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					Acc 401 Day 2 Tax Policy and Research
“The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.” -Jean-Baptiste Colbert

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Who are you? Are you a… 1. Junior 2. Senior 3. Grad Student 4. Other
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Did you grow up in…
1. Hawaii 2. Continental USA 3. Europe 4. Asia 5. Australia 6. Africa 7. South or Central America 8. Other 9. Canada 10. I‟m haven‟t grown up yet
Hawaii Europe Australia South or Central ... Canada

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Continental USA Asia Africa Other I’m haven’t grown...

In a single word, what is your favorite past time…besides tax!

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Quiz Time!
• 5 questions • Watch for timer • Correct answer will be shown after time is
up • Good luck!

Good tax policy
1. Taxes should be sufficient to raise
necessary government revenue

2. Taxes should be convenient for
government to administer

Good tax policy
3. Taxes should be efficient
• “ A tax…may obstruct the industry of the people and dicourage them from applying to certain branches of business which might give maintenance and employment to great multitudes. While it obliges the people to pay, it may thus diminish or perhaps destroy some of the funds which might enable them more easily to do so” Adam Smith Wealth of Nations 1776

Good tax policy
3. Taxes should be efficient
– John Maynard Keynes – free markets are effective in organizing production and allocating scarce resources but lack adequate self-regulating mechanisms for maintaining ecomic stability. – Income tax preferences • Allow certain persons or organizations to pay less

Efficient taxes
• Tax expenditures budget
– Published annually by the Congressional Joint Committee on Taxation • Gov‟t loses $80 B each year because

• •

homeowners can deduct mortgage interest $15 B because they can deduct property tax 775 B altogether

Unintended Tax behaviours

Good tax policy
4. Taxes should be fair
Ability to pay Horizontal equity – people pay the same for the same item – Vertical equity – people with greater means should pay more – Regressive tax – people with less pay more ie sales tax • Marginal tax rate – Tax rate on next dollar earned • Average tax rate – Mean tax rate of overall income – –

Jake makes $150,000 and is single. In 2007 he paid $30,000 in tax. Using the tax bracket information at the front of your text, tell me what is Jake‟s Marginal tax rate?

1. 20% 2. 33% 3. 28%
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Sources of Tax Policy
• Primary
– Internal Revenue Code of 1986 – Treasury Regulations – Revenue Rulings and Procedures – Court Rulings (Tax court, U.S. District Court,U.S. Federal Court of Claims, Supreme Court

Sources of Tax policy
• Secondary Sources
– Tax treateis – Tax periodicals – Tax services

Legislative Process For Tax Bills

Internal Revenue Code
– Codification of the Federal tax law provisions in a logical sequence – Have had three codes: • 1939, 1954, 1986

• Example of Code Citation: § 2(a)(1)(A)
2 (a) (1) (A) = section number = subsection = paragraph designation = subparagraph designation

Administrative Sources of Tax Law
• Treasury Department Regulations • Revenue Rulings • Revenue Procedures, and • Various other administrative
pronouncements

Regulations
– Issued by U.S. Treasury Department – Provide general interpretations and guidance in applying the Code • Example of Regulation citation:
– Reg. § 1.2 • Refers to Regulations under Code § 2 • Subparts may be added for further identification • The numbering patterns of these subparts often
have no correlation with the Code subsections

Revenue Rulings
• Officially issued by National Office of IRS
– Provide specific interpretations and guidance in applying the Code – Less legal force than Regulations – Issued in IRB and accumulated in the Cumulative Bulletins Example of Permanent Revenue Ruling citation – Rev.Rul. 2006–8, 2006–1 C.B. 520 • Explanation: Revenue Ruling Number 8, appearing on page
520 of Volume 1 of the Cumulative Bulletin for 2006

•

Revenue Procedures
• Concerned with the internal procedures of
IRS
– Issued similar to Revenue Rulings – Issued in IRB and accumulated in the Cumulative Bulletins

• Example of Revenue Procedure citation
– Rev. Proc. 92-29, 1992-1 CB 748 • 29th Rev. Procedure in 1992 found in volume 1 of
Cumulative Bulletin on page 748

Letter Rulings
• Provide guidance to taxpayer on how a transaction will
be taxed before proceeding with it
– Issued for a fee upon a taxpayer's request – Describe how the IRS will treat a proposed transaction

• Apply only to the taxpayer who asks for and obtains the
ruling

• Limited to restricted, preannounced areas of taxation

– Post-1984 letter rulings may be substantial authority for purposes of the accuracy-related penalty

Determination letters
– Issued by Area Director at taxpayer‟s request – Usually involve completed transactions – Not published

Federal Judicial System

Judicial sources
• There are four courts of original
jurisdiction (trial courts)
– U.S. Tax Court: Regular – U.S. Tax Court: Small Cases Division – Federal District Court – U.S. Court of Federal Claims

Judicial Sources
• •Issue
Number of judges • per court •Payment of deficiency No • before trial •Jury trial No •Types of disputes Tax cases only the

U.S. Tax Court 19*

U.S. District Court Varies
Yes Yes Most criminal and civil issues Location of Taxpayer Yes U.S. Court of Appeals

U.S. Court of Federal Claims 16 Yes No Claims against United States Nationwide Yes Yes U.S. Court of Appeals for the

• •Jurisdiction Nationwide •IRS acquiescence policy •Appeal route U.S. Court of
Appeals

Federal Court . •*There are also 14 special trial judges and 9 senior judges.

Courts‟ Weights As Precedents
• From high to low
– Supreme Court – Circuit Court of Appeals – Tax Court (Regular), U.S. Court of Federal Claims, & U.S. District Courts

• Decisions of Small Cases Division of Tax
Court have no precedential value and cannot be appealed

Tax Court
• Issues two types of decisions: Regular and
Memorandum
– Regular decisions involve novel issues not previously resolved by the court

• Regular decisions are published by the U.S.
•
government • Kevin P. Burke, 124 T.C. 189(2005) Tax Court Memorandum decisions

– Memorandum decisions deal with situations necessitating only the application of already established principles of law

Examples of Citations
• Tax court
• Jack D. Carr, TC Memo 1985-19 • Jack D. Carr, 49 TCM 507 (CCH citation) • Jack D. Carr, RIA TC Mem. Dec. ¶85, 019 (RIA citation)

• Trial or Appellate Court

– Simmons-Eastern v. U.S., 73-1 USTC ¶9279 (D.Ct. Ga., 1972) (CCH citation) – Simmons-Eastern v. U.S., 31 AFTR2d 73-640 (D.Ct. Ga., 1972) (RIA citation) – Simmons-Eastern v. U.S., 354 F. Supp. 1003 (D.Ct. Ga., 1972) (West citation)

Sources of Tax Policy and Tax Research

Tax Memo
• Summarize Facts • Identify Issues • Discussion of Law • Application of Law • Conclusions and Recomendations

Computer Resources
• The major tax services available include:
– Standard Federal Tax Reporter, CCH – United States Tax Reporter, RIA

• Both are available through the UH library

Homework
• Ch2 – 11,12,32,45,48
• Next Day: Chapter 3-Tax Determination


				
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