Tax Law 101

Tax law encompasses the rules, policies and laws that oversee the process of assessing and collecting taxes. These can be on property value, transactions, estates of the deceased and income.

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Most countries have a progressive income tax system in which higher-income households pay a greater share of their income in taxes than lower-income households. Self-evident limitations on the taxing power are also common.

Taxpayers

Tax law is the legal “rules” for how much your local, state and federal governments can charge you each year for taxes. These taxes can be indirect or direct. Indirect taxes are assessed against products or services that you use, and are paid to an intermediary who then pays the government. Direct taxes are assessed against the value of your property, such as your house or car. The government may also impose taxes on your income, or the profits of your business.

While Congress and state legislatures are responsible for creating most of the tax laws, the Internal Revenue Service administers them. As a result, federal tax law is incredibly complex. To understand how the tax code works, you’ll want to take courses in taxation of corporations, estate and gift taxation, and income taxation.

You’ll also need to familiarize yourself with the rules that govern how tax laws are applied by the IRS and other government agencies. These rules are contained in a variety of sources, including the Internal Revenue Code (Title 26 of the U.S. Code); the Code of Federal Regulations; proposed regulations issued by the IRS; and revenue procedures, policy statements and technical information releases released by the IRS, as well as federal tax court decisions.

In addition, the Supreme Court has ruled on many tax laws, and those rulings are important to your understanding of the law. For example, a case called Cheek v. United States ruled that you can’t be charged with criminal tax evasion for failing to file a federal income tax return unless you knowingly tried to evade the tax.

If you plan to practice corporate tax law, you’ll also want to take courses in the law of business associations, capital markets transactions and ERISA pension funding and administration. If you want to focus on taxation of individuals and non-profits, consider taking Tax Aspects of Charitable Giving, Estate Planning and Tax-Exempt Organizations.

Tax law is an important and fascinating area of law. It is an area that affects almost everyone, and it’s constantly changing. To be a successful tax lawyer, you’ll need to be comfortable reading and writing complex legal documents as well as dealing with complicated, emotional issues.

While there are many different areas of tax law, most practicing attorneys specialize in one or more. Some choose to focus on taxation of individuals and non-profits, while others concentrate on tax controversy, which involves representing taxpayers in disputes with the government at both the administrative and judicial levels. Still others concentrate on planning business transactions, such as mergers and acquisitions. Depending on your preferences, you can further narrow your focus by selecting advanced courses in your particular area of concentration.

Taxing power

The taxing power is the government’s authority to collect taxes. The United States Constitution grants Congress the power to “lay and collect taxes, duties, imposts and excises.” In addition, states can impose their own income and sales taxes. These taxes help pay for federal, state and local programs. The main law governing income taxes is the Internal Revenue Code. Other significant laws affecting taxation include property and sales taxes.

While the power to levy taxes is a fundamental prerogative of the legislature in a democracy, limits on this authority may be set by constitutional text or judicial decision. For example, the constitutional doctrine of “no taxation without representation” establishes that citizens must be represented by their elected representatives in the process of enacting and amending taxes.

As a result, citizens have the right to challenge the constitutionality of an individual or corporate tax law, and the courts will uphold only those laws that meet constitutional standards. The Supreme Court has ruled that the government’s taxing power cannot be abused by imposing a tax on goods or services for which there is no adequate and substantial relationship to the national interest, or by raising taxes in violation of the Fourteenth Amendment protection against excessive levies.

It is difficult for the courts to restrain the exercise of legislative taxing powers, once they have been enacted by Congress or state legislatures. However, the Supreme Court has limited Congress’s taxing power over time through decisions such as McCulloch v. Maryland (17 U.S. (4 Wheaton) 316 (1819).

In the modern era, judicial limitations on state taxation have been less restrictive as the Court has recognized that a states’ right to tax is paramount, and the federal system is structured to respect the principle of dual sovereignty of the states and the United States. Nevertheless, the Court continues to limit the extent of state and local taxing power in some instances by finding that tax incentives or penalties violate constitutional restrictions on the federal government’s taxing power. In addition, the Court has held that the First Amendment does not protect commercial speech promoting abusive tax avoidance schemes. This is a significant development in the development of tax law. In the future, more cases addressing these issues are likely to be decided by the Supreme Court. This could impact the way in which Congress, state and local governments structure their own tax laws. This may also influence how taxpayers comply with these tax laws. Those who work in the field of taxation must continually update their knowledge of these developments to ensure they remain proficient in their fields. This is a challenging job, as the laws pertaining to taxation are highly complex and constantly change.