CHAPTER TWO

THE
INTERNAL
REVENUE
CODE
Tax Research Process
The US has had three codes:1939, 1954,
1986.
Puerto Rico which is an American
possession, has its own Code, which is
based off of the 1954 version.
The tax laws are organized by subject
matter


Internal Revenue Code
Code Organization
Title
Subtitle
Chapter
SubChapter
Part
Subpart
Section
Subsection
Paragraph
Subparagraph
Clause
Subclause
Title 26 of the United States Code









Code Organization
Title Internal Revenue Code is found it Title
26 of the United States Code
Cite as 26 USC ____ , or IRC _____, or
Code _____ once you have established early
in the memo that you are referring to the
Internal Revenue Code.
In most research situations, you will formally
cite to the current code as Internal Revenue
Code of 1986, as amended).


Code Organization - Subtitles
The types of tax law are further broken down into
Subtitles.
Code sections are numbered chronologically through
the subtitles.
Most federal tax professionals work with Subtitle A
Income Taxes but may also have need to go the
following subtitles in the course of their practice:

B Estate and Gift Taxes
C Employment Taxes and Collection of Income Tax
D- Miscellaneous Excise Taxes
F Procedure and Administration


Code Organization - Chapters
Chapters further break down into groupings a Subtitle.
For example, Subtitle A Income Taxes has 6
Chapters:
1 Normal Taxes and Surtaxes
2 Tax on Self Employment Income
3- Withholding of Tax on Non-resident Alients and
Foreign Corporations
4 Repealed
5 Repealed
6 Consolidated Returns

Most federal tax specialists spend most of their time in
Chapter 1.
Code Organization - Subchapters
Each Chapter is broken down into Subchapters
Chapter 1 has Subchapter A-Y. Most federal tax
practioners work in the following Subchapters:

A Determination of Tax Liability
B Computation of Taxable Income
C Corporate Distributions and Adjustments
E Accounting Periods and Methods of Accounting
K Partners and Partnerships
O Gain or Loss on Disposition of Property
P Capital Gains and Losses

Code Organization Part, Subpart, Section
There is further division and organization into Part
and Subpart. However, most practictioners
focus on the actual code sections after the
Subchapter division.

Do not be afraid of looking at the Table of
Contents or the Index when trying to figure out
what Code section applies to your fact pattern!

Example of Code Citation: Section 117(d)(2)(B)
117 = section number
(d) = subsection
(2) = paragraph designation
(B) = subparagraph designation

Technically, cited as 26 USC 117(d)(2)(B), but
more commonly cited as I.R.C. 117(d)(2)(B).
Statutory Sources
Statutory Sources
Read the entire code section could be sunset
provision
Note importance of and and or in reading
requirements.
Identify terms of art, e.g, sale or exchange,
ordinary and necessary and look at cross
references if needed.
Look for limiting language, e.g., for purposes of
this title
Historical notes can be a source of legislative
intent.

Statutory Sources
Legislative History
Each act is a Public Law and given a
designated number
e.g., P.L.108-357 American Jobs Creation Act of 2004
Remember that the Committee reports from the
HW&M, Senate, and Conference Committee
are part of the legislative history
Joint Committee on Taxation helps write the
Committee reports and the Blue Book
Older legislation
Cumulative Bulletins
BNAs Primary Sources
.17 Extension of mark-to-market rule
The bill extends the mark-to-market rule (including the 60/40
treatment that results in a 32-percent maximum tax rate) to
non-equity listed options and dealers equity options. Rules are
provided to prevent limited partners (or entrepreneurs) of an
options dealer from recognizing gain or loss from equity
options as 60 percent long-term capital gain or loss and 40
percent short-term capital gain or loss
Treatment of dealer options

The bill changes the claimed present-law treatment of options
market makers and codifies present law with respect to
professional commodity traders by providing that both categories
of traders are treated as buying and selling capital assets, except to
the extent that an option or future is acquired to hedge property
that would generate ordinary income or loss. An options dealer is
defined as any person who is registered with the SEC and an
appropriate national securities exchange as a market maker or
specialist in listed options. Under the bill, an options dealer would
not recognize ordinary income or loss with respect to his stock and
securities transactions, unless the taxpayer is a dealer in stock and
securities under general Federal income tax rules (determined
without regard to whether options in such property produces
ordinary income or loss).
House bill
No provision.

Senate amendment
The Senate amendment requires the Secretary of the Treasury to
report to the Committee on Finance and the Ways and Means
Committee before October 1, 1984, with respect to progress made
in reducing the backlog of cases involving the treatment, prior to
ERTA, of regulated futures contracts.

Conference agreement
The conferees believe it is inappropriate to prolong the
uncertainty with respect to the treatment of losses claimed with
respect to straddle positions for periods prior to 1981.