Chapter 7, Title 11, United States Code
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Bankruptcy in the United States

Bankruptcy in the United States
Authority · History
U.S. Trustee
Court · BAP
Code · FRBP
Chapters
Chapter 7 · Chapter 9 · Chapter 11 · Chapter 12 · Chapter 13 · Chapter 15
Aspects of bankruptcy law
Automatic stay · Discharge
Bankruptcy trustee · Claim
Means test · DIP
Employment of Professional Persons
view · talk · edit


Chapter 7 of the Title 11 of the United States Code (Bankruptcy Code) governs the process of liquidation under the bankruptcy laws of the United States. (In contrast, Chapters 11 and 13 govern the process of reorganization of a debtor in bankruptcy.) Chapter 7 is the most common form of bankruptcy in the United States.[1]Contents [hide]
1 For businesses
2 For individuals
3 Methods of filing for bankruptcy
3.1 Federal bankruptcy forms
3.2 Bankruptcy software
3.3 Non-attorney petition preparer
3.4 Bankruptcy attorney
4 2005 bankruptcy law revision
4.1 Means test
4.2 Credit counseling
4.3 Applicability of exemptions
4.4 Lien avoidance
4.5 Other changes
5 References
6 External links

[edit]
For businesses

When a troubled business is badly in debt and unable to service that debt or pay its creditors, it may file (or be forced by its creditors to file) for bankruptcy in a federal court under Chapter 7. A Chapter 7 filing means that the business ceases operations unless continued by the Chapter 7 Trustee. A Chapter 7 Trustee is appointed almost immediately, with broad powers to examine the business's financial affairs. The Trustee generally sells all the assets and distributes the proceeds to the creditors. This may or may not mean that all employees will lose their jobs. When a very large company enters Chapter 7 bankruptcy, entire divisions of the company may be sold intact to other companies during the liquidation.[citation needed]

Fully secured creditors, such as collateralized bondholders or mortgage lenders, have a legally enforceable right to the collateral securing their loans or to the equivalent value, a right which cannot be defeated by bankruptcy. A creditor is fully secured if the value of the collateral for its loan to the debtor equals or exceeds the amount of the debt. For this reason, however, fully secured creditors are not entitled to participate in any distribution of liquidated assets that the bankruptcy trustee might make.

In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge—instead, the entity is dissolved. Only an individual can receive a Chapter 7 discharge (see 11 U.S.C. § 727(a)(1)). Once all assets of the corporate or partnership debtor have been fully administered, the case is closed. The debts of the corporation or partnership theoretically continue to exist until applicable statutory periods of limitations expire.
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For individuals

Individuals who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7 ("straight bankruptcy", or liquidation).[2] Chapter 7, as with other bankruptcy chapters, is not available to individuals who have had bankruptcy cases dismissed within the prior 180 days under specified circumstances.[3][4]

In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however (such as real estate mortgages and security interests for car loans), survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold (liquidated) by the interim trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7. Common exceptions to discharge include child support, income taxes less than 3 years old and property taxes, student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor. Spousal support is likewise not covered by a bankruptcy filing nor are property settlements through divorce. Despite their potential non-dischargeability, all debts must be listed on bankruptcy schedules.

A chapter 7 bankruptcy stays on an individual's credit report for 10 years from the date of filing the chapter 7 petition. This contrasts with a chapter 13 bankruptcy, which stays on an individual's credit report for 7 years from the date of filing the chapter 13 petition. This may make credit less available and/or terms less favorable, although high debt can have the same effect. That must be balanced against the removal of actual debt from the filer's record by the bankruptcy, which tends to improve creditworthiness. Consumer credit and creditworthiness is a complex subject, however. Future ability to obtain credit is dependent on multiple factors and difficult to predict.

Another aspect to consider is whether the debtor can avoid a challenge by the United States Trustee to his or her Chapter 7 filing as abusive. One factor in considering whether the U.S. Trustee can prevail in a challenge to the debtor's Chapter 7 filing is whether the debtor can otherwise afford to repay some or all of his debts out of disposable income in the five year time frame provided by Chapter 13. If so, then the U.S. Trustee may succeed in preventing the debtor from receiving a discharge under Chapter 7, effectively forcing the debtor into Chapter 13.

It is widely held amongst bankruptcy practitioners that the U.S. Trustee has become much more aggressive in recent times in pursuing (what the U.S. Trustee believes to be) abusive Chapter 7 filings.[citation needed] Through these activities the U.S. Trustee has achieved a regulatory system that Congress and most creditor-friendly commentors have consistently espoused, i.e., a formal means test for Chapter 7. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has clarified this area of concern by making changes to the U.S. Bankruptcy Code that include, along with many other reforms, language imposing a means test for Chapter 7 cases.

