___________________________________________________Written & Produced by:Jordan M. Torry___
♦Tax= compulsory exaction by gov exercising sovereign power to tax for revenue for the federal government
►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).