Skip to content
Class Notes

Lecture Notes For McGraw-Hill's Taxation of Individuals and Business Entities 2021 Edition, 12th Edition

Lecture Notes For McGraw-Hill's Taxation of Individuals and Business Entities 2021 Edition, 12th Edition offers expertly curated lecture summaries, helping you understand key concepts with ease.

Preview 16 of 220 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 1-1 Chapter 1 An Introduction to Tax INSTRUCTOR’S MANUAL Learning Objectives 1 - 1. Demonstrate how taxes influence basic business, investment, personal, and political decisions. 1 - 2. Discuss what constitutes a tax and the general objectives of taxation . 1 - 3. Describe the different tax rate structures and calculate a tax. 1 - 4. Identify the various federal, state , and local taxes. 1 - 5. Apply appropriate criteria to evaluate alternate tax systems. Teaching Suggestions This chapter provides an overview of why taxes are important, what a tax is , how to calculate a tax, various tax rates and tax rate structures, different types of federal, state, and local taxes, and how to evaluate a tax system . One intent of the chapter is to get students thinking about the pervasive influence of taxe s and thus why it is important for a business or accounting student to understand taxes . Discussing how taxes affect decisions that they will face (buying a house, investing for retirement, etc.) is an effective way to pique students’ interest. This chapter also provides an opportunity to motivate students by discussing the political importance of taxes and the debate over alternative tax systems . Throughout most of the chapter, you can tie the material discussed back to the debate over alternative tax systems . This is easily done in the section on evaluating alternative tax systems and alternative tax rate structures but may also be done for other parts of the text . For example, when discussing how to calculate a tax, you can point out that once the tax base is computed, it is very easy to calculate virtually any tax . The difficulty is in determining the tax base. The implication of this understanding is that the tax rate structure (e. g., progressive versus proportional) has little effect on tax complexity . In teaching this chapter, the time that you spend in class will vary based on how much discussion that you want to incorporate regarding evaluating tax systems and implicit taxes . Most of the concepts in this chapter are relatively straight forward, and thus, the chapter provides students with an introduction to tax without overwhelming them on the first day or so of class . This is particularly important if your students have some trepidation regarding their first tax course . Implicit tax is typically a difficult concept for students to understand . The text provides a good overview of implicit tax . If you plan to cover implicit tax in some detail, you might alert students that this is a difficult concept and that they should be careful to get familiar with this discussion in the text prior to class .

  2. Page 2
  3. Page 3
    Read page 3 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 1-2 Assignment Matrix Learning Objectives Text Features Problem Time Difficulty LO1 LO2 LO3 LO4 LO5 Research Planning Forms DQ1 - 1 5 min. Easy X DQ1 - 2 5 min. Easy X DQ1 - 3 5 min. Easy X DQ1 - 4 5 min. Easy X DQ1 - 5 5 min. Medium X DQ1 - 6 5 min. Medium X DQ1 - 7 5 min. Medium X DQ1 - 8 10 min. Medium X DQ1 - 9 5 min. Medium X DQ1 - 10 10 min. Medium X DQ1 - 11 15 min. Medium X DQ1 - 12 5 min. Medium X DQ1 - 13 15 min. Medium X DQ1 - 14 10 min. Medium X DQ1 - 15 5 min. Easy X DQ1 - 16 15 min. Medium X DQ1 - 17 5 min. Easy X DQ1 - 18 5 min. Easy X DQ1 - 19 10 min. Medium X DQ1 - 20 10 min. Medium X DQ1 - 21 10 min. Easy X DQ1 - 22 10 min. Easy X DQ1 - 23 15 min. Medium X DQ1 - 24 15 min. Medium X DQ1 - 25 15 min. Medium X DQ1 - 26 15 min. Medium X DQ1 - 27 15 min. Medium X DQ1 - 28 15 min. Medium X DQ1 - 29 15 min. Medium X X DQ1 - 30 20 min. Medium X X DQ1 - 31 15 min. Medium X X DQ1 - 32 15 min. Medium X DQ1 - 33 15 min. Medium X P1 - 34 20 min. Medium X P1 - 35 20 min. Medium X P1 - 36 20 min. Medium X P1 - 37 20 min. Medium X P1 - 38 20 min. Medium X P1 - 39 20 min. Medium X P1 - 4 0 20 min. Medium X

