Lesson 1.1.2 Sources of Tax Law: Statutory

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En provenance du cours de University of Illinois at Urbana-Champaign

Taxation of Business Entities I: Corporations

13 notes

University of Illinois at Urbana-Champaign

Taxation of Business Entities I: Corporations

13 notes

Cours 3 sur 5 dans Specialization U.S. Federal Taxation

This course provides an introduction to the U.S. federal income taxation of corporations and their shareholders. The course focuses on the relevant provisions of Subchapter C of the Internal Revenue Code, as well as related Treasury Regulations and judicial opinions, governing corporate formation, operations, distributions, and liquidation. Practical in-class study problems facilitate self-discovery of technical tax knowledge along with the development of a variety of professional skills and attitudes.

À partir de la leçon

Module 1: Overview of Business Taxation

In this module, you will review the basics of tax law, which includes the origins of taxation, the three sources of tax law, the hierarchy of tax law, and judicial doctrines. Next, you will cover the fundamental features of the different organizational forms: sole proprietorship, partnership, corporation, and limited liability corporation. There will also be a discussion on strategic form choice. Finally, you will be introduced to entity classification for tax purposes.

Lesson 1.1.1 Origins of Taxation3:59

Lesson 1.1.2 Sources of Tax Law: Statutory4:00

Lesson 1.1.3 Sources of Tax Law: Administrative6:40

Lesson 1.1.4 Sources of Tax Law: Judicial3:27

Lesson 1.1.5 Hierarchy of Tax Law Sources1:40

Lesson 1.1.6 Judicial Doctrines4:10

Rencontrer les enseignants

Michael P Donohoe, PhD, CPA
Associate Professor of Accountancy and PwC Faculty Fellow
Department of Accountancy, Gies College of Business

[MUSIC]

Let's continue this lesson by reviewing the sources of tax law.

The three primary sources of tax law, statutory, administrative, and

judicial, are derived from the three branches of the federal government,

legislative, executive, and judicial.

All three branches generate provisions and

pronouncements that form the basis of both individual and business entity taxation.

Let's separately discuss each of these, beginning with statutory sources.

The statutory sources of tax law primarily include the US Constitution,

numerous tax treaties, and the infamous Internal Revenue Code.

As discussed earlier in this lesson,

the Constitution grants Congress the power to levy and collect taxes.

However, it also permits the creation of tax treaties,

which are agreements between countries that alleviate the dual taxation of income

subject to the tax laws in those countries.

For instance, if a US citizen generates investment income in a foreign country,

he or she may be entitled to a credit on their US income tax return

to the extent of any foreign taxes paid on the income.

The Internal Revenue Code is arguably the most important statutory source of tax

law, for this course, because it contains the legislative letter of the law.

Historically, federal tax statutes were located in the individual revenue acts

enacted by Congress.

However, this organizational system became challenging to navigate

as the number of tax provisions grew over time.

Thus, in 1939, Congress codified all federal tax laws into a single document

called the Internal Revenue Code.

The IRC, or Code, was reorganized in 1954, and renamed in 1986.

The IRC of 1986 is still in effect today because it simply refers to

the organizational numbering system adopted at that time.

More broadly, the IRC is part of the US Code of Federal Regulations,

which is the codification of all federal laws.

The IRC is located in Title 26, just following the federal laws for

insane asylums, and proceeding those for intoxicating liquors.

Seems to me like that was intentional.

The organizational numbering system of the code is multi-layered.

In Title 26, several different subtitles contain all of the statutes and

provisions for a precisely defined area of tax law.

For example, Subtitle A contains all statutes regarding income taxes.

Each subtitle is comprised of chapters, which reflect

more narrowly defined tax areas, such as Chapter 1, Normal Taxes and Surtaxes.

Each chapter is further divided into subchapters,

which contain the statutes for even more specific areas of tax law.

Subchapters are further divided into parts, parts can be divided into subparts,

and parts and subparts contain sections and subsections.

You will learn about many different code sections from subchapters

that pertain to corporate and pass-through business entities.

Some of the more common subchapters that this course and the next will cover

include Subchapter A, Determination of Tax Liability, C, Corporate Distributions and

Adjustments, K, Partners and Partnerships, O, Gain or Loss on Disposition

of Property, and S, Tax Treatment of S Corporations and Their Shareholders.

Finally, the most important partition of the code is typically the section.

Each section number only appears once in the code, mitigating

confusion about where a code section of interest is specifically located.

Individual code sections are divided into subsections,

paragraphs, subparagraphs, clauses, and subclauses.

For example, this particular citation is interpreted as section 1231,

subsection A, paragraph 3, subparagraph A, clause II,

subclause 1, of the Internal Revenue Code of 1986, as amended.

Again, reference to 1986 simply indicates which code numbering

system is applicable for this citation.

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