Assignment 2: Taxation Research and Communication The current tax law system in
ID: 2600471 • Letter: A
Question
Assignment 2: Taxation Research and Communication The current tax law system in the United States has emerged over many years from statutory, administrative, and judicial sources. These sources are continually changing and new laws are introduced at least annually. Suppose a client has come to you with a question about corporate taxation. Discuss your plan of action and communication with the client. Remember, the client does not have any technical background, and you need to communicate in terms he or she will understand. Keeping this in mind, respond to the following: What would be your plan of action? What tax sources would you use to research the problem? How would you communicate your findings to the client?
Explanation / Answer
TAX SOURCES
A. Statutory Sources of the Tax Law
1. Origin of the Internal Revenue Code
a. The Internal Revenue Code of 1939 arranged all Federal tax provisions enacted by Congress prior to that time in a separate part of the Federal statutes.
b. The Internal Revenue Code of 1954 was a revision of the 1939 Code.
c. The Internal Revenue Code of 1986 added to, deleted, and amended various provisions of the 1954 Code.
d. Statutory amendments to the tax law, such as the American Jobs Creation Act of 2004 are integrated into the existing Code.
2. The Legislative Process
a. Tax legislation generally originates in the House of Representatives, where the enactment process is accomplished in a step-by-step manner, normally starting in the House of Representatives, proceeding to the Senate, and then to the President for signature
b. Tax bills may originate in the Senate as riders to other legislation.
c. When the House and Senate versions of a bill differ, the Joint Conference Committee attempts to resolve the differences.
B. Administrative Sources of the Tax Law
1. Treasury Department Regulations
a. Regulations provide taxpayers with guidance on the meaning and application of the Code.
b. Regulations are usually first issued in proposed form before finalization to permit comment from taxpayers.
c. Temporary Regulations are issued when immediate guidance is critical.
d. Temporary Regulations are simultaneously issued as Proposed Regulations and automatically expire within three years.
e. Final Regulations are issued as Treasury Decisions.
2. Revenue Rulings and Revenue Procedures
a. A Revenue Ruling provides interpretation of the tax law as it applies to a particular set of circumstances.
b. Revenue Procedures deal with the internal management practices and procedures of the IRS.
3. Other Administrative Pronouncements
a. Treasury Decisions are issued to make known Final Regulations, to change existing Regulations, and to announce the Government’s position on selected court decisions.
b. Technical Information Releases are issued to announce the publication of various IRS pronouncements.
c. A letter ruling is issued, upon a taxpayer’s request, to describe how a proposed transaction will be treated for tax purposes.
1. A letter ruling generally applies only to the requesting taxpayer.
2. The issuance of letter rulings is limited to restricted, preannounced areas.
d. A technical advice memorandum is issued in response to a request of IRS personnel during an audit and gives the IRS’s position on a specific issue.
e. A determination letter is issued at the request of a taxpayer to provide guidance concerning the tax laws that are applicable to a completed transaction.
C. Judicial Sources of the Tax Law
1. The Judicial Process
a. If no satisfactory settlement has been reached with the IRS, the dispute can be taken to Federal court
b. The case is first considered by a court of original jurisdiction, including:
1. Federal District Court.
2. U.S. Court of Federal Claims.
3. Tax Court (including its Small Cases Division).
c. Any appeal is taken to the appropriate appellate court, including:
1. Court of Appeals of appropriate jurisdiction.
2. Court of Appeals for the Federal Circuit.
3. Supreme Court.
2. Judicial Decisions
a. American law is frequently made by judicial decisions. Under the doctrine of stare decisis, each case has precedential value for future cases having the same controlling set of facts.
b. The Tax Court hears only tax cases and issues two types of decisions.
1. Regular decisions involve issues not previously resolved by the Court.
2. Memorandum decisions involve application of already established principles of law.
c. If the IRS loses in a decision, it usually indicates agreement (acquiescence) or disagreement (nonacquiescence).
TAX RESEARCH
A. Identify the Problem
1. Gather all of the facts that might have a bearing on the problem.
2. Refine the problem and determine the tax consequences of each possibility.
B. Locate the Appropriate Tax Law Sources
1. Various tax services provide access to tax law and provide commentary.
2. Key words derived from the facts are used to explore tax services.
3. Make sure your information is up to date.
C. Assess the Validity of Tax Law Sources
1. Assess the relevance of the tax law source in light of the facts and circumstances of the problem at hand.
2. Assess the weight of the tax law source in light of the facts and circumstances of the problem at hand.
3. Different sources have varying degrees of authority.
D. Arrive at the Solution or at Alternative Solutions
E. Communicate Tax Research
1. Present a clear statement of the issue.
2. Provide a short review of the factual pattern that raised the issue.
3. Provide a review of the pertinent tax law sources.
4. Describe any assumptions made in arriving at the solution.
5. State the recommended solution and the reasoning to support it.
6. List the references consulted.
TAX PLANNING
A. The primary purpose of effective tax planning is to reduce the taxpayer’s total tax bill.
B. A secondary objective is to reduce, defer, or eliminate the tax.
C. These objectives must be consistent with the taxpayer’s legitimate business goals and consider the impact of a particular action over time (not just the current year).
D. Tax avoidance minimizes tax liabilities through legal means; tax evasion implies the use of subterfuge and fraud to minimize taxes.
The current tax law system in the United States has emerged over many years from statutory, administrative, and judicial sources. These sources are continually changing and new laws are introduced at least annually. Clients might therefore, come with many questions regarding corporate taxation. Many of them do not have any practical background, and it is essential that you will comunicate in the layman language so that they can understand.
In the U.S., Corporate Tax is imposed at a federal state level as well as some local levels on the return of the companies treated as corporations, solely for tax purpose. It is a requirement that Corporations in U.S.A. file their tax returns every year. It means they must pay tax quarterly.
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