Engler F00- Fed Tax SANTO

Engler F00- Fed Tax SANTO - www.swapnotes.com I....

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1 I. Introduction A. What is the Main Source of Federal Taxation and What are the Other Options? I NCOME TAX is the main source. 1. Consumption tax. Encourages savings not consumption. Lacking in fairness b/c the rich can save and don’t have to spend all of their money whereas the poor must spend everything to live. Very simple to administer (adv). IRA is the best example: deduct amts put into an IRA and pay tax when pull money 2. VAT- Value Added Tax: levied on the value added to goods/services by those who manufacture, distribute, and sell those goods/services. Each link in chain of production pays a tax equal to the difference b/w its costs of materials and its sales proceeds. A form of sales tax. Increases costs of goods to consumers. Can’t be levied at different rates like a consumption tax can. 3. W EALTH TAX : look at what you’ve accumulated (looks like a property tax) 4. H EAD TAX : everyone pays the same amount. It’s easy to administer (adv) but it hurts the poor (disadv). There are also fairness issues. 5. M ARKET TO M ARKET T AXATION : Pay tax on current value of an investment Support for realization: Different types of investment, if had to pay tax before selling stock could force a sale and thus not encourage investment. Would also be inefficient market is so volatile that it would not be real income. Valuation objection: can’t always determine value of investment if haven’t sold. Also capital gains preference would be lost. §7805 grants the Secretary authority to enforce provision of the Code does so through Regulations A Revenue Ruling is the Service view on a particular issue B. Income Tax 1. Encourages consumption not savings. 2. Favored on fairness grounds focuses on the ability to pay and shares the burden. 3. Critique: Complexity 4. Progressive tax structure hard to figure out how we could have a progressive consumption tax. C. Accounting Methods and Their Effects: Must use same method of accounting for both tax accounting and financial accounting. 446(a) 1. Cash: report income in year received. §451(a) Permits some manipulation of the timing of inclusions and deductions. There are limitations: Limitation: costs of capital investment s may not be deducted when the cash outlay is made only as the asset is used or when it is sold, exchanged etc. C ONSTRUCTIVE R ECEIPT (limitation): a right to a payment is treated as if received when the T had an unrestricted right to receive cash, even if the cash was not taken. C ASH E QUIVALENT /E CONOMIC B ENEFIT : People are treated as if they had received cash when they receive valuable property/rights. Treated as if you received cash equal to its fair market value. §83 www.swapnotes.com
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2 2. Accrual: report income when earned. An item of income is included when all of the events have occurred that fix the right to receive the income and the amt of the income can be determined w/reasonable accuracy. Tax system uses an
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Engler F00- Fed Tax SANTO - www.swapnotes.com I....

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