Introduction to Tax School Top 100 Code Sections

Top 100 Code Sections

(Numerical order)

Unedited

Internal Revenue Code of 1986

  1. 1 – Income Tax Rates by filing status. This section provides the income tax rates on taxable income for various brackets and filing status. It applies to individuals, estates and trusts. Filing statuses include separate, joint, married filing separate, head of household. It also provides the rates for capital gains, collectible gains, unrecaptured section 1250 gain, and income of children under 14.
  2. 11 – Tax Imposed. This section provides the income tax rates for most corporations. It also applies to the unrelated business taxable income of tax exempt organizations.
  3. 55 –Alternative Minimum Tax Imposed. The alternative minimum tax replaces the income tax for some taxpayers. When it applies, some tax preference items and other adjustments to income are not allowed. Then, an alternate bracket of 26% or 28% applies for most affected taxpayers.
  4. 61 – Gross Income Defined. This section requires the inclusion in gross income “all income from whatever source derived.” This is the full extent permitted by the 16th Amendment. It provides an illustrative list of specific inclusions.
  5. 62 – Adjusted Gross Income Defined. Adjusted gross income is the section 61 gross amount less specifically listed deductions. Mostly, these “above the line” deductions involve trade or business expenses of non-employees. They also include alimony, moving, and retirement contribution deductions.
  6. 63 – Taxable Income Defined. Taxable income is the amount against which the section 1 tax percentage apply to determine tax due. It equals section 62 adjusted gross income less either the standard deduction or itemized deductions. Itemized deductions are also known as “below the line” deductions.
  7. 67 – 2 per cent Floor on Miscellaneous Itemized Deductions. This section limits itemized deductions not on a preferred list to an amount equal to the excess of such deductions less 2 per cent of adjusted gross income.
  8. 71 – Alimony and Separate Maintenance Payments. This section defines “alimony” payments, which are included in gross income of the recipient. It also defines “child support” amounts which are not included in the recipient’s income. A complicated “frontloading” formula applies to discourage the disguise of property division awards as deductible alimony. Section 215 allows the corresponding deduction for alimony payments.
  9. 72 – Annuities; certain proceeds of endowment and life insurance contracts. Taxpayers may exclude from income an “exclusion ratio” portion of amounts received from annuity contracts. This ratio equals the “investment in the contract” divided by the “expected return.”
  10. 73 – Services of child. This section taxes the earned income of children at their own bracket. Section 1 taxes unearned income of children under 18 at their parents’ bracket.
  11. 74 – Prizes and awards. Gross income includes prizes and awards; however, some awards, such as qualified scholarships, prizes donated to charity, and employee achievement awards are excluded in many specific instances.
  12. 83 -- Property transferred in connection with performance of services. The fair market value of “property” transferred for services is not includible in gross income until the rights of the recipient in the “property” are transferable and are not subject to a substantial risk of forfeiture. A taxpayer may, however, elect to have the value included prior to such time.
  13. 101 -- Certain death benefits. Proceeds of life insurance policies are not included in gross income if paid by reason of the death of the insured. In some cases, payments to terminally or chronically ill insureds are also excluded.
  14. 102 -- Gifts and inheritances. Gross income does not include amounts received by gift or bequest, inheritance, or devise. “Gifts” from an employer to an employee, however, remain includible.
  15. 103 -- Interest on State and local bonds. Gross income does not include interest on state and local bonds.
  16. 104 -- Compensation for injuries or sickness. Gross income does not include amounts received for personal physical injuries. This does not include amounts for punitive damages or emotional damages. It excludes amounts for lost wages and amounts paid over time, including the interest portion of such payments.
  17. 106 – Contributions by employer to accident and health plans. The value of employer provided health and accident insurance plans is not included in gross income.
  18. 108 – Income from discharge of indebtedness. Income from the discharge of debt is excludable if it results in a Title 11 case, when the taxpayer is insolvent, or if it involves qualified real property business debt or qualified farm debt. Most excluded amounts result in a loss of specific tax attributes by the taxpayer.
