Gavin Howe
Tax authority refers to the sources of income tax law and practice, which can be divided into primary and secondary authority. Primary authority is the source of tax law and comes from statutory, administrative, and judicial sources. It is created in each branch of the federal government and includes the Internal Revenue Code (IRC), U.S. Treasury Regulations, Revenue Rulings, and Revenue Procedures. The IRC is the foundation of all federal tax authority in the United States and is interpreted by Treasury regulations, cases that interpret the laws, and IRS rulings.
| Characteristics | Values |
|---|---|
| Type of Authority | Primary Authority |
| Sources | Statutory, Administrative, and Judicial |
| Legislative Authority | The Constitution of the United States, Internal Revenue Code (IRC), Tax Treaties |
| Administrative Authority | Treasury Department, Internal Revenue Service (IRS), Treasury Regulations, Revenue Rulings |
| Judicial Authority | Supreme Court of the United States, Courts of Appeal, District Courts, U.S. Tax Court |
| Secondary Authority | Unofficial sources like tax services, journals, textbooks, newsletters |
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What You'll Learn
Primary authority sources
The most important source of income tax authority in the United States is the Internal Revenue Code (IRC). The IRC provides the foundation for all federal tax authority and is the ultimate authority when researching federal tax law issues. Title 26 of the United States Code covers tax laws and is known as the IRC. It is cited as "26 USC" or simply by its name. The IRC is interpreted by Treasury regulations, cases that interpret the laws, and IRS rulings. The IRC is supplemented by individual laws passed by Congress and signed into law by the President.
The Constitution of the United States is the highest law in the land and is followed by the IRC for tax authority. Tax treaties between the US and other countries, when they exist, control the tax treatment of transactions.
Administrative authority is tax authority created by the Treasury Department and the Internal Revenue Service (IRS). Treasury regulations are the highest administrative authority issued by the Treasury Department. They are published in the Federal Register and codified in Title 26 of the Code of Federal Regulations (CFR). Treasury regulations can be either legislative or interpretative. Revenue rulings deal with specific issues and are limited to a given set of facts.
Primary judicial sources include the Supreme Court of the United States, Courts of Appeal, District Courts, and the U.S. Tax Court.
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Legislative authority
The Constitution of the United States, which came into effect in 1789, is the supreme law of the land. It grants Congress the power to levy taxes and serves as the overarching framework for tax legislation. The Constitution sets the tone for the entire tax system and any subsequent laws or regulations must align with its principles.
The Internal Revenue Code (IRC), also known as Title 26 of the United States Code, is the cornerstone of federal tax authority. It consolidates and codifies tax laws promulgated by Congress. The IRC provides comprehensive guidance on taxation matters, covering everything from income taxes to administrative procedures. This code is dynamic, having undergone major amendments in 1939, 1954, and 1986, ensuring that tax laws remain relevant and responsive to societal changes.
The IRC is further interpreted and implemented through Treasury regulations, which are issued by the Treasury Department. These regulations are published in the Federal Register and codified in Title 26 of the Code of Federal Regulations (CFR). They hold significant weight in tax administration and are updated annually to accommodate evolving tax policies and interpretations.
In addition to domestic tax regulations, the United States also enters into tax treaties with foreign countries. These treaties outline the tax obligations of residents or citizens of foreign countries who have financial dealings in the United States. Tax treaties ensure a consistent and fair approach to taxation for those with cross-border financial interests, and they may include reduced tax rates or exemptions from certain US income taxes.
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Administrative authority
Treasury regulations are updated annually on April 1. They are not cited to the CFR but are instead cited in a specific format, such as "Treas. Reg. §1.61-1." Legislative treasury regulations hold almost as much weight as the Internal Revenue Code (IRC), and other treasury regulations significantly impact the practice of the IRS.
Another example of administrative authority is revenue rulings, which are official interpretations by the IRS of the IRC, related statutes, tax treaties, and regulations. Revenue rulings deal with specific issues and are limited to a given set of facts. They are highly persuasive when employed correctly when a taxpayer's circumstances are similar to those at issue in the ruling.
In addition to the Treasury Department and the IRS, each state has a corresponding regulatory tax agency that passes state administrative regulations and rulings. These state agencies play a similar role to the IRS at the federal level.
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Judicial sources
Primary authority in tax law comes from statutory, administrative, and judicial sources. Judicial sources are an important aspect of primary authority in tax law. These include the Supreme Court of the United States, Courts of Appeal, District Courts, and the U.S. Tax Court. The U.S. Tax Court is a federal court that deals specifically with tax issues and disputes. It is an important forum for interpreting and applying tax laws, and its decisions can set precedents for future tax cases.
The hierarchy of tax authority refers to the relative weight of tax authority, and the impact of court decisions depends on the circumstances. The Constitution is the highest law in the land, followed by the Internal Revenue Code (IRC) for tax authority. The IRC, also known as Title 26 of the United States Code, provides the foundation for all federal tax authority and is the ultimate authority when researching federal tax law issues. It is interpreted by Treasury regulations, cases that interpret the laws, and IRS rulings.
Treasury regulations are published in the Federal Register and are of two types: legislative and interpretative. Interpretative regulations clarify the implementation of existing laws, while legislative regulations implement laws passed by Congress. Revenue rulings, another form of administrative authority, deal with specific issues and are limited to a given set of facts. They provide an official interpretation of the IRC, related statutes, tax treaties, and regulations.
State tax laws also play a role in the judicial aspect of primary authority in tax law. While federal tax research primarily focuses on the IRC, state tax issues can involve state-specific laws and regulations. Each state has a regulatory tax agency that passes administrative regulations and rulings, and state courts generate judicial opinions. However, most states do not have an official tax court, and state income tax often "piggybacks" on federal income tax laws.
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Secondary authority sources
Tax services, originally in loose-leaf print form, are now available online. They are arranged by Internal Revenue Code section or by topic and contain explanations, cross-references, and annotations to relevant cases, IRS materials, and other authorities. They also include expert-written explanations of relevant topics. Examples include the Code-arranged index of U.S. Income Portfolios and the Comprehensive code-arranged reporting service, which provides statutes, regulations, cases, and rulings with explanations and commentary.
Tax journals provide in-depth coverage of a broad array of tax topics with explanations and examples, combining expert analysis and validation. Examples include the Journal of International Taxation, the Journal of Taxation, and Taxation of Exempts.
Textbooks, another form of secondary authority, offer comprehensive and complete practice guidance written by leading experts in federal tax law. These are often referred to as "Tax Management Portfolios."
Newsletters are also considered secondary authority sources and cover a range of topics, including accounting, corporate finance, and tax strategies.
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Frequently asked questions
Primary authority in tax law refers to the source of tax law, which is created in each branch of the federal government.
The sources of primary authority in tax law include statutory, administrative, and judicial sources.
Examples of primary authority include the Internal Revenue Code (IRC), U.S. Treasury Regulations, Revenue Rulings, and Revenue Procedures.
Secondary authority consists of unofficial sources of tax information such as tax services, journals, textbooks, and newsletters, which interpret and explain the primary authorities.
Primary authority in tax law can be found in Title 26 of the United States Code, also known as the Internal Revenue Code (IRC), as well as in federal regulations and court opinions.
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