Exam 1 Flashcards
(56 cards)
what is a regressive tax system?
everyone pays a certain AMOUNT of taxes thus higher incomes pay less of a % of their income
proportional tax system
all income levels are taxed at a specific %
ex. 20% for everyone
what tax system does the US use?
Progressive tax system
marginal tax rate
tax rates at which the next $ earned would be taxed
Effective tax rate
tax rate relative to total income
Circular 230
must have reasonable basis for decisions when preparing tax
due diligence
no conflict of interest
Duty to promptly submit records and info to IRS (unless privileged)
statutory sources of tax
US constitution
International Tax treaties
Tittle 26 of US code (Revenue Code IRC)
Tax avoidance vs Tax Evasion
avoidance is an attempt to reduce tax but evasion involves deceit or obscure events
Basic Structure of IRC
Subtitles A,B,C
Chapters 1,2,3,
Sub chapters A,B,C
Parts I, II, III
Administrative sources of tax law
Treasury Department
Revenue Rulings
Letter Rulings
Memoranda
Judicial source of tax law
Trial courts (ex. tax court, District Court, Court of Federal Claims)
Appellate courts
Petitioner v. Respondent
def. of income
I.R.C does not define income but must meet
increase in wealth
realization requirement
complete control
def of gross income
all income from whatever source derived
examples of income
property given to taxpayer
use of property given
services provided to tax payer
debt relief
income is bases on
FMV of property/service on the date of receipt
taxable year for C coprs
fiscal year
taxable year S corps and Partnerships
Calendar year
certain transactions cannot be cash method
buying and selling inventory for producing income
income is recognized under cash method
when actual or constructive receipt is received or cash equivalent is received
what is constructive receipt
money is due
money is available to taxpayer
failure to receive money by taxpayer is because of taxpayer’s own action or inaction.
Original Issue Discount
The difference between amount due at maturity and amount originally paid (aka interest)
Accrual method meet
the Events test
amount to be received is calculated reasonably
All events test includes
the performance has taken place
payment is due or has taken place
Exceptions to all events test
insolvent debtor
right to income is in controversy
