ACC 4328

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  1. Tax Base
    This is the amount to which the tax rate is applied.  Also known as taxable income.
  2. Tax Rate
    This is applied to the tax base to determine a taxpayer's liability.
  3. Proportional Tax Rate
    When the rate of tax remains constant for any given income level.  Ex:  sales tax.
  4. Progressive Sales Tax
    When a high rate of tax applies as the tax base increases.
  5. Property Tax
    This is an ad valorem tax based on a person's capital.  Two types of this tax exist: realty and personalty.  Used by state, county, and local governments.
  6. Realty
    Immovable, fixtures where irreparable damage to the property would occur if removed.
  7. Personalty
    Moveable property of a personal nature.
  8. Intangible Property
    An item that can be bought, sold, or traded, but without physical substance.  Ex:  copyright, trademark, patent.
  9. Transaction Taxes
    This general category of taxes includes excise taxes, sales taxes, severance taxes.
  10. Excise Taxes
    These taxes are imposed on specific items.  Examples include:  cigarette tax, alcohol taxes, gas guzzler.  These taxes can also spur a black market.  Local examples: hotel occupancy, rental car surcharge.
  11. Sales Tax
    This tax is imposed on a multitude of transactions.  The federal government does not use this type of tax.  Used heavily by state & local governments.
  12. Use Tax
    This type of tax is applied to property purchased in another state and then used in the state to which the tax is applied.  There is no federal version of this tax.
  13. Severance Tax
    This type of tax is applied to the extraction of natural resources.
  14. Estate Tax
    This tax is applied after death but prior to transfer to the heirs.  There is a federal level of this tax, but there is a large deduction before applied.
  15. Inheritance Tax
    This tax is applied to property received from a decedent.
  16. Gift Tax
    This tax is levied on the right to transfer property prior to death.  There is a non-reportable deduction of $14,000 per donee per year, and a husband-wife can split the donation to double the deduction.
  17. Federal Income Tax
    This tax is applied to employees with rates dependent on amount of income, marital status, and number of deductions.
  18. Piggyback
    When the state makes use of the federal calculations in order to apply the state level income tax
  19. Employment Taxes
    This category of taxes are applied to those who work for companies and these amounts are withheld from the paycheck.
  20. Federal Insurance Contributions Act (FICA) Tax
    This set of taxes includes Social Security and Medicare.  The social security tax is applied to the first $118,500 of income, but Medicare has no income limit.  Children <18 yo employed by a parent's unincorporated business are exempted.
  21. Federal Unemployment Tax (FUTA) and State Unemployment Tax (SUTA)
    This tax is applied only to the first $7,000 of employee income, but is paid entirely by the employer.
  22. Franchise Tax
    This tax is levied by a state on a company for the right to do business in that state.
  23. Occupational Fees
    A special tax or licensing fee applied to certain professions where regulation and oversight are needed for public safety.  Ex:  doctors, cab drivers
  24. Flat Tax
    This proposed tax plans to eliminate all deductions and credits, imposing a standard 17% for all taxpayers over a certain amount of income.
  25. Value Added Tax
    This proposed tax plan operates like the EU, spreading the tax over the creation of a product or services.
  26. National Sales Tax
    This proposed tax plan would apply to all purchases.  It is criticized as weighing too heavily on the lower income earner as the majority of their income is used for necessary purchases.
  27. Correspondence Audit
    This type of audit is performed and usually solved in writing, but not by personal interview.
  28. Office Audit
    This type of audit is restricted in scope and conducted in the facilities of the IRS.
  29. Field Audit
    This type of audit involves an examination of numerous items reported on the return and is conducted on the premises of the taxpayer.
  30. Revenue Agent Report (RAR)
    This document is issued by the IRS agent after an audit to summarize the findings.
  31. Hazard of Litigation
    The probability of favorable resolution of the disputed issue if taken to court.
  32. Statute of Limitations
    The provision in the law that offers a party a defense against a suit brought by another party after the expiration of a specified period of time.
  33. Statue of Limitations on Assessment by the IRS
    • 3 years after filing on a standard return.
    • 6 years after filing if the taxpayer omits 25% of gross income
    • No limitation if no return is filed or if a fraudulent return is filed.
  34. Statue of Limitations on Refunds Requested by Taxpayer
    • 3 years from the date the return was filed OR
    • 2 years from the date the tax was paid
    • (whichever is later)
  35. Failure to File Penalty
    This penalty is imposed at 5% per month up to 25% on the amount of tax shown as due on the return.  Any fraction of a month counts as a full month.
  36. Failure to Pay Penalty
    This penalty is imposed at 0.5% per month up to 25% as due on the underpayment still owed by the taxpayer.  Any fraction of a month counts as a full month.
