Tax law is the practice of law that relates to the assessment and payment of taxes. Tax laws come from a variety of sources. They come from federal, state and local authorities. They’re based in federal and state constitutions, laws and regulations. Tax law involves understanding, implementing and defending the payment or non-payment of taxes.
Tax lawyers help their clients understand tax laws and conduct their affairs in a way that’s advantageous with regards to tax laws. When disputes occur, tax lawyers help their clients assert their rights and protect their interests. Tax law is the understanding and application of tax laws that may impact both individuals and corporations.
Types of tax laws in the United States
There are many different types of taxes in the United States. A tax lawyer may help their client with any of the following types of tax disputes:
- Business tax
- Capital gains tax
- Employment and payroll tax
- Estate tax
- Import tax
- Income tax
- Property tax
- Taxes on gifts
- Taxes that promote environmentally sound activities
- Vice tax or sin tax
Sources of tax laws in the United States
Taxes come from local, state and federal authorities. Article 1, Section 8 of the U.S. Constitution gives the U.S. Congress the power to lay and collect taxes for the federal government. Abraham Lincoln authorized the first income tax through the Revenue Act of 1861. In 1895, the U.S. Supreme Court threw out the income tax as unconstitutional. The states validated a federal income tax with the Sixteenth Amendment to the U.S. Constitution in 1913. The U.S. Supreme Court upheld the Amendment in Graves v. New York ex. Rel O’Keefe and South Carolina v. Baker.
While federal taxes include income tax, social security tax and import taxes, state taxes often include income tax and sales tax. Not all states have an income tax. States also impose fees for administrative matters like identification cards and driver’s license processing. Local taxes often include property tax or even a local sales tax. Local authorities may also have special taxes for things like fire and police services.
Individual and business tax laws
Both individuals and businesses pay tax in the United States. Generally, taxes are based on the value of an item. For example, the higher a person’s income, the more they pay in income taxes. The U.S. federal income tax structure imposes higher tax rates for higher amounts of income. Even a flat tax system assesses more tax as the value of an item or sale increases.
A tax assessment may be simple or complex. For example, the U.S. income tax code allows for deductions and exemptions. If you invest in a 401k, you may be able to deduct your contributions from your income. In addition, you may be able to deduct from your taxes for high medical expenses, the cost of raising a child or even the cost of an adoption. On the other hand, a tax may be a simple percentage of the value of an item or account.
Taxes in the United States are largely self-assessing. For example, an individual reports their sources of income and claimed deductions. They complete their own tax return. The U.S. government may choose to audit someone’s taxes, but the audit rate is quite small compared to the number of tax returns filed each year.
In some cases, the government may determine what tax to assess. For example, a local government may determine the value of real property for the purposes of assessing a property tax. If the property owner disagrees with the assessment, they may take steps to challenge the government’s tax assessment. Even non-resident U.S. citizens pay taxes. Americans living abroad must complete and file tax returns. Tax law involves knowing how to challenge a tax assessment or justify a self-reported tax payment.
Income tax law
U.S. income tax laws are found in the Internal Revenue Code. The Internal Revenue Service (IRS) is under the U.S. Department of Treasury. The IRS administers the U.S. tax code and collects taxes. U.S. tax law uses a graduated tax rate for personal income taxes. As a person earns more, they pay an increased tax rate on the money that they make. There are significant deductions and exemptions that may influence a taxpayer’s final tax liability.
Courts for tax disputes
Tax lawyers practice in a variety of courts. There are multiple courts and agencies that might hear a tax dispute. For example, a federal tax dispute may end up in the U.S. Tax Court. The Tax Court hears disputes regarding federal income taxes. It’s the only court where a taxpayer can dispute a tax without first having to pay it and file a legal case to recover the disputed amount. A federal tax dispute may also go to U.S. District Court or the U.S. Court of Federal Claims. A taxpayer has the option to initiate a tax case by bringing a claim to recover what they believe is an unfair tax.
By contrast, a state tax dispute may be heard before a state tax tribunal or an administrative hearing officer within a state’s Department of Treasury. A local tax dispute may start by going before a local administrative body. Tax lawyers must know where to bring their disputes. Tax law also involves procedural laws because lawyers use court and administrative procedures for bringing and responding to claims on behalf of their clients.
The practice of tax law is largely reactionary
The practice of tax law includes planning to structure taxes in a way that is advantageous for the client. In addition to helping clients take steps to comply with laws in a way that minimizes their tax liability, a great deal of practicing tax law is reactionary. Clients often don’t work with tax lawyers until there’s an existing dispute.
Tax law isn’t accounting. While some tax lawyers are also accountants, tax lawyers don’t prepare tax returns. Instead, they help their clients make sound business decisions with an understanding of the tax implications of a proposed course of action. Most often, tax lawyers work to help clients when they want to challenge the imposition of a tax or when they face accusations of a violation of tax law. Clients generally rely on tax lawyers on a case-by-case basis as issues arise rather than in an ongoing fashion.
Who practices tax law?
Tax lawyers work in private practice, as in-house counsel, or they work for the government. They may represent both individuals and businesses. Large corporations may find it economical to employ tax attorneys as in-house counsel.
However, because many corporations only need tax lawyers after a dispute or an allegation of non-payment arises, many tax attorneys work in private practice and work for their clients on an as-needed, contract basis. Tax lawyers in private practice often work for large firms who have the resources on hand to help large companies when they face tax disputes. Tax lawyers may also work as lobbyists on behalf of corporations.
Many tax lawyers hold an LL.M degree in taxation. An LL.M in taxation is a master of law degree that Juris Doctorate holders can pursue. The LL.M degree typically includes in-depth courses in tax law that are designed to give students an advanced understanding of tax law issues and practical skills.
Tax disputes may be both civil and criminal. Tax lawyers may represent their clients in federal and state courts. They may appear in civil and criminal matters.
Why Become a Tax Lawyer?
Tax laws are complex. Individuals and corporations rely on the expertise of tax lawyers to help them navigate a complex system of federal, state and local taxes. For lawyers who can master tax law and help their clients apply it, they can have a thriving practice in the field of tax law. Lawyers with a background in accounting or finance are especially qualified to practice tax law.
Tax law is part of the business of government
Taxes are a large part of how the government funds its operations. Ensuring that taxes are levied fairly is a necessary part of what makes government work. Tax lawyers have an important role to play as advocates for their clients. With careful planning, tax attorneys can lawfully save their clients thousands or even millions of dollars. Significant civil and criminal penalties may be on the line for a party that’s accused of a tax violation. Tax lawyers are part of this fundamental work.