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 FULLY UPDATED FOR THE TAX CUTS AND JOBS ACT

2019 EDITION
TAXATION of INDIVIDUALS AND
McGraw-Hill’s

BUSINESS ENTITIES
SPILKER • AYERS • BARRICK • OUTSLAY • ROBINSON • WEAVER • WORSHAM
 McGraw-Hill’s

Taxation of Individuals
and Business Entities
Brian C. Spilker
Brigham Young University
Editor

Benjamin C. Ayers John A. Barrick

The University of Georgia Brigham Young University
Edmund Outslay John R. Robinson
Michigan State University Texas A&M University
Connie D. Weaver Ron G. Worsham
Texas A&M University Brigham Young University
McGRAW-HILL’S TAXATION OF INDIVIDUALS AND BUSINESS ENTITIES, 2019 EDITION, TENTH EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2019 by McGraw-Hill Education. All rights
­reserved. Printed in the United States of America. Previous editions © 2018, 2017, and 2016. No part of this publication may be reproduced
or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill
­Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the United States.
This book is printed on acid-free paper.
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ISSN  1946-7745
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mheducation.com/highered

Dedications
We dedicate this book to:
My family, whose love and support helped make this book possible, and to Professor Dave Stewart for his
great example and friendship over the last three decades.
Brian Spilker
My wife, Marilyn, daughters Margaret Lindley and Georgia, son Benjamin, and parents Bill and Linda.
Ben Ayers
My wife, Jill, and my children Annika, Corinne, Lina, Mitch, and Connor.
John Barrick
My family, Jane, Mark, Sarah, Chloe, Lily, Jeff, and Nicole, and to Professor James E. Wheeler, my mentor and friend.
Ed Outslay
JES, Tommy, and Laura.
John Robinson
My family: Dan, Travis, Alix, and Alan.
Connie Weaver
My wife, Anne, sons Matthew and Daniel, and daughters Whitney and Hayley.
Ron Worsham
 About the Authors

Brian Spilker (PhD, University of Texas at Austin, 1993) is the Robert Call/Deloitte Professor
in the School of Accountancy at Brigham Young University. He teaches taxation at Brigham
Young University. He received both BS (Summa Cum Laude) and MAcc (tax emphasis) de-
grees from Brigham Young University before working as a tax consultant for Arthur Young &
Co. (now Ernst & Young). After his professional work experience, Brian earned his PhD at
the University of Texas at Austin. In 1996, he was selected as one of two nationwide recipi-
ents of the Price Waterhouse Fellowship in Tax Award. In 1998, he was a winner of the
American Taxation Association and Arthur Andersen Teaching Innovation Award for his
work in the classroom; he has also been awarded for his use of technology in the classroom at
Brigham Young University. Brian researches issues relating to tax information search and
professional tax judgment. His research has been published in journals such as The Account-
Courtesy Brian Spilker
ing Review, Organizational Behavior and Human Decision Processes, Journal of the Ameri-
can Taxation Association, Behavioral Research in Accounting, Journal of Accounting
Education, Journal of Corporate Taxation, and Journal of Accountancy.

Ben Ayers (PhD, University of Texas at Austin, 1996) holds the Earl Davis Chair in Taxation
and is the dean of the Terry College of Business at the University of Georgia. He received a
PhD from the University of Texas at Austin and an MTA and BS from the University of
­Alabama. Prior to entering the PhD program at the University of Texas, Ben was a tax
­manager at KPMG in Tampa, Florida, and a contract manager with Complete Health, Inc., in
Birmingham, Alabama. He is the recipient of 11 teaching awards at the school, college, and
university levels, including the Richard B. Russell Undergraduate Teaching Award, the high-
est teaching honor for University of Georgia junior faculty members. His research interests
include the effects of taxation on firm structure, mergers and acquisitions, and capital markets
and the effects of accounting information on security returns. He has published articles in
journals such as The Accounting Review, Journal of Finance, Journal of Accounting and Eco-
Courtesy Ben Ayers
nomics, Contemporary Accounting Research, Review of Accounting Studies, Journal of Law
and Economics, Journal of the American Taxation Association, and National Tax Journal.
Ben was the 1997 recipient of the American Accounting Association’s Competitive Manu-
script Award, the 2003 and 2008 recipient of the American Taxation Association’s Outstand-
ing Manuscript Award, and the 2016 recipient of the American Taxation Association’s Ray
M. Sommerfeld Outstanding Tax Educator Award.
iv About the Authors

John Barrick (PhD, University of Nebraska at Lincoln, 1998) is currently an associate profes-
sor in the Marriott School at Brigham Young University. He served as an accountant at the
United States Congress Joint Committee on Taxation during the 110th and 111th Congresses.
He teaches taxation in the graduate and undergraduate programs at Brigham Young Univer-
sity. He received both BS and MAcc (tax emphasis) degrees from Brigham Young University
before working as a tax consultant for Price Waterhouse (now PricewaterhouseCoopers).
­After his professional work experience, John earned his PhD at the University of Nebraska at
Lincoln. He was the 1998 recipient of the American Accounting Association, Accounting,
Behavior, and Organization Section’s Outstanding Dissertation Award. John researches issues
relating to tax corporate political activity. His research has been published in journals such as
Organizational Behavior and Human Decision Processes, Contemporary Accounting Re-
Courtesy John Barrick
search, and Journal of the American Taxation Association.

Ed Outslay (PhD, University of Michigan, 1981) is a professor of accounting and the Deloitte/
Michael Licata Endowed Professor of Taxation in the Department of Accounting and Infor-
mation Systems at Michigan State University, where he has taught since 1981. He received a
BA from Furman University in 1974 and an MBA and PhD from the University of Michigan
in 1977 and 1981. Ed currently teaches graduate classes in corporate taxation, multiunit enter-
prises, accounting for income taxes, and international taxation. In February 2003, Ed testified
before the Senate Finance Committee on the Joint Committee on Taxation’s Report on Enron
Corporation. MSU has honored Ed with the Presidential Award for Outstanding Community
Service, Distinguished Faculty Award, John D. Withrow Teacher-Scholar Award, Roland
H. Salmonson Outstanding Teaching Award, Senior Class Council Distinguished Faculty Award,
MSU Teacher-Scholar Award, and MSU’s 1st Annual Curricular Service-Learning and Civic
Engagement Award in 2008. Ed received the Ray M. Sommerfeld Outstanding Tax Educator
Courtesy Ed Outslay
Award in 2004 and the Lifetime Service Award in 2013 from the American Taxation Associa-
tion. He has also received the ATA Outstanding Manuscript Award twice, the ATA/Deloitte
Teaching Innovations Award, and the 2004 Distinguished Achievement in Accounting Educa-
tion Award from the Michigan Association of CPAs. In 2017, Ed received the American Ac-
counting Association / J. Michael and Mary Ann Cook Prize given in “foremost recognition
of an individual who consistently demonstrates the attributes of a superior teacher in the dis-
cipline of accounting.” Ed has been recognized for his community service by the Greater
Lansing Chapter of the Association of Government Accountants, the City of East Lansing
(Crystal Award), and the East Lansing Education Foundation. He received a National Assis-
tant Coach of the Year Award in 2003 from AFLAC and was named an Assistant High School
Baseball Coach of the Year in 2002 by the Michigan High School Baseball Coaches
Association.
 About the Authors v

John Robinson (PhD, University of Michigan, 1981) is the Patricia ’77 and Grant E. Sims ’77
Eminent Scholar Chair in Business. Prior to joining the faculty at Texas A&M, John was the
C. Aubrey Smith Professor of Accounting at the University of Texas at Austin, Texas, and he
taught at the University of Kansas where he was the Arthur Young Faculty Scholar. In 2009–
2010 John served as the Academic Fellow in the Division of Corporation Finance at the Secu-
rities and Exchange Commission. He has been the recipient of the Henry A. Bubb Award for
outstanding teaching, the Texas Blazer’s Faculty Excellence Award, and the MPA Council
Outstanding Professor Award. John also received the 2012 Outstanding Service Award from
the American Taxation Association (ATA) and in 2017 was named the Ernst & Young and
ATA Ray Sommerfeld Outstanding Educator. John served as the 2014–2015 president (elect)
of the ATA and is the ATA’s president for 2015–2016. John conducts research in a broad va-
riety of topics involving financial accounting, mergers and acquisitions, and the influence of
taxes on financial structures and performance. His scholarly articles have appeared in The Courtesy John Robinson
Accounting Review, The Journal of Accounting and Economics, Journal of Finance, National
Tax Journal, Journal of Law and Economics, Journal of the American Taxation Association,
The Journal of the American Bar Association, and The Journal of Taxation. John’s research
was honored with the 2003 and 2008 ATA Outstanding Manuscript Awards. In addition, John
was the editor of The Journal of the American Taxation Association from 2002–2005. Professor
Robinson received his J.D. (Cum Laude) from the University of Michigan in 1979, and he
earned a PhD in accounting from the University of Michigan in 1981. John teaches courses on
individual and corporate taxation and advanced accounting.

Connie Weaver (PhD, Arizona State University, 1997) is the KPMG Professor of Accounting
at Texas A&M University. She received a PhD from Arizona State University, an MPA from
the University of Texas at Arlington, and a BS (chemical engineering) from the University of
Texas at Austin. Prior to entering the PhD Program, Connie was a tax manager at Ernst &
Young in Dallas, Texas, where she became licensed to practice as a CPA. She teaches taxation
in the Professional Program in Accounting and the Executive MBA program at Texas A&M
University. She has also taught undergraduate and graduate students at the University of
­Wisconsin–Madison and the University of Texas at Austin. She is the recipient of several
teaching awards, including the 2006 American Taxation Association/Deloitte Teaching Inno-
vations award, the David and Denise Baggett Teaching award, and the college and university
level Association of Former Students Distinguished Achievement award in teaching. Connie’s
Courtesy Connie Weaver
current research interests include the effects of tax and financial incentives on corporate deci-
sions and reporting. She has published articles in journals such as The Accounting Review,
Contemporary Accounting Research, Journal of the American Taxation Association, National
Tax Journal, Accounting Horizons, Journal of Corporate Finance, and Tax Notes. Connie is
the senior editor of The Journal of the American Taxation Association and she serves on the
editorial board of Contemporary Accounting Research.

Ron Worsham (PhD, University of Florida, 1994) is an associate professor in the School of
Accountancy at Brigham Young University. He teaches taxation in the graduate, undergradu-
ate, MBA, and Executive MBA programs at Brigham Young University. He has also taught as
a visiting professor at the University of Chicago. He received both BS and MAcc (tax empha-
sis) degrees from Brigham Young University before working as a tax consultant for Arthur
Young & Co. (now Ernst & Young) in Dallas, Texas. While in Texas, he became licensed to
practice as a CPA. After his professional work experience, Ron earned his PhD at the Univer-
sity of Florida. He has been honored for outstanding innovation in the classroom at Brigham
Young University. Ron has published academic research in the areas of taxpayer compliance
and professional tax judgment. He has also published legal research in a variety of areas. His
work has been published in journals such as Journal of the American Taxation Association,
The Journal of International Taxation, The Tax Executive, Tax Notes, The Journal of Accoun- Courtesy Ron Worsham
tancy, and Practical Tax Strategies.
TEACHING THE CODE IN CONTEXT

The bold innovative approach used by McGraw-Hill’s Taxation series is

quickly becoming the most popular choice of course materials among in-
structors and students. It’s apparent why the clear, organized, and engaging
delivery of content, paired with the most current and robust tax code u­ pdates,
has been adopted by more than 600 schools across the country.
McGraw-Hill’s Taxation is designed to provide
“Do you want the best tax text? This is the one to
a unique, innovative, and engaging learning ex-
use. It has a storyline in each chapter that can
perience for students studying taxation. The
­relate to real life issues.”
breadth of the topical coverage, the storyline
approach to presenting the material, the em- Leslie A. Mostow
phasis on the tax and nontax consequences of – University of Maryland, College Park
multiple parties involved in transactions, and
the integration of financial and tax accounting
topics make this book ideal for the modern tax
curriculum.

Since the first manuscript was written in 2005,

“This text provides broad coverage of important
topics and does so in a manner that is easy for stu-
dents to understand. The material is very accessi-
ble for students.”
Kyle Post
– Tarleton State University
449 professors have contributed 499 book re-
views, in addition to 29 focus groups and sym-
posia. Throughout this preface, their comments
on the book’s organization, pedagogy, and
unique features are a testament to the market-
driven nature of Taxation’s development.

“I think this is the best book available for introductory and intermediate courses in taxation.”
Shane Stinson
– University of Alabama

vi
A MODERN APPROACH
FOR TODAY’S STUDENT
Spilker’s taxation series was built around the following five core precepts:

1
Storyline Approach: Each chapter begins with a storyline that introduces a set of characters or
a business entity facing specific tax-related situations. Each chapter’s examples are related to
the storyline, providing students with opportunities to learn the code in context.

2
Integrated Examples: In addition to providing examples in-context, we provide “What if”
scenarios within many examples to illustrate how variations in the facts might or might
not change the answers.

3
Conversational Writing Style: The authors took special care to write McGraw-Hill’s Taxation in
a way that fosters a friendly dialogue between the content and each individual student. The
tone of the presentation is intentionally conversational—creating the impression of speaking
with the student, as opposed to lecturing to the student.

4
Superior Organization of Related Topics: McGraw-Hill’s Taxation provides two alternative
topic sequences. In the McGraw-Hill’s Taxation of Individuals and Business Entities vol-
ume, the individual topics generally follow the tax form sequence, with an individual over-
view chapter and then chapters on income, deductions, investment-related issues, and the tax
liability computation. The topics then transition into business-related topics that apply to in-
dividuals. This volume then provides a group of specialty chapters dealing with topics of
particular interest to individuals (including students), including separate chapters on home
ownership, compensation, and retirement savings and deferred compensation. This volume
concludes with a chapter covering the taxation of business entities. Alternatively, in the Es-
sentials of Federal Taxation volume, the topics follow a more traditional sequence, with top-
ics streamlined (no specialty chapters) and presented in more of a life-cycle approach.

5
Real-World Focus: Students learn best when they see how concepts are applied in the real world.
For that reason, real-world examples and articles are included in “Taxes in the Real World”
boxes throughout the book. These vignettes demonstrate current issues in taxation and show
the relevance of tax issues in all areas of business.

The in-text examples of how to complete tax returns(is a strength of this text). These help students improve
their overall understanding of the material as it moves from something abstract to something tangible the
student can produce.”
Christine Cheng–Louisiana State University

vii
A STORYLINE APPROACH THAT
RESONATES WITH STUDENTS
Each chapter begins with a storyline that
introduces a set of characters facing spe-
Storyline Summary cific tax-related situations. This revolu-
Taxpayers: Courtney Wilson, age 40,
and Courtney’s mother Dorothy “Gram”
Weiss, age 70
tionary approach to teaching tax
Family
description:
Courtney is divorced with a son, Deron,
age 10, and a daughter, Ellen, age 20.
emphasizes real people facing real tax di-
Location:
Gram is currently residing with Courtney.

