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C239 Advanced Tax Concepts > Topic 2 Tax Laws, Administration, and Compliance > Flashcards

Topic 2 Tax Laws, Administration, and Compliance Flashcards

1
Q

What are the tax law sources in order of authority?

A

1) Statutory -
a) US Constitution
b) IRC (internal revenue code)
c) Congressional Committee Reports
2) Administrative -
a) Treasury Regulations
b) Revenue Rulings
c) Revenue Procedures
d) PLRs (private letter rulings)
e) TAMs (technical advice memorandum)
3) Judicial Decisions
4) Secondary Sources

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2
Q

Which sources are the primary source of tax law?

A

statutory, administrative, and judicial decisions

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3
Q

Treasury regulations can be ____________ or ___________. Which one carries more weight?

A

legislative or interpretive

legislative

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4
Q

(interpretive/legislative) treasury regulations interpret the IRC

A

interpretive

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5
Q

(interpretive/legislative) treasury regulations are those that the legislature has directed the IRS to put together

A

legislative

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6
Q

what are the 3 statuses of treasury regulations and level of authority for each?

A

proposed - no authority
temporary - has authority
final - more authority than temporary

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7
Q

Which administrative tax law source addresses the application of the IRS rules to a specific fact situation?

A

revenue rulings

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8
Q

Which administrative tax law source explains IRS practice and procedures and administrative tax law?

A

revenue procedures

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9
Q

Which administrative tax law source addresses an individual taxpayer specific fact situation?

A

PLR - private letter ruling

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10
Q

A PLR has authority for who?

A

the specific taxpayer it is addressing

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11
Q

Which administrative tax law source is issued by the IRS and requested by an IRS auditor to address a specific situation?

A

TAM - technical advice memorandum

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12
Q

What tax law source has the lowest authority?

A

Secondary Sources

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13
Q

Journal articles, review articles, newspaper articles or research facilities like BNA, RIA, or CCH are all what type of tax law source?

A

secondary sources

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14
Q

Describe the Tax Legislation Process

A

1) Proposed bill from House of Ways & Means Committee ➡ House of Representatives
2) House sends House Approved Act (HAA) ➡ Senate
3) Senate sends HAA ➡ Senate Finance Committee (SFC)
4) SFC sends Revised Act ➡ Senate
5) Senate has Senate Approved Act in a Joint Conference Committee with House of Representatives
6) Joint Conference Act ➡ House of Representatives
7) House sends Joint Conference Act ➡ Senate
8) Senate sends Joint Conference Act ➡ US President
9) President either
a) signs the act ➡ IRC 🔚
OR
b) veto’s the act ➡ Congressional Override?
10) 2/3 majority vote in Senate and House
YES ➡ IRC 🔚
NO ➡ RIP tax act💀

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15
Q

What are the lower courts in tax law?

Where do the each of the lower courts have the claims appealed to?

A

US District Courts - US Circuit Courts of Appeals (1st-11th circuits & D.C. circuit) - US Supreme Court
US Tax Court - US Circuit Courts of Appeals (1st-11th circuits & D.C. circuit) - US Supreme Court
US Court of Federal Claims - US Circuit Courts of Appeals (federal circuit) - US Supreme Court
US Tax Court Small Claims - no appeal

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16
Q

When choosing what court to take a claim to, first thing to consider is which on has the ________ that supports your tax position or the appeals court that has it.

A

precedent

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17
Q

Which court should you choose if you want a jury trial?

A

US District Court

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18
Q

If you don’t want to pay your deficiency first, which court do you need to choose?

A

US Tax Court

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19
Q

What court has the final rule of authority?

A

US Supreme Court

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20
Q

What is the judicial doctrine that states the court rules consistently with its previous rulings, and the rulings of the higher courts with the appellate jurisdiction.

A

stare decisis

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21
Q

Which court follows the ruling of the court to which the case would be appealed? What is it called?

A

Tax Court

Golsen Rule

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22
Q

When tax planning you need to plan for ___ and ___-___ factors

A

tax and non-tax

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23
Q

What is point of tax planning?

A

maximize taxpayer’s after-tax wealth while achieving their non-tax goals

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24
Q

Who is involved in each transaction?

A

taxpayer, other party, government

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25
Q

What are the basic tax planning strategies?

A

timing, income shifting, conversion

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26
Q

What strategy affects when income is taxed or an expense is deducted?

