Federal Tax Law: Income, Deductions, and Credits

Federal & State Law Editorial Team

Guide to the federal tax system including income recognition, deductions, credits, filing requirements, and IRS enforcement.

Federal Tax Law Fundamentals

Internal Revenue Code (IRC): Title 26 of the U.S. Code — the primary statutory authority

Treasury Regulations: Official interpretations of the IRC by the Department of the Treasury

IRS Revenue Rulings and Procedures: Published guidance on specific tax issues

Tax Court Decisions: Judicial interpretation of tax law

Under IRC Section 61, gross income includes all income from whatever source derived:

Compensation for services (wages, salaries, tips, commissions)

Business income (self-employment, partnerships, S-corps)

Investment income (interest, dividends, capital gains, rental income)

Retirement distributions (pensions, 401(k)s, IRAs)

Other income (alimony received under pre-2019 agreements, gambling winnings, prizes)

Life insurance death benefits

Gifts and inheritances

Municipal bond interest

Employer-provided health insurance

Qualified scholarship amounts for tuition

Gain on sale of primary residence (up to $250,000/$500,000)

IRC Section 162 allows deduction of ordinary and necessary business expenses:

Salaries and wages

Rent, utilities, and office supplies

Travel and transportation

Depreciation of business assets (Section 179 immediate expensing, bonus depreciation)

Business insurance premiums

Professional services (legal, accounting)

Audit Selection: Returns are selected based on statistical scoring (DIF score), information matching, and special programs

Statute of Limitations: Generally 3 years from filing (6 years for substantial understatement, unlimited for fraud)

Penalties: Failure to file (5%/month, max 25%), failure to pay (0.5%/month, max 25%), accuracy-related (20%), fraud (75%)

Appeals: You can appeal audit findings through the IRS Office of Appeals before going to Tax Court