Key Takeaways
- A tax code is a collection of individual tax statutes, rules, regulations, ordinances, or other tax laws called tax code sections.
- Tax codes are typically divided into titles, chapters, parts, or other organizational components.
- The most important U.S. tax code is the Internal Revenue Code, which contains tax statutes passed by Congress.
- Although accessible to the public, tax codes are mainly used by tax professionals, such as CPAs, tax attorneys, and enrolled agents.
What are tax codes?
You hear a lot about the size and complexity of the tax code. And politicians are always talking about ways to change it in one way or another. Sometimes the chatter is enough to make your head spin.
But what exactly is a “tax code”? If you’re not quite sure, you’re not alone. So, let’s try to clear up some questions about tax codes – starting with a definition.
First of all, a “code” is simply a collection of individual statutes, rules, regulations, ordinances, or other laws. And, as you may have guessed, a tax code is a code that’s made up of tax laws.
What makes tax codes (and other codes) helpful is that they generally have some sort of organizational structure. For instance, they might be divided into chapters, titles, or parts. There are often other layers in the overall structure as well, such as subchapters or subtitles.
Plus, once a tax code’s organizational structure is established, the individual laws are typically arranged in a logical order within that structure. For example, income tax laws might be grouped together in their own chapter, while laws concerning other types of taxes, such as estate or sales taxes, are placed together in their own separate chapters.
By pulling all the individual tax laws together in a coherent order, tax codes make the separate laws easier to find and understand.
Who creates tax codes?
Any level of government that imposes taxes can create its own tax code. In the U.S., there are tax codes from federal, state, county, city, and other levels of government. In other countries, you might find tax codes from national, regional, provincial, territorial, district, or other governments.
In many cases, a government that wants to establish a tax code (or other code) will form a commission, board, or other agency to actually pull the individual laws together and organize (or reorganize) them. In some cases, they’re also responsible for publishing the codes and making them available to the public. While these agencies don’t create the law, they help make them more accessible.
What are some examples of tax codes in the U.S.?
For U.S. taxpayers, the most important tax code is the Internal Revenue Code (IRC), which is found in Title 26 of the U.S. Code. This code contains statutes on federal income taxes, estate and gift taxes, employment taxes, and more that were passed by Congress (more on the IRC later).
Federal tax regulations from the IRS can be found in Title 26 of the U.S. Code of Federal Regulations.
Each state in the U.S. has statutory and regulatory tax codes, too. Even states without an income tax have tax codes. That’s because they still impose other types of taxes, such as sales, property, or excise taxes. For example, even though Florida doesn’t have an income tax, you can still find other Florida tax laws in Title XIV of the Florida Statutes.
Local governments can also have tax codes. For example, Montgomery County, Maryland, has a tax code with local laws and ordinances in Chapter 52 of the County Code.
TurboTax Tip:
Tax codes can typically be found in local libraries or online.
What are tax code sections?
The individual laws in a tax code are often called “sections.” They contain the actual provisions that spell out the various tax rates, deductions, credits, exemptions, filing requirements, penalties, and other aspects of the overall tax system.
For instance, there are thousands of sections in the IRC that together form the U.S. tax system. They range from sections that set the personal (Section 1) and corporate (Section 11) income tax rates to sections that tax tanning salons (Section 5000B) and beer (Section 5051).
Tax code sections can vary greatly when it comes to length and complexity. For example, Section 27 of the IRC is just one sentence long and simply states that a federal income tax credit is available for taxes imposed by foreign countries and U.S. possessions. On the other hand, Section 901 of the same tax code, which provides all the details for that credit, runs on for several pages.
How are tax code sections created in the U.S.?
How tax code sections are created in the U.S. depends on whether the code includes statutes, regulations, or some other type of law.
A statute is a law passed by a legislative body. So, in the U.S., Congress must pass new federal tax code sections or revisions to existing sections (the president generally has to approve them, too). While big tax bills – such as the Tax Cuts and Jobs Act of 2017 – often make large-scale changes to the federal tax code, smaller bills or legislation focusing on other topics can also include changes to a single or just a handful of tax code sections.
A similar process is typically followed for lower-level statutory tax codes in the U.S. – that is, individual sections are passed by state legislatures, county commissions, city councils, and the like. In some cases, state or local statutory code sections can also be created or amended through voter initiatives or referendums.
When it comes to regulatory tax codes in the U.S., the IRS creates and changes the individual sections at the federal level. Revenue departments, tax commissions, and similar government agencies do the same at the state and local levels.
More about the U.S. Internal Revenue Code
As mentioned earlier, Title 26 of the U.S. Code is known as the Internal Revenue Code. This tax code affects hundreds of millions of taxpayers around the world. Since it has such a major impact on so many U.S. and foreign taxpayers, let’s take a closer look at this critical collection of federal tax statutes.
The IRC that we know today traces its roots back to 1939. However, it was substantially revised in 1954 and 1986. Nevertheless, the IRC is still notoriously lengthy and complex. It spans thousands of pages, making it one of the most complicated titles in the U.S. Code.
The current IRC is organized into subtitles, chapters, subchapters, parts, and sections. Just by looking at the following list of subtitles, you can see that it covers a wide range of topics, including income taxes, estate and gift taxes, payroll taxes, excise taxes, and more:
- Subtitle A – Income Taxes (Sections 1 to 1564)
- Subtitle B – Estate and Gift Taxes (Sections 2001 to 2801)
- Subtitle C – Employment Taxes (Sections 3101 to 3512)
- Subtitle D – Miscellaneous Excise Taxes (Sections 4001 to 5000D)
- Subtitle E – Alcohol, Tobacco, and Certain Other Excise Taxes (Sections 5001 to 5891)
- Subtitle F – Procedure and Administration (Sections 6001 to 7874)
- Subtitle G – The Joint Committee on Taxation (Sections 8001 to 8023)
- Subtitle H – Financing of Presidential Election Campaigns (Sections 9001 to 9042)
- Subtitle I – Trust Fund Code (Sections 9500 to 9602)
- Subtitle J – Coal Industry Health Benefits (Sections 9701 to 9722)
- Subtitle K – Group Health Plan Requirements (Sections 9801 to 9834)
Another aspect of the IRC to keep in mind is that it’s constantly changing. That’s because the federal tax laws are continually evolving, with new tax legislation of some kind being passed practically every year. It’s important to be aware of changes that impact you to avoid potential errors or mistakes on your tax return.
Who uses tax codes?
While tax codes are accessible to the general public, most people will never have to dig into one themselves. But that’s not because ordinary people don’t need to know about the tax laws that apply to them (they do!). Instead, it’s because there are usually other sources of information available that explain the tax laws in ways that the majority of people can understand.
For instance, the IRS and other tax agencies typically provide helpful tax guides, form instructions, tax tips, and other published guidance.
Media outlets and other businesses can also share their tax expertise with the public. The many TurboTax articles and videos that cover hundreds of common tax topics is a good example of this type of tax information.
CPAs, tax attorneys, enrolled agents, and other tax professionals are also a valuable resource if you have a tax question or need tax advice. In fact, TurboTax Live Full Service will connect you with a local tax expert who’s ready, willing, and able to help with your specific tax needs.
So, who does use tax codes? It’s typically the tax professionals who prepare your returns, provide tax advice, and help you if you have an issue with the IRS or another tax agency who dive into the tax codes themselves.
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