Understanding Tax Formula, Limitations, Courts, and Audit

School: Ohio Northern University - Course: LAW 1280 - Subject: Accounting

INTRODUCTION A.Tax Formula -Gross Income (§ 61) - Exclusions (§ 101-150gifts/inheritance/annuities) - Above the line deductions (§162business deductions,§ 62specified deductions) = AGI oAGI - person exemptions, §151-152minus A) §63 standard deduction or B) itemized deduction (§ 63,2% floor imposed by§ 67misc. itemized) oThen - personal/dependency exemptions (§ 151, § 152) = Taxable Income Taxable income - Tax Credits (§ 25A) = Tax Liability oTax liability x Applicable Tax Rate = Tax Due or Your Refund B. Limitations to tax -Federal Tax must have uniformityacross all 50 states, same tax is subject to everyone oUniformity: Whenever some mode of taxation is used somewhere in the US, the same mode of taxation must be used everywhere throughout the US Ex:federal income tax -State income tax varies across each state -Direct tax:tax demanded from the very person who is intended to pay it (income tax, property tax) omust have apportionment(Ar. 1 § 9): direct tax unavoidable, must be apportioned among the states on the basis of population (head tax) -Indirect tax:tax paid primarily by a person who can shift the burden of the tax to someone else or who at least is under no legal compulsion to pay the tax, it is avoidable oEx:sales tax, buyer pays the sales tax but it is applied to the merchants -Pollock:taxes on income from property is a direct tax. SC says tax on income is on property and it is a direct tax on property, when there's direct tax there has to be apportionment; apportionment is usually based on income -16thamendment: can tax income from whatever source derivedwithoutapportionment, but still must be uniformed C. Courts -Tax Court: oTP does not have to pay deficiency, a taxpayer can petition the Tax Court for a redetermination of the deficiency. Suits are between taxpayer and commissioner. oTried without a jury. oCt based in DC but travels around the country oIf lose can appeal to Circuit Ct. of where TP resides -District Court: oTP must pay all the deficiency and then if win case can get money back oThere is a jury.If law is unfavorable to TP they can come here. oIf lose can appeal to circuit courts, but can only appeal in circuit of where TP resides -Court of Federal Claims: oMust pay deficiency.Then can get $ back if win. oNo jury trial 1

oIf lose here, can go to US Court of Appeals Federal Circuit Ct. -Court of Appeals for the Federal Circuit:decisions by district courts and of Tax Courts are appealable here. oIf lose here can go to SC -Supreme Court:appealable here by petition for cert.