Ch2 - 2015

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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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    22

    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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    23

    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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    24

    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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    25

    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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    26

    #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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    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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    32

    #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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    36

    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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    38

    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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    41

    #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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    If you have any comments or suggestions concerning this

    PowerPoint Presentation for South-Western Federal

    Taxation, please contact

    !r" !onald #" Trippeer, $P%

    [email protected]

    S&'( )neonta