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Internal Revenue Code

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The Internal Revenue Code of 1986 (IRC), is the domestic portion of federal statutory tax law in the United States. It is codified in statute as Title 26 of the United States Code.[1] The IRC is organized topically into subtitles and sections, covering federal income tax in the United States, payroll taxes, estate taxes, gift taxes, and excise taxes; as well as procedure and administration. The Code's implementing federal agency is the Internal Revenue Service.

Origins of tax codes in the United States

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Prior to 1874, U.S. statutes (whether in tax law or other subjects) were not codified. That is, the acts of Congress were not organized and published in separate volumes based on the subject matter (such as taxation, bankruptcy, etc.). Codifications of statutes, including tax statutes, undertaken in 1873 resulted in the Revised Statutes of the United States, approved June 22, 1874, effective for the laws in force as of December 1, 1873. Title 35 of the Revised Statutes was the Internal revenue title. Another codification was undertaken in 1878.

In 1919, a committee of the U.S. House of Representatives began a project to recodify U.S. statutes, which eventually resulted in a new United States Code in 1926 (including tax statutes).

Internal Revenue Code of 1939

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The tax statutes were re-codified by an Act of Congress on February 10, 1939 as the "Internal Revenue Code" (later known as the "Internal Revenue Code of 1939"). The 1939 Code was published as volume 53, Part I, of the United States Statutes at Large and as title 26 of the United States Code. Subsequent permanent tax laws enacted by the United States Congress updated and amended the 1939 Code.

Internal Revenue Code of 1954

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On August 16, 1954, in connection with a general overhaul of the Internal Revenue Service, the IRC was greatly reorganized by the 83rd United States Congress and expanded (by Chapter 736, Pub. L. 83–591). Ward M. Hussey was the principal drafter of the Internal Revenue Code of 1954. The code was published in volume 68A of the United States Statutes at Large. To prevent confusion with the 1939 Code, the new version was thereafter referred to as the "Internal Revenue Code of 1954" and the prior version as the "Internal Revenue Code of 1939". The lettering and numbering of subtitles, sections, etc., was completely changed. For example, section 22 of the 1939 Code (defining gross income) was roughly analogous to section 61 of the 1954 Code. The 1954 Code replaced the 1939 Code as title 26 of the United States Code.

The 1954 Code temporarily extended the Revenue Act of 1951's 5 percentage point increase in corporate tax rates through March 31, 1955, increased depreciation deductions by providing additional depreciation schedules, and created a 4 percent dividend tax credit for individuals.

Relationship to Title 26 of the United States Code

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The Internal Revenue Code of 1954 was enacted in the form of a separate code by act of August 16, 1954, ch. 736, 68A Stat. 1. The Tax Reform Act of 1986[2] changed the name of the 1954 Code to the "Internal Revenue Code of 1986". In addition to being published in various volumes of the United States Statutes at Large, the Internal Revenue Code is separately published as Title 26 of the United States Code. The text of the Internal Revenue Code as published in title 26 of the U.S. Code is virtually identical to the Internal Revenue Code as published in the various volumes of the United States Statutes at Large.[3] Of the 50 enacted titles, the Internal Revenue Code is the only volume that has been published in the form of a separate code.

Progressivity of the 1954 Code

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With respect to the federal income tax on individuals, the 1954 Code imposed a progressive tax with 24 income brackets applying to tax rates ranging from 20% to 91%. For example, the following is a schedule showing the federal marginal income tax rate imposed on each level of taxable income of a single (unmarried) individual under the 1954 Code:

