2. Jurisdiction to Tax * School of Public Finance and Taxation,SLUC A. Introduction 1. Two kinds of jurisdictionrder transactions A: Under-taxation is inefficient because it induces taxpayer to engage in the under-taxed activities instead of taxable activities producing a higher before-tax rate of return. Under-taxation is unfair because taxpayers earning equal amount of income do not pay equal taxes. * School of Public Finance and Taxation,SLUC Today as in 1934 … “Anyone may arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes. Judge Learned Hand in Gregory vs. Helvering * School of Public Finance and Taxation,SLUC 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." * School of Public Finance and Taxation,SLUC Learned Hand 1872-1961 , Judge, U. S. Court of Appeals Gregory v. Helvering, 293 . 465 1935 , was a landmark decision by the United States Supreme Court concerned with . income tax law. The case is cited as part of the basis for two legal doctrines: the business purpose doctrine and the doctrine of substance over form. * School of Public Finance and Taxation,SLUC The business purpose doctrine is essentially that where a transaction has no substantial business purpose other than the avoidance or reduction of Federal tax, the tax law will not regard the transaction. * School of Public Finance and Taxation,SLUC The doctrine of substance over form is essentially that, for Federal tax purposes, a taxpayer is bound by the economic substance of a transaction where the economic substance varies from its legal form. * School of Public Finance and Taxation,SLUC B. Defining Residence
