Federal Tax Legislation, Procedures, Planning, and Accounting Flashcards
Tax legislation is first referred to which Senate committee once it is approved by the House?
Finance. The House version is referred to the Senate Finance Committee before being considered by the full Senate
What is the most authoritative source of tax law?
Internal Revenue Code.
Which of the following is the primary source of Federal Tax Law?
The Internal Revenue Code of 1986 is the primary source of Federal Tax Law. It imposes income, estate, gift, employment, and miscellaneous excise taxes and provisions controlling the administration of Federal taxation.
A taxpayer wishing to reverse the U.S. Tax Court’s ruling would appeal to which of these courts?
U.S. Circuit Court of Appeals.
What are the primary authoritative sources when conducting tax research?
Tax Court cases
Treasury regulations
Internal Revenue Code
Where do all bills for raising revenue originate?
“All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills . . .”
when the IRS wants to receive public feedback, what type of regulation would be issued?
Proposed regulations are issued to elicit comments from the public. Public hearings are held if written requests are made. Proposed regulations might be used as somewhat of an authority for taking a tax position, but the regulations themselves do not state this and must be considered as a weak authority at best.
Which of the following is required to override a presidential veto?
2/3 majority vote by Congress.
To research whether the Internal Revenue Service has announced an opinion on a Tax Court decision, refer to?
The Internal Revenue Bulletin is published weekly and includes Treasury decisions, statutes, committee reports, U.S. Supreme Court decisions affecting the IRS, lists of the acquiescences and nonacquiescences of the IRS to decisions of the courts, and administrative rulings.
What are the 3 classes of Treasury Regulations?
The three classes of Treasury Regulations are temporary, final, and proposed regulations.
In order to show that a tax preparer’s application of tax law was in line with the intent of the tax law, the preparer should cite?
Committee reports are useful tools in determining Congressional intent behind certain tax laws and helping examiners apply the law properly. The committee reports are very high authority to which the courts are bound.
What is writ of certiorari?
A writ of certiorari is an order by the Supreme Court to send the case up for its consideration. The court’s certiorari jurisdiction is purely discretionary. A denial of a petition for a writ of certiorari by the Supreme Court expresses no opinion on the merits of the case.
Should publications be cited to sustain a position in defense of a position before the Appeals Office of the IRS?
IRS Publications explain the law in plain language for taxpayers and their advisors. They typically highlight changes in the law, provide examples illustrating Service positions, and include worksheets. Publications are not binding on the Service and do not necessarily cover all positions for a given issue. While a good source of general information, publications should not be cited to sustain a position.
Congressional Committee Reports:
Congressional Committee Reports reflect Congress’ intent behind certain tax laws and help examiners apply the law properly.
When a revenue ruling conflicts with a revenue procedure, which of the two tax authorities has precedence?
The most recently established. When there are conflicting sources of tax law within the same tier of the hierarchy (as is the case with revenue rulings and procedures), the most recent rule/law takes precedence.
What is Income Shifting?
Income shifting typically relates to moving income and therefore the accompanying tax liability from one family member to another who is subject to a lower marginal rate or moving income between entities and their owner(s). When a taxpayer hires a family member subject to a lower marginal rate (typically one of the taxpayer’s children), the taxpayer, in essence, shifts income, reducing the overall (i.e., global) family tax liability.
A cash-basis taxpayer should report gross income
For the year in which income is either actually or constructively received, whether in cash or in property.
The cash method of accounting is only permitted for certain taxpayers. The following taxpayers use the accrual method of accounting as their overall method of accounting for tax purposes:
(1) C corporations, unless they are small C corporations or personal service corporations; (2) partnerships that have a C corporation as a partner; (3) trusts that are subject to the tax on unrelated income; and (4) tax shelters.
If leasehold improvement were not in lieu of any required rent, is the value of leasehold improvement included or excluded from income?
leasehold improvements are excluded from income since they were not in lieu of rent.
Is a TP required to obtain permission of the Commissioner of Internal Revenue to change from Accrual method to the installment method of reporting income?
The general rule is that to change an accounting method the taxpayer must obtain the permission of the IRS. In general, the installment method of reporting income may be used by a taxpayer without the permission of the IRS.
What must be met to qualify for completed contract method?
Receipts and expenditures are accounted for, under the completed-contract method, in the tax year in which the contract is completed. The method is allowed only for a construction contract of a small business if expected to take no longer than 2 years to complete or home construction projects. A small business is one with average annual gross receipts not greater than $10 million for the 3 preceding tax years.
Superior Construction Co. was contracted to plaster all the buildings of a historical preservation project for $2,500,000 over the next 2 years. Total estimated costs to complete are $2,000,000. Actual costs incurred in Years 1 and 2 were $800,000 and $900,000, respectively. Using the percentage-of-completion method, what amount of gross profit would Superior report in Year 1?
A. $500,000
B. $200,000
C. $225,000
D. $250,000
Answer (B) is correct.
Under the percentage-of-completion method, Superior calculates gross profit based on the ratio of costs for the tax year to total expected costs to complete the project. The ratio of costs is 40% ($800,000 actual costs ÷ $2,000,000 total costs to complete). The cost ratio is multiplied by the total contract for Year 1 gross receipts of $1,000,000 ($2,500,000 contract price × 40%). Year 1 gross receipts less Year 1 actual costs equals total gross profit for Year 1 of $200,000 ($1,000,000 – $800,000).
What is the general term for a single geographic area that has its own distinct set of tax rules and regulations?
A tax jurisdiction is a geographic area that has its own distinct set of tax rules and regulations. Specific examples of tax jurisdictions include a municipality, county, state, or country.
In accordance with the UDITPA, which of the following is correct for allocating interest and dividends?
Allocate based on the commercial domicile of the taxpayer.
