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Chapter 1
                          Introduction to
                         Federal Taxation
©2012 CCH. All Rights Reserved.
4025 W. Peterson Ave.
Chicago, IL 60646-6085
1 800 248 3248
www.CCHGroup.com
Chapter 1 Exhibits

      1.   4 Major Types of Federal Taxes
      2.   Tax Revenue Statistics
      3.   Tax Avoidance v. Tax Evasion
      4.   Brief History of Federal Income Tax
      5.   Tax Legislative Process
      6.   Objectives of the Tax Law




Chapter 1, Exhibit Contents     CCH Federal Taxation Basic Principles   2 of 11
4 Major Types of Federal Taxes
 1. Income taxes
          Individual income tax and corporate income tax .


 2. Employment taxes
          FICA Social Security, FICA Medicare and FUTA.

 3. Estate and gift taxes
           Taxes on transfers of property


 4. Excise and custom taxes
          Taxes on transactions (taxes on the purchase of alcohol)




Chapter 1, Exhibit 1            CCH Federal Taxation Basic Principles   3 of 11
Tax Revenue Statistics
         Source           % Total      Avg. Rev.      Overall Audit      Tax Revenue ($’s    # Returns
                          Revenue     per Return       Probability          in billions        (#’s in
                                                                                             millions)
Individual Income Tax       43.36%        $ 5,766                1.1%                $994         141.2
Corporate Income Tax         9.56%        $11,859                1.4%                $180           6.9
Excise and Customs
Taxes                        2.41%        $54,150                2.3%               $ 45.3         0.84
Estate and Gift Tax          1.00%        $72,753                10.1%              $ 18.8          0.3
Employment                  43.67%        $27,528                0.2%               $820.0         29.8
Partnerships                N/A           N/A                    0.4%          N/A                  3.5
Other (mostly
Declarations of             0.0             -                -                  -
Estimated Tax)                                                                                     47.9
Totals                      100.0%                                              $2,058.1          230.4
Source: Compiled from Internal Revenue Service Data Books for 2010.

  Chapter 1, Exhibit 2a              CCH Federal Taxation Basic Principles                        4 of 11
Tax Revenue Statistics
     The General Accounting Office has reported that U.S.
      taxpayer compliance is the highest in the world,
      approximately 83 to 85 percent.

     Nevertheless, the IRS has acknowledged that the problem of
      tax evasion is a serious one. Each percentage point of
      noncompliance costs the government approximately $7
      billion in lost revenue.

     The IRS has decreased its audit coverage of individual
      returns since the mid-1990s. The decrease is largely due to
      technology and upgraded IRS information systems.

Chapter 1, Exhibit 2b       CCH Federal Taxation Basic Principles   5 of 11
Tax Avoidance v. Tax Evasion

         Tax avoidance—Saving tax dollars through
          specific actions to avoid the tax liability prior to
          the time it would have occurred according to the
          law.

         Tax evasion—The taxpayer does not properly
          report income and expenses even though the
          taxpayer already has a tax liability and all actions
          are definitely complete.

Chapter 1, Exhibit 3a      CCH Federal Taxation Basic Principles   6 of 11
Tax Avoidance v. Tax Evasion
     What frequently distinguishes avoidance from
     evasion is the intent of the taxpayer. Some
     indications of taxpayer fraud are:
             Understatement of income
             Claiming of fictitious or improper deductions

             Accounting irregularities

             Allocation of income

             Acts and conduct of the taxpayer




Chapter 1, Exhibit 3b        CCH Federal Taxation Basic Principles   7 of 11
Brief History of Federal Income Tax

    The Sixteenth Amendment was ratified on February
     25, 1913. It gave Congress the power to directly or
     indirectly tax all income.

    The Revenue Act of 1913 (effective March 1, 1913)
     imposed a tax on the net income of individuals and
     corporations. This act is the basis for income tax laws
     in the US.



Chapter 1, Exhibit 4   CCH Federal Taxation Basic Principles   8 of 11
Tax Legislative Process
  1. The Constitution requires that all revenue legislation start
      in the House Ways and Means Committee.

  2. The tax bill is sent to the House of Representatives for
      approval.
       The House debates the bill under a “closed rule”
         procedure (all amendments must be approved by the
         House Ways and Means Committee).

  3. If approved by the House of Representatives, the bill is
      sent to the Senate Finance Committee.
        The Finance Committee may make amendments to
          the House bill.

Chapter 1, Exhibit 5a        CCH Federal Taxation Basic Principles   9 of 11
Tax Legislative Process
  4. The bill is sent to the Senate for approval.
       Any senator may offer amendments from the floor
          of the Senate.
       Bill may be sent to a Joint Conference Committee
          if the House and Senate differ. The bill would then
          be sent back to House and Senate for consideration.
          At this point, no further amendments can be made.

