Cecily Zamora
The Internal Revenue Service (IRS) is a congressionally mandated body established by positive law, with the power to administer and enforce internal revenue laws. The IRS was created to supervise the execution and application of the internal revenue laws, as outlined in Section 7803(a). The Constitution grants Congress the power to tax, and Congress typically enacts federal tax law through the Internal Revenue Code (IRC). The IRC, established in 1986, is a descendant of the income tax act passed in 1913 and is now part of Title 26 of the United States Code. While the IRS plays a crucial role in tax administration, Congress remains the primary source of tax law in the United States, with the power to create and modify tax legislation.
| Characteristics | Values |
|---|---|
| Who creates federal tax law? | Congress |
| Where is federal tax law enacted? | Internal Revenue Code of 1986 (IRC) |
| Where can the IRC be found? | Title 26 of the United States Code (26 USC) |
| Who has the authority to administer and enforce internal revenue laws? | Secretary of the Treasury |
| Who administers and supervises the execution and application of internal revenue laws? | Commissioner of Internal Revenue |
| Who challenged the applicability of tax laws and lost? | Charles Pollock |
| What was the basis of Charles Pollock's challenge? | The Wilson-Gorman Tariff was unconstitutional under Article I, Section 9 of the Constitution |
| What is the purpose of federal income tax? | To generate revenue for the federal budget |
| Who is required to file income tax returns? | Individuals and corporations |
| What is "gross income"? | "All income from whatever source derived" |
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What You'll Learn
The Internal Revenue Service is a US government agency
The Secretary of the Treasury has full authority to administer and enforce internal revenue laws and has the power to create an agency to enforce such laws. As a result, the IRS was created and is supervised by a Commissioner of Internal Revenue. The IRS publishes official tax guidance, including revenue rulings, revenue procedures, notices, and announcements.
There have been numerous unsuccessful challenges to the applicability of tax laws, often presented in a pseudo-legal format. These include arguments that the IRS is not a government agency, but a private corporation, and that taxpayers are not required to file tax returns because of the Paperwork Reduction Act of 1980. These arguments have been rejected by the courts, with some incurring penalties for bringing frivolous cases.
The purpose of federal income tax is to generate revenue for the federal budget. All residents and citizens of the United States are subject to federal income tax, although not everyone must file a tax return. The requirements for filing are found in 26 U.S.C. § 6011.
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The Internal Revenue Code is law
The Internal Revenue Code (IRC) is the body of law that codifies all federal tax laws in the United States, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. The IRC is Title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. [1986]) and is implemented by the Internal Revenue Service (IRS) through its Treasury Regulations and Revenue Rulings.
The IRC was originally compiled in 1939 and overhauled in 1954 and 1986. Due to the extensive revisions made in the Tax Reform Act of 1986, Title 26 is now known as the Internal Revenue Code of 1986. The IRC is the definitive source of all tax laws in the United States and has the force of law in and of itself. Congress typically enacts federal tax law in the IRC, and major statutory changes were made to Title 26 in 1939, 1954, and 1986.
The IRC has 11 subtitles, including income taxes, employment taxes, coal industry health benefits, and group health plan requirements. The IRC is the governing law of federal tax administration and collection. While state law creates legal interests and rights, the IRC designates what interests and rights shall be taxed. The IRC cannot be applied retroactively, and a violation of the IRC can be a crime or a civil offense, depending on the type of tax evaded and the amount of money involved. For example, a taxpayer who willfully fails to pay taxes may be fined up to $10,000 or imprisoned for up to 5 years.
Treasury regulations, commonly referred to as federal tax regulations, provide the official interpretation of the IRC by the U.S. Department of the Treasury. These regulations give directions to taxpayers on how to comply with the IRC's requirements and can be found in Title 26 of the Code of Federal Regulations (26 CFR). An electronic version of the current Code of Federal Regulations is made available to the public by the National Archives and Records Administration (NARA) and the GPO.
The IRS also publishes other forms of official tax guidance, including revenue rulings, revenue procedures, notices, and announcements. These can be found in the Federal Register and the Internal Revenue Bulletin.
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Congress enacts federal tax law
The Constitution gives Congress the power to tax. Congress typically enacts federal tax law in the Internal Revenue Code of 1986 (IRC). The IRC can be found in Title 26 of the United States Code (26 USC), which is available to the public. An example of a provision in the IRC is the child tax credit, which can be found in Title 26 Section 24.
Treasury regulations, or federal tax regulations, provide the official interpretation of the IRC by the U.S. Department of the Treasury. These regulations direct taxpayers on how to comply with the IRC's requirements. The Treasury regulation sections can be found in Title 26 of the Code of Federal Regulations (26 CFR), which is also available to the public.
It is important to note that updates from new laws may not be immediately reflected in the IRC. Additionally, Congress sometimes enacts laws that are not part of the IRC but still impact federal tax law. Historical versions of the United States Code (back to 1994) are available electronically on GovInfo, a website from the U.S. Government Publishing Office (GPO).
