Exam 1 Flashcards
Tax
Payment that is required by a government agency but unrelated to any benefit
flat tax
a single rate is applied
Graduated Tax
Each bracket is taxed a different rate
Marginal Tax Rate
Incremental tax paid on incremental amount of deductions
Average Tax Rate
Average level of taxation on each of dollar of taxable income
Effective Tax Rate
Average rate of taxation for each dollar of total income
Proportional Tax Rate
Imposes a constant tax rate throughout the tax base (flat tax)
Progressive Tax Rate
Imposes an increasing marginal tax rate as the tax base increases
Federal Taxes
Income, Employment/Unemployment, Excise, and Transfer Taxes
Explicit Tax
Directly Assessed
Various Criteria for Tax Systems
Sufficiency Equity Certainty Convenience Economy
6 Month Extension
Granted automatically by the IRS, extension only for filing, not for payment.
Penalty for Late filing
5% tax due each month payment isn’t recieved
Statute of Limitations
3 years after either the due date or when it was filed
DIF
Assigns score to each tac return probability
Document Perfection Program
Checks all returns for mathematical errors
Information Matching Program
Compares info from the tax return with info submitted to the IRS
Types of Audits
Correspondence, Office, and field
30-day Letter
Must either request a conference with an appeals officer or agree to proposed adjustment
90-day Letter
Either pay proposed deficiency or file a petition in the US Tax court yo hear case
Tax Court
National court of tax experts
US District Court
Gerneralist, may have a jury
US Court of Federal Claims
All types of claims against the government
US Circuit of Appeal
Appealed from Tax court
3 Legislative Authorities
US constitution
IRC
Tax Treaties
Tax Legislative Process
US HoR-> US Senate ->UD President
Joint Committee Conference
Lowest Authority
US District courts, US court of federal claims, and the US Tax Court
3 Forms of Regulation
Final
Temporary
Proposed
Tax Research Steps
Understand the fact Identify Issues Locate Relevant Authorities Analyze Authorities Document and communicate results
Adjusted Gross Income
Gross income - AGI above line deductions
Taxable income
Adjusted Gros income - AGI below line deduction
Ordinary Income
Taxed at Ordinary rates
Capital Income
Gains/losses on disposition
Qualified Dividend
Generally taxed at 15%
Deduction
decrease Taxable income
Tax Credits
Decreases Tax Payable
Tax prepayments
Withholdings
Estimated Tax Payments
Overpaid taxes
Dependency Req
US citizen or resident
not file jointly
must be considered qualified
Qualified Child
Relationship
Age
Residence
Support
Qualified Relative
Relationship
Support
Gross Income
Multiple Support Agreement
Must provide 10% or more support and a signed agreement
Timing Strategies
When the income is taxed or deducted affects PV
Tax rate changes the benfits
Timing when Rates are Constant
Either Accelerate deductions or defer taxable income
Timing Strategy with changes
TR^Calc Optimal tax stat for deduction and income
TRv Accelerate deductions into earlier years
Limitations on Timing strategy
Constructive Doctorine- resticts deferral for cash method
Acc Ded = Cash
Defer Inc = retain asset
Income shifting trategies
Shifting income from high tax rate payers to low tax rate payers
Assignment of Income Doctorine
Income to be taxed to the tax payer that actually earns it.
Conversion Strategies
Recasting income and expenses recieve the most favorable tax treat,emt
Business Purpose Doctrine
Allows IRS to challenge and disallow business expenses for transactions with no underlying business motivation.
Step-Transaction Doctrine
Allows the IRS to collapse a series of related transactions into one
Substance over Form Doctrine
Allows IRS to Consider the transactions substance regardless of its form to reclassify the transaction according to substance
Economic Substance Doctrine
Requires transactions to have 2 req:
Must meaningfully change taxpayers economic position
Must have substantial purpose for the transaction
Realization Principal
Taxpayer engages in transaction w/ third party
Transaction results in measurable change in property
From of Reciept
Facilitates the exchange of rights to goods/services
Return of Capital Principal
Cost of an asset is it’s beginning tax basus
Tax benefit Rule
Indiv can claim Deductation in Y1
Annual Exclusion Ratio
Original investment/ Expected value of annuity
Alimony before 2018
Taxable and deductible