Kansas City, Missouri

lemmas. Students learn to apply practical
©Image Source Employment
status:
Courtney works as an architect for EWD.
Gram is retired. tax information to specific business and

C personal situations. As their situations

ourtney has already determined her Filing status:
taxable income. Now she’s working
on computing her tax liability. She
Current
situation:
knows she owes a significant amount of regu-
lar income tax on her employment and busi-
ness activities. However, she’s not sure how to
compute the tax on the qualified dividends she re-
ceived from General Electric and is worried that she
may be subject to the alternative minimum tax this
year. Finally, Courtney knows she owes some self-
employment taxes on her business income. Courtney
would like to determine whether she is eligible to
claim any tax credits, such as the child tax credit for
her two children and education credits, because she
paid for a portion of her daughter Ellen’s tuition at
the University of Missouri–Kansas City this year.
Courtney is hoping that she has paid enough in taxes
during the year to avoid underpayment penalties.
Courtney is head of household. Gram is
single.
Courtney and Gram have computed their
taxable income. Now they are trying to
determine their tax liability, tax refund,
evolve, the characters are brought further
or additional taxes due and whether they
owe any payment-related penalties. to life.
She’s planning on filing her tax return and paying
her taxes on time.
Gram’s tax situation is much more straightforward.
She needs to determine the regular income tax on her
taxable income. Her income is so low she knows she
need not worry about the alternative minimum tax, and
she believes she doesn’t owe any self-employment tax.
“Excellent text! Very readable, easy for stu-
Gram didn’t prepay any taxes this year, so she is con- dents to read and understand. Storyline ap-
cerned that she might be required to pay an underpay-
ment penalty. She also expects to file her tax return and proach and integrated examples make it
pay her taxes by the looming due date.
to be continued . . .
easy for students to relate to taxpayers and
their tax situations.”

Examples Sandra Owen

– Indianan State University, Bloomington
Examples are the cornerstone of
any textbook covering taxation.
For this reason, McGraw-Hill’s 8-1

Taxation authors took special care 2-4 CHAPTER 2 Tax Compliance, the IRS, and Tax Authorities

to create clear and helpful exam- The statute of limitations for IRS assessment can be extended in certain circumstances.
ples that relate to the storyline of
spi18394_ch08_000-051.indd 1 3/22/18 9:41 AM

For example, a six-year statute of limitations applies to IRS assessments if the taxpayer
omits items of gross income that exceed 25 percent of the gross income reported on the tax
the chapter. Students learn to refer return. For fraudulent returns, or if the taxpayer fails to file a tax return, the news is under-
standably worse. The statute of limitations remains open indefinitely in these cases.
to the facts presented in the story-
line and apply them to other Example 2-1

­scenarios—in this way, they build Bill and Mercedes file their 2014 federal tax return on September 6, 2015, after receiving an auto-
matic extension to file their return by October 15, 2015. In 2018, the IRS selects their 2014 tax return

a greater base of knowledge for audit. When does the statute of limitations end for Bill and Mercedes’s 2014 tax return?
Answer: Assuming the six-year and “unlimited” statute of limitation rules do not apply, the statute of

through application. Many exam- limitations ends on September 6, 2018 (three years after the later of the actual filing date and the origi-
nal due date).

ples also include “What if?” sce- What if: When would the statute of limitations end for Bill and Mercedes for their 2014 tax return if the
couple filed the return on March 22, 2015 (before the original due date of April 15, 2015)?

narios that add more complexity Answer: In this scenario the statute of limitations would end on April 15, 2018, because the later of
the actual filing date and the original due date is April 15, 2015.

to the example or explore related

tax concepts. Taxpayers should prepare for the possibility of an audit by retaining all supporting
documents (receipts, canceled checks, etc.) for a tax return until the statute of limitations
expires. After the statute of limitations expires, taxpayers can discard the majority of sup-
porting documents but should still keep a copy of the tax return itself, as well as any docu-
“The text is easy to read and pro- ments that may have ongoing significance, such as those establishing the taxpayer’s basis or
original investment in existing assets like personal residences and long-term investments.
vides many easy-to-follow exam-
ples throughout the chapter.” LO 2-2 IRS AUDIT SELECTION
Why me? This is a recurring question in life and definitely a common taxpayer question after
Gloria Jean Stuart receiving an IRS audit notice. The answer, in general, is that a taxpayer’s return is selected
for audit because the IRS has data suggesting the taxpayer’s tax return has a high probability
– Georgia Southern University of a significant understated tax liability. Budget constraints limit the IRS’s ability to audit a
majority or even a large minority of tax returns. Currently, fewer than 1 percent of all tax
returns are audited. Thus, the IRS must be strategic in selecting returns for audit in an effort
to promote the highest level of voluntary taxpayer compliance and increase tax revenues.
viii Specifically, how does the IRS select tax returns for audit? The IRS uses a number of
computer programs and outside data sources (newspapers, financial statement disclosures,
informants, and other public and private sources) to identify tax returns that may have an
understated tax liability. Common computer initiatives include the DIF (Discriminant Func-
tion) system, the document perfection program, and the information matching program.
The most important of these initiatives is the DIF system. The DIF system assigns a score to
each tax return that represents the probability the tax liability on the return has been underre-
THE PEDAGOGY YOUR STUDENTS NEED
TO PUT THE CODE IN CONTEXT CHAPTER 1 An Introduction to Tax 1-3

TAXES IN THE REAL WORLD Tax Policy: Republicans versus Democrats

Taxes in the Real World
Oliver Wendell Holmes said “taxes are the price we of taxes. Democrats will claw back tax breaks for
Taxes in the Real World are short boxes used pay to live in a civilized society.” Both Democrats
and Republicans desire the same things: a civilized
companies that ship jobs overseas, eliminate tax
breaks for big oil and gas companies, and crack

throughout the book to demonstrate the real-world society and a healthy economy. However, neither
party can agree on what defines a civilized society
down on inversions and other methods com-
panies use to dodge their tax responsibilities . . .

use of tax concepts. Current articles on tax issues, or which path best leads to a healthy economy. The We will then use the revenue raised from fixing
U.S. national debt is $20 trillion dollars and growing,
the corporate tax code to reinvest in rebuilding

the real-world application of chapter-specific tax

yet the only thing we might agree on is that some-
thing has gone wrong. Regardless of which party or
candidate you support, each party’s agenda will
rules, and short vignettes on popular news about tax affect your income and taxes in various ways.
To explore the divide, let’s examine excerpts
America and ensuring economic growth that will
lead to millions of good-paying jobs.”
“We will ensure those at the top contribute
to our country’s future by establishing a multi-
millionaire surtax to ensure millionaires and bil-

are some of the issues covered in Taxes in the Real from each party’s National Platform from our most
recent presidential election (2016).
lionaires pay their fair share. In addition, we will
shut down the “private tax system” for those at

World boxes. Republicans

“We are the party of a growing economy that
gives everyone a chance in life, an opportunity to
learn, work, and realize the prosperity freedom
makes possible.”
the top, immediately close egregious loopholes
like those enjoyed by hedge fund managers,
restore fair taxation on multimillion dollar es-
tates, and ensure millionaires can no longer
pay a lower rate than their secretaries. At a
time of near-record corporate profits, slow

“The Spilker text makes tax easy for students to under- “Government cannot create prosperity, wage growth, and rising costs, we need to offer
though government can limit or destroy it. Pros- tax relief to middle-class families—not those at

stand. It integrates great real-world examples so stu- perity is the product of self-discipline, enterprise, the top.”
saving and investment by individuals, but it is not “We will offer tax relief to hard working, middle-

dents can see how topics will be applied in practice. an end in itself. Prosperity provides the means by class families for the cost squeeze they have
which citizens and their families can maintain faced for years from rising health care, childcare,
their independence from government, raise CHAPTER 1
their education, AnandIntroduction
other expenses.” to Tax 1-5
https://www.
The integration of the tax form and exhibits of the tax children by their own values, practice their faith, democrats.org/party-platform#preamble
and build communities of cooperation and mu-
forms in the text are outstanding.”
HOW TO CALCULATE A TAX tual respect.” Conclusion
LO 1-3
“Republicans consider the establishment of a Each party fundamentally believes the govern-
pro-growth tax code a moral imperative. More ment should create/maintain cities and states that
– Kristen In
Bigbee, Texas
its simplest form,Tech University
the amount of tax equals the tax base multiplied by the tax rate: than any other public policy, the way government form a civilized society, and that government
raises revenue—how much, at what rates, under should foster a healthy economy. However, they
what circumstances, from whom, and for whom— choose very different paths to reach this objec-
Eq. 1-1 Tax = Tax Base × Tax Rate has the greatest impact on our economy’s perfor- tive. Democrats want to raise taxes on the
mance. It powerfully influences the level of wealthy and create government programs which
economic growth and job creation, which trans- cost more money, while Republicans wish to
The Key Facts The tax base defines what is actually taxed and is usually expressed in monetary lates into the level of opportunity for those who lower taxes and decrease government size and
THEareKEY pure; FACTS
terms, whereas the tax rate determines the level of taxes imposed on the tax base and is would otherwise be left behind.” spending. Both motives however, cur-

The Key Facts pro- usually expressed as a percentage. For example, a sales tax rate of 6 percent on a purchase
“A strong economy is one key to debt reduc- rent and cumulative deficits indicate that current
tion, but spending restraint is a necessary compo- revenue is insufficient How totoCalculate a Tax
meet government

vide quick synopses of $30 yields a tax of $1.80 ($1.80 = $30 × .06).
Federal, state, and local jurisdictions use a large variety of tax bases to collect tax.
nent that must be vigorously pursued.” https://www.
gop.com/platform/restoring-the-american-dream/
spending. Solving • Tax = Tax
these base ×willTax
problems
civil discourse, education and research/informa-
• realistic,
require
rate
tion in order to find The tax base defines what
of the critical pieces
effective solutions.
Some common tax bases (and related taxes) include taxable income (federal andRepublicans:
Democrats state https://www.gop.com/platform/restoring-the-
is actually taxed and is
usually expressed in
income taxes), purchases (sales tax), real estate “At a time of massive income and wealth in-
values (real estate tax), and personal
of information pre-
american-dream/
equality, we believe the wealthiest Americans monetary terms.
Democrats: https://www.democrats.org/party-platform#
property values (personal property tax). and largest corporations must pay their fair share preamble
• The tax rate determines
sented throughout Different portions of a tax base may be taxed at different rates. A single tax applied the level of taxes imposed
to an entire base constitutes a flat tax. In the case ofIngraduated affect the
taxes, manybase is ofdivided
each chapter. into a series of monetary amounts, or brackets, Developing
summary, taxes
and each asuccessive bracket
solid understanding
aspects
is taxed
of taxation
personal, business,
should at allow
a you ally
on the taxpolitical
and base anddecisions.
expressed
to make
is usu-
as a decisions
informed
2-7
different (gradually higher or gradually lower) percentage in these areas.rate. CHAPTER 2 Tax Compliance, the IRS, and Tax Authorities
Thus, Margaret can take comfort that her semester will likely prove useful to
percentage.
Calculating some taxes—income taxes forher personally. Who knows? Depending on her interest in business,
individuals or corporations, for exam- investment,
• Different portions ofretirement
a tax
Exhibits EXHIBIT 2-2
ple—can be quite complex. Advocates of
planning,
IRS Appeals/Litigation

flat taxes argue

and
Process the like, she may ultimately decide to pursue a career
base in
maytaxation.
be taxed at
IRS Exam that1b. the process should be
Today’s students are visual learners, and different rates.
1a. Agree with proposed Disagree with

simpler. But as we’ll see throughout the text, most of the difficulty
adjustment
in calculating a tax
proposed adjustment

rests in determining the tax base, not the tax rate. Indeed, there are only three basic tax
understands
McGraw-Hill’s Taxation rate this progressive,
structures (proportional,
Pay Taxes Due
and regressive), and each can be mastered
30-Day Letter

student need by making without

use ofmuch clear and
difficulty.

engaging charts, diagrams, and tabular spi18394_ch01_000-029.indd 3 3a. Agree with proposed
adjustment
2a. Request appeals

Appeals Conference
2b. No
taxpayer

demonstrations of key material.

DIFFERENT WAYS TO MEASURE TAX RATES
File Suit in U.S. District
3b. Disagree with proposed adjustment
response

File Claim for

Before we discuss the alternative tax rate
Claims structures,
refund claim let’s first define 4b. Pay taxthree different tax
5. IRS denies Court or U.S. Court of 90-Day Letter
Refund with the IRS
Federal

rates that will be useful in contrasting the different tax rate structures: the marginal, aver-
age, and effective tax rates.
“It is easily accessible to students as it is
The marginal tax rate is the tax rate that applies to the next additional increment
4a. Do not pay tax;
of
Petition Tax Court

written in easy-to-understand language,

a taxpayer’s taxable income (or deductions). Specifically, Tax Court

and contains sufficient examples to illus-

Marginal Tax Rate =
trate complicated tax concepts and IRS Exam: ©Imageroller/Alamy Stock Photo; Supreme Court: ©McGraw-Hill Education/Jill Braaten, photographer (also known as a statutory
ΔTax* (New Total Tax − Old Total Tax) notice of deficiency) explains that the taxpayer has 90 days to either (1) pay the proposed deficiency or (2) file a petition in the U.S. Tax

calculations.” Eq. 1-2 =

ΔTaxable Income (New Taxable Income − Old Taxable Income)
Court to hear the case.8 The U.S. Tax Court is a national court whose judges are tax experts who hear only tax cases. If the taxpayer
would like to litigate the case but prefers it to be heard in the local U.S. District Court or the U.S. Court of Federal Claims, the taxpayer
must pay the tax deficiency first, then request a refund from the IRS, and then sue the IRS for refund in the court after the IRS denies the
refund claim.

Machiavelli Chao *Δ means change in. that is low on technical merit but high on emotional appeal, a jury trial in the local U.S.
District Court may be the best option.
– University of California, Irvine: The Paul What happens after the taxpayer’s case has been decided in a trial court? The process
where “old” refers to the current tax and “new” refers to the revised tax after incorporat-
may not be quite finished. After the trial court’s verdict, the losing party has the right to
request one of the 13 U.S. Circuit Courts of Appeals to hear the case. Exhibit 2-3 de-
Merage School of Business
ing the additional income (or deductions) in question. In graduated income tax systems,
picts the specific appellant courts for each lower-level court. Both the U.S. Tax Court and
local U.S. District Court cases are appealed to the specific U.S. Circuit Court of Appeals
additional income (deductions) can push a taxpayer into a higher (lower) tax bracket, thus
based on the taxpayer’s residence.9 Cases litigated in Alabama, Florida, and Georgia, for
example, appeal to the U.S. Circuit Court of Appeals for the 11th Circuit, whereas those
changing the marginal tax rate. tried in Louisiana, Mississippi, and Texas appeal to the 5th Circuit. In contrast, all U.S.
Court of Federal Claims cases appeal to the U.S. Circuit Court of Appeals for the Federal

If the taxpayer lacks the funds to pay the assessed tax, there is legitimate doubt as to whether the taxpayer
Example 1-3
8

owes part or all of the assessed tax, or collection of the tax would cause the taxpayer economic hardship or
be unfair or inequitable, the taxpayer can request an offer in compromise with the IRS to settle the tax liabil-
ity for less than the full amount assessed by completing Form 656.
9
Decisions rendered by the U.S. Tax Court Small Claims Division cannot be appealed by the taxpayer or the IRS.
Margaret’s parents, Bill and Mercedes, file a joint tax return. They have $160,000 of taxable income ix
this year (after all tax deductions). Assuming the following federal tax rate schedule applies, how much
federal income tax will they owe this year?4
(continued on page 1-6)

spi18394_ch02_000-035.indd 7 2/2/18 10:45 AM

 have a good likelihood of a favorable resolution at the appeals conference.
In this chapter we discussed several of the fundamentals of tax practice and proce-
dure: taxpayer filing requirements, the statute of limitations, the IRS audit process, the
primary tax authorities, tax research, tax professional standards, and taxpayer and tax
practitioner penalties. For the tax accountant, these fundamentals form the basis for much
of her work. Likewise, tax research forms the basis of much of a tax professional’s
compliance and planning services. Even for the accountant who doesn’t specialize in tax

PRACTICE MAKES PERFECT WITH A

accounting, gaining a basic understanding of tax practice and procedure is important.
Assisting clients with the IRS audit process is a valued service that accountants provide,
and clients expect all accountants to understand basic tax procedure issues and how to
research basic tax issues.

