ACC 331

INTRODUCTORY FEDERAL INCOME TAXATION

WHAT IS THIS COURSE ABOUT?

• Intelligent Consumer of Tax Services

• Make You Relatively Knowledgeable About Taxes• Personal and Business Taxes• What a CPA is Expected to Know

• Give a Base for a Tax Specialty

COMMENT ON BOOK

• Good Problems

• Tax Laws Change • Not in Book• Watch for Changes in Notes and

Handouts• Focus on New Law!!!!

• Tax Software for Cumulative Problems

ACC 331 Secondary Goals

• Apply Knowledge to Client Situations

• Communication

• Use Technology

• Stand on Your Own Two Feet

WHY DO WE HAVE TAXES?

• To Raise Money for Public Purposes

• The Alternative is:• No Government or• Inflation

Name Some Taxes(There are a lot of them!)

How Do You Choose a Tax?

• Economy• Convenience• Certainty• Equity:

• Horizontal• Vertical

ECONOMY

•Low Cost to Collect

CONVENIENCE

• Ease of Extraction

• (The goose doesn’t squawk much!)

CERTAINTY

• (Easily?) Predictable Results

HORIZONTAL EQUITY

• Equally situated persons pay equal taxes

Vertical Equity

• Persons with different amounts of income pay different amounts of tax.

• The extraction of the different amounts of tax cause equal amounts of pain for the different taxpayers.

EVALUATE DIFFERENT TAXES

• King with sword

• Sales tax

• Income tax

• Other taxes?

WHY STUDY THE INCOME TAX?

• Major revenue Source (See p. 1-4)

• Can change results by planning

HISTORY OF U.S. INCOME TAX

• Civil War - Springer

• 1898 - Pollock

• 1909 - Excise on being incorporated (1%)

• 1913 - 16th amendment

16th Amendment

Congress may tax

all income

from whatever source derived

without apportionment.

HISTORY OF U.S. INCOME TAX

• March 1913 - Individual income tax• low rates / high base

• 1941 - High rates, low base, withholding• 1950’s - Relative quiet• 1960’s-70’s - Equity and complication• 1980’s-90’s - Revenue needs &

complication• 2000’s Budget surplus & ????• Bush & Republicans (Split senate)

WHY SO COMPLICATED?

• EQUITY• Vertical - graduated rates

• Horizontal - exemptions, joint returns

• Property v Labor Income• Capital gains v Wages

ADMINIATRATION

• Return filed

• Math checked and DIF scored

• Select for audit/accepted

ADMINISTRATION - Audit

• Office, field or correspondence - RAR

• Appeal inside service

• Go to court!

ADMINISTRATION – Courts

• Courts of first impression• Tax Court• District Courts• Court of Federal Claims

• Appellate Courts

• Supreme Court

STATUTE OF LIMITATIONS

• Federal• 3 years - regular• 6 years - omit > 25% of Gross Income• None - fraud!

• States • May be different• Michigan - Regular is 4 years.

THE END - Day One

Happy Homework!