  4. Page 4
    Read page 4 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 1-3 P1 - 4 1 20 min. Medium X P1 - 4 2 20 min. Hard X X P1 - 4 3 15 min. Medium X X X P1 - 4 4 15 min. Medium X X X P1 - 4 5 15 min. Medium X X X P1 - 4 6 15 min. Medium X X X P1 - 4 7 20 min. Hard X P1 - 4 8 20 min. Hard X P1 - 49 20 min. Hard X X P1 - 5 0 20 min. Hard X X P1 - 5 1 20 min. Hard X P1 - 5 2 20 min. Hard X P1 - 53 20 min. Hard X P1 - 5 4 20 min. Hard X P1 - 5 5 20 min. Hard X P1 - 5 6 20 min. Hard X P1 - 5 7 25 min. Hard X X X P1 - 5 8 25 min. Hard X X X P1 - 59 25 min. Medium X X P1 - 6 0 25 min. Medium X X Lecture Notes 1) Who Cares About Taxes and Why? a) Businesses b) Politicians c) Individuals 2) What Qualifies as a Tax? a) Definition of a tax i) Key components of definition: payment is required, imposed by a government agency, and not directly tied to any benefit received by the taxpayer from the government b) Earmarked tax — definition and why this is considered a tax c) Quiz students on tax definition using examples in the P ower P oint slides . 3) How to Calculate a Tax a) Tax = Tax Base × Tax Rate i) Tax Base — what is actually taxed, usually expressed in monetary terms ii) Tax Rate — level of taxes imposed on the tax base, usually expressed as a percentage iii) Flat taxes iv) Graduated taxes v) Brackets b) Different ways to measure tax rates i) Marginal tax rate (1) Definition — tax rate that applies to the next additional increment of a taxpayer’s taxable income (or deductions)

  5. Page 5
    Read page 5 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 1-4 (2) Formula — D Tax D Taxable Income = (New Total Tax - Old Total Tax) (New Taxable Income - Old Taxable Income) (3) Useful in tax planning ii) Average tax rate (1) Definition — a taxpayer’s average level of taxation on each dollar of taxable income (2) Formula — Total Tax Taxable Income (3) Useful in budgeting tax expenses or comparing the relative tax burdens of taxpayers iii) Effective tax rate (1) Definition — taxpayer’s average rate of taxation on each dollar of total income, including taxable and nontaxable income (2) Formula — Total Tax Total Income (3) Provides the best depiction of a taxpayer’s tax burden iv) Work example in the P ower P oint slides calculating tax liability, marginal, average, and effective tax rates . c) Tax rate structures i) Proportional tax rate structure (1) Definition — also known as a flat tax, imposes a constant tax rate throughout the tax base (2) As the tax base increases, the taxes paid increase proportionally . (3) The marginal tax rate remains constant and equals the average tax rate across the tax base . (4) The most common example of a proportional tax is a sales tax . ii) Progressive tax rate structure (1) Definition — imposes an increasing marginal tax rate as the tax base increases . (2) As the tax base increases, both the marginal tax rate and the taxes paid increase . (3) Common examples of progressive tax rate structures include federal and state income taxes and federal estate and gift taxes . iii) Regressive tax rate structure (1) Definition — imposes a decreasing marginal tax rate as the tax base increases . (2) As the tax base increases, the taxes paid increase, but the marginal tax rate decreases . (3) Regressive tax rate structures are not common . In the United States, the Social Security tax and federal and state unemployment taxes employ a regressive tax rate structure . iv) Discuss how different taxes can be viewed as having different rate structures when you consider eff ective tax rates versus marginal tax rates (e.g., the sales tax) . 4) Types of T axes a) Federal taxes i) Income tax: I mposed on individuals, corporations, estates , and trusts . The largest federal tax. ii) Employment taxes: Employment taxes consist of the OASDI tax (Social Security tax) and the MHI tax (Medicare tax) . The tax base for these taxes is wages or salary and employers and employees split these taxes equally . Self - employed individuals must pay these taxes in their entirety . iii) Unemployment taxes: Employers are also required to pay federal and state unemployment taxes, which fund temporary unemployment benefits for individuals terminated from their jobs without cause. iv) Excise taxes: A tax based on quantity of goods or services purchased . Common examples include taxes on alcohol, diesel fuel, gasoline, and tobacco products and on services such as telephone use and air transportation .

