Gavin Howe
Tax law, also known as revenue law, is a body of rules and procedures that public or sanctioned authorities such as federal, state, and municipal governments use to assess and collect taxes legally. The power to tax is granted to Congress by the Constitution, specifically Article 1, Section 8, Clause 1, also known as the Taxing and Spending Clause. Tax laws are created and updated through a process where the US Congress or legislature proposes a law, which is then put to a vote. These laws can include temporary income tax cuts or adjustments to tax rates. Tax law can be divided into material tax law, which analyses the legal provisions for charging a tax, and formal tax law, which concerns the rules for assessment, enforcement, procedure, and other matters.
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What You'll Learn
Tax law education
In terms of education, accountants are required to complete a course in the law of taxation and financial services. Tax agents in Australia must complete taxation law and commercial law to register with the Tax Practitioner's Board. Law students usually take foundational courses in constitutional law and civil procedures and can opt for specialisations in taxation. For instance, the Joseph F. Rice School of Law offers courses in tax law, where students can learn about ensuring business compliance with tax law and representing the Internal Revenue Service in litigation.
At the postgraduate level, a Master of Laws in Taxation (LL.M.) is a one-year program available to JD graduates. Some institutions offer tracks with a focus on tax law, such as the Master of Philosophy (M.Phil.), Doctor of Philosophy (Ph.D.), or Doctor of Laws (LL.D.). In most African countries, a law degree does not qualify one to practise law, and further postgraduate practical training is required.
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Tax law creation
Tax laws are created and updated through the same process. The process of creating tax laws is known as formal tax legislation. This process is defined by the U.S. Constitution. The U.S. Congress or legislature first proposes a tax law, after which a vote is taken on whether to pass it. If it passes the vote, the law is sent to the president, who will either sign it into law or veto it. If the president signs the bill, the responsible agencies, such as the Treasury Department and Internal Revenue Service (IRS), must take action to carry out the bill.
The process begins with the Department of Treasury drafting recommendations for tax laws from the president. The Department of Treasury then presents its recommendations to the House Committee on Ways and Means. This committee then creates the "House version" of the tax law, which is presented to the entire House of Representatives for a vote. Once the House of Representatives approves the bill, it is passed to the Senate where it is reviewed. The Finance Committee may rewrite the proposal before it is presented to the full Senate. Following Senate approval, the tax bill is sent to a joint committee of House and Senate members who work to create a compromise version. The compromise version is sent back to the House and Senate for approval. Once Congress passes the bill, it is sent to the president.
Citizens can influence tax laws through the informal tax legislation process. This includes contacting members of Congress and elected officials, attending town or county meetings, participating in lobbying efforts, circulating and signing petitions, and voting for particular candidates.
Tax law, or revenue law, is an area of legal study in which public or sanctioned authorities, such as federal, state, and municipal governments, use a body of rules and procedures (laws) to assess and collect taxes in a legal context. The rates and merits of the various taxes imposed by these authorities are attained via the political process inherent in these bodies of power. Tax law is part of public law and covers the application of existing tax laws on individuals, entities, and corporations in areas where tax revenue is derived or levied, such as income tax, estate tax, business tax, and property tax.
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Tax law implementation
The process of creating and updating tax laws is consistent across jurisdictions. In the US, for example, the Congress or legislature proposes a tax law, which is then voted on. If passed, the proposal becomes law and is implemented by the relevant authorities. This process allows for flexibility in tax policy, as sudden changes in economic conditions may require urgent amendments that cannot be achieved through the relatively slow parliamentary procedure.
International tax law addresses the challenges that arise when individuals or corporations are taxed in multiple countries. This area of tax law ensures that taxation is handled appropriately and equitably across different jurisdictions. Additionally, tax law can be categorised into material tax law and formal tax law. Material tax law involves the analysis of legal provisions that give rise to the charging of a tax, while formal tax law pertains to the rules and procedures governing assessment, enforcement, administrative and judicial appeals, and other related matters.
