Chapter 7
Tax Research for
Compliance and
Tax Planning
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 taxpayer’s and IRS’s 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
Judicial case 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
Internal Revenue 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.
Cite as 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.
Dep’t 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 Dep’t
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
Courts have 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 court’s 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
AICPA’s Statements on Standards for Tax
Services
Supplements the AICPA Code of
Professional Conduct
CPA tests students on tax research
