FED TAX OUTLINE
A. Functions Served by the Federal Income Tax
1. Raise revenues to operate the government
2. Allocate the cost of public goods and services among Americans on an ability to pay basis
3. A tool of social policy
4. Implement economic policy
5. A tool for Congress to manipulate us in to doing what they want us to do
B. Resolution of Tax Issues Through the Judicial Process
1. Trial Courts
a. Tax Court (deficiency claim)
i. Poor Person’s Court – the TP commences an action in this court for redetermination of
a deficiency without first paying the asserted deficiency.
ii. Cases are tried without a jury by one judge, who submits an opinion to the chief judge
iii. Article I court created by Congress – not Article III federal court
b. Federal District Courts (refund claim)
i. They have jurisdiction in any tax case against the United States seeking a refund of tax,
regardless of the amount involved.
ii. The TP must first pay the amount in dispute before litigating the tax action.
c. United States Court of Federal Claims (refund claim)
i. Has jurisdiction over all tax suits against the U.S. regardless of the amount.
ii. The TP must first pay the deficiency and then commence a refund suit.
2. Appeals Courts
a. Federal Courts of Appeals of the U.S. hears appeals from the Tax Court.
b. Decisions of the federal district courts may be appealed to the appropriate federal court of
appeals (circuit courts).
c. U.S. Court of Appeals for the Federal Circuit has exclusive jurisdiction of an appeal from a
final decision of the U.S. Claims Court.
Researching the Tax Law
1. Internal Revenue Code – 1986 Code amended
2. Legislative History
3. Regulations – three types
a. Regular – drafted by Treasury Department
b. Temporary – needed temporarily (Katrina relief) or put out on a trial basis. Good for only 3 years and then must be permanently adopted or thrown out.
c. Proposed – Treasury proposes an idea. These don’t have to be followed, but if you do then you are safe.
4. Revenue Rulings – two types
a. Revenue Rulings – IRS guidance in interpreting the law. They give you an idea of where the IRS stands b/c they are based on individual positions, which you can compare/contrast to your specific position. They can be cited as precedent.
b. Letter Rulings – responsive to a particular TP’s request for advice on the tax consequences of a specific transaction. You can compare them to your situation, but the IRS does not consider itself bound by its letter rulings in dealing with other TPs.
5. Revenue Proceedings – internal rulings put out by the Treasury
rived. It then gives a nonexhaustive list of examples. Basically everything is included unless specifically excluded in the Code. See also Reg. §1.61-1.
2. Income Realized in Any Form
a. Reg. §1.61-1(a): Gross income may be realized in any form, whether money, property, or services.
b. Reg. §1.61-2(a)(1): Money received in exchange for any type of service is included into income, unless expressly excluded by law.
c. Reg. §1.61-2(d)(1): If services are paid for with property, the FMV of the property is the measure of compensation. If services are paid for with other services, the value of the services received is the amount of compensation.
· FMV is generally defined as the price a willing buyer would pay a willing seller, with neither under a compulsion to buy or sell, and both having reasonable knowledge of relevant facts.
· A gift cannot arise from an employer/employee relationship; this counts as compensation.
Reg. §1.61-2(d)(2)(i): If property is transferred by an employer to an employee or independent contractor as compensation for services for an amount less than its FMV