Summary Summary
LO 2-1 Identify the filing requirements for income tax returns and the statute of limitations for A unique feature of McGraw-Hill’s
assessment.
• All corporations must file a tax return annually regardless of their taxable income. Estates Taxation is the end-of-chapter sum-
and trusts are required to file annual income tax returns if their gross income exceeds
$600. The filing requirements for individual taxpayers depend on the taxpayer’s filing mary organized around learning ob-
status, age, and gross income.
• Individual and C corporation tax returns (except for C corporations with a June 30 year-end) jectives. Each objective has a brief,
are due on the fifteenth day of the fourth month following year-end. For C corporations with
a June 30 year-end, partnerships and S corporations, tax returns must be filed by the fifteenth bullet-point summary that covers
day of the third month following the entity’s fiscal year-end. Any taxpayer unable to file a tax
return by the original due date can request an extension to file. the major topics and concepts for
that chapter, including references to
• For both amended tax returns filed by a taxpayer and proposed tax assessments by the IRS,
the statute of limitations generally ends three years from the later of (1) the date the tax return
2-30 CHAPTER 2 Tax Compliance,
waschapter
the IRS, and
actually Tax
filed or
Tax Compliance,
(2) Authorities
the tax return’s original due date.
critical exhibits and examples. All
KEY TERMS
LO 2-2
2
happens after the audit. the IRS, and Tax
Outline the IRS audit process, how returns are selected, the different types of audits, and what
end-of-chapter material is tied to
Authorities
• The IRS uses a number of computer programs and outside data sources to identify tax
returns that may have an understated tax liability. Common computer initiatives include the learning objectives.
30-day letter (2-6) information
DIF (Discriminant matching
Function) program
system, the Statements
(2-4) program,
document perfection on Standards for
and the information Tax
matching program.
Internal Services (SSTS) (2-23)
90-day letter (2-6) • The three types ofRevenue Codeofof
IRS audits consist 1986 (2-11)office, and field
correspondence, examinations.
acquiescence (2-17) interpretative
• After the audit, the IRS willregulations (2-16)
send the taxpayer statute
a 30-day letter, which of limitations
provides the taxpayer (2-3)
the opportunity to pay the proposed assessment or request ansubstantial
appeals conference. If an
authority (2-24)
action on decision (2-17) legislative regulations (2-16)
agreement is not reached at appeals or the taxpayer does not pay the proposed assessment,
annotated tax service (2-18) nonacquiescence
Learning Objectives (2-17) tax treaties (2-14)
Circular 230 (2-24) office examination (2-6) technical advice memorandum (2-16)
Upon completing this chapter, you should be able to:

citator (2-21) primary authorities (2-9) temporary regulations (2-15)

LO 2-1 Identify the filing requirements for income tax returns and the statute of limitations for
civil penalties (2-26) private
assessment.letter rulings (2-16) topical tax service (2-19)
correspondence examination (2-5) LO 2-2procedural regulations
Outline the IRS audit are selected, the different U.S.
(2-16)
process, how returns types of Circuit
audits, and Courts of Appeals (2-7)
what happens after the audit.
criminal penalties (2-26)
spi18394_ch02_000-035.indd 28 proposed regulations (2-15) U.S. Constitution (2-11) 2/2/18 10:45 AM
LO 2-3 Evaluate the relative weights of the various tax law sources.
determination letters (2-16) question of fact (2-19) U.S. Court of Federal Claims (2-7)
LO 2-4 Describe the legislative process as it pertains to taxation.
DIF (Discriminant Function) question of law (2-19) U.S. District Court (2-7)
LO 2-5 Perform the basic steps in tax research.
system (2-4) regulations (2-15) U.S. Supreme Court (2-8)
LO 2-6 Describe tax professional responsibilities in providing tax advice.
document perfection program (2-4) revenue procedures (2-16) U.S. Tax Court (2-7)
LO 2-7 Identify taxpayer and tax professional penalties.
field examination (2-6) revenue rulings (2-16) writ of certiorari (2-8)
final regulations (2-15) secondary authorities (2-9)
Golsen rule (2-15) stare decisis (2-15)

Discussion
DISCUSSION QUESTIONS Questions
Discussion Questions are available in Connect®. Discussion questions,
LO 2-1 1. Name three factors that determine whether a taxpayer is required to file a tax
spi18394_ch02_000-035.indd 1 2/2/18 10:45 AM
now available in Con-
return.
LO 2-1 2. Benita is concerned that she will not be able to complete her tax return by April 15. nect, are provided for
Can she request an extension to file her return? By what date must she do so? each of the major con-
Assuming she requests an extension, what is the latest date that she could file her
return this year without penalty? cepts in each chapter,
LO 2-1 3. Agua Linda Inc. is a calendar-year corporation. What is the original due date for the providing students
corporate tax return? What happens if the original due date falls on a Saturday?
LO 2-2 4. Approximately what percentage of tax returns does the IRS audit? What are the
with an opportunity to
implications of this number for the IRS’s strategy in selecting returns for audit? review key parts of the
LO 2-2 5. Explain the difference between the DIF system and the National Research Program. chapter and answer
How do they relate to each other?
LO 2-2 6. Describe the differences between the three types of audits in terms of their scope evocative questions
and taxpayer type. about what they have
LO 2-2 7. Simon just received a 30-day letter from the IRS indicating a proposed assessment.
Does he have to pay the additional tax? What are his options? learned.
LO 2-2 8. Compare and contrast the three trial-level courts.
LO 2-3 9. Compare and contrast the three types of tax law sources and give examples of each.
LO 2-3 10. The U.S. Constitution is the highest tax authority but provides very little in the way
of tax laws. What are the next highest tax authorities beneath the U.S. Constitution?
LO 2-3 11. Jackie has just opened her copy of the Code for the first time. She looks at the table
of contents and wonders why it is organized the way it is. She questions whether it
makes sense to try and understand the Code’s organization. What are some reasons
why understanding the organization of the Internal Revenue Code may prove
useful?
x LO 2-3 12. Laura Li, a U.S. resident, worked for three months this summer in Hong Kong. What
type of tax authority may be especially useful in determining the tax consequences of
her foreign income?
 tuition to go to the local firefighter’s school. I did this because someone told me
that I can deduct the tuition as an itemized deduction, so the money would be
coming back to me.
That should be all the information you need right now. Please calculate my
taxable income and complete pages 1 and 2 of Form 1040 (through taxable
income, line 43) and Schedule A. You’re still doing this for free, right?
2-32 CHAPTER 2 53.
Tax Jeremy
Compliance,and the Alyssa Johnson
IRS, and have been married for five years and do not have any
Tax Authorities
children. Jeremy was married previously and has one child from the prior marriage.
LO 2-7He
39. isWhat
self-employed
are the basic and differences
operates hisbetween own computercivil and repair store. For
criminal tax the first two
penalties?

WIDE VARIETY OF ASSIGNMENT MATERIAL LO 2-7 months

40. What of theare year,
someAlyssaof the worked
most common for Office Depot
civil as an employee.
penalties imposed on Intaxpayers?
March,
Alyssa accepted a new job with Super Toys Inc. (ST), where she worked for the
LO 2-7 41. What are the taxpayer’s standards to avoid the substantial understatement of tax
remainder of the year. This year, the Johnsons received $255,000 of gross income.
penalty?
Determine the Johnsons’ AGI given the following information:
LO 2-7 42.Expenses
a) What areassociatedthe tax practitioner’s
with Jeremy’sstandards to avoid
store include a penalty
$40,000 in salaryfor (and
recommending
employ- a tax
return
ment taxes)position?
to employees, $45,000 of supplies, and $18,000 in rent and other
administrative expenses.
Problems b) As a salesperson, Alyssa incurred $2,000 in travel expenses related to her
PROBLEMS
employment that were not reimbursed by her employer.
Problems are designed to test the c) The Johnsons
Select problemsown are aavailable
piece of in raw land held as an investment. They paid $500 of
Connect®.
real property taxes on the property and they incurred $200 of expenses in travel
comprehension of more complex LO 2-1 43.costs
Ahmed to seedoes the not
propertyhave andenough cash onother
to evaluate handsimilar
to paypotential
his taxes.investment
that he can request an extension to file his tax return. Does this solve his problem?
properties.
He was excited to hear

topics. Each problem at the end of LO 2-1

d) The Johnsons own a rental home. They incurred $8,500 of expensesApril
What
44.with
Molto
are
the property.
the ramifications if he doesn’t pay his tax liability
Stancha Corporation had zero earnings this fiscal year; in fact, it lost money.
by 15?
associated

the chapter is tied to one of that LO 2-1

Must paid
e) Jeremy
45.exchange).
the corporation
The estateAlyssa
$4,500 for health
of Monique
file a tax
was coveredChablis
return?coverage for himself (not through an
insurance
byearned
health $450
plans of provided
incomeby thisheryear.
employer, but required
Is the estate
chapter’s learning objectives, with 2-34 CHAPTER 2
LO 2-1
Jeremy
to
46.Jeremy
file
Jamarcus,
isannot
paid $2,500
eligible
income
Tax Compliance, the IRS, and Tax Authorities
f) a full-time
taxfor the plan until next year.
return?
in self-employment
student, earned taxes $2,500 ($1,250 represents
this year from a the employer
summer job. He had
multiple problems for critical topics. LO 2-5
portion
68. J. C. hasno
g) Jeremy
believesHis
other
been
of the
paid
the employer
incomeself-employment
a professional
$5,000
income iswithheld
in
year andtaxes).
this gambler
alimony and
will
for haveyears.
many
$3,000
zero federal
in
He loves
child support
income
this line
tax-free.$300 of federal income tax from his summer pay. Is Jamarcus
from
taxofliability
his
work and
prior mar-
this year.

research riage (divorced

required to in a2010).
file tax return? Should Jamarcus file a tax return?
a) Use an available tax research service to determine whether J. C.’s thinking is cor-
h)
47.The Johnsons
Shane has never donated filed$2,000
a tax to their favoriteearning
return charity. excessive sums of money as a
LO 2-1 rect. Is the answer to this question founddespite
in the Internal Revenue Code? If not,
Tax Forms Problems 54. what
Shaunagambler.
type
has
Coleman
not
When
of authority
filed
does
is single.
a tax
the
Shestatute
answers
return?
this
is of limitations
question?
employed expire for designer
as an architectural the yearsfor in Stream-
which Shane
line Design (SD). Shauna wanted thetoresults
determine her research.
taxable income for this year. She
Tax forms problems are a set of require-
tax forms b) Write a memo communicating of your
LO 2-1 48. Latoya
correctly filed herher
calculated taxAGI.
return on February
However, 10 this
she wasn’t sureyear.
howWhen will the
to compute thestatute
rest ofof
LO 2-5 69. Katie
herrecently
limitations
taxable won
income. a ceramic
expireShefor dalmatian
this taxthe
provided valued at $800
return?
following on a television
information with hopes gamethatshow.
you
ments included in the end-of-chapter Shecould
research LO 2-1 show.
questions
use it whether
to determinethis prize
her is taxable
taxable since it was a “gift” she won on the
income.
49. Using the facts from the previous problem, how would your answer change if
a) Shauna
Latoya paid $4,680 for
understated hermedical
incomeexpenses for care from
by 40 percent? How awould brokenyour ankle. Also, change if
answer
material of the 2019 edition. These a) Use Shauna’s
b) Write
an available
Latoya
a letteroffice
doctor’s
received to
tax research
boyfriend,
intentionally
Katie
from so
her
Blake, service
failed
communicating
sheclients?
drove to
to report
could receivethe
answer
Shauna
care
as (in Katie’s
her car)
taxable
results
for her
question.
a totalany
income
ofbroken
your research.
ankle.
of 115
cashmiles to the she
payments

problems require students to complete a 2-2 Pierre recently received a tax penalty for failing to file a tax return. He was upset (not
LO 2-5 LO70. b)
50. Shauna
Paula
receivethrough
justpenalty,
the
paid
could a total
not
an exchange).
received
of
reach
he wasSD
a 90-day
but
$3,400
an
did not
letter.
comforted
in
agreement health
If she
insurance
with
reimburse
bywants
the
toany
the thought
IRSpremiums
at
ofthat
litigate
her
thistheexpense.
he
during
appeals
issue
the
Besides
but
will get adoes
year
conference
not
tax de-
to and has
the have
tax form (or part of a tax form), provid- research duction sufficient
51. an
LO 2-2 a) Use
for payingcash
In available
choosing tax
to pay the proposed deficiency, what is her best court choice?
the penalty.
a trial-level court, how
research service should a court’s
to determine if Pierreprevious
is correct. rulings influence the
ing students with valuable experience and practice with filling out these forms. These requirements— b) Writechoice?
a memoHow
level court?
should circuit
communicating thecourtresultsrulings
of your influence
research. the taxpayer’s choice of a trial-
71. Paris was happy to provide a contribution to her friend Nicole’s campaign for
and their relevant forms—are also included in Connect. Each tax form problem includes an icon to
LO 2-5
LO 2-2 52. Sophia recently won a tax case litigated in the 7th Circuit. She has just heard that
mayor, especially after she learned that charitable contributions are tax
research the Supreme Court denied the writ of certiorari. Should she be happy or not, and
deductible.
differentiate it from regular problems. spi18394_ch06_000-043.indd 40
LO 2-2
why?
a) Use an available tax service to determine whether Paris can deduct this
53. Campbell’s tax return was audited because she failed to report interest she earned
3/8/18 1:49 PM

contribution.
on her tax return. What IRS audit selection method identified her tax return?
b) Write a memo communicating the results of your research.
54. Yong’s tax return was audited because he calculated his tax liability incorrectly.
Research Problems
LO 2-2
LO 2-5 72. Matt andWhat LoriIRS wereaudit divorced in 2016.
procedure Pursuant
identified histotax
thereturn
divorce fordecree
audit?Matt receives
$10,000 of alimony
55. Randy deducted each amonth. Use an
high level of available
itemized tax service totwo
deductions determine
years ago if the
relative to his
Research problems are special
LO 2-2
research alimonyincome
Matt receives is taxable. Would your answer change if Matt and Lori still
level. He recently received an IRS notice requesting documentation for his
live together?
itemized deductions. What audit procedure likely identified his tax return for
problems throughout the end- 73. Shaun isaudit?
a huge college football fan. In the past, he has always bought football
LO 2-5
tickets
56. on the street
Jackie has a from ticketclient
corporate scalpers. Thisrecently
that has year, hereceived
decided ato30-day
join the univer-
notice from the IRS
of-chapter assignment mate-
LO 2-2
research sity’s ticket
with program,
a $100,000which requires a $2,000
tax assessment. contribution
Her client to the requesting
is considering university for
an appeals
planning
the “right” to purchase
conference tickets.the
to contest Shaun will then
assessment. pay factors
What $400 per season
should ticket.
Jackie Shaun
advise her client to
rial. These require students to understands that before
consider the price paid for an
requesting theappeals
season conference?
tickets is not tax deductible as a
charitable contribution. However, contributions to a university are typically tax
do both basic and more complex research on topics outside deductible.
of the scope of the book. Each research
a) Use an available tax service to determine how much, if any, of Shaun’s $2,000
problem includes an icon to differentiate it from regular problems.
contribution for the right to purchase tickets is tax deductible.
b) Write a letter to Shaun communicating the results of your research.
LO 2-5 74. Latrell recently used his Delta Skymiles to purchase
CHAPTER 2 a freethe
Tax Compliance, round-trip
IRS, and Taxticket to
Authorities 2-33

Planning Problems 57. The IRS recently

research
Milan, Italy (value $1,200). The frequent flyer miles used to purchase the ticket
completed an audit
from of
spi18394_ch02_000-035.indd 32
were generated Shea’s tax
Latrell’s return travel
business and assessed
as a CPA.
additional tax. Shea requested an appeals conference but was unable to settle the
$15,000
Latrell’s employer paid for LO 2-2 2/2/18 10:45 AM

