FEDERAL INCOME TAX
Fall 2001: Professor Yamamoto
Bring TAX CODE book to all classes.
Final Exam – Dec. 1st at 3pm. Mult.Choice/Essay — may be 100% essay
-Closed book, closed note, OPEN CODE
-CODE; write anything you want inside, but it must be in YOUR own writing
-It’s very important to do the problems first yourself before coming to class.
-NEVER come to class unprepared.
Page 26 –Text:
Two things to know: Code and Regs (tells you at the beginning of each assignment). READ!!!
Read assignments in text
Reread Code and Regs
Attempt the problems
Reread Code and Regs
Don’t bring commercial outlines to class. Student outlines are not helpful.
You can form your own law firm in preparation for recitation. Pick one person from the group to speak per day.
Members of the group must meet before class to discuss the problems for at least 20 minutes. However, Yamamoto reserves the right to call on anyone he wants.
CHAPTER 1: INTRODUCTION
Federal Income tax began in 1913 – 16th amendment allowed for the adoption of the present income tax.
3 primary sources of tax law:
· Legislative materials (CODE)
· Administrative (Regs & Rulings)
1st place to look for tax problems is Internal Revenue Code (3) — 1939, 1953, and 1986(presently with revisions)
First thing to know in IR Code is Title 26, subtitle A; next is in the chapter (primarily A,B & O)
How to read the CODE:
Section, subsection, paragraph, subparagraph, clause, & subclause.
Administrative materials are provided by the IRS (Charles Rosatti—Presently the Commissioner)
· Regulations — interpretive or legislative (Congress says); Reg. §_._-_
· Rulings (Revenues and private letters)
Judicial (can interpret or create law); 3 primary places:
1. Tax Court (Non-tribunal)
2. District Court
3. Court of Claims
§1 in CODE book gives us the rate imposed on taxable income.
Figure Out: 1. Taxable income
2. Apply the rate to it
Tax liability is the rate multiplied by taxable income.
Rate increases as taxable income increases. -à progressive tax rate
You charge the poor more than the rich.
Ex. Regressive tax — > Flat tax -à ex. Retail sales tax
Tax rate: the proportion at which a tax base is taxed, usually expressed as a %
Tax base: the total property, income, or wealth subject to taxation in a given jurisdiction; the aggregate amount being taxed by a parti
* All income is good.
Taxable Income: we have to figure out what period does gov’t use? Calendar year; Jan-Dec §441
However, Congress could use any period they want to.
§63 defines taxable income:
Look at what it applies to; here, subtitle (a); except as provided in sub§b
AGI= §62 — GI minus those 17 deductions
1. Figure out Gross Income
2. Take out those deductions in §62; gives you Average Gross Income
3. Take AGI minus your Itemized/Standard Deductions minus Personal Exemptions = Taxable Income
4. Take Taxable Income minus §1 for tax imposed on individuals = Tax Liability
5. Tax Liability minus Credits = Tax Due
§62 deductions are also known as Above the Line Deductions.
You’re not taxed on AGI
AGI also sets a ceiling for what you can be taxed on
Compare itemized deductions (below the line deductions) to standard deductions
KEY FORMULA TO KNOW!
[I/D or S/D] [P/E] TI