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February 9, 2018

Tax Primer

There are a lot of questions about the "New Tax Law," and what is deductible, and what is not.

Often the answer is "it all depends." It all depends on the facts and circumstances of the question, the Internal Revenue Code, Treasury Regulations, Rulings of the Treasury Department, and of course, case law.

What is Tax Law?

The 16th Amendment made the Federal Income Tax a reality in 1913. It is interesting to note that the Federal Reserve was also created in that same year. The Government now could create money (through the Federal Reserve) and the ability to bring those dollars to the Government for the use of the Government (the 16th Amendment).

A. Internal Revenue Code

Changes passed recently by Congress, which builds upon the Internal Revenue Code of 1986, replacing the Internal Revenue Code of 1954. The Internal Revenue Code is a single volume document, approximately 3,000 pages long, double column.
Even a document of this size cannot begin to address all the different tax situations and the means by which its provisions shall be monitored, complied with, and enforced. Many times when Congress changes the Code, Congress itself is not sure how it wants the change to be interpreted, or how the Internal Revenue Service will to enforce the change.

B. Treasury Regulations

Four volumes, each approximately 3,000 pages in length. More specific and definitive than the Internal Revenue Code. As the Code changes the regulations must also be added to and amended.

C. Rulings of The Treasury Department

There are many different types of rulings. If the answer to your tax situation is not covered by A and B above, you may find a situation similar to yours in one of the rulings, or may even request a private ruling for your specific tax situation.

D. Case Law

When all else fails, you can examine existing cases or go to court for the answer.

1. Tax Court - 1987 IRS victories - 94.8%
2. Federal District Court - pay your taxes, fight to get it back. There are many federal tax court jurisdictions, and different items may be treated differently from one jurisdiction to another. You may also elect a jury trial. 1987 IRS victories - 81.2 %
3. Appellate Courts - 1987 IRS victories 85.3 %
4. U.S. Supreme Court - 1987 IRS victories 5 of 6 cases (these figures are from the Wall Street Journal, June 8, 1988). No one is an expert on this yet. Some know more than others, but as can be seen, much of what makes up the Tax Law probably has not yet been decided, written, implemented, or even challenged.

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