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C1 - 1 Corporations, Partnerships, Estates & Trusts Chapter 1 Understanding and Working With the Federal Tax Law Understanding and Working With the Federal.

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Presentation on theme: "C1 - 1 Corporations, Partnerships, Estates & Trusts Chapter 1 Understanding and Working With the Federal Tax Law Understanding and Working With the Federal."— Presentation transcript:

1 C1 - 1 Corporations, Partnerships, Estates & Trusts Chapter 1 Understanding and Working With the Federal Tax Law Understanding and Working With the Federal Tax Law Copyright ©2010 Cengage Learning Corporations, Partnerships, Estates & Trusts

2 C1 - 2 Corporations, Partnerships, Estates & Trusts Competing Objectives Result in a Complex Law Structure Revenue Needs Economic Considerations Social Considerations Equity (Fairness) Considerations Political Considerations Revenue Needs Economic Considerations Social Considerations Equity (Fairness) Considerations Political Considerations

3 C1 - 3 Corporations, Partnerships, Estates & Trusts Economic Considerations (slide 1 of 2) Control the economy (e.g., favorable depreciation deductions for purchase of business property) Encourage certain activities (e.g., research and development deductions and credits) Control the economy (e.g., favorable depreciation deductions for purchase of business property) Encourage certain activities (e.g., research and development deductions and credits)

4 C1 - 4 Corporations, Partnerships, Estates & Trusts Encourage certain industries (e.g., agriculture and natural resources incentives) Encourage small business (e.g., ordinary loss deduction on stock in small business) Encourage certain industries (e.g., agriculture and natural resources incentives) Encourage small business (e.g., ordinary loss deduction on stock in small business) Economic Considerations (slide 2 of 2)

5 C1 - 5 Corporations, Partnerships, Estates & Trusts Social Considerations (slide 1 of 2) Tax-free medical coverage provided by employers to encourage health insurance Deferred tax treatment of certain retirement funds to encourage saving for retirement Tax-free medical coverage provided by employers to encourage health insurance Deferred tax treatment of certain retirement funds to encourage saving for retirement

6 C1 - 6 Corporations, Partnerships, Estates & Trusts Deduction for charitable contributions to encourage funding of socially desirable programs by private individuals and companies Disallowed deductions for expenditures against public policy (e.g., illegal bribes, kickbacks) Deduction for charitable contributions to encourage funding of socially desirable programs by private individuals and companies Disallowed deductions for expenditures against public policy (e.g., illegal bribes, kickbacks) Social Considerations (slide 2 of 2)

7 C1 - 7 Corporations, Partnerships, Estates & Trusts Equity Considerations (slide 1 of 4) Alleviate the effect of double taxation: –Deduction for state and local taxes –Credit or deduction for certain foreign taxes –Deduction for dividends received by corporations to prevent triple taxation Alleviate the effect of double taxation: –Deduction for state and local taxes –Credit or deduction for certain foreign taxes –Deduction for dividends received by corporations to prevent triple taxation

8 C1 - 8 Corporations, Partnerships, Estates & Trusts Wherewithal to Pay concept –Defers taxation when a taxpayer’s economic position has not changed –e.g., Exchange of assets might result in gain but no cash, so some tax may be deferred Wherewithal to Pay concept –Defers taxation when a taxpayer’s economic position has not changed –e.g., Exchange of assets might result in gain but no cash, so some tax may be deferred Equity Considerations (slide 2 of 4)

9 C1 - 9 Corporations, Partnerships, Estates & Trusts Annual accounting periods –In some cases, e.g., start-up businesses, a revenue-generating cycle may be greater than the 12 month maximum tax reporting period. –To accommodate this, net operating loss rules allow losses from one year to be used in another year. This minimizes the adverse impact of arbitrary reporting periods. Annual accounting periods –In some cases, e.g., start-up businesses, a revenue-generating cycle may be greater than the 12 month maximum tax reporting period. –To accommodate this, net operating loss rules allow losses from one year to be used in another year. This minimizes the adverse impact of arbitrary reporting periods. Equity Considerations (slide 3 of 4)

