1st Edition
Principles of Taxation in the United States Theory, Policy, and Practice
Taxation is a discipline that does not receive sufficient academic attention. It is typically viewed as a subset of law, accounting, public policy, economics, or finance. In this respect, most academic efforts in the field of taxation are shadowed by a mother discipline. There is currently an unprecedented need to approach tax pedagogy in a way that is independent of another discipline. This book caters to that real and unmet need in tax pedagogy.
One of the book’s advantages is that it is not tied to a specific tax year and does not coddle the reader with volumes of time-sensitive information. In this book the tax year is never the focus, as the center stage is reserved for teaching the principles and skills necessary to independently find answers. The reader will learn to appreciate the complexity of the American tax system and will be endowed with the contextual understanding necessary to formulate educated opinions about how taxes work and, most importantly, why. Contrary to common belief, taxation in the United States has remained fairly stable for the last 100 years. This book uses the federal individual income tax as a vehicle to unveil the mechanics that make up the American tax system.
This book is essential reading for students taking a first course in taxation, at the undergraduate or graduate level, as part of programs in accounting, law, public administration, or business at large.
List of figures
List of images
List of tables
About the author
Foreword
Preface
PART I CONCEPTUAL FOUNDATIONS
1 A HISTORICAL PERSPECTIVE ON TAX POLICY
Philosophical notions of taxation
History of taxation in the United States
The 16th Amendment remains powerful
Tax policy
Practice questions
2 THE STRUCTURE OF TAX ADMINISTRATION
Introduction to viable tax systems
Tax base
Tax rate
A system of preferences
A mechanism of tax administration
An opportunity to appeal
Focus on tax planning: avoidance or evasion?
Practice questions
PART II THE UNDERPINNINGS OF TAX IN THE UNITED STATES 35
3 TAX ADMINISTRATION IN THE UNITED STATES
Introduction to separation of powers
The legislative branch in U.S. tax administration
The executive branch in U.S. tax administration
Organization of the IRS
Examination of returns
Administrative appeals
The judiciary branch in U.S. tax administration
Practice questions
4 SPEAKING AMERICAN TAX LANGUAGE
Words matter!
Taxing jurisdictions
Tax system: worldwide or territorial
System of collection: direct or indirect
Tax rates and timing
Tax base
Tax base: income
Tax base: capital
Tax base: consumption
Preferences
Taxpayer
Tax classification
Practice questions
5 LOCATING AND RESEARCHING TAX AUTHORITY
Classification of tax authority
Primary authority
Primary authority issued by Congress
Primary authority issued by the IRS
Primary authority issued by the Courts
Secondary authority
Researching tax authority
Subscription-based tax research
Open-access tax research
Citing tax authority
Formulating research questions
Practice questions
PART III THE MECHANICS OF AN AMERICAN INDIVIDUAL INCOME TAX RETURN
6 FILING STATUS AND DEPENDENTS
Identifying taxpayers
Filing status
Married Filing Jointly (MFJ)
Married Filing Separately (MFS)
Qualifying Widow(er) (QW)
Head of Household (HoH)
Single
Filing status examples
Dependents
Qualifying Child
Relationship
Age
Support
Household
Citizen/resident
Tiebreaker rules
Qualifying Relative
Relationship or housing
Gross income
Support
Citizen/resident
Personal and dependency exemptions
Practice questions
7 TAXES IMPOSED ON INCOME
The largest source of federal tax revenue
Taxing income generally
Taxes on income
Income tax on ordinary income
Income tax at reduced rates
Net investment income tax
FICA taxes
Medicare surtax
Sources of taxable income
Measuring gains: basis and holding period
Most common exclusions from taxable income
Employment benefits
Social Security benefits
Gains on the sale of a principal residence
Municipal bond interest
Combat pay and parsonage allowances
Cancellation of debt
Compensation for injuries and sickness
Foreign earned income
Other exclusions
Closing remarks: illegal income
Practice questions
8 DEDUCTIONS
What is a deduction?
