Tax
Issues
A Balanced View Of Income Taxes
The Sixteenth Amendment to the U.S. Constitution was passed in
1913, allowing Congress the power to assess and collect taxes on
income. Prior to the 16th Amendment, the courts had held that income
tax was unconstitutional because it was assessed directly on the
citizens and not apportioned among the states on the basis of population.
The 16th Amendment cleared the way for income taxes on both individuals
and corporations. To manage the process, the Federal government
has established a complex set of laws and interpretations of the
laws:
- The Internal Revenue Code the law as passed by
Congress
- Regulations interpretations by the Treasury Department
- Revenue Rulings specific interpretations by the
IRS
- Revenue Procedures specific policy statements
by the IRS
- Case Law findings by the Federal courts
The U.S. Treasury has created the Internal Revenue
Service as its official organization for management of the process.
The IRS is responsible for planning for and carrying out the tax
collection process, as well as ensuring that taxpayers comply with
the law.
The law is not only complex, but it is constantly changing. It is
virtually impossible for the average citizen to keep up with the
changes. Tax professionals spend hundreds of hours each year reading
and attending seminars just to stay current with legislative and
procedural changes and figure out how to deal with those changes
in their practices.
The IRS meanwhile, has an army of agents charged with ensuring that
each taxpayer reports their income and pays their tax. Battling
the IRS is not a good use of your time. That doesn't mean that you
should role over and play dead or avoid arguing your point when
you have substantial grounds for claiming a deduction, but it does
mean that you should avoid getting into no-win battles with a massive,
well-funded organization.
Our top-ten list for a sane approach to taxes is as follows:
- Recognize your responsibility to pay your fair
share of the government's budget
- Recognize the right of the IRS to collect an
income tax
- Avoid tax evasion schemes (for example, the kind
that attempt to put your money under the control of some offshore
bank you've never heard of or sell you a 'tax kit' that will exempt
you from tax)
- Make yourself a promise to identify and claim
every deduction to which you are legally entitled
- Learn how the IRS approaches its job how it thinks,
operates and acts
- Recognize that IRS interpretation often carries
more weight than the letter of the law because the IRS has power
to enforce its opinion
- Learn how to report your income without providing
excess data that would increase you chance of audit
- Find a competent tax advisor if you prepare your
own return, you can still benefit from having a professional review
your return and offer guidance
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