Tax Final

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...