All of us are well aware of the fact that United States Federal Tax Laws are complicated and a common man finds them pretty difficult to understand. First of all, you should understand that taxes are levied by the different levels of Govt., whether it is Federal, State or local, not only to generate money, but also for other purposes. In the United States, the Congress writes and passes tax laws, which become a part of the Internal Revenue Code (IRC); in short, called the Tax Code. It is amended every year. Presently, there are over 4,500 pages in the tax code.
Understanding Tax Laws
To start to understand the code for Federal Tax laws, we must keep in mind that the Government has the responsibility to uplift the society’s weaker sections and provide equal opportunities for a good life to all.
Taxes are sometimes used for a social cause. For example, to take care of housing problem, the Congress gives tax breaks to those who invest in low priced housing. To stimulate manufacturing and to encourage small business units, Congress allows rapid tax write-offs for buyers of new business equipment. Similarly, more taxes are levied on luxury goods, and more taxes are to be paid by higher income groups. All this is done to provide a fair playing field to all by getting the affluent to pay more in the interest of the country.
Apart from the social cause, the Government does have purely political interest too in creating particular laws. Many special interest groups, whose association is fruitful for any Government, have coaxed the Congress to pass tax laws that are designed to give them special preference. These groups include horse breeders, major league football clubs, oil companies, broadcasters, insurance companies etc.
How IRS Interprets The Tax Code
There are a series of IRS regulations which are used to interpret the tax code. These regulations consist of most of the tax codes’ expanded versions, in which there are illustrations of how the law is applied in different situations. However, even after so much of explanation, there are a few grey areas left in every tax law and disputes often arise between the IRS and the tax payers. The tax professionals /lawyers make their living out of these disputes. They somehow find lapses or ways and means to fit the tax code in a way that proves to be the most advantageous to their clients. That is the reason all big firms and companies have a separate post for a tax professional.
But the IRS is not the only authority or the final word on interpreting the tax code. If the tax payer is dissatisfied with the way in which a particular tax code has been interpreted in his/her case, appeals can be made to the Federal court system that’s composed of the US tax court, Federal district courts, US bankruptcy courts and US court of Federal claims. All these bodies have the power to interpret and decide, on case by case basis, how the Congress intended the tax law to be applied. This is for an amount more than $50,000, at stake. A taxpayer can appeal a court decision to a circuit of court appeal.
As you see now, every law, including the Federal Tax laws have loopholes that can be taken advantage of. Each one of us wants to pay as less tax as possible by getting the maximum tax benefits and tax returns. The tax professional help us do that in a legal way. If you own a business, or a manufacturing or providing service, you may have many simple ways to save taxes just by interpreting the Federal Tax code, in your own way. The Congress makes the laws with the intention to create balance and generate revenue; its real interpretation depends on particular situations.