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CHAPTER 2 WORKING WITH THE TAX LAW LECTURE NOTES TAX SOURCES STATUTORY SOURCES OF THE TAX LAW 1. Relationship Between the Constitution and the Sixteenth Amendment . a. Constitution . The source of the Federal taxing authority is the U.S. Constitution: “The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.” (Art. I, § 8, Cl. 1) b. Sixteenth Amendment . The Sixteenth Amendment is the foundation of our Federal income tax : “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” 2. Internal Revenue Code . The Code generally is supreme in the Federal tax area, unless a U.S. tax treaty is in direct conflict. In this case, TAMRA of 1988 provides that neither a tax law nor a tax treaty takes general precedence. Instead, the most recent item will take precedence . a. Role of Congress . Unless a constitutional issue is involved, Congress can override a U.S. Supreme Court decision by amending the Code. (1) Code supremacy . This Court supremacy is not the case when the Internal Revenue Code is concerned (i.e., Congress can change the law). b. Congressional Committee Reports . Congressional Committee Reports are important in interpreting the Code . 2-1
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2-2 2009 Comprehensive Volume/Instructor’s Guide with Lecture Notes (1) Congressional intent . Such reports reflect the intent of Congress. (2) Cumulative Bulletins . The Committee Reports usually are conveniently available in special volumes of the Cumulative Bulletins . c. Public and closed congressional hearings . Congress holds both public and closed hearings on tax proposals. (1) After public hearings before the House Ways and Means Committee, the public may be excluded in a closed session. (2) Tax bills may be debated under a closed rule before the full House with approval by the Rules Committee. (3) Under this closed rule , amendments are not allowed on the House floor unless approved by the House Ways and Means Committee. (4) The full Senate, however, does not have a closed rule process. d. Organization of the Code . The organization of the Code into Subtitles, Chapters, and Subchapters. See Figure 2-1 in the Lecture Notes . e. Interrelation of Code provisions . Tying the various Code provisions together to reach the total result is important. (1) For example, consider why there are three separate sections dealing with alimony. (2) Section 71 (in the gross income sequence) makes it taxable to the payee; § 215 (in the deduction sequence) makes it deductible to the payor; while § 62(a)(10) classifies the deduction (as a deduction for AGI) for the payor.
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