The Internal Revenue Code is a codified set of tax laws in the United States.
What Is the Internal Revenue Code?
The Internal Revenue Code is the federal tax law in the U.S. It covers the rules and regulations for individuals and businesses on filing their tax statements. It is listed under Title 26 of the United States Code, which lists all national laws.
The Internal Revenue Service, a bureau within the U.S. Department of Treasury, is responsible for upholding the code.
Who Writes the Internal Revenue Code?
In 1787, the Constitution gave Congress the power to tax, and Congress has the authority to make amendments, including repeals, to the tax law. In the 20th century, there were two significant revisions to the tax code after its 1939 formalization, in 1954 and 1986.
A Brief History of the Internal Revenue Code
Tax statutes had different iterations before they were officially codified in 1874. The tax code was formally titled the Internal Revenue Code in 1939, and Congress made revisions in 1954 and 1986.
Prior to the 1939 codification, separate changes to the tax law were known as Revenue Acts. For example, at the start of the Civil War, the U.S. government needed to raise revenue to meet the financial needs of financing the war effort. A graduated, federal income tax was introduced in 1861—known as the Revenue Act of 1861—but it was later repealed after the war in 1872.
The latest iteration of the code is known as the Internal Revenue Code of 1986, of which significant changes included the elimination of certain deductions and a reduction in the number of income tax brackets. The most recent change to the tax code was the Tax Cuts and Jobs Act of 2017, which lowered the tax rate on high-income earners.
How to Interpret the Internal Revenue Code
The tax code can be complex to those who aren’t familiar with tax filing procedures and processing, as well as tax lingo. Treasury Regulations found within the Internal Revenue Code provide taxpayers the official interpretation of the tax code, and provide guidance on how to comply with the code’s requirements.
The IRS says it also publishes other forms of official tax guidance, including revenue rulings, revenue procedures, notices, and announcements. The authoritative source for the distribution of all forms of official IRS tax guidance is the Internal Revenue Bulletin (IRB), which is a weekly collection of these and other items of general interest to the tax professional community.
Subtitles of the Internal Revenue Code
The Internal Revenue Code is broken down into 11 subtitles, including taxes on income, employment, and excise. Each section provides detailed information for taxpayers on how to file, when to file, and how to comply with the requirements of filing and reporting taxes:
Income TaxesEstate and Gift TaxesEmployment Taxes Miscellaneous Excise TaxesAlcohol, Tobacco, and Certain Other Excise Taxes Procedure and AdministrationThe Joint Committee on TaxationFinancing of Presidential Election CampaignsTrust Fund CodeCoal Industry Health BenefitsGroup Health Plan Requirements
For example, the section on income taxes provides details on the rate at which a single, employed worker making more than $100,000, or a corporation with taxable income exceeding $10 million, would need to pay tax at the federal level.
Do Nonprofit Organizations Follow the Internal Revenue Code?
Even though their income is tax-exempt, nonprofit organizations must follow the rules outlined in the tax code, and they must file their returns with the government.