Tax

Overview

Tax law is the body of law that establishes how taxes are imposed and regulated by the government. A tax is defined as a tariff on economic transactions by individuals and corporations. Taxes are used to produce government revenue and support government programs and initiatives. Taxes are imposed by both the federal government and individual state governments. Tax laws are codified by the federal government in the Internal Revenue Code of 1986, which appears as Title 26 of the United States Code. Individual states have codified their tax systems within state statutes. While a variety of taxes exist, the most significant taxes within tax law include the income tax, social security tax, estate and gift taxes, property tax and sales and use taxes.

Income Tax

Personal and corporate income taxes are the primary source of revenue for the federal government. The Sixteenth Amendment of the United States Constitution authorizes Congress to tax "incomes from whatever source derived." Today, the federal income tax has been codified in Section 61 of Title 26 of the United States Code. All citizens, both individuals and corporations, including those who do not live in the United States, are subject to the federal income tax.

Calculating Income Tax

"Regular" income taxes are calculated by taking a percentage of the taxpayer's income, with higher incomes being taxed at a higher rate. This is called a "progressive" tax system. Taxpayers often deduct certain designated items and amounts from their income to reduce the total percentage of income that is taxed. Additionally, many taxpayers are eligible for various tax credits, which reduce the total amount of taxes owed. Income may also be calculated according to the "Alternative Minimum Tax" (AMT). The AMT was designed to prevent those with high incomes from using loopholes to avoid federal taxation. Income under the AMT is calculated without regard to tax preferences, and with a limited number of exemptions and deductions. This income base, which is higher than the income base calculated by "regular" income taxes, is then taxed in two fixed rates, with the taxpayer paying the higher of the two amounts. The AMT has been criticized on a number of different bases, and Congress has continued to modify its structure. Many states also tax income, with the exception of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. State income taxes are generally calculated in the same manner as federal income taxes, with certain state-specific modifications.

Social Security Tax

The Social Security tax is codified in the Federal Insurance and Contributions Act (FICA). The Social Security Tax is applied only to earned income, which is income derived from employment. Interest from investments, rents, etc. is not subject to the Social Security tax. The tax is comprised of a fixed percentage of an employee's salary paid by the employer, and an equal percentage paid by the employee. Revenue from the Social Security tax is used to support federal social security programs.

Estate and Gift Taxes

Property owned by an individual at the time of their death is taxed as an estate tax. The Federal Estate Tax can be found in Section 2001 of Title 26 of the United States Code. Because the estate tax is imposed upon the individual's entire estate at the time of death, the tax encourages individuals to disperse their property before they die. Wealth transfers made before death are subject to gift taxes under Section 2501 of Title 26. However, each taxpayer is entitled to transfer tax-free a certain amount of money or property as a gift each year.

Property Tax

Property taxes are frequently levied by local governments to generate revenue for schools, road maintenance, etc. Property taxes are applied to most real and personal property owned by taxpayers. Household items are generally exempt from property taxes, while other objects of value (including automobiles, works of art, etc.) are often subject to property tax.

Sales and Use Tax

Local governments in most states also impose fixed sales and use taxes. Thus, items purchased within the state are subject to a fixed rate of taxation. The rates of sales and use taxes vary between states and sometimes even between counties within a state.

