Chapter 1 7.a. FICA taxes are proportional. b. The Federal corporate income tax is progressive. c. The Federal gift tax is progressive. d. General sale taxes are proportional. p. 1-5 and Examples 2 and 3 12. The assessment probably was increased when the Warrens made the capital improvements. [Note: The tax assessor’s office often receives a copy of the building permits issued.] A further increase probably came about when the property was converted to income producing (i.e., bed and breakfast usage). p. 1-7 If Jared reimbursed his aunt for the purchase, which he probably did, he is circumventing the state sales tax. Unless he pays the use tax, Jared is guilty of tax evasion. It would be no defense to maintain that Jared is merely following a practice that often occurs. Although Jared’s indirect approach probably will circumvent the sales or use tax (New Hampshire has no such taxes), the risk of detection is always present. Jared is engaging in tax evasion. See Ethical and Equitable Considerations on p. 1-10. Earl probably purchased his computer out of state by use of a catalog or through the Internet. In such cases, state collection of the sales (use) tax is improbable without taxpayer compliance. p. 1-10 a. FICA offers some measure of retirement security, and FUTA provides a modest source of income in the event of loss of employment. b. FICA is imposed on both employer and employee, while FUTA is imposed only on the employer. c. FICA is administered by the Federal government. FUTA, however, is handled by both Federal and state governments. d. This applies only to FUTA. The merit system rewards employers who have low employee turnover, since this reduces the payout of unemployment benefits. pp. 1-15 and 1-16 Chapter 2 11. The items would probably be ranked as follows (from highest to lowest): (1) Internal Revenue Code. (2) Legislative Regulation. (3) Interpretive Regulation.
(4) Revenue Ruling. (5) Proposed Regulation (most courts ignore Proposed Regs.). (6) Letter ruling (valid only to the taxpayer to whom issued). pp. 2-7 to 2-11, 2-30, 2-32, and Exhibit 2-1 12. a. A proposed regulation, with 1 referring to the type of regulation (i.e., income tax), 280A is the related code section (when there is not enough space, subsequent code sections are given A,B,C, etc., designations), 3 is the regulation number, (c) is the regulation paragraph designation, and (4) is the regulation subparagraph designation. pp. 2-6 and 2-7 b. Revenue Ruling number 74, appearing on page 194 of volume 1 of the Cumulative Bulletin issued in 1967. p. 2-9 c. Letter Ruling number 1 issued during the 9th week of 2004. p. 2-10 pp. 2-17 to 2-20 32. a. U.S. Tax Court (formerly the Board of Tax Appeals). b. U.S. Supreme Court. c. Memorandum decision of the U.S. Tax Court. d. U.S. Third Circuit Court of Appeals. pp. 2-17 to 2-20 to hear a court case. p. 2-16 45. a. T. U.S. Treasury Department. p. 2-7 b. NO. National Office of the IRS. pp. 2-8 and 2-9 c. NO. National Office of the IRS. p. 2-10 d. AD. Area Director of the IRS. p. 2-11 e. NO. National Office of the IRS. p. 2-11 f. T. U.S. Treasury Department. p. 2-10 g. NO. National Office of the IRS. p. 2-8 h. NA. p. 2-12 48. a. P. b. P. c. P.
d. S. e. P. f. S. g. P. Valid for 3 years. h. P. i. N. j P. pp. 2-28 and 2-33
Research problems 2. a. b. c. d. e. 3. a. Subchapter B covers “Computation of Taxable Income.” Subchapter D covers “Deferred Compensation.” Subchapter F covers “Tax-Exempt Organizations.” Subchapter K covers “Partnerships and Partners.” Subchapter P covers “Capital Gains and Losses.” Defines derivative to include an evidence of an interest or derivative contract in any note, bond, debenture, or other evidence of indebtedness. Describes how an educational institution may obtain automatic consent to change its reporting method under Section 6050S. Since land is a capital asset, any settlement proceeds represent amounts for injury or damage to a capital asset. Thus, the proceeds should be treated as a recovery of a taxpayer’s basis in the land and any excess is a capital gain. Earned income generally includes taxable wages, salaries, tips, and other employee compensation and net earnings from self-employment. Denied head of household status to a taxpayer who lived with her children in her former in-laws residence and brother’s home even though she paid monthly rent, etc.