  19. 111 – Recovery of Tax Benefit Items. The recovery of items not beneficially deducted does not produce income.
  20. 115 – Income of States, Municipalities, etc. Gross income does not include amounts derived from public utilities or essential government functions of States and political subdivisions.
  21. 121-- Exclusion of gain from sale of principal residence. Gross income excludes up to $250,000 of gain ($500,000 for a joint return) on the sale or exchange of a principal residence.
  22. 125 Cafeteria plans. Gross income excludes amounts received from a cafeteria plan. This includes amounts for un-reimbursed medical expenses and child care expenses.
  23. 127 – Educational assistance programs. Gross income does not include up to $5,250 of educational assistance provided by an employer to an employee. Compare this to section 117 relating to an exclusion for qualified scholarships, to subsection 117(d) relating to an exclusion for qualified tuition reduction programs, and to section 132(d) relating to exclusion for working condition fringe benefits.
  24. 132 – Certain fringe benefits. Gross income does not include eight specific fringe benefits received by employees. Included are things such as “qualified employee discounts,” and “no additional cost services.”
  25. 151 -- Allowance of deductions for personal exemptions. Taxpayers may deduct the exemption amount for the taxpayer, his/her spouse, and for each dependent. The amount is subject to an annual inflation adjustment, as well as to a phaseout for high income taxpayers.
  26. 152 -- Dependent defined. This section defines a qualifying child and a qualifying relative. It also provides for the allocation of the child dependency exemption between divorced parents, as well as for multiple support agreement (generally involving multiple children supporting a parent).
  27. 162 – Trade or business expenses. This section allows “ordinary” and “necessary” “expenses” “incurred” in the “carrying-on” of a “trade or business.” Each of these words or phrases has significance; however, their definitions are not clear. The most famous case defining such expenses is Welch v. Helvering, 290 U.S. 111 (1933), in which Justice Cardozo declined to provide a specific definition, concluding “One struggles in vain for any verbal formula that will supply a ready touchstone. The standard set up by the statute is not a rule of law; it is rather a way of life. Life in all its fullness must supply the answer to the riddle.” Contrast a “trade or business” with the section 162 concept of an activity “for the production of income” and the section 165 concept of an “activity for profit.”
  28. 163– Interest. This section generally allows a deduction for all interest paid or accrued. It then limits the deductibility of interest involving several specific transactions, including “investment interest” and “personal interest.”
  29. 164 – Taxes. This section allows a deduction for five specific taxes, in addition to other taxes not listed but incurred in relation to a trade or business or an activity for the production of income. Chief among the allowed taxes are state and local income and property taxes.
  30. 165– Losses. This section generally allows a deduction for all losses sustained during the year. It then limits the deductibility of wagering losses, capital losses, losses suffered by individuals, and losses due to the worthlessness of securities. For individuals, the allowed losses must be incurred in a “trade or business,” a “transaction for profit,” a “casualty” or a “theft.” Individual casualty losses are subjected to further significant limitations. Contrast an “activity for profit” with the section 162 concept of a “trade or business” and the section 165 concept of an activity “for the production of income.”
  31. 166 – Bad debts. This section allows a deduction for worthless debts, including non-business bad debts. Non-business debts are subject to short-term capital loss treatment.
  32. 167 – Depreciation. This section allows a deduction for depreciation on property used in a “trade or business” or in an “activity for the production of income.”
  33. 168 – Accelerated cost recovery system. The ACRS system provides the methods and definitions for the section 167 allowed depreciation of tangible assets. Specifically, it defines the “depreciation method,” “recovery period,” and “convention.” Contrast this accelerated (downward sloping curve) depreciation of tangible property with the ratable (straight-line) amortization allowed by sections 195 and 197 and the decelerated (upward sloping curve) amortization of pre-paid rent in section 467.