  6. Page 6
    Read page 6 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 1-5 v) Transfer taxes: The estate tax and gift taxes are based on the fair market values of wealth transfers upon death or by gift, respectively . b) State and local taxes i) Income tax: M ost states impose an income tax . The calculation varies by state . ii) Sales and use taxes: T he tax base for a sales tax is the retail sales of goods and some services . Retailers collect and remit this tax . The tax base for the use tax is the retail price of goods owned, possessed , or consumed within a state that were not purchased within the state . The purpose of a use tax is to discourage taxpayers from buying goods out of state in order to avoid or minimize the sales tax in their home state . iii) Property taxes: A ssessed on the fair market value of real property and personal property . These are ad valorem taxes . iv) Excise taxes c) Implicit taxes i) Indirect taxes that result from a tax advantage the government grants to certain transactions . ii) Defined as the reduced before - tax return that a tax - favored as set produces because of its tax - advantaged status . iii) Difficult to quantify but important to understand in evaluating the relative tax burdens of tax - advantaged investments . iv) Walk through examples of implicit taxes in text . 5) Evaluating Alternative Tax Systems a) Sufficiency i) Involves assessing the aggregate size of the tax revenues that must be generated and making sure that the tax system provides these revenues . ii) Static forecasting: Forecasting revenue ignores how taxpayers might alter their activities in response to a tax law change and to base projected tax revenues on the existing state of transactions. iii) Dynamic forecasting: Forecasting that tries to predict possible responses by taxpayers to new tax laws. iv) Income e ffect: As tax rates go up, people will work harder to maintain same after - tax income. v) Substitution e ffect: As tax rates go up, people will substitute non taxable activities because the marginal value of taxable ones has decreased. vi) Equity: A tax system is considered fair or equitable if the tax is based on the taxpayer’s ability to pay. vii) Horizontal e quity: T wo taxpayers in similar situations pay the same tax. viii) Vertical e quity: T axpayers with greater ability to pay tax pay more tax relative to taxpayers with a lesser ability to pay tax . Vertical equity can be viewed in terms of tax dollars paid or tax rates . Vertical equity may also be evaluated using effective tax rates instead of simply considering the tax rate structure. ix) Certainty: Taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax. b) Convenience i) A tax system should be designed to be collected without undue hardship to the taxpayer. c) Economy i) A tax system should minimize the compliance and administration costs associated with the tax system .

  7. Page 7
    Read page 7 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 1-6 d) Compare the income tax and sales tax using the equity, certainty, convenience, and economy criteria . e) Evaluating tax systems — the trade - off i) Much of the debate regarding alternative tax systems reduces to a choice between simplicity and fairness . ii) Those taxes that generally are simpler and easier to administer are typically viewed as less fair . Those taxes that may be viewed as more fair are often more complex to administer. Class Activities 1. Suggested class activities o Designing a tax system : Tell students that the clas s has just seceded from the United States and needs to develop a tax system sufficient to generate $XX , XXX from the class members . Have the students break into groups of three to five to design a tax system . As part of this task, they are to evaluate the advantages and disadvantages of their tax . The group judged by the class to have the most advantageous tax system receives bonus participation points for the day . o What is fair? Put two different tax systems in front of the class — one a proportional tax rate, one a progressive tax system . Poll the class by show of hands to determine which tax system each person views as being fairer . Either in groups or as a class, have the students discuss why they view a specific system as being fairer . After the discussion, poll the class by show of hands to determine if anyone has changed their view of which tax is fairer . Then discuss with the class that there is no right answer as to which system is fairer . Instead, the answer depends on a person’s individual views on fairness . o One versus the class : Have one student volunteer as the “one” with the other class members being the “group.” Use the key facts boxes in the text to develop multiple - choice questions (A, B, C answers) and then quiz the volunteer and the class on the questions . The volunteer and each class member will need to write the letters A, B, and C on separate sheets of paper and then hold up their appropriate response to the question . Once a student (either the “one” or a member of the “group”) misses a question, he or she is eliminated from the competition . After six (or some other number) of questions, those students left standing receive bonus participation points for the day. o Discuss current tax policy topics : Find a few recent articles discussing tax reform, the current income distribution, or the millionaire surtax. Post the articles so that students can read before class and ask a few questions to begin the class discussion. 2. Research activities o Show the class the IRS web site and some of th e materials included in the website — e.g., publications, IRS forms, etc . o Have students research the p residential candidates ’ tax platforms and compare and contrast the likely changes to the Internal Revenue Code.

