Tax Law: A Broader Perspective Income Tax Accounting Taxes and the Law: A Broader Perspective Taxes are everywhere and exist as a vital part of the national structure, whether legally and financially. Taxation affects everything from wages to inheritances. That said, we need to ask ourselves how this balance works and what constitutes its existence. This is where understanding the effects of tax laws and how they are accounted for is of great importance. As with any other aspect of life, rules accompany the application and processing of taxes and how they must be paid. It sounds pretty harsh, but there are many benefits to taxation beyond the normal mandatory sacrifices. This means that taxes can change to alleviate financial hardship just as they can be changed to increase individual spending. For example, FS-2006-2 - Publication 4492 created tax breaks for Katrina victims, Rita and Wilma. Those affected can now exclude some debt cancellations from their income and extend the replacement period for converted properties from two to five years. At this point it is logical to ask who governs taxation, and what the benefits and penalties are like. decided? Modern taxation dates back to Section I of Articles 8 and 9 of the Constitution, and was heavily influenced by America's Sixteenth Amendment to the Constitution. Amendment Sixteen gave Congress the power to tax any entity regardless of census or enumeration. At first glance, Amendment Sixteen appears to give Congress the ultimate Document 3 power to tax; however, this is not really the case. The amendment did not expand the federal government's existing taxing power, but rather removed any requirement that income taxes (i.e., the tax on profits or gains from any source) be apportioned among states based on population. In 1955, the respective amendment faced a radical change when the court case Commissioner v. Glenshaw Glass Co. 348 US 426 occurred. In the course of this case, a taxpayer had received punitive damages from a competitor and had sought to avoid to pay taxes on such compensation. In light of this challenge, Congress produced a response that defines taxable income as earnings, profits, and income derived from wages, salaries, or compensation from any type of source for which the income has been exchanged for services rendered, active or passive..