The concept of tax expenditure is gradually being implemented into the budget process in the Russian Federation, which justifies the relevance of this research. Russia uses the legislative approach towards identification of tax spending, which has a weak theoretical-methodological base. There is currently no precise criterion for allocation of tax expenditures, while the definition formulated by the Article 6 of the Budgetary Code of the Russian Federation further complicates their identification. Thus, there is an objective need for development of more comprehensive approach towards identification of tax expenditures from the theoretical perspective. The study of foreign practice allowed concluding that qualification of the tax norm, as a tax expenditure is a rather debatable question. The novelty and scientific-practical importance of the conducted research consists in the proposed interpretation of tax expenditures and tax incentives, which reflects their main attribute consisting in divergence from the fundamental principles of taxation, and ensures accord with the concepts used in the budgetary legislation. The authors develop an algorithm for identifying tax expenditures, based on solution of the task on determination of adherence of the content of tax norm to the key elements of the mechanism of functionality of a tax incentive.