  8. Page 8
    Read page 8 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 2 - 1 Chapter 2 Tax Compliance, the IRS, and Tax Authorities INSTRUCTOR’S MANUAL Learning Objectives 2 - 1. Identify the filing requirements for income tax returns and the statute of limitations for assessment . 2 - 2. Outline the IRS audit process, how returns are selected, the different types of audits, and what happens after the audit . 2 - 3. Evaluate the relative weights of the various tax law sources . 2 - 4. Describe the legislative process as it pertains to taxation . 2 - 5. Perform the basic steps in tax research . 2 - 6. Describe tax professional responsibilities in providing tax advice . 2 -7. Identify taxpayer and tax professional penalties . Teaching Suggestions This chapter provides a summary of the filing requirements for income tax returns, the IRS audit process, tax law sources and tax research, tax professional responsibilities, and taxpayer and tax practitioner penalties. The time allotted to this chapter will vary based on your expectations regarding the students’ abilities to conduct research in the course. The remaining material in the chapter (filing requirements, IRS audit process, tax professional responsibilities, and taxpayer and tax practitioner penalties) can be covered in a class session (or two). Compared to Chapter 1 and later chapters, the material in C hapter 2 could be considered somewhat “dry.” Thus, it is important to bring this material to life in the classroom as much as possible. Some suggestions for the class discussion include: • Filing requirements: Provide a basic overview of the filing requirements by entity and statute of limitations and then use discussion questions 1 through 3 and problems 43 through 49 to quiz students on their understanding. • IRS audit process: Most students are interested in how the IRS selects returns for audit. Discussing high-profile IRS cases (Richard Hatch, Survivor ; Willie Nelson; Al Capone) or personal experiences with IRS audits is typically well received. After the discussion, quizzing the students on identifying the selection method and audit type for various fact patterns is an effective way to make sure that your students can apply the concepts from this discussion. • Tax law sources: The depth to which you cover the various sources will vary with your expectations regarding the students’ abilities to conduct research. If students will be expected to research problems, read primary authorities, etc., showing examples of the specific types of authorities that they will research (code sections, regulations, etc.), highlighting their attributes, contrasting different authorities, and discussing how to locate the authorities and make sure that they are “current” should prove beneficial. This discussion could then be followed with a discussion of how to conduct research and an in-class example of a simple research problem. [As an out-of-class exercise, you might assign students to locate specific

