About the Author
D. Dale Bandy is the C.G. Avery Professor of Accounting in the School of Accounting at the University of Central Florida. He received a B.S. from the University of Tulsa, an M.B.A. from the University of Arkansas, and a Ph.D. from the University of Texas at Austin. He helped to establish the Master of Science in Taxation programs at the University of Central Florida and California State University, Fullerton, where he previously taught. In 1985, he was selected by the California Society of Certified Public Accountants as the Accounting Educator of the year. Professor Bandy has published 8 books and more than 30 articles in accounting and taxation. His articles have appeared in Journal o f Taxation, The Journal o f Accountancy, Advances in Taxation, The Tax Adviser, CPA Journal, Management Accounting and a number of other journals. N. Allen Ford is the Larry D. Homer/KPMG Peat Marwick Distinguished Teaching Professor of Professional Accounting at the University of Kansas. He received an undergraduate degree from Centenary College in Shreveport, Louisiana, and both the M.B.A. and Ph.D. in Business from the University of Arkansas. He has published more than 30 articles related to taxation, financial accounting, and accounting education in journals such as The Accounting Review, The Journal of the American Taxation Association, and The Journal of Taxation. He served as president of the American Taxation Association in 1979-80. Professor Ford has received numerous teaching awards, at the college and university levels. In 1993, he received the Byron T. Shutz Award for Distinguished Teaching in Economics and Business. In 1996 he received the Ray N. Sommerfeld Outstanding Tax Educator Award, which is jointly sponsored by the American Taxation Association and Ernst & Young. Anna C. Fowler is the John Arch White Professor in the Department of Accounting at the University of Texas at Austin. She received her B.S. in accounting from the University of Alabama and her M.B.A. and Ph.D. from the University of Texas at Austin. Active in the American Taxation Association, she has served on the editorial board of its journal and has held many positions, including president, within the organization. She is also active with the American Institute of CPAs and currently serves on the Executive committee of its Tax Division. Currently, Professor Fowler is a member of the Board of Trustees of the Educational Foundation of the Texas Society of CPAs. She has published a number of articles, most of which have dealt with estate planning or real estate transaction issues. She also is a frequent speaker before professional organizations on estate planning topics. Robert L. Gardner is the Robert J. Smith Professor of Accounting and the Associate Director of the School of Accountancy and Information Systems at Brigham Young University. He received a B.S. and M.B.A. from the University of Utah and a Ph.D. from the University of Texas at Austin. He has authored or coauthored two books and over 25 articles, and has received several teaching awards. Professor Gardner has served on the Board of Trustees of the American Taxation Association and served as President of the ATA in 19992000. He actively consults with several national CPA firms in their continuing education programs. Richard J. Joseph is a Senior Lecturer in Taxation at The University of Texas at Austin McCombs School of Business. He also is Director of the Master of Professional Accounting Program and the Professional Program in Accounting. A graduate magna cum laude of Harvard College (B.A.), Oxford University (M.Litt.), and The University of, Texas School of Law (J.D.), Mr. Joseph has taught individual, corporate, international, and interstate taxation, tax research methods, tax issues in business management, and the
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OBJECTIVES AND USE
This text is designed for use in a first and second course in federal taxation for undergraduate and graduate accounting and business students. The text materials have been updated to reflect recent legislative (through January 1, 2001), judicial, and administrative changes in the tax law.
A Comprehensive volume joins 14 chapters of Prentice Hall's Federal Taxation, 2002: Individuals volume with 14 chapters of the Prentice Hall's Federal Taxation, 2002: Corporations, Partnerships, Estates, and Trusts volume. It may be used with either a one-term survey course for undergraduate or graduate students or a two-term sequence.
Our objective is to provide a readable format with a high level of technical content. We accomplish this through a process of continuous review, improvement, and clarification of the text, examples, and problem material. If you find what you believe is an error, please provide the item to one of the editors along with your comments. We maintain this level of content by focusing on primary topics and relegating minor exceptions to footnotes.
- The 2002 Edition of Prentice Hall's Federal Taxation continues to include an online Multistate Income Taxation chapter. This chapter provides tax instructors with a vehicle to introduce students to a topic of increasing importance among tax practitioners. It provides an overview of state and local tax systems, as well as a more in-depth discussion of state income tax issues such as nexus, corporate filing options, the definition of state taxable income, allocation and apportionment, and state taxation of S Corporations, partnerships and limited liability companies. A complete set of assignment material is available with the chapter. Instructors and students may download the chapter, free of charge, from the Web site that accompanies the book ( www.prenhall.com/phtax ).
