Statutory Sources of Tax Law

This module introduces you to the different types of taxes faced by U.S. taxpayers and the U.S. federal tax structure. The origin of tax law and its constitutionality are discussed, as well as a brief history of the various changes to tax rates since the passage of the 16th Amendment. Finally, we will discover the three different sources of new tax laws and rules. Most of these sources of tax law can be found on the Internet. We have compiled this list of paid and free search tools. The list of tax research tools can be found here. There are many administrative sources of federal tax law. Treasury regulations are the most common. IRS documents provide additional sources of federal tax law. Many of these documents are published weekly in the Internal Revenue Bulletin. These are accumulated every six months and published in the cumulative bulletin.

These documents include tax rulings, tax procedures, communications and notices. Chief Counsel Advice, Private Decision Letters, Determination Letters, Technical Advice Notes, Decision Actions, General Memoranda, Field Service Advice, Expedited Technical Advice Notes, Service Center Tips, Chief Counsel Bulletins, Litigation Guideline Memorandums, Chief Counsel Notices, IRS Newsletters, IRS Compliance Officer Memoranda, IRS Technical Assistance, Internal Revenue Manual, and IRS Publications are other IRS documents that make the Establish a Federal Tax Law. There are many sources of tax law that tax professionals (and the self-represented taxpayer) need to know in order to effectively resolve a tax dispute. These sources can be divided into legislative, administrative and judicial sources. Articles of association are the main source of federal tax law; they are the supreme law of the land outside the Constitution (and the tax treaties discussed below). Because of the importance of statutory law, the legislative history underlying the enactment of these statutes is also an important source of federal tax law. This legislative history may consist of reports from judicial committees or even documented debates in the House of Representatives or the Senate. These sources of law are often beneficial to taxpayers, but taxpayers do not use them. The IRS is aware of these sources of law and is quick to point out when they favor the government`s position. Taxpayers should be prepared to do the same. The courts can rule on the law. They may also interpret the statutes published by the Congress.

The courts have developed various rules of legal interpretation that are used for this purpose (here is an example of legal construction in action). Generally, none of these sources bind the courts, but some bind the IRS, and courts often hold the IRS on the positions taken in these documents. Even if any of these sources are not binding on the courts or the IRS, they may disclose the IRS`s position on specific issues. The U.S. Constitution, U.S. laws and their legislative history, and U.S. tax treaties are all legislative sources of federal tax law. Welcome. Recall that the three sources of tax law follow the three branches of the U.S.

federal government. First, the legal source that follows the legislature is represented by both houses of Congress, the U.S. House of Representatives and the U.S. Senate. Secondly, there is the administrative source of tax law, which is represented by the executive branch and includes the president and various departments. Important for taxes, the Treasury and the IRS. The third source of tax law is the judicial source. These include the various federal courts, including the Tax Court, the Federal Courts of Appeal and the Supreme Court. Here, we will take a closer look at the primary source of tax law.

The legal source of tax law is the Internal Revenue Code (IRC), which contains various provisions relating to income, deductions, credits, and other features of the federal tax law passed by Congress and signed by the President. The regulations are organized in a logical order according to the subject to facilitate research. There were three versions of the IRC, one in 1939, one in 1954 and the most recent in 1986. These years do not mean that this was the last time tax laws were changed, as they are constantly changing. They refer only to the baseline of how the code has been organized or reorganized. The current Code follows the structure adopted by Congress in 1986. Fortunately, it has the same numbering system as the 1954 code, which provides some continuity for the search for tax matters. However, the 1939 code is numbered slightly differently from the two more recent codes. You should know this because you need to research different tax regulations and look at how they have been treated in the past. Technically, congressional hearings and committee reports could also be interpreted as a legal source of law, since Congress passes these laws. However, these sources are not authoritative.

That is, a taxpayer cannot rely on these reports to defend his position in court in the event of a dispute with the IRS. Committee reports and hearings may provide context as to why a particular provision was passed, but it does not have the force of law like the Internal Revenue Code. The Internal Revenue Code uses a referencing system that makes searching easier. For example, sub-chapter A deals with the determination of a tax liability. Subchapter B deals with the calculation of taxable income. Subchapter C deals with business distributions and continues again and again up to subchapter Y. IRC sections fall into these subchapters. For example, Subchapter A includes Sections 1 to 59B of the IRC, while Subchapter B includes Sections 61 to 291. Now, in the quotation here, Article 62(a)(2)(A), we would interpret it as referring to Article 62, paragraph a, paragraph two, subparagraph A. If we were to look at that part of the IRC, we would see that this paragraph defines expenses that are reimbursed to employees. A formal quote will look like this, including language that refers to all code changes since IRC`s inception in 1986 that have been updated over the past 30 years.

Where do these pieces of code come from? Here is a figure of how a bill becomes law in the U.S. system of government. Here, the discussion will focus on tax assessments. Typically, a tax bill is first proposed to the U.S. House of Representatives Committee on Ways and Means. After hearings and debates on the proposal, the committee votes on the bill. If passed by the committee, the bill is sent back to the full House of Representatives for further debate so that any member can study it. If approved by the full U.S. House of Representatives, the Senate Finance Committee will review the bill.

But in reality, the Senate Finance Committee could work in parallel with the House Ways and Means Committee to draft the bill. But even so, the two committees will usually develop different proposals. Whatever proposals it considers, the Senate Finance Committee is also debating the bill. If the bill is approved by the committee, it is sent back to the full U.S. Senate for review. If the U.S. House of Representatives and the U.S. Senate both pass their version of the bill, but the laws are different, the bill must go to a so-called joint conference committee. Here, senators and selected representatives negotiate and resolve disputes between their two bills, so that only one bill is submitted.

This agreed bill will then be resubmitted to the U.S. House of Representatives and Senate for a later vote. If this version is adopted by both the House of Representatives and the Senate, the bill will be submitted to the President for consideration. When the president signs the law, it becomes law. However, when the president vetoes the law, the law is usually dead. However, the House of Representatives and the Senate can override the President`s veto by a two-thirds majority in each House. This is, of course, very difficult to achieve. It is very rare for Congress to override a president`s veto. As you can see, the bill can die at any point in the process, whether at the committee level, at the level of the House as a whole, at the level of the Joint Committee of the Conference or on the Speaker`s desk. Therefore, the adoption of tax laws is the result of a highly political process of business and negotiation.

At the end of the day, taxes are as much about politics as they are about the economy. Once you realize this, it helps streamline many of the seemingly irrational determinations in the code. You may think it doesn`t make sense, but then you think it passed with input from 535 members of Congress and the president. This can be a very chaotic result. But for better or worse, tax law is enshrined in the Internal Revenue Code, the primary and authoritative source of statutory tax law. Legal advice is a third source of federal tax law. All federal courts that hear federal tax cases issue legal opinions that explain, supplement and, in some cases, create new laws. Treasury regulations are the IRS financial services and legal statements.