What is the 'Internal Revenue Code - IRC'

The Internal Revenue Code (IRC) refers to Title 26 of the U.S. Code, the official "consolidation and codification of the general and permanent laws of the United States," as the Code's preface explains.  Commonly referred to as the  IRS code or IRS tax code, the laws in Title 26 are enforced by the Internal Revenue Service (IRS). The United States Code was first published in 1926 by the U.S. House of Representatives. The code is organized according to topic. Title 26 covers all relevant rules pertaining to income, gift, estate, sales, payroll and excise taxes.

BREAKING DOWN 'Internal Revenue Code - IRC'

The Internal Revenue Code is broken down into the following topics or subcategories:

A. Income Taxes

B. Estate and Gift Taxes

C. Employment Taxes

D. Miscellaneous Excise Taxes

E. Alcohol, Tobacco and Certain Other Excise Taxes

F. Procedure and Administration

G. The Joint Committee on Taxation

H. Financing of Presidential Election Campaigns

I. Trust Fund Code

J. Coal Industry Health Benefits

K. Group Health Plan Requirements

History of the Internal Revenue Code

In 1919, a committee of the U.S. House of Representatives began a project to recodify the U.S. Statutes. The completed version – which included Title 26, the Internal Revenue Code – was published in 1926. Congress has the authority to rewrite the tax code and add items to it every year. For example, in 2015, Congress passed an appropriation bill that made the first significant changes to a section of the small business portion of the Internal Revenue Code in 30 years.

The Internal Revenue Service, founded in 1862, governs the codes in Title 26. Based in Washington, D.C., the IRS is also responsible for collecting taxes and enforcing the Affordable Care Act. The IRS is granted the right to issue fines and punishments for violations to the Internal Revenue Code. 

Campaigns to Abolish the Code

The tax bill just passed in 2017 enacted significant changes to the previous laws. However, there have also been ongoing campaigns to abolish the entire system. The two most recent bills:

In 2017, House of Representatives Bill H.R. 29, The Tax Code Termination Act, was filed to abolish the Internal Revenue Code of 1986 by the end of 2021. The H.R. 29 bill would require Congress to approve a new federal tax system by July 4, 2021, prior to abolishing the current system.

Bill H.R. 25, the Fair Tax Act of 2017, was introduced into Congress on January 3, 2017. The bill proposes imposing a national sales tax on the use or consumption of taxable property or services in the U.S. in place of personal and corporate income tax, employment and self-employment tax, and estate and gift taxes. The proposed sales tax rate would be 23% in 2019, with adjustments to the rate made in subsequent years. The bill includes exemptions for the tax for used and intangible property, property or services purchased for business, export or investment purposes and for state government functions. The Internal Revenue Service would be disbanded entirely, with no funding for operations authorized after 2021.

The Fair Tax Act would allow U.S. residents to receive a monthly sales tax rebate, based on household size and income and all states would be responsible for administering, collecting and remitting sales tax to the federal government. Most significantly, the bill would terminate the national sales tax if the Sixteenth Amendment (which authorizes federal income tax) is not repealed within seven years following the bill’s enactment.

The Fair Tax Act, currently in the House Ways and Means Committee, has made little progress since its introduction. The passage of the December 2017 tax bill, which made significant changes in the current tax system but reaffirmed its basic structure, makes the future of the Fair Tax Act (and the Tax Care Termination Act, as well) uncertain to unlikely.

John Buhl, manager of media relations for the Tax Foundation, says that the recent adoption of changes to the tax code may reduce the appetite for pursuing a larger overhaul of the tax system. In addition he notes that the new tax reform plan evolved to alleviate concerns that the original plan was designed to benefit the wealthy and that trying to replace it with a sales tax would raise similar issues of whether this would benefit wealthier Americans more. “Distributionally, replacing all federal taxes with a consumption tax would heighten those arguments,” Buhl says.

RELATED TERMS
  1. Tax Avoidance

    Tax avoidance is the use of legal methods to modify an individual's ...
  2. Tax Code

    A tax code is a federal government document that details the ...
  3. Tax Reform Act Of 1986

    The Tax Reform Act of 1986 is a law passed by Congress that reduced ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that ...
  5. Direct Tax

    A direct tax is a tax paid directly by an individual or organization. ...
  6. Foreign Sales Corporation - FSC

    A defunct provision in the U.S. federal income tax code which ...
Related Articles
  1. Taxes

    Making Sense Of The Tax Code

    If tax rules and regulations are Greek to you, read on to learn how to decipher them.
  2. Insights

    A Concise History Of Changes In U.S. Tax Law

    We look at how U.S. taxes have changed since their inception.
  3. Taxes

    The History Of Taxes In The U.S.

    The number of taxes that we now consider a given did not always exist. Find out how they arose.
  4. Taxes

    How Much Tax Do You Really Pay?

    When you add direct and indirect taxes together, your real tax rate is much more than you expected.
  5. Financial Advisor

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  6. Insights

    Opinion: Will Donald Trump's Tax Reforms Reform Anything?

    Unless they're massively different from what we've heard so far, Trump's Tax reforms won't fix what's wrong with our taxes.
  7. Taxes

    Do U.S. High Corporate Tax Rates Hurt Americans?

    The United States has the highest corporate tax rate of the 34 developed, free-market nations that make up the Organization for Economic Cooperation and Development (OECD).
  8. Taxes

    How Tax Cuts Stimulate the Economy

    Learn the logic behind the belief that reducing government income benefits everyone.
  9. Taxes

    Who Loses Under the New Tax Provisions? Homeowners

    The tax code overhaul reduces the tax advantages of owning a home.
  10. Taxes

    The Impact of New Tax Code on Financial Planning

    Here's how the Tax Cuts and Jobs Act will impact financial planning.
RELATED FAQS
  1. What are the differences between regressive, proportional, and progressive taxes?

    Learn the three basic types of tax systems--regressive, proportional, and progressive--used in the U.S., and how they affect ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center