Creditworthiness and the likelihood of receiving a Chapter 7 discharge are only a few of many issues to be considered in determining whether to file bankruptcy. The importance of the effects of bankruptcy on creditworthiness is sometimes overemphasized because by the time most debtors are ready to file for bankruptcy their credit score is already ruined.[5] Also, new credit extended post-petition is not covered by the discharge, so creditors may offer new credit to the newly-bankrupt.
[edit]
Methods of filing for bankruptcy
[edit]
Federal bankruptcy forms

Functionally, templates are more or less the computer based equivalent of paper bankruptcy forms. The official Federal bankruptcy forms prescribed in the Federal Bankruptcy Rules come as Microsoft Word and Adobe Acrobat formatted templates where each bankruptcy form is represented by a Word or Acrobat file. While these forms are electronic in nature and reside on a computer, they do not contain intelligence that would guide the debtor. The debtor still has to fill in each bankruptcy form separately as they would with paper forms and the debtor still has to grapple with the complexity of bankruptcy law.
[edit]
Bankruptcy software

In bankruptcy software, the debtor interacts with the software through a web page and is shielded from the actual bankruptcy forms and from the intricacies of bankruptcy law. The debtor responds to questions in an interview setting, much like with tax programs such as TurboTax or automated documents made through HotDocs. The debtor enters names and addresses, a list of their creditors and assets and other financial information and the software generates all the court-ready forms and delivers them to the debtor via email or a download link. The accuracy of the forms is nevertheless imperfect, as it is difficult for software to ensure that the debtor understands what has to be disclosed, what the exemptions for their state are, whether they qualify for said exemptions, and whether expenses included on the means test are allowable.
[edit]
Non-attorney petition preparer

An alternative to do-it-yourself is the Non-attorney bankruptcy petition preparer. This method appeals to those who cannot afford the higher cost of bankruptcy attorneys and at the same time do not want the hassle and uncertainty of self-prepared document templates and software. Bankruptcy petition preparers fill this need. The bankruptcy forms are prepared by trained individuals rather than by debtor themselves. However, having a preparer or paralegal prepare the petition does not guarantee compliance with all applicable laws, or assure that maximum advantage will be taken of exemptions. As with online bankruptcy software, debtors in some cases submit their bankruptcy information through a simple web page interface. Rather than having some software automatically generate the forms, trained paralegals use the information to prepare the document and then deliver them to the debtor. Bankruptcy trustees will check the bankruptcy petition to ensure that the petition was prepared properly, much like the trustee would do if a lawyer had prepared the forms. The BAPCPA provides guidelines for petition preparers to follow to protect the consumer.
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Bankruptcy attorney

A bankruptcy attorney can advise the consumer on when the best time to file is, whether they qualify for a chapter 7 or need to file a chapter 13, ensure that all requirements are fulfilled so that the bankruptcy will go smoothly, and whether the debtor's assets will be safe if they file. With expanded requirements of the BAPCPA bankruptcy act of 2005, filing a personal chapter 7 bankruptcy is complicated. Many attorneys that used to practice bankruptcy in addition to their other fields, have stopped doing so due to the additional requirements, liability and work involved. After the petition is filed, the attorney can provide other services.
[edit]
2005 bankruptcy law revision
Main article: Bankruptcy Abuse Prevention and Consumer Protection Act

On October 17, 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect. This legislation was the biggest reform to the bankruptcy laws since 1978. The legislation was enacted after years of lobbying efforts by banks and lending institutions and was intended to prevent abuses of the bankruptcy laws.

The changes to Chapter 7 were extensive.
[edit]
Means test

The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C. § 707(b). The amendments effectively subject most debtors who have an income, as calculated by the Code, above the debtor's state census median income to a 60 month disposable income based test. This test is referred to as the "means test". The means test provides for a finding of abuse if the debtor's disposable monthly income is higher than a specified floor amount or portion of their debts. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances."[6] Debtors whose income is below the state's median income are not subject to the means test. Under this test, any debtor with more than $182.50 in monthly disposable income, under the formula, would face a presumption of abuse.

Notably, the Code calculated income is based on the prior six months and may be higher or lower than the debtor's actual current income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code’s “current monthly income” as “presumed income.” If the debtor's debt is not primarily consumer debt, then the means test is inapplicable. The inapplicability to non-consumer debt allows business debtors to "abuse" credit without repercussion unless the court finds "cause."

"Special circumstances" does not confer judicial discretion, rather it gives a debtor an opportunity to adjust income by documenting additional expenses or loss of income in situations caused by a medical condition or being called or order to active military service. However, the assumption of abuse is only rebutted where the additional expenses or adjustments for loss of income are significant enough to change the outcome of the means test. Otherwise, abuse is still presumed despite the "special circumstances."
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Credit counseling

Another major change to the law enacted by BAPCPA deals with eligibility. §109(h) provides that a debtor will no longer be eligible to file under either chapter 7 or chapter 13 unless within 180 days prior to filing the debtor received an “individual or group briefing” from a nonprofit budget and credit counseling agency approved by the United States trustee or bankruptcy administrator.

