Introduction To Taxation

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Intro to Taxation Chap 1 & 2
Why Study Taxation?
“because it’s there!”
Tax considerations influence many business and personal decisions
Opportunity for employment and service
Tax structures generally
Characteristics of a “good” tax structure
Equity - horizontal and vertical
Certainty
We ought to know what the tax code means so we know how much to pay. Not easy with our tax code.
Convenience
Should be best time for it to be collected. Example Sales tax taken at time of purchase
Economy
Should be thrifting for the gov’t to collect
Sufficiency
Does this tax raise enough revenue for its purposes
“Static” analysis if we change a tax people will continue trends (people will not change behavior) “Dynamic” analysis taxing will make something that is not taxed is more desirable
Type of tax rates
Marginal - tax on the next $ of tax base
Average
Tax paid / Tax base
Effective
Tax Paid / Economic Income
Behavior of rate structures
Proportional (“flat”)
Rate stays same as base increases
Progressive
Rate increases as base increases
Regressive
Rate decreases as base increases
True regressive v. regressive with respect to income based on tax payer’s behavior
Goals of Tax System
Raising Revenue - primary goal
Regulate the economy
Encourage or discourage particular activities
Political considerations ex: highways

Address social concerns
Modifying Influences on the Tax System
Relieving multiple taxation
“Wherewithal to pay” concept
Adjustments for inflation
Bracket creep
Mitigating the effect of an annual accounting period
Statute of limitations
Provides a time limit to audit returns and correct mistakes
Typically three years from later of due date of return or filing deadline
Sources of Tax Law
Scriptural mandate
Believers recognize authority to tax
Tax avoidance v. Tax evasion
Avoidance - uses real means to not need to pay a specific tax
Evasion - uses deception to not pay taxes that are due
Tax system considers itself amoral
Constitutional Authority
16th amendment
Statutory Authority
Internal Revenue Code
Title 26 of U.S. Code
Organization system (p.2-6)
Title
Subtitle
Chapter
Subchapter
Part
-Subpart
--Section
Example of Code Citation (p.2-5)
§ 2(a)(1)(A)
2 = section Number
(a) = subsection
(1) = paragraph designation
(A) = subparagraph designation
Administrative Authority
Treasury Regulations
Classified by authority
Legislative - based on delegation of Congressional authority
Interpretive - gives IRS view of law; given deference by court, and bind IRS personnel
Procedural - tell how to carry out some requirement of the law; directive, not mandatory
Classified by time

Proposed
Final
Temporary
Regulations
Ex: of Regulation Citation: (p. 2-6)
Reg. § 1.117-4(c)(1)
1 = income tax regulation
117 = code section to which regulation pertains
-4 = fourth regulation issued for IRC section 117
Other Administrative Sources (p. 2-7, 2-8)
Revenue Rulings
Revenue Procedures
Letter Rulings
Citation format
Rev. Rul. 97-8, 1997-1 I.R.B. 103
Look to printed off ppt for more
Judicial Sources of Tax Law
Importance of stare decisis
Initial choice of forum
(p. 2-11) for a chart
IRS “acq.” r “nonacq.”
Nonacq. means IRS will continue to litigate even if it has lost similar cases
Citing Judicial Decisions (ch. 2 pp. 15-18)
Finkbohner, Jr. v. U.S., 788 F.2d 723, (11th Cir. 1986)
Ex: Finkbohner, Jr. v. U.S.[name of parties], 788[V #] F.2d[Name of reporter] 723[page number], (11th Cir. 1986[court and year])
Tax Preparer Regulation
Historically, few restrictions on who may serve as a paid preparer
Return preparers are subject to various requirements and responsibilities (like retaining copies of returns), with failures punished by financial penalties
IRS has developed new regulations governing tax preparers
Preparers will be required to register, pass a competency exam, and complete 15 hours of continuing education annually
CPAs, attorneys, enrolled
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