Internal Revenue Service

Examples of Internal Revenue Service in the following topics:

• Overview of Income Tax Accounting

  • There is a difference between Internal Revenue Service code and generally accepted accounting principles for reporting tax liability.
  • In order to properly account for income taxes, it is important to understand that the Internal Revenue Service code that governs accounting for tax liability isn't the same as the generally accepted accounting principles (GAAP) for reporting tax liability on the financial statements.
  • This method seeks to properly match expenses with revenues in the period the temporary difference originated.
  • Federal income tax law, a net operating loss (NOL) occurs when certain tax-deductible expenses exceed taxable revenues for a taxable year.

• How Taxes Work in the United States

  • Tax laws are passed by Congress and enforced by the Internal Revenue Service (IRS) at the federal level.
  • Congress then takes the tax revenue and apportions it through its power to create and manage the federal budget.
  • That duty is charged to the Internal Revenue Service (IRS), a part of the Department of the Treasury.

• Financing the US Government

  • The importance of taxation arises from the fact that it is by far the most significant source of government revenue and is therefore the primary means of financing government expenditures .
  • For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata.
  • It is important to note that when the government spends more than the tax revenue it collects, the government is operating at a deficit and will have to borrow funds to finance operations until taxes can be increased to return the government spending to a balanced budget.
  • Sales tax: tax on business transactions, especially the sale of goods and services.
  • In the United States the Internal Revenue Service is the regulatory authority empowered by Congress to collect taxes.

• What Taxes Do

  • Taxes are the primary source of revenue for most governments.
  • It is important to note that Congress has delegated to the Internal Revenue Service (IRS) the responsibility of administering the tax laws, known as the Internal Revenue Code (the Code).
  • Taxes allow the government to perform and provide services that would not evolve naturally through a free market mechanism, for example, public parks.
  • Though a general revenue source, sales taxes are also used to modify behavior.
  • Tax revenue is used by the government to support services and activities available to all residents.

• The Role of the Nonprofit

  • Instead it retains any earnings or surplus revenues to achieve its goals.
  • An organization is deemed eligible for nonprofit status under US Internal Revenue Code Section 501(c).
  • While nonprofit organizations are permitted to generate surplus revenues, these revenues must be retained by the organization for its self-preservation, expansion, or plans.
  • However, the extent to which an NPO can generate surplus revenues may be constrained, or the use of surplus revenues may be restricted.
  • In the United States, to be exempt from federal income taxes, the organization must meet the requirements set forth by the Internal Revenue Service.

• Current Guidelines for Revenue Recognition

  • Transactions that result in the recognition of revenue include sales assets, services rendered, and revenue from the use of company assets.
  • Revenues must also be earned (usually occurs when goods are transferred or services rendered), regardless of when cash is received.
  • Sales of services rendered, recognized when services are completed and billed.
  • Revenue is recognized due to the passage of time or as assets are used.
  • Guidelines for revenue recognition will affect how and when revenue is reported on the income statement.

• Revenue

  • Revenue refers to the mechanism by which income enters a company.
  • Revenue refers to the receipt of monetary value from the sale of goods or services and other income generating activities.
  • Revenue accounts indicate revenue generated by the normal operations of a business.
  • Revenue accounts have a normal credit balance.
  • Expenses should be matched with revenue.

• Revenues

  • Revenue is cash inflows or other enhancements of assets during a period from delivering or producing goods, rendering services or other activities that constitute an entity's ongoing major operations.
  • In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers.
  • Every time a business sells a product or performs a service, it obtains revenue.
  • This is referred to as gross revenue or sales revenue.
  • Revenue is used as an indication of earnings quality.

• Relationship Between Output and Revenue

  • In economics, output is defined as the quantity of goods or services produced in a certain period of time by a firm, industry, or country.
  • Revenue, also known as turnover, is the income that a company receives from normal business activities, usually from the sale of goods and services.
  • Businesses analyze revenue in their financial statements.
  • Revenue is an important financial indiator, though it is important to note that companies are profit maximizers, not revenue maximizers.
  • It generates revenue by selling its output.

• Unique Issues in Nonprofit Marketing Strategies

  • However, non-profits may also focus marketing efforts on optimizing revenue.
  • Internal environmental factors include the marketing mix, performance analysis, and strategic constraints.
  • On the other hand, NPOs do not have sales, and it is difficult for an organization whose goal is to provide social services or disaster relief to quantify its success.
  • NPO's use surplus revenues to achieve their aims rather than distributing the revenue as profit or dividends.
  • The extent to which an NPO can generate surplus revenues may be constrained, or the use of surplus revenues may be restricted.