1st Edition

Principles of Taxation in the United States
Theory, Policy, and Practice





ISBN 9781138362840
Published October 5, 2020 by Routledge
420 Pages 109 B/W Illustrations

USD $62.95

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Book Description

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.

Table of Contents

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

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Author(s)

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.

Reviews

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