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Featured Cases

Gainor v. Sidley, Austin, Brow
Plaintiff alleged that defendant Sidley, Austin, Brown & Wood, LLP committed legal malpractice when it issued a "more likely than not" opinion letter to indicate that the deductions arising from a tax saving strategy would be upheld when in fact such strategy should instead have been registered as a potentially abusive tax shelter.
Florida Southern District Court
Defendant
Filed: July 12, 2006
Plaintiff: Mark J. Gainor, Elyse Gainor; Defendant: Sidley, Austin, Brown & Wood, LLP, Mark C. Klopfenstein, Merrill Lynch & Co., Inc., R. J. RubleCounter Claimant: Mark C. Klopfenstein, Counter Defendant: Mark J. Gainor, Elyse Gainor
Last Docket Filed: October 9, 2007
(October 8, 2007)
United States of America v. In the Matter of Tax Liabilities of: John Does
The Internal Revenue Service (IRS) seeks authorization under Section 7602 of the Internal Revenue Code to issue a "John Doe" summons to PayPal, Inc. The summons seeks the account records for persons or entities having a U.S. address, telephone number or social security number, and where the source or destination of account funds from Jan 1, 1999-Dec 31, 2004, was a bank account at or a credit, charge or debit card issued by a financial institution in Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica, Cyprus, Dominca, Gibraltar, Grenada, Guernsey/Sark/Alderney, Hong Kong, Isle of Man, Jersey, Latvia, Liechtenstein, Luxembourg, Malta, Nauru, Netherlands Antilles, Panama, Samoa, St. Kitts and Nevis, St. Loucia, St. Vincent and the Grenadines, Singapore, Switzerland, Turks and Caicos and Vanuatu.
California Northern District Court
Tax Suits: IRS-Third Party
Filed: October 14, 2005
Plaintiff: United States of America, United States of America, United States of America Defendant: In the Matter of Tax Liabilities of: John Does
Last Docket Filed: August 1, 2007
(July 31, 2007)
In Re: In the Matter of the Tax Liabilities of John Does,
New York Northern District Court

Filed: March 4, 2005

Last Docket Filed: March 8, 2005
(March 7, 2005)

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Dockets

Green v. United States of America
Oklahoma Northern District Court
Taxes (US Plaintiff or Defendant)
Filed: February 8, 2010
Plaintiff: Janice D Green Defendant: United States of America
(February 7, 2010)
USA v. PCS Family Trust et al
Utah District Court
Taxes (US Plaintiff or Defendant)
Filed: February 8, 2010
Plaintiff: USA, USA, USA Defendant: PCS Family Trust, Paul Saxton, Dawn Christine Saxton
(February 7, 2010)
Schlabach v. United States
Louisiana Middle District Court
IRS-Third Party
Filed: February 8, 2010

(February 7, 2010)
ARNOLD et al v. UNITED STATES OF AMERICA
Florida Northern District Court
Taxes (US Plaintiff or Defendant)
Filed: February 5, 2010
Plaintiff: MARION J ARNOLD, PATRICIA B ARNOLD Defendant: UNITED STATES OF AMERICA
(February 4, 2010)
United States Of America v. Dama, Inc et al
Texas Western District Court
Taxes (US Plaintiff or Defendant)
Filed: February 4, 2010
Plaintiff: United States Of America Defendant: Dama, Inc, Brazos Distributors, Huachuca, Inc., McLellan County, Sheila Schmidt and others...
(February 3, 2010)

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Legislation

Bill Introduced: H.R.4213 Tax Extenders Act of 2009
To amend the Internal Revenue Code of 1986 to extend certain expiring provisions, and for other purposes.
(December 5, 2009)
Bill Sent To President: H.R.2996 Department of the Interior, Environment, and Related Agencies ...
Making appropriations for the Department of the Interior, environment, and related agencies for the fiscal year ending September 30, 2010, and for other purposes.
October 30, 2009: Presented to President.
(October 28, 2009)
Bill Introduced: S.1808 Student Loan Reform Act
A bill to control Federal spending now.
(October 18, 2009)
Bill Introduced: H.R.3715 Community Restoration and Revitalization Act of 2009
To amend the Internal Revenue Code of 1986 to expand the rehabilitation credit, and for other purposes.
(September 29, 2009)
Bill Introduced: S.1743 A bill to amend the Internal Revenue Code of 1986 to expand the ...
A bill to amend the Internal Revenue Code of 1986 to expand the rehabilitation credit, and for other purposes.
(September 29, 2009)