Planning problems are another unique

his business trips, and he was not taxed on the travel reimbursement. planning
case at the conference. She is contemplating which trial court to choose to hear
her case. Providea) aUse an available tax
recommendation research
based on the service
following toalternative
determinefacts:how much income, if any,
a) Shea resides in Latrell
the 2nd will have tothe
recognize as ahas
result of purchasing anthe
airline ticket with
set of problems included in the end-of- position Shea isSkymiles
Circuit, and 2nd Circuit
litigating. earned from business travel.
recently ruled against

b) The Federal b) Write a memo communicating

has recentlythe results of your research.
chapter assignment material. These re-
Circuit Court of Appeals ruled in favor of Shea’s
position.
75. Benjamin, a self-employed bookkeeper, takes a CPA review course ($1,500 cost) to
LO 2-5
c) The issue being litigated involves a question of fact. Shea has a very appealing
quire students to test their tax planning help prepare for the CPA exam.
d) The issue being litigated
4-40

is highly
CHAPTER 4

research
technical, andservice
Individual Income Tax Overview, Dependents, and Filing Status
story to tell but little favorable case law to support her position.
research a) Use an available tax to determine
Shea believes stronglyifinBenjamin
her may deduct the
separate status.exam
By changing
course. his filing status, Doug sought a refund for an overpay-
skills after covering the chapter topics. Each planning
e) Shea is a local
problem
interpretation ofcost
b) elected
Write
of
a
for the tax yearincludes
law.the
thement
memo
CPA
official
2018 (he paid more tax
communicating
and would prefer tothe results
minimize
an
of
any youricon
in the
local research.
publicity
to
original joint differentiate
return than he
owed on a separate return). Is Doug allowed to change his filing status for the 2018
it
from regular problems. regarding the case. tax year and receive a tax refund with his amended return?
58. Juanita, a Texas resident (5th Circuit), is researching a tax question and finds a 5th LO 2-3
Circuit case ruling that is favorable and a 9th Circuit case that is unfavorable. Which
circuit case has more “authoritative weight” and why? How would your answer

Comprehensive and Tax Return 59.

change if Juanita were a Kentucky resident (6th Circuit)?
COMPREHENSIVE PROBLEMS
Faith, a resident of Florida (11th Circuit), recently found a circuit court case that is LO 2-3
favorable to her research question. are
Which two circuits would she prefer to have
Problems
Select problems available in Connect®.
issued the opinion?
spi18394_ch02_000-035.indd 34 54. Marc and Michelle are married and earned salaries this year of $64,000 and 2/2/18 10:45 AM
60. Robert has found a “favorable” authority directly on point
to for
theirhissalaries,
tax question. If the interest
LO 2-3

Comprehensive and tax return problems tax forms

Which court would hean
$12,000, respectively.
authority is a court case,
fromwhich
least
court would
municipal bonds he
prefer toretirement
individual
In addition
andprefer
have issued
$500 to havecorporate
from
the opinion?
account,
issued the
they received
opinion?
bonds.
of $350
Marc contributed $2,500 to
and Marc paid alimony to a prior spouse in the
address multiple concepts in a single 61. Jamareo has found a “favorable”
the authority is an administrative
authority directly
authority, which
with them throughout
on point
specific
the entire
for
year.type
Thus,
his tax
ofMarc
question.
authority
If
amount of $1,500. Marc and Michelle have a 10-year-old son, Matthew, who lived LO 2-3
would are allowed to claim
and Michelle

problem. Comprehensive problems are

he prefer to answer hisa question?
$2,000 childWhich administrative
tax credit authority
for Matthew. Marcwould he least paid $6,000 of
and Michelle
prefer to answer his question?
expenditures that qualify as itemized deductions and they had a total of $5,500 in
62. For each of the following citations,
federal incomeidentify the type from
taxes withheld of authority (statutory,during
their paychecks admin- the course of the year.
ideal for cumulative topics; for this rea-
LO 2-3
istrative, or judicial) and explain
a) What is the
Marccitation.
and Michelle’s gross income?
a) Reg. Sec. 1.111-1(b) b) What is Marc and Michelle’s adjusted gross income?
son, they are located at the end of all b) IRC Sec. 469(c)(7)(B)(i)
c) What is the total amount of Marc and Michelle’s deductions from AGI?
c) Rev. Rul. 82-204, 1982-2
d) What C.B. 192 and Michelle’s taxable income?
is Marc
chapters. In the end-of-book Appendix C, we include tax return problems that cover multiple chap- d) Amdahl Corp., 108e)TCWhat
e) PLR 9727004
507 is
(1997)
Marc and Michelle’s taxes payable or refund due for the year? (Use the
tax rate schedules.)

ters. Additional tax return problems are also63. available in Connect and Instructor Resource Cen-f) Hills v. Comm., 50 f) AFTR2d
Complete
For each of the followingrecent
82-6070 (11th
the first
formidentify
citations,
twoCir.,
available).
pages1982)
of Marc and Michelle’s Form 1040 (use the most
the type of authority (statutory, admin- LO 2-3

ter. These problems range from simple to complex and cover individual taxation, corporate istrative, or judicial)
a) IRC
taxSec.
forms
55. and
280A(c)(5)
explainand
Demarco theJanine
citation.
Jackson have been married for 20 years and have four children
who qualify as their dependents (Damarcus, Janine, Michael, and Candice). The
b) Rev. Proc. 2004-34,couple
2004-1received
C.B. 911 salary income of $100,000, qualified business income of $10,000
taxation, partnership taxation, and S corporation taxation. c) Lakewood Associates, fromRIAan investment in a partnership, and they sold their home this year. They ini-
TC Memo 95-3566
d) TAM 200427004 tially purchased the home three years ago for $200,000 and they sold it for
e) U.S. v. Muncy, 2008-2 $250,000.
USTC Thepar. gain on (E.D.,
50,449 the sale qualified
AR, 2008) for the exclusion from the sale of a princi-
64. pal residence.
Justine would like to clarify The Jacksons
her understanding of aincurred $16,500
code section of itemized
recently enacteddeductions,
by and they had
LO 2-4
Congress. What tax law $3,550 withheld
sources from their
are available paychecks
to assist Justine?for federal taxes. They are also allowed to
65.
claim a child tax credit for each of their children. However, because Candice is 18
Aldina has identified conflicting authorities that address her research question. How LO 2-5
xi
years of age, the Jacksons may claim a child tax credit for other qualifying depen-
should she evaluate these authorities to make a conclusion?
dents for Candice.
66. Georgette has identified a 1983 court case that appears to answer her research ques- LO 2-5
a) What is the Jacksons’ taxable income, and what is their tax liability or (refund)?
tion. What must she do to determine if the case still represents “current” law?
b) Complete the first two pages of the Jacksons’ Form 1040 (use the most recent
67. Sandy has determined that her research question depends upon the interpretation of LO 2-5
form available).
the phrase “not compensated by insurance.” What type of research question is this?
c) What would their taxable income be if their itemized deductions totaled $28,000
instead of $16,500?
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The Guided Examples, or “hint”
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M c G r a w - H i l l ’s
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xv

McGraw-Hill’s Taxation of Individuals is organized to empha-
size topics that are most important to undergraduates taking their
first tax course. The first three chapters provide an introduction
to taxation and then carefully guide students through tax re-
search and tax planning. Part II discusses the fundamental ele-
ments of individual income tax, starting with the tax formula in
Chapter 4 and then proceeding to more discussion on income,
deductions, investments, and computing tax liabilities in Chap-
ters 5–8. Part III then discusses tax issues associated with busi-
ness-related activities. Specifically, this part addresses business
income and deductions, accounting methods, and tax conse-
quences associated with purchasing assets and property disposi-
tions (sales, trades, or other dispositions). Part IV is unique
among tax textbooks; this section combines related tax issues for
compensation, retirement savings, and home ownership.
Part I: Introduction to Taxation
1. An Introduction to Tax
2. Tax Compliance, the IRS, and Tax Authorities
3. Tax Planning Strategies and Related Limitations
Part II: Basic Individual Taxation
4. Individual Income Tax Overview, Dependents, and
Filing Status
5. Gross Income and Exclusions
6. Individual Deductions
7. Investments
8. Individual Income Tax Computation and Tax Credits
Part III: Business-Related Transactions
9. Business Income, Deductions, and Accounting Methods
10. Property Acquisition and Cost Recovery
11. Property Dispositions
Part IV: Specialized Topics
12. Compensation
13. Retirement Savings and Deferred Compensation
14. Tax Consequences of Home Ownership
xvi
Four Volumes to Fit
McGraw-Hill’s Taxation of Business Entities begins with the
process for determining gross income and deductions for busi-
nesses, and the tax consequences associated with purchasing as-
sets and property dispositions (sales, trades, or other
dispositions). Part II provides a comprehensive overview of enti-
ties and the formation, reorganization, and liquidation of corpo-
rations. Unique to this series is a complete chapter on accounting
for income taxes, which provides a primer on the basics of calcu-
lating the income tax provision. Included in the narrative is a
discussion of temporary and permanent differences and their im-
pact on a company’s book “effective tax rate.” Part III provides a
detailed discussion of partnerships and S corporations. The last
part of the book covers state and local taxation, multinational
taxation, and transfer taxes and wealth planning.
Part I: Business-Related Transactions
1. Business Income, Deductions, and Accounting Methods
2. Property Acquisition and Cost Recovery
3. Property Dispositions
Part II: Entity Overview and Taxation of C Corporations
4. Entities Overview
5. Corporate Operations
6. Accounting for Income Taxes
7. Corporate Taxation: Nonliquidating Distributions
8. Corporate Formation, Reorganization, and Liquidation
Part III: Taxation of Flow-Through Entities
9. Forming and Operating Partnerships
10. Dispositions of Partnership Interests and Partnership
Distributions
11. S Corporations
Part IV: Multijurisdictional Taxation and Transfer Taxes
12. State and Local Taxes
13. The U.S. Taxation of Multinational Transactions
14. Transfer Taxes and Wealth Planning
Four Course Approaches
McGraw-Hill’s Taxation of Individuals and
Business Entities covers all chapters included
in the two split volumes in one convenient
volume. See Table of Contents.
Part I: Introduction to Taxation
1. An Introduction to Tax
2. Tax Compliance, the IRS, and Tax Authorities
3. Tax Planning Strategies and Related Limitations
Part II: Basic Individual Taxation
4. Individual Income Tax Overview, Dependents, and
Filing Status
5. Gross Income and Exclusions
6. Individual Deductions
7. Investments
8. Individual Income Tax Computation and Tax Credits
Part III: Business-Related Transactions
9. Business Income, Deductions, and Accounting Methods
10. Property Acquisition and Cost Recovery
11. Property Dispositions
Part IV: Specialized Topics
12. Compensation
13. Retirement Savings and Deferred Compensation
14. Tax Consequences of Home Ownership
Part V: Entity Overview and Taxation of C Corporations
15. Entities Overview
16. Corporate Operations
17. Accounting for Income Taxes
18. Corporate Taxation: Nonliquidating Distributions
19. Corporate Formation, Reorganization, and Liquidation
Part VI: Taxation of Flow-Through Entities
20. Forming and Operating Partnerships
21. Dispositions of Partnership Interests and Partnership
Distributions
22. S Corporations
Part VII: Multijurisdictional Taxation and Transfer Taxes
23. State and Local Taxes
24. The U.S. Taxation of Multinational Transactions
25. Transfer Taxes and Wealth Planning
McGraw-Hill’s Essentials of Federal Taxation is designed for a
one-semester course, covering the basics of taxation of individu-
als and business entities. To facilitate a one-semester course,
McGraw-Hill’s Essentials of Federal Taxation folds the key top-
ics from the investments, compensation, retirement savings, and
home ownership chapters in Taxation of Individuals into three
individual taxation chapters that discuss gross income and exclu-
sions, for AGI deductions, and from AGI deductions, respec-
tively. The essentials volume also includes a two-chapter
C corporation sequence that uses a life-cycle approach covering
corporate formations and then corporate operations in the first
chapter and nonliquidating and liquidating corporate distribu-
tions in the second chapter. This volume is perfect for those
teaching a one-semester course and for those who struggle to get
through the 25-chapter comprehensive volume.
Part I: Introduction to Taxation
1. An Introduction to Tax
2. Tax Compliance, the IRS, and Tax Authorities
3. Tax Planning Strategies and Related Limitations
Part II: Individual Taxation
4. Individual Income Tax Overview, Dependents, and
Filing Status
5. Gross Income and Exclusions
6. Individual For AGI Deductions
7. Individual From AGI Deductions
8. Individual Income Tax Computation and Tax Credits
Part III: Business-Related Transactions
9. Business Income, Deductions, and Accounting Methods
10. Property Acquisition and Cost Recovery
11. Property Dispositions
Part IV: Entity Overview and Taxation of C Corporations
12. Entities Overview
13. Corporate Formations and Operations
14. Corporate Nonliquidating and Liquidating Distributions
Part V: Taxation of Flow-Through Entities
15. Forming and Operating Partnerships
16. Dispositions of Partnership Interests and Partnership
Distributions
17. S Corporations
xvii
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Assurance of Learning Ready
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on the notion of assurance of learning, an im-
portant element of many accreditation stan-
dards. McGraw-Hill’s Taxation is designed
specifically to support your assurance of learn-
ing initiatives with a simple, yet powerful,
solution.
Each chapter in the book begins with a list
of numbered learning objectives, which appear
throughout the chapter as well as in the end-of-
chapter assignments. Every test bank question
for McGraw-Hill’s Taxation maps to a specific
chapter learning objective in the textbook. Each
test bank question also identifies topic area,
level of difficulty, Bloom’s Taxonomy level,
and AICPA and AACSB skill area.
AACSB Statement
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the curricula guidelines detailed in the AACSB
standards for business accreditation by connect-
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bank to the general knowledge and skill guide-
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The statements contained in McGraw-Hill’s
Taxation are provided only as a guide for the
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Taxation and the teaching package make no
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bank, labeled selected questions according to
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A HEARTFELT THANKS TO THE MANY COLLEAGUES WHO SHAPED THIS BOOK

The version of the book you are reading would not be the same book without the valuable suggestions, keen insights,
and constructive criticisms of the list of reviewers below. Each professor listed here contributed in substantive ways
to the organization of chapters, coverage of topics, and use of pedagogy. We are grateful to them for taking the
time to read chapters or attend reviewer conferences, focus groups, and symposia in support of the development
for the book:
Previous Edition Reviewers Cynthia Bird, Tidewater Community College
Donna Abelli, Mount Ida College Lisa Blum, University of Louisville
Joseph Assalone, Rowan College at Gloucester County Rick Blumenfeld, Sierra College
Valeriya Avdeev, William Paterson University Cindy Bortman Boggess, Babson College
Robyn Barrett, St. Louis Community College Cathalene Bowler, University of Northern Iowa
Kevin Baugess, ICDC College Justin Breidenbach, Ohio Wesleyan University
Christopher Becker, Coastal Carolina University Suzon Bridges, Houston Community College
Jeanne Bedell, Keiser University Stephen Bukowy, UNC Pembroke
Marcia Behrens, Nichols College Esther Bunn, Stephen F. Austin State University
Michael Belleman, St. Clair County Community College Holly Caldwell, Bridgewater College
David Berman, Community College of Philadelphia James Campbell, Thomas College
Tim Biggart, Berry College Alisa Carini, UCSD Extension

xviii
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Cynthia Caruso, Endicott College
Paul Caselton, University of Illinois Springfield
Amy Chataginer, Mississippi Gulf Coast Community College
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Robert Lin, California State University–East Bay
Chris Loiselle, Cornerstone University
Bruce Lubich, Penn State–Harrisburg
Narelle Mackenzie, San Diego State University, National University
Michael Malmfeldt, Shenandoah University
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Paul Mason, Baylor University
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Lois McWhorter, Somerset Community College
Janet Meade, University of Houston
Michele Meckfessel, University of Missouri–St. Louis
Frank Messina, University of Alabama at Birmingham
R Miedaner, Lee University
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xix
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John Robertson, Arkansas State University
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Chris Woehrle, American College
Jennifer Wright, Drexel University
Massood Yahya-Zadeh, George Mason University
James Yang, Montclair State University
Scott Yetmar, Cleveland State University
Charlie Yuan, Elizabeth City State University
Xiaoli Yuan, Elizabeth City State University
Mingjun Zhou, DePaul University

