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
What are the basic tax planning strategies?
timing, income shifting, conversion
26
What strategy affects when income is taxed or an expense is deducted?
timing
27
What are the two primary timing stategies?
accelerate deduction OR defer income
28
Timing affects the _______ _____ of the taxes payable or savings on the deduction.
present value
29
When using a timing strategy, consider that tax costs or savings vary as ___ _____ change.
tax rates
30
When tax rates are ________ it makes sense to accelerate deductions and defer income.
constant
31
When tax rates are ______ we need to use the present value calculation to determine the best choice.
rising
32
Deductions that cannot be accelerated because the cash outflow that generates the deduction is not available is one of the ___________ of which strategy?
limitations | timing
33
Deferring income requires continued investment in an asset is one of the ___________ of which strategy?
limitations | timing
34
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?
limitations | timing
35
A taxpayer is deemed to have received income when it is made available to them is know as what?
constructive receipt doctrine
36
What strategy exploits the differences in tax rates across taxpayers or jurisdictions?
income shifting
37
How does a taxpayer use income shifting between family members?
shift income to children i.e. paying children a wage from family business
38
How does a taxpayer use income shifting between owners and businesses?
paying compensation to an owner interest expense or even rent
39
How does a taxpayer use income shifting between different jusidictions?
establish offices in a state with lower tax rates
40
What are the limitation of an income shifting strategy?
``` IRS scrutiny of related party transactions Implicit taxes the kiddie tax negative publicity assignment of income doctrine ```
41
What does the IRS look at when scrutinizing related party transactions?
if they are truly performed at arms length
42
Explain assignment of income docrine.
Service provided by a person must be paid to that person and not to someone in a lower tax bracket
43
What tax planning strategy uses that fact that tax law does not treat all income or deductions as equal?
conversion
44
What are the limitations of conversion strategies?
``` when the IRC prohibits a conversion implicit taxes business purpose doctrine step transaction doctrine substance-over-form doctrine economic substance doctrine ```
45
What is it called when the IRS can disallow expenses for transactions without a business purpose
business purpose doctrine
46
What is it called when the IRS has the power to collapse the series of transactions into one big transaction?
step transaction doctrine
47
What is it called that gives the IRS the ability to reclassify transactions according their substance and not to their form
substance-over-form doctrine
48
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
economic substance doctrine
49
(avoidance/evasion) is using strategies to minimize tax within the confines of the law
avoidance
50
(avoidance/evasion) is the willful attempt to defraud the government and can result in jail time for both the taxpayer and their accountant
evasion
51
What are 3 types of income?
Income from services Income from property Flow-through entity income
52
Wages, salary, non-employee compensation, unemployment are all what type of income?
income from services
53
Dividends, interest, rents, royalties, annuities, gains/losses are all what type of income?
income from property
54
Business income from a partnership, LLC or S corporation are all what type of income?
flow-through entity income
55
What form is the income reported on for a flow-through entity? What rate is this income taxed at?
Schedule K-1 | taxed at the owner's individual tax rate
56
(true or false) income from a flow-through entity is the same as distributions to an owner
false-ish - not necessarily
57
(true or false) flow-through income is qualified for the 20% deduction for qualified business income
true-ish - if other qualifications have been met
58
(true or false) flow-through income is subject to the 3.8% net investment income tax
true-ish - it may be subject to it when the taxpayers AGI exceeds certain thresholds
59
(true or false) flow-through income is not subject to self-employment tax or .9% additional Medicare tax
false-ish - it may be subject to it if the income exceeds the thresholds
60
(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.
true
61
__________ ________ are considered separately stated, even though included in ordinary income calculation
guaranteed payments
62
_______ partners earnings are subject to self employment tax whereas _______ partners earnings and not typically subject to self employment tax.
general | limited
63
What are the business interest expense limitations?
sum of: business interest income AND 30% of AGI for year
64
What is the Qualified Business Income (QBI) deduction?
a 20% deduction for QBI from a flow-through entity
65
Is the item below ordinary income or a separately stated item? Sales
ordinary income
66
Is the item below ordinary income or a separately stated item? Gross receipts
ordinary income
67
Is the item below ordinary income or a separately stated item? Returns & Allowances
ordinary income
68
Is the item below ordinary income or a separately stated item? Cost of Goods Sold
ordinary income
69
Is the item below ordinary income or a separately stated item? Other ordinary income (loss) from other partnerships, estates and trusts
ordinary income
70
Is the item below ordinary income or a separately stated item? Net Farm Profit (Loss)
ordinary income
71
Is the item below ordinary income or a separately stated item? Net Ordinary Gain (Loss) from Sales of Business Property
ordinary income
72
Is the item below ordinary income or a separately stated item? Other Income
ordinary income
73
Is the item below ordinary income or a separately stated item? Salaries and Wages (other than to partners) (less employment credits)
ordinary income
74
Is the item below ordinary income or a separately stated item? Guaranteed Payments to Partners
ordinary income & separately stated
75
Is the item below ordinary income or a separately stated item? Repairs & Maintenance Expenses
ordinary income
76
Is the item below ordinary income or a separately stated item? Bad Debt Expense
ordinary income
77
Is the item below ordinary income or a separately stated item? Rent Expense
ordinary income
78
Is the item below ordinary income or a separately stated item? Taxes & Licenses
ordinary income
79
Is the item below ordinary income or a separately stated item? Interest Expense
ordinary income
80
Is the item below ordinary income or a separately stated item? Depreciation
ordinary income
81
Is the item below ordinary income or a separately stated item? Depletion
ordinary income
82
Is the item below ordinary income or a separately stated item? Retirement Plans
ordinary income
83
Is the item below ordinary income or a separately stated item? Employee Benefit Programs
ordinary income
84
Is the item below ordinary income or a separately stated item? Net Rental Real Estate Income (Loss)
separately stated
85
Is the item below ordinary income or a separately stated item? Other Net Rental Income (Loss)
separately stated
86
Is the item below ordinary income or a separately stated item? Interest Income
separately stated
87
Is the item below ordinary income or a separately stated item? Ordinary Dividends
separately stated
88
Is the item below ordinary income or a separately stated item? Qualified Dividends
separately stated
89
Is the item below ordinary income or a separately stated item? Royalties
separately stated
90
Is the item below ordinary income or a separately stated item? Net Short-Term Capital Gain (Loss)
separately stated
91
Is the item below ordinary income or a separately stated item? Net Long-Term Capital Gain (Loss)
separately stated
92
Is the item below ordinary income or a separately stated item? Collectibles (28%) Gain (Loss)
separately stated
93
Is the item below ordinary income or a separately stated item? Unrecaptured §1250 Gain
separately stated
94
Is the item below ordinary income or a separately stated item? Net §1231 Gain (Loss)
separately stated
95
Is the item below ordinary income or a separately stated item? §179 Deduction
separately stated
96
Is the item below ordinary income or a separately stated item? Foreign Transactions
separately stated
97
Is the item below ordinary income or a separately stated item? AMT items
separately stated
98
Is the item below ordinary income or a separately stated item? Tax-Exempt Income & Nondeductible Expenses
separately stated
99
Is the item below ordinary income or a separately stated item? Distributions
separately stated