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Tax
Wayne State University Law School
Schenk, Alan

Tax Outline
Fall 2004
 
Chapter 1 – Orientation
 
        I. The Tax Practitioner’s Tools
a.      Judicial Tools : The Appropriate Courts
                                                              i.      April 15 tax filings are a self-assessment
1.       IRS may disagree and send out notice of deficiency
a.       Once letter is issued, have 90 days to filed a petition w/ the tax court
                                                                                                                                      i.      when file the petition, IRS can’t collect the tax until the issue is resolved in the tax courts
                                                                                                                                    ii.      If 90 days passes, have to pay the deficiency and then sue for a refund
1.       Courts with jurisdiction at this point:
a.       District Court where taxpayer lives (such as E.D. of Mich.)
b.      Court of Federal Claims
                                                                                                                                                                                                              i.      Located in D.C.
                                                                                                                                                                                                            ii.      Specialized court which hears claims against the U.S.
c.       Supreme Court of US
                                                                                                                                                                                                              i.      can hear, but rarely does unless split between circuits
                                                            ii.      Jury trial
1.       Not entitled in Tax Court or Court of Federal Claims
2.       but could get in District Court
                                                          iii.      Requirements to Sue
1.       can sue if receive a notice of deficiency
2.       but may decide that you have overpaid and want the difference refunded
b.      Administrative Materials
                                                              i.      Regulations
1.       Rules of enforcement for the Code
a.       provide further guidance in interpretation of specific sections
2.       Administered by the Treasury Dept.
3.       Courts Bound by Regs?
a.       Not necessarily, the law is what the statutes provide
b.      But the regs provide guidance
                                                                                                                                      i.      However, regs can go too far and court can choose to invalidate them
                                                            ii.      Revenue Rulings
1.       Less formal guidance than regulations
2.       Force
a.       If the service considers a particular issue important, may take on an individuals case for a determination
b.      only binding that person’s particular fact
 
 
 
 
PART II: IDENTIFICATION OF INCOME SUBJECT TO TAXATION
 
Chapter 2 – Gross Income: The Scope of §61
 
        I. Introduction to Income
a.      Taxable income is “gross income” less certain authorized deductions
 
§61 Gross Income Defined
(a) … gross income means all income from whatever source derived …
(b) For items speci

r –C was a shareholder w/ the corporation and did a lot of business travel and racked up a lot of frequent flier miles which business let him keep for personal use; When client would call and want him, he would bill them for first class tickets and then fly out coach with his frequent flier miles and put the difference in value between the 2 tickets in his personal travel account; 9th Cir found this was a taxable transaction of property (sort of like he is selling his flier miles).
f.       Receipt of money from a loan is NOT considered gross income b/c you are expected to pay that money back
g.      Timing – when are you taxed?
                                                              i.      When the gain is “realized”
1.       e.g. buy a $150,000 house for $130,0000; the benefit of the bargain is not taxed
a.       but if turn around the next day and sell for $150,000, then that is taxable
                                                            ii.      Or when you receive the particular benefit (doesn’t have to be realized only when sell it)
1.       e.g. win a $200 watch in a raffle, that is taxable b/c now you have complete dominion over something you did not have before (kind of like treasure trove)
h.      Illegal Payments (i.e. kickbacks) are gross income (illegal nature doesn’t exempt them)
i.        Payment in Services Rather than Cash
Still gross income