Chapter 1 - 1 Chapter 1 Introduction to Federal Taxation...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 1 Introduction to Federal Taxation and Understanding the Federal Tax Law SUMMARY OF CHAPTER This chapter presents information on the magnitude of federal taxes collected and on taxpayer obligations. Also, the history of U.S. federal taxation is briefly summarized followed by a review of the federal legislative process. Fundamental Aspects of Federal Taxation ¶1101 Sources of Revenue Types of federal taxes include (1) income taxes on corporations, individuals, and fiduciaries, (2) employment taxes, (3) estate and gift taxes, and (4) excise and customs taxes. Also, revenues are generated from state and local taxes. Consideration is given to the attractiveness of alternative systems—the value-added tax and flat tax. ¶1121 Tax Collection and Penalties Taxes are big business and figures are given to demonstrate just how vast and complex the federal revenue collection system has become. In 1989, the civil tax penalty provisions were extensively revamped to create a fairer, less complex and more effective penalty system. Changes were made in the (1) document and information return penalties, (2) accuracy-related penalties, (3) preparer, promoter, and protester penalties, and (4) penalties for failure to file or pay. ¶1131 Taxpayer Obligations A clear understanding of tax avoidance versus tax evasion is necessary to achieve good tax planning. Tax avoidance is legal and a legitimate pursuit of a business entity. Tax evasion requires the presence of a tax liability. There is a legal obligation to disclose a tax liability based on completed transactions and the refusal to report the tax liability is illegal. ¶1151 Brief History of the Federal Income Tax The adoption of the Sixteenth Amendment to the Constitution enabled Congress to levy “taxes on income, from whatever source derived.Ä A brief chronological history of changes affecting the tax law from 1913 to the present is presented. 16th Amendment (2/15/1913) . Congress empowered itself to tax income. Revenue Act of 1913 . Imposed income tax on individuals, corporations and other entities, effective 3/1/1913. Internal Revenue Codes of 1939, 1954 and 1986 . Recodified the numerical referencing format of legislative tax law after significant tax law revisions had occurred. ¶1161 Federal Tax Legislative Process Steps in the enactment of a revenue bill are (1) origination in the House of Representatives Ways and Means Committee, (2) passage by the House, (3) passage by the Senate, (4) resolution of differences in House and Senate versions by the Joint Conference Committee, composed of members of both legislative bodies, (5) approval of the final version by both the House and the Senate, (6) approval or veto by the President, and (7) incorporation into the Internal Revenue Code. Both the Senate and the House must vote affirmatively by a two-thirds majority to override a veto. Chapter 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

Chapter 1 - 1 Chapter 1 Introduction to Federal Taxation...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online