Personal expenses generally
Personal expenses deductible above the line (for AGI)
Educator expenses
Student loan interest
Tuition and fees
Health Savings Accounts (HSA)
Deductible portion of self-employment tax
Self-employed health insurance
Alimony
Moving expenses
Individual Retirement Accounts (IRA)
Employment-related above-the-line deductions
Personal expenses deductible below the line (from AGI)
The standard deduction
Itemized deductions
Medical and dental expenses
Taxes
Interest
Gifts to charity
Casualty losses
Business expenses
Trade or business
Ordinary, necessary, and reasonable
Closing remarks on deductions
Practice questions
9 LOSSES AND LOSS LIMITATIONS
Losses vs. expenses
Context of losses
Nature of losses
Triggering event
Calculating the maximum loss amount
Loss amount from assets
Loss amount from activities
Tax treatment of losses
Unused losses
Losses: calling them names
Losses: facts and circumstances
The active participation exception for rental losses
Practice questions
10 CREDITS
Credits vs. deductions
Refundable and nonrefundable credits
Most common tax credits
Child Tax Credit and Family Tax Credit
Education credits
American Opportunity Tax Credit
Lifetime Learning Credit
Retirement Savings Contribution Credit
Foreign Tax Credit
Child and Dependent Care Credit
Earned Income Credit
Practice questions
PART IV REFLECTIONS ON POLICY AND PRACTICE
11 THE ALTERNATIVE MINIMUM TAX SYSTEM
History of the AMT system
Defining "minimum"
AMT adjustments and preferences
Private activity municipal bond interest income
Personal and dependency exemptions
The standard deduction
Itemized deductions
Medical and dental expenses
State and local taxes
Mortgage interest
Depreciation
Incentive Stock Options (ISO)
AMT case study: Jolanda White
Practice questions
12 TAX PLANNING AND PROFESSIONAL STANDARDS
Notions of tax planning
Avoiding recognition of income
Controlling time
Controlling character
Shifting taxpayer
Evasion, avoidance, and the tax gap
Professional standards in tax practice
Credentialing: degrees, licenses, and certifications
Professional oversight
Closing remarks
Practice questions
Appendices
Index
Biography
Fabio Ambrosio, JD, LLM, MBA, CPA/PFS/ABV, CFP, EA, CVA, MAFF, CFE, CGMA, is a Professor of Taxation at Central Washington University. In addition to being licensed as an attorney-at-law and Certified Public Accountant in the State of Washington, he is also a trained mediator, business valuator, and forensic analyst.
Through this book Professor Ambrosio offers an important contribution to the study of tax law and to the training of professionals qualified to practice in this field, gathering the technical elements necessary to understand the subject without losing the critical perspective on the topics covered. — Prof. Dr. André Alves Portella, Center for Studies in Taxation and Public Finance, Federal University of Bahia, Brazil
This book provides a completely fresh new and innovative way to learn about taxes. The text provides in-depth analysis of the historical background of the U.S. tax structure and an easy to read application of tax laws with numerous examples. The reader will walk away with a thorough understanding of modern tax administration in America, as this book brings clarity and simplicity to an otherwise complex subject. — John T. Schooler, Esq. Retired) Supervisory Appeals Officer, Internal Revenue Service, Adjunct Professor, University of California at Los Angeles Extension
This book is an excellent resource for anyone wishing to understand the intricacies of the U.S. tax system. Written clearly and comprehensibly, the book expounds the underlying principles of U.S. tax policy. — Dr. Gaurav Gupta, CMA, CFE, Assistant Professor, University of North Carolina Wilmington
Professor Ambrosio has produced a very useful treatise for those looking to familiarize themselves with the current taxation system employed in the United States. This book will provide a very good starting point for anyone looking to prepare themselves for further, more intense studies of the subject. — Greg C. Alwood, JD, (Retired) Partner, KPMG International Tax Practice
This book is a great instrument for ground zero tax learners who wish to grasp the essentials of the U.S. tax system. Through this admirable achievement, Prof. Ambrosio makes learning about taxes fun. — Edna Paule Désirée Gnomblerou, PhD, Guangxi University of Finance and Economics, Nanning, China
Professor Ambrosio has written a refreshing guide for individuals wishing to comprehend American tax theory and principles. I strongly recommend this book to anyone who ever interfaces with U.S. tax professionals on a professional or personal level. — Nancy Albers, PhD, Dean and Professor, College of Business, Louisiana State University Shreveport