The new legislation also requires that all individual debtors in either chapter 7 or chapter 13 complete an “instructional course concerning personal financial management.” If a chapter 7 debtor does not complete the course, this constitutes grounds for denial of discharge pursuant to new §727(a)(11). The financial management program is experimental and the effectiveness of the program is to be studied for 18 months. Theoretically, if the educational courses prove to be ineffective, the requirement may disappear.
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Applicability of exemptions

BAPCPA attempted to eliminate the perceived “forum shopping” by changing the rules on claiming exemptions. Under BAPCPA, a debtor who has moved from one state to another within two years of filing (730 days) the bankruptcy case must use exemptions from the place of the debtor’s domicile for the majority of the 180 day time period preceding the two years (730 days) before the filing [§522(b)(3)]. If the new residency requirement would render the debtor ineligible for any exemption, then the debtor can choose the federal exemptions.

BAPCPA also “capped” the amount of a homestead exemption that a debtor can claim in bankruptcy, despite state exemption statutes. Also, there is a “cap” placed upon the homestead exemption in situations where the debtor, within 1215 days (about 3 years and 4 months) preceding the bankruptcy case added value to a homestead. The provision provides that “any value in excess of $125,000” added to a homestead can not be exempted. The only exception is if the value was transferred from another homestead within the same state or if the homestead is the principal residence of a family farmer (§522(p)). This “cap” would apply in situations where a debtor has purchased a new homestead in a different state, or where the debtor has increased the value to his/her homestead (presumably through a remodeling or addition).
[edit]
Lien avoidance

Some types of liens may be avoided through a chapter 7 bankruptcy case. However, BAPCPA limited the ability of debtors to avoid liens through bankruptcy. The definition of “household goods” was changed limiting “electronic equipment” to one radio, one television, one VCR, and one personal computer with related equipment. The definition now excludes works of art not created by the debtor or a relative of the debtor, jewelry worth more than $500 (except wedding rings), and motor vehicles (§522(f)(1)(B)). Prior to BAPCPA, the definition of household goods was broader so that more items could have been included, including more than one television, VCR, radio, etc.
[edit]
Other changes
Decreased the number and type of debts that could be discharged in bankruptcy. Decreased limits for discharge of debts incurred discharging luxury goods. Expanded the scope of student loans not dischargeable without "undue hardship."
Increase the time in which a debtor may have multiple discharges from 6 to 8 years.[7]
Limited the duration of the automatic stay, particularly for debtors who had filed within one year of a previous bankruptcy. Automatic stay may be extended at the discretion of the court.
BAPCPA limited the applicability of the automatic stay in eviction proceedings. If the landlord has already obtained a judgment of possession prior to the bankruptcy case being filed, a Debtor must deposit an escrow for rent with the Bankruptcy Court, and the stay may be lifted if the Debtor does not pay the Landlord in full within 30 days thereafter, §362(b)(22). The stay also would not apply in a situation where the eviction is based on “endangerment” of the rented property or “illegal use of controlled substances” on the property, §362(b)(23).
BAPCPA enacts a provision that protects creditors from monetary penalties for violating the stay if the debtor did not give “effective” notice pursuant to §342, [§342(g)]. The new notice provisions require the debtor to give notice of the bankruptcy to the creditor at an “address filed by the creditor with the court,” or “at an address stated in two communications from the creditor to the debtor within 90 days of the filing of the bankruptcy case.
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References
^ U.S. Courts Bankruptcy Statistics, Fiscal Year 2008.
^ 11 U.S.C. § 109(b)
^ 11 U.S.C. § 109
^ An Overview of Chapter 7 Bankruptcy
^ Credit and Bankruptcy
^ 11 U.S.C. § 707(b)(2)(B)
^ 11 U.S.C. § 727(a)(8)

Means test
From Wikipedia, the free encyclopedia

A means test is a determination of whether an individual or family is eligible for help from the government.Contents [hide]
1 Canada
2 United Kingdom
3 United States
4 Other international examples
5 Criticism
6 External links
7 See also
8 References

[edit]
Canada
Main article: social programs in Canada

In Canada means tests are used for student finance (for post-secondary education), and "welfare" (direct transfer payments to individuals to combat poverty). They are not generally used for primary education and secondary education which are tax-funded. Means tests for public health insurance were once common but are now illegal, as the Canada Health Act of 1984 requires that all the provinces provide universal healthcare coverage to be eligible for subsidies from the federal government. Nor are means tests used for pensions and seniors' benefits.
[edit]
United Kingdom

Resentment over a means test was among the factors giving rise to the National Unemployed Workers' Movement in the United Kingdom.[1] Today, several benefit payments (including Pension Credit) by the government are means-tested, meaning that the entitlement to it is affected by the amount of income and savings.[2] October 2006 saw the introduction of means testing as part of the determination of legal aid in the Magistrates Court. Similar ideas have been made by the Ministry of Justice for the higher Crown Court in November 2008 with a consultation paper proposing the introduction of Crown Court means-tested legal aid. As of 29 January 2009 the consultation is closed and awaiting a decision.[3]
[edit]
United StatesBankruptcy in the United States

