The Internal Revenue Code (IRC) refers to Title 26 of the U.S. Code, the official “consolidation and codification of the general and permanent laws of the United States,” as the Code’s preface explains. Commonly referred to as the IRS code or IRS tax code, the laws in Title 26 are enforced by the Internal Revenue Service (IRS). The United States Code was first published in 1926 by the U.S. House of Representatives. Title 26 covers all relevant rules pertaining to income, gift, estate, sales, payroll, and excise taxes.
What is the Internal Revenue Code (IRC)?
The Internal Revenue Code is divided into the following topics or subcategories:
- 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
- K. Group Health Plan Requirements3
History of the Internal Revenue Code
Re-codification of the US Statutes began in 1919 with a committee of the US House of Representatives. The completed version was published in 1926. Title 26, the Internal Revenue Code, was originally compiled in 1939.
With the authority to rewrote the tax code, Congress can add items to it every year. For instance, Congress approved the Tax Cut and Jobs Act in 2017, which led to reforms of the tax code affecting businesses and ordinary people.
The Internal Revenue Service, which was founded in 1862, is responsible for governing the codes in Title 26. The IRS, based in Washington, D.C., also plays the role of collecting taxes.
According to the Internal Revenue Code, the IRS can impose fines and punishments for violations.
Campaigns to Abolish the Code
Significant changes were made to the previous tax laws with the Tax Cuts and Jobs Act (TCJA) of 2017. Campaigns are ongoing to scrap the system entirely, however. Recently, two bills have been introduced:
In 2017, the House of Representatives Bill H.R. 29, The Tax Code Termination Act, was filed to repeal the Internal Revenue Code of 1986 by the end of 2021. The H.R. 29 bill requires that Congress pass a new federal tax system before abolishing the current one by July 4, 2021.
On January 3, 2017, Bill S.18, the Fair Tax Act of 2017, was introduced into Congress. In lieu of personal and corporate income tax, employment and self-employment tax, and estate and gift taxes, the bill proposes the imposition of a national sales tax on the use or consumption of taxable property or services in the U.S.
In 2019, the sales tax rate will be 23%, with adjustments to the rate in subsequent years. For business, export and investment purposes as well as state government functions, the bill exempts used and intangible property from the tax. After 2021, the Internal Revenue Service will cease to exist, with no funding for operations.
According to the Fair Tax Act, U.S. residents would be eligible for a monthly sales tax rebate based on their household size and income, and all states would be responsible for administering, collecting, and remitting sales tax to the federal government. The bill terminates the national sales tax if the 16th Amendment (which authorizes federal income tax) is not repealed within seven years of its enactment.
There has been little progress since the Fair Tax Act was introduced. The passage of the TCJA, which made significant changes in the current tax system while reaffirming its basic structure, makes the future of the Fair Tax Act (and the Tax Care Termination Act) uncertain to unlikely.
The recent adoption of changes to the tax code might reduce appetite for pursuing an overall overhaul of the tax system, according to John Buhl, manager of media relations for the Tax Foundation.
The new tax reform plan evolved to address concerns that the original plan was designed to benefit the wealthy, and attempting to replace it with a sales tax would raise similar concerns about whether it would be more beneficial to the wealthy. “Distributionally, replacing all federal taxes with a consumption tax would heighten those arguments,” Buhl says.