  9. Page 9
    Read page 9 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 2 - 2 primary authorities (e.g., court cases, revenue rulings, etc.) and related discussion in an available tax service (CCH, RIA, BNA, etc.) and have the students summarize the issue addressed in the primary authority and tax service and how they located each authority.] If instead students are simply required to have a basic understanding of tax authorities with little or no research expectation, most of the discussion of authorities could focus on comparing different authorities and their relative weights. This discussion can then be reinforced with classroom questions comparing the weight of different authorities or contrasting different authorities using the “one v ersus the group” activity suggested below. • Tax legislation: This discussion may be aided by displaying Exhibit 2-7. You may also remind your class of the Schoolhouse Rock song “ I’m Just A Bill, ” which highlights the legislative process. You can watch this song on YouTube. • Basic tax research steps: This discussion may be enhanced by walking students through the research example in the text or through one of the end of chapter research problems. • Tax professional standards/taxpayer and tax practitioner penalties: This discussion may be enhanced by a discussion of the IRS’ s crackdown on tax shelters, the dire consequences associated with not meeting professional standards, and the recent increased thresholds to avoid tax practitioner penalties. Assignment Matrix Learning Objectives Text Feature Problem Time Difficulty LO1 LO2 LO3 LO4 LO5 LO6 LO7 Research Planning Forms DQ2 - 1 5 min. Easy X DQ2 - 2 10 min. Easy X DQ2 - 3 10 min. M edium X DQ2 - 4 5 min. Easy X DQ2 - 5 10 min. Medium X DQ2 - 6 10 min. Medium X DQ2 - 7 10 min. Medium X DQ2 - 8 15 min. Medium X DQ2 - 9 15 min. Medium X DQ2 - 10 10 min. Easy X DQ2 - 11 1 0 min. Medium X DQ2 - 12 5 min. Easy X DQ2 - 13 1 5 min. Medium X DQ2 - 14 10 min. Medium X DQ2 - 15 1 0 min. Medium X DQ2 - 16 1 0 min. Medium X DQ2 - 17 1 5 min. Medium X DQ2 - 18 1 5 min. Medium X DQ2 - 19 5 min. Easy X DQ2 - 20 20 min. Medium X D Q2 - 21 15 min. Medium X

  10. Page 10
    Read page 10 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 2 - 3 DQ2-22 10 min. Easy X DQ2 - 23 1 0 min. Easy X DQ2 - 24 15 min. Medium X DQ2 - 25 15 min. Medium X DQ2 - 26 15 min. Medium X DQ2 - 27 15 min. Medium X DQ2 - 28 15 min. Medium X DQ2 - 29 15 min. Medium X DQ2 - 30 10 min. Easy X DQ2 - 31 15 min. Medium X DQ2 - 32 15 min. Medium X DQ2 - 33 15 min. Medium X DQ2 - 34 15 min. Medium X DQ2 - 35 15 min. Medium X DQ2 - 36 20 min. Medium X DQ2 - 37 15 min. Medium X DQ2 - 38 10 min. Medium X DQ2 - 39 15 min. Medium X DQ2 - 40 15 min. Medium X DQ2 - 41 15 min. Medium X DQ2 - 42 15 min. Medium X P2 - 4 3 15 min. Medium X P2 - 44 15 min. Medium X P2 - 45 15 min. Medium X P2 - 46 15 min. Medium X P2 - 47 15 min. Medium X P2 - 48 15 min. Medium X P2 - 49 15 min. Medium X P2 - 50 10 min. Medium X P2 - 51 15 min. Medium X P2 - 52 1 0 min. Medium X P2 - 53 10 min. Medium X P2 - 54 10 min. Medium X P2 - 55 10 min. Medium X P2 - 56 20 min. Medium X X P2 - 57 20 min. Medium X X P2 - 58 15 min. Medium X P2 - 59 15 min. Medium X P2 - 60 15 min. Medium X P2 - 61 15 min. Medium X P2 - 62 10 min. Medium X P2 - 63 10 min. Medium X P2 - 64 15 min. Medium X P2 - 65 15 min. Medium X P2 - 66 10 min. Medium X P2 - 67 10 min. Medium X