10 C Corporations, Partnerships, Estates & Trusts Inflation adjustments are included in tax rate schedules. If earnings increase solely by cost-of living amounts, taxes will not be imposed at higher rates on the increase. Equity Considerations (slide 4 of 4)

11 C Corporations, Partnerships, Estates & Trusts Political Considerations Special interest legislation Response to public opinion (political expediency) State and local influences Special interest legislation Response to public opinion (political expediency) State and local influences

12 C Corporations, Partnerships, Estates & Trusts Agencies Influencing Tax Law (slide 1 of 4) Internal Revenue Service (IRS) –Works to get Congress to “close loopholes” –Publishes “statutory regulations” authorized by Congress and given force of law –Publishes other regulations which outline the IRS’ position on certain issues Internal Revenue Service (IRS) –Works to get Congress to “close loopholes” –Publishes “statutory regulations” authorized by Congress and given force of law –Publishes other regulations which outline the IRS’ position on certain issues

13 C Corporations, Partnerships, Estates & Trusts Aids to IRS in collecting revenue: –Tax Return Audits – Information reporting (W-2s and 1099s) –Withholding –Interest and penalty assessments Aids to IRS in collecting revenue: –Tax Return Audits – Information reporting (W-2s and 1099s) –Withholding –Interest and penalty assessments Agencies Influencing Tax Law (slide 2 of 4)

14 C Corporations, Partnerships, Estates & Trusts Courts –Judicial concepts Substance over form Arm’s length Continuity of interest Business purpose Courts –Judicial concepts Substance over form Arm’s length Continuity of interest Business purpose Agencies Influencing Tax Law (slide 3 of 4)

15 C Corporations, Partnerships, Estates & Trusts Courts –Judicial rulings Some rulings highlight undesirable aspects of present law, which may lead Congress to adopt a change in law Courts –Judicial rulings Some rulings highlight undesirable aspects of present law, which may lead Congress to adopt a change in law Agencies Influencing Tax Law (slide 4 of 4)

16 C Corporations, Partnerships, Estates & Trusts Statutory Sources of Tax Law Internal Revenue Code –Codification of the Federal tax law provisions in a logical sequence –Have had three codes: 1939, 1954, 1986 Internal Revenue Code –Codification of the Federal tax law provisions in a logical sequence –Have had three codes: 1939, 1954, 1986

17 C Corporations, Partnerships, Estates & Trusts Legislative Process For Tax Bills

18 C Corporations, Partnerships, Estates & Trusts Joint Conference Committee Process House Version Senate Version Amortization of goodwill and other intangible assets over 14 years Amortization of only 75% of goodwill and other intangible assets over 14 years Joint Conference Committee Result Straight-line amortization of goodwill and other intangible assets over 15 years

19 C Corporations, Partnerships, Estates & Trusts Arrangement of the Code Subtitle A—Income Taxes –Chapter 1. Normal Taxes and Surtaxes Subchapter A. Determination of Tax Liability –Part I. Tax on Individuals Sections 1 to 5 (Various Titles) –Part II. Tax on Corporations Sections 11 to 12 (Various Titles) Subtitle A—Income Taxes –Chapter 1. Normal Taxes and Surtaxes Subchapter A. Determination of Tax Liability –Part I. Tax on Individuals Sections 1 to 5 (Various Titles) –Part II. Tax on Corporations Sections 11 to 12 (Various Titles)

20 C Corporations, Partnerships, Estates & Trusts Example Code Citation § 2(a)(1)(A) –2 - Section number –(a) - Subsection –(1) - Paragraph number –(A) - Subparagraph designation § 2(a)(1)(A) –2 - Section number –(a) - Subsection –(1) - Paragraph number –(A) - Subparagraph designation

