United States Tax Law

Sources of US Tax Law

The primary federal tax statute is the Internal Revenue Code of 1986 (IRC), codified in Title 26 of the United States Code. The IRC is the product of successive legislative enactments, most significantly the Tax Reform Act of 1986 and the Tax Cuts and Jobs Act of 2017 (TCJA). The Treasury Department promulgates interpretive regulations under the authority of § 7805 of the IRC, which carry the force of law. Treasury Regulations are classified as legislative, interpretative, or procedural, with varying levels of judicial deference under the Chevron doctrine. The Internal Revenue Service (IRS) issues Revenue Rulings and Revenue Procedures as administrative guidance, binding on the IRS but not on taxpayers. The US Tax Court, established under Article I of the Constitution, provides a pre-payment forum for taxpayers to challenge deficiency determinations. Federal district courts, the Court of Federal Claims, and the circuit Courts of Appeals adjudicate tax matters, with the Supreme Court exercising certiorari review. In Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), the Supreme Court defined gross income broadly as “accessions to wealth, clearly realized, over which the taxpayer has complete dominion.”

Individual Income Tax

The individual income tax employs a progressive rate structure with seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37% (adjusted annually for inflation). The standard deduction ($14,600 for single filers in 2025) provides a zero-rate band; itemized deductions, including the state and local tax (SALT) deduction capped at $10,000 by the TCJA, mortgage interest, and charitable contributions, may be elected in lieu of the standard deduction. Personal and dependency exemptions were suspended from 2018 through 2025 under the TCJA. § 199A allows a deduction of up to 20% of qualified business income from pass-through entities, subject to phaseouts based on taxable income and the nature of the trade or business. The alternative minimum tax (AMT) operates as a parallel tax system denying certain deductions and imposing a minimum tax liability at 26% or 28%. Long-term capital gains and qualified dividends are taxed at preferential rates of 0%, 15%, or 20%, with an additional 3.8% net investment income tax under § 1411. The foreign earned income exclusion under § 911 permits qualified individuals to exclude up to $126,500 (2024) of foreign earned income. The earned income tax credit (EITC) is a refundable credit for low-to-moderate-income working individuals. The child tax credit of $2,000 per qualifying child includes a refundable portion of up to $1,700 (2024).

Corporate Income Tax

The TCJA established a flat corporate income tax rate of 21%, replacing the graduated rate system that reached 35%. The corporate alternative minimum tax was repealed. Net operating loss (NOL) deductions arising after 2017 are limited to 80% of taxable income, and NOL carrybacks are generally eliminated. The dividends received deduction under § 243 permits a corporate shareholder to deduct a percentage of dividends received from domestic corporations: 50% for less-than-20% ownership, 65% for 20%-or-more ownership, and 100% for affiliated groups. Subchapter S corporations elect pass-through treatment under §§ 1361–1379, avoiding entity-level taxation and allocating income, loss, deductions, and credits to shareholders. The accumulated earnings tax under §§ 531–537 imposes a 20% penalty on corporations accumulating earnings beyond reasonable business needs to avoid shareholder-level taxation. The personal holding company tax under §§ 541–547 applies a 20% tax on undistributed personal holding company income. Corporate taxpayers file Form 1120; partnerships file Form 1065 and issue Schedule K-1 to partners. Worldwide income is reported by domestic corporations, subject to foreign tax credits.

International Taxation

The United States taxes its residents and citizens on worldwide income, with a foreign tax credit (FTC) under § 901 mitigating double taxation. The global intangible low-taxed income (GILTI) regime under § 951A requires US shareholders of controlled foreign corporations (CFCs) to include in income a deemed return on tangible assets in excess of 10%. Foreign-derived intangible income (FDII) under § 250 provides a deduction for US corporations deriving income from foreign sales and services. The base erosion and anti-abuse tax (BEAT) under § 59A imposes a minimum tax on corporations making deductible payments to related foreign persons. The CFC rules under Subpart F (§§ 951–965) require US shareholders with a 10% or greater interest in a CFC to include certain passive and mobile income currently. The Foreign Account Tax Compliance Act (FATCA) under §§ 1471–1474 requires foreign financial institutions to report accounts held by US persons or face 30% withholding on US-source income. The OECD’s Base Erosion and Profit Shifting (BEPS) project and the Pillar Two global minimum tax have prompted ongoing US international tax policy debates, though the GILTI regime functions as a de facto minimum tax.

Tax Administration

Taxpayers file annual returns (Form 1040 for individuals) by April 15. The IRS assesses tax, issues deficiencies, and collects unpaid liabilities through levy, lien, and seizure. The statute of limitations for assessment is generally three years. Taxpayers may petition the Tax Court without first paying the deficiency. Criminal tax offenses under §§ 7201–7207 include tax evasion, willful failure to file, and fraudulent returns. Penalties include accuracy-related penalties under § 6662 and civil fraud penalties under § 6663.