A.
How Tax Law Is Made and Administered: The Short Course
Think of this section as a high school government lesson, only try to stay awake this time -- it could mean money in your pocket.
The federal government. Visualize a three-branched tree. Congress, the legislative branch of the federal government, makes the tax law. The executive branch, which includes the Treasury
Department, administers the tax law through the IRS. The judicial branch comprises all the federal
courts, which interpret the tax laws and overrule the IRS when it goes beyond the law.
The power to tax incomes was granted by the 16th Amendment to the U.S. Constitution; the first Income Tax Act was passed in 1913. Contrary to what fringe groups and con artists contend, income tax law and the IRS are legal and are not going to go away.
The code. Tax law begins with the Internal Revenue Code (referred to throughout this book as the tax code or IRC). Congress enacts and revises the tax code. The president signs it (usually), and it becomes law. One major reworking of the IRC was officially called the Tax Reform Act, but was known to tax pros as the Accountants' and Tax Attorneys' Relief Act. The tax code is now over 8,500 pages of exceedingly fine print.
The IRS. The Internal Revenue Service (IRS) is a division of the Treasury Department. It is headed up by the Commissioner of Internal Revenue, a presidential appointee. The IRS is charged with
enforcing the tax code.
The IRS is headquartered in Washington, but it is doubtful you will ever deal directly with anyone
there. The real work is done at IRS satellite offices.
The courts. The United States Tax Court interprets the tax laws and decides disputes between the IRS and taxpayers and interprets the tax code. It is pretty easy to go to tax court in most cases, even without an attorney. Tax disputes are also decided in U.S. District Courts and the Federal Court of Claims, but these require payment of the disputed tax first, unlike in the tax court. All decisions in those courts, for or against you, may be reviewed by higher courts, meaning the various U.S. Courts of Appeal and the U.S. Supreme Court. The exception is "small case" tax court decisions; see Chapter 21 for details.
See, that wasn't all that bad, was it? Now, venture forth into the rest of the book and may the small business gods be with you.
 Tax laws are ever-changing. While we try
our best to keep this book up to date, Congress is forever tinkering with the tax code. Some changes
are made retroactive, others become law on the date they are signed by the president, and some won't be effective until the next year or further into the future. Also, federal court decisions, which interpret the tax code, are released throughout the year and may change what is written here. Your best strategy is to make sure you have the most current edition of this book (check Nolo's website for updates to this book) and check with your tax adviser to see if anything has changed in your
tax world.
Back to Top
| 