21 C Corporations, Partnerships, Estates & Trusts Administrative Sources of Tax Law Treasury Department Regulations Revenue Rulings Revenue Procedures, and Various other administrative pronouncements Treasury Department Regulations Revenue Rulings Revenue Procedures, and Various other administrative pronouncements

22 C Corporations, Partnerships, Estates & Trusts Regulations (slide 1 of 4) –Issued by U.S. Treasury Department –Provide general interpretations and guidance in applying the Code –Issued by U.S. Treasury Department –Provide general interpretations and guidance in applying the Code

23 C Corporations, Partnerships, Estates & Trusts Regulations (slide 2 of 4) Issued as: –Proposed: preview of final regulations Do not have force and effect of law –Temporary: issued when guidance needed quickly Same authoritative value as final regulations –Final: Force and effect of law Issued as: –Proposed: preview of final regulations Do not have force and effect of law –Temporary: issued when guidance needed quickly Same authoritative value as final regulations –Final: Force and effect of law

24 C Corporations, Partnerships, Estates & Trusts Regulations (slide 3 of 4) 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 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

25 C Corporations, Partnerships, Estates & Trusts Regulations (slide 4 of 4) Example of Proposed Regulation citation: Prop. Reg. § 1.2 Example of Temporary Regulation citation: Temp. Reg. § 1.199–8T Example of Proposed Regulation citation: Prop. Reg. § 1.2 Example of Temporary Regulation citation: Temp. Reg. § 1.199–8T

26 C Corporations, Partnerships, Estates & Trusts Revenue Rulings (slide 1 of 2) 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 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

27 C Corporations, Partnerships, Estates & Trusts Revenue Rulings (slide 2 of 2) Example of Temporary Revenue Ruling citation –Rev.Rul. 2008–16, I.R.B. No. 11, 585 Explanation: Revenue Ruling Number 16, appearing on page 585 of the 11 th weekly issue of the Internal Revenue Bulletin for 2008 Example of Permanent Revenue Ruling citation –Rev.Rul. 2008–16, 2008–1 C.B. 585 Explanation: Revenue Ruling Number 16, appearing on page 585 of Volume 1 of the Cumulative Bulletin for 2008 Example of Temporary Revenue Ruling citation –Rev.Rul. 2008–16, I.R.B. No. 11, 585 Explanation: Revenue Ruling Number 16, appearing on page 585 of the 11 th weekly issue of the Internal Revenue Bulletin for 2008 Example of Permanent Revenue Ruling citation –Rev.Rul. 2008–16, 2008–1 C.B. 585 Explanation: Revenue Ruling Number 16, appearing on page 585 of Volume 1 of the Cumulative Bulletin for 2008

28 C Corporations, Partnerships, Estates & Trusts Revenue Procedures (slide 1 of 2) Concerned with the internal procedures of IRS –Issued similar to Revenue Rulings –Issued in IRB and accumulated in the Cumulative Bulletins Concerned with the internal procedures of IRS –Issued similar to Revenue Rulings –Issued in IRB and accumulated in the Cumulative Bulletins

29 C Corporations, Partnerships, Estates & Trusts Revenue Procedures (slide 2 of 2) Example of Revenue Procedure citation –Rev. Proc , CB th Rev. Procedure in 1992 found in volume 1 of Cumulative Bulletin on page 748 Example of Revenue Procedure citation –Rev. Proc , CB th Rev. Procedure in 1992 found in volume 1 of Cumulative Bulletin on page 748

30 C Corporations, Partnerships, Estates & Trusts Letter Rulings (slide 1 of 2) 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 –Post-1984 letter rulings may be substantial authority for purposes of the accuracy-related penalty Limited to restricted, preannounced areas of taxation 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 –Post-1984 letter rulings may be substantial authority for purposes of the accuracy-related penalty Limited to restricted, preannounced areas of taxation

31 C Corporations, Partnerships, Estates & Trusts Letter Rulings (slide 2 of 2) Example of Letter Ruling citation –Ltr.Rul th ruling issued in the 4 th week of 2008 Example of Letter Ruling citation –Ltr.Rul th ruling issued in the 4 th week of 2008

