Table of Contents DEDICATION III BRIEF CONTENTS V LEARNING THE BIG PICTURE OF TAX TO BE A VALUED PROFESSIONAL VI WHAT ARE OUR STORIES? VII WHAT MAKES OUR APPROACH TO LEARNING TAX DISTINCTIVE? IX ASSESSMENT XIII CONNECTING TO THE PROFESSION XV AN INTERACTIVE, MULTIMEDIA LEARNING EXPERIENCE XVII PREPARING FOR THE CPA EXAM XVIII FOR INSTRUCTORS XIX ACKNOWLEDGMENTS XX TABLE OF CONTENTS XXI Part I Introduction to Business Entities 1 Basics of Business Entity Taxation 1-1 1.1 Basics of Business Entity Taxation 1-6 Business Lifecycle 1-6 Legal Forms of Business 1-8 Tax Classifications for Businesses 1-9 1.2 Tax Compliance for Business Entities 1-10 Filing Requirements 1-10 Taxpayer Penalties 1-12 1.3 Review of Fundamentals of Property Transactions 1-19 Gains and Losses from Sales and Dispositions 1-19 Classification of Assets 1-31 Spotlight on the Law: Classification of an Asset: Sell Now or Later? 1-33 Holding Period 1-35 1.4 Review of Section 1231 Assets 1-37 Netting Section 1231 Gains and Losses 1-38 Depreciation Recapture Rules 1-41 1.5 Review of Qualified Business Income Deduction 1-58 Qualified Business Income 1-58 Rental Real Estate 1-59 Determining the Qualified Business Income Deduction (Steps 1-5) 1-59 Determining the Qualified Business Income Deduction (Steps 6-7) 1-64 Determining the Qualified Business Income Deduction (Step 8) 1-66 Minimum QBI Deduction 1-67 Advanced Topics--Drilling Down 1-68 2 Taxation of Business Entities: Strategies and Planning 2-1 2.1 The Basics of Tax Planning 2-3 Tax Planning: The Big Picture 2-3 Tax Planning Opportunities 2-6 2.2 Tax Avoidance vs.

Tax Evasion 2-12 Tax Evasion 2-13 Spotlight on the Law: Is the Tax Law Unconstitutional? 2-15 Tax Ethics 2-15 2.3 Tax Rules vs. GAAP 2-17 2.4 Tax Professional Responsibilities 2-19 Circular 230 2-19 Statements on Standards for Tax Services (SSTS) 2-22 2.5 Professional Taxation as a Career 2-24 The Role of a Tax Professional 2-25 Characteristics of Successful Tax Professionals 2-25 Artificial Intelligence in Taxation 2-26 Part II Taxation of Corporations 3 Fundamentals of Corporate Taxation 3-1 3.1 Taxation of Corporate Formations 3-5 Section 351 Requirements 3-5 Receipt of Boot 3-8 Basis Issues 3-9 Debt Relief 3-12 Holding Period Rules 3-14 Capital Contributed, No Stock Received 3-16 3.2 Taxation of Costs Incident to Formation 3-17 Organizational Expenses 3-18 Start-Up Costs 3-19 Syndication Costs 3-19 Spotlight on the Law: When to Capitalize Organizational Expenses 3-21 3.3 Corporate Taxable Income 3-22 Corporate Income Tax Formula 3-22 Corporate Deductions 3-24 3.

4 Other Corporate Tax Issues 3-37 Capital Gains and Losses 3-38 Accounting Methods and Periods 3-39 Reconciliation of Retained Earnings 3-51 Passive Loss Rules 3-52 Corporate Alternative Minimum Tax 3-53 3.5 Penalty Taxes 3-55 Accumulated Earnings Tax 3-56 Computing the Accumulated Earnings Tax (AET) 3-57 Personal Holding Company (PHC) Tax 3-60 3.6 Business Tax Credits 3-64 Foreign Tax Credit 3-64 General Business Credit 3-65 Business Investment Credits 3-72 4 Corporate Taxation: Distributions, Redemptions, and Liquidations 4-1 4.1 Distributions Taxed as Dividends 4-4 Dividend Rules for Shareholders 4-4 Stock Dividends 4-8 Constructive Dividends 4-10 4.2 Earnings & Profits 4-12 Earnings & Profits Computation 4-12 Using E&P to Determine the Amount of Dividends 4-15 4.3 Property Distributions 4-20 Property Distributions--Corporate Tax Consequences 4-20 Property Distributions--Shareholder Tax Consequences 4-22 Property Distributions--Liability Greater than FMV 4-24 4.4 Stock Redemptions 4-26 Redemption Consequences vs. Dividend Consequences 4-27 Qualified Redemptions 4-28 Spotlight on the Law: Which Is Better--Qualified Stock Redemption or Dividend? It Depends! 4-31 Advanced Topic--Drilling Down 4-34 Tax Consequences to Corporations 4-36 Partial Liquidations 4-38 Advanced Topic--Drilling Down 4-39 4.

