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Unformatted text preview: Federal Tax Research, Eighth Edition Page 3-1 1 CHAPTER 3 CONSTITUTIONAL AND LEGISLATIVE SOURCES DISCUSSION QUESTIONS 3-1. The three statutory sources of the United States federal tax law are the Constitution, various tax treaties, and the Internal Revenue Code. See page 86 of the text. 3-2. In Pollock v. Farmers’ Loan and Trust Co. , the Supreme Court held that the income tax was unconstitutional, because it was a constitutionally prohibited direct tax. Supporters of the income tax proposed an amendment to the Constitution in order to dispense with the question of the constitutionality of the income tax. As a result, the Sixteenth Amendment to the Constitution was ratified. See page 86 and 87 of the text. 3-3. The Sixteenth Amendment was ratified on February 3, 1913 and eliminated the claim that the federal income tax was unconstitutional. Evidence of this fact can be found in the terminology of the amendment: "The Congress shall have the power to lay and collect taxes on incomes, from whatever sources derived, without apportionment among the several States, and without regard to any census or enumeration." See page 87 of the text. 3-4. The first U.S. Federal income tax was passed on August 5, 1861 to help the North pay for the cost of fighting the Civil War. It was allowed to expire in 1872. In 1894 another income tax act was passed by Congress , but the Supreme Court ruled it unconstitutional as a prohibited “direct tax.” The supporters of the income tax decided to amend the Constitution so that there would be no question as to the constitutionality of a Federal income tax. The proposed amendment was sent to the states on July 12, 1909 and ratified on February 3, 1913. See page 86 of the text. 3-5. In Flint v. Stone Tracy Co. , the Supreme Court held that the corporate income tax passed in 1909 was constitutional because it was a special form of excise tax, rather than a direct tax. Page 3-2 INSTRUCTORS MANUAL See page 87 of the text. 3-6. Under Code § 6702, a taxpayer is subject to a $500 fine for filing a frivolous tax return as a form of protest against the IRS. This fine would be levied if the taxpayer files a blank tax return accompanied by a note suggesting that the federal income tax is unconstitutional or that the taxpayer wishes to protest against the high percentage of tax revenues used to create nuclear weapons. IRC § 6673 levies a penalty, not to exceed $25,000, if a taxpayer brings a frivolous matter before the Tax Court. This fine might be applied when the proceedings are found to have been instituted primarily to delay the revenue collection process and where the taxpayer's grounds for bringing the proceedings are found to be frivolous or groundless....
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- Spring '09
- Tax law, Taxation in the United States