AN OVERVIEW OF FEDERAL TAXATION
What is the significance of taxation?
Although it may seem somewhat of an overstatement, in some form or another, the tax collector is
involved in virtually every transaction in which an individual engages. The impact of taxes is not
limited to business dealings (where some have characterized the tax collector as a silent partner in
every business deal). Tax collectors can be seen in all walks of life. They may play a role in birth
(e.g., timing the birth of a child this year instead of next to obtain the exemption—this author’s
brother-in-law went so far as to induce labor on December 30), in death (e.g., estate and inheritance
taxes), marriage and divorce (e.g., the marriage tax penalty has caused people to simply live together
rather than marry). Political cartoonists have often pictured the IRS as always having its hands in the
taxpayer’s pocket. Regardless of how it is said, the truth remains that taxes are pervasive, impacting,
and often controlling, many personal and business decisions. Most importantly, the effect of
decisions involving taxes usually has a direct impact on the taxpayer’s pocketbook.
Thus, there is more than a grain of truth in the oft-quoted proverb, ‘‘there are two things certain in
life: death and taxes.’’ But this is not to say that taxes are something, like the weather, that one
cannot necessarily control. (Remember the origins of this country’s independence.) A basic
understanding of taxes can help control their impact. Moreover, the tax planner’s oath should be
remembered. See Judge Learned Hand’s famous statement appearing on p. 1-26 of the text. This
statement appears either on a separate page, in the preface, or in the first chapter of virtually every
self-help book concerning tax planning.
The study of taxation.
Many students approach the study of taxation with an unfortunate misconception; i.e., taxes are
nothing more than a set of intricate, boring rules (enter the larger of line 13 or 14 and multiply by
20 or 25 percent depending on whether you are married or single). Nothing is further from the truth.
The tax law is a continuing saga of the tribulations of one taxpayer after another. The stories found in
the case books are worthy of a thousand television miniseries. Despite its apparent clerical nature,
taxation is much more than a clerical enterprise. Concealed behind the numbers on the returns are
stories of celebrities ranging from Bill Cosby to Willie Nelson (and some villains, such as Al Capone
and other chiefs of organized crime). Issues involve things we see every day. For example, can
athletes fined for drug use deduct the penalty paid as a charitable contribution if it is given to a
Tax rules themselves are not as arbitrary as they might seem or as people might believe. There is