Internal Revenue Code

Internal Revenue Code
Short title	Internal Revenue Code
Legislature	United States Congress
Territorial extent	United States
Status	Current

Internal Revenue Code. It is the domestic statutory tax law of the United States, published as Title 26 of the United States Code. The code is administered by the Internal Revenue Service and provides the foundational rules for federal taxation on income, estates, gifts, employment, and excise activities. Its complex provisions are shaped by legislative actions from Congress and interpreted through regulations by the Department of the Treasury and rulings by the IRS.

History and development

The modern framework originated with the Revenue Act of 1913, enacted following the ratification of the Sixteenth Amendment to the United States Constitution. Prior major statutes, like the Revenue Act of 1862 during the American Civil War, established early precedents. The code was first comprehensively organized into a single document by the Revenue Act of 1939. This structure was reorganized and replaced by the Internal Revenue Code of 1954, a major recodification spearheaded by the House Ways and Means Committee. The current version is formally known as the Internal Revenue Code of 1986, enacted after the landmark Tax Reform Act of 1986 signed by President Ronald Reagan, which dramatically altered rates and structures.

Structure and organization

It is arranged in a hierarchical system of subtitles, chapters, subchapters, parts, and sections. Major subtitles include Subtitle A for Income Taxes, Subtitle B for Estate and Gift Taxes, and Subtitle C for Employment Taxes. Key chapters govern entities like Corporations and Partnerships, while subchapters detail specific regimes such as S corporation rules. The official text is maintained by the Office of the Law Revision Counsel of the United States House of Representatives. This organization is intended to group related provisions, though its complexity is often noted by scholars and practitioners.

Major provisions and tax types

Core provisions impose the federal individual income tax using progressive rate schedules. It taxes the global income of U.S. citizens and resident aliens. The corporate income tax applies to entities like C corporations. Other significant areas include the Alternative Minimum Tax, estate tax, and gift tax. The code also authorizes employment taxes to fund Social Security and Medicare, along with various excise taxes on goods like gasoline. Critical mechanisms include the Earned Income Tax Credit and provisions for Individual Retirement Accounts.

Legislative process and amendments

Changes originate in the House Ways and Means Committee and the Senate Finance Committee before votes by the full United States Congress. Most tax bills, like the Tax Cuts and Jobs Act of 2017, begin in the House of Representatives under the Origination Clause. Amendments are frequent, with major overhauls including the Economic Growth and Tax Relief Reconciliation Act of 2001 and the American Taxpayer Relief Act of 2012. The non-partisan Joint Committee on Taxation often provides revenue estimates and analysis. The Congressional Budget Office also scores proposed legislation, influencing the budget reconciliation process used for some significant tax acts.

Interpretation and administration

The Department of the Treasury issues Treasury Regulations that carry the force of law. The Internal Revenue Service provides guidance through Revenue Rulings, Private Letter Rulings, and publications like the IRS Publication 17. Disputes are litigated in the United States Tax Court, as well as the United States District Court and the United States Court of Federal Claims. Appellate review occurs in the various United States courts of appeals, with the Supreme Court of the United States deciding key cases, such as Commissioner v. Glenshaw Glass Co.. The Taxpayer Advocate Service operates as an independent organization within the IRS to assist taxpayers.

Impact and criticism

It raises the vast majority of revenue for the Federal government of the United States, funding operations of entities like the Department of Defense and Social Security Administration. Critics, including groups like the Tax Foundation, argue its complexity imposes high compliance costs on businesses and individuals. Provisions like the Carried interest rule and various deductions are often subjects of political debate during elections. International aspects, such as the Global Intangible Low-Taxed Income regime, affect multinational corporations like Apple Inc. and influence global standards set by the Organisation for Economic Co-operation and Development. Reforms are perennially proposed by think tanks such as the Brookings Institution and members of Congress.

Category:United States federal taxation legislation