Week 1 Chapter 2 Flashcards
Authoritative Hierarchy is
federal tax system’s structure which includes legislative, administrative, and judical sources
Legislative law comes from
Congress (IRC) which includes IRC (Title 26, USC)
Valid until rules otherwise by a court
EX - IRC of 1986 is the primary source for federal tax law
Administrative law includes
IRS Regulations
issued by IRS and Treasury dept
Judicial law consists of
Court interpretations of tax law
taxpayer penalties
arise from inadequate substantiation of tax positions or underpayment.
CPA’s must communicate risks associated with tax advice
Regulations interpret
IRC
Revenue Rulings
provide insight into IRS positions but are not legally binding
Private letter ruling (PLR) and Technical Advice Memoranda (TAM)
provide guidance and are binding only to the requesting taxpayer
Judicial law
based on court decisions
crucial for understanding tax law application
Tax court decisions can set precedents
Individuals must file if
gross income exceeds standard deduction
self-employment income is $400 or more
dependents with gross income or unearned income exceeding thresholds must also file
EX - dependents must file if gross income exceeds the standard deduction
Filing status
single
married filing jointly
married filing separately
Head of household
Qualifying surviving spouse
Tax payments
90% of actual liability must be prepaid;
employers withhold taxes
Estimated payments
due quarterly
penalties apply for underpayment or late filing
failure to file
5% per month cap at 25%
failure to pay
0.5% monthly cap at 25%
Accuracy - related penalties
20% for underreporting due to negligence
tax year
Calendar year (ending Dec 31) or fiscal year (12 months, ending last day of month).
Cash Method
Income recognized when received, expenses when paid.
Accrual Method
Income recognized when earned, expenses when incurred, with allowances for exceptions.
Exempt Status
Depends on organization type and activities. Includes:
Organizations supporting sports but not providing facilities.
Charitable and educational entities must not benefit private individuals
Private Foundations
Mostly self-funded organizations, requiring specific IRS notifications and complying with restrictions.
Types of Courts
Tax court
US District Court
US Circuit Court of Appeals
US Supreme Court
