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BASIC FEDERAL INCOME TAXATION

Professor Yochum
August 27, 2007
Begin chapter 2 on Wednesday
From last class: Marginal and Effective rate of taxation
Tax Procedure – mostly done through administrative agency
1.
Statute of Limitations – in a broad sense – there are many specific statute
of limitations – Primary statute is 3 years from the due date of the return.
2.
Audits – most returns are only scanned by computers looking for
variances outside of the tolerance zone. Then they are kicked out and
looked at by a person. 6 year statute of limitation for substantial
understatements.
3.
If you file no return or you file a fraudulent return there IS NO statute of
limitations.
4.
IRS is collecting arm of the Dept. of Treasury. Many divisions of the IRS.
Commissioner of Tax is appointed by the president. IRS has reorganized
from a geographical divisions into types of tax payers.
5.
CID – Criminal Investigation Division - investigation of drug dealers,
criminals, etc. they carry guns.
6.
IRS issues the statutory notice of deficiency, or also called ticket to tax
court or 90 day letter. This 90 day letter creates a judgment against you if
you do not file anything against it. Deficiency creates a lien or mortgage
on your property which can be collected if sold.
7.
Refund litigation - Full payment rule – before you are able to litigate a
refund action, you must pay the full amount the IRS thinks you owe.
8.
Burden of proof and persuasion is on the taxpayer. The IRS has the
presumption of correctness.
9.
Tax payers Bill of Rights – mollify or provide window dressing comfort to
taxpayers who might be in a situation.
Main tax court is in the District of Columbia, there are about 29 judges in total. They go
to the different regions to sit for cases.
T.C.M. – Tax Court Memorandums – factual example of application of the law; least
influential of all the decisions. Useful in practice to provide example of the application
Burke v. Commissioner
73 T.C.M. 2291
Tax law from case law perspective
90 day letter – you have 90 days to petition the tax court of the US to hear your claim
Advantage – don’t have to pay the disputed tax until the dispute has been decided.
(opposite of the full payment rule)

Internal Revenue Code of 1986  Country was in the economic crapper o Inflation was rampant o Tax collections were bad o Tax sheltered investments were in a scandal o Reagan-omitcs – anti-tax rhetoric o Graham/Rundum – any legislation that was proposed had to have a way to pay for it built in  4 Goals of the 1986 Code o Fairness o Simplicity o Broad basedness o Revenue neutrality . Article I courts there is NO jury. Only judges who are expert in tax Tax Court Appeals  Go to the circuit court where the taxpayer is from  Circuit Courts opinions are binding on the Tax Court in the circuit they are from Refund Litigation  Make a claim for refund  Agency considers claim for refund even if you did not respond to the 90 day letter  IRS denies claim for refund  May file a suit against the US for refund in the District Court where the taxpayer resides.)  Difference b/w tax court and district court – district court is not a specialized court and you may have a jury and precedent and appeals are the same as any other case in the DC.C.Tax court is NOT an Article III court with open courts. (or court of claims in D. It is an Article I court and it kept be kept from public view.