  11. Page 11
    Read page 11 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 2 - 4 P2-68 60 min. Medium X X P2 - 69 60 min. Medium X X P2 - 70 60 min. Medium X X P2 - 71 60 min. Medium X X P2 - 72 60 min. Medium X X P2 - 73 120 min. Hard X X P2 - 74 120 min. Hard X X P2 - 75 60 min. Medium X X P2 - 76 20 min. Medium X P2 - 77 20 min. Hard X P2 - 78 20 min. Medium X P2 - 79 20 min. Medium X Lecture Notes 1) Taxpayer F iling R equirements a) Filing requirements by entity i) Individuals (show Exhibit 2 - 1) ii) Corporations b) Tax return due date and extensions i) Individuals and C corporations ii) Partnerships and S corporations c) Statute of limitations i) T he period in which the taxpayer can file an amended tax return or the IRS can assess a tax deficiency for a specific tax year . ii) G enerally ends three years from the later of (1) the date the tax return was actually filed or (2) the tax return’s original due date . iii) A six - year statute of limitations applies to IRS assessments if the taxpayer omits items of gross income that exceed 25 percent of the gross income reported on the tax return. iv) For fraudulent returns, or if the taxpayer fails to file a tax return, the statute of limitations remains open indefinitely. 2) IRS Audit Selection a) Methods of selection i) DIF system ii) Document perfection iii) Information matching iv) Other methods b) Types of audits i) Correspondence examinations ii) Office examinations iii) Field examinations c) A fter the audit (show Exhibit 2 - 2 ) i) Proposed adjustment ii) 30 - day letter iii) Appeals conference iv) 90 - day letter v) Petition courts

  12. Page 12
    Read page 12 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 2 - 5 vi) Trial-level courts and their differences: Tax Court, U.S. District Court, U.S. Court of Federal Claims vii) Choosing a trial-level court (show Exhibit 2-3) viii) Circuit Court of Appeals (show Exhibit 2-4) ix) Supreme Court 3) Tax Law Sources a) Primary and secondary sources i) Primary tax authorities (show Exhibit 2-5) ii) Secondary authorities (show Exhibit 2-6) b) Legislative sources: Congress and the Constitution i) U.S. Constitution ii) Internal Revenue Code iii) Legislative process for tax laws (show Exhibit 2-7) iv) Basic organization of the code (show Exhibit 2-8) v) Tax treaties c) Judicial sources: The courts i) The hierarchy of the courts (trial level, appeals, Supreme Court) ii) Stare decisis iii) Golsen rule d) Administrative sources: The U.S. Treasury i) Regulations: Three different forms (final, temporary, proposed); three different purposes (interpretative, procedural, legislative); highest administrative authority. ii) Revenue Rulings and Revenue Procedures: More detailed than regulations; second in administrative weight. Definition of each. iii) Letter rulings: Lower authoritative weight; contrast private letter rulings with determination letters and technical advice memorandums. iv) Acquiescence, nonacquiescence, and actions on decision: Define and explain why important. 4) Tax Research a) Understand facts i) Open and closed facts ii) How do you determine facts for a research question? b) Identify issues i) Ability to identify issues varies with experience. ii) Understand facts, combine facts with understanding of law, identify general issues. (Is this income taxable? Is this expense deductible?) iii) Research will allow you to identify more specific issues. iv) Discuss Example 2-4 in class. c) Locate relevant authorities i) Annotated tax services: Definition and what they contain. ii) Topical tax services: Definition and what they contain. iii) How to use these services? iv) Keyword search: Area of law and key facts; suggestions if key word searching is not proving beneficial. v) Topical index vi) Browsing the service vii) Discuss Example 2-5. d) Analyze tax authorities i) Questions of fact: H inges upon the facts and circumstances of the taxpayer’s transaction. In this type of question, the researcher will focus on understanding how various facts affect the research answer and identifying authorities with fact patterns similar to her client’s.

