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
Marginal tax rate: In a progressive-tax scheme, the rate applicable to the last dollar of income earned by the taxpayer
· Marginal Rate Tax = Rate on last $ taxed; contrasted to Average Rate Tax (rate for which all $ is taxed)
Hypo: Single person makes $100K
Tax liability would be:
15% x 22.1K = 3,315
28% x 31.4K = 8,792 Total = 12,107
31% x 46.5K = 14,415
Average Rate Tax = Tax liability over the total taxable income
Every $ was taxed at 26.522%
Why do we hear people say they don’t want to make too much for fear of paying too much tax?
* 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: