“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”

The above Benjamin Franklin quote highlights the certainty of taxes.   Taxes will always be there in some form or another.   The first personal income tax was imposed as part of the “Revenue Act of 1861”, which was enacted to help pay for the Civil War.   In 1895, a federal court ruled that, not the idea of taxation, but how individuals were being taxed on income, was unconstitutional.   The court came up with reasoning, and maintained that income tax should be apportioned.   Well, in 1895, such a concept was impractical, and in all practicality personal income tax was prohibited.

The American Individual Income Tax Return (Form 1040) didn’t come to be until the year 1913, with the ratification of the Sixteenth Amendment to the United States Constitution, which made the income tax a permanent fixture in the U.S. tax system.

The Form 1040, at the time, was a one page document, for individuals to report income, and calculate tax.   It was a very simple process.   Today, although we do have 1040-A and 1040-EZ simpler forms, for those looking forward to taking full advantage of all available deductions and credits, go up against the two page 1040, which doesn’t sound too bad, save for the 11 schedules that accompany the form, as well as 100 other specialized forms and schedules that may be required to be submitted along with the 1040.

Many believe the tax code is confusing and unnecessarily complex, and there is no doubt that it is complex, but from a system of government with over 300 million constituents and the many varying definitions of fair, it is pretty easy to understand how the tax code can become complex, and why it must be this way.

Such a complex system does cough up loop-holes, but the tax courts that rule over the gray areas can see through the loop-holes and these loop-holes never stay open very long.   In general, people want to be good, and the system wants a fair tax code.   The few that cheat the system get caught sooner or later, and the big cases make pretty big headlines.   It’s not illegal to find the best tax treatment, but it is illegal to evade taxes due!   I will end with a quote from said tax court:

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands: Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.“

- Honorable Learned Hand, U.S. Appeals Court Judge, Helvering v. Gregory, 69 F.2d 809 (1934).

Kevin