U.S. Federal Tax Law Chapter 3

Questions and Answers

What are three primary statutory sources of U.S. federal tax law?

The Constitution, 2) Various tax treaties, 3) The Internal Revenue Code

What significant effect did the 16th Amendment have on U.S. income tax?

Eliminated the claim that the Federal income tax was unconstitutional.

What is a tax treaty?

An agreement negotiated between countries concerning the treatment of individuals and companies subject to the tax laws of multiple countries.

Explain the purpose of a tax treaty.

To eliminate double taxation that the taxpayer would face if income were subject to tax in more than one country. Signup and view all the answers

Briefly summarize the usual steps of the legislative process for the development of federal tax legislation.

<ol> <li>Begins in the Ways and Means Committee. 2) Voted on by the full House of Representatives. 3) Sent to the Senate Finance Committee. 4) Approved by the Joint Conference Committee. 5) Signed into law by the President.</li> </ol> Signup and view all the answers

List the three committee reports that typically are prepared for a new tax law.

<ol> <li>Ways and Means Committee, 2) Finance Committee, 3) Joint Conference Committee</li> </ol> Signup and view all the answers

When are committee reports useful to a tax researcher?

In situations where the tax law is unclear or when recent legislation has been passed. Signup and view all the answers

What is a public law number?

A number assigned to every bill passed by Congress that indicates the session of Congress and the order of the bill. Signup and view all the answers

Where would a tax researcher find pertinent committee reports?

In the Internal Revenue Service's weekly Internal Revenue Bulletin and other commercial tax services. Signup and view all the answers

What is valuable about the Floor Debate Report for a tax researcher?

It includes a summary of floor discussions regarding proposed bills, providing additional detailed information. Signup and view all the answers

Discuss the evolution of today's Internal Revenue Code.

<ol> <li>Series of Revenue Acts passed after the 16th Amendment. 2) Codes replaced with Internal Revenue Code of 1939. 3) Reorganized in 1954. 4) Renamed the Internal Revenue Code of 1986 after revisions.</li> </ol> Signup and view all the answers

How is the Internal Revenue Code subdivided?

<ol> <li>Subtitles, 2) Chapters, 3) Subchapters, 4) Parts, 5) Sections, 6) Subsections.</li> </ol> Signup and view all the answers

How are the subtitles of the Internal Revenue Code identified?

Subtitles are assigned a capital letter. Signup and view all the answers

In the citation § 101(a)(2)(B), what does the 'a' stand for?

(a) - subsection (a); (2) - paragraph (2); (B) - subparagraph (B) of Section 101. Signup and view all the answers

Which Code section contains the statute for the definition of Gross Income?

§61 Signup and view all the answers

Are there any exceptions to the general formatting rules for a Code section?

Yes, Congress has inserted Code sections in between other sections and has used capital letters for these. Signup and view all the answers

Not all statutory tax laws are found in the Internal Revenue Code.

True Signup and view all the answers

Identify the general contents of § 61.

Definition of Gross Income. Signup and view all the answers

Comment on the interpretation problem regarding words that connect phrases, such as 'and' and 'or'.

These words have different logical meanings and could significantly impact the outcome of a research project. Signup and view all the answers

Comment on the interpretation problem regarding recent changes in the Code.

A researcher must cross-reference terms whose definitions have been affected by the new law. Signup and view all the answers

Comment on the interpretation problem regarding effective dates.

Provisions may not go into effect immediately; effective dates may vary. Signup and view all the answers

Comment on the statement, 'All tax questions can be answered using the Internal Revenue Code.'

Not all answers can be found in the Code; researchers may need to consult other sources. Signup and view all the answers

Use an online tax service to locate § 117 of the Internal Revenue Code. How many subsections does § 117 include?

4 Signup and view all the answers

How many paragraphs does § 117(b) include?

2 Signup and view all the answers

How many subparagraphs does § 117(d)(2) include?

2 Signup and view all the answers

Study Notes

Statutory Sources of U.S. Federal Tax Law

Primary sources are the Constitution, tax treaties, and the Internal Revenue Code.

16th Amendment

Ratified on February 3, 1913, allowing Congress to levy income taxes without apportionment among states.

Tax Treaties

Agreements between countries to address taxation of individuals and entities in multiple jurisdictions.

Purpose of Tax Treaties

Aim to eliminate double taxation and can cover various topics including estate taxes, corporate taxation, and withholding issues.

Legislative Process for Federal Tax Legislation

Begins in the House Ways and Means Committee, proceeds through both houses of Congress, involves a Joint Conference Committee, and requires presidential approval to become law.

Committee Reports in Tax Legislation

Generated by the Ways and Means Committee, Finance Committee, and Joint Conference Committee to provide insights and clarify tax law.

Importance of Committee Reports for Researchers

Useful in interpreting unclear tax laws and understanding intentions behind legislative changes.

Public Law Numbers

Each law passed by Congress is assigned a number indicating the session and order of passage, e.g., P.L. 100-203 refers to the 100th Congress's 203rd bill.

Publications for Committee Reports

Key sources include the IRS's Internal Revenue Bulletin, GPO’s Cumulative Bulletin, BNA’s Primary Sources, CCH's Public Law Legislative History, and RIA’s collections.

Value of Floor Debate Reports

These reports summarize discussions on tax bills and provide details on the legislative intent behind new provisions.

Evolution of the Internal Revenue Code

The 16th Amendment led to a series of Revenue Acts, which were later compiled into the Internal Revenue Code of 1939, then reorganized in 1954, and extensively revised in 1986.

Structure of the Internal Revenue Code

Subdivided into subtitles, chapters, subchapters, parts, sections, and subsections.

Identification of Subtitles

Subtitles are labeled with capital letters, each relating to a specific area of tax law.

Citation Interpretation

In citations like § 101(a)(2)(B), letters and numbers indicate subsections, paragraphs, and subparagraphs within the Code.

Exceptions in Code Interpretation

Some Code sections contain general rules accompanied by exceptions that must be carefully considered for accurate interpretation.

Importance of Connecting Words

Words like "and" and "or" significantly alter the application of provisions; precise interpretation is crucial.

Effective Dates of Tax Provisions

Provisions may not take effect immediately and can have varying effective dates; clarity is needed in understanding these details.

Limitations of the Internal Revenue Code

Not all tax questions can be answered solely using the Code; other sources may be necessary for full comprehension.

Researching § 117 of the Internal Revenue Code

§ 117 includes 4 subsections, § 117(b) contains 2 paragraphs, and § 117(d)(2) has 2 subparagraphs.

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Test your knowledge on the primary statutory sources of U.S. federal tax law with these flashcards. This quiz covers key concepts from Chapter 3 and explores important amendments that impact income tax in the United States.