1. Types of Taxes and the Jurisdictions that Use Them
Chapter 1
Types of Taxes and the Jurisdictions that Use Them

2. Definitions Tax = payment to support government
contrast with fine/penalty or user fee
Taxpayer = person or organization that pays tax (includes individuals and corporations)
Incidence refers to ultimate economic burden of a tax.
may not be person who pays tax
Jurisdiction is the right of a government to tax.

3. Tax formula Tax revenue = rate x base
Rate can be flat or graduated (usually progressive)
Base may change in response to changes in rate (see chapter 2)

4. Describe by frequency of levy or purpose of tax
Transaction (event) based taxes
Sales or excise tax
Estate or gift tax
Activity based tax
Income tax
Earmarked taxes: social security, superfund

5. State and local taxes Property (ad valorem taxes) Real property tax
Abatements often granted to entice new business
Personal property tax
Household tangibles (vehicles), business tangibles, intangibles (securities)

6. State and local taxes Sales/use Excise tax – special rates
Broad-based but, typically excludes necessities (food, drugs)
Personal responsibility for use tax
Effects of catalogs and internet purchases
Excise tax – special rates
Income tax (personal or corporation)

7. Federal taxes Employment and unemployment taxes
Excise taxes (luxury, sin, transportation, communication)
Transfer taxes (gift, estate, generation skipping)
Income taxes (individual and corporation)

8. Foreign taxes Income taxes similar to U.S. Value added tax VAT
like a sales tax on incremental value added by manufacturing.
VAT is self-enforcing because taxpayer can claim a credit for VAT paid to supplier with proof of payment.

9. Sources of tax law
Sixteenth Amendment ratified in 1913 created income tax.
Internal Revenue Code was created in 1939 and subsequently revised in 1954 and 1986.
Statutory authority = Internal Revenue Code (Legislative)
Administrative authority (Executive)
Treasury regulations
IRS Revenue Rulings, Revenue Procedures
Judicial authority (Judicial)
Supreme Court
Appeal courts
Trial courts (Tax Court, District Court)

10. Research / Know your authorities
Tax Legislation – Chart – How tax legislation generally occurs
Sources broken down into two types: Primary and Secondary.
Where do primary and secondary sources of tax material come from?
Primary Sources Pie Chart

11. Primary Sources of Tax Law - Legislative Internal Revenue Code
Primary and most powerful source of Federal tax law unless a U.S. treaty conflicts (most recent item takes precedence)
Congress can override a U.S. Supreme Court decision by amending the Code.
Congressional committee reports found in cumulative bulletin are important in interpreting the code
Citation of Code: Sec. #, subsection, paragraph, subparagraph, clause: Sec 162(g) (1)(A)(i)

12. Administrative Sources of the Tax Law - Department of Treasury - Executive
Regulations (Legislative, Interpretive, Procedural, Temporary - Interpretive in nature)
Force and effect of law
Numbered in same sequence as the Code with an preceding numeral indicating type of tax covered by the regs
Revenue Rulings (pronouncement of IRS Nat’l Office)
provide guidance to both IRS and T/P
more restrictive
Revenue Procedures:deal with IRS internal mgmt practices
Other sources: letter rulings (proposed trans),determination letters (completed trans), Technical Advice Memoranda

13. Judicial Sources - Primary Sources
Findings have precedential value (except for small tax cases)
Trial courts - Tax Court (do not pay the deficiency), District Court, U.S. Court of Federal Claims (pay first, sue for refund), Small Cases Division
Appeals court - Regional Circuit, Federal circuit and Supreme Court (hear very few tax cases)
All courts must follow SC decisions, not the case for circuits

14. Tax Research – Chapter 5
Research is a process of finding a professional conclusion to a tax problem (may involve completed or proposed transactions).
Procedures;
Establish the facts
Identify the issues
Locate the authority (primary preferred)
Evaluate the authority
Develop conclusions/recommendations
Communicate the recommendations to the client

15. Technological Advances in taxes
Personal computers - facilitate use of tax research software, tax research services, tax prep software
On-line services facilitate up to date research information.
World wide web - provides access to a multitude of tax planning and compliance resources