What is a 'Tax Code'

A tax code is a federal government document, numbering thousands of pages that details the rules individuals and businesses must follow in remitting a percentage of their incomes to the federal or state government. The tax code is used as a source by tax lawyers who bear the responsibility of interpreting it for the public.

BREAKING DOWN 'Tax Code'

While Congress writes the tax laws and sets the rules at the federal level, it is the Internal Revenue Service (IRS) that implements the set rules and explains how they apply in different scenarios through the tax code. At the state level, these laws are set by a state, local, or county government that uses tax codes to authorize any taxation voted and agreed on. In effect, the tax code, sometimes referred to as the Internal Revenue Code (IRC), is a collection of tax laws enacted by the federal, state, and local government authorities.

Each tax law passed is assigned a code that is added to the collection of existing tax laws in the IRC publication. Since the tax code is not easily understood by the average person, the IRS provides detailed instructions that breaks down each code and how they should be applied. All tax rates, exclusions, deductions, credits, pension and benefit plans, personal exemptions, etc. provided by the IRS are taken from the federal tax codes. The tax codes in the IRC are organized and referred to by sections. For example, Section 1 of the Internal Revenue Code relays the federal income tax on the taxable income of U.S. citizens and residents, and of estates and trusts. Section 11 of the IRC imposes the corporate income tax.

Tax Codes by Section
Sections Tax Topic
1–15 Tax rates
21–54 Credits (refundable and non-refundable)
55–59A Alternative Minimum Tax (AMT) & 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 (PAB)
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 Non-deductible 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)
801–858 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 (FTC)
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
1441–1465 Withholding of tax on non-residents
1501–1564 Consolidated returns and affiliated groups (corporations)
2001–2210 Estate tax on transfers at death
2501–2704 Gift tax and generation skipping transfers tax
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.)

 

A number of secondary sources, such as the numbered Internal Revenue Service publications, revenue rulings, and mass-market income-tax books, attempt to put the tax code into plain language for taxpayers. The IRS publications are freely available in print or online from the IRS website. Another secondary source that seeks to interpret the tax codes is the Treasury regulations or Tax regulations, issued by the U.S. Treasury on most tax code sections to provide longer explanations and examples of how the law is used. These regulations are published in Title 26 of the Code of Federal Regulations (26 CFR) and are also available online at the GPO website. Taxpayers can often correctly comply with tax rules by following the guidelines laid out in these secondary publications, but for more complex situations, it may be necessary to consult the tax code directly, to decipher the tax laws.

 

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