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

22 notes

University of Illinois at Urbana-Champaign

Taxation of Business Entities I: Corporations

22 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.

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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: Statutory3:54

Lesson 1.1.3 Sources of Tax Law: Administrative6:40

Lesson 1.1.4 Sources of Tax Law: Judicial3:27

Lesson 1.1.5 Judicial Doctrines4:10

Lesson 1.1.6 Hierarchy of Tax Law Sources1:40

Rencontrer les enseignants

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

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.

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 preceding those for intoxicating liquors.

Seems to me like that was intentional.

The organizational numbering system of the code is multilayered.

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 we'll

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 interests 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 2,

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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