Understanding Tax Law: Non-Administrative Sources

The Internal Revenue Code (IRC) is the primary source of federal tax law in the United States, imposing income, estate, gift, employment, and excise taxes. The IRC is interpreted and administered by the Treasury Department, which issues Treasury Regulations to provide official interpretations and directions to taxpayers. These regulations are published in the Federal Register and the Code of Federal Regulations. The Internal Revenue Service (IRS), a division of the Treasury Department, is responsible for the day-to-day operations and guidance related to tax laws. While the IRC is the foundation, federal tax research involves other primary sources such as case law, IRS rulings, revenue procedures, and agency guidance. State tax laws also exist, with each state having its regulatory tax agency and courts generating judicial opinions. Treaties are another source of tax law, impacting taxation rates for foreign residents.

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The Internal Revenue Service (IRS)

The IRS's duties include providing tax assistance to taxpayers, pursuing and resolving instances of erroneous or fraudulent tax filings, and overseeing various benefits programs, including the Affordable Care Act. The IRS also has the authority to issue binding rules and regulations concerning the IRC. Once a proposed tax law has been codified, it is up to the commissioner of the IRS to interpret Congress's intent and issue regulations.

The IRS originates from the Office of Commissioner of Internal Revenue, a federal office created in 1862 to assess the nation's first income tax to fund the American Civil War. The temporary measure funded over a fifth of the Union's war expenses before being allowed to expire a decade later. In 1913, the Sixteenth Amendment to the US Constitution was ratified, authorizing Congress to impose a tax on income and leading to the creation of the Bureau of Internal Revenue. In 1953, the agency was renamed the Internal Revenue Service and underwent numerous reforms and reorganizations in subsequent decades, most significantly in the 1990s.

In recent years, the IRS has faced challenges such as budget cuts, a reduced workforce, outdated technology, and reduced morale, impacting the enforcement of tax laws. During the 2023 fiscal year, the agency processed more than 271.4 million tax returns, collecting approximately $4.7 trillion, which is approximately 96% of the operational funding for the federal government.

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The Internal Revenue Code (IRC)

The IRC has had three major amendments: the 1939 Code, the 1954 Code, and the 1986 Code. Prior to the 1939 Code, federal tax laws were enacted in individual revenue acts. Section 7805 of the IRC grants the Treasury Department the authority to interpret and administer the code. The Internal Revenue Service (IRS), a division of the Treasury Department, is responsible for the day-to-day operations associated with the administration of the IRC.

Treasury regulations, commonly referred to as federal tax regulations, provide the official interpretation of the IRC by the U.S. Department of the Treasury. They give directions to taxpayers on how to comply with the IRC's requirements. Treasury regulation sections can be found in Title 26 of the Code of Federal Regulations (26 CFR), which is updated annually on April 1st. An electronic version of the current Code of Federal Regulations is also made available to the public by the National Archives and Records Administration (NARA) and the GPO.

There are four major types of pronouncements that may be issued by the IRS with respect to the IRC: regulations, revenue rulings, revenue procedures, and letter rulings. Revenue rulings are the official interpretation by the IRS of the IRC, related statutes, tax treaties, and regulations. They are the conclusion of the IRS on how the law is applied to a specific set of facts. Revenue procedures, on the other hand, are official statements of procedures that affect the rights or duties of taxpayers or other members of the public under the IRC and related statutes, tax treaties, and regulations. These pronouncements are generally published by the IRS in the Internal Revenue Bulletin (IRB) and are also compiled annually in the Cumulative Bulletin.

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Treasury Regulations

The Internal Revenue Service (IRS), a division of the Treasury Department, is responsible for the day-to-day operations of the IRC and has the authority to issue binding rules and regulations concerning the IRC. Once a proposed tax law has been codified, the Commissioner of the IRS interprets Congress's intent and issues regulations. The IRS publishes proposed and final regulations, as well as other forms of official tax guidance, including revenue rulings, revenue procedures, notices, and announcements.

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Revenue Rulings

A revenue ruling is the IRS's conclusion on how the law is applied to a specific set of facts. They are generally promulgated under IRC § 7805, which authorises the Secretary of the Treasury to "prescribe all needful rules and regulations for the enforcement" of the IRC. Revenue rulings are often the result of a specific question posed to the Treasury concerning a taxpayer's tax liability. For example, Revenue Ruling 79-24 addressed questions about what activities count as taxable income under IRC § 61(a) and Treasury Regulation 1.62-2.

The IRS has the option to redact the text of a private ruling and issue it as a revenue ruling, which may become binding on all taxpayers and the IRS. Revenue rulings are published in the IRB, which is available from the IRS and may also be found in local libraries. The numbering system for revenue rulings corresponds to the year in which they are issued. For instance, Revenue Ruling 79-24 was the 24th revenue ruling issued in 1979.

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State Tax Law

The firm's services encompass counselling clients on uncertain tax positions, ensuring compliance with state and local tax laws while considering their risk tolerance. State Tax Law also provides guidance on tax-efficient corporate transactions, such as acquisitions, dispositions, and integration. They actively engage with legislation, regulation, and administrative guidance to help businesses achieve their goals. Additionally, they actively participate in tax conferences, presenting on state and local tax issues and facilitating discussions relevant to the business community.

Overall, State Tax Law is a trusted partner for businesses seeking expert guidance and representation in state and local tax matters, leveraging their knowledge and experience to help clients achieve their business goals.

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