  34. 170 – Charitable, etc., contributions and gifts. This section allows a deduction for charitable contributions. It defines “contributions” as those to five specific types of organizations listed in subsection (c)(2). It reduces the amount of the contribution in subsection (e). It then limits the amounts of the deduction in subsection (b). It also permits the carryover (for up to five years) of contributions exceeding the limitations.
  35. 172 – Net operating loss deduction. A taxpayer may “carry back” and thereby deduct a net operating loss for two years; or, he may “carryover” the NOL for up to twenty years. This section defines an NOL and the excess of allowed deductions over gross income. It ignores, however, seven specific deductions, including “personal exemptions,” “non-business deductions,” and “capital losses.”
  36. 174 – Research and experimental expenditures. This section allows a deduction for many research expenditures. For some expenditures, it provides for capitalization and then amortization over 60 months.
  37. 179 – Election to expense certain depreciable business assets. This sections allows a taxpayer to expense – rather than capitalize – up to $125,000 of the cost of “section 179 property.” This includes tangible property and software acquired by purchase for use in the “active” conduct of a “trade or business.” It limits the election for taxpayer who acquire more than $500,000 in such property in a given year. It also provides for the recapture of the expense if the taxpayer ever ceases to use the expensed property in a trade or business. Compare this recapture provision to the similar provision in section 1245 which is triggered by a disposition of the property rather than by the cessation of business use.
  38. 183 – Activities not engaged in for profit. Often known as the hobby loss provision, this section disallows most deductions for activities not engaged in for profit. If gross income from an activity exceeds the deductions attributable to the activities for three of five consecutive years, the section rebuttably presumes the activity is engaged in for profit.
  39. 195 – Start-up expenditures. This section permits the ratable amortization of start-up expenditures over a period of 180 months. Such expenditures include those related to the investigation, creation, or acquisition of an “active” trade or business. Contrast this ratable (straight-line) amortization with the accelerated (downward sloping curve) depreciation of tangible property allowed by section 167 and the decelerated (upward sloping curve) amortization of pre-paid rent in section 467.
  40. 197--- Amortization of goodwill and certain other intangibles. This section permits the ratable amortization of goodwill, licenses, permits, covenants not to compete, franchises, trademarks, and trade names over a period of 15 years. Contrast this ratable (straight-line) amortization with the accelerated (downward sloping curve) depreciation of tangible property allowed by section 167 and the decelerated (upward sloping curve) amortization of pre-paid rent in section 467.
  41. 212 -- Expenses for production of income. This section allows “ordinary” and “necessary” “expenses” “incurred” for the “production of income.” It also allows expenses for the management or maintenance of property held for the production of income, as well as expenses in connection with the determination, collection, or refund of any tax. Contrast an activity “for the production of income” with the section 162 concept of a “trade or business” and the section 165 concept of an “activity for profit.”
  42. 215 – Alimony, etc., payments.
  43. 217 – Moving Expenses.
  44. 219 – Retirement savings.
  45. 243 – Dividends received by corporations.
  46. 262 – Personal, living, and family expenses.
  47. 263 – Capital Expenditures.
  48. 264 -- Certain amounts paid in connection with insurance contracts.
  49. 265 – Expenses and interest relating to tax-exempt income.
  50. 267 – Losses, expenses, and interest with respect to transactions between related taxpayers.
  51. 274 –Disallowance of certain entertainment, etc., expenses.
  52. 280A -- Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc.
  53. 280F -- Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes.
  54. 301 – Distributions of Property.
  55. 318 -- Constructive ownership of stock.
  56. 351
  57. 401
  58. 404
  59. 446
  60. 451
  61. 453
  62. 461
  63. 465
  64. 467
  65. 469
  66. 482
  67. 501
  68. 511
  69. 641
  70. 651
  71. 661
  72. 701
  73. 721
  74. 1001
  75. 1011
  76. 1012
  77. 1014
  78. 1015
  79. 1016
  80. 1017
  81. 1031
  82. 1033
  83. 1041
  84. 1091
  85. 1211
  86. 1212
  87. 1221
  88. 1222
  89. 1223
  90. 1231
  91. 1235
  92. 1237
  93. 1244
  94. 1245
  95. 1250
  96. 1361
  97. 1366
  98. 6501
  99. 6511
  100. 7701