Income level Tax rate 2008 PPC adjusted income[4]
up to $2,000.00 20% up to $37,500.00
$2,000.01–$4,000.00 22% $37,500.01–$75,000
$4,000.01–$6,000.00 26% $75,000.01–$112,500
$6,000.01–$8,000.00 30% $112,500.01–$150,000
$8,000.01–$10,000.00 34% $150,000.01–187,500
$10,000.01–$12,000.00 38% $187,500.01–$225,000
$12,000.01–$14,000.00 43% $225,000.01–$262,500
$14,000.01–$16,000.00 47% $262,500.01–$300,000
$16,000.01–$18,000.00 50% $300,000.01–$337,500
$18,000.01–$20,000.00 53% $337,500.01–$375,000
$20,000.01–$22,000.00 56% $375,000.01–$412,500
$22,000.01–$26,000.00 59% $412,500.01–487,500
$26,000.01–$32,000.00 62% $487,500.01–$600,000
$32,000.01–$38,000.00 65% $600,000.01–$712,500
$38,000.01–$44,000.00 69% $712,500.01–$825,000
$44,000.01–$50,000.00 72% $825,000.01–$937,500
$50,000.01–$60,000.00 75% $937,500.01–$1,125,000
$60,000.01–$70,000.00 78% $1,125,000.01–$1,312,500
$70,000.01–$80,000.00 81% $1,312,500.01–$1,500,000
$80,000.01–$90,000.00 84% $1,500,000.01–$1,687,500
$90,000.01–$100,000.00 87% $1,687,500.01–$1,875,000
$100,000.01–$150,000.00 89% $1,875,000.01–$2,812,500
$150,000.01–$200,000.00 90% $2,812,500.01–$3,750,000
$200,000.01 or more 91% $3,750,000.01 or more

Internal Revenue Code of 1986

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References to the Internal Revenue Code in the United States Code and other statutes of Congress subsequent to 1954 generally mean Title 26 of the Code as amended. The basic structure of Title 26 remained the same until the enactment of the comprehensive revision contained in Tax Reform Act of 1986, although individual provisions of the law were changed on a regular basis.

Section 2 of the Tax Reform Act of 1986 provides (in part):

(a) Redesignation of 1954 Code. – The Internal Revenue Title enacted August 16, 1954, as heretofore, hereby, or hereafter amended, may be cited as the "Internal Revenue Code of 1986".
(b) References in Laws, Etc. – Except when inappropriate, any reference in any law, Executive order, or other document –
(1) to the Internal Revenue Code of 1954 shall include a reference to the Internal Revenue Code of 1986, and
(2) to the Internal Revenue Code of 1986 shall include a reference to the provisions of law formerly known as the Internal Revenue Code of 1954.

Thus, the 1954 Code was renamed the Internal Revenue Code of 1986 by section 2 of the Tax Reform Act of 1986. The 1986 Act contained substantial amendments, but no formal re-codification. That is, the 1986 Code retained most of the same lettering and numbering of subtitles, chapters, subchapters, parts, subparts, sections, etc. The 1986 Code, as amended from time to time (and still published as title 26 of the United States Code), retains the basic structure of the 1954 Code.

Commonly misunderstood special definitions

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Individual and corporate income tax

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Section 1 of the Internal Revenue Code imposes the federal income tax on the taxable income of U.S. citizens and residents, and of estates and trusts. The corporate income tax is imposed by Internal Revenue Code esection 11.

Organization

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See also: United States Code § Organization

The organization of the Internal Revenue Code, as enacted in hundreds of Public Laws passed by the U.S. Congress since 1954, is identical to the organization of the Internal Revenue Code separately published as Title 26 of the U.S. Code.

For example, section 45(b)(7)(B)(i)(I)(aa)(AA) (26 U.S.C. 45(e)(7)(B)(i)(I)(aa)) would be as follows:

Title 26: Internal Revenue Code

  • Subtitle A: Income Taxes
    • Chapter 1: Normal Taxes and Surtaxes
      • Subchapter A: Determination of Tax Liability
        • Part IV: Credits Against Tax
          • Subpart D: Business Related Credits
            • Section 45: Electricity produced from certain renewable resources, etc.
              • Subsection (b): Limitations and adjustments
                • Paragraph (7): Prevailing wage requirements
                  • Subparagraph (B): Correction and penalty related to failure to satisfy wage requirements
                    • Clause (i): In general. In the case of ... such taxpayer-
                      • Subclause (I): makes payment to such laborer or mechanic in an amount equal to the sum of-
                        • Item (aa): an amount equal to the difference between-
                          • Subitem (AA): the amount of wages paid to such laborer or mechanic during such period, and


The Internal Revenue Code is topically organized and generally referred to by section number (sections 1 through 9834). Some topics are short (e.g., tax rates) and some quite long (e.g., pension & benefit plans).