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Regulations

Proposed Rule - Basis Reporting by Securities Brokers and Basis Determination for Stock; Correction
Internal Revenue Service
Proposed Rule
Basis Reporting by Securities Brokers and Basis Determination for Stock; Correction
,
6166 [C1-2009-29855]
DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts, 1, 31, and 301 [REG-101896-09] RIN 1545-Bl66 Basis Reporting by Securities Brokers and Basis Determination for Stock Correction In proposed rule document E9-29855 beginning on page 67010 in the issue of Thursday, December 17, 2009, make the following corrections: 1. On page 67020, in the second column, under heading 13., in the second line, ``exempt'', should read ``except''. Sec. 1.6045B-1 [Corrected] 2. On page 67041, in Sec.... [read document]
View Document | Download PDF
(February 7, 2010)
Rule - Amendments to the Section 7216 Regulations: Disclosure or Use of Information by ...
Internal Revenue Service
Rule
Amendments to the Section 7216 Regulations:
Disclosure or Use of Information by Preparers of Returns; Correction
,
6095 [2010-2611]
DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301 [TD 9478] RIN 1545-BI86 Amendments to the Section 7216 Regulations--Disclosure or Use of Information by Preparers of Returns; Correction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Correction to final and temporary regulations. SUMMARY: This document contains a correction to final and temporary regulations (TD 9478) that were published in the Federal Register on Monday, January 4, 2010 (75 FR 48) providing rules... [read document]
View Document | Download PDF
(February 7, 2010)
Proposed Rule - Regulations under the Paul Wellstone and Pete Domenici Mental Health Parity and ...
Internal Revenue Service
Proposed Rule
Regulations under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (of 2008)
,
5452-5453 [2010-2166]
DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 54 [REG-120692-09] RIN 1545-BI70 Regulations Under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations and withdrawal of notice of proposed rulemaking. SUMMARY: Elsewhere in this issue of the Federal Register, the IRS is issuing temporary regulations under the... [read document]
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(February 1, 2010)
Proposed Rule - Lifetime Income Options for Participants and Beneficiaries in Retirement Plans
Internal Revenue Service
Proposed Rule
Lifetime Income Options for Participants and Beneficiaries in Retirement Plans
,
5253-5258 [2010-2028]
Proposed Rules Federal Register DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 RIN 1545-BJ04 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Parts 2509, 2520 and 2550 RIN 1210-AB33 Request for Information Regarding Lifetime Income Options for Participants and Beneficiaries in Retirement Plans AGENCY: Employee Benefits Security Administration, Department of Labor; Internal Revenue Service, Department of the Treasury. ACTION: Request for information.... [read document]
View Document | Download PDF
(February 1, 2010)
Rule - Interim Final Rules under the Paul Wellstone and Pete Domenici Mental Health Parity and ...
Internal Revenue Service
Rule
Interim Final Rules under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (of 2008)
,
5410-5451 [2010-2167]
Tuesday, February 2, 2010 Part IV Department of the Treasury Internal Revenue Service 26 CFR Part 54 Department of Labor Employee Benefits Security Administration 29 CFR Part 2590 Department of Health and Human Services Centers for Medicare and Medicaid Services 45 CFR Part 146 Interim Final Rules Under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008; Final Rule DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 54 [TD 9479] RIN... [read document]
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(February 1, 2010)

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Articles

Wood Praises Article on Taxability of Personal Rights Compensation
Tax Notes, Vol. 126, No. 5, p. 677, 2010 Robert W. Wood Wood & Porter Date Posted: February 9, 2010 Last Revised: February 9, 2010
(February 8, 2010)
Why Crime Doesn't Pay: Thoughts on State Taxation of Marijuana Distribution and Other Federal ...
Robert A. Mikos Vanderbilt University - School of Law Date Posted: February 9, 2010 Last Revised: February 9, 2010
(February 8, 2010)
Que Sera, Sera: Deducting Legal Fees
Tax Notes, Vol. 125, No. 10, pp. 1115-1117, 2009 Robert W. Wood Wood & Porter Date Posted: February 9, 2010 Last Revised: February 9, 2010
(February 8, 2010)
Student Edition of the Income Tax Act 2009
STUDENT EDITION OF THE INCOME TAX ACT 2009, Thomson Reuters Carswell, 2009 Arthur J. Cockfield and Martha O'Brien Queen's University - Faculty of Law and Faculty of Law, University of Victoria Date Posted: February 9, 2010 Last Revised: February 9, 2010
(February 8, 2010)
Wood Comments on Alimony Treatment Article
Tax Notes, Vol. 126, No. 3, pp. 401-402, 2010 Robert W. Wood Wood & Porter Date Posted: February 9, 2010 Last Revised: February 9, 2010
(February 8, 2010)

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