Class 02.

Question 1

where did US tax laws come from?

Answer 1

US Constitution—congress permitted to lay + collect taxes equally for military + citizen welfare
Personal Income Tax—during the Civil War, then challenged in 1894, then rebutted in 1913

Question 2

what was the personal income tax rebuttal?

Answer 2

the 16th amendment edited so that various tax laws were created for their situations

Question 3

who creates the tax law?

Answer 3

IRS

Question 4

when was corporate income tax enacted?

Answer 4

1909

Question 5

what are the sources of tax law?

Answer 5

statutory, administrative and judicial

Question 6

what are the statutory functions?

Answer 6

writes laws inspired by the IRC (authoritative + 1986 vers) & from the House Ways + Means to the Senate Finance Committee.

Question 7

how do you cite the law?

Answer 7

section, section #, subsection, paragraph designation, subparagraph designation
(ie. S 62(a)(2)(A))

Question 8

what are administrative functions?

Answer 8

write + change laws (most to least powerful)

1. Treasury Regulations
2. Revenue Rulings (IRS)
3. Revenue Procedures
4. PLR (Private Letter Ruling)

Question 9

what is treasury regulations?

Answer 9

consults AICPA/other admins for checks, and if finalized—full effect by IRS (otherwise, 3 year shelf life)

Question 10

what is revenue rulings?

Answer 10

the IRS + binding to taxpayers

Question 11

what is revenue procedures?

Answer 11

concerned with the IRS’ internal procedures

Question 12

what is private letter ruling (PLR)?

Answer 12

guide taxpayer on a transaction’s taxing prior to being incurred & binding between taxpayer and the ruling

Question 13

what are judicial functions?

Answer 13

change laws if unconstitutional + taxpayer chooses court of litigation

1. Tax Court
2. Tax Court (Small Cases)
3. Federal District Court
4. Court of Federal Claims

Question 14

what is the tax court?

Answer 14

hears only tax cases + no jury

Question 15

what is tax court (small cases)?

Answer 15

handles cases under $50,000 + no appeal

Question 16

what is federal district court?

Answer 16

hears tax & non-tax + jury

Question 17

what is US federal claims?

Answer 17

hears cases against the govt.

Question 18

what is the hierarchy of tax law?

Answer 18

1. constitution
2. court decision
3. IRC (statutes)
4. tax treaties
5. treasury regulation
6. revenue ruling/procedures

Question 19

how do you calculate tax?

Answer 19

income - exclusions
= gross income
- deductions (expenses)
= adjusted gross income
- itemized deductions
= taxable income
- tax table - withholdings paid
= tax due

Question 20

what is gross income?

Answer 20

according to IRC Section 61, any income

Question 21

what is form 1040?

Answer 21

individual income tax return

Question 22

what are categories of gross income?

Answer 22

recognized, realized, excluded, and deferred income

Question 23

what is recognized income?

Answer 23

income included in your return

Question 24

what is realized income?

Answer 24

included in gross unless excluded/deferred

Question 25

what is excluded income?

Answer 25

excluded from gross

Question 26

what is deferred income?

Answer 26

income in the next tax year

Question 27

what types of deductions exist?

Answer 27

deductions for AGI (student loan interest) + deductions from AGI (below the line)

Question 28

T/F: you can claim the greater of standard or itemized deductions

Answer 28

true

Question 29

why is AGI important?

Answer 29

the basis for computing percentage limitations on itemized deductions

Question 30

what types of standard deductions exist?

Answer 30

basic (based on filing status) + additional (over 65 and/or blind)

Question 31

what tax rate does the US use?

Answer 31

progressive

Question 32

why is tax credit preferred?

Answer 32

it deducts by the dollar, while the rate deducts a fraction of a dollar