Income Tax: Administrative Flashcards
What is the primary source of tax law?
The Internal Revenue Code (IRC).
the tax reform act of 1986 created the current code,
what is the secondary primary source of tax law?
Administrative Law Sources are the secondary source of tax law:
- Regulations
- Revenue Rulings
- Revenue Procedures
- Private Letter Rulings
- Determination Letters
- Technical Advice Memorandums.
What are regulations?
- issued by the US Treasury department and are interpretations of the Internal Revenue Code.
- Have full force and effect of the law and are the second highest authority of the tax law.
- There are three types:
1. Proposed - Have no legal precedence.
2. Temporary - issued when guidance needed quickly and have same authoritative value as final regulations.
3. Final Regulations - Have Full force and effect of the law.
What are revenue rulings?
- Interpretations of the tax laws issues by the IRS.
- Do not have full force and effect of the law
- May be cited as precedent, courts are not bound to them.
What are revenue procedures?
Describe internal practices and procedures within the IRS.
What are Private Letter Rulings?
Issued by the IRS at the request of the tax payer.
With regard to that taxpayer, the IRS is bound to its determination in the ruling.
What are Determination Letters?
Issued by district directors for returns that will be filed in their respective districts.
only issued for transactions that have already been completed.
- same as private letter ruling but for completed transactions.
What is a Technical Advice Memorandum?
- Issued by the national IRS office
- issued in response to a request by an agent performing an audit on a taxpayer.
What is the third primary source of tax law?
Judicial Decisions are the third primary source.
Taxpayers may seek adjudication from the federal courts if they cannot get it from the IRS.
Court Decisions are official interpretations and applications of the IRC by the judicial branch of the government.
IRS and Secretary of Treasury?
IRS created by the secretary of treasury to carry out administer and enforce the internal revenue laws.
The Secretary of treasury has the power to enforce these laws as well.
What is the statute of limitations?
- Law provides taxpayers a three year window of opportunity to claim a refund when a return has not been filed.
If no return is filed after three years, money becomes property of US treasury.
- If no return has been filed there is no statue of limitations for the IRS to assess and collect taxes.
- If tax return has been filed, IRS has a 3 statute of limitations to audit a tax return and 10 year statute to collect any tax.
no statute of limitations for fradulent returns.
How is interest paid on refunds?
- IRS pays interest on refunds if not received within 45 days of the taxpayer filing a claim.
- Interest accrues from the original due date of the return, even if the taxpayer obtained an extension.
What is the Failure to File Penalty?
- Penalty assessed if you fail to file your tax return on time.
- 5% penalty per month up to 25%.
- If it is due to a fraudulent failure to file, then penalty is increased to 15% per month up to 75%.
- return is over 60days late, the minimum penalty is $450 or amount of tax due.
What is the failure to pay penalty?
- .5% per month up to 25%
- if you have both failure to file and failure to pay. failure to file amount reduced by failure to pay penalty paid.
Underpayment of Estimated Tax:
Due dates for estimated tax payments are: April 15th, June 15, September 15th, & January 15th.
How to calculate the penalty:
1. determine the amount of underpayment for each period and the number of days in that period.
- apply an appropriate interest rate factor
How do accuracy related penalties work?
- Accuracy related penalty of 20% applies to any underpayment due to negligence or disregard of rules or regulations, or substantial understatement of income tax.
- Income tax is understated if the understatement of tax exceeds the greater of 10% of the correct tax or $5,000.
Fraud Penalty is 75% of the tax underpayment attributed to fraud.
What happens after an Audit?
- If changes to the tax are proposed, the taxpayer can either agree with those changes and pay any additional tax he may owe, or the taxpayer can appeal the decision.
- A return may be selected based on a few things:
Computer based scoring - DIF System
Basis of information received from third party, w-2 and 1099 doesn’t match return.
Market study of taxpayers with similar tax situation.
Who may represent a client during an audit by the IRS?
- Attorney
- CPA
- Enrolled Agent (EA)
*NOT A CFP
The Federal Judicial System
The US Tax Court
- No Payment of tax is necessary in order to bring a claim before the US Tax Court.
- Trial by jury is not available.
- The small tax case division handles deficencies under $50,000 at the taxpayers request.
- Appeals are to the us court of appeals
The US Court of Federal Claims
- only hears claims against the united states
- tax deficiencies must be paid to proceed in this forum.
- Appeals are to the US Court of Appeals for the federal circuit.
The US District Court
Tax Deficiencies must be paid to proceed in this form
only forum with a jury
The US court of Appeals
Handles appeals from the US Tax Court and District Court
-Court of appeals in one region is not required to follow decisions of court of appeals of another region.
The US Supreme Court
- Decisions of the US Supreme Court are binding on the taxpayers and the IRS
- Us Supreme Court Reviews Tax Cases If:
conflict between circuit courts
an important and recurring problem in tax law administration is involved
many taxpayers are involved
the decision of a lower court conflicts with long standing practice or regluations.
US tax courts chart