32 C Corporations, Partnerships, Estates & Trusts Other Administrative Pronouncements (slide 1 of 3) Treasury Decisions-issued by Treasury Dept. to: –Promulgate new or amend existing Regulations –Announce position of the Government on selected court decisions –Published in the Internal Revenue Bulletin Then transferred to the Cumulative Bulletin Treasury Decisions-issued by Treasury Dept. to: –Promulgate new or amend existing Regulations –Announce position of the Government on selected court decisions –Published in the Internal Revenue Bulletin Then transferred to the Cumulative Bulletin

33 C Corporations, Partnerships, Estates & Trusts Other Administrative Pronouncements (slide 2 of 3) Determination Letters –Issued by Area Director at taxpayer’s request –Usually involve completed transactions –Not published Made known only to party making the request Determination Letters –Issued by Area Director at taxpayer’s request –Usually involve completed transactions –Not published Made known only to party making the request

34 C Corporations, Partnerships, Estates & Trusts Other Administrative Pronouncements (slide 3 of 3) General Counsel Memoranda Technical Advice Memoranda Field Service Advice General Counsel Memoranda Technical Advice Memoranda Field Service Advice

35 C Corporations, Partnerships, Estates & Trusts Federal Judicial System FIGURE 1.1

36 C Corporations, Partnerships, Estates & Trusts Judicial Sources (slide 1 of 2) 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 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

37 C Corporations, Partnerships, Estates & Trusts Judicial Sources (slide 2 of 2) U.S. Court of IssueU.S. Tax CourtU.S. District CourtFederal Claims Number of judges19*116 per court Payment of deficiencyNoYesYes before trial Jury trial NoYesNo Types of disputesTax cases onlyMost criminal andClaims against the civil issues United States JurisdictionNationwideLocation of TaxpayerNationwide IRS acquiescence policyYesYesYes Appeal routeU.S. Court ofU.S. Court of U.S. Court of Appeals AppealsAppealsfor the Federal Court *There are also 14 special trial judges and 9 senior judges. U.S. Court of IssueU.S. Tax CourtU.S. District CourtFederal Claims Number of judges19*116 per court Payment of deficiencyNoYesYes before trial Jury trial NoYesNo Types of disputesTax cases onlyMost criminal andClaims against the civil issues United States JurisdictionNationwideLocation of TaxpayerNationwide IRS acquiescence policyYesYesYes Appeal routeU.S. Court ofU.S. Court of U.S. Court of Appeals AppealsAppealsfor the Federal Court *There are also 14 special trial judges and 9 senior judges. CONCEPT SUMMARY 1.1

38 C Corporations, Partnerships, Estates & Trusts Appeals Process Appeals from District Court or Tax Court go to the U.S. Court of Appeals for circuit where taxpayer resides Appeals from Court of Federal Claims is to Court of Appeals for the Federal Circuit Appeal to the Supreme Court is by Writ of Certiorari –Only granted for those cases it desires to hear Appeals from District Court or Tax Court go to the U.S. Court of Appeals for circuit where taxpayer resides Appeals from Court of Federal Claims is to Court of Appeals for the Federal Circuit Appeal to the Supreme Court is by Writ of Certiorari –Only granted for those cases it desires to hear

39 C Corporations, Partnerships, Estates & Trusts 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 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

40 C Corporations, Partnerships, Estates & Trusts Tax Court (slide 1 of 2) Issues three types of decisions: Regular, Memorandum, and summary decisions –Regular decisions involve novel issues not previously resolved by the court Regular decisions are published by U.S. government CRSO, 128 T.C. 153(2007) Summary opinions –Issued in small tax cases and may not be used as precedent in any other case Issues three types of decisions: Regular, Memorandum, and summary decisions –Regular decisions involve novel issues not previously resolved by the court Regular decisions are published by U.S. government CRSO, 128 T.C. 153(2007) Summary opinions –Issued in small tax cases and may not be used as precedent in any other case