A

timing

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27
Q

What are the two primary timing stategies?

A

accelerate deduction OR defer income

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28
Q

Timing affects the _______ _____ of the taxes payable or savings on the deduction.

A

present value

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29
Q

When using a timing strategy, consider that tax costs or savings vary as ___ _____ change.

A

tax rates

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30
Q

When tax rates are ________ it makes sense to accelerate deductions and defer income.

A

constant

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31
Q

When tax rates are ______ we need to use the present value calculation to determine the best choice.

A

rising

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32
Q

Deductions that cannot be accelerated because the cash outflow that generates the deduction is not available is one of the ___________ of which strategy?

A

limitations

timing

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33
Q

Deferring income requires continued investment in an asset is one of the ___________ of which strategy?

A

limitations

timing

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34
Q

Deferring income may not be optimal if taxpayer has cash flow needs, if continuing investment generates low returns, or subjects taxpayer to unnecessary risk is one of the ___________ of which strategy?

A

limitations

timing

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35
Q

A taxpayer is deemed to have received income when it is made available to them is know as what?

A

constructive receipt doctrine

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36
Q

What strategy exploits the differences in tax rates across taxpayers or jurisdictions?

A

income shifting

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37
Q

How does a taxpayer use income shifting between family members?

A

shift income to children i.e. paying children a wage from family business

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38
Q

How does a taxpayer use income shifting between owners and businesses?

A

paying compensation to an owner interest expense or even rent

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39
Q

How does a taxpayer use income shifting between different jusidictions?

A

establish offices in a state with lower tax rates

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40
Q

What are the limitation of an income shifting strategy?

A 
IRS scrutiny of related party transactions
Implicit taxes
the kiddie tax
negative publicity
assignment of income doctrine
41
Q

What does the IRS look at when scrutinizing related party transactions?

A

if they are truly performed at arms length

42
Q

Explain assignment of income docrine.

A

Service provided by a person must be paid to that person and not to someone in a lower tax bracket

43
Q

What tax planning strategy uses that fact that tax law does not treat all income or deductions as equal?

A

conversion

44
Q

What are the limitations of conversion strategies?

A 
when the IRC prohibits a conversion
implicit taxes
business purpose doctrine
step transaction doctrine
substance-over-form doctrine
economic substance doctrine
45
Q

What is it called when the IRS can disallow expenses for transactions without a business purpose

A

business purpose doctrine

46
Q

What is it called when the IRS has the power to collapse the series of transactions into one big transaction?

A

step transaction doctrine

47
Q

What is it called that gives the IRS the ability to reclassify transactions according their substance and not to their form

A

substance-over-form doctrine

48
Q

What is it called when the IRS can reverse certain transactions unless the meaningfully change the taxpayer’s economic position, and they have a substantial purpose other than tax avoidance for the transaction

A

economic substance doctrine

49
Q

(avoidance/evasion) is using strategies to minimize tax within the confines of the law

A

avoidance

50
Q

(avoidance/evasion) is the willful attempt to defraud the government and can result in jail time for both the taxpayer and their accountant

A

evasion

51
Q

What are 3 types of income?

A

Income from services
Income from property
Flow-through entity income

52
Q

Wages, salary, non-employee compensation, unemployment are all what type of income?

A

income from services

53
Q

Dividends, interest, rents, royalties, annuities, gains/losses are all what type of income?

A

income from property

54
Q

Business income from a partnership, LLC or S corporation are all what type of income?

A

flow-through entity income

55
Q

What form is the income reported on for a flow-through entity? What rate is this income taxed at?

A

Schedule K-1

taxed at the owner’s individual tax rate

56
Q

(true or false) income from a flow-through entity is the same as distributions to an owner

A

false-ish - not necessarily

57
Q

(true or false) flow-through income is qualified for the 20% deduction for qualified business income

A

true-ish - if other qualifications have been met

58
Q

(true or false) flow-through income is subject to the 3.8% net investment income tax

A

true-ish - it may be subject to it when the taxpayers AGI exceeds certain thresholds

59
Q

(true or false) flow-through income is not subject to self-employment tax or .9% additional Medicare tax

A

false-ish - it may be subject to it if the income exceeds the thresholds

60
Q

(true/false) An easy way to know if an item is ordinary income or a separately stated item is anything that would be reported somewhere other than page 2 of schedule E would be a separately stated item.