Bankruptcy in the United States
Authority · History
U.S. Trustee
Court · BAP
Code · FRBP
Chapters
Chapter 7 · Chapter 9 · Chapter 11 · Chapter 12 · Chapter 13 · Chapter 15
Aspects of bankruptcy law
Automatic stay · Discharge
Bankruptcy trustee · Claim
Means test · DIP
Employment of Professional Persons
view · talk · edit


Means testing "refers generally to the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts."[4] The means test is perhaps best recognized in the United States as the test used by courts to determine eligibility for Title 11 of the United States Code Chapter 7 or Chapter 13 bankruptcy.

During the Great Depression, the test was used to screen applicants for such programs as Home Relief in the United States, and starting in the 1960s, for benefits such as those provided by the Food Stamp Program.

In 1992, third-party Presidential candidate Ross Perot proposed that future Social Security benefits be subjected to a means test; though this was hailed by some as a potential solution to an impending crisis in funding the program, few other political candidates since Perot have publicly made the same suggestion, which would require costly investigations and might associate accepting those benefits with social stigma.

In 2005, the United States substantially changed its bankruptcy laws, adding a means test to prevent wealthy debtors from filing for Chapter 7 Bankruptcy. The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C. § 707(b). The amendments effectively subject most debtors who make an income, as calculated by the Code, above the median income of the debtor's state to an income-based test. This test is referred to as the "means test." The means test provides for a finding of abuse if the debtor's income is higher than a specified portion of their debts. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances."[5] Debtors whose income is below the state's median income are not subject to the means test. Notably, the Code-calculated income may be higher or lower than the debtor's actual income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code's "current monthly income" as "presumed income." If the debtor's debt is not primarily consumer debt, then the means test is inapplicable.

Thus, the means test is "a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. (These filers may use Chapter 13 bankruptcy to repay a portion of their debts, but may not use Chapter 7 to wipe out their debts altogether.)"[6] The bankruptcy means test is rather complex but quite generous and most debtors have no trouble meeting its requirements[citation needed]. Consumers can use a means test calculator to determine their eligibility. Others[who?] have suggested that the means test is not all that fair or equitable, and have somewhat cynically pointed out that the reference to consumer protection in the bankruptcy act is ironic at best, since those with primarily consumer debt are required to pass a means test while businesses are not. What is undeniable is that it is complex, and the terms that govern many parts of it - including those terms that control whether it applies at all - are of unsettled definition.[7]
[edit]
Other international examples

Examples of means testing in the healthcare sector include Medicaid (USA), Medifund (Singapore)[8] and Medical Cards (Ireland).

It has been announced that means testing is one of the top three areas the Health Sector in Singapore would look at to further improve its subsidiary benefits. This will be done so according to income.[citation needed]
[edit]
Criticism

Means-testing has been criticized on a number of grounds, the most fundamental of which is the distinction between a social program, which helps all equally or in proportion to their taxation, and a poverty program, which disproportionately helps the poor. For example, William Beveridge, in the Beveridge Report (blueprint for the UK's post-war social system) was opposed to means-testing, due to the poverty trap (below). Issues of a poverty program versus a social program include:
Stigma
A program benefiting only the poor may carry a stigma on its use, and be demeaning; compare poverty food.
Political support
A program benefiting only the poor may lack broad-based political support, in contrast to programs that all share in.[9]
Redistribution
Poverty programs transfer money from the rich to the poor, as they benefit the poor only but are paid for by all.

Further objections to means-testing include:
Poverty trap
Means tests, particularly sharp cut-offs, create high effective marginal tax rates and can serve to keep people in poverty, both by removing social support as the person tries to escape poverty, and by discouraging such attempts by high costs. For example, asset-based limits, such as requiring an individual to have little or no savings to qualify, not only discourage saving (because of the cost of being disqualified from such savings) but require a person to become completely destitute to qualify, thus meaning that they do not have any much-needed savings when attempting to escape poverty.
Access
Means tests, particularly complicated ones and ones that differ between programs and between different levels of government, complicate access to programs – individuals cannot easily know if they qualify, and may qualify for some programs but not others. In the absence of centralized outreach, the added complication of means tests means that some, perhaps many people who qualify for programs do not benefit from them.
Administrative costs
Means tests increase administrative costs (overhead), due to the work of verifying that the tests are satisfied. Some argue that these costs can offset or more than offset the savings by reduced payouts under means-testing.
Entitlement/promises
If means-testing is implemented in an existing program, particularly for which people have paid taxes but not benefited, as in pensions or medical insurance, the reduction in benefits can be seen as a breach of promise and entitlement of the program.[9][10]
[edit]
External links
U.S. Bankruptcy Courts information on means testing
LSC (UK) means-tested eligibility calculator
[edit]
See also
Chapter 7, Title 11, United States Code
[edit]
References
^ http://www.wcml.org.uk/contents/protests...rkers-movement/
^ D'Arcy, Cliff (2009), The Financial Times Guide to Managing Your Money, Financial Times, pp. 159, ISBN 0273717030
^ Consultation Paper CP27/08
^ Understanding Bankruptcy. Second Edition. Jeff Ferriell and Edward J. Janger. LexisNexis. 2007. p. 28.
^ 11 U.S.C. § 707(b)(2)(B)
^ The Bankruptcy Means Test: Is Your Income Low Enough for Chapter 7 Bankruptcy?
^ Abanet.org
^ Means Testing for Medical Subsidies
^ a b The Bankruptcy Boys, February 20, 2010, Paul Krugman
^ The Deficit Commission Trap, Wall Street Journal, Dec 29, 2009

