What Is the Internal Revenue Code (IRC)?
Let me explain what the Internal Revenue Code, or IRC, really is. It's Title 26 of the U.S. Code, which serves as the official consolidation and codification of the general and permanent laws of the United States, as stated in the Code's preface. You might hear it called the IRS code or IRS tax code, and it's enforced by the Internal Revenue Service (IRS). The United States Code first came out in 1925, published by the U.S. House of Representatives. In Title 26, you'll find all the relevant rules on income, gift, estate, sales, payroll, and excise taxes.
Understanding the Internal Revenue Code (IRC)
To get a handle on the IRC, know that it's organized into specific topics or subcategories. These include 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, and K. Group Health Plan Requirements. This structure helps you navigate the complex rules directly.
History of the Internal Revenue Code
Let's look at how the IRC came about. Back in 1919, a committee from the U.S. House of Representatives started a project to re-codify the U.S. Statutes, and the completed version was published in 1925. Title 26, the Internal Revenue Code itself, was originally compiled in 1939. Congress has the power to rewrite the tax code and add to it every year. For instance, in 2017, they passed the Tax Cuts and Jobs Act, which introduced major reforms affecting both individuals and businesses.
The Internal Revenue Service (IRS), founded in 1862, oversees the codes in Title 26. Headquartered in Washington, D.C., the IRS also collects taxes and has the authority to issue fines and punishments for any violations of the Internal Revenue Code.
Campaigns to Abolish the Code
The Tax Cuts and Jobs Act (TCJA) of 2017 made significant changes to the existing laws, but there are ongoing efforts to scrap the whole system. Consider the two most recent bills aimed at this.
In 2017, House of Representatives Bill H.R. 29, known as The Tax Code Termination Act, was introduced to abolish the Internal Revenue Code of 1986 by the end of 2021. This bill would require Congress to approve a new federal tax system by July 4, 2021, before ending the current one.
Then there's Bill S.18, the Fair Tax Act of 2017, introduced on January 3, 2017. It proposes a national sales tax on the use or consumption of taxable property or services in the U.S., replacing personal and corporate income taxes, employment and self-employment taxes, and estate and gift taxes. The sales tax rate would start at 23% in 2019, with adjustments in later years. Exemptions apply to used and intangible property, items bought for business, export, or investment purposes, and state government functions. Under this act, the IRS would be disbanded, with no funding after 2021.
The Fair Tax Act would provide U.S. residents with a monthly sales tax rebate based on household size and income, and states would handle administering, collecting, and remitting the sales tax to the federal government. Crucially, the bill would end the national sales tax if the Sixteenth Amendment, which authorizes federal income tax, isn't repealed within seven years of enactment.
However, the Fair Tax Act hasn't advanced much since its introduction. The passage of the TCJA, which altered the current system but kept its core structure, casts doubt on the future of both the Fair Tax Act and the Tax Code Termination Act—it's uncertain at best, unlikely at worst.
John Buhl, former manager of media relations for the Tax Foundation, points out that recent changes to the tax code might dampen interest in a full overhaul. He also highlights that the new reform addressed concerns about benefiting the wealthy, and switching to a sales tax could spark similar debates on whether it favors richer Americans more. As Buhl puts it, 'Distributionally, replacing all federal taxes with a consumption tax would heighten those arguments.'
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