Making the Best of Bad Situations 2016 - 20 CPE Credit Hours
This course will teach participants how to apply, implement, and evaluate the strategic tax aspects of marital dissolutions and living together arrangements. Current perspectives on property transfers, asset divisions, alimony, filing status, exemptions, and child support are examined with an emphasis on planning considerations. The cancellation of indebtedness income inclusion rules are examined in the context of debt forgiveness and property foreclosure. Emphasis is given to the exceptions from income inclusion contained in §108. The tax treatment of property repossession under §1038 is explored with detail given to the calculation of gain and received property basis. Finally, bad debt treatment under §166 is reviewed and critical distinctions made between business and nonbusiness debts.
Completion Deadline & Exam: This course, including the examination, must be completed within one year of the date of purchase. In addition, unless otherwise indicated, no correct or incorrect feedback for any exam question will be provided.
Course Level: Overview. This program is appropriate for professionals at all organizational levels.
Field of Study: Taxes
Prerequisite: General understanding of federal income taxation.
Recommended Credits: 20 CPE Hours
Advanced Preparation: None
Learning Assignments & Objectives
As a result of studying each assignment, you should be able to meet the objectives listed below each assignment.
Chapter 1 Basic Marital Tax Matters
At the start of Chapter 1, participants should identify the following topics for study:
* Marital status
* Joint return
* Separate returns
* Head of household
* Divorce costs
* Withholding & estimated tax
* Community property states
* Ending the community
* Living together
After reading Chapter 1, participants will be able to:
1. List six tax implications to consider when going through a divorce, and recognize the requirements and effects of filing as married or unmarried.
2. Identify the requirements of filing a joint return and state how to avoid being penalized.
3. Name the key elements of filing separate returns including what items to report and identify whether or not married taxpayers should file separate returns.
4. List the requirements for filing as head of household and the tax advantages and disadvantages of this filing status.
5. Recognize the phaseout of exemptions showing its affects on taxpayers, identify when exemptions can be taken for spouses, and locate reporting requirements for dependent exemptions, and list the requirements for pre-2005 dependency particularly relationship, married person, citizen or resident and income.
6. Identify the former regular and special method for determining support showing complications from back child support and multiple support agreements. Define the current “qualified child” standard using residency, relationship, age, and joint return prohibition, and name three requirements that must be met for parents to treat a child as a qualifying child of a non-custodial parent.
7. Identify deductible and nondeductible divorce expenditures noting which spouse is subject to tax imposed upon withheld wages, and recognize the effects of making separate estimated tax payments or joint declarations of estimated tax.
8. Define community property listing the nine community property states, identify the effects of conversion and commingling of property and show how to avoid such marital property issues.
9. Identify community income earned by married couples for reporting purposes by:
a. Naming three reporting guidelines, recognizing the allocation of income earned and received into community property and separate property and stating what income and property belongs to which spouse when they have different residency statuses;
b. Listing five requirements for the special community income allocation rules of §66(a) and defining community property termination and the treatment of alimony payments; and
c. Recognizing the use of statements and records to provide estimates of a former spouse’s income and identifying four conditions for greater tax relief.
10. Identify the effect of living together on filing statuses and dependency list differences between the married tax rate and other tax rates, recognize the tax consequences of having a living together contract to avoid tax traps, and state four results of Marvin v. Marvin.
After studying the materials in Chapter 1, answer the exam questions 1 to 23.
Chapter 2 Transfers Incident to Divorce
At the start of Chapter 2, participants should identify the following topics for study:
* Property rights
* Premarital agreements
* Application of §1031
* Incident to divorce
* Property basis
* Purchases of residence between spouses
* Purchases of business interests between spouses
* Selected asset divisions of residence & business interests
* Real & personal property
* Pension benefits
After reading Chapter 2, participants will be able to:
1. Name three forms of property identifying their likely division in marital property settlements and state five legal principles used in dividing assets and providing support on divorce or separation.
2. List the benefits of premarital agreements showing the requirements and permissible provisions for a valid and comprehensive agreement under the Uniform Premarital Act.
3. State the position of U.S. v. Davis on interspousal transfers noting the changes made by §1041, list the requirements of §1041 and define the scope of its application.
4. Locate two factors that determine whether a property transfer is incident to divorce and show how to meet these factors or avoid §1041 altogether when desired.
5. Identify the application of §1041 to transfers in trust under §1041(e) and to third party transfers on behalf of a spouse or former spouse.
6. Recognize deferred tax liability by identifying property basis for the transferor spouse and transferee spouse under §1041 after a property settlement.
7. State the application of §1041 to property transfers where the transferee assumes liabilities encumbering the property, and identify with appropriate records the holding period for an asset transferred between spouses or former spouses incident to divorce.
8. Recognize the dangers of purchasing a former spouse's interest in property particularly a marital residence and its tendency to createdeferred tax liability.
9. List three of the effects of purchasing an interest in personal or real property used in a business or held for investment, recognize potential recapture and identify the use of an exchange to dispose of low-basis property received in a §1041 transfer.
10. Name three common disposition alternatives available on divorce, list the home sale exclusion requirements, and identify the tax treatment and use of installment obligations under §453 in divorce.
11. Recognize sale, redemption, recapitalization, liquidation and third-party transfers as methods of dividing a business in a marital settlement citing unique provisions under §302, §736 and §754.
12. Identify whether gain or loss on a sale of real or personal property is capital or ordinary, recognize the tax treatment of such gain or loss and define the role and tax treatment of life insurance in property settlements.
13. Name four popular methods of dividing retirement benefits in a divorce or separation action giving particular attention to identifying the requirements and tax consequences of a “qualified domestic relations order (QDRO).
14. Identify an overall tax and economic strategy for the division of pension benefits in a marital settlement by:
a. Listing the pros and cons of deferred, present, and alternate property division arguments;
b. Stating the treatment of IRAs at divorce considering the IRA deduction limit and rollovers;
c. Naming six strategies for retirement planning after divorce;
d. Recognizing the Social Security benefits, military pensions, civil service pensions, or railroad pensions that may be available to a former spouse; and
e. Stating which debts incurred during a divorce are dischargeable in bankruptcy.
After studying the materials in Chapter 2, answer the exam questions 24 to 59.
Chapter 3 Alimony & Child Support
At the start of Chapter 3, participants should identify the following topics for study:
* Divorce or separation instrument
* Alimony requirements of instruments executed after 1984
* Alimony requirements of instruments executed before 1984
* Deducting alimony paid & reporting alimony received
* Recapture of alimony for type A & B agreements
* Alimony substitution