Key Takeaways
- The IRC is Title 26 of the United States Code.
- Code sections are the primary reference point (e.g., §162 Business Expenses).
- Flush language is unnumbered text within a code section that modifies preceding paragraphs.
- Congress enacts tax law; the President signs it.
- Key subtitles: A (Income), B (Estate/Gift), C (Employment), F (Procedure).
- The Code defines what is taxable; regulations explain how to apply it.
Internal Revenue Code (Title 26): The Foundation of Tax Law
Why This Matters for the Exam
The Internal Revenue Code is the starting point for every tax question. Part 3 tests your understanding of how the Code is organized, how to read citations, and the relationship between the Code and other authorities.
Understanding the Code's structure helps you navigate tax research and recognize when other authorities (regulations, rulings) are interpreting vs. contradicting the statute.
Expect at least 1-3 questions on the Code's structure and the legislative process.
What Is the Internal Revenue Code?
The Internal Revenue Code (IRC) is Title 26 of the United States Code. It is the primary source of federal tax law in the United States.
Key Facts:
- Enacted by Congress (legislative branch).
- Signed into law by the President (executive branch).
- Interpreted by the IRS and Treasury (administrative authorities).
- Adjudicated by federal courts (judicial branch).
Structure of the Code
The IRC is organized hierarchically:
| Level | Example | Description |
|---|---|---|
| Title | Title 26 | The entire Internal Revenue Code |
| Subtitle | Subtitle A | Income Taxes |
| Chapter | Chapter 1 | Normal Taxes and Surtaxes |
| Subchapter | Subchapter B | Computation of Taxable Income |
| Part | Part VI | Itemized Deductions |
| Section (§) | §162 | Trade or Business Expenses |
| Subsection | §162(a) | General rule |
| Paragraph | §162(a)(1) | First paragraph |
| Subparagraph | §162(a)(1)(A) | Subparagraph A |
| Clause | §162(a)(1)(A)(i) | Clause i |
Major Subtitles
| Subtitle | Title | Key Content |
|---|---|---|
| A | Income Taxes | Individual and corporate income tax (§1-§1400Z) |
| B | Estate and Gift Taxes | Transfer taxes at death or gift (§2001-§2704) |
| C | Employment Taxes | FICA, FUTA, withholding (§3101-§3510) |
| D | Miscellaneous Excise Taxes | Excise taxes on specific goods/activities |
| E | Alcohol, Tobacco, and Firearms | Specific excise taxes |
| F | Procedure and Administration | IRS procedures, penalties, statutes (§6001-§7874) |
Exam Focus: Most Part 3 questions relate to Subtitle F (Procedure and Administration), which covers:
- Information returns and record requirements.
- Assessment and collection procedures.
- Penalties (civil and criminal).
- Statutes of limitations.
- Judicial proceedings.
How to Read a Code Citation
Example: IRC §162(a)(1)
| Component | Meaning |
|---|---|
| IRC | Internal Revenue Code |
| §162 | Section 162 (Trade or Business Expenses) |
| (a) | Subsection (a) - "In general" |
| (1) | Paragraph (1) - "a reasonable allowance for salaries..." |
"Flush Language": Unnumbered text that appears after a list of paragraphs. It modifies or limits all preceding paragraphs. Watch for flush language—it often contains important exceptions or definitions.
The Legislative Process
| Step | Actor | What Happens |
|---|---|---|
| 1 | House Ways & Means | Tax bills originate in the House |
| 2 | Full House | Votes on the bill |
| 3 | Senate Finance | Reviews and amends the bill |
| 4 | Full Senate | Votes on the bill |
| 5 | Conference Committee | Reconciles House/Senate versions |
| 6 | Both Chambers | Vote on final version |
| 7 | President | Signs into law (or vetoes) |
Key Point: The IRS cannot create tax law. Only Congress can enact statutes. The Treasury can only interpret what Congress has enacted.
Common Code Sections to Know
| Section | Topic |
|---|---|
| §61 | Gross Income Defined |
| §162 | Trade or Business Expenses |
| §179 | Election to Expense Certain Property |
| §263 | Capital Expenditures |
| §1031 | Like-Kind Exchanges |
| §1231 | Gains and Losses on Business Property |
| §6011 | Return Requirements |
| §6651 | Failure to File / Failure to Pay Penalties |
| §6662 | Accuracy-Related Penalty |
| §6694 | Understatement Preparer Penalties |
| §7206 | Fraud and False Statements |
Real-World Scenario
Scenario: A client asks if they can deduct a particular expense. You research and find that §162 allows deductions for "ordinary and necessary" business expenses, but a Treasury Regulation limits the deduction in certain circumstances.
- Question: Which authority controls?
- Answer: The Code controls. If the regulation is consistent with §162, follow it. If the regulation contradicts or expands beyond §162, a court may invalidate it (especially post-Loper Bright).
On the Exam
Expect 1-3 questions on the IRC, typically:
- Structure Questions: "Which subtitle covers Procedure and Administration?"
- Citation Questions: "In §162(a)(1), what does '(a)' represent?"
- Legislative Questions: "Which branch enacts the Internal Revenue Code?"
The key is to remember: Title 26, Congress enacts, Subtitle F = Procedure, Section > Subsection > Paragraph.
Which branch of government enacts the Internal Revenue Code?
In the citation "IRC § 162(a)(1)", what does "(a)" represent?
Which subtitle of the IRC covers "Procedure and Administration"?