Key IRC Topics By Section:

Sections Function
1–15 Tax rates
21–54 Credits (refundable and nonrefundable)
55–59A Alternative Minimum Tax & environmental tax
61–90 Definition of gross income (before deductions), including items specifically taxable
101–140 Specific exclusions from gross income
141–149 Private activity bonds
151–153 Personal exemptions; dependent defined
161–199 Deductions, including interest, taxes, losses, and business related items
211–224 Itemized deductions for individuals
241–250 Deductions unique to corporations
261–291 Nondeductible items, including special rules limiting or deferring deductions
301–386 Corporate transactions, including formation, distributions, reorganizations, liquidations (Subchapter C)
401–436 Pension and benefit plans: treatment of plans, employers, & beneficiaries
441–483 Accounting methods & tax years
501–530 Exempt organizations (charitable and other)
531–565 Accumulated earnings tax and personal holding companies
581–597 Banks: special rules for certain items
611–638 Natural resources provisions: depletion, etc.
641–692 Trusts & estates: definitions, income tax on same & beneficiaries
701–777 Partnerships: definitions, treatment of entities and members, special rules (Subchapter K)
801–848 Insurance companies: special rules, definitions
851–860 Regulated investment companies (mutual funds) and Real Estate Investment Trusts
861–865 Source of income (for international tax)
871–898 Tax on foreign persons/corporations; inbound international rules
901–908 Foreign tax credit
911–943 Exclusions of foreign income (mostly repealed)
951–965 Taxation of U.S. shareholders of controlled foreign corporations (Subpart F)
971–999 Other international tax provisions
1001–1092 Gains: definitions, characterization, and recognition; special rules
1201–1298 Capital gains: separate taxation and special rules
1301–1359 Interperiod adjustments; certain special rules
1361–1388 S Corporations and cooperative associations: flow-through rules
1391–1400T Empowerment, enterprise, and other special zones
1401–1403 Self-employment tax (like social security, below)
1441–1465 Withholding of tax on nonresidents
1501–1564 Consolidated returns and affiliated groups (corporations)
2001–2210 Estate tax on transfers at death
2501–2704 Gift tax and tax on generation skipping transfers
3101–3241 Social security and railroad retirement taxes
3301–3322 Unemployment taxes
3401–3510 Income tax withholding; payment of employment taxes
4001–5000 Excise taxes on specific goods, transactions, and industries
5001–5891 Alcohol, tobacco and firearms taxes and special excise tax rules
6001–6167 Tax returns: requirements, procedural rules, payments, settlements, extensions
6201–6533 Assessment, collection, and abatement; limitations on collection & refund
6601–6751 Interest and non-criminal penalties on underpayments or failures
6801–7124 Other procedural rules
7201–7344 Crimes, other offences, forfeitures, tax evasion
7401–7493 Judicial proceedings
7501–8023 Miscellaneous rules
9001–9834 Special taxes & funds (presidential election, highway, black lung, etc.)

Subtitles

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List of commonly referenced sections

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(This is not intended to be a complete list of sections.)

See also

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References

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  1. ^ Other federal tax law is contained in other titles of the United States Code, such as Title 11 (relating to bankruptcy) and Title 19 (Customs Duties).
  2. ^ Pub. L. 99–514, 100 Stat. 2085, enacted October 22, 1986, § 2(a)
  3. ^ An apparently insignificant discrepancy between the wording in the Statutes at Large and the wording in some editions of the U.S. Code with respect to a provision of the Internal Revenue Code (specifically, the words "any papers" in the first sentence of § 6104(a)(1)(A) is described by the U.S. Court of Appeals for the District of Columbia in the case of Tax Analysts v. Internal Revenue Serv., 214 F.3d 179 (D.C. Cir. 2000), in footnote 1, at [1]. According to the Court, some versions of the U.S. Code show the text as "any paper" while the Statutes at Large version shows the text as "any papers".
  4. ^ "National Income and Product Accounts Table". U.S. Department of Commerce, Bureau of Economic Analysis. Archived from the original on March 6, 2012. Retrieved March 9, 2018.
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