The implementation of tax laws may vary depending on the specific type of tax being levied. Common types of taxes include income tax, estate tax, business tax, employment or payroll tax, property tax, gift tax, and export or import tax. Each of these taxes has its own set of rules and regulations that must be followed during the implementation process.
The education and qualification requirements for professionals specialising in tax law vary internationally. In some countries, a law degree may not be sufficient to practice as a lawyer, and additional postgraduate practical training is required. Specialised knowledge in taxation is often obtained through further education, such as a Master of Laws in Taxation (LL.M.) or similar concentrations like estate planning or business taxation.
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Tax law limitations
In most cases, the IRS has a limited time frame to assess and collect unpaid taxes. This time limit can be extended if the taxpayer signs a waiver, providing more time to resolve issues with the agency without immediate assessment or collection actions. Additionally, in cases of false or fraudulent filing, tax evasion, or failure to file, there is typically no time limit for the IRS to take action, and penalties and interest fees may apply.
The Internal Revenue Code (IRC) of 1986, enacted by Congress, forms the basis for federal tax law in the United States. The IRC is complex and must be interpreted within the context of the entire United States Code, Treasury Regulations, and court decisions. The IRC sections can be found in Title 26 of the United States Code, which is publicly accessible.
While the IRS enforces tax laws, Congress has the power to enact and modify these laws. Tax laws are often concise, providing only general principles, and the corresponding Treasury regulations offer more detailed explanations and scenarios for application. Federal tax laws can include temporary income tax cuts or adjustments to tax rates, and they may differ from state laws, which can impose other taxes such as property, inheritance, and sales taxes.
Tax laws can be challenging to understand for laypeople and even attorneys specializing in other legal areas. They are subject to constant changes and updates, and professionals like tax attorneys and accountants are equipped with the knowledge to navigate these complexities and provide tailored advice to individuals and entities.
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International tax law
International tax rules are determined by tax treaties between countries, which outline the withholding tax rates and specify which country will collect tax revenue from multinational businesses. These treaties aim to provide tax certainty for companies operating in multiple countries. When a company earns profits in a foreign jurisdiction, sending those earnings back to its headquarters and distributing them as dividends to shareholders may trigger international tax rules.
To prevent double taxation, tax treaties define which country will tax the income generated by a company with operations in both treaty countries. These treaties also include rules to minimize tax avoidance by multinational companies. Transfer pricing rules, for instance, regulate how companies price their goods and services when sold across borders. Thin capitalization rules limit the ability of companies to minimize global taxes by shifting internal debt from low-tax to high-tax jurisdictions.
In the context of individuals, international tax laws apply to those who are dual resident taxpayers, meaning they are residents of both the United States and another country under each country's tax laws. In such cases, income tax treaties between the two countries determine how conflicting claims of residence are resolved, and individuals may be able to claim benefits under these treaties.
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Frequently asked questions
Tax law is an area of legal study in which public or sanctioned authorities, such as federal, state and municipal governments, use a body of rules and procedures (laws) to assess and collect taxes in a legal context.
The Constitution gives Congress the power to tax. Congress typically enacts Federal tax law in the Internal Revenue Code of 1986 (IRC). Sections of the IRC can be found in Title 26 of the United States Code (26 USC). An electronic version of the current United States Code is made available to the public by Congress.
There are several limitations to the taxing power of the legislature. For example, the same authority cannot impose the same tax twice on the same person on the same ground. Taxes are generally not levied retroactively, except in special circumstances. Another limitation is the requirement that all citizens be treated alike, which is specified in the U.S. Constitution.
Tax law can be divided into material tax law and formal tax law. Material tax law involves the analysis of the legal provisions that give rise to the charging of a tax. Formal tax law concerns the rules laid down in the law regarding assessment, enforcement, procedure, coercive measures, administrative and judicial appeal, and other such matters.
