Chapter 2 - Working With The Tax Law

Three Sources of Tax Law * Statutory – the law

* Administrative- guidance on the law

* Judicial – courts

Statutory Sources of Tax Law * Internal Revenue Code (2.6 million words) * Codification of the Federal tax law provisions in a logical sequence * Have had three codes: * 1939, 1954, 1986 * Committee Reports * Explain intent of the law

Statutory Sources of Tax Law * Example of Code Citation: § 2(a)(1)(A) * § = Abbreviation for “Section” * 2 = section number * (a) = Subsection * (1) = paragraph designation * (A) = subparagraph designation

Legislative Process For Tax Bills

Figure 2.1

Administrative Sources of Tax Law * Treasury Department Regulations

* Revenue Rulings

* Revenue Procedures, and

Help interpret and understanding how the tax laws apply

Regulations * Issued by U.S Treasury Department * Provide general interpretations and guidance in applying the code * Reg. § 1.2
Issued as: * Proposed: preview of final regulations * Do not have force and effect of law * Temporary: issued when guidance needed quickly * Same authoritative value as final regulations * Final: * Force and effect of law

Revenue Rulings * Officially issued by National Office of IRS * Specific interpretations and guidance in applying the code * Less legal force than regulations

Revenue Procedures * Concerned with the internal management practices and procedures of the IRS * Issued similar to Revenue Rulings
Letter Rulings * Provide guidance to taxpayer on how a transaction will be taxed before proceeding with it * Issued for a fee upon a taxpayer’s request * Apply only to the taxpayer who asks for and obtains the ruling * Limited to restricted, preannounced areas of taxation

Federal Judicial System

Figure 2.3

Judicial Sources * There are four courts of original jurisdiction (trial courts) * U.S Tax Courts: Regular * U.S Tax Court: Small Cases Division * Federal District Court *
Tax Planning * Consider social, economic, and business goals as well as tax motives * Tax avoidance * Taking the current law and try to reduce tax liabilities to a low amount * Tax evasion * Either total disregard the tax law or using it in a way that is not correct so that you can avoid the tax
Taxation on the CPA Examination

* Taxation is included in the 3-hour Regulation section and covers: * Federal tax process, procedures, accounting, and planning * Federal taxation of property transactions * Federal taxation—individuals * Federal taxation—entities * Knowledge is tested using both multiple-choice questions and case studies called simulations