Effective marginal tax rate
From Wikipedia, the free encyclopedia This article may need to be wikified to meet Wikipedia's quality standards. Please help by adding relevant internal links, or by improving the article's layout. (June 2010)


The effective marginal tax rate (EMTR) is the combined effect on a person's earnings of income tax and the withdrawal of means testing of state welfare benefits. The EMTR is the percentage of an extra unit of income (extra dollar, euro, yen etc.) that the recipient keeps after income tax is removed and after any decline in welfare entitlements.

Calculating the EMTR is typically very dependent on individual circumstances and involves a consideration of welfare withdrawal rules, income tax laws, low income tax offsets, tax rebates and the individuals tax and welfare status. As such tables showing EMTRs are rarely published. The net effect however is generally a higher effective marginal rate of tax than that suggested by income tax tables.
[edit]
External references
http://melbourneinstitute.com/publicatio...s/WebReport.pdf
http://www.amp.com.au/group/3column/0,24...255FSI3,00.html
Categories: Taxation

Income tax
From Wikipedia, the free encyclopedia Taxation
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An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities). Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs). Various systems define income differently, and often allow notional reductions of income (such as a reduction based on number of children supported).Contents [hide]
1 Principles
2 History
2.1 Han Dynasty (ancient China)
2.2 United Kingdom
2.3 United States
3 Types
3.1 Personal
3.2 Corporate
3.3 Payroll
3.4 Inheritance
3.5 Capital gains tax
4 Around the world
5 Transparency / Public Disclosure
6 See also
7 Notes
8 External links

[edit]
Principles

The "tax net" refers to the types of payment that are taxed, which included personal earnings (wages), capital gains, and business income. The rates for different types of income may vary and some may not be taxed at all. Capital gains may be taxed when realized (e.g. when shares are sold) or when incurred (e.g. when shares appreciate in value). Business income may only be taxed if it is significant or based on the manner in which it is paid. Some types of income, such as interest on bank savings, may be considered as personal earnings (similar to wages) or as a realized property gain (similar to selling shares). In some tax systems, personal earnings may be strictly defined where labor, skill, or investment is required (e.g. wages); in others, they may be defined broadly to include windfalls (e.g. gambling wins).

Tax rates may be progressive, regressive, or proportional. A progressive tax applies progressively higher tax rates as earnings reach higher levels. For example, the first $10,000 in earnings may be taxed at 5%, the next $10,000 at 10%, and any more income at 20%. Alternatively, a flat tax taxes all earnings at the same rate. A regressive income tax may apply to income up to a certain amount, such as taxing only the first $90,000 earned. A tax system may use different taxation methods for different types of income.

Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government by taxpayers who did not pay enough during the tax year; and tax refunds from the government to those who overpaid. Income tax systems often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages. Other tax systems may isolate the loss, such that business losses can only be deducted against business tax by carrying forward the loss to later tax years.

The idea of a progressive income tax has garnered support from economists and political scientists of many different ideologies, from Adam Smith in The Wealth of Nations[1] to Karl Marx in The Communist Manifesto.[2] Income taxes are used in most countries around the world, but are not without criticism. Frank Chodorov wrote "... you come up with the fact that it gives the government a prior lien on all the property produced by its subjects." The government "unashamedly proclaims the doctrine of collectivized wealth. ... That which it does not take is a concession."[3] The economic effects of an income tax system have also been criticized for penalizing work, discouraging saving and investment, and hindering the competitiveness of business and economic growth.[4][5] Income taxes are also not border-adjustable; meaning the tax component embedded into products via taxes imposed on companies cannot be removed when exported to a foreign country (see Effect of taxes and subsidies on price). Alternate tax systems such as a national sales tax or value added tax remove the tax component when goods are exported and apply the tax component on imports.[6]
[edit]
History

