Everything about America is in play this election. There is talk about getting rid of the tax system, our energy grid, the constitution, the Supreme Court, the rule of law, law enforcement & virtually everything else. We already rid ourselves of much of our history, statutes, individual businesses, downtown business districts and probably many things I didn’t think of. Once great cities are now mere shadows of their former greatness. Residents are abandoning them for safer cities.
If the new regime decides to change the U.S. tax system to a European or other system, that will be a dire mistake that could stifle the marketplace for years or damage it irretrievably. Out tax code is probably one of the reasons the U.S. economy outperforms every other economy in the world. It certainly isn’t luck.
THE 16th AMENDMENT created two separate tax systems in the US. One for businesses & their owners, and one for everyone else. By mistake, not intention. There was some concern people wouldn’t vote for the amendment so Congress advertised in newspapers throughout the country, they would tax only ‘profits’. This became part of the amendment’s legislative history which made it a fundamental part of the amendment itself. The Supreme Court affirmed it in Glenshaw Glass in 1954, and Congress codified it in section 172 the same year. Ordinary taxpayers can deduct a few things, like mortgage interest & charitable contributions, which are a gift from Congress and can be repealed by an act of law. But Section 172, District Court cases & the Supreme Court make it clear that, for businesses, anything is deductible as long as it is ordinary, necessary & reasonable in pursuit of profits by a legitimate business, has economic substance & a valid business purpose. Absolutely nothing can be excluded if you meet those requirements. And who determines that? The taxpayer.
The courts added valid business purposes and economic substance to attack giant tax frauds, such as BOSS & SON OF BOSS. Even when Congress intends to prohibit a deduction, such as health club dues, it can still be legally deducted by re-characterizing it to advertising. Of course you have to prove valid business purpose.
In addition, our legislative form of government means a couple hundred people spend a considerable amount of their time proposing and passing new tax legislation every year, and every few years the president does the same. Major changes to the tax code are referred to as the 1939 tax code, the 1954 code, the 1986 code, and the 2016 code.
US TAX LAW IS A BLITHERING MAZE OF COMPLEXITY THAT CHANGES CONSTANTLY: The tax code is reportedly 77,000 pages long, and growing. Add in Regs, Rev Procs & litigated results, and it becomes quarter of a million pages. Which is a lot for a guy to handle. Most states have based their state tax code on the Internal Revenue Code. But, in the midst of all that clutter, the U.S. tax system is the best in the world.
No one can learn the tax code inside & out. These primary sources are tax law authorities that must be followed and include: the Internal Revenue Code, U.S. Treasury Regulations, Revenue Rulings, and Revenue Procedures. Primary judicial sources include: the Supreme Court of the United States, Courts of Appeal, District Courts, and the U.S. Tax Court. Add in 50 states and 172 countries and tax law that professionals have to abide by grows to unimaginable size, perhaps as much as 25 to 50 million pages.
I’m a mensan with a genius IQ and I cannot fully know tax law. The best I can do is get a grasp of the overall body of tax law.
To complicate all of that, is tax savings lie in playing one part of the tax code against another part.
Different from the criminal code.
But that’s not a bad thing for business taxpayers. Savings are hiding in the complexity.
As I said at the outset, the U.S. tax code is spectacular, by mistake. The U.S. is the only country in the world with a system that gives business taxpayers a measure of self defense against a government that does not always treat taxpayers with respect. A recent administration actually put the IRS to work auditing their opponents.
In progress. Still being written.
bizztrategy @ Ellis CPA 