Sec. 1 Tax imposed

(a) Married individuals filing joint returns and surviving spouses

There is hereby imposed on the taxable income of--

(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and

(2) every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following table:

If taxable income is: The tax is:
Not over $36,900 15% of taxable income.
Over $36,900 but not over $5,535, plus 28% of the
$89,150. excess over $36,900.
Over $89,150 but not over $20,165, plus 31% of the
$140,000. excess over $89,150.
Over $140,000 but not over $35,928.50, plus 36% of the
$250,000. excess over $140,000.
Over $250,000. $75,528.50, plus 39.6% of the
excess over $250,000.
(b) Heads of households

There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table:

If taxable income is: The tax is:
Not over $29,600 15% of taxable income.
Over $29,600 but not over $4,440, plus 28% of the
$76,400. excess over $29,600.
Over $76,400 but not over $17,544, plus 31% of the
$127,500. excess over $76,400.
Over $127,500 but not over $33,385, plus 36% of the
$250,000. excess over $127,500.
Over $250,000 $77,485, plus 39.6% of the
excess over $250,000.
(c) Unmarried individuals filing (other than surviving spouses and heads of households)

There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table:

If taxable income is: The tax is:
Not over $22,100. 15% of taxable income.
Over $22,100 but not over $3,315, plus 28% of the
$53,500. excess over $22,100.
Over $53,500 but not over $12,107, plus 31% of the
$115,000. excess over $53,500.
Over $115,000 but not over $31,172, plus 36% of the
$250,000. excess over $115,000.
Over $250,000. $79,772, plus 39.6% of the
excess over $250,000.
(d) Married individuals filing separate returns

There is hereby imposed on the taxable income of every married individual (as defined in section 7703) who does not make a single return jointly with his spouse under section 6013, a tax determined in accordance with the following table:

If taxable income is: The tax is:
Not over $18,450 15% of taxable income.
Over $18,450 but not over $2,767.50, plus 28% of the
$44,575. excess over $18,450.
Over $44,575 but not over $10,082.50, plus 31% of the
$70,000. excess over $44,575.
Over $70,000 but not over $17,964.25, plus 36% of the
$125,000 excess over $70,000.
Over $125,000 $37,764.25, plus 39.6% of the
excess over $125,000.
(e) Estates and trusts

There is hereby imposed on the taxable income of--

(1) every estate, and

(2) every trust, taxable under this subsection a tax determined in accordance with the following table:

If taxable income is: The tax is:
Not over $1,500 15% of taxable income.
Over $1,500 but not over $3,500 $225, plus 28% of the excess
over $1,500.
Over $3,500 but not over $5,500 $785, plus 31% of the excess
over $3,500.
Over $5,500 but not $1,405, plus 36% of the excess
over $7,500 over $5,500.
Over $7,500 $2,125, plus 39.6% of the excess
over $7,500.
(f) Phaseout of marriage penalty in 15-percent bracket; adjustments in tax tables so that inflation will not result in tax increases

(1) In general

Not later than December 15 of 1993, and each subsequent calendar year, the Secretary shall prescribe tables which shall apply in lieu of the tables contained in subsections (a), (b), (c), (d), and (e) with respect to taxable years beginning in the succeeding calendar year.

(2) Method of prescribing tables

The table which under paragraph (1) is to apply in lieu of the table contained in subsection (a), (b), (c), (d), or (e), as the case may be, with respect to taxable years beginning in any calendar year shall be prescribed--

(A) except as provided in paragraph (8), by increasing the minimum and maximum dollar amounts for each rate bracket for which a tax is imposed under such table by the cost-of-living adjustment for such calendar year,

(B) by not changing the rate applicable to any rate bracket as adjusted under subparagraph (A), and

(C) by adjusting the amounts setting forth the tax to the extent necessary to reflect the adjustments in the rate brackets.

(3) Cost-of-living adjustment

For purposes of paragraph (2), the cost-of-living adjustment for any calendar year is the percentage (if any) by which--

(A) the CPI for the preceding calendar year, exceeds

(B) the CPI for the calendar year 1992.

(4) CPI for any calendar year

For purposes of paragraph (3), the CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of such calendar year.

(5) Consumer Price Index

For purposes of paragraph (4), the term "Consumer Price Index" means the last Consumer Price Index for all-urban consumers published by the Department of Labor. For purposes of the preceding sentence, the revision of the Consumer Price Index which is most consistent with the Consumer Price Index for calendar year 1986 shall be used.