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  • The statutes that make up the Internal Revenue Code must, therefore, be read in mind with the above Supreme Court decisions:

    The 16th Amendment, the income tax, has been the subject of many Supreme Court decisions. The IRS always cites to the Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916), to inform the public that the income tax was held to be constitutional by the Supreme Court. What the IRS doesn’t inform the public about Mr. Frank Brushaber, the central character in the Supreme Court case, is that he was a withholding agent for several foreign investors in the Union Pacific Railroad, acting as their fiduciary. The Supreme Court, obviously being aware of all of the pertinent details, ruled in the Brushaber case that the federal government always had the power to tax income as an excise tax and, therefore, the 16th Amendment is constitutional. The Law: For federal income tax purposes, “gross income” means all income from whatever source derived and includes compensation for services. I.R.C. § 61. Any income, from whatever source, is presumed to be income under section 61, unless the taxpayer can establish that it is specifically exempted or excluded. Later the Supreme Court again ruled upon the 16th Amendment’s effect on the federal government’s power of taxation. In Peck & Co. V. Lowe, 247 US 165 (1918), the Supreme Court stated, in part: “The Sixteenth Amendment … does not extend the taxing power to new or excepted subjects …”. Generating income is a commercial activity. The Supreme Court ruled exactly that in Eisner v. Macomber, 252 U.S. 189 (1920), where the Court stated the following: “The 16th Amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the Amendment was adopted.”. The Supreme Court is the ultimate arbiter of federal law and the Constitution. Their rulings are intended to carry the force of law, and set binding precedents for inferior courts. On May 21, 1895, the U.S. Supreme Court ruled that a direct tax on personal income was unconstitutional as a result of the case of Pollock v. Farmers‘ Loan and Trust Company. The lawsuit had been precipitated by the 1894 Income Tax Act. The Supreme Court’s 5-4 decision stated that a “direct tax” on the “income of real and of personal property” was “unconstitutional and void.” In Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), the Supreme Court laid out what has become the modern understanding of what constitutes 'gross income' to which the Sixteenth Amendment applies, declaring that income taxes could be levied on "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion." Under this definition, any increase in wealth — whether through wages, benefits, bonuses, sale of stock or other property at a profit, bets won, lucky finds, awards of punitive damages in a lawsuit, qui tam actions — are all within the definition of income, unless the Congress makes a specific exemption, as it has for items such as life insurance proceeds received by reason of the death of the insured party,[41] gifts, bequests.....

  • IRS Doesn't Mislead People

    I believe that the IRS does not directly attempt to mislead people about income tax laws. The IRS provides answers to questions regarding income tax laws on the Internet, via phone, as well as in printed manuals. Problems arise when individuals attempt to twist tax laws into something that is favorable to them and generally the laws are fairly precise and clear.


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