  13. Page 13
    Read page 13 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 2 - 6 ii) Questions of law: Hinges upon the interpretation of the law, such as interpreting a particular phrase in a code section. If a researcher is faced with this type of question, she will spend much of her time researching the various interpretations of the code section and take note of which authorities interpret the code differently and why. iii) Conflicting authorities: The tax researcher should evaluate the hierarchical level, jurisdiction, and age of the authorities, placing more weight on higher and newer authorities that have jurisdiction over the taxpayer. iv) Checking the status of authorities: Citators and methods to check the status of authorities. e) Communicate the results i) The basic parts of a memo: Facts, issues, authorities, conclusion, and analysis. ii) Facts: Discuss facts that provide necessary background of the transaction and those facts that may influence the research answer. iii) Issues: State the specific issues that the memo addresses. Issues should be written as specifically as possible and be limited to one or two sentences per issue. iv) Authorities: The researcher cites the relevant tax authorities that apply to the issue, such as the IRC, court cases, and revenue rulings. Cite enough to provide a clear understanding of the issue and interpretation of the law. v) Conclusion: One conclusion per issue. Each conclusion should answer the question as briefly as possible, and preferably indicate why the answer is what it is. vi) Analysis: The goal of the analysis is for the researcher to provide the reader a clear understanding of the area of law and specific authorities that apply. Typically an analysis will be organized to discuss the general area(s) of law first (the Code section) and then the specific authorities (court cases, revenue rulings) that apply to the research question. After you discuss the relevant authorities, apply the authorities to your client’s transaction and explain how the authorities result in your conclusion. vii) The basic parts of a client letter: Salutation and social graces, research question and limitations, facts, analysis, and closing. 5) Tax Professional Responsibilities a) Tax professionals are subject to various statutes, rules, and codes of conduct. i) AICPA Code of Professional Conduct ii) AICPA Statement on Standards for Tax Services iii) IRS’ s Circular 230 iv) State board of accountancy statutes b) Failure to comply with statutes can result in being admonished, suspended, or barred from practicing. 6) Taxpayer and Tax Practitioner Penalties a) Civil penalties i) Generally monetary penalties ii) Imposed when tax practitioners or taxpayers violate tax statutes without reasonable cause. b) Criminal penalties i) Much less common than civil penalties. ii) Penalties are much higher and can include prison sentences. c) Taxpayer underpayment penalty: No underpayment penalty if there is substantial authority that supports the tax return position or if there is a reasonable basis for the position and it is disclosed on the taxpayer’s tax return . d) A tax practitioner will not be subject to penalty if there is substantial authority that supports the tax return position or if there is a reasonable basis for the position and it is disclosed on the taxpayer’s tax return . Class Activities

  14. Page 14
    Read page 14 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 2 - 7 1. Suggested class activities o Let’s choose a court : Split the class into groups. Explain to the class that you will be asking a series of questions to the class regarding the choice of trial-level courts after an audit. After you ask the question, a group may buzz in to answer the question when a group member raises his or her hand. If the person gets the question correct, the group will receive one point. If the person misses the question, the group loses one point. The group with the most points after the series of questions will receive bonus participation points for the day. Use the individual court differences and differences in their respective appellate courts to generate questions. See problem 57 for examples of questions to pose. o One versus the class : Have one student volunteer as the “one , ” with the other class members being the “group.” Use the key facts boxes in the text to develop basic multiple-choice questions (A, B, C answers) and then quiz the volunteer and the class on the questions. The volunteer and each class member will need to write the letters A, B, and C on separate sheets of paper and then hold up their appropriate response to the question. Once a student (either the “one” or a member of the “group”) misses a question, her or she is eliminated from the competition. After six (or some other number) of questions, those students left standing receive bonus participation points for the day. 2. Research activities o Take one or more of the research problems at the end of the chapter and pose the following questions after reading the problem: (1) What are the key facts in the problem? (2) What is the general issue to be addressed? (3) What key words would you use to research this question? Then walk the students through how you would conduct the research using an available on-line service. 3. Ethics d iscussion From page 2 - 5: Discussion points: • What are the timing requirements for fili ng a tax return and paying taxes owed? • Does Bill’s action likely violate any IRS regulation? • If Bill’s action does not violate IRS rules, is it ethical? • Are ethics and IRS rules the same?