Acknowledgments
We would like to thank the many talented people who made valuable contributions to the creation of this tenth edition.
William A. Padley of Madison Area Technical College, Deanna Sharpe of the University of Missouri–Columbia, and
Troy Lewis of Brigham Young University checked the page proofs and solutions manual for accuracy; we greatly appre-
ciate the hours they spent checking tax forms and double-checking our calculations throughout the book. Teressa Farough,
Troy Lewis of Brigham Young University, Lara Kessler of Grand Valley State University and Eric McLimore accuracy-
checked the test bank. Thank you to Troy Lewis, Monika Turek, and Jason Stanfield for your contributions to the Smart-
book revision for this edition. Special thanks to Troy Lewis of Brigham Young University for his sharp eye and valuable
feedback throughout the revision process. Thanks as well to Marilyn Isaacks from Agate Publishing for managing the
supplement process. Finally, William A. Padley of Madison Area Technical College, Deanna Sharpe of the University of
Missouri–Columbia, and Vivian Paige of Old Dominion University greatly contributed to the accuracy of McGraw-Hill’s
Connect for the 2019 edition.
We also appreciate the expert attention given to this project by the staff at McGraw-Hill Education, especially Tim Vert-
ovec, Managing Director; Kathleen Klehr, Executive Portfolio Manager; Danielle Andries, Senior Product Developer; Erin
Quinones, Product Developer; Lori Koetters, Brian Nacik, and Jill Eccher, Content Project Managers; Matt Backhaus,
Designer; Natalie King, Marketing Director; Zach Rudin, Marketing Manager; and Sue Culbertson, Senior Buyer.

xx
Changes in Taxation of Individuals and
Business Entities, 2019 Edition
For the 2019 edition of McGraw-Hill’s Taxation of Individuals and Business Entities, many changes
were made in response to feedback from reviewers and focus group participants:
∙ All tax forms have been updated for the latest
available tax form as of March 2018. In addition,
chapter content throughout the text has been
updated to reflect tax law changes through
March 2018.
Other notable changes in the 2019 edition include:
Chapter 1
∙ Updated tax rates for 2018 and Examples 1-3
through 1-7.
∙ Updated Social Security Wage base for 2018.
∙ Updated unified Tax Credit for 2018.
∙ Deleted Taxes in the Real World: Affordable Care
Act amount for 2018 which was repealed.
∙ Updated Taxes in the Real World: National Debt for
current debt limit.
∙ Updated Exhibit 1-4 for 2017 Federal revenues by
source from Treasury.
∙ Updated Exhibit 1-5 for 2017 State revenues by
source from U.S. Census.
Chapter 2
∙ Updated gross income thresholds by filing status for
2018 for new tax law changes.
∙ Updated discussion of filing requirements for married
taxpayers for new tax law changes.
∙ Revised discussion of Preparer Tax Identification
Numbers (PTIN).
∙ Revised end of chapter problems to reflect tax law
changes.
Chapter 3
∙ Updated tax rates for 2018.
∙ Added Taxes in the Real World: Tax Reform and Tax
Planning.
∙ Updated Exhibit 3-3 for new tax rates post TCJA.
∙ Modified Examples 3-7 and 3-8 to reflect changes in
tax planning from TCJA.
Chapter 4
∙ Streamlined Learning Objective 4-1.
∙ Edited Learning Objective 4-2 to emphasize
­dependents instead of exemptions.
∙ Updated Exhibit 4-1 to reflect changes in the
­Individual Tax Formula
∙ Updated Exhibit 4-7 to reflect standard deduction
amounts for 2018.
∙ Edited Exhibit 4-5 to remove moving expenses.
∙ Changed Example 4-2 to replace moving expenses
with IRA contribution.
∙ Updated discussion of child tax credits to reflect
new law.
∙ Updated examples to reflect changes in child tax
credit under new tax law.
∙ Revised section on personal and dependency
­exemptions to emphasize who qualifies as a
­dependent of the taxpayer.
∙ Revised discussion of why determining filing status
is important.
∙ Revised filing status discussion to emphasize
­claiming a dependent rather than claiming an
­exemption for a dependent.
∙ Edited flowcharts in appendices to emphasize
­claiming a dependent rather than claiming an
­exemption for a dependent.
∙ Added two new discussion questions to address
­questions relating to the new tax law.
∙ Deleted one problem dealing with dependency
exemptions.
∙ Edited approximately 10 percent of the problems to re-
flect changes in the tax law allowing the deduction for
qualified business income or dependency exemptions.
∙ Updated tax rates for 2018.
∙ Updated tax forms from 2016 to 2017 forms.
Chapter 5
∙ Revised discussion of claim of right doctrine for
­individuals required to repay compensation for tax
law changes.
∙ Updated discussion of alimony for tax law changes.
∙ Updated discussion of employee awards for length of
service or safety awards for tax law changes.
∙ Clarified discussion of the deductibility of gambling
expenses for tax law changes.
∙ Updated discussion of discharge of indebtedness for
tax law changes.
∙ Revised discussion of fringe benefits and moving
­expenses for tax law changes.
∙ Added a discussion of accountable plan
reimbursements.
xxi
 ∙ Updated for 2018 amounts for Flexible Spending
­Account contributions.
∙ Revised discussion of Section 529 plans for tax law
changes.
∙ Added Taxes in the Real World on the taxation of
prizes.
∙ Updated for 2018 foreign income exclusion amounts.
∙ Updated for annual gift tax exclusion and unified tax
credit for 2018.
∙ Revised discussion of athletic scholarships.
∙ Updated U.S. Series EE Bond interest income
­exclusion for 2018.
∙ Updated tax forms from 2016 to 2017 forms.
∙ Updated end of chapter problems for tax law changes
Chapter 6
∙ Revised discussion of deductibility of business versus
investment related expenses under for tax law
changes.
∙ Revised Exhibit 6-1: Individual Business and Invest-
ment Related Deductions for AGI, from AGI, and Not
Deductible.
∙ Added discussion for new excess business loss
limitation.
∙ Revised discussion of moving expenses for tax law
changes.
∙ Revised discussion of alimony deduction for tax law
changes.
∙ Revised discussion of deduction for interest on quali-
fied education loan for tax law changes.
∙ Eliminate discussion of expired deduction for
­qualified education expenses.
∙ Updated AGI floor for medical expense itemized
­deduction for tax law change.
∙ Updated mileage rate for medical expense itemized
deduction for 2018.
∙ Added discussion on new cap on itemized deductions
for taxes.
∙ Revised discussion of mortgage interest deduction to
reflect new cap on acquisition indebtedness and non-
deductibility of interest on home-equity indebtedness.
∙ Revised discussion of investment interest expense de-
duction for tax law change that eliminates the deduc-
tion for investment expenses as itemized deductions.
∙ Revised discussion of charitable contributions for
new 60 percent AGI limit for cash contributions to
public charities and private operating foundations.
∙ Revised Exhibit 6-8: Summary of Charitable
­Contributions Limitation Rules.
∙ Revised discussion of casualty and theft losses on
personal-use assets for tax law changes.
∙ Revised discussion of miscellaneous itemized deduc-
tions to reflect tax law changes that eliminated these
xxii
deductions subject to 2 percent AGI floor (employee
business expenses, tax preparation fees, hobby
­expenses, investment expenses)
∙ Eliminated discussion of itemized deduction and
­personal exemption phase-outs repealed by tax law
changes.
∙ Updated standard deduction amounts for tax law
changes.
∙ Eliminated discussion of personal and dependency
exemptions repealed by tax law changes.
∙ Added discussion for new deduction for qualified
business income.
∙ Updated tax forms from 2016 to 2017 forms.
∙ Substantially revised end of chapter problems for tax
law changes.
Chapter 7
∙ Added Taxes in the Real World: So You Want to
­Invest in Bitcoin.
∙ Updated tax rates in all examples and problems for
2018.
∙ Revised discussion about when qualified dividends
are taxed at 0, 15, or 20 percent based on TCJA
changes.
∙ Modified definition of capital assets to exclude
­self-created patents, inventions, models or designs,
and secret formulas.
∙ Updated Exhibit 7-3.
∙ Revised discussion about how taxpayers determine
whether capital gains are taxed at 0, 15, or 20 percent.
∙ Added new key terms: maximum zero rate amount
and maximum 15-percent rate amount.
∙ Added new Exhibit 7-3 to illustrate maximum zero
rate amount and maximum 15-percent rate amounts
by filing status and income.
∙ Updated examples for changes in capital gains rate
thresholds.
∙ Clarified footnote 26 to reflect the requirement to add
back seven percent of excluded §1202 gain for AMT
purposes.
∙ Substantially revised the method for calculating tax
liability on net capital gains and related example 7-9.
∙ Revised discussion on investment expenses and
­investment interest expense.
∙ Updated note on cost basis required to be reported by
brokers.
∙ Added new discussion question regarding sale of
­passive activity.
∙ Updated tax forms from 2016 to 2017 forms.
Chapter 8
∙ Updated tax rate schedules to reflect tax law changes.
∙ Updated discussion of marriage penalty or benefit for
tax law changes.
 ∙ Revised discussion of kiddie tax for tax law changes.
∙ Revised discussion of the tax calculation for preferen-
tially taxed capital gains and dividends for tax law
changes.
∙ Updated AMT discussion for new tax law changes
­related to adjustments, exemption amounts, and
phase-out of exemptions.
∙ Updated AMT tax rate schedule for 2018.
∙ Updated Social Security Tax wage base and Self-­
Employment Tax base for 2018.
∙ Revised discussion of Medicare and additional
­Medicare tax.
∙ Updated discussion of child tax credit for tax law
changes.
∙ Updated Lifetime Learning Credit phase-out for 2018.
∙ Updated discussion of education credits for expiration
of the deduction for qualified education expenses.
∙ Updated Earned Income Credit amounts for 2018.
∙ Updated tax forms from 2016 to 2017 forms.
∙ Revised end of chapter problems for tax law changes.
Chapter 9
∙ Introduction was updated and the learning objectives
were consolidated.
∙ Revised descriptions of deductions to reflect changes
in the Tax Cuts and Jobs Act.
∙ Revised descriptions of general limitations on busi-
ness deductions to reflect changes in the Tax Cuts
and Jobs Act.
∙ Added text description and example of new business
interest limitation.
∙ Revised text discussion of limitations on business
­deductions for meals and entertainment.
∙ Revised examples to reflect changes in the Tax Cuts
and Jobs Act.
∙ Revised examples and text discussion for updated
2018 mileage rates.
∙ Added new TIRW to describe application of substan-
tiation rules and the Cohan rule.
∙ Deleted discussion and illustration of domestic manu-
facturing deduction eliminated in the Tax Cuts and
Jobs Act.
∙ Revised text description, examples, and Exhibit 9-2
to reflect changes in casualty loss deductions in the
Tax Cuts and Jobs Act.
∙ Revised footnotes and added example of 52-53
week year.
∙ Revised text descriptions of cash method, UNICAP,
and inventory accounting to reflect changes in the
Tax Cuts and Jobs Act.
∙ Revised accounting for advanced payments of reve-
nue to reflect accounting method changes in the Tax
Cuts and Jobs Act.
∙ Revised accounting method changes to reflect new
provisions in the Tax Cuts and Jobs Act updated dates
in examples.
∙ Revised Exhibit 9-6 for changes in solutions due to
accounting method changes in the Tax Cuts and
Jobs Act.
∙ Eliminated discussion questions on domestic manu-
facturing deduction and added new discussion ques-
tions about business interest limitation.
∙ Revised discussion questions to reflect accounting
method changes in the Tax Cuts and Jobs Act.
∙ Eliminated problems on domestic manufacturing
­deduction and added new problems with business
­interest limitation.
∙ Revised problems to reflect accounting method
changes in the Tax Cuts and Jobs Act.
Chapter 10
∙ Modified story line to better apply to changes in
tax law.
∙ Updated all examples for new purchase price on
Teton’s assets.
∙ Updated Exhibit 10-2 for Weyerhaueser’s 2016 assets.
∙ Updated tax rates for 2018.
∙ Updated footnote 2 relating to depreciation allowed
or allowable.
∙ Added new footnote to explain the opportunity to
­expense new roofs post TCJA.
∙ Added new preface to the depreciation section to
­explain impact of TCJA and under what conditions
MACRS may be relevant.
∙ Moved the discussion about mid-quarter convention
to new Appendix B.
∙ Added discussion to explain changes to qualified
­improvement property.
∙ Revised Example 10-7 (old 10-12) to include depre-
ciation for two years on real property.
∙ Revised section on §179 amounts to reflect the larger
2018 amounts post-TCJA.
∙ Added footnote relating to definition of qualified real
property for purposes of §179.
∙ Updated Examples 10-9 through 10-12 (old Examples
10-14 through 10-17) for 2018 §179 amounts.
∙ Substantially revised bonus depreciation section to
include TCJA changes in percentages and qualified
property.
∙ Added new Exhibit 10-8 to illustrate Bonus Deprecia-
tion Percentages.
∙ Added bonus depreciation Example 10-13.
∙ Revised listed property discussion to reflect removal
of computer equipment as listed property.
∙ Updated discussion and Exhibit 10-9 (old 10-8)
­relating to automobile depreciation limits.
xxiii
 ∙ Updated examples in listed property section to reflect
TCJA changes.
∙ Added new discussion about the use of §179 for
automobiles.
∙ Added new discussion and examples about the interac-
tion of bonus depreciation and the automobile depre-
ciation limitations. Includes new discussion of method
for calculating depreciation on automobiles after year 1
when 100 percent bonus depreciation is taken.
∙ Added Taxes in the Real World: Cost Segregation.
∙ Updated Exhibit 10-10 (old 10-9) to reflect Teton’s
use of bonus depreciation in addition to §179 and
MACRS for two years of asset acquisitions.
∙ Updated tax forms from 2016 to 2017 forms.
∙ Added new footnote 64 to describe treatment of R&D
costs after 2021.
∙ Updated and revised end-of-chapter problems for
§179 amounts and bonus depreciation rules
post-TCJA.
Chapter 11
∙ Modified story line to better apply to changes in
tax law
∙ Updated examples for new purchase price on Teton’s
assets.
∙ Updated Exhibit 11-4 for changes to capital gains
threshold amounts.
∙ Added discussion about how changes to depreciation
from TCJA might affect dispositions.
∙ Updated Exhibit 11-6 for changes to Teton’s assets.
∙ Modified discussion on like-kind exchanges to reflect
application to real property only.
∙ Modified Examples 11-15, 11-16, and 11-17 for like-
kind exchanges.
∙ Updated discussion for involuntary conversion when
contrasting qualified property to like-kind exchanges.
∙ Updated like-kind exchange EOC problems.
∙ Updated tax rates for 2018.
∙ Updated tax forms from 2016 to 2017 forms.
Chapter 12
∙ Updated qualified transportation fringe benefit
amounts for 2018.
∙ Updated Section 163(m) limitation on executive
compensation.
∙ Updated 70 percent of examples for change in corpo-
rate tax rates.
∙ Updated tax forms to 2017.
∙ Inserted new discussion of qualified equity grants.
∙ Updated Taxes in the Real World for 2017 proxy
statement information.
∙ Updated nontaxable fringe benefit section for changes
in qualified moving expenses.
xxiv
∙ Updated 50 percent of end of chapter problems for
tax law changes.
Chapter 13
∙ Streamlined wording in Learning Objectives 13-4
and 13-5.
∙ Changed marginal tax rates in storyline to reflect tax
rate brackets effective for 2018.
∙ Updated footnote 1 to reflect the 2017 OASDI
­Trustees report.
∙ Updated inflation adjusted limits for defined benefit
plans, defined contribution plans, and individually
managed plans.
∙ Updated Exhibit 13-6 to reflect the most recent proxy
statement for Coca-Cola Company.
∙ Revised discussion of employer issues for deferred
compensation to indicate that employers can no
­longer use deferred compensation to circumvent the
$1,000,000 compensation deduction limitation under
§162(m).
∙ Removed old discussion question 31 dealing with
­deferred compensation and the §162(m) limitation.
∙ Revised discussion in IRA section to use modified
AGI rather than AGI when describing deduction and
contribution limitations.
∙ Updated flowcharts in appendices to reflect modified
AGI rather than AGI when describing IRA deduction
and contribution limitations.
∙ Updated modified AGI phase-out thresholds for
­deductible contributions to traditional IRAs and
­contributions to Roth IRAs.
∙ Added discussion question comparing modified AGI
and AGI.
∙ Edited marginal tax rates in problems to reflect tax
rate schedule under new tax law.
∙ Modified Taxes in the Real World relating to Roth
and traditional retirement savings vehicles to ask how
new tax laws might affect this choice for taxpayers.
∙ Updated calculations for limits on self-employed
­retirement accounts to reflect updated 2018 social
­security wage base limitation.
∙ Updated Saver’s credit information for 2018.
∙ Added an explanation requirement to Discussion
Question 8.
Chapter 14
∙ Streamlined Learning Objectives 14-2, 14-5, and 14-6.
∙ Revised LO 14-3 to emphasize home mortgage inter-
est deduction.
∙ Revised storyline summary information to reflect
higher income for taxpayers and new marginal tax
rate consistent with 2018 tax rate brackets.
∙ Streamlined introductory paragraph to the chapter.
 ∙ Revised Exhibit 14-1 to eliminate deduction for home
mortgage insurance and to eliminate exclusion for
forgiveness of debt on home mortgage foreclosure
­because these items have not been extended to 2017
or 2018 (as of press time).
∙ Moved discussion of deduction of home mortgage
­insurance and exclusion for forgiveness of debt on
home mortgage to a footnote.
∙ Included explanation of leverage in second paragraph
in Personal Use of the Home section.
∙ Retitled section on Interest Expense on Home-­
Related Debt to Home Mortgage Interest Deduction
and revised discussion in first paragraph to reflect
­recent tax law changes affecting mortgage interest
deductions.
∙ Revised discussion of home mortgage interest to
­reflect new limitation on acquisition indebtedness
and to reflect the fact that interest on home equity
­indebtedness is no longer deductible.
∙ Removed detailed discussion of determining limitation
on deductibility of interest when qualifying debt
­exceeds the limitation.
∙ Revised Taxes in the Real World on home interest de-
ductions to reflect the changes in limits to acquisition
indebtedness and the elimination of interest deduction
for home equity indebtedness.
∙ Added explanation of refinancing in Points section.
∙ Revised discussion on real property taxes to reflect
$10,000 limitation on the itemized deduction for
taxes, including examples and problems.
∙ Added new Taxes in the Real World emphasizing
Airbnb.
∙ Revised discussion of the IRS method and the Tax
Court method to reflect the circumstances in which
each is more favorable given the new tax law.
∙ Clarified discussion about home office expense
requirements.
∙ Revised discussion about home office expenses to
­indicate that employees can no longer claim the
deduction.
∙ Revised Appendix B to reflect the $10,000 limit on
the itemized deduction for taxes.
∙ Updated tax forms from 2016 to 2017.
∙ Updated settlement statement in Appendix A to
­reflect 2018 information.
∙ Removed five discussion questions/problems that are
no longer relevant given new tax law.
∙ Revised/added 17 discussion questions/problems to
reflect new tax law.
Chapter 15
∙ Clarified the discussion in “Rights, Responsibilities,
and Legal Arrangements among Owners.”
∙ Added mention of Certificate of Organization as a re-
quired filing to create a new LLC in certain states.
∙ Updated notes to Exhibit 15-1 to clarify that certain
limited partnerships are eligible for IPOs.
∙ Replaced data in Taxes in the Real World on Com-
paring Entities Selected with more recent data from
the IRS.
∙ Replaced the entire section on Double Taxation with
new section on Taxation of Business Entity Income.
This section includes discussion of how flow-through
entity income is taxed under new law and includes
discussion on deduction for qualified business
­income and discussion of the self-employment tax
for business owners.
∙ Revised discussion of how C corporations are taxed.
This section includes discussion of the new tax rate
for C corporations, the revised NOL rules, and the
new DRD percentages.
∙ Added a section on owner compensation.
∙ Added section on deductibility of entity losses to
­include revised NOL rules for C corporations and the
new excess loss limitation for noncorporate
taxpayers.
∙ Updated Taxes in the Real Word: Best Entity Choice
for Small Businesses? to reflect findings from a more
recent study. Also, added information about the
­number of small businesses filing as partnerships
and as S corporations.
∙ Revised discussion of Converting to Other Entity
Types to reflect changes in the tax law and reasons
why owners may wish to convert, given the new law.
∙ Revised the final discussion in the storyline. The
­taxpayer now chooses a C corporation rather than a
partnership form for tax purposes.
∙ Revised Ethics discussion to include a situation
where owner is potentially paying himself too little
compensation.
∙ Changed or revised approximately 25 percent of the
end of chapter problems.
Chapter 16
∙ Updated the discussion on stock option
compensation.
∙ Revised Taxes in the Real World for Facebook stock
options.
∙ Updated the compliance section for new year-end
filing.
Chapter 17
∙ Updated the Taxes in the Real World saga of
Weatherford.
∙ Updated the material to incorporate the new FASB
rules on disclosures of deferred tax assets and
liabilities.
xxv
 ∙ Updated the Microsoft uncertain tax benefit footnote
disclosure.
∙ Updated the FASB’s projects involving accounting
for income taxes.
Chapter 18
∙ Recharacterized stock dividends as distributions
(throughout the chapter).
∙ Simplified and streamline the introduction to
­dividends and corporate distributions.
∙ Clarified explanation of deductible expense in the
calculation of E&P.
∙ Clarified the introduction into the ordering of E&P
distributions.
∙ Revised the description of noncash distributions to be
consistent throughout the chapter.
∙ Revised E&P calculations and examples for changes
in the Tax Cuts and Jobs Act.
∙ Explained dividend signaling in simpler terms.
∙ Revised examples for changes in the Tax Cuts and
Jobs Act.
∙ Revised the description of stock dividends.
∙ Clarified the explanation of stock distributions.
∙ Clarified and defined bright line (objective) tests.
∙ Elaborated on the strategic purpose of redemptions.
∙ Added Time Warner redemption as TIRW.
∙ Eleven problems modified for changes in the Tax
Cuts and Jobs Act.
Chapter 19
∙ Clarified purpose of Section 351 in introduction.
∙ Clarified some definitions and terms in the
introduction.
∙ Revised description of contributions to capital for
changes in the Tax Cuts and Jobs Act.
∙ Minor revisions to text under learning objective 3.
∙ Added two new TIRWs. One illustrates a 338(h)(10)
election with a tax receivable and the other is new
­example of corporate tax-free acquisition.
∙ Revised Forward Triangular Type A merger descrip-
tion to state rule then example.
∙ Revised Triangular Type A merger description to
state rule then example.
∙ Revised Type B acquisition description to state rule
then example.
∙ Revised examples for changes in the Tax Cuts and
Jobs Act.
∙ Revised 8 discussion questions.
∙ Clarified several questions and added two new acqui-
sition research questions.
∙ Three problems revised to reflect changes in the Tax
Cuts and Jobs Act.
xxvi
Chapter 20
∙ Updated the discussion of self-employment income
from partnerships to include the impact of recent
case law.
∙ Revised the opening storyline of the chapter. The
chapter assumes the taxpayer chooses to operate the
business as a partnership for tax purposes.
∙ Added discussion on the new rule dealing with the
availability of the cash method of accounting for
partnerships.
∙ Added discussion on the new limitation on business
interest deductions in the partnerships setting.
∙ Added discussion on new deduction for qualified
business income.
∙ Added discussion on new excess business loss limita-
tion and how it interacts with other loss limitation
rules.
∙ Updated tax forms from 2016 to 2017 forms.
∙ Added material related to how the passive activity
loss rules apply to publicly traded partnerships.
∙ Revised four problems to reflect changes in the Tax
Cut and Jobs Act.
Chapter 21
∙ Clarified the approach for making a §754 election.
∙ Revised the definition of substantial built-in loss to
reflect changes in the Tax Cut and Jobs Act.
Chapter 22
∙ Revised discussion of debt basis rules.
∙ Added discussion of 30 percent of taxable income
limitation on the deduction for business interest
­expense under new tax law.
∙ Added discussion of deduction for qualified business
income under new tax law.
∙ Added discussion of excess business loss limitation
under new tax law.
∙ Added discussion of new PTTP distributions for
­eligible terminated S corporations under new tax law.
∙ Updated Social Security Tax wage base for 2018.
∙ Updated tax forms from 2016 to 2017 forms.
∙ Revised end of chapter problems for tax law changes.
Chapter 23
∙ Updated Amazon sales tax collection information.
∙ Updated federal/state adjustments for income taxes.
Chapter 24
∙ Updated the discussion on the OECD base erosion
and profit-shifting project.
∙ Updated the proposals for international tax reform.
∙ Updated the discussion on inversions.
Chapter 25
∙ Revised Exhibit 25-2 and description of common
­features of the transfer taxes to reflect changes in the
Tax Cuts and Jobs Act.
∙ Revised calculations, text descriptions, and examples
to reflect changes in the Tax Cuts and Jobs Act.
∙ Replaced Exhibit 25-5 with 2017 Form 709.
NEW! Resources for 2017 Tax Cuts and Jobs
Act—Available in 2018© and 2019©
∙ Brief Explainer Videos—Offers insights to students
into new tax laws by comparing and contrasting with
old tax code.
∙ Chapter Overviews—Identifies the tax law changes
for each learning objective.
∙ Individual Chapter Guides—Provides summary descrip-
tion of new tax laws, expanding on the chapter overview.
∙ Problem Map—Marks the end-of-chapter content and
test bank content affected by new tax laws in an eas-
ily navigable spreadsheet.
As We Go to Press
The 2019 Edition is current through March, 2018. You can visit the Connect
Library for updates that occur after this date.
∙ Revised calculations, text descriptions, and examples
to reflect changes in the Tax Cuts and Jobs Act.
∙ Replaced Exhibit 25-8 with 2018 Form 706.
∙ Revised examples for changes in the Tax Cuts and
Jobs Act.
∙ Revised 4 discussion questions and 23 problems to
reflect changes in the Tax Cuts and Jobs Act.
∙ Tagged Content in Connect—Added metadata tags to
help instructors filter for end-of-chapter/test bank
content impacted by 2017 tax reform.
∙ PowerPoints on Tax Changes—New slides detailing
the updated laws on a chapter-by-chapter basis.
∙ Ongoing Author Webinars and Teaching Tips
xxvii
 Table of Contents

