Tax Lesson 3 Flashcards
Internal Revenue Code:
Created by:
Current code:
IRC is:
Revenue Act of 1913
1986
First primary source of tax law (statutory)
Administrative Sources:
2nd primary source of tax law Regulations Revenue rulings Revenue procedures Private letter rulings Determination letters Technical advice memorandum
Regulations:
Issued by treasury department Interpretations of IRC Have full force & effect of law Proposed: preview; no legal precedence Temporary: guidance needed quickly Final: 3 types: 1) procedural: housekeeping 2) interpretive: implement intent of committee reports & IRC 3) legislative: allow treasury to determine details of the law; must be given this authority by IRC
Revenue Rulings:
Interpretations
Response to taxpayer request/facts common to many taxpayers
Do not have full force & effect but ARE binding on IRS
Published weekly in internal revenue bulletin
Revenue Procedures:
Describe internal practices & procedures
Published in IRB
State changes in techniques & admin procedures
Private Letter Rulings:
Issued by IRS at request of taxpayer
IRS bound to specific taxpayer
Cannot be relied upon as precedent
Determination Letters:
Issued by district directors
Completed transactions
Only if answer is specifically covered by:
Statute, treasury decision/regulation, or ruling opinion/court decision published in IRB
Technical Advice Memorandum:
Issued by national IRS office Usually issued in response to request by agent doing audit Provide clarification Completed transactions Only for audits
Judicial Sources:
3rd primary source of tax law
Courts
Official interpretations & applications of IRC
Additional tax law is generated that can carry full force for statue itself
Role of IRS
Carry out responsibilities of Secretary of Treasury (section 7801)
Secretary has full authority to administer & enforce internal revenue laws & create agency to enforce
IRS created based on this legislative grant
Provides for appointment of commissioner
Statute of Limitations:
3 year to claim refund if return not filed - then becomes property of treasury
Statute to collect does not start until return has been filed
When filed: 3 years for audit, 10 years to collect; if omit 25%, statute 6 years
Does not apply in case of false return or fraudulent return with intent to evade tax
Interest for non-compliance:
Accrues from original due date of return (even if extension)
Compounded daily
Federal short term rate plus 3%
Paid on refunds if not received within 45 days of filing claim for refund
Penalties for non-compliance:
Failure to file: 5% per month to 25%
If fraudulent, 15% to 75%
If more than 60 days late, minimum is $450 or amount of tax due
Failure to pay: .5% per month to 25%
If both, failure to file reduced by failure to pay
Underpayment of estimated tax:
100% prior year or 90% current year can avoid
AGI above $150k, based on 110% prior year or 90% current year
Not if less than 12 month taxable year prior year
Not required if no tax liability in previous year, US citizen/resident for full 12 months
Penalty for underpayment same as interest
First determine amount of underpayment each period & number of days in period, then apply appropriate interest factor
Based on market interest rates
Penalty is not deductible
Accuracy Related Penalty:
20% on underpayment due to negligence, disregard, or substantial understatement
Not imposed if reasonable cause with good faith
Negligence includes lack of reasonable attempt to comply
Disregard includes careless, reckless, or intentional disregard
Substantially understated if understatement exceeds greater of 10% correct tax or $5000
