Back to basics: How to understand the differences among tax statutes, regulations, and other official guidance
Making sense of the U.S. Tax Code can be a challenge without a full understanding of these resources
With more than 3.7 million words, the United States Tax Code is expansive. In fact, it would take the average person 13 days (reading 200 words per minute, no breaks) to review every tax statute.
But tax laws are only part of the Tax Code. Tax authority is made up of congressional statutes, Treasury Regulations, case law, and other official guidance. Each one plays a distinctly important role in the U.S. tax system.
This article outlines the most common sources of U.S. tax law and other guidance that shed light on how the Code applies to taxpayers.
Federal law is the highest authority on taxes
The U.S. Constitution established the United States Congress and granted Congress the power to enact legislation, including tax laws, that become part of the U.S. Code. Congress first imposed personal income taxes to fund the Civil War in 1861. They became official in 1913, when the 16th Amendment was ratified, giving the government power to levy individual income taxes.
All tax laws (or, statutes) are part of Title 26 of the U.S. Code – called the Internal Revenue Code. Readers can drill down to specific laws by their section (§) under Title 26. For example, 26 USC § 911 is more commonly known as “Section 911,” or Internal Revenue Code (IRC) § 911.
While tax laws are the primary source for authority on U.S. tax issues, sometimes the law itself is vague. That’s where Treasury Regulations come in.
Treasury Regulations provide official interpretations of laws
The Department of the Treasury issues regulations that expand on the statutes to provide details and examples that help define the law for practical use. Nearly every tax statute has accompanying regulations. There are three types:
- Legislative regulations have the same authority as an IRC statute.
- Interpretive regulations attempt to fill in gaps in the rules, to help taxpayers practically apply laws. However, they are subject to challenge if they don’t ultimately reflect congressional intent.
- Procedural regulations are binding on the IRS. They generally direct procedural rules, such as how to file a return or make a certain election.
Some proposed regulations require public notice and a period for the public to comment before they become final. In that case, during the period for comments, the Treasury Department will issue temporary or proposed regulations that don’t set precedent, but do provide meaningful guidance and explanations for taxpayers to use until the Treasury Department sets final regulations.
Sometimes, statutes and regulations aren’t enough to fully understand a tax issue. That’s when it’s best to consult judicial guidance.
Court opinions resolve controversies of law and facts
When a taxpayer and the IRS can’t agree on how to resolve a tax controversy, the taxpayer might file a petition in court to determine:
- The meaning of a law that may be vague or otherwise unclear, or
- How a well-established law applies to the taxpayer’s facts.
Whether the opinion sets precedent depends on the kind of case and the type of opinion issued in that case. Generally, a higher court’s opinion will create a rule or interpretation that lower courts must follow. Courts can rule against the IRS, indicating that the IRS has misinterpreted the law as it applies to a certain set of facts.
If judicial guidance isn’t available or has no precedential weight, then other IRS resources might provide useful guidance on how to treat an issue.
Other IRS resources help interpret the finer details
In addition to official Treasury Regulations, the IRS Office of Chief Counsel issues several other forms of guidance to help taxpayers and their tax professionals comply with the Code. Here are some common examples of the different types of guidance the IRS publishes:
- Revenue rulings are official IRS guidance on how the law applies to specific taxpayer circumstances. Taxpayers can gain insight from these rulings, but they don’t take precedence over the Tax Code or regulations.
- Revenue procedures are official IRS statements on procedures that impact the rights or duties of taxpayers. “Rev procs” state the procedural or administrative aspect of a specific law.
- Private letter rulings are the IRS’ response to a written request from a taxpayer on the tax consequences of a transaction before it happens. A “PLR” is binding only on the IRS for the taxpayer who requested and paid for the ruling.
- Technical Advice Memorandums are issued by the Office of Chief Counsel when an IRS employee has a technical or procedural question during a proceeding, such as an examination or a claim for refund. The IRS issues a “TAM” only on a completed transaction. It’s the IRS’ final determination on that specific transaction, so it applies only to that taxpayer. However, TAMs can provide insight on how the IRS may rule in the future.
- IRS publications are the tax law in a nutshell. Publications are written in simple terms to help taxpayers better understand how the law may impact their returns and to guide them through filing proper returns. Usually, IRS “pubs” include examples, definitions, and helpful worksheets. While the information they contain can be valuable, publications are not binding statements of law, so taxpayers shouldn’t rely solely on publications to resolve certain issues.
- Internal Revenue Bulletins (IRBs) are weekly compilations of revenue rulings, revenue procedures, announcements, and notices. The IRS recently issued guidance explaining that taxpayers shouldn’t rely on information available on IRS.gov, such as FAQs, as legal authority unless the IRS has also issued the information in a press release or IRB.
Understanding the difference helps
It’s nearly impossible to pinpoint exactly how many pages or words are contained in the entire U.S. tax authority because it’s always changing. Any estimate won’t even include the wealth of secondary authority that the legal industry publishes – or state income tax laws.
These resources all work together to help define our tax obligations. Understanding them can help provide taxpayers and tax professionals with a framework to guide their research.
For more about our tax system, see “Tales from the Tax Court, Part 1: Tax Court opinions and how to make sense of them.”