The tax code in the United States is very complicated, and compliance is not optional. The IRS can impose significant penalties for failure to comply, even if it is unintentional. But taxpayers also have opportunities within the tax code to minimize their tax bills by taking advantage of tax deductions and credits within the law.
Several information sources can help taxpayers understand the laws and rules, and they have different levels of authority. Here is a summary of some of those sources to help you better navigate the tax code.
Internal Revenue Code (IRC)
The IRC is also called the “tax code." This is the official body of law where all the federal tax rules enacted by the U.S. Congress are published. The Congress and the President are responsible for writing and approving the tax laws, which the IRS applies and enforces.
The tax code includes all types of federal taxes. It provides information about how much taxes are due and also the credits and deductions taxpayers can apply to reduce their tax liability. These rules are thousands of pages long and are very complicated, and there are many other sources of information that are easier to use.
Treasury (Tax) Regulations
These are the U.S. Treasury Department's official interpretations of the tax code. The Government Printing Office publishes them as Title 26, Internal Revenue, of the Code of Federal Regulations (referred to as 26 CFR) and updates them periodically. The Code of Federal Regulations and Title 26 can be accessed and searched online.
IRS publications provide interpretations of the tax code and are easier to read than the code itself. The IRS regularly issues announcements, notices, regulations, rules, and procedures to administer specific areas of the tax code.
Regulations interpret new laws or address issues that come up relating to existing laws. They are published in the Federal Register. The IRS will generally publish them first in proposed form before opening them to public comments and hearings before issuing final regulations.
Revenue rulings are official IRS interpretations of the IRC and related regulations that provide the IRS's position on how to apply the tax code to a specific fact pattern and inform and assist taxpayers. They are published in the IRS Internal Revenue Bulletin and the Federal Register and are assigned numbers chronologically by year. They are less authoritative than regulations but can be used as precedent by taxpayers.
Revenue procedures are official IRS public statements about procedures to follow or instructions relating to an IRS position, such as filing returns or computing deductible expenses. They are also published in the Internal Revenue Bulletin and are numbered the same way as revenue rulings. They may also be used as precedent.
IRS publications can be found online on the IRS website. They are also available in large print and can be searched by keyword and sorted by number, title, or date. They can be accessed for free and can be printed.
Because of the complexity of the IRC and related regulations, court cases and legal decisions provide many clarifications. Disputes between the IRS and taxpayers can be heard in the U.S. Tax Court, which is a specialized court that only hears federal tax cases, or in other federal courts. The U.S. Tax Court is independent and is not connected to the IRS. Cases tried in lower-level courts can be appealed to the U.S. Courts of Appeals or the U.S. Supreme Court. Case law can provide insights to taxpayers and their advisors on how to apply the tax laws to a specific issue and how the IRS might interpret areas that are not clearly defined in the tax code.
Finding and interpreting the tax code and related publications is challenging even for trained professionals like CPAs and tax attorneys. The rules are very complex and can change frequently. Many publications are available to help educate individual and business taxpayers about income taxes, but they may not be authoritative or reflect the most current laws and rules.
Understanding the tax code and related interpretations is not a one-person job. Working with an advisor with specialized knowledge and experience with the tax code and interpretations, who knows how to deal with the IRS is the best way to protect yourself. They can help you avoid errors that can subject you and your business to risk and cost you money. If you decide you need to go to tax court, an attorney with prior experience and expertise with the court may help you successfully defend your case. CPAs and tax attorneys can help businesses maximize their tax opportunities and avoid pitfalls.