  15. Page 15
    Read page 15 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 3-1 Chapter 3 Tax Planning Strategies and Related Limitations INSTRUCTOR’S MANUAL Learning Objectives 3 -1. Identify the objectives of basic tax planning strategies. 3 -2. Apply the timing strategy. 3 -3. Apply the concept of present value to tax planning. 3 -4. Apply the income-shifting strategy. 3 -5. Apply the conversion strategy. 3 -6. Describe basic judicial doctrines that limit tax planning strategies. 3 -7. Contrast tax avoidance and tax evasion Teaching Suggestions This chapter provides an overview of the basic tax planning strategies that represent the building blocks of tax planning. It is placed early in the text to emphasize the importance of tax planning and to allow the students to form an early foundation of the basic planning techniques. In later chapters as you discuss specific technical content (e.g., investments, compensation, property transactions), students should be able to identify and apply the basic tax planning strategies that apply to each transaction. This chapter can be covered in one to one and a half class sessions. Most of the concepts in the chapter are relatively straightforward and thus should not present students with tremendous difficulty. If students have not been exposed to the concept of present value, this discussion may require more time. If students are familiar with present value, a short review should suffice. This chapter should be of interest to students given the importance of tax planning and the related wealth impact that these strategies can have. Thus, students should have a natural interest in the chapter’s material. Nonetheless, discussing real-life examples of these strategies should pique students ’ interests even more so (see, for example, the “Taxes in the Real World” boxes in the text). The chapter lends itself to covering in-class examples of each strategy. Included in the text are several basic examples of the strategies, with additional problems in the end of chapter material that may prove useful. Post-TCJA, taxpayers may rethink the income-shifting strategy for their business income to accommodate the lower corporate tax rate (21 percent). We may see more business incorporations take advantage of this lower tax rate. In addition to discussing the basic tax planning strategies, the chapter introduces several judicial doctrines that limit tax planning (and apply in numerous tax settings). These doctrines represent key components of the tax law and will also be discussed later in the text when applicable. When discussing these doctrines, it may be useful to provide specific examples of their application (e.g., Example 3-6 in the text). Finally, this chapter provides a brief discussion of tax avoidance and tax evasion. This discussion provides an opportunity to discuss the importance of ethics in the accounting profession and the negative consequences associated with tax evasion. This discussion also provides an opportunity for students to remember the discussion of tax practitioner professional standards and civil and criminal penalties in

  16. Page 16
    Read page 16 as text

    Instructor’s Manual – McGraw - Hill’s Taxation, by Spilker et al. 3-2 Chapter 2. Assignment Matrix Learning Objectives Text Feature Problem Time Difficulty LO 3 - 1 LO 3 - 2 LO 3 - 3 LO 3 - 4 LO 3 - 5 LO 3 - 6 LO 3 - 7 Research Planning Tax Forms DQ 3 - 1 10 min. Easy X DQ3 - 2 10 min. Easy X DQ3 - 3 20 min. M edium X DQ3 - 4 1 5 min. Medium X DQ3 - 5 1 5 min. Medium X DQ3 - 6 1 5 min. Medium X DQ3 - 7 1 5 min. Medium X DQ3 - 8 15 min. Medium X X DQ3 - 9 20 min. Medium X X DQ3 - 10 15 min. Medium X DQ3 - 11 15 min. Medium X DQ3 - 12 5 min. Easy X DQ3 - 13 1 5 min. Medium X DQ3 - 14 10 min. Medium X DQ3 - 15 15 min. Medium X DQ3 - 16 15 min. Medium X DQ3 - 17 1 0 min. Medium X DQ3 - 18 15 min. Medium X DQ3 - 19 1 0 min. Medium X DQ3 - 20 15 min. Medium X DQ3 - 21 15 min. Medium X X X DQ3 - 22 10 min. Easy X DQ3 - 23 10 min. Medium X DQ3 - 24 15 min. Easy X DQ3 - 25 25 min. Medium X X DQ3 - 26 1 0 min. Medium X DQ3 - 27 20 min. Medium X DQ3 - 28 15 min. Medium X DQ3 - 29 10 min. Medium X DQ3 - 30 10 min. Medium X DQ3 - 31 15 min. Medium X DQ3 - 3 2 10 min. Easy X DQ3 - 3 3 10 min. Easy X DQ3 - 34 15 min. Medium X P3 - 35 15 min. Medium X X

204 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Taxation study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.