C12-Chp-01-1B-Research-Application-2012

C12-Chp-01-1B-Research-Application-2012 - Chapter 1-Part B....

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Chapter 1-Part B. Tax Research- Application Edited January 14, 2012 Howard Godfrey, Ph.D., CPA Professor of Accounting Copyright 2012. Howard Godfrey C12-Chp-01-1B-Research-Application-2012
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Legislative Executive Judicial Congress President Courts Internal Treasury Court Revenue Regulations Cases Code Revenue Rulings Trial Court Committee Revenue Procedures Appeals Reports Notices Court Announcements Supreme Letter Rulings, etc. Court Federal Government Treaties
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Let’s apply what we know about sources of tax law and the tax research process.
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Doris A. Trent - 1 Doris brought suit on behalf of her son (Clinton Trent) who suffered severe brain injury in an accident. The court awarded her son $5,000,000. The court directed that $729,874 be awarded to Doris Trent for services provided to Clinton by Doris and her husband. For Doris (Clinton’s Mother), should this award be reported as tax-free damages for personal injury?
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Doris A. Trent - 2 First, lets answer the preliminary question (that is not an issue in this case). Does Clinton include the damages in his income?
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Doris A. Trent - 3 Refer to Sec. 61 – just about everything you receive is included in income. (Except as otherwise provided)
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Doris A. Trent - 4 Refer to Sec. 104. What does it say about the taxability of damages? See next slide
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Doris A. Trent - 5 Sec. 104., Compensation for Injuries Or Sickness (a) In General. —Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include- (1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness; (2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;
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Doris A. Trent - 6 The Code does not specifically say that damages may be received tax-free only by the person who receives the physical injury. (History of Sec. 104. We are a nation of lawyers and lawsuits for damages. Previously, many were claiming that damages were tax-free because they were for “emotional distress” etc. Congress narrowed the law by adding “physical.”)
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Doris A. Trent - 7 But we still don’t see whether the mother of the injured party can qualify for tax-free damages. Where would you look? What about legislative history? (That is all you have immediately after a new provision is added to the law – when regulations are yet to be issued.) Also, here we can illustrate that the existing regulations are misleading because they have not been updated to reflect the addition of “physical.”
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Doris A. Trent - 8 Lets read the committee reports to see if they help us understand what Congress meant?
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Doris A. Trent - 9 Committee Report-1986. The bill provides that the exclusion … only applies to damages received on account of a personal physical injury or physical
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This note was uploaded on 03/09/2012 for the course ACCT 6120 taught by Professor Godfrey,h during the Spring '08 term at UNC Charlotte.

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C12-Chp-01-1B-Research-Application-2012 - Chapter 1-Part B....

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