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Unformatted text preview: INCOME TAXATION OUTLINE PROF. NEIL BUCHANAN SPRING 2007 Basic Income Tax outline- What is income?- When is it taxable? (Timing) o Realization – when non-cash income is turned into cash (i.e. when goods are sold) Issues here are liquidity & valuation o Recognition – Congress often allows people to defer paying taxes- What can be subtracted from income before it’s taxed? (Deductions)- What tax rate is applied? o Some kinds of income have better tax rates (ex. capital gains) General Info on Taxes- US economy produces $13 ½ trillion per yr.- Income taxes produce 55% of fed. revenues – top income earners pay a proportionally larger amount b/c system is progressive meaning as income level increases rates increase o Tax base = item or activity used to determine tax liability o Here tax base is income o Middle income people don’t pay a lot of fed. income tax – pay mostly SS & Medicare taxes- Tax code is very complicated partly due to encouragement of certain economic activities through deductions, credits o This allows politicians to call a subsidy a tax cut- 16 th amendment in 1913 allowed income taxation- There are four rates (listed in favorability order from most) o Married couples filing together o Heads of households o Single people o Married couples filing separately- There are civ. & crim. penalties for not filing a return- IRS selects only a few returns to audit – has 3 yrs. to assert deficiency return – tp’s pay interest on underpayments o Also fines and civ. & crim. penalties for fraud but these apply only to very severe cases o Usually tp will just have to pay interest- If a realize a mistake should file amended return but no penalty for not doing so Tax Policy - Tax expenditures – code exempts certain things from taxable income but this can be seen as an expenditure b/c revenue is lost by not taxing thes things – it’s really a subsidy o Ex. code subsidizes home ownership, pensions, healthcare - Gov’t is trying to encourage spending in these areas b/c as public policy think these are good ways for tp’s to act o Ex. want people to take care of their health b/c puts less strain on SS & Medicare later- Important note is that if we create a subsidy gov’t is losing revenue which then needs to be replaced somehow or results in spending cuts, less services for public – so tax cuts aren’t free, they always cost someone (although probably different person than the one being helped) The IRS- In 1995 Congress has hearings on IRS abuse – only found 4 documented cases of this – made changes to tax code anyway to make it harder for IRS...
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This note was uploaded on 04/04/2008 for the course LAW ALL taught by Professor Multiple during the Fall '06 term at NYU.
- Fall '06
- The Land