House in
Committee of the Whole and the regular session. In Committee of
the Whole the Speaker does not preside (but calls some member to
the chair); the strict rules of procedure do not apply; one hundred
members form a quorum (in regular session a majority of the
members are needed to furnish a quorum) and there are no roll calls.
In a word, the system enables the House to do business with less
formality. At any rate if the measure safely 5. Bills are then
passes the House, it is engrossed on sent to the other
parchment, signed by the speaker, and sent up chamber.
to the Senate where it goes through the whole procedure of
committee hearings and discussion on the floor.[117]
Having passed the Senate it is signed by the 6. The executive
presiding officer of that body and is then sent to approval.
the President for his signature. The President, as will be shown a
little later, may sign it, veto it, or allow it to become a law without his
signature.
If one chamber amends a measure, and the Conference
other chamber agrees to the amendment, the bill committees.
also goes directly to the President. But what happens in case either

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Pearsons Federal Taxation 2019 Corporations

Pearsons Federal Taxation 2018 Comprehensive 31st

Pearsons Federal Taxation 2018 Comprehensive 31st

I:7-2 Medical care is defined as amounts paid for:

1. The diagnosis, cure, mitigation, treatment, or prevention of disease.

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I:7-6 a. Capital expenditures qualify for a current deduction if incurred as a medical

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• State, local, and foreign real property taxes

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I:7-25 No charitable contribution deduction is available. In 2018, a married taxpayer filing a

Separate payments generally are treated as separate contributions for purposes of

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I:7-35 Dan can deduct $1,514 as medical expenses.

I:7-36 Chad’s deductible medical expenses are $3,400.

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Increase in taxable income from reimbursement ($26,000 – 19,420) = $6,580 (included in

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a. Janet may deduct $1,003 in the current year.

I:7-41 Scott's interest expense for the year is classified as follows:

Jan. 1 - Mar. 31 100% investment interest

Dec. 1 - Dec. 31 100% passive interest

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AGI before investments $130,000

Qualified Residence Interest $7,800

Taxable Income $139,400

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I:7-46 Doug’s 2018 taxable income is $23,000, computed as follows:

Total itemized deductions ($41,625)

Taxable income $43,375

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Taxable income $ 113,000

*The net LTCG is not included in investment income.

I:7-50 a. The charitable contribution is $40,000, subject to a limitation of 30% of AGI.

The remaining 60% limit: ($120,000 - $30,000) $90,000

b. Melissa’s charitable contribution deduction for the year is $60,000, computed as

Melissa will have a $50,000 ($65,000 - $15,000) charitable contribution carryover. As

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Donation of main-frame $475,000 ($650,000 - [$350,000 x 0.50])

2018 2019 2020 2021

pp. I:7-25 and I:7-26.

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Capital Gains/Losses: Cabinets, Inc. ( 2,700)

State income taxes

Net taxable income $ 97,427

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Selling price $30,000 Contribution deduction $ 30,000

FMV on Adjusted Date Unrealized

Tax Form/Return Preparation Problems

I:7-59 (See Instructor’s Resource Manual)

I:7-60 (See Instructor’s Resource Manual)

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Dear Mr. Brown:

4. Selling the land and donating the cash is not an alternative.