Study Unit 3

Question 1

What are the three sources of federal tax law?

Answer 1

1. Legislative law
2. Administrative law
3. Judicial law

Question 2

What is the primary source of federal legislative tax law?

Answer 2

The Internal Revenue Code of 1986 (IRC)

Question 3

Give examples of Federal administrative law.

Answer 3

Administrative law implemented and enforced by the Treasury Department includes

* Treasury regulations
* Revenue rulings
* Revenue procedures
* Private Letter rulings (PLRs)
* Technical Advice Memoranda (TAMs)
* Internal Revenue Bulletins (IRBs)
* IRS Publications

Question 4

What is a writ of certiorari?

Answer 4

A writ if certiorari is a order by the Supreme Court to hear a case. A denial of such an order means the lower court’s opinion on the case stands.

Question 5

What are the different courts in the federal tax court system?

Answer 5

Appellate Courts:
U.S. Supreme Court

U.S. Circuit Court of Appeals U.S. Court of Appeals for the Federal Circuit

Trial or courts of origin:

U.S. Tax Court U.S. District Court U.S. Court of Federal Claims

Question 6

What are the due dates or estimated tax payments for a calendar-year taxpayer?

Answer 6

Estimated tax payments should be made in quarterly installments that are due by

* April 15
* June 15
* September 15
* January 15 of the next year

Question 7

How is the amount of estimated tax payment of an individual taxpayer determined?

Answer 7

Each installment must be at least 25% of the lowest of

• 100% [110% of AGI > $150,000 ($75,000 for MFS)] of the prior year’s tax
• 90% of the current year’s tax
• 90% of the annualized current year’s tax (when income is uneven)

Question 8

When is the penalty not imposed on underpaying the estimated tax payments?

Answer 8

The penalty is not imposed when

• Actual tax liability for the current year is less that’s $1,000
• No tax liability in the prior tax year
• The IRS waives it for reasonable causes

Question 9

What are the penalties for (1) failing to file a return and (2) failing to pay tax?

Answer 9

Offense Penalty

Failing to file a tax return 5% per month of unpaid liability (up to 25%)

Failing to pay tax 0.5% per month of unpaid liability (up to 25%)

Question 10

What are the original and extended tax return due dates for C corporations?

Answer 10

Tax Year Type		Due dates through 2025
June 30 Fiscal year 	Original: 3rd Month (Sept 15)
						Extended:  10th month (April 15)
						Due dates beginning in 2026
						Original:  4th month (Oct 15)
						Extended:  10th month (April 15)

Calendar/other fiscal year Original: 4th month after year end
Extended: 10th month after year end

Question 11

What are the original and extended due dates for (1) S corporations, (2) partnerships, (3) individuals?

Answer 11

Return Type Original Due Date Extended Due Date

S corporation March 15 September 15

Partnership March 15 September 15

Individual April 15 October 15

Question 12

What is the statute of limitations for a claim for refund?

Answer 12

Situation A claim for refund must be filed

Return filed By the later of

						* 3 years for the due date (April 15, plus the filing extension time)
						* 2 years after the tax was paid

Return not filed Within 2 years from the time the tax was paid

Question 13

What are 30-day letters and 90-day letters?

Answer 13

30 Day Letter A letter sent to a taxpayer proposing in addition to tax. Taxpayers have 30 days to decide whether to

					- Accept and pay the deficiency or
					- Appeal the proposed adjustments.

90 day letter If taxpayer appeal the proposed adjustments in a 30 day letter, a 90-day letter is mailed. Tax payers
(Notice of deficiency) have 90 days to institute a petition to the U.S. Tax Court.

Question 14

What is the statute of limitations for the assessment of a deficiency?

Answer 14

General Statute of limitations - 3 years from the date the return was filed

Omission of items of more than 25% of gross income - 6 years from the date the return was filed

Deficiency for fraud - No statute of limitations/unlimited assessment period

Question 15

What are the three types of tax planning?

Answer 15

• Timing of income recognition
• Shifting of income among taxpayers and jurisdictions
• Conversion of income among high- and low-rate activities

Question 16

Compare tax avoidance and tax evasion.

Answer 16

Legality Takes place

Tax Avoidance Legal Before incurring a lax liability

Tax Evasion Illegal After incurring a tax liability

Question 17

Name the different filing statuses of individual taxpayers.