1 An Introduction to Tax Tax Law Sources 2-9

Legislative Sources: Congress and the
Who Cares about Taxes and Why? 1-2 Constitution 2-11
What Qualifies as a Tax? 1-4 Internal Revenue Code 2-11
How to Calculate a Tax 1-5 The Legislative Process for Tax Laws 2-12
Different Ways to Measure Tax Rates 1-5 Basic Organization of the Code 2-13
Tax Treaties 2-14
Tax Rate Structures 1-8
Judicial Sources: The Courts 2-14
Proportional Tax Rate Structure 1-9
Administrative Sources: The U.S. Treasury 2-15
Progressive Tax Rate Structure 1-9
Regulations, Revenue Rulings, and Revenue
Regressive Tax Rate Structure 1-10
Procedures 2-15
Types of Taxes 1-11 Letter Rulings 2-16
Federal Taxes 1-11
Tax Research 2-17
Income Tax 1-12
Step 1: Understand Facts 2-17
Employment and Unemployment Taxes 1-12
Step 2: Identify Issues 2-17
Excise Taxes 1-13
Step 3: Locate Relevant Authorities 2-18
Transfer Taxes 1-13
Step 4: Analyze Tax Authorities 2-19
State and Local Taxes 1-14
Step 5: Document and Communicate the
Income Taxes 1-14 Results 2-21
Sales and Use Taxes 1-14 Facts 2-21
Property Taxes 1-15 Issues 2-21
Excise Taxes 1-15 Authorities 2-22
Implicit Taxes 1-16 Conclusion 2-22
Evaluating Alternative Tax Systems 1-17 Analysis 2-22
Sufficiency 1-18 Client Letters 2-22
Static versus Dynamic Forecasting 1-18 Research Question and Limitations 2-22
Income versus Substitution Effects 1-19 Facts 2-22
Equity 1-20 Analysis 2-22
Horizontal versus Vertical Equity 1-21 Closing 2-22
Certainty 1-22 Tax Professional Responsibilities 2-23
Convenience 1-22
Taxpayer and Tax Practitioner Penalties 2-26
Economy 1-22
Conclusion 2-28
Evaluating Tax Systems—The Trade-Off 1-23
Conclusion 1-23
3 Tax Planning Strategies and
Related Limitations
2 Tax Compliance, the IRS, and
Basic Tax Planning Overview 3-2
Tax Authorities
Timing Strategies 3-2
Taxpayer Filing Requirements 2-2
Present Value of Money 3-3
Tax Return Due Date and Extensions 2-3
The Timing Strategy When Tax Rates Are
Statute of Limitations 2-3 Constant 3-4
IRS Audit Selection 2-4 The Timing Strategy When Tax Rates
Types of Audits 2-5 Change 3-7
After the Audit 2-6 Limitations to Timing Strategies 3-10

xxviii
 Table of Contents xxix

Income-Shifting Strategies 3-11 5 Gross Income and Exclusions

Transactions between Family Members and
Limitations 3-12 Realization and Recognition of Income 5-2
Transactions between Owners and What Is Included in Gross Income? 5-2
Their Businesses and Limitations 3-12 Economic Benefit 5-3
Income Shifting across Jurisdictions and Realization Principle 5-3
Limitations 3-15 Recognition 5-4
Conversion Strategies 3-15 Other Income Concepts 5-4
Limitations of Conversion Form of Receipt 5-4
Strategies 3-18 Return of Capital Principle 5-4
Additional Limitations to Tax Planning Recovery of Amounts Previously
Strategies: Judicially-Based Deducted 5-5
Doctrines 3-18 When Do Taxpayers Recognize Income? 5-6
Tax Avoidance versus Tax Evasion 3-19 Accounting Methods 5-6
Conclusion 3-20 Constructive Receipt 5-7
Claim of Right 5-7
Who Recognizes the Income? 5-8
4 Individual Income Tax Overview, Assignment of Income 5-8
Dependents, and Filing Status Community Property Systems 5-8
Types of Income 5-9
The Individual Income Tax Formula 4-2
Income from Services 5-10
Gross Income 4-2
Income from Property 5-10
Character of Income 4-5
Annuities 5-11
Deductions 4-7
Property Dispositions 5-13
For AGI Deductions 4-7
Other Sources of Gross Income 5-14
From AGI Deductions 4-8
Income from Flow-Through Entities 5-14
Income Tax Calculation 4-10
Alimony 5-14
Other Taxes 4-11
Prizes, Awards, and Gambling Winnings 5-16
Tax Credits 4-11
Social Security Benefits 5-17
Tax Prepayments 4-11
Imputed Income 5-19
Dependents of the Taxpayer 4-12 Discharge of Indebtedness 5-20
Dependency Requirements 4-12 Exclusion Provisions 5-21
Qualifying Child 4-12 Common Exclusions 5-21
Qualifying Relative 4-15 Municipal Bond Interest 5-21
Filing Status 4-19 Gains on the Sale of Personal
Married Filing Jointly and Married Filing Residence 5-22
Separately 4-19 Fringe Benefits 5-23
Qualifying Widow or Widower (Surviving Education-Related Exclusions 5-25
Spouse) 4-20 Scholarships 5-25
Single 4-21 Other Educational Subsidies 5-26
Head of Household 4-21 U.S. Series EE Bonds 5-26
Married Individuals Treated as Unmarried Exclusions That Mitigate Double Taxation 5-27
(Abandoned Spouse) 4-23
Gifts and Inheritances 5-27
Summary of Income Tax Formula 4-24 Life Insurance Proceeds 5-27
Conclusion 4-27 Foreign-Earned Income 5-28
Appendix A: Dependency Exemption Flowchart Sickness and Injury-Related Exclusions 5-29
(Part I) 4-27 Workers’ Compensation 5-29
Appendix B: Qualifying Person for Payments Associated with Personal
Head of Household Filing Status Injury 5-29
Flowchart 4-29 Health Care Reimbursement 5-30
Appendix C: Determination of Filing Status Disability Insurance 5-30
Flowchart 4-30 Deferral Provisions 5-31
Another random document with
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subjoin in this, and other subsequent notes, the various alterations
made by this judicious editor, together with the original passages: the
lines he has introduced are beautifully written, and a close imitation
of the style of Terence: I cannot doubt but they will be considered
worthy of a perusal: they are a proof of a laudable delicacy, which
was but too rarely to be met with in many of the poets of both
England and France, in the 17th century.
The original passage runs thus:—

