R6 Flashcards
IRC Section 501(c)(3)
Provides for corporations, community chests, funds and foundations to be organizations eligible for exemption from federal income taxes
Example: religious organizations
Cemetery companies, Supplemental unemployment benefit trusts and Chambers of commerce are
tax-exempt, nonprofit organizations, but they are not 501(c)(3) public charities for purposes of the charitable contribution deduction
Unrelated business income is
Derived from an activity that constitutes a trade or business
Is regularly carried on and
Is not substantially related to the organization’s tax-exempt purpose
Note: an unrelated business does NOT include any activity where all the work is performed for the organization by unpaid volunteers. Thus using unpaid volunteers makes that business or activity “related”
Items that are excluded from unrelated business income
Income from research activities by a college, university, or hospital
Interest, dividends and other investment income
Gains from the sale of property that is not held for sale to customers in the ordinary course of business
Estimated Tax Payments
A taxpayer must pay taxes throughout the year through withholdings and or quarterly estimated tax payments of the lesser of 90% of PY tax, 100% of CY tax (110% of CY tax of AGI is above 150,000)
The penalty for failure to file a tax return by the due date is
5% per month or fraction of month (up to a maximum 25%) on the amount of tax shown as due on the return.
The pantry for failure to pay by the due date is
1/2% per month based on the amount due on the return
Accuracy related penalties applies to
the portion of tax underpayment attributable to:
negligence or a disregard of the tax rules or regulations
any substantial understatement of income tax
The negligence penalty defines “disregard” as
any careless, reckless or intentional disregard of tax rules or regulations
The negligence penalty with respect to understatement of tax is calculated as
20% of the understatement of tax
Imposition of the civil fraud penalty
requires conduct that transcends negligence or stupidity. There needs to be a willful and deliberate attempt to evade taxes
What is the penalty for a substantial understatement of tax
20% of the understatement
The more likely than not standard involves a position that
has a more than 50% chance of succeeding
The reasonable basis standard involves a position that
has at least a 20% chance of succeeding
Which reports issued constitute substantial authority?
Reports issued by the US Congress, IRS Regulations, rules and releases, and US court case decisions
The substantial authority standard involves a position that
has a more than 40% but less than 50% chance of succeeding
The taxpayer can generally avoid penalties if
he/she acted in good faith, if there was a reasonable basis to support the tax return position AND if the taxpayer did not have willful neglect
What is a private letter ruling?
A response to a taxpayers request for guidance on the treatment of a proposed transaction , typically one with significant tax consequences
Who can rely on a private letter ruling?
The taxpayer to whom it is issued
Note: It canNOT be relied on as precedent by other taxpayers
What is a revenue ruling?
an official pronouncement by the IRS on how the tax law applies to a specific transaction or fact pattern. It is published by the IRS and can be relied upon as precedent by taxpayers.
What is a technical advice memorandum (TAM)?
Guidance on the tax treatment of a particular taxpayers situation. It cannot be relied on as precedent by other taxpayers.
Note: A TAM is requested by an IRS agent during an audit and involves a completed transaction
What is a general counsel memorandum (GCM)?
Internal advice i issued by the IRS chief counsel to provide guidance to IRS attorneys and agents. It cannot be relied on as precedent by other taxpayers
Regulations are
The Treasury Departments official interpretation of the internal revenue code and have the highest authoritative weight of the administrative sources of tax law.
Note: a temporary regulation has the same authoritative weight as a final regulation
What source of tax law holds the most authoritative value?
The Internal Revenue Code
When does interest on a tax deficiency begin to accrue?
On the date the original tax was due even if an extension of time to file was filed
