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2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ebsite, in hole or in part.
Comprehensive Volume
1
Chapter 2
!or"ing !ith#he #a$ La
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#he %ig &icture 'slide 1 o( 2)
* +red and Megan a-uels revie their (inancial and
ta$ situation ith their son, a-, and daughterin
la, /ana, ho live ith the-
+red and Megan are in the 2 ta$ brac"et in 2013 %oth a- and /ana are age 21
* a-, a student at a nearby university, ons so-e
publicly traded stoc" that he inherited
* A current sale ould result in appro$i-ately 4,000 o(gross inco-e
'41,000 a-ount reali6ed 411,000 ad7usted basis)
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#he %ig &icture 'slide 2 o( 2)
* +red and Megan provide about 55 o( a- and
/ana8s support
Although neither is no e-ployed, a- has earned 490
and /ana has earned 400* #he proble-:
hould the stoc" be sold;
!ould the sale prohibit +red and Megan (ro- clai-ing a-
and /ana as dependents; !ould the stoc" sale in 2013 result in a ta$ liability (or a-
and /ana;
* Read the chapter and (or-ulate your responses
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4
tatutory ources o( #a$ La'slide 1 o( 2)
* ave had three codes:
* 1?, 153, 19
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5
tatutory ources o( #a$ La'slide 2 o( 2)
* @$a-ple o( Code Citation: 2'a)'1)'A) B Abbreviation (or ectionD
2 B section nu-ber
'a) B subsection
'1) B paragraph designation
'A) B subparagraph designation
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6
Legislative &rocess +or #a$ %ills
Figure 2.1
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Ad-inistrative ources o( #a$ La
* #reasury /epart-ent Regulations
* Revenue Rulings
* Revenue &rocedures, and* Earious other ad-inistrative
pronounce-ents
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Regulations 'slide 1 o( 3)
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Regulations 'slide 2 o( 3)
*
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Regulations 'slide ? o( 3)
* @$a-ple o( Regulation citation:
Reg. 1.2
* Re(ers to Regulations under Code 2
* ubparts -ay be added (or (urther identi(ication
* #he nu-bering patterns o( these subparts o(ten have no
correlation ith the Code subsections
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Regulations 'slide 3 o( 3)
* @$a-ple o( &roposed Regulation citation:
&rop. Reg. 1.2
* @$a-ple o( #e-porary Regulation citation:
#e-p. Reg. 1.592#
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Revenue Rulings 'slide 1 o( 2)
* G((icially issued by Hational G((ice o(
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Revenue Rulings 'slide 2 o( 2)
* @$a-ple o( #e-porary Revenue Ruling citation
Rev.Rul. 201113,
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14
Revenue &rocedures 'slide 1 o( 2)
* Concerned ith the internal -anage-ent
practices and procedures o( the
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15
Revenue &rocedures 'slide 2 o( 2)
* @$a-ple o( Revenue &rocedure citation
Rev. &roc. 22, 121 C% I3
* 2th Rev. &rocedure in 12 (ound in volu-e 1 o(
Cu-ulative %ulletin on page I3
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16
Letter Rulings 'slide 1 o( 2)
* &rovide guidance to ta$payer on ho a transaction
ill be ta$ed be(ore proceeding ith it
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17
Letter Rulings 'slide 2 o( 2)
* @$a-ple o( Letter Ruling citation
Ltr.Rul. 201?130?
* ?th ruling issued in the 13th ee" o( 201?
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18
Gther Ad-inistrative &ronounce-ents'slide 1 o( ?)
* #reasury /ecisionsissued by #reasury /ept.
to:
&ro-ulgate ne or a-end e$isting Regulations
Announce position o( the Kovern-ent on selected
court decisions
&ublished in the
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Gther Ad-inistrative &ronounce-ents'slide ? o( ?)
* Keneral Counsel Me-oranda
* #echnical Advice Me-oranda
* +ield ervice Advices
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21
+ederal udicial yste-
FIGURE 23Figure 2.3
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udicial ources 'slide 1 o( 2)
* #here are (our courts o( original 7urisdiction
'trial courts)
F.. #a$ Court: Regular
F.. #a$ Court: -all Cases /ivision
+ederal /istrict Court
F.. Court o( +ederal Clai-s
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udicial ources 'slide 2 o( 2)
U.S. Court ofIssue U.S. Tax Court U.S. istri!t Court Fe"eral Claims#um$er of %u"&es '() Varies '* per !ourt
+a,ment of "efi!ien!, #o -es -es
$efore trialur, trial #o -es #o
T,pes of "isputes Tax !ases onl, /ost !riminal an" Claims a&ainst the !ivil issues Unite" States
uris"i!tion #ation0i"e 1o!ation of Taxpa,er #ation0i"e
IRS a!uies!en!e poli!, -es -es -esppeal route U.S. Court of U.S. Court of U.S. Court ofppeals ppeals ppeals for the
Fe"eral Court .
)Hor-ally there are also 5 special trial 7udges and 1? senior 7udges.
