Internal Revenue Code
Most tax legislation begins in the House of Representatives. In the House, tax law changes are considered by the Ways and Means Committee. Upon approval by this committee, the bill is sent to the full House of Representatives for its approval. The bill is then sent to the Senate, where it is referred to the Finance Committee. When the Finance Committee approves the bill, the proposal is considered by the entire Senate. If any differences between the House and Senate versions of the tax bill exist the bill is referred to a Joint Conference Committee, where these differences are resolved. The compromise bill must be approved by both houses of Congress before it is forwarded to the President. If the President signs the bill the new provisions are incorporated into the Internal Revenue Code.
Every year the Internal Revenue Code under goes minor changes with additions, modifications, and removal of certain provisions. Since the inception of the first fully organized federal tax law, the Internal revenue Code of 1939, there have been two major restructuring and reorganizations, the Internal Revenue Code of 1954 and the Internal revenue Code of 1986. Most references you will encounter refer to the Internal Revenue Code of 1986, unless otherwise noted.
The Internal Revenue Code (IRC) is part of the United States Code, which is a codification of all the federal laws of the United States. The elements of the United States Code are organized alphabetically and assigned title numbers. The Internal Revenue Code constitutes Title 26 of the United States Code. The IRC can be overwhelming, to help narrow your search it is important to understand how the IRC is organized and how to interpret a citation. The Internal Revenue Code is organized into several levels or subdivisions as follows:
- Subtitles
- Chapters
- Subchapters
- Parts
- Subparts
- Sections
- Subsections
Subtitles of the IRC are assigned a capital letter to identify them. Generally, each subtitle contains all of the tax provisions that relate to a well-defined area of the tax law. The subtitles are broken down as follows:
| Subtitle | Name | Beginning Code Section Number |
| A. | Income Taxes | Sec. 1 |
| B. | Estate and Gift Taxes | Sec. 2001 |
| C. | Employment Taxes | Sec. 3101 |
| D. | Miscellaneous Excise Taxes | Sec. 4001 |
| E. | Alcohol; Tobacco; Miscellaneous excise Taxes | Sec. 5001 |
| F. | Procedure and Administration | Sec. 6001 |
| G. | Joint Committee on Taxation | Sec. 8001 |
| H. | Presidential Election Campaign Financing | Sec. 9001 |
| I. | Trust Funds | Sec. 9501 |
Each subtitle contains a number of chapters, numbered, although not continuously, from 1 through 98. These chapter numbers do not start over at each subtitle, rather they are used in ascending order throughout the IRC. Each chapter contains the tax provisions that relate to a more narrowly defined area of the tax law than is addressed by the subtitles. The following table show the chapters for subtitle A.
| Chapter | Name | Beginning Code Section Number |
| 1 | Normal Taxes and Surtaxes | Sec. 1 |
| 2 | Tax on Self-Employment Income | Sec. 1401 |
| 3 | Withholding of Tax on Nonresident Aliens and Foreign Corporations | Sec. 1441 |
| 4 | Repealed | |
| 5 | Tax on Transfers To Avoid Income Tax | Sec. 1491 |
| 6 | Consolidated Returns | Sec. 1501 |
The chapters of the IRC are further divided into subchapters which are designated by a letter which starts over in each chapter. Typically a subchapter contains a group of provisions that relate to a fairly specific area of the tax law . Subchapters are divided in parts, which may be further divided into subparts. The following table lists some of the more common Subchapters of Chapter 1.
| Subchapter | Name | Beginning Code Section Number |
| A | Determination of Tax Liability | Sec. 1 |
| B | Computation of Taxable Income | Sec. 61 |
| C | Corporate Distributions and Adjustments | Sec. 301 |
| D | Deferred Compensation | Sec. 401 |
| E | Accounting Periods and Methods of Accounting | Sec. 441 |
| I | Natural Resources | Sec. 611 |
| J | Estates, Trusts, Beneficiaries, and Decedents | Sec. 641 |
| K | Partners and Partnerships | Sec. 701 |
| N | Tax Based on Income from Sources within or without the United States | Sec. 861 |
| O | Gain or Loss on Disposition of Property | Sec. 1001 |
| P | Capital Gain or Loss | Sec. 1201 |
| S | Tax Treatment of S Corporations and Their Shareholders | Sec. 1361 |
The most important division of the Internal Revenue Code is the section, this is because the IRC is arranged so that its primary unit is the section number. This is where you will find most of your answers. Each section number is used only once in the IRC, this allows you to refer to a specific provision of the IRC by its section number. Each section can be further divided in subsections, paragraphs, subparagraphs, and clauses. Sections are denoted by numbers (1, 2, etc.), subsections by lowercase letters (a, b, etc.), paragraphs by numbers (1, 2, etc.), subparagraphs by capital letters (A, B, etc.) and clauses by lowercase roman numerals (i, ii, etc.). Parentheses are used for each division after the section number.
For example:
Section 631(a)(3)(B)(i)
is broken down as:
Section 631
Subsection a
Paragraph 3
Subparagraph B
Clause i
Although there are thousands of Internal Revenue Code sections, the ones that you are most likely to encounter in your "timber tax" question are listed in the following table. However, your specific situation may require research into other sections as well. To help you locate the specific section the "Findings List" provides an alphabetical index of various topics and their associated section.
| Section 1 | Individual Tax Rates |
| Section 48 | Investment Credit |
| Section 126 | Certain Cost-Sharing Payments |
| Section 162 | Trade or Business Expenses |
| Section 165 | Losses |
| Section 175 | Conservation Expenditures |
| Section 183 | Activities Not Engaged in for Profit |
| Section 194 | Amortization Reforestation Expenditures |
| Section 212 | Nonbusiness Expenses - Expenses for Production of Income |
| Section 263 | Capital Expenditures |
| Section 266 | Carrying Charges |
| Section 611 | Allowance of Deduction for Depletion |
| Section 631 | Gain or Loss in the Case of Timber, Coal, or Domestic Iron Ore |
| Section 1031 | Exchange of Property Held for Productive Use or Investment |
| Section 1221 | Definition of a Capital Asset |
| Section 1231 | Property Used in the Trade or Business and Involuntary Conversions |
Reading and interpreting the various sections of the IRC is not always an easy task. Many, if not most, Code sections contain a general rule followed, followed by specific conditions that must be satisfied in order to apply the provision, and situations under which you are excepted from the general rule. Some exceptions to a Code section are addressed not within the same section, but in another section of the Code. Therefore it is very important to read the section carefully.
The provisions of the Internal Revenue Code change frequently and it is important to note the effective dates of the various changes. A provision may not go into effect immediately upon its adoption by Congress. Often various provisions under the same tax law will become effective on different dates, and may even have effective dates that precede the the date of the tax act. Similarly, when a provision of the tax law is deleted from the code, the provision may be left in effect for a designated period of time before it actually expires. The effective date for a change in tax law usually may be found in the explanation of the public laws, which follow the Code section.
You should be aware that you may not find all of the answers to a specific tax question in the IRC, so you may have to turn to other sources such as administrative rulings, judicial decisions, or secondary sources of the law. Administrative rulings are the official interpretations of IRC sections by the IRS. Judicial decisions are the interpretations of individual sections by the courts.