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Simple English definitions for legal terms
IRS regulations
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A quick definition of IRS regulations:
IRS regulations are rules created by the Internal Revenue Service (IRS) to explain how to follow the tax laws in the United States. The IRS is part of the Treasury Department, which is in charge of making sure people pay their taxes correctly. The IRS can't make new tax laws, but they can explain how to follow the laws that already exist. There are three types of IRS regulations: proposed, temporary, and final. Proposed regulations are ideas that the IRS shares with the public to get feedback. Temporary regulations are rules that go into effect right away, but only last for three years. Final regulations are the official rules that everyone has to follow. They come after the IRS has listened to feedback from the public. The IRS publishes these rules in a document called a Treasury Decision, which is like a big book of tax rules.
A more thorough explanation:
IRS regulations, also known as tax regulations or treasury regulations, are rules created by the Internal Revenue Service (IRS) to interpret the Internal Revenue Code (IRC). The IRC is a set of laws that governs federal taxation in the United States.
Section 7805 of the IRC gives the Secretary of the Treasury Department the authority to create regulations for enforcing the IRC. The Treasury Department issues these regulations to help taxpayers understand how to comply with the law.
The IRS is the division of the Treasury Department responsible for issuing IRS regulations. There are three types of IRS regulations:
- Proposed regulations: These are regulations that the IRS announces to the public as a Notice of Proposed Rulemaking (NPRM). The public can submit comments to the IRS about the proposed regulations.
- Temporary regulations: These are regulations that provide immediate guidance to the public before the final regulations are published. Temporary regulations are effective when published, but they expire within three years of issuance.
- Final regulations: These are regulations that are almost always preceded by an NPRM. After considering public comments on the proposed regulations, the IRS issues final regulations.
Temporary and final regulations are published as a Treasury Decision (TD), which includes an explanatory preamble. A TD is binding on taxpayers and the IRS. TDs, except for the explanatory preambles, are published in Title 26 of the Code of Federal Regulations (CFR).
Here are some examples of how IRS regulations work:
- Example 1: The IRS issues a proposed regulation that would change the way businesses calculate their taxes. The public has a chance to comment on the proposed regulation before the IRS issues a final regulation.
- Example 2: The IRS issues a temporary regulation that provides guidance on a new tax law that just went into effect. The temporary regulation will expire in three years, at which point the IRS will issue a final regulation.
- Example 3: The IRS issues a final regulation that clarifies how taxpayers should report income from a certain type of investment. This regulation is binding on taxpayers and the IRS.
These examples illustrate how IRS regulations help taxpayers understand how to comply with federal tax laws. By issuing proposed, temporary, and final regulations, the IRS can provide guidance to the public and ensure that everyone is following the same rules.