When reading the IRC, it is important to consider the context of the entire Code, the Treasury Regulations, and the court decisions that interpret it. The IRC is complex, and there have been unsuccessful challenges to the applicability of tax laws. Despite courts rejecting these arguments, promoters continue to spread them, even incurring penalties for bringing frivolous cases to court or filing frivolous tax returns.
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The Constitution gives Congress power to tax
The US Constitution gives Congress the power to tax. This power is granted by Article I, Section 8, Clause 1 of the Constitution, also known as the Taxing Clause or the Taxing and Spending Clause. This clause provides Congress with broad authority to "lay and collect Taxes, Duties, Imposts and Excises" to fund federal debts, the common defence, and the general welfare of the United States. This power is subject to certain limitations and qualifications, including that all "Duties, Imposts and Excises shall be uniform throughout the United States".
The Sixteenth Amendment to the Constitution, ratified in 1913, further expanded Congress's taxing power by granting them the authority to levy income taxes without regard to population or enumeration. This amendment was a significant shift in the way the federal government received funding, and it was enabled by the rise of the Progressive Party and the victory of the Democratic Party in the 1912 Presidential Election. Before the Sixteenth Amendment, the majority of federal funds came from tariffs on goods.
While Congress has the primary power to enact tax laws, the Internal Revenue Service (IRS) also plays a role in implementing and interpreting these laws. The IRS publishes official tax guidance, including revenue rulings, revenue procedures, notices, and announcements. However, the IRS does not have the authority to create tax laws independently; it operates within the framework established by Congress and the Constitution.
It is important to note that the scope of Congress's taxing power has been curtailed by judicial decisions at times. For example, in Bailey v. Drexel Furniture Co. (1922), a case involving child labour taxes, the Supreme Court limited Congress's power regarding the manner in which taxes are imposed. Similarly, in United States v. Constantine (1935), the Court restricted Congress's power concerning the objects for which taxes may be levied. These decisions highlight that while the Constitution grants Congress broad taxing authority, it is not without limits and is subject to judicial interpretation.
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Tax evasion schemes are illegal
The Constitution gives Congress the power to tax, and Congress typically enacts federal tax law in the Internal Revenue Code of 1986 (IRC). The IRC can be found in Title 26 of the United States Code (26 USC). While tax avoidance is legal, tax evasion is a serious crime. Tax avoidance involves structuring your transactions to gain the most tax benefits and is a legitimate way to lower your tax bill. Tax evasion, on the other hand, is an attempt to reduce your tax liability through deceit or concealment. It is a serious crime punishable by imprisonment, fines, and civil penalties.
The IRS Criminal Investigation Division has a long history of investigating and prosecuting tax evasion schemes, from high-profile individuals like Al Capone to hundreds of convictions of businessmen and businesswomen. The promoters of these schemes often present their arguments in a pseudo-legal format, misleading unsuspecting people into participating and evading their taxes. These arguments are often built by stringing together unrelated ideas from conflicting sources, such as court rulings, dictionary definitions, and government regulations.
Some common tax evasion schemes include deliberately under-reporting or omitting income, engaging in sham transactions to disguise the true nature of payments, and holding assets in offshore or foreign bank accounts without proper reporting. Other schemes include refund fraud, abusive tax schemes using offshore tax havens, and employment tax disputes involving withheld payroll taxes.
It is important to note that tax evasion schemes are not limited to federal income tax. They can also involve federal and state employment taxes, state income taxes, and state sales taxes. The IRS defines tax fraud as "the willful and material submission of false statements or false documents in connection with an application and/or return." The creation of trusts, foreign or domestic, for the sole purpose of hiding income and assets from taxation is also illegal and will not absolve an individual of their tax liability.
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Frequently asked questions
The IRS is a body established by "'positive law' as it was created through a congressionally mandated power. The Secretary of the Treasury has the authority to administer and enforce internal revenue laws and can create an agency to enforce such laws.
The Constitution gives Congress the power to tax. Congress typically enacts Federal tax law in the Internal Revenue Code of 1986 (IRC). The sections of the IRC can be found in Title 26 of the United States Code (26 USC).
There have been various unsuccessful challenges to the applicability of tax laws, including arguments based on the Paperwork Reduction Act of 1980 and the belief that the federal tax system is unconstitutional. Some also advocate for the use of "corporation sole" to reduce tax liability, where income is funnelled through a tax-exempt religious organisation.
Some notable cases include Cheek v. United States, where the petitioner argued that they did not willfully evade taxes due to their belief in the unconstitutionality of the federal tax system. Another is Pollock v. Farmers' Loan and Trust Company, where the Supreme Court held that the Wilson-Gorman Tariff was unconstitutional as it created direct taxation on property owners.
The IRS provides resources such as the Interactive Tax Assistant (ITA), Tax Topics, and the IRS Services Guide PDF. Historical versions of the United States Code and the Code of Federal Regulations are available on GovInfo for reference.