41 C Corporations, Partnerships, Estates & Trusts Tax Court (slide 2 of 2) Tax Court Memorandum decisions –Memorandum decisions deal with situations necessitating only the application of already established principles of law Memorandum decisions are published by CCH and by RIA (formerly by P-H) –Walter H. Johnson, T.C.Memo. 1975–245 The 245th Memorandum decision issued by the Tax Court in 1975 –Walter H. Johnson, 34 TCM 1056 Page 1056 of Vol. 34 of the CCH Tax Court Memorandum Decisions –Walter H. Johnson, P-H T.C.Mem.Dec. ¶ 75,245 Paragraph 75,245 of the P-H T.C. Memorandum Decisions Tax Court Memorandum decisions –Memorandum decisions deal with situations necessitating only the application of already established principles of law Memorandum decisions are published by CCH and by RIA (formerly by P-H) –Walter H. Johnson, T.C.Memo. 1975–245 The 245th Memorandum decision issued by the Tax Court in 1975 –Walter H. Johnson, 34 TCM 1056 Page 1056 of Vol. 34 of the CCH Tax Court Memorandum Decisions –Walter H. Johnson, P-H T.C.Mem.Dec. ¶ 75,245 Paragraph 75,245 of the P-H T.C. Memorandum Decisions

42 C Corporations, Partnerships, Estates & Trusts Trial and Appellate Court Decisions Examples of citations –Simmons-Eastern v. U.S., 73-1 USTC ¶9279 (D.Ct. Ga., 1972) (CCH citation) –Simmons-Eastern v. U.S., 31 AFTR2d (D.Ct. Ga., 1972) (RIA citation) –Simmons-Eastern v. U.S., 354 F. Supp (D.Ct. Ga., 1972) (West citation) Examples of citations –Simmons-Eastern v. U.S., 73-1 USTC ¶9279 (D.Ct. Ga., 1972) (CCH citation) –Simmons-Eastern v. U.S., 31 AFTR2d (D.Ct. Ga., 1972) (RIA citation) –Simmons-Eastern v. U.S., 354 F. Supp (D.Ct. Ga., 1972) (West citation)

43 C Corporations, Partnerships, Estates & Trusts Supreme Court Decisions Examples of citations –U.S. v. The Donruss Co., (USSC, 1969) 69-1 USTC ¶9167 (CCH citation) 23 AFTR2d (RIA citation) 89 S. CT 501 (West citation) 393 U.S. 297 (U.S. Government citation) 21 L.Ed.2d 495 (Lawyer's Co-operative Publishing Co. citation) Examples of citations –U.S. v. The Donruss Co., (USSC, 1969) 69-1 USTC ¶9167 (CCH citation) 23 AFTR2d (RIA citation) 89 S. CT 501 (West citation) 393 U.S. 297 (U.S. Government citation) 21 L.Ed.2d 495 (Lawyer's Co-operative Publishing Co. citation)

44 C Corporations, Partnerships, Estates & Trusts Tax Treaties The U.S. signs tax treaties with foreign countries to: Render mutual assistance in tax enforcement Avoid double taxation Neither a tax law nor a tax treaty takes general precedence When there is a direct conflict, the most recent item will take precedence The U.S. signs tax treaties with foreign countries to: Render mutual assistance in tax enforcement Avoid double taxation Neither a tax law nor a tax treaty takes general precedence When there is a direct conflict, the most recent item will take precedence

45 C Corporations, Partnerships, Estates & Trusts Tax Research (slide 1 of 2) A crucial part of the research process is the ability to locate appropriate sources of the tax law –Both electronic and paper-based research tools are available to aid in this search A crucial part of the research process is the ability to locate appropriate sources of the tax law –Both electronic and paper-based research tools are available to aid in this search