  37. Negligence Penalty
    This penalty is 20% imposed on any of the underpayment for intentional disregard of the rules and regulations, but without intent to defraud.
  38. Criminal Fraud Penalty
    This penalty is imposed on the willful disregard of the rules and regulations and includes penalties, interest, and possible jail time.
  39. Revenue Neutrality
    aka Pay-as-you-go, where every new tax law that lowers taxes must include a revenue offset that makes up for the loss.
  40. Sunset Provision
    When a tax reduction is limited by a period of years, but not renewed, and it expires.
  41. The Legislative Process
    Originates in the House Ways & Means Committee-->full House approval-->Senate Finance Committee-->full Senate approval-->President-->Internal Revenue Code
  42. Regulations
    These are issued by the US Treasury Dept under the authority granted by Congress.  Interpretive by nature, they provide taxpayers with guidance on the meaning and application of the Code, and thus carry considerable authority.
  43. Proposed Regulations
    These Regulations carry little weight, but offer an opportunity to comment on the regulation prior to acceptance.
  44. Temporary Regulation
    These regulations are issued and are enforceable without a comment period relating to matters where immediate guidance is important.  They remain in effect for no more than 3 yrs.
  45. Finalized Regulations
    These regulations have the force and effect of law.
  46. Revenue Rulings
    These pronouncements by the IRS, do not carry the same legal force or effect as Regulations as they typically deal with restricted problems, but provide examples of how the IRS would apply a law to specific fact situations.  Published in the Internal Revenue Bulletin.
  47. Revenue Procedures
    These pronouncements by the IRS deal with the internal management practices and procedures of the IRS.  If a taxpayer doesn't follow this document, the IRS can delay action on the issue.  Published in the Internal Revenue Bulletin.
  48. Letter Rulings
    These pronouncements are issued for a fee upon a taxpayer's request and describe how the IRS will treat a proposed transaction for tax purposes.  The taxpayer must request the issue before submitting the tax filing.
  49. Determination Letter
    Issued at the request of taxpayer and provide guidance on the application of the tax law.  These involved completed transactions.
  50. Technical Advice Memoranda (TAMs)
    These are weekly pronouncements that provide guidance on the application of tax law involving completed transactions, but for issues raised by IRS personnel.  These may not be cited or used as precedent.
  51. Court of Original Jurisdiction
    This is the court where a tax suit is first filed.
  52. The Four Trial Courts
    The category of the following:  Small Cases Division, US Tax Court, US District Court, US Court of Federal Claims
  53. Small Cases Division
    Cases filed in this court have no appear, and involve amounts of <$50,000.
  54. A Holding
    The term used for the decision of a particular court.
  55. Dicta
    This term refers to the incidental opinions beyond the current facts that result in a decision (holding) of the court.  These are not binding on a future court.
  56. District Courts
    There are many of these courts that covers different districts, with 16 judges, but only 1 hears the tax case
  57. Precedents
    Lower level courts must abide by the _____ of the Court of Appeals of that jurisdiction, but a particular Court of Appeals need not follow the decisions of another Court of Appeals.
  58. US Supreme Court
    All lower courts must follow this court's rulings.
  59. Writ of Certiorari
    This document is used to forward case to the US Supreme Court.
  60. Memorandum Decisions
    This document is created by the Tax Court regarding situations regarding the application of already established principles of law.  These are not published, but are available.
  61. Regular Decisions
    This document is created by the Tax Court regarding novel issues not previously resolved by the court.  These decisions are published.
  62. Acquiescence
    When the IRS loses a decision
  63. Nonacquiescence
    When the IRS loses a court decision, but chooses not to appeal even though it disagrees with the result.  These provide a warning to taxpayers that a similar case cannot be settled administratively.
  64. Tax Treaties
    These are created with foreign counties to avoid double taxation.  When there is a direct conflict betweeen the Code and this item, the most recent item takes precedence.
  65. Procedural Regulations
    These neither establish tax laws nor attempt to explain tax laws.  These provide housekeeping-type instructions on how the IRS should conduct itself.
  66. Interpretive Regulations
    These are solid and impossible to overturn because they reflect the intent of Congress.
  67. Legislative Regulations
    These regulations carry the force and effect of law.  Congress effectively delegates its legislative powers to the Treasury Department.
  68. Gross Income
    This term describes:  "Except as otherwise provided. . .all income from whatever source derived"
  69. Above the line deductions
    • Adjustments to income prior to determining AGI are loosely called. . .
    • Examples:  Expenses incurred in a trade or business, fees for college tuition and related expenses, contributions to HSAs.