“Primùm hæc pudicè vitam, parcè, ac duriter

Agebat, lana ac tela victum quæritans:
Sed postquam amans accessit, pretium pollicens,
Unus, et item alter, ita ut ingenium est omnium
Hominum ab labore proclive ad libidinem:
Accepit conditionem, dein quæstum occipit.”

Which is altered by the French translator to the following:—

“Primum hæc pudicè vitam, parce, ac duriter

Agebat, lana ac tela victum quæeritans:
Sed postquam ad illam accessit adolescentulus,
Unus, et item alter; ita ut ingenium est omnium
Hominum ab labore proclive ad desidiam;
Sperans se cuipiam illorum uxorem fore,
Famæ haud pepercit, illosque in domum suam
Lubens admisit nimium familiariter.

“At first she lived chastely, and penuriously, and laboured hard,
managing with difficulty to gain a livelihood with the distaff and the
loom: but soon after several lovers made their addresses to her, and
as we are all naturally prone to idleness, and averse to labour, and
as they made her promises of marriage, she was too negligent of her
reputation, and admitted their visits oftener than was prudent.”
 NOTE 73.

Aha! thought I, he is caught.

In the Latin, Certè captus est. Habet. Terence borrowed this
expression (habet) from the amphitheatre at Rome, where men
called gladiators, who were (for the chief part) captives and slaves,
fought before the people: who looked with great delight on these
combats, which often terminated in death to half the persons
engaged. When a gladiator was wounded, the people exclaimed
Habet, he has it, and thus the word was often used at Rome, in the
sense adopted by Terence.

NOTE 74.

He paid his share, and supped with the rest.

In the Latin symbolum dedit, he gave his ring as a token, or
pledge. This phrase is an allusion to a custom which prevailed chiefly
at Rome. When a party agreed to dine together at their own
expense, or, in other words, to club together for an entertainment:
each of the party gave his ring to him who had the care of providing
the feast, as a symbol or token that he, the owner of the ring, was to
join the company, and defray his share of the expense. Hence, he
who paid nothing, was called asymbolus. Rings were also given in
contracts instead of a bond: and used for tokens of various kinds.
The Greeks also seem to have called rings by the same name,
σύμβολα.

NOTE 75.

To give his daughter to Pamphilus with a large dowry.

The word dowry, which is called, in Greek, προὶξ, or μείλια, or
ἕδνα, originally meant the sum which a man gave to the family of the
woman he married, and with which he might be said to purchase his
wife: but, as the Greeks grew more refined, and also more wealthy,
this custom was wholly abolished; and the dowry was given by the
wife’s relations to the husband, to assist him in the maintenance of
her and of her children. The dowries of women were, in Athens,
considered a subject of great importance; and many laws were
framed by the Athenian legislators, (particularly by Solon,) to provide
for the well ordering of women’s fortunes. An heiress could be
disposed of in marriage, only by her father, grandfather, or brother: if
she had neither of these relations, the archons determined who was
to be her husband; and it was held so important to keep her estate in
the family, that at one time a law prevailed, that if an heiress had no
children by her first husband, she was taken from him by the
authority of the archons, and given to her nearest relation. A wife,
who brought a fortune to her husband, was called γυνὴ; she who
brought none παλλακὴ. Solon, apprehensive of mercenary unions, at
one time, passed a law, that a woman should carry to her husband
only some furniture, and four or five changes of dress. But this
seems to have been little observed.
The large dowry which Simo says Chremes offered with
Philumena, we may fairly suppose to have been twenty talents, as
Chremes imagined he had but one daughter to portion off; when he
had discovered Glycera, he gave her a dowry of ten talents; and we
must suppose that he reserved as much more for Philumena. This
will give us an idea of what the portions of the Athenian women
usually were, and of the fortune of a citizen.
Twenty Greek talents were nearly equal to 5,000l. sterling,
according to some authors, though writers differ widely as to the
amount of the Attic talent; Dr. Arbuthnot makes it equal to 193l. 15s.,
Mr. Raper to 232l. 3s. It is agreed on all sides that the Attic talent
consisted of 6,000 drachmæ; but the value of the drachma was
never correctly ascertained. Vide the table of monies in Note 208.

NOTE 76.

I contracted my son.
 The Athenian youth were not allowed to dispose of themselves in
marriage without consulting their parents, who had almost unlimited
authority over them: if they had no parents, guardians, called
ἐπίτροποι, were appointed to control them.
But it does not appear that any particular ceremonies were used
in Athens, in contracting a bride and bridegroom, previous to the day
of marriage; and I rather imagine, Terence, in order to make the
subject clear to his Roman auditors, alluded, by the word despondi,
to the Roman custom of betrothing, called sponsalia, which they
performed as follows:—
Some days before the wedding, the intended bride and
bridegroom, with their friends, met together at the lady’s residence,
and the parent or guardian of each (as I imagine) asked each other,
Spondes? Do you betroth her or him? Then the other party
answered, Spondeo, I do betroth, &c. Then the deeds were signed,
the dowry agreed on, and the day appointed for the marriage.

NOTE 77.

Among the women who were there I saw one young girl.
Women were frequently hired on these occasions, to appear in
the funeral procession as mourners, of whom Horace says,

“Ut quæ conductæ plorant in funere, dicunt

Et faciunt propè plura dolentibus ex animoque.”

Like those, who, hired to weep at funerals,

Exceed, in noisy grief, a faithful friend.

NOTE 78.
She appeared more afflicted than the others who were there, and so
pre-eminently beautiful, and of so noble a carriage, I approach.
 To understand the full force of Simo’s remark, when he says how
much he was struck with the contrast between Glycera and the rest
of the mourners, it is necessary that the reader should be informed,
that, in Athens, no woman under sixty years of age was allowed to
appear at a funeral; except the relations of the deceased. Solon
imposed this law upon the Athenians.

NOTE 79.

I approach the women who were following the body.

Literally, the women who were walking after the body. Though
those women who were hired to follow a corpse, walked in
procession, it was very usual in Greece, to attend funerals in
carriages, and on horseback: but Chrysis, not being represented as a
citizen, the ceremonies, in respect to the procession, must be
supposed to be different. The interment of the dead was considered
of such extreme importance throughout the whole of Greece, that to
want the rites of sepulture, was deemed by the natives of that
country, a much greater misfortune than even death itself. The
Greeks (and many other nations) believed that the spirit of a person
whose corpse was unburied, could never obtain admittance to the
Elysian fields: their imaginary place of reward for virtuous men after
death. Two different methods of disposing of the dead prevailed in
Greece. The most ancient of the two (as is generally allowed,) was
much the same as the modern practice, the corpse was interred in a
coffin, and deposited in the earth. The other mode was to burn the
body, and to preserve the ashes. The Athenians seem to have used
both methods indiscriminately: their funerals were usually conducted
by torch-light. On the third or fourth day after death, (though the time
was varied according to circumstances,) the corpse was placed on a
bier, with the feet towards the door; and an obolus put into its mouth,
to defray the passage across the Styx: a certain form of words was
then pronounced over the body, which was afterwards carried out,
and followed by the mourners: those of the same sex as the
deceased were to be nearest the corpse: when it was placed on the
pile, and a second form of words recited over it, some one of the
mourners, (usually the nearest relation,) applied a torch to the wood;
and, if the deceased was of high rank, animals of various kinds, and
sometimes even human victims, were slaughtered, and thrown into
the flames. The ashes of the dead were collected from the
extinguished pile into an urn, and with some further ceremonies
deposited in a sepulchre. The Romans burned their dead in a similar
manner. For a further mention of Greek funerals, vide Notes 77, 78,
80, 81.

NOTE 80.

We follow, and arrive at the tomb.

Tombs, called by the Greeks τάφοι, or τύμβοι, which signify both
the grave and the monument, were not allowed to be within the city
of Athens, but were placed either in the public burial-place, or in
private grounds belonging to the relatives of the deceased: it was not
unusual to erect them by the road side at some distance from the
city, whence the expression, so common on monuments, Siste
Viator, Stay Traveller. The public burial-place of the Athenians was in
that part of the Ceramicus situated beyond the city: it was very
extensive. The other part of the Ceramicus contained the old forum,
called ἀρχαία ἀγορὰ.

NOTE 81.
The corpse is placed on the pile, and quickly enveloped in flames;
they weep; while the sister I was speaking of, rushed forward, in
an agony of grief, toward the fire; and her imprudence exposed her
to great danger.
An eminent English poet, Sir Richard Steele, has endeavoured to
adapt Terence’s Andrian to the taste of an English audience, and has
succeeded in that attempt, in his play, called The Conscious Lovers,
as well as circumstances would permit. A French poet of equal
eminence, Monsieur Baron, has made a similar attempt in French
verse, and has met with equal success in his Andrienne: he has kept
much closer to the original than has Sir Richard Steele; indeed,
many scenes of the Andrienne are a literal version of Terence. I
purpose to point out the most material changes which the two
modern poets have made in the incidents: the bent of the dramatic
taste of the nation of each, may be discovered, in some measure,
from a comparison between the English, the French, and the Roman
dramatist. M. Baron has not made any alteration in the scene at
Chrysis’ funeral, where Simo discovers his son’s attachment to
Glycera; but Sir R. Steele, has altered the mode of discovery to a
quarrel at a masquerade; and his scene, though it may want the
pathos of the original, yet displays the filial affection of Bevil, the
English Pamphilus, in a very amiable light. Sir Richard has
modernized the characters of Simo and Sosia in Sir John Bevil and
Humphrey.
“Sir J. You know I was, last Thursday, at the masquerade:
my son, you may remember, soon found us out. He knew his
grandfather’s habit, which I then wore, and though it was in
the mode of the last age, yet the maskers followed us, as if we
had been the most monstrous figures in the whole assembly.
“Humph. I remember a young man of quality, in the habit of
a clown, was particularly troublesome.
“Sir J. Right: he was too much what he seemed to be: he
followed us, till the gentleman, who led the lady in the Indian
mantle, presented that gay creature to the rustic, and bid him
(like Cymon in the fable) grow polite, by falling in love, and let
that worthy gentleman alone, meaning me. The clown was not
reformed, but rudely offered to force off my mask; with that the
gentleman, throwing off his own, appeared to be my son; and,
in his concern for me, tore off that of the nobleman. At this,
they seized each other, the company called the guards, and,
in the surprise, the lady swooned away; upon which my son
quitted his adversary, and had now no care but of the lady;
when, raising her in his arms, ‘Art thou gone,’ cried he, ‘for
ever?—Forbid it, Heaven!’—She revives at his known voice,
and, with the most familiar, though modest gesture, hangs in
safety over his shoulders weeping; but wept as in the arms of
 one before whom she could give herself a loose, were she not
under observation. While she hides her face in his neck, he
carefully conveys her from the company.”—Conscious
Lovers.
Sir John Bevil makes the same trial of his son, as Simo of his: and
young Bevil makes the same reply with Pamphilus. The only
difference in the conduct of the plot in that part is, that Bevil is not
apprized of his father’s stratagem by his own servant; but by
Humphrey, which, as it shews a sort of half-treachery in him, is an
inferior arrangement to that of the Latin poet.

NOTE 82.

That Pamphilus had actually married this strange woman.

The expression ξένα, peregrina, or strange woman, was generally
used amongst eastern nations, to signify a woman of light character:
it is very frequently employed in the Holy Writings in that sense. Vide
Judges, chap. xi. ver. 2; Proverbs, chap. v. ver. 3. 10, 20. Thais, in
the Eunuch, speaking of her mother, says,

“Samia mihi mater fuit: ea habitabat Rhodi.”

My mother was born in Samos, and dwelt in Rhodes.

Athenian citizens were not allowed to marry foreign women, even

of reputation and virtue; this law was not strictly observed: the
penalty for the violation of it was fixed at one thousand drachms.
Simo mentions the epithet peregrina, as what Chremes said he had
heard Glycera called; but does not himself drop the slightest hint
against her, but, on the contrary, praises her modest demeanour; as
he must have been well aware, that she did not deserve such an
epithet, being her opposite neighbour, and having seen her abroad:
ξέναι, or strange women, when they appeared in public, were obliged
to wear striped dresses, to distinguish them from women of innocent
conversation.
 NOTE 83.

Of a wicked mind, one can expect nothing but wicked intentions.

In the Latin, mala mens, malus animus. It is not easy to
discriminate with accuracy the different meanings the Romans
attached to mens and animus. Some think that animus meant the
heart, and mens the faculty of thinking. Grotius has, in this passage,
taken those words to signify conscience and judgment: but, I think it
probable, that the word animus was usually employed when they
spoke of the soul, and that mens was intended to express what we
understand by the word mind, when we speak of greatness of mind,
or littleness of mind. Animus was, perhaps, about equivalent to that
elegant expression,—instinctus divinitatis.

NOTE 84.

