What Laws and Regulations Governs Tax System in the United States

The tax system in the United States is governed by a combination of federal, state, and local laws and regulations. What follows is an overview of the most significant laws and regulatory frameworks that comprise the U.S. tax system:

1. Federal Laws and Regulations

a. Internal Revenue Code (IRC)

• The Internal Revenue Code is the principal federal tax code of the United States. It addresses income taxes, payroll taxes, estate taxes, gift taxes, and excise taxes.
• It is written into Title 26 of the United States Code (U.S.C.) and enforced by the Internal Revenue Service (IRS).

b. Treasury Regulations

• Issued by the U.S. Department of the Treasury, these rules provide detailed guidelines on how the IRC is to be interpreted and applied.
• They are categorized as: Proposed Regulations: Comments from the public. Temporary Regulations: Effective immediately, pending perfection. Final Regulations: Legally binding interpretations of the tax laws.

c. IRS Revenue Rulings and Revenue Procedures

• Revenue Rulings: Clarify specific tax law circumstances based on the IRS's position.
• Revenue Procedures: Provide procedural guidance to taxpayers, such as filing procedures or tax elections.

d. Tax Court Decisions

• U.S. Tax Court rulings interpret tax statutes and resolve disputes between the IRS and taxpayers.
• Decisions set precedents, especially where tax law is ambiguous.

2. State Tax Laws

• Each state also has its own tax laws regarding income taxes, sales taxes, property taxes, and excise taxes.
• There are no personal income taxes in some states (e.g., Texas and Florida), while others (e.g., California) have progressive taxation.

3. Local Tax Laws

• Local governments (i.e., counties, cities) may impose the following taxes: Property taxes Local sales taxes Special district taxation for education or infrastructure

4. Key Legislative Acts Influencing U.S. Tax Laws

a. Tax Reform Acts

• Tax Reform Act of 1986: Lowered tax brackets and eliminated numerous deductions.
• Tax Cuts and Jobs Act (TCJA) of 2017: Lowered corporate tax rates, doubled the standard deduction, and capped SALT deductions.
• Inflation Reduction Act of 2022: Enacted policies including a corporate alternative minimum tax.

b. CARES Act (2020)

• Provided COVID-19 tax relief, including stimulus payments, increased tax credits, and loans to businesses.

c. SECURE Act (2019 & 2022 Updates)

• Changed retirement account contribution regulations, withdrawals, and RMDs.

5. Constitutional Authority

• 16th Amendment: Grants Congress the power to lay federal income taxes without apportioning them among the states.
• Article I, Section 8: Gives Congress the power to impose duties, imposts, and excises.

6. International Tax Laws

• U.S. citizens and residents are taxed on their worldwide income.
• Key regulations include: Foreign Account Tax Compliance Act (FATCA): Requires reporting of foreign financial accounts. Tax Treaties: Agreements with other countries for the purpose of avoiding double taxation.

7. Other Governing Laws

a. Payroll Taxes

• Governed by Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA).

b. Estate and Gift Taxes

• Governed by special IRC sections, including annual exclusion amounts and unified credit amounts.

c. Corporate Taxes

• Has special provisions for C Corporations, S Corporations, partnerships, and LLCs.

8. Administrative Agencies

• Internal Revenue Service (IRS): Primary federal tax collection agency.
• State Tax Authorities: Each state has a separate department for collecting and administering tax.
• Local Tax Agencies: Handle property taxes and local levies.