  5. Approved or vetoed by the President

  6. Incorporated into the Code if approved by President or if
       veto is overridden.
Chapter 1, Exhibit 5b        CCH Federal Taxation Basic Principles   10 of 11
Objectives of the Tax Law
          Economic—to stimulate or control the economy
          Social—to encourage behavior (e.g., deduction for
           charitable contributions) or discourage behavior
           (e.g., illegal kickbacks are not deductible)
          Political—to benefit one’s own constituents or to
           discourage certain activities




Chapter 1, Exhibit 6         CCH Federal Taxation Basic Principles   11 of 11

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2013 cch basic principles ch01

  • 1. Chapter 1 Introduction to Federal Taxation ©2012 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 248 3248 www.CCHGroup.com
  • 2. Chapter 1 Exhibits 1. 4 Major Types of Federal Taxes 2. Tax Revenue Statistics 3. Tax Avoidance v. Tax Evasion 4. Brief History of Federal Income Tax 5. Tax Legislative Process 6. Objectives of the Tax Law Chapter 1, Exhibit Contents CCH Federal Taxation Basic Principles 2 of 11
  • 3. 4 Major Types of Federal Taxes 1. Income taxes  Individual income tax and corporate income tax . 2. Employment taxes  FICA Social Security, FICA Medicare and FUTA. 3. Estate and gift taxes  Taxes on transfers of property 4. Excise and custom taxes  Taxes on transactions (taxes on the purchase of alcohol) Chapter 1, Exhibit 1 CCH Federal Taxation Basic Principles 3 of 11
  • 4. Tax Revenue Statistics Source % Total Avg. Rev. Overall Audit Tax Revenue ($’s # Returns Revenue per Return Probability in billions (#’s in millions) Individual Income Tax 43.36% $ 5,766 1.1% $994 141.2 Corporate Income Tax 9.56% $11,859 1.4% $180 6.9 Excise and Customs Taxes 2.41% $54,150 2.3% $ 45.3 0.84 Estate and Gift Tax 1.00% $72,753 10.1% $ 18.8 0.3 Employment 43.67% $27,528 0.2% $820.0 29.8 Partnerships N/A N/A 0.4% N/A 3.5 Other (mostly Declarations of 0.0 - - - Estimated Tax) 47.9 Totals 100.0% $2,058.1 230.4 Source: Compiled from Internal Revenue Service Data Books for 2010. Chapter 1, Exhibit 2a CCH Federal Taxation Basic Principles 4 of 11
  • 5. Tax Revenue Statistics  The General Accounting Office has reported that U.S. taxpayer compliance is the highest in the world, approximately 83 to 85 percent.  Nevertheless, the IRS has acknowledged that the problem of tax evasion is a serious one. Each percentage point of noncompliance costs the government approximately $7 billion in lost revenue.  The IRS has decreased its audit coverage of individual returns since the mid-1990s. The decrease is largely due to technology and upgraded IRS information systems. Chapter 1, Exhibit 2b CCH Federal Taxation Basic Principles 5 of 11
  • 6. Tax Avoidance v. Tax Evasion  Tax avoidance—Saving tax dollars through specific actions to avoid the tax liability prior to the time it would have occurred according to the law.  Tax evasion—The taxpayer does not properly report income and expenses even though the taxpayer already has a tax liability and all actions are definitely complete. Chapter 1, Exhibit 3a CCH Federal Taxation Basic Principles 6 of 11
  • 7. Tax Avoidance v. Tax Evasion What frequently distinguishes avoidance from evasion is the intent of the taxpayer. Some indications of taxpayer fraud are:  Understatement of income  Claiming of fictitious or improper deductions  Accounting irregularities  Allocation of income  Acts and conduct of the taxpayer Chapter 1, Exhibit 3b CCH Federal Taxation Basic Principles 7 of 11
  • 8. Brief History of Federal Income Tax  The Sixteenth Amendment was ratified on February 25, 1913. It gave Congress the power to directly or indirectly tax all income.  The Revenue Act of 1913 (effective March 1, 1913) imposed a tax on the net income of individuals and corporations. This act is the basis for income tax laws in the US. Chapter 1, Exhibit 4 CCH Federal Taxation Basic Principles 8 of 11
  • 9. Tax Legislative Process 1. The Constitution requires that all revenue legislation start in the House Ways and Means Committee. 2. The tax bill is sent to the House of Representatives for approval.  The House debates the bill under a “closed rule” procedure (all amendments must be approved by the House Ways and Means Committee). 3. If approved by the House of Representatives, the bill is sent to the Senate Finance Committee.  The Finance Committee may make amendments to the House bill. Chapter 1, Exhibit 5a CCH Federal Taxation Basic Principles 9 of 11
  • 10. Tax Legislative Process 4. The bill is sent to the Senate for approval.  Any senator may offer amendments from the floor of the Senate.  Bill may be sent to a Joint Conference Committee if the House and Senate differ. The bill would then be sent back to House and Senate for consideration. At this point, no further amendments can be made. 5. Approved or vetoed by the President 6. Incorporated into the Code if approved by President or if veto is overridden. Chapter 1, Exhibit 5b CCH Federal Taxation Basic Principles 10 of 11
  • 11. Objectives of the Tax Law  Economic—to stimulate or control the economy  Social—to encourage behavior (e.g., deduction for charitable contributions) or discourage behavior (e.g., illegal kickbacks are not deductible)  Political—to benefit one’s own constituents or to discourage certain activities Chapter 1, Exhibit 6 CCH Federal Taxation Basic Principles 11 of 11