Acc 331 Test review

TCJA

Tax Cuts and Jobs Act of 2017; established a flat 21% corporate tax rate.

FATCA

Foreign Account Tax Compliance Act; requires reporting of foreign financial assets.

Worldwide Income

U.S. citizens and residents are taxed on income earned anywhere in the world.

Tax Liability

Amount of tax owed.

Tax Base

Amount subject to tax.

Average Tax Rate

Total Tax ÷ Taxable Income.

Effective Tax Rate

Total Tax ÷ Total Income.

Marginal Tax Rate

Tax rate on the next dollar earned.

Progressive Tax System

Tax rates increase as income increases.

Proportional Tax

Same tax rate regardless of income level.

Regressive Tax

Effective tax rate decreases as income increases.

C Corporation

Corporation that pays its own income tax.

Pass-Through Entity

Business whose income flows through to owners for taxation.

S Corporation

Pass-through corporation governed by Subchapter S.

Partnership

Pass-through entity whose income flows to partners.

Schedule K-1

Reports an owner's share of income, deductions, and credits from a partnership or S Corporation.

16th Amendment

Constitutional amendment that authorized federal income taxation in 1913.

Internal Revenue Code (IRC)

Primary federal tax law.

Primary Authority

Legal authority that can support a tax position (IRC, regulations, court cases, rulings).

Secondary Authority

Research materials that explain tax law but generally cannot be cited as authority.

Treasury Regulations

Official Treasury interpretations of the Internal Revenue Code.

Revenue Ruling

IRS interpretation of tax law applied to a specific situation.

Revenue Procedure

IRS guidance on administrative procedures.

Letter Ruling (PLR)

IRS guidance applicable only to the taxpayer requesting it.

Tax Treaty

Agreement between the U.S. and another country to prevent double taxation.

Municipal Bond Interest

Generally exempt from federal income tax.

Corporate Bond Interest

Taxable interest income.

FICA

Federal Insurance Contributions Act taxes that fund Social Security and Medicare.

Social Security Tax

Payroll tax of 6.2% for employee and 6.2% for employer.

Medicare Tax

Payroll tax of 1.45% for employee and 1.45% for employer.

Self-Employment Tax

15.3% tax paid by self-employed individuals.

NIIT

Net Investment Income Tax; 3.8% tax on certain investment income.

Additional Medicare Tax

Additional 0.9% tax on high-income taxpayers.

FUTA

Federal Unemployment Tax Act tax; paid only by employers.

Gift Tax

Tax on transfers made during life.

Estate Tax

Tax on transfers made at death.

Ad Valorem Tax

Property tax based on value.

Horizontal Equity

Similar taxpayers should pay similar taxes.

Vertical Equity

Taxpayers with greater ability to pay should pay more tax.

Sufficiency

Tax system raises enough revenue to fund government operations.

Equity

Tax system should be fair.

Certainty

Tax laws should be understandable and predictable.

Convenience

Taxes should be easy to pay.

Economy

Cost of collecting taxes should be low.

Adam Smith's Five Canons

Sufficiency, Equity, Certainty, Convenience, and Economy.

Tax Avoidance

Legal reduction of taxes through proper planning.

Tax Evasion

Illegal failure to pay taxes owed.

Budget Deficit

Government spending exceeds government revenue.

Treasury Bills

Short-term government debt instruments.

Treasury Notes

Intermediate-term government debt instruments.

Treasury Bonds

Long-term government debt instruments.

Fiscal Sustainability

Government's ability to pay future obligations.

Single Filing Status

Unmarried taxpayer filing an individual return.

Married Filing Jointly (MFJ)

Married couple filing one joint return.

Married Filing Separately (MFS)

Married spouses filing separate returns.

Head of Household (HOH)

Unmarried taxpayer supporting a qualifying dependent.

Qualifying Surviving Spouse

Special status available after a spouse's death.

Individual Return Due Date

April 15.

C Corporation Due Date

April 15.

Partnership Due Date

March 15.

S Corporation Due Date

March 15.

Extension

Gives more time to file but not more time to pay tax.

Statute of Limitations

Time period IRS has to audit or taxpayer has to amend a return.

General Statute Rule

3 years.

25% Omission Rule

6-year statute of limitations.

Fraud Statute

Unlimited statute of limitations.

Correspondence Audit

IRS audit conducted through the mail.

Office Audit

Audit conducted at an IRS office.

Field Audit

Audit conducted at taxpayer's business or home.

DIF System

IRS scoring system used to select returns for audit.

Information Matching Program

IRS system that compares returns to W-2s, 1099s, and other forms.

Document Perfection Program

IRS system that checks for math and clerical errors.

30-Day Letter

IRS notice allowing taxpayer to request an appeals conference.

IRS Appeals Conference

Meeting with IRS Appeals Officer to resolve disputes.

90-Day Letter

Statutory Notice of Deficiency allowing taxpayer to petition Tax Court.

Statutory Notice of Deficiency

Formal IRS notice giving taxpayer 90 days to go to court.

Tax Court

Federal court allowing taxpayers to challenge tax before paying.

District Court

Taxpayer must pay tax first and sue for a refund.

Court of Federal Claims

Taxpayer must pay tax first and sue for a refund.

Stare Decisis

Doctrine that courts follow prior decisions.

Golsen Rule

Tax Court follows the precedent of the applicable Court of Appeals.

Eleventh Circuit

Federal appellate circuit covering Georgia, Florida, and Alabama.

House Ways and Means Committee

House committee that initiates tax legislation.

Senate Finance Committee

Senate committee responsible for tax legislation review.

Joint Conference Committee

Committee that resolves House and Senate bill differences.

Open Facts

Tax transaction has not yet occurred; planning opportunities still exist.

Closed Facts

Tax transaction already occurred; only consequences can be analyzed.

Tax Research Process

Facts → Issues → Authorities → Analysis → Conclusion → Communication.

Internal Memo

Internal tax research document used within a firm.

Client Letter

Tax explanation written to a client in plain language.

Circular 230

IRS rules governing professionals who practice before the IRS.

AICPA Code of Professional Conduct

Ethical rules governing CPAs.

SSTS

Statements on Standards for Tax Services.

State Board of Accountancy

Agency regulating CPA licenses.

Civil Penalty

Monetary penalty for violating tax rules.

Criminal Penalty

Penalty that may include fines or imprisonment.

Substantial Authority

Approximately 35-40% chance a tax position would be sustained.

Reasonable Basis

Tax position supported by at least one reasonable authority.

Form 8275

Disclosure form for questionable tax positions.

Income From Whatever Source Derived

General rule that income is taxable unless specifically excluded.