WHAT IS THE SOURCE OF FEDERAL TAXATION?
It used to be that you could file your tax return in a postage size card. Today, you need a small wheelbarrow to carry the documents necessary to file your tax return.
Why has tax law become so complicated? Because tax law is not only used to collect revenue, but for what is called "social engineering". That is, the tax laws are used for behavior modification. The government wants us to behave in a certain manner, and it uses the tax laws to induce us to act that way. So house ownership is good for a stable country? Let's make the interest in your home deductible. The country needs more population? Let's give tax breaks to large families. Too many people? Let's take them away. The economists believe that it is good for the employees to own part of the business? Let's give them Employee Stock Purchase Plans! We need more oil? Let "The Code" do it!
Therefore, the tax laws are made by oil engineers, ministers, criminologists, social workers, generals, economists, taxi drivers, and psychiatrists. It's enough to drive you crazy! Oh, we almost forgot, politicians also.
We bet that you thought that the tax laws were made to collect revenue!
Where it all derives from
Believe or not, but prior to 1913 we did not have an income tax. Not as we know it. Prior to 1913 the graduated income tax was held unconstitutional because it was not "per capita". In order for the government to be able to tax us "to the hilt", Congress had to pass an amendment to the constitution. This amendment was passed as the Tariff Act of February 25, 1913, and is known as the 16th amendment. This amendment says:
"THE CONGRESS SHALL HAVE THE POWER TO LAY AND COLLECT TAXES ON INCOMES, FROM WHATEVER SOURCE DERIVED, WITHOUT APPORTIONMENT AMONG SEVERAL STATES, AND WITHOUT REGARD TO ANY CENSUS OR ENUMERATION.
30 Words that permit Congress to tax us almost anyway it wants to.
This is the extent of federal tax law. Everything else, the Internal Revenue Code, the regulations, Revenue Rulings, bulletins, pronouncements, the thousands of cases, etc. etc. are just an interpretation of these 30 words. Memorize the 30 words and ..... you are a tax expert!
The gist of this constitutional authority is that:
ALL income is taxable (unless it is specifically exempted by Congress) and NOTHING is deductible (unless it is specifically permitted by Congress).
But, What is income?
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