Income Tax Fundamentals

1
Income Tax Fundamentals

• Internal Revenue Code the law
• Treasury Regulations clarify and interpret tax
  laws
• Legislative the law
• Interpretative not binding on the courts
• Proposed what IRS thinks gather reaction
• Temporary law until we change our mind

2
Income Tax Fundamentals

• Revenue Rulings
• Heres what we think
• Generally a situation impacting several taxpayers
• Revenue Procedure
• Heres how you do thiscalculate interest on
  related party loans
• Private Letter Rulings
• Heres what we think of your situation
• Requested by taxpayer binding on IRS if facts in
  request accurate
• TAM requested by IRS

3
Income Tax Fundamentals

• Tax Court
• Judges
• Not required to pay taxes then appeal
• File within 90 days of IRS deficiency notice
• Must follow prior U.S. Court of Appeals decisions
  in district
• U.S. District Court
• Pay first, then sue for refund
• Decisions binding in that district

4
Income Tax Fundamentals

• U.S. Court of Appeals
• Appeals Tax Court, District Court decisions
• Decisions binding for courts which appeal to that
  district
• Small Tax
• Issue involves less than 50,000 in tax
• Decision can not be appealed

5
Legislation

• Originates in House Ways/Means
• Passes House, goes to Senate Finance
• If passes Senate,
• Goes to President if same as House bill
• Goes to Conference Committee if different
• Secondary authority explanation of tax law
• Committee reports

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Compliance

• Who Must File
• MFJ 18,700
• Standard deduction 11,400 for 2009
• Personal exemption 3,650 for 2009
• Who would want to file anyway?
• MFS avoid joint liability
• Single 9,350 (not dependent)
• Standard deduction 5,700 for 2009
• Dependents Unearned income gt 950
• Under age 18, college student
• Self-employed gt400 SE income

7
Filing Status

• MFJ
• What determines in married for year?
• Surviving spouse
• MFJ for two additional years if dependent child
• Head of household
• Dependent child
• Under 19 or student under 24

8
Filing

• Date postmarked
• Weekends, holidays
• Extensions six month automatic
• For filing not for paying tax

9
Audits

• Generally three year statute of limitations
• Substantial underpayment (omit greater of 25 of
  income or 5,000) six years
• Fraud six years
• Dont file
• If additional tax
• 30 day letter
• Pay or appeal within IRS

10
Penalties and Interest

• Failure to file 5 per month of tax not paid up
  to 25
• Failure to pay ½ per month of tax not paid up
  to 25
• Substantial underpayment 20 of tax not paid
• Interest T-Bills plus 3 on tax not paid