Internal Revenue Code (IRC)

What is the Internal Revenue Code?

The Internal Revenue Code (IRC) is the codification of all federal tax laws in the United States. It governs all aspects of federal taxation, including income tax, gift tax, employment tax, excise tax, estate tax, and more. The IRC is enforced and administered by the Internal Revenue Service (IRS). Enacted as part of the Internal Revenue Act of 1954 and significantly updated several times since then, it provides the foundational legal framework for the collection of federal taxes, the determination of liability, and the administration of the U.S. tax system.

Examples of IRC Rules:

Income Tax Bracket Changes: The IRC determines federal income tax brackets, such as the 10%, 12%, 22%, 24%, 32%, 35%, and 37% marginal tax rates that apply to individual incomes.
Standard Deductions: The IRC lays out the regulations for standard deductions available to taxpayers, including individual, married, and head of household filers.
Charitable Deductions: Under the IRC, taxpayers who itemize their deductions may deduct certain qualified charitable contributions.
Retirement Savings: Regulations regarding tax-advantaged retirement accounts such as 401(k)s, Traditional IRAs, and Roth IRAs are outlined in the IRC.

Frequently Asked Questions (FAQs)

Q1. How often is the Internal Revenue Code updated?

A1. The IRC can be amended frequently by new tax legislation. Major sweeping changes, like those seen in the Tax Cuts and Jobs Act of 2017, sometimes occur, but smaller adjustments can also be made annually or more frequently.

Q2. Who enforces the regulations in the Internal Revenue Code?

A2. The Internal Revenue Service (IRS) is the federal agency responsible for administering and enforcing the IRC.

Q3. What is the relationship between IRS publications and the IRC?

A3. IRS publications provide guidance on how to comply with the IRC. They’re detailed explanations designed to help taxpayers understand their tax obligations and the applications of various IRC provisions.

Q4. Do states follow the IRC?

A4. Each state has its own tax code, but many states use federal taxable income as a starting point to determine state taxes. States may conform fully, partially, or not at all to the IRC.

Q5. How can a taxpayer stay informed about changes to the IRC?

A5. Taxpayers can stay informed by visiting the IRS website, subscribing to IRS newsletters, consulting with tax professionals, and reviewing updated IRS publications and notices.

Adjusted Gross Income (AGI): Total income after adjustments, used to calculate taxable income.
Tax Deduction: An amount that reduces taxable income.
Tax Credit: A dollar-for-dollar reduction in tax liability.
Marginal Tax Rate: The rate at which the last dollar of income is taxed.
Tax Liability: The total amount of tax owed.

Online Resources

Suggested Books for Further Studies

Federal Income Tax: A Contemporary Approach (Interactive Casebook) by Samuel A. Donaldson and Donald T. Tobin.
Taxation of Individuals and Business Entities 2021 by Spilker (Accounting faculty guidelines).
The Chicken Little Agenda: Debunking “Experts’” Lies by E. Calvin.
JK Lasser’s Your Income Tax 2021 by J.K. Lasser Institute.

Accounting Basics: “Internal Revenue Code (IRC)” Fundamentals Quiz

### What entity enforces the regulations set out in the IRS? - [ ] The U.S. Department of Treasury - [ ] State Tax Departments - [x] The Internal Revenue Service (IRS) - [ ] Congressional Budget Office > **Explanation:** The Internal Revenue Service (IRS) enforces tax law regulations as stipulated in the Internal Revenue Code. ### How frequently can the Internal Revenue Code be amended? - [ ] Every decade - [ ] Once a year - [ ] Every five years - [x] Frequently, through new tax legislation > **Explanation:** The IRC can be updated frequently through new tax legislation, which can result in both major and minor amendments. ### Among the items regulated by the IRC, which of these is NOT included? - [ ] Income tax - [ ] Estate tax - [ ] Employment tax - [x] Property tax > **Explanation:** Property tax is typically managed at the local or state level and is not regulated by the IRC. ### What starting point do many states use to determine state taxes, although having their own tax codes? - [ ] Federal tax refunds - [x] Federal taxable income - [ ] Federal tax credits - [ ] IRS penalties > **Explanation:** Many states use federal taxable income as the basis for determining the state tax liability. ### What document provides taxpayers with guidance on complying with the IRC? - [x] IRS Publications - [ ] State tax returns - [ ] Federal annual reports - [ ] Congressional tax journals > **Explanation:** IRS publications offer detailed guidance to taxpayers on how various provisions of the IRC are to be applied. ### What major event in recent history significantly updated the IRC? - [ ] The Affordable Care Act of 2010 - [ ] The Creation of the IRS in 1953 - [ ] The Sarbanes-Oxley Act of 2002 - [x] The Tax Cuts and Jobs Act of 2017 > **Explanation:** The Tax Cuts and Jobs Act of 2017 was a major event that significantly overhauled the Internal Revenue Code. ### What is AGI in relation to the Internal Revenue Code? - [ ] Always Gross Income - [ ] Absolute Granted Income - [x] Adjusted Gross Income - [ ] Approximate Gained Income > **Explanation:** AGI stands for Adjusted Gross Income, which is the result of total income minus specific adjustments and used to calculate taxable income under the IRC. ### Who establishes the standard deductions outlined in the IRC? - [ ] State Governments - [ ] The Federal Reserve - [ ] The Public Accounting Board - [x] The U.S. Congress > **Explanation:** The U.S. Congress establishes the standard deductions through legislation that becomes part of the IRC. ### What does a marginal tax rate refer to within the context of the IRC? - [ ] The initial tax rate of an individual’s income - [ ] Fixed tax percentage on total income - [x] The rate at which the last dollar of income is taxed - [ ] Uniform applicative rate for business income > **Explanation:** Within the IRC, the marginal tax rate is the rate at which the last dollar of an individual’s income is taxed. ### Do estate taxes fall under the purview of the IRC? - [ ] No, they are only state-administered. - [x] Yes, the IRC includes regulations on estate taxes. - [ ] No, they are governed by separate estate-specific laws. - [ ] Only for estates valued below a certain amount. > **Explanation:** The IRC does include regulations regarding estate taxes, such as those impacting certain estates above threshold values.

Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your knowledge of U.S. tax laws!