  70. Income
    For tax purposes, an increase in wealth that has been realized.
  71. Economic Income
    The change in the taxpayer’s net worth, as measured in terms of market values, plus the value of the assets the taxpayer consumed during the year. Because of the impracticality of this income model, it is not used for tax purposes.
  72. Accounting Income
    This income concept is based upon the realization principle. Financial accounting income may differ from taxable income (e.g. accelerated depreciation might be used for Federal Income tax and straight-line depreciation for financial accounting purposes).
  73. cash receipts method
    A method of accounting that reflects deductions as paid (expenses) and income received in any one tax year. However, deductions for prepaid expenses that benefit more than one tax year (e.g., prepaid rent and prepaid interest) usually are spread over the period benefited rather than deducted in the year paid.
  74. Accrual method
    A method of accounting that reflects expenses incurred and income earned for any one tax year. In contrast to the cash basis of accounting, expenses need not be paid to be deductible, nor need income be received to be taxable. Unearned income (e.g., prepaid interest and rent) generally is taxed in the year of receipt regardless of the method of accounting used by the taxpayer.
  75. claim of right doctrine
    A judicially imposed doctrine applicable to both cash and accrual basis taxpayers that holds that an amount is includible in income upon actual or constructive receipt if the taxpayer has an unrestricted claim to the payment.
  76. hybrid method
    A combination of the accrual and cash methods of accounting. That is, the taxpayer may account for some items of income on the accrual method (e.g., sales and cost of goods sold) and other items (e.g., interest income) on the cash method.
  77. constructive receipt
    If income is unqualifiedly available although not physically in the taxpayer's possession, it still is subject to the income tax. An example is accrued interest on a savings account.
  78. original issue discount (OID)
    The difference between the issue price of a debt obligation (e.g., a corporate bond) and the maturity value of the obligation when the issue price is less than the maturity value. The discount represents interest and must be amortized over the life of the debt obligation using the effective interest method.
  79. fruit and tree metaphor
    The courts have held that an individual who earns income from property or services cannot assign that income to another. For example, a father cannot assign his earnings from commissions to his child and escape income tax on those amounts.
  80. assignment of income
    A taxpayer attempts to avoid the recognition of income by assigning to another the property that generates the income. Such a procedure will not avoid income recognition by the taxpayer making the assignment if the income was earned at the point of the transfer. In this case, the income is taxed to the person who earns it.
  81. partnership
    For income tax purposes, a partnership includes a syndicate, group, pool, or joint venture, as well as ordinary partnerships. In an ordinary partnership, two or more parties combine capital and/or services to carry on a business for profit as co-owners. § 7701(a)(2).
  82. community property
    The difference between common law and community property systems centers around the property rights possessed by married persons. In a common law system, each spouse owns whatever he or she earns. Under a community property system, one-half of the earnings of each spouse is considered owned by the other spouse. Assume, for example, that Jeff and Alice are husband and wife and that their only income is the $50,000 annual salary Jeff receives. If they live in New York (a common law state), the $50,000 salary belongs to Jeff. If, however, they live in Texas (a community property state), the $50,000 salary is owned one-half each by Jeff and Alice.
  83. Alimony and separate maintenance payments
    Alimony deductions result from the payment of a legal obligation arising from the termination of a marital relationship. Payments designated as alimony generally are included in the gross income of the recipient and are deductible for AGI by the payor.
  84. alimony recapture
    The amount of alimony that previously has been included in the gross income of the recipient and deducted by the payor that now is deducted by the recipient and included in the gross income of the payor as the result of front-loading. § 71(f).
  85. imputed interest
    For certain long-term sales of property, the IRS can convert some of the gain from the sale into interest income if the contract does not provide for a minimum rate of interest to be paid by the purchaser. The seller recognizes less long-term capital gain and more ordinary income (interest income). § 483 and the related Regulations.
  86. Annuity
    A fixed sum of money payable to a person at specified times for a specified period of time or for life. If the party making the payment (i.e., the obligor) is regularly engaged in this type of business (e.g., an insurance company), the arrangement is classified as a commercial annuity. A so-called private annuity involves an obligor that is not regularly engaged in selling annuities (e.g., a charity or family member).
  87. group term life insurance
    Life insurance coverage provided by an employer for a group of employees. Such insurance is renewable on a year-to-year basis, and typically no cash surrender value is built up. The premiums paid by the employer on the insurance are not taxed to the employees on coverage of up to $50,000 per person. § 79 and Reg. § 1.79–1(b).

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ACC 4328
2015-09-12 16:06:04
TxState IncomeTax

Important info from Texas State "Survey of Income Tax, ACC 4328
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