The Internal Revenue Code of 1986 (IRC), is the domestic portion of federal statutory tax law in the United States. It is codified in statute as Title 26 of the United States Code.[1] The IRC is organized topically into subtitles and sections, covering federal income tax in the United States, payroll taxes, estate taxes, gift taxes, and excise taxes; as well as procedure and administration. The Code's implementing federal agency is the Internal Revenue Service.
Prior to 1874, U.S. statutes (whether in tax law or other subjects) were not codified. That is, the acts of Congress were not organized and published in separate volumes based on the subject matter (such as taxation, bankruptcy, etc.). Codifications of statutes, including tax statutes, undertaken in 1873 resulted in the Revised Statutes of the United States, approved June 22, 1874, effective for the laws in force as of December 1, 1873. Title 35 of the Revised Statutes was the Internal revenue title. Another codification was undertaken in 1878.
In 1919, a committee of the U.S. House of Representatives began a project to recodify U.S. statutes, which eventually resulted in a new United States Code in 1926 (including tax statutes).
The tax statutes were re-codified by an Act of Congress on February 10, 1939 as the "Internal Revenue Code" (later known as the "Internal Revenue Code of 1939"). The 1939 Code was published as volume 53, Part I, of the United States Statutes at Large and as title 26 of the United States Code. Subsequent permanent tax laws enacted by the United States Congress updated and amended the 1939 Code.
On August 16, 1954, in connection with a general overhaul of the Internal Revenue Service, the IRC was greatly reorganized by the 83rd United States Congress and expanded (by Chapter 736,). Ward M. Hussey was the principal drafter of the Internal Revenue Code of 1954. The code was published in volume 68A of the United States Statutes at Large. To prevent confusion with the 1939 Code, the new version was thereafter referred to as the "Internal Revenue Code of 1954" and the prior version as the "Internal Revenue Code of 1939". The lettering and numbering of subtitles, sections, etc., was completely changed. For example, section 22 of the 1939 Code (defining gross income) was roughly analogous to section 61 of the 1954 Code. The 1954 Code replaced the 1939 Code as title 26 of the United States Code.
The 1954 Code temporarily extended the Revenue Act of 1951's 5 percentage point increase in corporate tax rates through March 31, 1955, increased depreciation deductions by providing additional depreciation schedules, and created a 4 percent dividend tax credit for individuals.
The Internal Revenue Code of 1954 was enacted in the form of a separate code by act of August 16, 1954, ch. 736, . The Tax Reform Act of 1986[2] changed the name of the 1954 Code to the "Internal Revenue Code of 1986". In addition to being published in various volumes of the United States Statutes at Large, the Internal Revenue Code is separately published as Title 26 of the United States Code. The text of the Internal Revenue Code as published in title 26 of the U.S. Code is virtually identical to the Internal Revenue Code as published in the various volumes of the United States Statutes at Large.[3] Of the 50 enacted titles, the Internal Revenue Code is the only volume that has been published in the form of a separate code.
