Understanding, planning for and preparing financial documents related to taxation is an important part of an accountant’s work. In the United States, that means knowing the Internal Revenue Code and the rules and regulations it contains.
The Tax Code of the United States
In the United States of America, the Internal Revenue Code is the name for the federal tax code. Tax codes are the written laws and regulations that both individual taxpayers and businesses must follow. Included in the Internal Revenue Code is information about tax rates, credits and deductions. The tax code in the United States is expansive, covering not only income taxes but estate taxes, payroll taxes, gift taxes and other types of taxes. These tax dollars go to various government purposes, including retirement programs like social security and Medicare, national defense, social programs, law enforcement and community development, according to the Internal Revenue Service.
Though the federal government of the United States has collected taxes since the adoption of the Constitution, it wasn’t until 1939 that taxation statutes were codified into a separate tax code document as the Internal Revenue Code. Prior to that date, these statutes were recorded in more general documents such as the Revised Statutes of the United States and the United States Code, or they weren’t yet codified at all. The current Internal Revenue Code was established in 1986, updating the 1954 Internal Revenue Code. Though it has not been replaced since 1986, the modern Internal Revenue Code has been the subject of frequent amendments, which have resulted in it being a very long and very complex document.
The Role of the IRS
The Internal Revenue Service (IRS) is the federal government agency that enforces taxation laws and regulations and collects federal income tax. The IRS is part of the United States Department of the Treasury and employs close to 100,000 people, including data analysts, case managers, fraud prevention workers, and of course accountants and auditors. Each year, the IRS handles millions of corporate tax returns and more than a hundred million personal income tax returns. When a tax return seems outside the norm in some way, the IRS audits the corporate or individual taxpayer, or reviews additional information to verify the accuracy of the tax documents provided.
The Internal Revenue Code contains nearly all of the rules and regulations related to taxation in the United States. Accountants frequently help individuals and businesses prepare for and pay income, employment, estate, gift and other types of taxes, so it is essential that they understand taxation and the federal tax code thoroughly. Accountants and auditors may also work directly for the IRS, in which case they are responsible for collecting taxes and enforcing the rules and regulations contained in the Internal Revenue Code. During their college educations, accounting students prepare to handle taxes in their future careers by studying various types of taxation at introductory through advanced levels to learn about the principles and practices of tax accounting.