Exit Sosia.
“Here we take our last leave of Sosia, who is, in the language of
the commentators, a protatick personage, that is, as Donatus
explains it, one who appears only once in the beginning (the
protasis) of the piece, for the sake of unfolding the argument, and is
never seen again in any part of the play. The narration being ended,
says Donatus, the character of Sosia is no longer necessary. He
therefore departs, and leaves Simo alone to carry on the action. With
all due deference to the ancients, I cannot help thinking this method,
if too constantly practised, as I think it is in our author, rather
inartificial. Narration, however beautiful, is certainly the deadest part
of theatrical compositions: it is, indeed, strictly speaking, scarce
dramatic, and strikes the least in the representation: and the too
frequent introduction of a character, to whom a principal person in
the fable is to relate in confidence the circumstances, previous to the
opening of the play, is surely too direct a manner of conveying that
information to the audience. Every thing of this nature should come
obliquely, fall in a manner by accident, or be drawn as it were
perforce, from the parties concerned, in the course of the action: a
practice, which, if reckoned highly beautiful in epic, may be almost
set down as absolutely necessary in dramatic poetry. It is, however,
more adviseable, even to seem tedious, than to hazard being
obscure. Terence certainly opens his plays with great address, and
assigns a probable reason for one of the parties being so
communicative to the other; and yet it is too plain that this narration
is made merely for the sake of the audience, since there never was a
duller hearer than Master Sosia, and it never appears, in the sequel
of the play, that Simo’s instructions to him are of the least use to
frighten Davus, or work upon Pamphilus. Yet even this protatick
personage is one of the instances of Terence’s art, since it was often
used in the Roman comedy, as may be seen even in Plautus, to
make the relation of the argument the express office of the
prologue.”—Colman.
Monsieur Baron does not dismiss Sosia here, but brings him on
the stage again; once in the third act, and once in the fourth. Sir R.
Steele introduces Humphrey again in the first act, and also in the
fifth. We are told by Donatus, that in the Andrian and Perinthian of
Menander, which are similar in the plot, the first scene is the same as
in Terence, but that in the Perinthian, the old man consults with his
wife instead of Sosia; and, in the Andrian he opens with a soliloquy.

NOTE 85.

But, here he comes.

It has been objected against many dramatic writers, that they are
guilty of great neglect in first bringing their characters on the stage,
without preparing the audience for their appearance, and acquainting
them with their names; and sometimes it happens that an actor has
been on the stage a considerable time, before the audience know
whom he is meant to personate. Terence’s art is admirably shown in
this particular; a new character scarcely ever appears on the stage
after the first scene, before his name, and character, and perhaps
what he may be expected to say or do, is announced to the
audience. For example, in the Andrian, Act I. Scene I., Simo
describes the occupation and character of Davus before he appears;
and names him to the audience as he comes on the stage. In Act I.
Scene III., Davus introduces Mysis: in Act I. Scene IV., Mysis
prepares the audience for the appearance of Pamphilus: in Act III.
Scene IV., Simo announces Chremes, and Mysis is the nomenclator
of Crito in the last scene of the fourth Act. This rule of preparation for
the next scene was called, among the ancients, παρασκευὴ.

NOTE 86.

How this rascal prates!

Carnifex quæ loquitur. Carnifex, or carnufex, means literally an
executioner: this was one of the most opprobrious epithets used by
the Romans. Of all their public servants, the carnifex was the lowest
in rank: his office extended only to crucifixion, which was never
inflicted in Rome on any but those who were considered as the very
worst of criminals. The person of the carnifex was held in such
abhorrence, that he was never suffered to reside in Rome, and rarely
(though sometimes) permitted to enter the city. Vide Cicero’s Oration
for Rabirius. Carnifex means literally a butcher; and most of the
writers of later ages have used it in that sense.

NOTE 87.

No: I am not Œdipus, but Davus.

This is as much as to say, I am a plain man, I am no reader of
riddles: because Œdipus, king of Thebes, was particularly celebrated
for solving an enigma, which had long baffled the penetration of all
the Thebans. Ancient writers relate the story thus: Europa, the sister
of Cadmus, the first king of Thebes, having been carried off by
Jupiter; Juno, in her jealousy, wreaked her vengeance on Europa’s
family, and persecuted Cadmus and his descendants with the most
inveterate hostility. During the reign of Creon, one of the successors
of Cadmus, Juno sent to destroy Thebes, a dreadful monster, called
Sphinx, which was described as having the face and voice of a
woman, the wings of a dragon, the body of a dog, and the claws of a
lion. This extraordinary monster dwelt in a cave, immediately in the
neighbourhood of Thebes, and seizing every one that ventured to
approach, proposed the following well-known riddle, “What walks in
the morning on four legs, at noon on two, and at night on three?”
Those who were unable to solve the enigma were instantly torn in
pieces; and, as the Thebans were, in general, so remarkable for their
slowness and sluggishness, that they were called “Theban pigs” by
the rest of Greece, it may be readily believed that the monster’s
question long remained unanswered. When the city was in danger of
total demolition, Creon the king offered his daughter Jocasta, and his
crown, to him who should solve the riddle, as the oracle declared that
to be the only means of deliverance. This was at last accomplished
by Œdipus, who replied, that it was man: who crawls in his childhood,
walks upright in the vigour of his age, and who uses a crutch when
he grows old: on hearing this answer, the Sphinx slew herself.
Some commentator on Terence very ingeniously observes, that
Davus, by saying that he is not Œdipus, and cannot understand his
riddle, covertly insinuates that Simo is a second Sphinx.

NOTE 88.

The grinding-house.
Terence has rendered by the word pistrinum, the Greek
σωφρονιστήριον, or house of correction, whither criminals were sent
for the various terms of imprisonment proportioned to their offences.
Slaves, while in this prison, were employed chiefly in grinding corn,
which, from a deficiency of mechanical knowledge, was, in those
times, a very laborious employment. The Athenians, who were
universally celebrated for their kind and gentle treatment of slaves,
were very reluctant to proceed to severer punishments than whipping
or imprisonment: but when a flagrant delinquency rendered it
necessary to make an example, they either burned the criminal with
a hot iron, in the offending member, if possible; or put on his feet a
torturing instrument, called χοῖνιξ. If the law required the criminal to
suffer death, which happened in very few cases, he was either hung,
beaten to death with clubs, or cast into a deep pit, called βάραθρον,
filled at the bottom with sharp spikes. They sometimes had recourse
to other extraordinary modes of punishment: but the before-
mentioned were the most common.

NOTE 89.

In truth, friend Davus, from what I have just heard.

This scene contains the second part of the narration, which
possesses all the requisites enumerated by Cicero, perspicuity,
probability, brevity, and sweetness. It is introduced with Terence’s
usual art, and enough is said respecting Glycera’s birth, to prepare
the mind for the dénouement in the last act. This scene, and that
before it, are omitted in the Conscious Lovers; and a dialogue
between Humphrey and Tom, and another between Tom and Phyllis,
the English Davus and Mysis, are substituted instead of them: but
Phyllis is the servant of Lucinda, the lady Sir J. Bevil wishes his son
to marry: and not of Indiana, the modern Glycera. The two scenes
above mentioned contain only one incident: the conveyance of a
letter from young Bevil to Lucinda, apprizing her of his disinclination
to the match.

NOTE 90.

This affair must be handled dexterously, or either my young master

or I must be quite undone.
The original of this passage is as follows: Quæ si non astu
providentur, me, aut herum pessundabunt. A deviation from the
customary mode of expression sometimes occurs in our author’s
writings. I shall set down the most remarkable words of this nature
that are to be found in this play.

Abutor, with an accusative.

Alterco, for altercor.
Astu, for Astutia.
Complacita est, for placuit.
Catus.
 Claudier, for claudi.
Conflictatur, cum ingeniis ejusmodis.
Duint, for dent.
Diecula.
Emergere se, for emergere.
Face, for fac.
Introspicere.
Ipsus.
Immutarier, for immutari.
Morigera.
Maximum facere hominem, for maximi.
Ornati, for ornatus.
Preci, for precibus.
Postillà, for posteà.
Symbola, for symbolum.
Spero, for timeo.
Subsarcinatam.
Tetulit.
Tumulti, for tumultus.

NOTE 91.

If he finds out the least thing I am undone.

Terence has the art of making us feel interested in the favour of
almost all his characters: they insensibly gain ground in our good
opinion: even this Davus, who certainly has a spice of the rogue
about him, creates a warm interest in his favour by his fidelity to
Pamphilus; and his generosity in risking his own safety to serve him:
he braves the threats of Simo, when, by assisting him, and betraying
Pamphilus, he must have secured the old man’s favour, and
consequently great advantages to himself. But very few of the worst
characters in Terence’s plays seem to us to be wholly unamiable.

NOTE 92.
 I think their intentions savour more of madness than of any thing
else.
Terence plays upon the words in the original of this passage,
which is as follows,
“Nam inceptio est amentium, haud amantium.”
Literally, For they act like mad people, not like lovers. This pun
cannot be preserved in an English translation, till two words can be
found alike in sound, one meaning “mad people,” and the other
“lovers.” The only attempt in English is the following: but the author
has rather altered the sense.

“For they fare as they were lunaticke, and not lovesicke.”

Bernard.

Terence plays upon words in this manner several times in this

play,

Maledicere, malefacta ne noscant sua.

Solicitando, et pollicitando eorum animos lactas.
Quia habet aliud magis ex sese, et majus.
Quo jure, quaque injuria.
Ipsu’ sibi esse injurius videatur, neque id injuriâ.
P. Quid vis patiar? D. Pater est Pamphile.

The ancients manifested very great partiality for this species of

wit, which the Greeks called παρανομασία and the Romans
agnominatio. The writings of Plautus abound with puns above all
others, and he is thought to have applied them with great ingenuity:
the following may serve as a specimen.

Boius est, Boiam terit.

Advenisse familiares dicito.
Nescio quam tu familiaris es: nisi actutum hinc abis,
 Familiaris, accipiere faxo haud familiariter
Optumo optumè optumam operam das.

Though the Greeks and Romans considered puns an ornament to

writings and discourses of all kinds, modern critics have decided that
they ought to be admitted only in writings of a light nature; and that
they decrease the force and beauty of grave and serious
compositions, which ought to wear an air of dignified sublimity,
unmixed with any thing of a trivial nature.
The lines immediately preceding the before-mentioned passages
are thus altered by a French editor. Vide Note 72.

Ad hæc mala hoc etiam mihi accedit; hæc Andria,

Quam clam patre uxorem duxit Pamphilus, gravida ab eo est.

The original lines are,

Ad hæc mala hoc etiam mihi accedit; hæc Andria,

Sine ista uxor, sine amica est gravida a Pamphilo est.

NOTE 93.

Boy or girl, say they, the child shall be brought up.

In the Latin,
Quidquid peperisset decreverunt tollere.
Boy or girl, they have resolved that it shall be taken up. The words
taken up allude to the custom which prevailed in Greece, of
destroying children. This barbarous cruelty was practised on various
pretences; if an infant was, at its birth, deformed in any of its
members, or if it appeared extremely feeble or sickly, the laws
allowed, and even enjoined, that it should be exposed: sometimes
illegitimacy was considered a sufficient cause for the exposure of a
child. Though the parents were generally allowed to choose whether
their offspring should be destroyed or preserved; in some parts of
Greece all the inhabitants were compelled to send their new-born
infants to officers appointed to examine them: who, if they found
them not robust and healthy, cast them immediately into deep
caverns, called ἀποθέται, which were dedicated to this purpose. It
was customary, in Athens, to place a new-born infant on the ground
at the feet of its father, if he then took it up in his arms, it was
considered that he bound himself to educate and provide for the
child: hence, the expression tollere, to take up: but, if on the contrary,
he refused to acknowledge it, a person appointed for that purpose
conveyed it to some desert place at a distance from the city: and
there left it to perish. The Thebans are said to have been the only
people in Greece, among whom this barbarous custom did not
prevail: but the story of Œdipus, a prince who was exposed, though
afterwards preserved, is a proof that they did not altogether abstain
from this practice.

NOTE 94.

To prove that she is a citizen of Athens.

Women were allowed to enjoy the privileges of Athenian citizens,
and, at the building of Athens, by Cecrops, they carried a point of no
less importance than the choice of a name for the new city, in
opposition to the votes of the men. Varro tells us that Neptune
wished the new-built city to be called after his name, and that
Athena, or Minerva, rivalled his pretensions. The question being put
by Cecrops to his people, the men all voted for Neptune, but the
women voted for Minerva, and gained, by one vote, the privilege of
naming the city. The women were wholly excluded from any share in
the government of Athens, in later ages; though they still retained
various privileges as Athenian citizens.
For a further explanation of the rights of the Athenian citizens; and
for some account of the city of Athens, vide Notes 150, 179, 180,
181, 193, 197.
 NOTE 95.

Once upon a time, a certain old merchant.

The title of merchant we are to suppose to be added by Davus to
embellish the tale. Neither Chremes nor Phania are described as
merchants. This addition is well managed by the author, as Davus,
who thought the whole a fabrication, imagined he was more likely to
gain credit by telling the tale that way; as a considerable traffick was
carried on between Athens and the island of Andros, which was a
very fertile spot.
M. Baron has translated this scene with great fidelity and beauty.
Davus developes in it a plan to break off the dreaded match with
Philumena, by introducing Glycera to Chremes: which incident is
substituted instead of the birth of the child. There is a break in the
French lines which renders them inimitably beautiful.
 “De ce vieillard fougueux pour calmer la furie,
Quoi! Ne pourrions nous pas résoudre Glycérie
A venir à ses pieds lui demander——? Helas!
Glycérie est malade, et je n’y songe pas.”
Baron.

NOTE 96.

Well, I’ll betake myself to the Forum.

A forum, both in Athens and Rome, was a large open space
within the city, dedicated to various purposes. The forum was a place
where the people met for public worship, for the administration of
justice, and to debate on the public affairs. In the Forum, also, were
the temples, hospitals, sanctuaries, and the markets of all kinds: in
short, it was a place of general rendezvous for men of all ranks and
professions, and was, in many respects, very similar to those places
of meeting we call by the name Exchange.
In Rome there were six great forums, 1. the Roman, 2. the Julian,
3. the Augustan, 4. the Palladian, 5. the Trojan, 6. the Forum of
Sallust. In Athens, the principal Forum was called ἀρχαία ἀγορὰ; it
was extremely spacious, and decorated with some very fine
buildings, and statues of eminent persons. There were also many
others, but the most considerable was called the Forum, by way of
distinction.

NOTE 97.

Act I. Scene IV.

Of all writers ancient or modern, except Seneca, Terence was the
most indefatigable in endeavouring to embellish his writings with all
the ornaments that alliteration could give them. It is not my intention
to enter in this place into a discussion of the advantages, or
disadvantages that verses may derive from alliteration; a subject on
which critics differ as widely as they can on any other point. The
practice of many first-rate writers, however, both ancient and
modern, who have thought that alliteration adorned their
compositions, entitles it to attention. Although eminent critics have
argued against this literary ornament, that its success is but a trivial
excellence, I cannot but remark that it is allowed on all sides that
great labour, care, and patience, are requisite, to succeed in
alliteration; which must certainly contribute to render it of some
value, and afford an absolute proof of the excessive labour and
deliberation with which Terence wrote his plays, every line of which
was, as I may say, weighed, before he wrote it down: for no author,
ancient or modern, (with the before-mentioned exception,) ever
employed alliteration so frequently, nor, in my opinion, with better
effect than Terence.
The following lines will afford the reader a specimen of the almost
astonishing extent to which alliteration was used by some of the
ancient authors, Greek and Latin.

I. From Terence.

“Audivi, Archillis, jamdudum: Lesbiam adduci jubes

Sane pol illa temulenta est mulier, et temeraria
Nec sati digna cui committas primo partis mulierem.
Tamen eam adducam. Importunitatem spectate aniculæ;
Quia compotrix ejus est. Diana da facultatem, obsecro,
Huic pariundi, atque illi in alius potius peccandi locum.
Sed, quidnam Pamphilum exanimatum video? vereor quid siet.
Opperiar, ut sciam, numquidnam hæc turba tristitiæ adferat.
Ut animum ad aliquod stadium adjungant, aut equos—
Alere, aut canes ad venandum, aut ad philosophos.
In ignem imposita est. Fletur. Interea hæc soror.
Mala mens, malus animus. Quem quidem ego si sensero.
Ipsum animum ægrotum ad deteriorem partem plerumque applicat,
Nec, quid agam, cerium est; Pamphilumne adjutem, an auscultem
seni.