5 Corporate Liquidations 4-42 Tax Effects for Shareholders 4-42 Tax Effects for Corporations 4-43 Limitations on a Corporation''s Loss Recognition 4-44 Parent-Subsidiary Liquidations 4-48 5 Corporate Taxation: Related Corporations and Reorganizations 5-1 5.1 Controlled Groups 5-4 Limitations on Controlled Groups 5-4 Other Characteristics of Controlled Groups 5-5 Parent-Subsidiary (P-S) Controlled Groups 5-5 Brother-Sister (B-S) Controlled Groups 5-9 5.2 Affiliated Groups and Consolidated Returns 5-14 Definition of Affiliated Groups 5-14 The Consolidation Process 5-19 Advantages and Disadvantages of Electing to Consolidate 5-21 Computing Consolidated Taxable Income 5-24 Stock Basis of Subsidiary 5-27 5.3 Corporate Reorganizations 5-30 Types of Reorganizations 5-31 Spotlight on the Law: Friendly Fire or Hostile Takeover? 5-32 Types of Qualified (Tax-Deferred) Reorganizations 5-32 Judicial Doctrines 5-38 Tax Consequences of Qualified Reorganizations 5-39 5.4 Preservation of Tax Attributes 5-44 Earnings & Profits Limitation 5-45 NOL Limitations 5-46 Part III Taxation of Flow-Through Entities 6 Partnership Taxation: Formation, Basis, and Income 6-1 6.1 Definitions Related to Partnerships 6-4 Characteristics of Partnerships 6-4 Limited Liability Companies 6-4 Check-the-Box Regulations 6-5 6.2 Taxation of Partnership Formations 6-8 Carnes_FM.indd 22 24-04-2026 11:15:04 TABLE OF CONTENTS xxiii Qualifications to Defer Gains and Losses 6-8 Receipt of Boot 6-9 Receipt of a Profits Interest 6-10 Basis 6-11 Holding Period and Other Tax Characteristics 6-11 6.

3 Impact of Partnership Debt on Partner''s Basis in Partnership Interest 6-14 Transactions that Affect Debt Basis 6-14 Allocating Recourse Debt and Nonrecourse Debt 6-16 Temporary Benefit of Debt Basis 6-17 6.4 Taxation of Partnership Income and Guaranteed Payments 6-19 Timing of Income to Partners 6-19 Guaranteed Payments 6-20 Spotlight on the Law: Guaranteed Payments in Relation to the QBI Deduction 6-22 Fringe Benefits for Partners 6-23 Character of Partnership Tax Items 6-23 Basis in Partnership Interest and Capital Account 6-28 6.5 Use of Partnership Losses 6-32 Basis Hurdle 6-32 At-Risk Hurdle 6-32 Passive Loss Hurdle 6-33 Combining the Three Hurdles: Basis, At-Risk, and Passive Loss 6-36 Excess Business Losses 6-38 6.6 Permitted Tax Years for Partnerships 6-39 Required Tax Year 6-40 Exceptions to Required Tax Year 6-42 Advanced Topic--Drilling Down 6-43 6.7 Related-Party Rules 6-45 Disallowance of Related-Party Losses 6-46 Evaluating Related-Party Transactions 6-46 Preservation of Unrealized Ordinary Income 6-49 Payments to a Partner 6-50 7 Partnership Taxation: Distributions, Sales, and Advanced Topics 7-1 7.1 Built-In Gains and Losses 7-5 Tax Consequences of Built-In Gains and Losses 7-5 Tax Reporting of Built-In Gains and Losses 7-7 Character of Gain or Loss on Sale of Certain Contributed Assets 7-8 Combining the BIG/BIL Rule with the Contributed Asset Rules 7-9 7.2 Distributions from a Partnership 7-13 Tax Conseq.