Ideas for tax legislation may be presented to Congress by the president, various interest groups such as Chambers of Commerce, American Institutes of CPAs, state societies of CPAs, tax attorneys, and tax payer advocacy groups. They will send letters and documents to their congressmen asking them to sponsor legislation to alleviate certain hardships and tax law ambiguities faced by their constituents and members.
Sometimes a bill is introduced to override a Supreme Court decision that a majority of the Supreme Court ruled on and whose decision was unfavorable to the taxpayer who appealed to the court and other taxpayers with similar situations. Overriding a Supreme Court decision occurs very infrequently. All tax legislation is first introduced in the House Ways and Means Committee.
Once a tax idea is viewed favorably by one or more congressmen, it is sent to a member who serves on the House Ways and Means Committee. The committee members will discuss the introduced bill’s merits, advantages and disadvantages and bring up ideas of their own they want to see enacted into law. The committee may hold public hearings allowing interested parties to present their ideas concerning the introduced tax legislation.
‘‘Most tax bills die in committee, or the topic of the bill has been introduced a number of times so one bill is created from the numerous bills sent to the committees or subcommittees.’’
After the Ways and Means Committee hears all oral testimony and reviews written comments from committee members and outside interested parties, they will draw up a bill and vote on it. Once the bill has been finalized it becomes a committee report that describes the proposed legislation amending the Internal Revenue Code. The members will then take a vote to approve the committee report. If it is not approved, the bill is tabled. The committee may later discuss changes to the tabled committee report to gain approval of dissenting members.
If the final committee report is approved by a majority of the members, it goes to floor of the House of Representatives. The House members discuss and debate the committee report’s particular provisions, advantages and disadvantages for taxpayers and members of certain interest groups. After members of the House have finished discussing and debating the bill, they will vote on it.
Congress maintains records of the House discussions and they become part of the Congressional Record, which is included in some of the electronic legal libraries such as Lexis-Nexis and West Law [Karlin, page 49]. If a majority of members vote the bill down, it dies. If approved, the bill is assigned a number, such as H. R. 2010. The text of the House bill then moves to the Senate Finance Committee.
Senate Finance Committee
The Senate Finance Committee marks up the House bill and most likely will add other items or amend certain provisions of the House bill. The Senate Finance Committee will discuss the proposals and draw up a bill to be voted on by the committee members. The committee then votes on the bill.
If a majority of members do not approve the bill, it is tabled. The committee may later discuss changes to the tabled committee report to gain approval of the dissenting members. If the committee report is approved by a majority of the members, it is assigned a Senate committee report number and sent to full floor of the Senate. The bill sent to the floor of the Senate will almost always be different than the bill passed by the House of Representatives.
Members of the Senate discuss and debate the Senate Finance Committee’s report provisions, its advantages and disadvantages for taxpayers and members of certain interest groups. After members of the Senate have finished discussing and debating the bill, they vote on it. If a majority vote it down, the bill is dead. If a majority approves the bill, and it is different from the House bill, it is sent to the House-Senate Conference Committee.
House-Senate Conference Committee
The Conference Committee is comprised of designated members of the House Ways and Means Committee and the Senate Finance Committee. This committee will discuss and debate the House and Senate bills and attempt to reach an agreement to resolve differences between the Senate and House bills. If the compromise bill is approved, it is sent to the full House and Senate for their approval.
The final bill from the Conference Committee cannot be amended by the House or Senate. If both the House and Senate approve the Compromise Committee’s bill, it becomes a Federal Act and is assigned a number and name. The provisions of the Federal Act are incorporated into the Internal Revenue Code. The Act is then sent to the president to be signed or vetoed.
President’s signature or veto
If the president plans to sign the bill, he may invite the House and Senate members sponsoring the Act and influential members of special interest groups to come to the White House for the signing ceremony. The signed bill will be assigned a specific date when the bill goes into effect. If the president vetoes the bill, it is then sent back to the Senate and House for a vote to override the president’s veto. To override a veto, 2/3 of the House and Senate must approve the override. If it is approved, the Federal Act becomes law. If 2/3 of the members of either the House or Senate, or both fail to override the veto, the bill is dead.
Amending and interpreting the Internal Revenue Code
Once the law is signed by the president, it becomes part of the Internal Revenue Code. The Code is written in legal language and is very general. The IRS issues regulations to interpret various parts of the Code. There are temporary and final regulations. Temporary regulations are issued so CPAs, tax attorneys, and other interested parties can review the temporary regulations and discuss them with the IRS and suggest various revisions and clarifications. Once the IRS is satisfied with the temporary regulations, they will issue these in final form. The final regulations are considered law just as the Internal Revenue Code is.
IRS Revenue Rulings
The IRS issues Revenue Rulings to interpret and indicate how the various provisions of the Internal Revenue Code, regulations, and court cases should be applied in a particular taxpayer’s situation. Revenue Rulings cannot be relied on by other taxpayers since they pertain only to particular taxpayers to whom they were issued. However, rulings do give other taxpayers and their representatives with similar tax situations an idea of the IRS’s thinking and position taken on certain tax matters.
Information for this article was based on my experience teaching income tax law and from the website: Other information was adapted from the textbook Tax Research by Barbara H. Karlin (Prentice Hall, 2010, pp. 48-52).