Answer 17

• Single
• Married filing a joint return (MFJ)
• Married filing a separate return (MFS)
• Head of household (HOH)
• Qualifying widow(er)/Surviving spouse

Question 18

What are the criteria for a taxpayer to file as single?

Answer 18

• Not married and
• Does not quality for
  * Qualifying widow(er)
  * Head of household status.

Question 19

What are the criteria for a taxpayer to file as married filing jointly?

Answer 19

Two individuals are considered married for the entire tax year if, on the last day of the tax year, they are

- Legally married and cohabiting as spouses
- Legally married and living apart but not separated under a 
	- Divorce decree
	- Separate maintenance agreement
- Separated under a divorce decree that is not yet finalized

NOTE: An individual whose spouse dies during the year and who does not remarry before the end of the tax year may file a joint return.

Question 20

What are the criteria for a taxpayer to file as married filing separately?

Answer 20

• The taxpayer must meet the qualifications to file as married filing jointly.
• If one spouse files separately, so must the other.
• Spouses who have different tax year ends must file separately.

Question 21

What are the criteria for a taxpayers to file as a qualifying widow(er) or surviving spouse?

Answer 21

A taxpayer may file as a qualifying widow(er) or surviving spouse for 2 yers following the death of a spouse if

- The taxpayer did not remarry,
- The widow(er) qualified (with the deal eased spouse) for the married filing jointly return status for the tax year of the death of the spouse, and
- The taxpayer maintains a household (paying>50% of qualifying costs) for the entire taxable year that is the principal place of abode of a son, daughter, stepchild, or adopted child.

Question 22

What are the criteria for a taxpayer to file as head of household?

Answer 22

An individual taxpayer

- Is not a qualifying widow(er)
- Is not a nonresident alien
- Meets the marital status test
- Maintains a household (paying > 50% of qualifying costs) that is the principal place of abode for a qualifying child or dependent (related only) for at least half of the tax year

NOTE: Parents need not live with the taxpayer to qualify.

Question 23

Compare the requirements for maintaining a household between the (1) head of household status and (2) qualifying widow(er) status.

Answer 23

Head of Household

- Paying for more than 50% of qualifying costs to maintain a household
- For at least half of the tax year
- Principal place of abode of dependent shield and/or dependent relative (must be related)

Qualifying Widow(er)

- Paying for more that 50% of qualifying costs to maintain a household
- for the whole tax year
- Principal place of abode of dependent child only

Question 24

What are the criteria for qualifying as a dependent child?

Answer 24

Relationship - Child is taxpayer’s (1) descendant, (2) sibling, or (3) descendent of taxpayer’s sibling
Age * Younger than taxpayer and either
* Under 19
* A full-time student under 24
* Age requirement does not apply if permanently or totally disabled
Member of the household - Child lives with taxpayer for more that half of the year
Non-self-supporting - Child does not provide more that half of own support
Non-MFJ - Cild is not filing a joint return
Citizenship - A U.S. Citizen, resident, or national for any part of the year

Question 25

What are the criteria for qualifying as a dependent relative?

Answer 25

Relationship * Immediate relationships: parents, children, siblings
* Extended relationships: grandparents and ancestors, grandchildren and dependents, uncles and aunts, Nephews and nieces (excludes cousins)
Members of the household - Unrelated person living with the taxpayer for the whole year
Income - Relatives’s gross taxable income less that the threshold (excludes Social Security benefits for low-income taxpayers)
Support - Taxpayer provides more than 50% of support for the relative (excludes scholarships received by children, taxes, and
life insurance premiums)
Non-MFJ - Relative is not filing a joint return
Citizenship - A U.S. citizen, resident, or national for any part of the year

Question 26

Compare the support test for a qualifying child and qualifying relative.

Answer 26

Qualifying child - child does not provide more that 50% of qualifying costs

Qualifying relative - Taxpayer provides more that 50% of qualifying costs

Question 27

What are the requirements for a multiple support agreement?

Answer 27

A taxpayer is eligible to claim a dependent deduction under a multiple support agreement if (s)he

- Provides, with other person(s), more that 50% of the support of an individual, but no one person provides more that 50%
- Provides more that 10% of the support
- Obtains written consent from other person(s) providing more that 10% of the support