Fundamental Tax Law Flashcards
Can tax regulation be imposed retroactively?
For changes to the IRC enacted after July 29, 1996, the Treasury Department generally is precluded from issuing regulations that take effect retroactively. Final regulations, however, may be made effective as of the date proposed or as of the date on which the temporary regulations preceding them were published in the Federal Register.
Classifications of regulations
Regulation are classified as proposed, temporary or final from a finality standpoint.
More classification of regulations
Regulations are also classified as Interpretive or Legislative
Interpretive regulations
Interpretive regulations are issued under the general authority of Sec. 7805 and, as the name implies, merely make the statutory language easier to understand and apply. In addition, they often provide illustrations as to how to perform various computations.
Legislative regulations
Legislative regulations, by contrast, are written whereby Congress delegates its rule-making authority to the Treasury Department. Because Congress believes that it lacks the expertise necessary to deal with a highly technical matter, it instructs the Treasury Department to articulate substantive tax principles relating to the matter.
Where do new tax laws get initiated
Under the U.S. Constitution, the House of Representatives is responsible for initiating new tax legislation. Tax bills are usually introduced in the House of Representatives and are referred to the House Ways and Means Committee. However, tax bills may also originate in the Senate as riders to non-tax legislative proposals. Often, major tax proposals are initiated by the President and accompanied by a Treasury Department study or proposal, and then introduced into Congress by one or more representatives from the President’s political party.
Steps in the Legislative Process.
Treasury Initiates its studies on needed tax reform.
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President Makes the proposal to Congress.
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Ways and Means Committee Prepares the House bill and is put to a vote in the House of Representatives for approval.
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Senate Finance Committee Prepares Senate bill and is put to a vote in the Senate for approval.
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Joint Conference Committee Approves the Compromise bill which is then approved by both the House and Senate.
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President Approves or vetoes the legislation.
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New Tax Law If approved, the new tax law and amendments are incorporated into the code.
What is a revenue ruling
In revenue rulings, the IRS indicates the tax consequences of a particular transaction in which taxpayers might engage. For example, a revenue ruling might indicate whether the exchange of stock for stock derivatives is tax-free.
What is a revenue procedure
Revenue procedures are IRS pronouncements that usually deal with the procedural aspects of tax practice. For example, in a revenue procedure the IRS provides guidance concerning the reporting of tip income.
What is a letter ruling
Taxpayers who write and ask the IRS to explain the tax consequences of a particular transaction initiate letter rulings. The IRS provides its explanation in the form of a letter ruling, which is, a personal response to the individual or corporation requesting an answer.
How does one qualify to file a tax return as a surviving spouse status
A widow or widower can file a joint return for the year his or her spouse dies if the widow or widower does not remarry. For the two years after the year of death, the widow or widower can file as a surviving spouse only if he or she meets specific conditions. The surviving spouse (sometimes called a qualifying widow or widower) must:
Have not remarried as of the year-end in which surviving spouse status is claimed.
Be a U.S. citizen or resident.
Be qualified to file a joint return in the year of death.
Have at least one dependent child living at home during the entire year and the taxpayer must pay over half of the expenses of the home.
Head of the household status
A second rate schedule or tax table is available to a head of household. The head of household rates are higher than those applicable to married taxpayers filing jointly and surviving spouses, but lower than those applicable to other single taxpayers. To claim head-of-household taxpayers are subject to the following rules:
He or she must be unmarried as of the last day of the tax year. Exceptions apply to individuals married to non-resident aliens and to abandoned spouses.
An individual cannot claim head-of-household status in the year his or her spouse died. Such individuals must file a joint return or a separate return.
He or she must not be a surviving spouse.
He or she must be a U.S. citizen or resident.
He or she must pay over half of the costs of maintaining his or her home in which a dependent relative lives for more than half of the tax year. The dependency exemption cannot be based on a multiple support agreement.
A married taxpayer can claim head of household status if the taxpayer lives apart from his or her spouse for the last 6 months of the year.
Statutes of Limitations
Both the IRS and taxpayers can make corrections to returns after they have been originally filed. There is a limited time period in which to make such corrections. This time period is called the statute of limitations and prevents either the taxpayer or the IRS from changing a filed tax return after the time period has expired. The general rule for the statute of limitations is three years from the later of the date the tax return was actually filed or its due date. However, a six-year statute of limitations applies if the taxpayer omits items of gross income that in total exceed 25% of the gross income reported on the return. The statute of limitations remains open indefinitely if a fraudulent return is filed or if no return is filed.
