McCollum__ Taxation ___ Summer ____ 2014
Outline Tax – Week 1 – May 11
Mid –term = MC and Essay / Covers weeks 1 – 5.
3 Sources of Tax Law
1. Legislative à always start there à IRS Code
a. Current Code
b. Old Code
c. Legislative History
2. Adminstrative
a. Regulations
b. Published Guidance
c. Private Guidance
d. Internal Guidance
e. Administrative Published Sources
i. Treasury Regulations
1. Final Regulations Carry the Force and Effect of Law
a. Assists and helps interprets the IRS Code / Clarifies and provides additional info.
2. Citation Treasury Regulations 1.61
3. Treasury Regulation 1.61 = 1 designates income tax; 61 indicates the code section interpreted
4. Revenue Rulings
a. IRS guidance on substatantive tax issues – applicable to many Tax Problems (TP)
b. Citation Rev Rul 79-24 (year and #)
5. Revenue Procedures
a. IRS guidance and instruction on procedural issues
b. Citatation Rev Proc 2012-3
3. Judicial Sources
a. Trial Courts
i. US Tax Court
ii. District Courts
iii. Federal Court of Claims
b. US Courts of Appeal – 67 F3d 149 (8th Circuit 1995).
c. US Supreme Court – 348 US 426 (1955)
Tax Case Venues
1. US Tax Court
a. Pre-Payment Not Required
2. US District Court
a. Pre-Payment is Required
3. US. Court of Fed Claims
a. Pre-Payment is Required
Parties to a Tax Case
· We refer to the parties as the Taxpayer and the Government (or IRS or Service) – rather than Plaintiff or Defendant.
· Government = Commissioner
· Helvering, Lucas, Burnet are the names of the Commissioner at the time the case was brought.
US Tax Court Opinions
· Regular Opinions – published precedential opinions (25 TC 299 (1955).)
· Tax Court Memo Opinions – not officially published; helpful for applying law to facts. TC Memo 1983 – 672
· Summary Opinions – no precedential value; not appealable (TC Summary Opinion 2012-12).
Preliminary Tax Concepts:
· Substance prevails over form – “if it quacks like a duck then it’s a duck even if you call it a dog.” à Gifts are not taxed but compensation is – can’t skirt the rule by calling it a gift.
· Time value of money
o All things being equal, a taxpayer would rather pay a tax letter rather than now.
o All things being equal, a taxpayer would rather take a deduction now, rather than later.
· Ability to pay concept
· Burden of proof
o Tax payers generally have the burden of proof
Constitutional Basis of Income Tax
· Gives the Legislature the power to lay taxes!
· Income Tax Act passed in 1913
Nature of our Fed. Tax System
· Voluntary Compliance System à you tell the Feds how much and you calculate it à unlike the Property Tax where they send you a bill for how much you owe.
Fed Tax System
The Basic Formula
· Generally à gross income minus deductions times
st the money be included in gross income.
o Case: James v. US à Embezzled Funds must pay on it.
Business Trips:
· Rule: Gross income includes compensation for services, regardless of the form the compensation takes.
· Look to Employer v. Employee Relationship.
o If involves a familial relationship take another closer look at it.
· McCann Case – trip to Las Vegas à Constitutes Gross Income for the Wife! The trip was all filed under the employee’s GI not the person she brought with her.
· Look to Mandatory Situation à compelled to go on Bus. Trip à Training on the Trip à Not GI
Imputed Income:
· When you do something for yourself is not included in GI à Don’t have to pay tax on that service.
o Examples: Mow the lawn, paint the house, etc.
Debts and Gifts:
· Rule: Gross income includes payment of any debt, liability, or other obligation by a 3rd party.
· If someone pays your debts than it is gross income depending on who pays it à if employer than probably counts à if your sister paying Visa bill than probably a gift.
· Gifts are not taxable.
o Ex: Old Colony / Church Case
§ Form of income makes no difference;
§ Discharge by 3rd party of TP’s obligation is equivalent to receipt by the TP, and the discharge can constitute gross income.
