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Income Taxation
Valparaiso University School of Law
Morrison, Alan B.

I.   Chapter 1: Introduction
A.   The Constitution and the Income Tax
1.            Art. I § 8, Congress can “lay & collect taxes, duties, imposts, and excises”
2.    Pwr limited:
a)    “direct” taxes must be apportioned among states
b)    bills for raising revenue must originate in HR
c)    taxes must be uniform throughout US
3.            *1913, 16th A allowed Congress to tax incomes w/o apportionment, making moot the question whether income tax is a “direct” tax
B.           Apportionment of Direct Taxes
1.             Art I § 2 and Art I § 9 require that direct taxes be apportioned among the states on the basis of population
2.             done to entice the South to vote on it
3.             no clear definition of “direct” tax
C.           Congress to impose income taxes without apportionment
1.            Direct v. Indirect Taxes
a)            Indirect tax – consumption taxes on goods and services or taxes on exercising a privilege, such as operating a business in corporate form
b)            Direct tax – must be prorated among the states in accord with population – abolished by 16th Amend.
D.           The Origination Clause
1.            Art I § 7 bills for raising revenue should originate in the HR, is only a formality, Senate changes almost anything they want
E.           The Uniformity Clause
1.             required taxes be “geographically uniform” in the sense that whatever plan or method Congress adopts for laying the tax in question, the same plan and same method must be made operative throughout the US
2.             Ptasynski, Congress has wide latitude in deciding what to tax and does not prohibit it from considering geographically isolated problems (exempt AK oil wells)
a)            basically only an empty shell
F.           Income Tax Legislation and Regulations
1.             Internal Revenue Code of 1939 has been amended many times, most recently 2001, finally renamed IRC of 1986
2.             income tax is federal gov’t major source of revenue
3.             Treasury dept. regulations found in Title 26 of Code of Federal Regulations
4.             Part One contains the income tax regulations, numbered to correspond to Code provisions they implement
5.            Temporary Guidelines
a)            under Administrative Procedure Act, regulations first appear in proposed form, sometimes require public comment, then are adopted or withdrawn
b)            temp reg issued w/o comment period, usually in situations in which Treasury Dept. considers immediate authoritative guidance important
c)            § 7805(e)(1) all temp reg be issued as proposed reg as well
d)            §7805(e)(2) temp reg expire w/i 3 years of issuance (nothing to stop reissue)
G.            Legislative regulation -issued under specific statutory grant of authority to the Treasury Dept. to make rules on a particular subject (Ex: rules governing consolidated income tax returns for related corp)
1.             Legislative – issued under a specific statutory grant of authority to the treasury department to make rules on a particular subject
2.             Interpretative – issued under §7805(a) which authorizes treasury to prescribe all needful regulations 
a)            regulations are the law unless they are invalid
H.          The Internal Revenue Service
1.            Internal Revenue Service
§7701(a)(11) and (12)
Two Major Functions of the IRS
(1)           Ensure taxes are collected
(2)           Interpret the Code
2.            Interpretation
a)            Revenue Rulings
(1)           the IRS’s opinion about how a question should be answered – unlike a regulation, it asserts no authoritative force on judges 
b)            Lett

e to help rich!)
1.       0% of first $25,000 a year of income plus 10% of amount over $25,000
A=$50,000/yr for 10 years
B=$0/ yr for 5 years (1,3,5,7,9)
$100,000/yr for 5 years (2,4,6,8,10)
6.            Marginal Rates
§1 and §11 (for corporations)
Tax rate schedule of §1 applies to the taxpayer’s taxable income
(1)           Taxable Income = gross income – allowable deductions
(a)           The code reduces deductions as the income increases
§61 defines Gross Income
Inflation – Tax rate tables are adjusted annually to take inflation into account
(a)           rate tables for indiv, estates, and trusts are adjusted annually to account for inflation
(b)           corp tax rates are not adjusted for inflation
1. S, single person income $100,000
(a)     tax liability=amount that a taxpayer legally owes after calculating the applicable tax, the amount of unpaid taxes $11493 + 30% excess over $53,500 = $25,443
(b)     marginal tax rate=in a progressivetax scheme, the rate applicable to the last dollar of income earned by the taxpayer 30%
(c)     average tax rate=taxpayer’s tax liability divided by the amount of taxable income
1.       Is increasing excise tax on alcoholic beverages progressive, regressive, or proportional w/ respect to income?
need to know incomes of those who buy and how increasing the tax will affect their drinking behavior