Final Exam Flashcards
What is the file memo’s purpose
- Organize facts 2. Facilitate a review of the research activities. 3. Allow for subsequent examination of the research
Evaluate the sources of law
- Regulations seldom are held to be invalid by a court. 2. Revenue Rulings and Revenue Procedures are frequently modified or held invalid by the court. 3. Decisions of courts that are higher in judicial hierachy should received additional precedential weight
How should older court decisions be weighted
Older court decisions should be assigned a geometrically declining degree of importance
Which are better Credits or deductions?
Deductions
What is the formula for Tax liability
Tax base x rate
What is a progressive tax rate
a tax rate that increases as the tax base grows larger
What is a proportional tax rate
Flat tax rate that remains the same
What is a regressive tax rate
A tax rate that decreases as the tax base increases
What is a statutory tax trap?
Via Section 482 gives the IRS the ability to reallocate both income and deductions among certain related taxpayers to reflect true income
What is the kiddie tax
Tax created in 1986 to keep parents from sheltering income by putting accounts in the name of their lower taxed children
What is the judicial tax trap
When the IRS applies substance over form to telescope or collapse several transactions into one
What is marginal tax rate?
Tax rate on the income before the subsequent increase
What is the average tax rate?
Total income divided by total tax
What the ways a tax payer can avoid recognition of income?
- avoiding the accumulation of gross income 2. use of debt 3. take advantage of many exclusions that the law permits
What is the true tax rule?
Section 482 allows IRS to reallocate income and deductions to reflect true taxable income
Who is responsible for administering and enforcing the internal revenue laws of the US
Department of Treasury
Who is the chief officer of IRS
Commissioner
How is the IRS Commissioner appointed
President for 5 year term that can be renewed
Who may represent a tax payer
CPA, attorney, enrolled actuary, enrolled agent
How does the IRS select returns to audit?
Returns that will generate additional revenues for the Treasury
How much time does a tax payer have to pay if a mathematical or clerical error is discovered
10 day letter; 21 days to pay
What is the discriminant function formula?
a formula that assigns numeric weight to certain return items, generating a composite score for the return.
What is the audit process
1 preliminary review of return 2. mathematical clerical error program 3. unallowable items program
What is a correspondence examination?
When IRS questions one or two items on a return and mails a letter to a taxpayer requesting information
What are the three ways an examination can be schedule?
Correspondence, Office or Field
What is a RAR?
A written Revenue agent’s report given to taxpayer explaining the proposed adjustments and balance due or overpayment
What is the supremacy clause?
Federal constitution holds that federal laws have superiority over state laws
How is the code organized?
Title, subtitle, chapter, subchapter, part, section, subsection, paragraph, subparagraph, clause
What is Public Law 86-272?
Prevents income taxation of interstate commerce if a company’s only business within the state is the solicitation of orders for sales of tangible personal property
What are administrative sources of law?
Regulations, rulings, revenue procedures, and other opinions that are used by the Treasury Department or the Internal Revenue Service.
What is an AOD?
A memorandum prepared when the Internal Revenue Service (IRS) loses a case in a court that recommends the action, if any, that the IRS should take in response to the adverse decision.
Do temporary regs carry the full force of the law?
Yes
What is due process?
Found in the Fourteenth Amendment to the U.S. Constitution, the clause (among other things) limits the territorial scope of a state’s taxing authority, particularly in regard to interstate commerce
What is the Commerce clause?
The clause of the U.S. Constitution indicating that Congress has the power to regulate commerce with foreign nations, among states, and with Native American tribes. It grants powers to Congress and places constraints on the states’ ability to tax interstate trade.
What is the MTC?
Created in 1967 by the Multistate Tax Compact. The MTC adopted the Uniform Division of Income for Tax Purposes Act (UDITPA) as part of its Articles, issued Regulations interpreting the UDITPA and continues to issue apportionment rules. As of early 2008, there are forty-seven states participants in MTC
What does nexus mean?
sufficient business connection with a locality that gives taxing authority to the locality over the business
What is the territorial model?
A structure of international taxation under which the profits of a business are taxed by the country in which the business is earned.
What is the worldwide model?
A tax system in which a country imposes tax on residents based on their worldwide income, regardless of its source.
What is a 30 day letter?
A notice from the Internal Revenue Service formally notifying the taxpayer of the results of an examination of the return and requesting that the taxpayer agree to the proposed modifications to the tax liability. A taxpayer’s failure to respond to the letter triggers the statutory notice of a tax deficiency, that is, the ninety-day letter demanding the payment of the tax or a petition to the tax court.
What is a 90 day letter?
A statutory notice from the Internal Revenue Service (IRS) that the taxpayer has failed to pay an assessed tax. An issuance of such a letter usually indicates that the taxpayer has exhausted all of his or her appeal rights within the IRS and that the next forum for review will be a trial-level court. Strictly, the taxpayer has ninety days to petition the Tax Court to be relieved of the deficiency assessment. If no such petition is filed, the IRS is empowered to collect the assessed tax
What is the tax calculation formula?
Tax Calculation Formula (Revenues - Expenses = Tax Base X Tax Rate = Tax liabilities - Credits = Tax Due.)