The concept of taxing income is a modern innovation and presupposes several things: a money economy, reasonably accurate accounts, a common understanding of receipts, expenses and profits, and an orderly society with reliable records. For most of the history of civilization, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social position, and ownership of the means of production (typically land and slaves) were all common. Practices such as tithing, or an offering of firstfruits, existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.
[edit]
Han Dynasty (ancient China)

In the year 10 CE, Emperor Wang Mang of the Xin Dynasty instituted an unprecedented tax—the income tax—at the rate of 10 percent of profits, for professionals and skilled labor. (Previously, all taxes were either head tax or property tax.) He was overthrown 13 years later in 23 CE and earlier laissez-faire policies were restored during the Later Han.
[edit]
United Kingdom

Punch cartoon (1907); illustrates the unpopularity amongst Punch readers of a proposed 1907 income tax by the Labour Party in the United Kingdom.
Main article: Taxation in the United Kingdom#History

An income tax was levied in Britain by William Pitt the Younger in his budget of December 1798, to pay for weapons and equipment in preparation for the Napoleonic wars. Pitt's new graduated income tax began at a levy of 2d in the pound (0.8333%) on annual incomes over £60 and increased up to a maximum of 2s in the pound (10%) on incomes of over £200 (£170,542 in 2007). Pitt hoped that the new income tax would raise £10 million (£8,527,100,000 in 2007), but actual receipts for 1799 totaled just over £6 million.[7]

The tax was repealed in 1816 and opponents of the tax, who thought it should only be used to finance wars, wanted all records of the tax destroyed along with its repeal. Records were publicly burned by the Chancellor of the Exchequer but copies were retained in the basement of the tax court.[8]
[edit]
United States
Main article: Income tax in the United States

In order to help pay for its war effort in the American Civil War, the United States government imposed its first personal income tax, on August 5, 1861, as part of the Revenue Act of 1861 (3% of all incomes over US $800).[9][verification needed] This tax was repealed and replaced by another income tax in 1862.[10][verification needed]

In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4000, which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions.[11] Also, the Panic of 1893 is said to have something to do with the passage of Wilson-Gorman.

In 1895 the United States Supreme Court, in its ruling in Pollock v. Farmers' Loan & Trust Co., held a tax based on receipts from the use of property to be unconstitutional. The Court held that taxes on rents from real estate, on interest income from personal property and other income from personal property (which includes dividend income) were treated as direct taxes on property, and therefore had to be apportioned. Since apportionment of income taxes is impractical, this had the effect of prohibiting a federal tax on income from property. However, the Court affirmed that the Constitution did not deny Congress the power to impose a tax on real and personal property, and it affirmed that such would be a direct tax.[12] Due to the political difficulties of taxing individual wages without taxing income from property, a federal income tax was impractical from the time of the Pollock decision until the time of ratification of the 16th Amendment in 1913.

In 1913, the 16th Amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. With the advent of World War II, employment increased, as did tax collections—to $7.3 billion. The withholding tax on wages was introduced in 1943 and was instrumental in increasing the number of taxpayers to 60 million and tax collections to $43 billion by 1945.[3]


[edit]
Types
[edit]
Personal

A personal or individual income tax is levied on the total income of the individual (with some deductions permitted). It is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages.
[edit]
Corporate
Main article: Corporate tax

Corporate tax refers to a direct tax levied on the profits made by companies or associations and often includes capital gains of a company. Earnings are generally considered gross revenue minus expenses. Corporate expenses related to capital expenditures are usually deducted in full (for example, trucks are fully deductible in the Canadian tax system, while a corporate sports car is only partly deductible) over their useful lives by using percentage rates based on the class of asset they belong to.

Accounting principles and tax rules about recognition of expenses and revenue will vary at times, giving rise to book-tax differences. If the book-tax difference is carried over more than a year, it is referred to as a deferred tax. Future assets and liabilities created by a deferred tax are reported on the balance sheet.
See also: Excess profits tax, Windfall profits tax
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Payroll
Main article: Payroll tax

A payroll tax generally refers to two kinds of taxes: employee and employer payroll taxes. Employee payroll taxes are taxes which employers are required to withhold from employees' pay, also known as withholding, pay-as-you-earn (PAYE) or pay-as-you-go (PAYG) tax. These withholdings contribute to the payment of an employee's personal income tax obligation; if the payments exceed this obligation, the employee may be eligible for a tax refund or carryforward to future periods.

Employer payroll taxes are paid from the employer's own funds, either as a fixed charge per employee or as a percentage of each employee's pay. Payroll taxes often cover government social insurance programs, such as social security, health care, unemployment, and disability. These payments do not count toward the income taxes of employees and employers, but are normally deductible by the employer as a business expense.
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Inheritance
Main article: Inheritance tax

The inheritance tax, estate tax and death duty are the names given to various taxes which arise on the death of an individual. In international tax law, there is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. However, this distinction is not universally recognized. For example, the "inheritance tax" in the UK is a tax on personal representatives, and is therefore, strictly speaking, an estate tax.
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Capital gains tax
Main article: Capital gains tax

A capital gains tax is the tax levied on profits from the sale of capital assets. In many cases, the amount of a capital gain is treated as income and subject to the marginal rate of income tax.

