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Chapter 01 Chapter 1 An Introduction to Taxation History Of Taxation In

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Chapter 01 Chapter 1 An Introduction to Taxation History Of Taxation In Powered By Docstoc
					    Chapter 1

An Introduction to
     Taxation
History Of Taxation In The
       United States

           • First Federal
             Income Tax in
             1861
           • Reinstated in
             1894
History Of Taxation In The
      United States
            • In 1895, the
              Supreme Court
              Ruled
              Unconstitutional
            • March 1, 1913,
              the Sixteenth
              Amendment
            • Revenue Acts
              From 1913 to
              Present
 The Constitution Of The
     United States


• The Congress Shall Have Power
  to Lay and Collect Taxes on
  Incomes, From Whatever Source
  Derived, Without Apportionment
  Among Several States, and
  Without Regard to Any Census
  or Enumeration.
Manner In Which Tax Law Is
   Changed Of Modified
             • Federal income
               tax is changed
               on an
              incremental
               basis rather
               than a complete
               revision.
             • The tax law has
               been referred to
               as a “quiltwork”
               of tax law
  Two Basic Parts Of Tax
        Structure
• Tax Base
  –   The amount to which the tax rate is
      applied to determine tax due.
       •   For example, an individual’s tax base for the
           federal income is his or her taxable income.
       •   tax base for property tax is generally the fair
           market value of property subject to tax.
• Tax Rate
  –   Is merely the percentage rate applied to
      the tax base.
Rate Structures Can Be…..



• Progressive
• Regressive
• Proportional Or Flat Tax
Structure Of Corporate
      Tax Rates
        • Stair-step
          pattern of
          progression
          – Tends to
            benefit small
            corporations
          Corporate Tax Rates
First $50,000                         15 % Of Taxable Income
Over $50,000 But Not Over $75,000     $7,500 + 25% Of Taxable Income
Over $75,000 But Not Over $100,000    13,750 + 34% Of Taxable Income Over
                                      $75,000

Over $100,000 But Not Over $335,000   $22,250 + 39% Of Taxable Income Over
                                      $100,000

Over $335,000                         34% Of Taxable Income
Over $10,000,000 But Not Over         3,400,000 + 35% Of Taxable Income
15,000,000



Over $15,000,000 But Not Over         $5,150,000 + 38% Over $15,000,000
$18,333,333
Over $18,333,333                      35% Of Taxable Income
Marginal, Average, & Effective
  Tax Rates For Taxpayers
• Marginal tax rate - tax rate
  applied to an incremental
  amount of taxable income that
  is added to a tax base
• Average tax rate - total tax
  liability divided by amount of
  taxable income
• Effective tax rate - total tax
  liability divided by total
  economic income
    Types Of Taxes
• State Income Tax
• Franchise Tax
• Wealth Transfer Taxes
   Types Of Taxes
• Federal Gift Tax
• Other (Property, Federal
  Excise, Sales,
  Employment)
Criteria For Tax
   Structure


        •   Equity
        •   Certainty
        •   Convenience
        •   Economy
Objectives Of The Federal
    Income Tax Law
• Economic
  – Raise Revenues for
    Government Operations
  – Stimulate Private
    Investment
  – Reduce Unemployment
  – Mitigate Effects on
    Inflation
Objectives Of The Federal
    Income Tax Law
• Encourage certain activities &
  industries
• Social objectives
      Tax Law Sources
• Legislative
• Executive
  (Administrative)
• Judicial
      Tax Law Sources
• Legislative:
   – Internal Revenue Code
   – Congressional Committee Report
• Executive (Administrative):
   – Income Tax Regulations
   – Revenue Rulings
   – Revenue Procedures
   – Letter Rulings
• Judicial:
   – Court Decisions
  Tax Law Interpretations
                        Internal Revenue Code
                           (Statutory tax law)
Taxpayer Interpretations
(1) Taxpayer                            Governmental
(2) CPA representing taxpayer           Interpretations
(3) Attorney
(4) Non-licensed tax preparer
                                  Internal Revenue Service
Secretary of the Treasury         (1) Revenue Rulings
Regulations
(1) Proposed                      (2) Private Letter Rulings
(2) Temporary                     (3) Technical Advice
(3) Final                              Memoranda
                                  (4) Information Releases
 Enactment Of Tax Law
• House of
  Representatives
  is responsible
  for initiating
  new tax
  legislation.
• Referred to the
  House Ways and
  Means
  Committee.
      Administration
       Of Tax Law
• Organization of the Internal
  Revenue Service
• Enforcement procedures
• Selection of returns for audit
     Administration
      Of Tax Law
• Statute of limitations
• Interest
• Penalties
Components Of A Tax
     Practice
         • Tax compliance
           & procedure
         • Tax research
         • Tax planning
         • Financial
           planning
Computer Applications
   In Tax Practice
          • Tax return
            preparation
          • Tax planning
            –   Project
                depreciation
          • Tax research
            –   Lexis, Access
          • Internet

				
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