46 C Corporations, Partnerships, Estates & Trusts Tax Research (slide 2 of 2) Computerized tax research tools have replaced paper resources in most tax practices –There are two chief ways to conduct tax research using computer resources: Online and CD-ROM subscription services and Online free Internet sites Computerized tax research tools have replaced paper resources in most tax practices –There are two chief ways to conduct tax research using computer resources: Online and CD-ROM subscription services and Online free Internet sites

47 C Corporations, Partnerships, Estates & Trusts Tax Services May be in electronic or paper form –Key research tools for the tax practitioner The major tax services available include: –Standard Federal Tax Reporter, CCH –United States Tax Reporter, RIA –Federal Tax Coordinator 2d, RIA –Tax Management Portfolios, BNA –Federal Income, Gift and Estate Taxation, WG &L –CCH’s Tax Research Consultant, CCH –Mertens Law of Federal Income Taxation, Callaghan and Co. May be in electronic or paper form –Key research tools for the tax practitioner The major tax services available include: –Standard Federal Tax Reporter, CCH –United States Tax Reporter, RIA –Federal Tax Coordinator 2d, RIA –Tax Management Portfolios, BNA –Federal Income, Gift and Estate Taxation, WG &L –CCH’s Tax Research Consultant, CCH –Mertens Law of Federal Income Taxation, Callaghan and Co.

48 C Corporations, Partnerships, Estates & Trusts Electronic Tax Research (slide 1 of 3) CD-ROM Services –CCH, RIA, and WESTLAW offer vast tax libraries –Provide search and browsing capabilities for various tax databases and links to tax documents CD-ROM Services –CCH, RIA, and WESTLAW offer vast tax libraries –Provide search and browsing capabilities for various tax databases and links to tax documents

49 C Corporations, Partnerships, Estates & Trusts Electronic Tax Research (slide 2 of 3) On-Line Systems –Lexis/Nexis, CCH, RIA, and WESTLAW provide virtually instantaneous use of tax law sources –May be expensive but provides extremely current information On-Line Systems –Lexis/Nexis, CCH, RIA, and WESTLAW provide virtually instantaneous use of tax law sources –May be expensive but provides extremely current information

50 C Corporations, Partnerships, Estates & Trusts Electronic Tax Research (slide 3 of 3) The Internet provides a wealth of tax information –Information available on web pages of accounting and consulting firms, publishers, tax academics, libraries, and governmental bodies –Newsgroups and capabilities provide opportunities to exchange tax information The Internet provides a wealth of tax information –Information available on web pages of accounting and consulting firms, publishers, tax academics, libraries, and governmental bodies –Newsgroups and capabilities provide opportunities to exchange tax information

51 C Corporations, Partnerships, Estates & Trusts Tax Research Process FIGURE 1.3

52 C Corporations, Partnerships, Estates & Trusts Tax Research Tax research is the method by which an interested party determines the best solution to a tax situation

53 C Corporations, Partnerships, Estates & Trusts Assessing the Validity of Tax Law Sources (slide 1 of 4) When assessing the validity of a Regulation, the following observations should be noted: –In a challenge, the burden of proof is on the taxpayer to show that the Regulation is wrong However, a court may invalidate a Regulation that varies from the language of the statute and has no support in the Committee Reports –If the taxpayer loses the challenge, the negligence penalty may be imposed This accuracy-related provision deals with the ‘‘intentional disregard of rules and regulations’’ on the part of the taxpayer When assessing the validity of a Regulation, the following observations should be noted: –In a challenge, the burden of proof is on the taxpayer to show that the Regulation is wrong However, a court may invalidate a Regulation that varies from the language of the statute and has no support in the Committee Reports –If the taxpayer loses the challenge, the negligence penalty may be imposed This accuracy-related provision deals with the ‘‘intentional disregard of rules and regulations’’ on the part of the taxpayer

