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Tax I – Koonce
Spring 2007
Part 1 – Introduction
Chapter 1 – Orientation
o How does Fed Gov have right to tax?
o Con Art 1 §8 clause 1- gives Congress the power to lay taxes, duties, imposts and excises (gives Congress the power to tax)
o Subject to 2 restrictions:
o Apportionment restriction - requires direct taxes be apportioned b/w the several states in accordance with the population of each state
▪ Direct tax – demanded from the person it is intended to pay-can’t shift to another person and can’t avoid it
• If Congress does pass a direct tax, then the apportionment restriction comes into play
▪ Indirect tax is one that is not direct- can shift burden to another person
• Sales tax is indirect – avoid paying by not buying
▪ Pollick – income tax is direct tax (don’t have option not to earn income), thus subject to apportionment
• Couldn’t work so we passed the 16th amend (can’t survive without income tax and Pollick made income tax unconstitutional- so passed 16th)
o 16th- Can collect income tax from whatever source derived, w/o apportionment or w/o regard to any consensus/enumeration
o 16th basically reverses Pollick
o Can have income tax, but it must be apportioned b/w the states
• So, unless it is a tax on the income, it is unconstitutional
▪ Murphy v. IRS (D.C. Circuit opinion)- a provision (Section 104) in the Internal Revenue Code (we’ll get to later) is unconstitutional
• Damages for emotional distress are subject to being taxed (exclusion doesn’t apply) b/c intended to make person whole, so doesn’t amount to income as stated in 16th
• Physical injury or sickness are excluded from income
• This is NOT a...