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Federal Income Tax
South Texas College of Law Houston
Yamamoto, Kevin M.

FEDERAL TAXATION
Professor Yamamoto
___________________________________________________Written & Produced by:Jordan M. Torry___
♦Tax= compulsory exaction by gov exercising sovereign power to tax for revenue for the federal government
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►Sources of tax law:
·1986 Code w/ revisions (prior were 1954 and 1939). Federal tax was introduced in 1913, initiated by the enactment of the 16th Amendment.
–         The Code is Title 26, subtitle A, Chapter 1 (then subchapters…we are basically dealing in this class w/ A, B, O, and P) of the US Code.
–         Section, sub-section, paragraph, sub-paragraph, clause, sub-clause
o       (i.e.) 304(b)(3)(B)(i)(II) à […to which the stock is subject] –         Courts interpret the codes and regs
· 3 courts:
–         Tax Ct: primary place where most tax cases litigated (no jury…specialized judges). This is a non-refund tribunal…you do not have to pay any definicies or bonds.
–         Fed District Ct: standard dist ct. This is a refund tribunal. Can be appealed.
–         Ct of Federal Claims: refund tribunal, no jury.
· Where your ass can appeal these fuckers’ decisions..
–         Appeals Ct (district/tax)
–         Supreme•motherfucking Ct
· Administrative law (IRS) – enacts the regulations and rulings
–         Two types of regs:
o       Interpretive = where IRS fills in gaps where needs be
o       Legislative = basically the law
–         Regs are written as à 26 CFR | __ . __ – __
o       In this class, the regs we will really be dealing w/ 1.__ regs.
o       (i.e.) Section 1.1015-1(a)
–         Rulings = sometimes private letter rulings where taxpayer asks about liabilities…these are not binding. Sometimes revenue rulings… just telling what IRS is going to do (binding)
· Legislative History: statutory interpretations
 
 
► Code Section 1. – – – Calculating The Taxes Owed/Due
–         § 1. Tax Imposed — gives us the amount of tax liability
o        Tax Liab = taxable income X rate
              or            = Base X Rate
o       Our tax liab is a progressive rate structure – this means that the more you make, the more tax you pay.
o       (Regressive tax is shit like sales tax)
o       Marginal Rate of taxation = rate of tax on the last dollar (so a married individual making 110,000, the marginal rate of taxation is 31%)
o       Average rate of taxation = rate of tax on every dollar
o       (i.e.) If unmarried, and taxable income (base)= 100,000
§         $22.1 K x 15% = 3315
§         $31.4 K x 28% = 8792
§         $46.5 x 31% = 14,415
·        So the tax imposed/liab would be $26,522 (26.5% tax imposed).
o       Base/Taxable Income…:
§         What is the period that will be used to measure income? (in US, and in this class, based on a calendar year)
§          § 63 defines taxable income….apply (a) in all situations except when (b) is kicked in. Defined gross income minus deductions allowed by the chapter.
·        (b) – applies when one does not elect to itemize. Applies for purposes of the subtitle. Adjusted gross income (defined in § 62…gross income minus the deductions listed…ONLY applies to individuals – not persons [corporations, partnerships, etc]).
o       §62 does not provide for any deductions…merely definition. “The deductions that are allowed by this chapter…” – this means that must look elsewhere to find the deductions.
·        *Start off with gross income, then §62 to apply the “above the line deductions” to get adjusted gross income then subtract itemized or standard deductions, minus personal exemptions = taxable income, then multiply the tax rate (§1) to get Tax Liability.
o        – this is the basic formula for this cl

me taxes. Emp never saw the money. Sup Ct held still income – “the discharge by a third person of an obligation to him is equivalent to receipt by the person taxed”. Immaterial that the taxes where paid directly over to the gov.
§         Old Colony doesn’t apply here…since no 3rd party payment.
§         The $40,000 is GI.
§         The stock is income (meets 3 elements of Glenshaw), and a GI of $20,000. This is different from the piano situation b/c of the element of realization. W/ the piano.. you buy the piano for $15 w/o realization of its worth. Realization is a taxable event. 
§         The car for the wife is also GI of $15,000. Old Colony Trust applies here. 
o       (4) a) Yes, GI ; b) Yes
o       (5) a) $4000 – Reg 1.61(8)(c).
b) no, doesn’t change shit for the owner – still receiving $1000 cash and $3000 worth in improvements.
c) Yes…house goes for $4000, T paid $1000 cash, and spent $500 in improvements, thus T would have $2500 of income (and GI).
 
► Imputed Income — (income w/o receipt of cash or property) – when have income when using own property or services. Imputed income is not treated as GI. 
·        Helvering v. Ind Life Ins Co – cannot be taxed the value of living in your own home bc goes against 16th amendment….it would be a direct tax.
·        Dean v. Commissioner – this is different from Halvering b/c although the taxpayer was living in his own home, it is in the corp’s name, thus corporate house (remember corp is a taxable individual/entity).