Situations such as divorce, foreclosure, repossession, and bad debts can cause significant financial and personal stress. Making the Best of Bad Situations will teach you how to apply, implement, and evaluate the strategic tax aspects of marital dissolutions and other difficult circumstances. The course presents current perspectives on property transfers, asset divisions, alimony, filing status, exemptions, and child support with an emphasis on planning considerations. Other key topics include:
- The cancellation of indebtedness income inclusion rules in the context of debt forgiveness and property foreclosure
- Exceptions from income inclusion contained in §108
- The tax treatment of property repossession under §1038, with specific emphasis on the calculation of gain and received property basis
- Bad debt treatment under §166 and a discussion of critical distinctions between business and nonbusiness debts
Upon successful completion of this course, participants will be able to:
- Recognize the different tax filing statuses, the tax implications to consider when going through a divorce, and the requirements and effects of filing as married or unmarried.
- Identify the requirements of filing a joint return, when elections are available, and how to avoid overpayments being applied to a debt owed by a spouse.
- Recognize the key elements of filing separate returns, what items to report, and whether or not married taxpayers should file separate returns.
- Identify the requirements for filing as head of household and the tax advantages and disadvantages of this filing status.
- Recognize the phaseout of exemptions and its impacts on taxpayers, when exemptions can be taken for spouses, reporting requirements for dependent exemptions, and the requirements for pre-2005 dependency particularly relationship, married person, citizen or resident, and income.
- Identify the former regular and special method for determining support, complications from back child support and multiple support agreements, the current 'qualified child' standard using residency, relationship, age, and joint return prohibition, and the requirements that must be met for parents to treat a child as a qualifying child of a noncustodial parent.
- Recognize deductible and nondeductible divorce expenditures, including which spouse is subject to tax imposed upon withheld wages, and the effects of making separate estimated tax payments or joint declarations of estimated tax.
- Recognize the definition of community property, community property states, the effects of conversion and commingling of property, and how to avoid such marital property issues.
- Identify community income earned by married couples for reporting purposes, examples of reportable community income, how property is treated when spouses live in different states, and circumstances where alimony payments may be nondeductible.
- Recognize the effect of living together on filing statuses and dependency, the difference between the married tax rate and other tax rates, the tax consequences of having a living together contract to avoid tax traps, and the results of Marvin v. Marvin.
- Identify types of marital property, their likely division in marital property settlements, and the principles used in dividing assets and providing support on divorce or separation.
- Recognize the benefits of premarital agreements and the requirements and permissible provisions for a valid and comprehensive agreement under the Uniform Premarital Act.
- Recognize the position of U.S. v. Davis on interspousal transfers including the changes made by §1041, the requirements of §1041, and the scope of its application.
- Identify the factors that determine whether a property transfer is incident to divorce and how to meet these factors or avoid §1041 altogether when desired.
- Recognize the application of §1041 to transfers in trust under §1041(e) and to third party transfers on behalf of a spouse or former spouse.
- Identify any deferred tax liability by figuring out the property basis for the transferor spouse and transferee spouse under §1041 after a property settlement.
- Recognize the application of §1041 to property transfers where the transferee assumes liabilities encumbering the property, and the holding period for an asset transferred between spouses or former spouses incident to divorce.
- Recognize the dangers of purchasing a former spouse's interest in property particularly a marital residence and its tendency to create deferred tax liability.
- Recognize the effects of purchasing an interest in personal or real property used in a business or held for investment, potential recapture, and the use of an exchange to dispose of low-basis property received in a §1041 transfer.
- Identify the common disposition alternatives available on divorce, the home sale exclusion requirements, and the tax treatment and use of installment obligations under §453 in divorce.
- Recognize sale, redemption, recapitalization, liquidation, and third-party transfers as methods of dividing a business in a marital settlement including unique provisions under §302, §736, and §754.
- Identify whether gain or loss on a sale of real or personal property is capital or ordinary, the tax treatment of such gain or loss, and the role and tax treatment of life insurance in property settlements.
- Identify popular methods of dividing retirement benefits in a divorce or separation action giving including the requirements and tax consequences of a 'qualified domestic relations order (QDRO).'
- Recognize the various tax and economic strategies for the division of pension benefits in a marital settlement including property division arguments, the treatment of IRAs, retirement planning after divorce, Social Security benefits, pensions, and dischargeable debts.
- Recognize the components of alimony and separate maintenance payments under §71, their deduction or income treatment under §215, the types of §71 divorce or separation instruments, the impacts of an invalid decree, an amended instrument, or a premarital agreement.
- Identify variables that impact whether a payment is alimony since 1984 and whether a cash payment is deemed made to or on behalf of a former spouse in order to characterize it as alimony.
- Recognize the tax treatment of housing costs for the family residence including the impact of ownership and which rent or resident cost payments can be alimony depending on residency and ownership of the home.
- Identify the tax treatment of life insurance premium payments, voluntary payments, payments to a remarried spouse, and the conditions that could recharacterize otherwise deductible alimony payments as nondeductible.
- Recognize the distinction between child support and alimony and their tax treatment to avoid reporting errors.
- Recognize the difference between alimony and child support tax provisions that currently apply with those that applied to instruments executed prior to 1985.
- Identify the deductions of alimony paid, the reporting of alimony received on the proper forms, and the required information when filing.
- Recognize the requirements of the alimony recapture rule for various marital agreements and its impact on the tax treatment of past payments.
- Recognize the use of alimony trusts to realize tax advantage and security, the use of annuity contracts, and the proper tax treatment of alimony paid by an estate to a former spouse of a decedent.
- Recognize the tax treatment and characterization of child support, events that determine whether a contingency is clearly child-related and how to rebut this presumption, COBRA rules, and qualified medical child support order rules.
- Recognize the effect that debt cancellation has on net worth and potential income inclusion from cancellation of indebtedness income, exceptions to the general income inclusion rule, and their effect on the taxpayer.
- Identify tax attribute reductions and their application when reducing canceled debt, the special basis reduction rules, the depreciable property election in reducing the basis of depreciable property before reducing any other tax attributes, what constitutes individual, partnership and S corporation bankruptcy, and variables used in determining whether shares of stock issued to a creditor are nominal or token.
- Recognize gain or loss resulting from foreclosure or repossession, reporting and filing requirements, the timing and character of the gain or loss, and the hidden income tax danger of directly or indirectly acquiring one's own debt at a discount.
- Identify the variables that determine which §1038 rules for repossessions apply, and the basis and gain or loss resulting from repossession of personal property using installment method and the non-installment method sales.
- Recognize the distinction between the rules, calculations, and effects of repossessions of personal and real property, and when a §166 bad debt deduction may be taken if the seller repossesses real property.
- Identify bad debt categories, their tax treatment, and their effect on accounting and reporting.
- Recognize the §166 tax treatment of business bad debts, including credit transactions, former business transactions, political debts, insolvency of a partner, business loan guarantees, reporting, and methods of treating bad debts.
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