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The Tax Code and the IRS
by Mark Minassian, CPA

The United States tax laws are compiled in the Internal Revenue Code (IRC). The IRC is contained in Title 26 of the United States Code. Title 26 is divided into 11 subtitles, and those 11 subtitles are divided into 100 chapters. Those chapters are further divided into subchapters, and each subchapter is divided into code sections. The two sections of Title 26 most applicable to small business owners are Subtitle A (Income Taxes) and Subtitle C (Employment Taxes).

An official citation for a section of the IRC may look like this:

TITLE 26, Subtitle F, CHAPTER 61, Subchapter A, PART I, Sec 6001

However, when a reference to the IRC is made, it usually just refers to the section number, such as IRC Sec 162 or IRC Section 1001(a).

The tax laws are written by Congress, and the Treasury Department (which includes the IRS) is responsible for administering the tax laws. The Treasury also writes official interpretations of the IRC known as Treasury Regulations. Not all IRC sections have corresponding regulations. The number of the regulation will correspond with the IRC section it is interpreting. For example, Reg. 1.179 is the regulation for IRC Section 179.

There are various other types of statements and rulings issued by the Treasury and IRS that address various tax matters. These include:

  • IRS Revenue Rulings – Revenue Rulings are the IRS’s interpretation of how the tax law applies to a certain set of facts. Revenue Rulings frequently originate from a taxpayer’s request for an IRS ruling on a certain matter. And if the IRS thinks that that matter will be of interest to the general public, they will issue a Revenue Ruling on the subject. Revenue Rulings are issued by year and by number, so “Rev. Rul. 98-27” represents Revenue Ruling number 27, issued in 1998.

  • IRS Revenue Procedures – Revenue Procedures are similar to Revenue Rulings, but are usually geared towards tax compliance issues such as how to report certain items on tax returns. Like Revenue Rulings, Revenue Procedures are issued by year and by number. “Rev. Proc. 99-10” represents Revenue Procedure number 10, issued in 1999.

  • IRS Letter Rulings and Technical Advice Memorandums (TAM) – When a taxpayer seeks written advice from the IRS on a certain tax issue, the IRS will issue a Private Letter Ruling (PLR) to the taxpayer on that issue. The PLR is applicable only to that taxpayer and his or her specific circumstance, but can provide insight on how the IRS will rule on similar issues. PLRs are not issued by the IRS, but are made available to the public by third party companies such as Commerce Clearing House (CCH).

    When a tax return is being audited, the taxpayer or IRS auditor may request a Technical Advice Memorandums (TAM) from the IRS National Office in Washington. D.C. The TAM will provide advice relating to certain technical issues. TAMs are published as PLRs by third party companies.

Taking the IRS to Court

When a taxpayer has a dispute with the IRS that is not satisfactorily resolved, the taxpayer can take the IRS to court. A taxpayer may file a lawsuit in their jurisdiction in one of three federal trial courts: the United States Tax Court, United States District Court or the United States Federal Court of Claims.

If a taxpayer is not satisfied with the trial court’s ruling, he or she may appeal to the United States Court of Appeals. An appeal from the U.S. Tax Court or the U.S. District Court must go to the circuit U.S. Court of Appeals in the jurisdiction where the taxpayer resides. An appeal from the U.S. Federal Court of Claims must go to the federal circuit U.S. Court of Appeals.

The United States Supreme Court will occasionally hear the final appeals. However, they will generally only hear tax cases when there are conflicting decisions among the circuit courts on a particular tax issue. When the Supreme Court rules on an issue, all of the circuit courts are required to follow precedent.

Court decisions are published in various sources, including the Federal Reporter by West Publish Company, United States Tax Cases by CCH and American Federal Tax Reports published by the Research Institute of America (RIA).

Disclaimer:  Any tax advice contained in this article is not intended or written to be used, and cannot be used, to avoid penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

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