In an inflationary environment, capital gains may be, to some extent, illusory. If prices in general have doubled over five years, then selling an asset for twice the price it was purchased at five years earlier represents no gain at all. Partly to compensate for such changes in the value of money over time, some jurisdictions, such as the United States, give a favorable capital gains tax rate based on the length of holding. European jurisdictions have a similar rate reduction to nil on certain property transactions that qualify for the participation exemption. In Canada, 20–50% of the gain is taxable income. In India, Short Term Capital Gains Tax (arising before one year) is 10% [15 % from F.Y 2008-09 as per Finance Act 2008] flat rate of the gains and Long Term Capital Gains Tax is nil for stocks and mutual fund units held one year or more, provided the sale of shares involved payment of the Securities Transaction Tax, and 20% for any other assets held three years or more.
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Around the world
Main article: Tax rates around the world

Income taxes are used in most countries around the world. The tax systems vary greatly and can be progressive, proportional, or regressive, depending on the type of tax. Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. Tax laws in most countries are extremely complex, and tax burden falls differently on different groups in each country and sub-national unit. Of course, services provided by governments in return for taxation also vary, making comparisons all the more difficult.
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Transparency / Public Disclosure

Public disclosure of personal income tax filings occurs in Finland and Norway.[13]
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See also
Income tax in Australia
Income tax in Canada
Income tax in India
Income tax in the Netherlands
Income tax in the Papal States
Income tax in Singapore
Income tax in Tanzania
Income tax in the United States
Lifetime income tax
Local income tax
Negative income tax
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Notes
^ Adam Smith (1776). An Inquiry into the Nature And Causes of the Wealth of Nations. Book Five: "Of the Revenue of the Sovereign or Commonwealth." CHAPTER II: "Of the Sources of the General or Public Revenue of the Society." Article III: "Taxes upon the Wages of Labour."
^ Marx, Karl (1848-02-21). "Section II. Proletarians and Communists". Communist Manifesto. Retrieved 2007-01-24.
^ a b Young, Adam (2004-09-07). "The Origin of the Income Tax". Ludwig von Mises Institute. Retrieved 2007-01-24.
^ "America Needs a Better Tax System". The President’s Advisory Panel on Federal Tax Reform. 2005-04-13. Retrieved 2007-01-28.
^ "The state's take". The Economist. 19 November 2009. Retrieved 20 November 2009.
^ Linbeck, Leo (2006-06-22). "Testimony Before the Subcommittee on Select Revenue Measures". House Committee on Ways and Means. Retrieved 2006-08-11.
^ "A tax to beat Napoleon". HM Revenue & Customs. Retrieved 2007-01-24.
^ Adams, Charles 1998. Those Dirty Rotten TAXES, The Free Press, New York, NY
^ Revenue Act of 1861, sec. 49, ch. 45, 12 Stat. 292, 309 (Aug. 5, 1861).
^ Sections 49, 51, and part of 50 repealed by Revenue Act of 1862, sec. 89, ch. 119, 12 Stat. 432, 473 (July 1, 1862); income taxes imposed under Revenue Act of 1862, section 86 (pertaining to salaries of officers, or payments to "persons in the civil, military, naval, or other employment or service of the United States ...") and section 90 (pertaining to "the annual gains, profits, or income of every person residing in the United States, whether derived from any kind of property, rents, interest, dividends, salaries, or from any profession, trade, employment or vocation carried on in the United States or elsewhere, or from any other source whatever....").
^ Charles F. Dunbar, "The New Income Tax," Quarterly Journal of Economics, Vol. 9, No. 1 (Oct., 1894), pp. 26-46 in JSTOR.
^ Chief Justice Fuller's opinion, 158 U.S. 601, 634.
^ Bernasek, Anna (February 13, 2010). "Should Tax Bills Be Public Information?". The New York Times. Retrieved 2010-03-07.

Company
From Wikipedia, the free encyclopedia
(Redirected from Company (law)) The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. (April 2010)

For other uses, see Company (disambiguation).
Companies law
Company · Business
Company forms
Sole proprietorship
Partnership
(General · Limited · LLP)
Corporation
Cooperative
United States
S corporation · C corporation
LLC · LLLP · Series LLC
Delaware corporation
Nevada corporation
Massachusetts business trust
Delaware statutory trust
UK / Ireland / Commonwealth
Limited company
(by shares · by guarantee
Public · Proprietary)
Unlimited company
Community interest company
European Union / EEA
SE · SCE · SPE · EEIG
Elsewhere
AB · AG · ANS · A/S · AS · GmbH
K.K. · N.V. · Oy · S.A. · more
Doctrines
Corporate governance
Limited liability · Ultra vires
Business judgment rule
Internal affairs doctrine
De facto corporation and
corporation by estoppel
Piercing the corporate veil
Rochdale Principles
Related areas
Contract · Civil procedure
v · d · e


A company is a form of business organization. It is a collection of individuals and physical assets with a common focus and an aim of gaining profits. This collection exists in Law and therefore a company is considered a "Legal Person".

