In 1913, the Sixteenth Amendment to the U.S. Constitution was ratified. It states: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
Case Law Prior to the Sixteenth Amendment
Article I, Section 9 of the U.S. Constitution states: "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken." In 1894, Congress passed the Wilson-Gorman Tariff, which created an income tax of 2% on income of over $4,000. Charles Pollock contested that the tax was unconstitutional under Article 1, Section 9. As such, the Supreme Court granted certiorari to hear this issue in Pollock v. Farmers’ Loan and Trust Company, 157 US 429 (1895).
In Pollock, the Court held that the Wilson-Gorman Tariff was unconstitutional under Article I, Section 9 of the Constitution, as the act created a direct taxation on property owners, not a tax apportioned among the states.
Passage of the Sixteenth Amendment
In 1913, the passage of the Sixteenth Amendment effectively overturned the holding in Pollock. The Revenue Act of 1913, passed after the Sixteenth Amendment's ratification, reinstated the federal income tax.
Income Tax Today
The Internal Revenue Code is today embodied as Title 26 of the United States Code (26 U.S.C.) and is a lineal descendant of the income tax act passed in 1913, following ratification of the Sixteenth Amendment. Most states also maintain an income tax, while some do not. However, all residents and all citizens of the United States are subject to the federal income tax. Not everyone, however, must file a tax return. The requirements for filing are found in 26 U.S.C. § 6011. As the largest contributor, its purpose is to generate revenue for the federal budget. In 1985 for example, the government collected over $450 billion in income tax from a total of $742 billion in total internal revenue receipts. What an individual pays in income tax is subject to what that person's income is.
Some terms are essential in understanding income tax law. "Gross income" can be generally defined as "all income from whatever source derived;" a more complete definition is found in 26 U.S.C. § 61. Other important definitions like "taxable income" and "adjusted gross income" can also be found in 26 U.S. Tax Code Part I.
Paying the Federal Income Tax
While everyone is subject to the federal income tax, the Supreme Court has carved out possible exceptions. One example of note comes from Cheek v. United States, 498 U.S. 192, (1991). In Cheek, the petitioner was charged with failing to file a federal income tax return, violating §7203 of the Internal Revenue Code, as well as willfully attempting to evade his income taxes, violating § 7201. Cheek admitted that he did not file his returns, but testified that he had not acted willfully because he sincerely believed, based on his indoctrination by a group believing that the federal tax system is unconstitutional and his own study, that the tax laws were being unconstitutionally enforced and that his actions were lawful. The Supreme Court held that if a jury accepts Cheek's assertion that he truly believed that the Code did not treat wages as income, then the Government would not have proved that Cheek willfully violated the tax code, however unreasonable the belief might appear to a court.
Internal Consistency Test
The Internal Consistency Test is a test that the Supreme Court created in Container Corp. v. Franchise Tax Bd., 463 U.S. 159 (1983) which states that a tax formula used by a state must "be such that, if applied by every jurisdiction, it would result in no more than all of the [entity's] income's being taxed." Basically what this means is that two states may not tax an individual for the same portion of that individuals's income. The Supreme Court upheld this test in Comptroller of Treasury of Md. v. Wynne, 575 US ___ (2015). At issue was a tax scheme in Maryland which taxed residents (here, the Wynns) for income earned via stocks owned in a corporation that does business in multiple states. Maryland taxed the Wynnes for income earned in other states, even though the Wynnes already paid taxes on that money. The Court used the Commerce Clause of the United States Constitution to justify the Internal Consistency Test, finding that Congress, not individual states, holds the the power to "regulate Commerce . . . among the several States," and that States are precluded from "subjecting interstate commerce to the burden of multiple taxation."
Individuals are not the only ones required to file income tax returns, corporations do as well. While they are subject to may of the same rules as are individual taxpayers, they are also covered by an intricate body of rules addressed to the peculiar problems of corporations. See here for more on the corporate tax.
For more on income tax, see this Northwestern Law School article and this University of Chicago Law Review article.
menu of sources
federal income tax material
- Article I, Section 8 - Congressional Power to Tax
- 16th Amendment
- CRS Annotated Constitution:
Federal Income Tax Statutes
- U.S. Code: 26 U.S.C. - Internal Revenue Code
Federal Income Tax Regulations
Federal Judicial Decisions on Income Tax
- U.S. Supreme Court:
- U.S. Circuit Courts of Appeals: Recent Income Tax Cases
- U.S. Tax Court: Decisions (Jan. 1999 - present)
State Income Tax Material
State Income Tax Statutes
- Uniform Division of Income for Tax Purposes Act (adopted in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Idaho, Kansas, Kentucky, Maine, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Carolina, South Dakota, Texas, Utah, and Washington)
- State Statutes Dealing with Income Tax and Taxation
State Judicial Decisions on Income Tax
- N.Y. Court of Appeals:
- Appellate Decisions from Other States
Key Internet Sources on Income Tax
- Federal Agency: Internal Revenue Service
- Income Tax Law (Nolo)
- Income Tax Websites
- "The Tax Prophet"
- Federation of Tax Administrators
Useful Offnet (or Subscription - $) Income Tax Sources
- Good Starting Point in Print: Donald Tobin and Daniel Posin, Principles of Federal Income Taxation Law, West Group, 7th ed. (2005)