Chapter 2 Flashcards
Statutory Sources of Tax Law
The Internal Revenue Code is the statutory source for tax law. Example: 401k, 403B, Primary source of law. New Legislation generally originates in the House Ways and Means Committee.
Administrative Sources of Tax Law
Regulation- official interpretations of internal revenue code. Three types of regulation. Proposed regulations- have been drafted by the Treasury, but not yet adopted. Temporary regulations: issued when the treasury feels that guidance must be provided quickly to taxpayers. Final regulations: began as proposed or temporary regulations. Final regulations have full force and effect of law provided that they are consistent with the Internal Revenue Code.
Judicial Sources of Law
The body of decisions from U.S.courts are commonly referred to as “case law” Precedential Value. American law, following English common law, is frequently made by judicial decisions. Under the doctrine of stare decisis, each decision has precedential value for future decisions with the same controlling set of facts.
Internal Revenue Service
Administrative sources of law. Revenue rulings: based on a set of facts that are common to many taxpayers to give taxpayers insight to how the IRS will treat certain transactions. Private Letter Rulings: Issued at the request of an individual taxpayer to know how the IRS would treat and individual transaction. Determination Letter: Requested froma district director of the IRS when the taxpayer has already engaged in a transaction and would like to know how to report it for tax purposes. Revenue procedures: detail internal practices and procedures within the IRS.
Administration of the Tax System
The IRS was created by the Treasury Department to enforce the Internal Revenue Code and collect the taxes imposed by Congress.
Statue of Limitations
General Statute of Limitations- 3 years. Substantial understatement of income(more than 25 percent) 6 years. Fraud- none. Collection of Deficiency by IRS 10 years. Refund claim by taxpayer 3 years.
Failure to File Penalty
5% per month or part thereof to 25% maximum.
Failure to Pay Penalty
.5 percent per month or part thereof to 25% maximum.
Accuracy Related
20% of underpayment to 30 percent.
Fraud
15 percent per month up to 75% of underpayment.
IRS Audit
An IRS audit is a review of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly and verify the amount of tax reported is accurate. Audit selection. Selecting a return for audit does not always suggest than an error has been made. Returns are selected using a variety of methods including: random selection and computer screening. Document matching - when payer records such as W-2 and Form 1099, don’t match the information reported. Related examinations- may be selected for audit when they involve issues or transactions with other taxpayers., such as business partners or investors, whose returns were selected for audit.
Audit Methods
An audit may be conducted by mail or through an in-person interview and review of the taxpayer’s records. The interview may be at an IRS office or at the taxpayer’s home, place of business, or accountant’s office.
Audit Determinations
An audit can be concluded in three ways: no change: an audit in which you have substantiated all of the items being reviewed and result in no changes. Agreed: an audit where the IRS proposed changes and the taxpayer understands and agrees with those changes. Disagreed: an audit where the IRS has proposed changes and the taxpayer understands, but disagrees with the changes.
