Class 02. Flashcards
tax law + hierarchies + income statement
where did US tax laws come from?
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
what was the personal income tax rebuttal?
the 16th amendment edited so that various tax laws were created for their situations
who creates the tax law?
IRS
when was corporate income tax enacted?
1909
what are the sources of tax law?
statutory, administrative and judicial
what are the statutory functions?
writes laws inspired by the IRC (authoritative + 1986 vers) & from the House Ways + Means to the Senate Finance Committee.
how do you cite the law?
section, section #, subsection, paragraph designation, subparagraph designation
(ie. S 62(a)(2)(A))
what are administrative functions?
write + change laws (most to least powerful)
- Treasury Regulations
- Revenue Rulings (IRS)
- Revenue Procedures
- PLR (Private Letter Ruling)
what is treasury regulations?
consults AICPA/other admins for checks, and if finalized—full effect by IRS (otherwise, 3 year shelf life)
what is revenue rulings?
the IRS + binding to taxpayers
what is revenue procedures?
concerned with the IRS’ internal procedures
what is private letter ruling (PLR)?
guide taxpayer on a transaction’s taxing prior to being incurred & binding between taxpayer and the ruling
what are judicial functions?
change laws if unconstitutional + taxpayer chooses court of litigation
- Tax Court
- Tax Court (Small Cases)
- Federal District Court
- Court of Federal Claims
what is the tax court?
hears only tax cases + no jury
what is tax court (small cases)?
handles cases under $50,000 + no appeal
what is federal district court?
hears tax & non-tax + jury
what is US federal claims?
hears cases against the govt.
what is the hierarchy of tax law?
- constitution
- court decision
- IRC (statutes)
- tax treaties
- treasury regulation
- revenue ruling/procedures
how do you calculate tax?
income - exclusions
= gross income
- deductions (expenses)
= adjusted gross income
- itemized deductions
= taxable income
- tax table - withholdings paid
= tax due
what is gross income?
according to IRC Section 61, any income
what is form 1040?
individual income tax return
what are categories of gross income?
recognized, realized, excluded, and deferred income
what is recognized income?
income included in your return
what is realized income?
included in gross unless excluded/deferred
what is excluded income?
excluded from gross
what is deferred income?
income in the next tax year
what types of deductions exist?
deductions for AGI (student loan interest) + deductions from AGI (below the line)
T/F: you can claim the greater of standard or itemized deductions
true
why is AGI important?
the basis for computing percentage limitations on itemized deductions
what types of standard deductions exist?
basic (based on filing status) + additional (over 65 and/or blind)
what tax rate does the US use?
progressive
why is tax credit preferred?
it deducts by the dollar, while the rate deducts a fraction of a dollar