CGHC@ FMMARN 2.1
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Appeals &rocess
* Appeals (ro- /istrict Court or #a$ Court go to
the F.. Court o( Appeals (or circuit here
ta$payer resides
* Appeals (ro- Court o( +ederal Clai-s is to
Court o( Appeals (or the +ederal Circuit
* Appeal to the upre-e Court is by !rit o(
Certiorari
Gnly granted (or those cases it desires to hear
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Courts8 !eights As &recedents
* +ro- high to lo
upre-e Court
Circuit Court o( Appeals
#a$ Court 'Regular), F.. Court o( +ederal Clai-s,
O F.. /istrict Courts
* /ecisions o( the -all Cases /ivision o( the
#a$ Court have no precedential value andcannot be appealed
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#a$ Court 'slide 1 o( ?)
*
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#a$ Court 'slide 2 o( ?)
* #a$ Court Me-orandu- decisions
Me-orandu- decisions deal ith situations
necessitating only the application o( already
established principles o( laMe-orandu- decisions ere not published by the
F.. Kovern-ent until recently
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#a$ Court 'slide ? o( ?)
* Me-orandu- decisions erePand continue to beP
published by several ta$ services
Consider, (or e$a-ple, three di((erent ays thatNick R.
Hughescan be cited:* Nick R. Hughes, #.C.Me-o. 2003
#he 3th Me-orandu- decision issued by the #a$ Court in 200
* Nick R. Hughes, I #CM 13
&age 13 o( Eol. I o( the CC> #a$ Court Me-orandu- /ecisions
* Nick R. Hughes, 200 R
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29
@$a-ples G( /istrict
Court /ecision Citations
* Turner v. U.S., 20031 F#C Q90,3I
'/.Ct. #e$., 2003) 'CC> citation)
* Turner v. U.S., ? A+#R 2d 200399
'/.Ct. #e$., 2003) 'R
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30
upre-e Court /ecisions
* @$a-ples o( citations
F.. v. #he /onruss Co., 'FC, 19)
* 91 F#C Q19I 'CC> citation)
* 2? A+#R2d 931 'R
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#a$ #reaties
* #he F.. signs ta$ treaties ith (oreign countries to: Avoid double ta$ation
Render -utual assistance in ta$ en(orce-ent
* Heither a ta$ la nor a ta$ treaty ta"es generalprecedence !hen there is a direct con(lict, the -ost recent ite- ill
ta"e precedence
A ta$payer -ust disclose on the ta$ return any positionhere a treaty overrides a ta$ la
* #here is a 41,000 penalty per (ailure to disclose (or individuals'410,000 (or corporations)
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#a$ Research #ools 'slide 1 o( 2)
* A crucial part o( the research process is the
ability to locate appropriate sources o( the ta$
la
%oth electronic and paperbased research tools are
available to aid in this search
* Fnless the proble- is si-ple 'e.g., the Code
ection is "non, and there is a Regulation onpoint), the research process should begin ith
a ta$ service
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#a$ Research #ools 'slide 2 o( 2)
* A partial list o( the available co--ercial ta$ services includes: tandard +ederal #a$ Reporter, CC> CC>
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#a$ Research &rocess
FIGURE 2.4
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#a$ Research
* #a$ research is the -ethod by hich an
interested party deter-ines the best solution to
a ta$ situation
* #a$ research involves:
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Assessing #he Ealidity G(
#a$ La ources 'slide 1 o( 3)
* Regulations
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Assessing #he Ealidity G(
#a$ La ources 'slide 2 o( 3)
* +inal Regulations tend to be o( three types
&rocedural: house"eepingtype instructions
ard to get overturned
Legislative: allo the #reasury /epart-ent to
deter-ine the details o( la* Congress has delegated its legislative poers and these
cannot generally be overturned
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Assessing #he Ealidity G(
#a$ La ources 'slide ? o( 3)
* Revenue Rulings
Carry less eight than Regulations
Hot substantial authority in court disputes
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39
Assessing #he Ealidity G(
#a$ La ources 'slide 3 o( 3)
* udicial sources Consider the level o( the court and the legal residence o(
the ta$payer #a$ Court Regular decisions carry -ore eight than Me-o
decisions* #a$ Court does not consider Me-o decisions to be binding
precedents* #a$ Court revieed decisions carry even -ore eight
Circuit Court decisions here certiorari has been re=uested
and denied by the F.. upre-e Court carry -ore eightthan a Circuit Court decision that as not appealed Consider hether the decision has been overturned on
appeal
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#a$ La ources 'slide 1 o( 2)
* &ri-ary sources o( ta$ la include: #he Constitution
Legislative history -aterials
tatutes #reaties
#reasury Regulations
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#a$ La ources 'slide 2 o( 2)
* econdary ources include:
Legal periodicals
#reatises
Legal opinions
Keneral Counsel Me-oranda, and
!ritten deter-inations
*
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#a$ &lanning
* Consider social, econo-ic, and business goalsas ell as ta$ -otives
* #a$ avoidance is the legal -ini-i6ation o( ta$
liabilities and one goal o( ta$ planning* #a$ evasion is the illegal -ini-i6ation o( ta$
liabilities
uggests the use o( subter(uge and (raud as a-eans to ta$ -ini-i6ation
Can lead to (ines and 7ail
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#a$ation on the C&A @$a-ination
* #a$ation is included in the ?hour Regulationsection and covers:+ederal ta$ process, procedures, accounting, and
planning+ederal ta$ation o( property transactions
+ederal ta$ationPindividuals
+ederal ta$ationPentities
* Tnoledge is tested using both -ultiplechoice =uestions and case studies calledsi-ulations
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