- Chapter C1: Tax Research. This chapter (1) provides information on the steps in the research process and (2) explains the role of computers in tax research. A special supplement called How to Do Tax Research is available from the Web site at www.prenhall.com/phtax . This downloadable supplement further enhances coverage by explaining how to electronically research a problem based on an actual case.
- Problems combining tax and financial accounting. Since taxes have an impact on virtually every financial transaction, students should understand the interrelationship and differences between financial accounting and tax accounting. At least one problem per chapter now asks students to compare the tax and financial accounting treatments of various transactions and are identified by a marginal icon.
- A careful choice of topics. Users have found favor with the choice of topics and the extent of detail presented throughout the text. They are particularly pleased with our balance between exhaustive detail and too little detail for topics such as tax research, passive activity losses, the individual and corporate alternative minimum tax, and partnership taxation.
- Unique chapter organization. The Comprehensive volume differs from other texts on the market with its early coverage of property transactions, the life cycle approach to the taxation of the corporation and the way the partnership and S corporation materials are tied together.
- Clear examples. Users regularly praise the clarity and number of examples in this text.
- Margin notes. Students appreciate learning about more than just tax rules, so we developed a series of comments in the margin to enrich their learning experience.
– Key Points emphasize areas where students require repetition and reinforcement.
– Typical Misconceptions identify concepts that students are likely to misunderstand and help them correct their thinking before they take a wrong approach.
– Real-World Examples provide facts and anecdotes about actual companies, and real-life strategies.
– Additional Comments elaborate on material presented in the text.
– Self-Study Questions provide an in-text study guide. Each question is accompanied by a full solution.
– Historical Notes offer a comprehensive understanding of concepts by examining them in their historical context.
– Ethical Points focus on ethical questions that confront the tax practitioner, and are designated with an ethics icon.
- Topic reviews. Each chapter contains several topic reviews to help students organize their understanding of the material and aid in preparing for exams. Many of these reviews are in tabular form for easy reference.
- Tax Planning Considerations. Tax Planning Considerations teach students how to offer tax savings advice to their clients.
- Compliance and Procedural Considerations. Forms, procedures, and timing are addressed in the Compliance and Procedural Consideration section at the end of each chapter.
- Footnotes. An important component of "learning to learn" is knowing where to turn for authoritative information. We collected important references to the tax authorities in the footnotes for students to use as sources.
- A full complement of assignment material. The typical format for each chapter includes: discussion questions, issue identification questions, problems, comprehensive problems, tax form/return preparation problems, case study problems, and tax research problems. Tax return problems can be solved using Tax Preparation software are marked with an icon.
- Oral and written communications. More emphasis is being placed on oral and written communication skills by the various accounting professional organizations (e.g., the American Institute of CPAs and the Accounting Education Change Commission). The case study problems at the end of each chapter are designed to meet this need, by requiring students to consider a number of alternatives and present a written or oral solution to the problem. None of these case studies require the student to research the tax law.
- Expanded coverage of ethics. Each chapter contains a box labeled "What Would You Do in This Situation?" and a reprinting of the AICPA's Statements on Standards for Tax Services in Appendix E expand our coverage of ethics. The boxes include many controversies that are as yet unresolved or currently being considered by the courts. The boxes and the Statements on Standards enhance the ethical point margin notes and the ethical issues that are found in the case study problems already presented in the text.
- Stop & Think feature. These "speedbumps" ask students to stop and think about a business application of tax, or an extension of the basic material, at various points in the chapter. These items are not "boxes," which typically fall outside the running text and can be bypassed. They are part of the text, complete with solutions to show students "how to do it" and identified by the icon you see here in the margin.
- Issue identification Questions. Part of the process of learning involves sorting out important information from unimportant details. In an area as detail-oriented as taxation, developing the ability to identify key issues is of paramount importance. We include questions at the end of each chapter that ask students to focus on the important questions that a practitioner faces on a daily basis.
- Improvements in the Test Bank. Aside from the solutions manual, no other supplement is as important to educators as the test bank. Each year the test bank author places special emphasis on refining and polishing the test questions.
- TaxCut Software—This software allows you to easily prepare your individual tax return by asking you questions just like a tax professional would and filling in the form for you. TaxCut audits your return before you file, allows you to print IRS-approved forms on your own printer and offers context sensitive IRS instructions. The software is free to professors adopting a Prentice Hall tax text and students can purchase copies for $14.95 directly from Block Financial Corp. by using the coupons found in the book.Tax Analysts' OneDisc CD-ROM—Provides all the tools used by tax professionals to do research—Internal Revenue Code, Treasury Regulations, revenue rulings and procedures, court decisions and more! See Web site for details ( www.prenhall.com/phtax ).