With respect to the federal income tax on individuals, the 1954 Code imposed a progressive tax with 24 income brackets applying to tax rates ranging from 20% to 91%. For example, the following is a schedule showing the federal marginal income tax rate imposed on each level of taxable income of a single (unmarried) individual under the 1954 Code:
| Income level | Tax rate | 2008 PPC adjusted income[4] | |
|---|---|---|---|
| up to $2,000.00 | 20% | up to $37,500.00 | |
| $2,000.01–$4,000.00 | 22% | $37,500.01–$75,000 | |
| $4,000.01–$6,000.00 | 26% | $75,000.01–$112,500 | |
| $6,000.01–$8,000.00 | 30% | $112,500.01–$150,000 | |
| $8,000.01–$10,000.00 | 34% | $150,000.01–187,500 | |
| $10,000.01–$12,000.00 | 38% | $187,500.01–$225,000 | |
| $12,000.01–$14,000.00 | 43% | $225,000.01–$262,500 | |
| $14,000.01–$16,000.00 | 47% | $262,500.01–$300,000 | |
| $16,000.01–$18,000.00 | 50% | $300,000.01–$337,500 | |
| $18,000.01–$20,000.00 | 53% | $337,500.01–$375,000 | |
| $20,000.01–$22,000.00 | 56% | $375,000.01–$412,500 | |
| $22,000.01–$26,000.00 | 59% | $412,500.01–487,500 | |
| $26,000.01–$32,000.00 | 62% | $487,500.01–$600,000 | |
| $32,000.01–$38,000.00 | 65% | $600,000.01–$712,500 | |
| $38,000.01–$44,000.00 | 69% | $712,500.01–$825,000 | |
| $44,000.01–$50,000.00 | 72% | $825,000.01–$937,500 | |
| $50,000.01–$60,000.00 | 75% | $937,500.01–$1,125,000 | |
| $60,000.01–$70,000.00 | 78% | $1,125,000.01–$1,312,500 | |
| $70,000.01–$80,000.00 | 81% | $1,312,500.01–$1,500,000 | |
| $80,000.01–$90,000.00 | 84% | $1,500,000.01–$1,687,500 | |
| $90,000.01–$100,000.00 | 87% | $1,687,500.01–$1,875,000 | |
| $100,000.01–$150,000.00 | 89% | $1,875,000.01–$2,812,500 | |
| $150,000.01–$200,000.00 | 90% | $2,812,500.01–$3,750,000 | |
| $200,000.01 or more | 91% | $3,750,000.01 or more |
References to the Internal Revenue Code in the United States Code and other statutes of Congress subsequent to 1954 generally mean Title 26 of the Code as amended. The basic structure of Title 26 remained the same until the enactment of the comprehensive revision contained in Tax Reform Act of 1986, although individual provisions of the law were changed on a regular basis.
Section 2 of the Tax Reform Act of 1986 provides (in part):
(a) Redesignation of 1954 Code. – The Internal Revenue Title enacted August 16, 1954, as heretofore, hereby, or hereafter amended, may be cited as the "Internal Revenue Code of 1986".
(b) References in Laws, Etc. – Except when inappropriate, any reference in any law, Executive order, or other document –
(1) to the Internal Revenue Code of 1954 shall include a reference to the Internal Revenue Code of 1986, and
(2) to the Internal Revenue Code of 1986 shall include a reference to the provisions of law formerly known as the Internal Revenue Code of 1954.
Thus, the 1954 Code was renamed the Internal Revenue Code of 1986 by section 2 of the Tax Reform Act of 1986. The 1986 Act contained substantial amendments, but no formal re-codification. That is, the 1986 Code retained most of the same lettering and numbering of subtitles, chapters, subchapters, parts, subparts, sections, etc. The 1986 Code, as amended from time to time (and still published as title 26 of the United States Code), retains the basic structure of the 1954 Code.
Section 1 of the Internal Revenue Code imposes the federal income tax on the taxable income of U.S. citizens and residents, and of estates and trusts. The corporate income tax is imposed by Internal Revenue Code esection 11.
The organization of the Internal Revenue Code, as enacted in hundreds of Public Laws passed by the U.S. Congress since 1954, is identical to the organization of the Internal Revenue Code separately published as Title 26 of the U.S. Code.
For example, section 45(b)(7)(B)(i)(I)(aa)(AA) (26 U.S.C.) would be as follows:
Title 26: Internal Revenue Code
The Internal Revenue Code is topically organized and generally referred to by section number (sections 1 through 9834). Some topics are short (e.g., tax rates) and some quite long (e.g., pension & benefit plans).
Key IRC Topics By Section:
| Sections | Function |
|---|---|
| 1–15 | Tax rates |
| 21–54 | Credits (refundable and nonrefundable) |
| 55–59A | Alternative Minimum Tax & 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 |
| 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 | Nondeductible 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) |
| 801–848 | 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 |
| 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 (like social security, below) |
| 1441–1465 | Withholding of tax on nonresidents |
| 1501–1564 | Consolidated returns and affiliated groups (corporations) |
| 2001–2210 | Estate tax on transfers at death |
| 2501–2704 | Gift tax and tax on generation skipping transfers |
| 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.) |
(This is not intended to be a complete list of sections.)