In the United States, a company is a corporation—or, less commonly, an association, partnership, or union—that carries on an industrial enterprise."[1] Generally, a company may be a "corporation, partnership, association, joint-stock company, trust, fund, or organized group of persons, whether incorporated or not, and (in an official capacity) any receiver, trustee in bankruptcy, or similar official, or liquidating agent, for any of the foregoing."[1]

In English law, and therefore in the Commonwealth realms, a company is a form of body corporate or corporation, generally registered under the Companies Acts or similar legislation. It does not include a partnership or any other unincorporated group of persons.Contents [hide]
1 Meaning and etymology
2 History
3 Types
4 References
5 Further reading

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Meaning and etymology

A company can be defined as an "artificial person", invisible, intangible, created by Law, with a discrete legal entity, perpetual succession and a common seal. It is not affected by the death, insanity or insolvency of an individual member.

The English word has its origins in the Old French military term compaignie (first recorded in 1150), meaning a "body of soldiers",[2] originally taken from the Late Latin word companio "companion, one who eats bread with you", first attested in the Lex Salica as a calque of the Germanic expression *gahlaibo (literally, "with bread"), related to Old High German galeipo "companion" and Gothic gahlaiba "messmate". By 1303, the word referred to trade guilds. Usage of company to mean "business association" was first recorded in 1553 and the abbreviation "co." dates from 1769.
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History

According to one source, "it may be formed by Act of Parliament, by Royal Charter, or by registration under company law (referred to as a limited liability or joint-stock company)."[3] In the United Kingdom, the main regulating laws are the Companies Act 1985 and the Companies Act 2006.[3] Reportedly, "a company registered under this Act has limited liability: its owners (the shareholders) have no financial liability in the event of winding up the affairs of the company, but they might lose the money already invested in it".[3] In the USA, companies are registered in a particular state—Delaware being especially favoured—and become Incorporated (Inc).[3]

In North America, two of the earliest companies were The London Company (also called the Charter of the Virginia Company of London)—an English joint stock company established by royal charter by James I of England on April 10, 1606 with the purpose of establishing colonial settlements in North America—and Plymouth Company that was granted an identical charter as part of the Virginia Company. The London Company was responsible for establishing the Jamestown Settlement, the first permanent English settlement in the present United States in 1607, and in the process of sending additional supplies, inadvertently settled the Somers Isles, alias Bermuda, the oldest-remaining English colony, in 1609.
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Types
For a country-by-country listing, see Types of business entity.

There are various types of company that can be formed in different jurisdictions, but the most common forms of company (generally formed by registration under applicable companies legislation) are:
A company limited by guarantee. Commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company. This type of company is common in England.
A company limited by shares. The most common form of company used for business ventures. Specifically, a limited company is a "company in which the liability of each shareholder is limited to the amount individually invested" with corporations being "the most common example of a limited company."[1] This type of company is common in England.
A company limited by guarantee with a share capital. A hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return. This type of company may no longer be formed in the UK, although provisions still exist in law for them to exist.[4]
A limited-liability company. "A company—statutorily authorized in certain states—that is characterized by limited liability, management by members or managers, and limitations on ownership transfer", i.e., L.L.C.[1]
An unlimited company with or without a share capital. A hybrid entity, a company where the liability of members or shareholders for the debts (if any) of the company are not limited.

Less commonly seen types of companies are:
Companies formed by letters patent. Most corporations by letters patent are corporations sole and not companies as the term is commonly understood today.
charter corporations. Before the passing of modern companies legislation, these were the only types of companies. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks), or modern societies that fulfil a quasi regulatory function (for example, the Bank of England is a corporation formed by a modern charter).
Statutory Companies. Relatively rare today, certain companies have been formed by a private statute passed in the relevant jurisdiction.

Note that "Ltd after the company's name signifies limited company, and PLC (public limited company) indicates that its shares are widely held."[3]

In legal parlance, the owners of a company are normally referred to as the "members". In a company limited or unlimited by shares (formed or incorporated with a share capital), this will be the shareholders. In a company limited by guarantee, this will be the guarantors. Some offshore jurisdictions have created special forms of offshore company in a bid to attract business for their jurisdictions. Examples include "segregated portfolio companies" and restricted purpose companies.

There are however, many, many sub-categories of types of company that can be formed in various jurisdictions in the world.

Companies are also sometimes distinguished for legal and regulatory purposes between public companies and private companies. Public companies are companies whose shares can be publicly traded, often (although not always) on a regulated stock exchange. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.
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References