introduction to tax

Chapter 1
I. History of Taxation
1861:

1894:

1909:

1913:

II. Criteria for Evaluating a Tax Structure
Adam Smith -canons of taxation

Equality
Convenience
Certainty
Economy

III. Tax Structure
Tax base:

Tax rates:

Incidence of tax:

Examples:
Income
$10
$20
$30

$3 (30%)
$6 (30%)
$9 (30%)

$3 (30%)
$7 (35%)
$12 (40%)

IV. Major Types of Taxes
Property Taxes
Transaction Taxes
Death Taxes
Gift Taxes
Income Taxes
Employment Taxes
Other U.S. Taxes

V. Formula for Federal Income Tax on Individuals

Figure 1.2

VI. Corporate Income Tax
Corporate Taxable Income = Income – Deductions

VII. State Income Tax
All but the following states impose an income tax on individuals:

Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming

New Hampshire and Tennessee impose an individual income tax only on interest and dividends

VIII. Employment Taxes

FICA taxes

FUTA (Unemployment) taxes

IX. Other Taxes
Federal customs duties

Franchise taxes

Occupational taxes

X. Proposed Taxes

Flat tax

Value added tax

National sales tax

XI. Tax Administration

Internal Revenue Service (IRS)

Types of audits:
Correspondence audit

Office audit

Field audit

XII. Statute of Limitations

Statute of limitations offers a defense against a suit brought by another party after the expiration of a specified period of time

For Federal income tax purposes, the two categories involved relate to the statute of limitations applicable to:

For a deficiency assessment by IRS

Generally 3 years from the later of the due date or the filing date of the return

For material (more than 25%) omissions of gross income, time period is 6 years

No statute if no return filed or fraudulent return filed

For a refund claim by taxpayer

Generally 3 years from date return filed or 2 years from date tax paid, whichever is later
XIII. Interest and