CHAPTER 1 - INTRODUCTION Internal Revenue Code (IRC, “the Code”, IRC Section) 26 USC - The domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code (USC) o The Internal Revenue Code (IRC) refers to Title 26 of the U.S. Code, the official "consolidation and codification of the general and permanent laws of the United States," as the Code's preface explains. Congress: House of Representatives – Ways of Means Committee; Senate – Finance Committee Code Section 61 – defines what is gross income which is the income we are taxed on (26 USC § 61) Regulations are drafted/promulgated by the Treasury Department pursuant to § 7805. Is there income? Is there a deduction or credit? - Deduction: what’s taken off before you apply the tax rate? - Credit (more malleable): what’s taken off on your actual tax liability? (Dollar for dollar - reduction on what is owed) If yes, to whom? When? And how is it characterized? Can this client pay my fee? Rulings - Public Revenue Ruling o Public information on what the IRS SHOULD be doing. Not binding however, the IRS will look foolish if they go against it - Private Letter Rulings o Go to specific party o Only binding if the party acts the exact way it stated it would have American Tax system - Operates on a progressive tax rate system o More income = a higher tax rate o Marginal rate rises with income – the rate on the last dollar of income - NOT a head tax (per person fixed amount) or a fixed rate (fixed rate applied to all income) Flow Through Entities Partnership LLC
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CHAPTER 2 - Income ( Code § 61 ; Regulation §1.61 ) - Deductions (162, 263) Economic Income - Haig-Simons definition- “spending plus savings” o Spending : personal spending; buying stock or anything business related is investing o Savings : what you put into savings and the growth that’s already there - Where the money is received (the source of the money) does not change the fact that it is accumulation or consumption income. IT’S STILL ECONOMIC INCOME. - When discussing TAXABLE INCOME, source matters. o Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance. ( 26 USC 102 ) - Taking out money decreases your accumulation income, but spending adds to consumption income. Economic income = Accumulation income + Consumption income . o Spending = consumption o Accumulation = savings - Loans are not taxable income and are not income Economic Income + Book to Tax Adj. = Taxable Income Unrealized Gain is economic income. (Unrealized appreciation) Categories of Income: - Default Rule (Glenshaw Glass) (61) o Section 22 of the Internal Revenue Code of 1939 describes gross income as “income derived from any source whatever.” Unless Congress expressly exempts a type of gain from taxation, this Court must assume that it falls within the definition of gross income.
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- Fall '19
- Revenue, Generally Accepted Accounting Principles