Chapter 15

Tax Research

Learning Objectives

• Describe the steps in the tax research process

• Explain how the facts affect the tax results

• Identify the sources of tax law and understand the authoritative value of each

• Consult the tax services to research an issue

Learning Objectives

• Use a Citator to assess authorities

• Grasp the basics of computerized tax research

• Understand guidelines to which CPAs in tax practice should follow

• Prepare work papers and communications to clients

Client-oriented Tax Research

• Closed fact or tax compliance situations– Least amount of flexibility– Facts established– Best solution within predetermined

constraints

• Open-fact or tax planning situations– help client structure transaction to reach

his/her objective

Steps In Tax Research Process

DETERMINE THE FACTS

IDENTIFY THE ISSUES

LOCATE THE APPLICABLE AUTHORITIES

ASSESS & EVALUATE THEAUTHORITIES

COMMUNICATE YOURCONCLUSIONS &

RECOMMENDATIONSTO INTERESTED PARTY

ANALYZE THE FACTS IN TERMS OF THE APPLICABLE AUTHORITIES

How Do Facts Affect Tax Results?

• Facts guide the issues and questions

• In order to answer questions, must consult many sources

• Interpretations

Typical Misconception

• Many taxpayers think tax law is all black and white; most tax research deals with gray areas, previous findings, & interpretation

The Sources Of Tax Law

• Statutory

• Judicial

• Administrative

Authoritative Value Of Tax Law Sources

• The Internal Revenue Code which constitutes Title 26 of the Federal Statutes is the foundation of all tax law

Organizational Scheme Of The Internal Revenue Code

• Title 26. All matters concerned with taxation– Subtitle A. Income taxes

• Chapter 1. Normal taxes and surtaxes– Subchapter A. Determination of tax liability

» Part 1. Tax on individuals Sec. 1. Tax imposed

• Scheme for sections, subsections, etc

Sec. 165 (h) (2) (A) (i) (ii) Section

Paragraph clauses

Subparagraph

Subsection

Authoritative Value Of Tax Law Sources

• Treasury Regulations – Proposed regulations– Temporary regulations– Final regulations

• Treasury Regulations – The Treasury Dept. issues

regulations as interpretations of the statute

Authoritative Value Of Tax Law Sources

• Interpretative and statutory regulations– Interpretative regulations are issued under the

general authority of Sec. 7805– Statutory regulations are written in situations

where congress delegates its rule-making duties to the treasury. Usually this happens when congress feels it lacks the expertise to deal with a highly technical matter

Authoritative Value Of Tax Law Sources

• Regulations (continued)– CitationsNumber General Subject Matter

1 Income tax 20 Estate tax25 Gift tax

301 Administrative & Procedural matters 601 Procedural rules

Example Of Citation

• Regulation Sec. 1.165 - 5 Fifth

• Income tax code section regulation

Authoritative Value Of Tax Law Sources

• Authoritative weight– The presumption is that final regulations

have the same authoritative weight as statutes

– In addressing the validity of regulations, courts often apply the legislative reenactment doctrine

Administrative Interpretations

• Revenue Rulings• Revenue Procedures• Letter Rulings• Other Interpretations

– Technical advice memoranda– Information releases– Announcements and notices

Judicial DecisionsOverview of the court system

Trial

Courts

Appellate

Courts

US COURT OFFEDERAL CLAIMS

US DISTRICT COURTFOR THE TAXPAYER’S

DISTRICT

TAX COURT

COURT OF APPEALSFOR FEDERAL CIRCUIT

US SUPREME COURT

COURT OF APPEALS FOR TAXPAYER’S GEOGRAPHICAL

JURISDICTION

Tax Services

• United States Tax Reporter• Standard Federal Tax Reporter• Federal Tax Coordinator 2d• Law of Federal Income

Taxation• Tax Management Portfolios• CCH Federal Tax Service• CCH Citator

Citators Purpose

• Give history of a case

• List other authorities that have cited the case in question

Types Of Citators

• Commerce Clearinghouse Citator– History of case may be easier to find– Citator of judicial decisions included at no extra

charge

• Research Institute of America Citator 2nd Series– conveys more information

specific issue in case referenced cases whether favorable,

unfavorable, distinguished

Computers As A Research Tool

• Data Bases– CCH Internet Tax

Research Network– RIA CHECKPOINT– WESTLAW

Statements on Standards for Tax Services (SSTSs)

• Provide grounds for the termination and suspension of one’s professional licenses

• SSTSs are professionally enforced • See appendix for SSTSs

Other SSTSs From AICPA

• Use client’s estimates, when reasonable

• Inform the client of errors

• Do not inform the IRS of errors without client’s permission, except when required by law

Communication With Clients

• Written communication and documentation recommended in important, unusual, or complicated transactions

• Format in terms of process - steps of tax research

• Each firm has it’s way of doing things