Chapter 7

Tax Research
for
Compliance
 Learning Objectives

Tax research goals

Tax research challenges
Tax research databases
Primary tax authorities
Code, Treasury Regs, and cases
Tax research process
Professional standards
 Tax Research Goals

Not always to get the lowest tax liability

Maximize after-tax return or benefits
Some desire to minimize disputes
Distinguish
Tax Evasion illegal acts
Tax Avoidance minimize taxes legally
Abusive Tax Avoidance
misapplying tax laws, some tax shelters
Tax Research - Defined
Two different types of tax research exist:
Applied tax research
Checks existing law, examines the impact
on a given situation.
This textbook uses applied tax research.
Academic tax research
Often empirical, behavioral tax research
Some policy oriented for society at large
Occasionally theoretical
Tax Research Challenges

Determine the relevant facts.

Facts include events and
both the taxpayers and IRSs positions.
Many disputes have questions of fact.
Relevancy decided by applicable law.
Relevant facts are those that make a
difference in how the law is applied.
Colorable facts are those that
only some people consider relevant.
Tax Research Challenges
(contd.)
Find and examine relevant tax laws.
Apply the law to the facts
to determine the tax consequences.
Alternative correct paths may exist.
Inform the client of differing options.
 Tax Practice
Three types of tax practice for research:
Tax Compliance
Completes tax returns
(facts have already occurred)
Tax Planning
Open fact engagements
Carefully executed tax avoidance.
Planning requires knowledge and
skills.
Tax Litigation
Lawyers handle tax litigation.
Tax Research Databases
Many alternative sources of tax law exist
Legal databases - LexisNexis and Westlaw.
Specialized tax databases -RIA and CCH.
Research Institute of America RIA Checkpoint
Commerce Clearing House - CCH IntelliConnect
previously CCH had Tax Research Network
Databases include both
Primary tax authorities: Code, Regs, & cases
Secondary authorities: tax services, treatises
IRS publications, private letter rulings,
Primary Tax Authorities

Created by the 3 areas of government:

Congress, the executive branch, & the courts
Hierarchy of tax law exists:
Statutory law
Law passed by Congress, signed by President
US Constitution, tax treaties also part of top
level
 Primary Tax Authorities

Administrative regulations
Treasury Department releases
treasury regulations
Internal Revenue Service creates
Revenue Rulings
Court cases
Judicialcase decisions are law in
common law countries, such as the
United States
Hierarchy exists
The Code - Introduction

Statutory law for federal taxation

commonly referred to as the Code or
IRC
InternalRevenue Code of 1986, as Amended
Found in Title 26 of the U.S. Code
Within the Code, refer to sections ().
Sections are uniquely numbered
The Code - Introduction
(contd.)

To find a code section, search by

keywords, drill down in table of
contents, or use the index
in the Code or a Tax Service.
If
the code section number is known,
the citation approach can access it
quickly.
 The Code - Sections
A section is divided into subsections,
paragraphs, subparagraphs, clauses.
Citeas specific as possible within the
section, such as subsection, paragraph, or
subparagraph.
Always read subsection (a) carefully.
Scan other subsections for relevancy.
If another code section is referenced in a
relevant part, examine that other section.
 Administrative
Authorities
Citation to a regulation references
the Code provision explained.
The Executive branch issues admin.
auth.
The Treasury Department creates Treasury
regulations interpret and clarify statutory
law
Internal Revenue Service is part of Treas.
Dept creates lesser authorities and
enforces the law.
 Administrative
Authorities
(contd.)
Three types of Treasury Regulations
Proposed Regs trial balloons not
authority
Temporary Regs - no public hearings,
legally binding, but expire in 3 years
Final Regulations go through public
hearing process, follow the regulations
or penalties exist
 Treasury Regulations -

Final
Two types of final regulations
Legislative Regulations
Arise when Congress has delegated specific
law-making authority to the Treasury Dept
Interpretive Regulations
Arise under the authority of Section 7805(a)
which expressly provides that the Treasury
Department Secretary shall prescribe all
needful rules and regulations for the
enforcement of this title.
Most consider both types equal in
weight of authority, some favor
legislative regulations
 Revenue Ruling &
Revenue Procedures
Revenue Rulings and Revenue
Procedures
Both issued by the IRS.
Revenue Rulings
Apply the law to a specific set of facts.
Weaker than Treasury Regulations.
Citation to a rev. rul. does not reference the
Code sec., but some publishers add that info.
 Revenue Ruling &
Revenue Procedures
(contd.)
Revenue Procedures
Provides procedural requirements that
taxpayers must follow, such as
documents to include when filing a tax
return involving
a Sec. 351 tax-free incorporation.
 Judicial Sources

Court decisions interpret the

Code and the Regulations
Courtshave the final say regarding
what the Code words really mean.
Judicial Precedent
Courts will follow prior case holdings
 Judicial Sources
(contd.)

Federal court hierarchy exists

Supreme Court is the highest court
Courts of Appeals is the second highest
Three alternative trial courts:
Tax Court, District Court, & Court of
Federal Claims
 U.S. Tax Court

Advantage to the taxpayer:

No prepayment needed for
the amount in dispute.
Other trial courts consider only
refunds.
Acquiescence (acq.) IRS will follow
the courts decision in similar cases.
U.S. Tax Court (contd.)

Tax Court has two types of decisions

Regular decision - Chief judge
decides
if new legal principle announced
Memorandum decision applies
prior principle to new facts
 U.S. Court of Appeals

U.S. Court of Appeals

Court of Appeals considers only the
application of the law, not
redetermination of facts.
Both taxpayers and IRS can appeal Tax
Court and District Court decisions to the
relevant regional Court of Appeals
13 court of appeals, 11 regional, DC and
Federal citation must be specific
District courts must follow precedent set
by the relevant circuit court.
 U.S. Supreme Court

Considers few cases involving tax

issues.
All courts must follow the precedent
from the Supreme Court.
U.S. Congress can overturn a decision
by passing new statutory law.
The citator enables the researcher to
check the subsequent decisions
referencing a case, and the case history
 Evaluating Tax
Authorities
The Code is the strongest authority
Treasury Regulations are the
next strongest authority
Supreme Court decision applies to all
courts and taxpayers.
Circuit court decisions are either
precedent or influential on other courts.
Published IRS Revenue Rulings and
Revenue Procedures are binding on IRS
revenue agents, but not the courts
Steps in Conducting Tax
Research
1. Investigate the facts and identify
issues
2. Collect the appropriate authorities
3. Analyze the research
4. Develop the reasoning and conclusions
5. Communicate the results
 Standards for Tax

IRS Circular 230

Governs practice before the IRS and
provides enforceable standards of
conduct
Impacted tax practice in various ways
AICPAs Statements on Standards for
Tax Services
Supplements the AICPA Code of
Professional Conduct
CPA tests students on tax research