A

true

61
Q

__________ ________ are considered separately stated, even though included in ordinary income calculation

A

guaranteed payments

62
Q

_______ partners earnings are subject to self employment tax whereas _______ partners earnings and not typically subject to self employment tax.

A

general

limited

63
Q

What are the business interest expense limitations?

A

sum of:
business interest income AND
30% of AGI for year

64
Q

What is the Qualified Business Income (QBI) deduction?

A

a 20% deduction for QBI from a flow-through entity

65
Q

Is the item below ordinary income or a separately stated item?

Sales

A

ordinary income

66
Q

Is the item below ordinary income or a separately stated item?

Gross receipts

A

ordinary income

67
Q

Is the item below ordinary income or a separately stated item?

Returns & Allowances

A

ordinary income

68
Q

Is the item below ordinary income or a separately stated item?

Cost of Goods Sold

A

ordinary income

69
Q

Is the item below ordinary income or a separately stated item?

Other ordinary income (loss) from other partnerships, estates and trusts

A

ordinary income

70
Q

Is the item below ordinary income or a separately stated item?

Net Farm Profit (Loss)

A

ordinary income

71
Q

Is the item below ordinary income or a separately stated item?

Net Ordinary Gain (Loss) from Sales of Business Property

A

ordinary income

72
Q

Is the item below ordinary income or a separately stated item?

Other Income

A

ordinary income

73
Q

Is the item below ordinary income or a separately stated item?

Salaries and Wages (other than to partners) (less employment credits)

A

ordinary income

74
Q

Is the item below ordinary income or a separately stated item?

Guaranteed Payments to Partners

A

ordinary income & separately stated

75
Q

Is the item below ordinary income or a separately stated item?

Repairs & Maintenance Expenses

A

ordinary income

76
Q

Is the item below ordinary income or a separately stated item?

Bad Debt Expense

A

ordinary income

77
Q

Is the item below ordinary income or a separately stated item?

Rent Expense

A

ordinary income

78
Q

Is the item below ordinary income or a separately stated item?

Taxes & Licenses

A

ordinary income

79
Q

Is the item below ordinary income or a separately stated item?

Interest Expense

A

ordinary income

80
Q

Is the item below ordinary income or a separately stated item?

Depreciation

A

ordinary income

81
Q

Is the item below ordinary income or a separately stated item?

Depletion

A

ordinary income

82
Q

Is the item below ordinary income or a separately stated item?

Retirement Plans

A

ordinary income

83
Q

Is the item below ordinary income or a separately stated item?

Employee Benefit Programs

A

ordinary income

84
Q

Is the item below ordinary income or a separately stated item?

Net Rental Real Estate Income (Loss)

A

separately stated

85
Q

Is the item below ordinary income or a separately stated item?

Other Net Rental Income (Loss)

A

separately stated

86
Q

Is the item below ordinary income or a separately stated item?

Interest Income

A

separately stated

87
Q

Is the item below ordinary income or a separately stated item?

Ordinary Dividends

A

separately stated

88
Q

Is the item below ordinary income or a separately stated item?

Qualified Dividends

A

separately stated

89
Q

Is the item below ordinary income or a separately stated item?

Royalties

A

separately stated

90
Q

Is the item below ordinary income or a separately stated item?

Net Short-Term Capital Gain (Loss)

A

separately stated

91
Q

Is the item below ordinary income or a separately stated item?

Net Long-Term Capital Gain (Loss)

A

separately stated

92
Q

Is the item below ordinary income or a separately stated item?

Collectibles (28%) Gain (Loss)

A

separately stated

93
Q

Is the item below ordinary income or a separately stated item?

Unrecaptured §1250 Gain

A

separately stated

94
Q

Is the item below ordinary income or a separately stated item?

Net §1231 Gain (Loss)

A

separately stated

95
Q

Is the item below ordinary income or a separately stated item?

§179 Deduction

A

separately stated

96
Q

Is the item below ordinary income or a separately stated item?

Foreign Transactions

A

separately stated

97
Q

Is the item below ordinary income or a separately stated item?

AMT items

A

separately stated

98
Q

Is the item below ordinary income or a separately stated item?

Tax-Exempt Income & Nondeductible Expenses

A

separately stated

99
Q

Is the item below ordinary income or a separately stated item?

Distributions

A

separately stated

C239 Advanced Tax Concepts (10 decks)

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