The text includes a full complement of supplementary materials. Adopters are encouraged to use these materials to enhance their teaching effectiveness and the students' learning experience. The following aids are available for instructor and student use:
- Loose-leaf Edition—This three-hole punched version of the textbook allows the professor complete flexibility in course customization and is available upon request from Prentice Hall.
- Instructor's Guide—This specially crafted instructor's guide includes: a sample syllabus for one- and two-semester courses, instructor outlines, and solutions to the tax return/taxform preparation problems, case studies, and tax research problems. The instructor outlines are available in Word files to enable faculty members to make their own modifications to the master outlines prior to using them in class. The outlines highlight tax law changes affecting the 2002 edition. Also there is a cross-reference table which cross-references problems in the 2002 editions as well as indicates any new problems and the nature of the change (if any) to the problems from the 2001 edition. Additional written assignments involving deferred compensation, publicly-traded partnerships, and mergers and acquisitions are provided for faculty use in the 2002 edition.
- Test Bank—This bank of test questions includes fully worked-out solutions to many of the more complex problems.
- Solutions Manual—Prepared by the authors and thoroughly reviewed by the editors, this volume includes solutions to the discussion questions, problems, and comprehensive problems. Solutions to all problems are available in Word files to facilitate the preparation of transparencies. The solutions to the tax form/return preparation problems, the case studies, and tax research problems are included in the Instructor's Guide.
- PowerPoint Transparencies—Approximately 600 full color electronic transparencies are available to enrich the teaching experience. Instructors can make additions or modifications to the files prior to using them- in class. These are also on the Web site at www.prenhall.com/phtax .
- Prentice Hall Test Manager, Windows Version—Prentice Hall Test Manager is a state-of-the-art classroom management system.
- Supplemental Tax Law Update—Whenever major tax legislation is passed, we provide an updating supplement. A mid-year update is provided for the inflation-adjusted numbers each year. These update supplements can be downloaded from the Web site that accompanies the book www.prenhall.com/phtax .
Our foremost goal has been to provide students with a perspective that stresses readability, accuracy, and familiarity with technical aids to tax practice. The following student aids are currently available:
Prentice Hall has created a Web site ( www.prenhall.com/phtax ) that offers a wide variety of free and saleable resources.
- Free Student Resources include—current events (with references and questions linking them directly to the text); internet resources; tax law updates; student study tips; a chapter on multistate income taxation with assignment material, and C8: Consolidated Tax Returns.
- Free Faculty Resources include downloadable files for—PowerPoint transparencies; instructor's outlines; sample syllabi, teaching tips; solutions for online tax practice problems; Instructors Solutions Manual.
- Saleable Student Resources include—online study guides and online tax practice problems. Students must purchase a passcode that allows them to access both the online study guides and the online tax practice problems.
- Online Study Guide—This electronic supplement replaced the print-based version. By purchasing a password, students can access multiple choice, true/false, and computation questions and tax return preparation problems through Prentice Hall's Web site www.prenhall.com/phtax . Students can look at hints for help before they answer questions and submit them to the server for grading. Customized feedback is supplied for wrong answers when the graded material is returned so students can try again.
- Online Tax Practice Problems—By purchasing a password, students can access a series of cases that require them to analyze an individual's and a partnership, S corporation, and C corporation's tax situation. Based on each scenario, students will complete a tax return for the individual and each entity and answer a tax research, tax planning, and tax compliance question.
Our policy is to provide annual editions and to prepare timely updated supplements when major tax revisions occur. We are most appreciative of the suggestions made by outside reviewers because these extensive review procedures have been valuable to the authors and editors during the revision process. The editors gratefully acknowledge the contributions of W Peter Salzarulo of Miami University of Ohio. His time and effort over the years helped to make the series what it is today.
We are grateful to the various graduate assistants, doctoral students, and colleagues who have reviewed the text and supplementary materials and checked solutions in order to maintain a high level of technical accuracy. In particular, we would like to acknowledge the following colleagues who assisted in the preparation of supplemental materials for this text:
Sally Baker, DeVry Institute of Technology-Kansas City
Arthur D. Cassill, University of North Carolina at Greensboro
Ann Burstein Cohen, SUNY-Buffalo
Priscilla Kenney (Supplements Coordinator), University of Florida
Craig J. Langstraat, University of Memphis
Thomas Omer, University of Illinois at Chicago
Michael Schadewald, University of Wisconsin-Milwaukee
Caroline D. Strobel, University of South Carolina
Don Trippeer, East Carolina University
Ellen Cook, University of Louisiana-LaFayette
Richard Newmark, Old Dominion University
Pamela Legner, DeVry Institute of Technology-Addison
Thomas R. Pope
Kenneth E. Anderson
John L. Kramer
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