Basic Income Tax 2018-2019

Table of contents
Basic Income Tax 2018-2019
6th Edition
William P. Kratzke
Table Of Contents
Basic Income Tax 2016-2017

Basic Income Tax

2018-2019 Edition

Sixth Edition


Tax Cuts and Jobs Act




William Kratzke

Professor of Law

The University of Memphis






CALI eLangdell Press 2018




Introduction.1. About the Author

Professor William Kratzke is a Cecil C. Humphreys Professor of Law at the University of Memphis. He received his B.A. in Political Science and the Far Eastern & Russian Institute from the University of Washington in 1971. This naturally caused him to be interested in attending law school. He received his J.D. from Valparaiso University in 1974 and was a member of the Valparaiso University Law Review’s editorial board. He received his LL.M. from Georgetown University in 1977.

Professor William Kratzke teaches tax law courses at the University of Memphis.   He has been a faculty member there since 1979.  He has taught courses across the curriculum.  In addition to tax courses, he has taught trademarks, torts, civil procedure, world trade law, economic analysis, and other courses.  He visited Santa Clara University and the University of Mississippi.  He received Fulbright Teaching Awards in 1997 (Moldova) and 2001-2002 (Russia).

Professor Kratzke has written in the areas of tax law, trademark law, tort law, and antitrust law.

Introduction.2. Notices

This is the sixth edition of this casebook, updated May 01, 2018 and incorporating the Tax Cuts and Jobs Act. Visit http://elangdell.cali.org/ for the latest version and for revision history.

This work by William Kratzke is licensed and published by CALI eLangdell Press under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. CALI and CALI eLangdell Press reserve under copyright all rights not expressly granted by this Creative Commons license. CALI and CALI eLangdell Press do not assert copyright in US Government works or other public domain material included herein. Permissions beyond the scope of this license may be available through feedback@cali.org. 

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William Kratzke, Basic Income Tax 2018-2019 Edition, Published by CALI eLangdell Press. Available under a Creative Commons BY-NC-SA 3.0 License.

CALI® and eLangdell® are United States federally registered trademarks owned by the Center for Computer-Assisted Legal Instruction. The cover art design is a copyrighted work of CALI, all rights reserved. The CALI graphical logo is a trademark and may not be used without permission.

This material does not contain nor is intended to be legal advice. Users seeking legal advice should consult with a licensed attorney in their jurisdiction. The editors have endeavored to provide complete and accurate information in this book. However, CALI does not warrant that the information provided is complete and accurate. CALI disclaims all liability to any person for any loss caused by errors or omissions in this collection of information.

The author wishes to express thanks to his research assistants, Magdalene Smith and Jay Clifton.

Introduction.3. About CALI eLangdell Press

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Introduction.4. Preface

This book is a basic income tax text. I intend this text to be suitable for a three-hour course for a class comprised of law students with widely different backgrounds.

Certain principles permeate all of tax law. I have found that certain axioms or principles will carry us a long way. For example, income is taxed once – or treated as if it has been taxed. Once it has been taxed, its investment gives the taxpayer basis – which I define not as cost but as money that will not be subject to tax again.  Etc. The text returns to these principles throughout. I usually put these matters in text boxes.

At a minimum, I want students who have completed basic income tax to know these principles and to be able to apply them, i.e., to develop some “tax intuition.” This intuition will serve well the student who wishes to take more tax classes. I tried to identify what I want students to know before enrolling in corporate tax or partnership tax – and to make certain that I covered these principles in the basic course. Such intuition will also serve well the student for whom the basic course is a “one and done” experience. Like it or not, tax law affects most legal topics, and such intuition should at least give students working in other areas of the law an idea of when it is time to ask questions concerning lurking tax issues.

At the end of every chapter, I have included a short section entitled “What have you learned?” This page may be examined before beginning the study of a chapter.  I intend it to be a statement of learning objectives: a student should have a solid understanding of the items listed.

In some areas, I have relied heavily on the CALI drills by Professor James Edward Maule (Villanova University). These drills both review and, in some instances, teach a little substance. Each zeroes in on a specific topic and should take a student about twenty minutes to complete if she has adequately prepared to do the drill. Of course, students can work through such drills at their own speed. With the assistance of CALI’s LessonLink, professors and students alike can monitor students’ understanding of the discrete topics of these drills.

I have tried to make this text very readable – so that students can easily understand. I have aimed at law students who “know” they have no interest in income tax – but who may find that they in fact have a considerable interest in tax law. With my political science background, I was such a student. I am proof that one does not have to have an accounting background to find income tax law both important and interesting. Additionally, Magdalene Smith and Jay Clifton III were two such students; they assisted me greatly in making this text as accessible as possible to all law students. I thank them now for their work.

I have alternated from one chapter to the next my usage of singular indefinite pronouns. I have used the feminine forms for chapters 1, 3, 5, 7, and 9. I have used the masculine forms for chapters 2, 4, 6, 8, and 10.


Memphis, Tennessee, July 2013, May 2016, and May 2017.

My use of pronouns referring to non-specific persons alternates between the feminine and masculine chapter by chapter.

In December 2017, Congress enacted the Tax Cuts and Jobs Act. This statute contains significant measures that alter several Code provisions important to this course.  Some, but not all, of these measures are “temporary,” i.e., for calendar years 2018 to 2025.  I anticipate that we will be in for a period of intense lobbying to make these changes permanent.  I note and briefly describe the provisions that have been “suspended” – anticipating that these changes will be made permanent.


Memphis, Tennessee, May 2018

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