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Engineering Management Class Notes_8413514-IndivTax-Class-Notes

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I. Deciding tax matters (order)

a. IRC

i. The Law – Go no further if not ambiguous

b. Treas Regs ONLY if IRC is ambiguous

i. Called Treas Regs even though written by IRS

ii. Regs are good so long as they don’t go beyond what Congress intended

1. Essentially, they are good unless proven otherwise (rarely invalid)

II. Process creating Regs

a. Proposed Reg

i. Could take a long time or go though speedily

b. Permanent Reg

i. Proposed Regs that sit for along time are essentially as good as law

26 USC § 61

(a) General definition

Except as otherwise provided in this subtitle, gross income means all income from whatever

source derived, including (but not limited to) the following items:

(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;

(2) Gross income derived from business;

(3) Gains derived from dealings in property;

(4) Interest;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Alimony and separate maintenance payments;

(9) Annuities;

(10) Income from life insurance and endowment contracts;

(11) Pensions;

(12) Income from discharge of indebtedness;

(13) Distributive share of partnership gross income;

(14) Income in respect of a decedent; and

(15) Income from an interest in an estate or trust.

(b) Cross references

For items specifically included in gross income, see part II (sec. 71 and following). For items

specifically excluded from gross income, see part III (sec. 101 and following).

- Substance over Form Doctrine: No matter how you prepare your taxes in order to make them

look like the taxes are legit (form), the substance of what they really are (substance) will

overrule and force you to pay the taxes

- 55% ESTATE TAX for people worth over $10M at death: Gone in 2010, but comes back in 2011

DEDUCTIONS

- Taking amount off of your income

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- Deductions for all Itemized Deductions OR Standard Deductions

- HOME OWNERSHIP: If you own a home, you usually want to do Itemized Deductions as opposed

to the normal Standardized Deductions ($5,350 for indivs and MFSep, $10,700 for MFJointly).

CREDITS

- Subtraction from Tax, not just income (like Deductions)

- EXs:

o Earned Income Tax Credit: Supposed to be substitute for welfare; low income earners

who are working

o Lifetime Learning Credit: ($1,500) dollar-for-dollar credit if you owe a tax; be full-time

student

August 28, 2008

Filing Status

- Individual (not married)

- Married filing jointly – generally pay less this way

- Married filing separately – generally pay more this way

o If you have a client filing for divorce, have them file separately to extinguish J&S Liab b/c

IRS will go after whoever is easiest to collect from

- Surviving spouse

o Preferential rate made by Congress b/c males/wage earners die first and Cong wants to

help out widows

 Can file as married or year of death and then HofH or next 2 years but only if

you still have a dependant (under 19 or 24 [Full-Time School])

 Not married (by death or divorce), but have a dependant

- Head of household

 Status determined on last day of year (Determined 31, 2008)

Joint and Several Liability

- J&S Liab Rule § 6013(d)(3): Spouses are J&S liable for deficiencies on tax returns

- Innocent Spouse Rule § 6015:

o (a) Must file a joint return

o 3 ways to qualify for Innocent Spouse

 (b) Traditional InnSpouse Relief: 5 Requirements

 Joint return filed

 There was an understatement

 InnSpouse didn’t know, or had no reason to know of the

understatement

o Can’t stick head in the sand

 It is inequitable to hold the other indiv liable for the deficiency

 The non-at-fault spouse elects the benefit of this section no later than 2

years after the secretary has begun collection activities

 (c) Separate Liability: Intended to be Retroactive Married Filing Separate

 Prereqs: (1) no longer married, separated, or not living w/each other for

12+ months + (2) no actual knowledge of the “item” that makes up the

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I. Deciding tax matters (order) a. IRC i. The Law – Go no further if not ambiguous b. Treas Regs ONLY if IRC is ambiguous i. Called Treas Regs even though written by IRS ii. Regs are good so long as they don’t go beyond what Congress intended 1. Essentially, they are good unless proven otherwise (rarely invalid) Process creating Regs a. Proposed Reg i. Could take a long time or go though speedily b. Permanent Reg i. Proposed Regs that sit for along time are essentially as good as law II. 26 USC § 61 (a) General definition Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items; (2) Gross income derived from business; (3) Gains derived from dealings in property; (4) Interest; (5) Rents; (6) Royalties; (7) Dividends; (8) Alimony and separate maintenance payments; (9) Annuities; (10) Income from life insurance and endowment contracts; (11) Pensions; (12) Income from discharge of indebtedness; (13) Distributive share of partnership gross income; (14) Income in respect of a decedent; and (15) Income from an interest in an estate or trust. (b) Cross references For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following). - - Substance over Form Doctrine: No matter ...
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