54 C Corporations, Partnerships, Estates & Trusts Assessing the Validity of Tax Law Sources (slide 2 of 4) Final Regulations tend to be of three types –Procedural: housekeeping-type instructions –Interpretive: rephrase what is in Committee Reports and the Code Hard to get overturned –Legislative: allow the Treasury Department to determine the details of law Congress has delegated its legislative powers and these cannot generally be overturned Final Regulations tend to be of three types –Procedural: housekeeping-type instructions –Interpretive: rephrase what is in Committee Reports and the Code Hard to get overturned –Legislative: allow the Treasury Department to determine the details of law Congress has delegated its legislative powers and these cannot generally be overturned

55 C Corporations, Partnerships, Estates & Trusts Assessing the Validity of Tax Law Sources (slide 3 of 4) Revenue Rulings –Carry less weight than Regulations –Not substantial authority in court disputes Revenue Rulings –Carry less weight than Regulations –Not substantial authority in court disputes

56 C Corporations, Partnerships, Estates & Trusts Assessing the Validity of Tax Law Sources (slide 4 of 4) Judicial sources –Consider the level of the court and the legal residence of the taxpayer –Determine whether the decision has been overturned on appeal Judicial sources –Consider the level of the court and the legal residence of the taxpayer –Determine whether the decision has been overturned on appeal

57 C Corporations, Partnerships, Estates & Trusts Tax Law Sources (slide 1 of 2) Primary sources of tax law include: –The Constitution –Legislative history materials –Statutes –Treaties –Treasury Regulations –IRS pronouncements, and –Judicial decisions In general, the IRS considers only primary sources to constitute substantial authority Primary sources of tax law include: –The Constitution –Legislative history materials –Statutes –Treaties –Treasury Regulations –IRS pronouncements, and –Judicial decisions In general, the IRS considers only primary sources to constitute substantial authority

58 C Corporations, Partnerships, Estates & Trusts Tax Law Sources (slide 2 of 2) Secondary Sources include: –Legal periodicals –Treatises –Legal opinions –General Counsel Memoranda, and –Written determinations In general, secondary sources are not authority Secondary Sources include: –Legal periodicals –Treatises –Legal opinions –General Counsel Memoranda, and –Written determinations In general, secondary sources are not authority

59 C Corporations, Partnerships, Estates & Trusts Tax Planning The primary purpose of effective tax planning is to reduce the taxpayer’s total tax bill –Must consider the legitimate business goals of taxpayer A secondary objective of effective tax planning is to reduce, defer, or eliminate the tax Tax avoidance vs. tax evasion –Tax avoidance is the legal minimization of tax liabilities and one goal of tax planning –Tax evasion is the illegal minimization of tax liabilities Suggests the use of subterfuge and fraud as a means to tax minimization Can lead to fines and jail The primary purpose of effective tax planning is to reduce the taxpayer’s total tax bill –Must consider the legitimate business goals of taxpayer A secondary objective of effective tax planning is to reduce, defer, or eliminate the tax Tax avoidance vs. tax evasion –Tax avoidance is the legal minimization of tax liabilities and one goal of tax planning –Tax evasion is the illegal minimization of tax liabilities Suggests the use of subterfuge and fraud as a means to tax minimization Can lead to fines and jail

60 C Corporations, Partnerships, Estates & Trusts Taxation on the CPA Examination Taxation is included in the 3-hour Regulation section and covers: –Federal tax procedures and accounting issues –Federal taxation of property transactions –Federal taxation—individuals –Federal taxation—entities Knowledge is tested using both multiple-choice questions and case studies called simulations Taxation is included in the 3-hour Regulation section and covers: –Federal tax procedures and accounting issues –Federal taxation of property transactions –Federal taxation—individuals –Federal taxation—entities Knowledge is tested using both multiple-choice questions and case studies called simulations

61 C Corporations, Partnerships, Estates & Trusts If you have any comments or suggestions concerning this PowerPoint Presentation for South-Western Federal Taxation, please contact: Dr. Donald R. Trippeer, CPA SUNY Oneonta If you have any comments or suggestions concerning this PowerPoint Presentation for South-Western Federal Taxation, please contact: Dr. Donald R. Trippeer, CPA SUNY Oneonta


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