Assignment
BOOK REQUIRED: Karlin, B.H. (2009). Tax research (4th ed.). New Jersey: Pearson Prentice Hall.
1. What are the main practical considerations that the tax researcher needs to be aware of when performing tax research? Use this week's readings and lecture to support your answer.
2. Internal Revenue Code (IRC) is the primary source of the tax law, and it is the most well-known and cited tax document. A friend comes to you and asks why it is so long and how would one find anything in it? How would you respond? Describe at least three reasons for the why the IRC is as long as it is, and provide three ways they can navigate it. Use this week's readings and lecture to support your answer.
WEEK LECTURE FOR QUESTIONS 1 AND 2
One of the most difficult tasks any tax practitioner will ever face in his or her career, and yet one of the more important, is that of tax research. The question, "what are the tax consequences of this?" comes up on a regular basis in today's business world. Given the complexity of the tax law and the transactions it governs, tax research is a required skill.
During this week, we review the basic steps of performing the research. We also cover the primary source of tax law you will refer to in this course and in your career - the Internal Revenue Code.
Overview of Tax Research
If U.S. tax laws were simple, there would be no need for the steps we are about to learn. However, the law evolved greatly during decades of legislation and business development, often impacted by political agendas , and grew into the complex set of rules and regulations that it is today (tens of thousands of pages!). Tax research has to be performed to answer most of the questions tax practitioners face today as they serve their employers and clients.
Once the question is defined by the researcher, to effectively answer it he or she must first gather relevant facts relating to the question. Next comes the actual research, when appropriate resources are read and the question is further refined, as needed. When all information is gathered, it is analyzed against the question and the facts to see if there is an answer, or if additional research is more appropriate for the situation. In the last step, the researcher picks the best form of communication, and communicates the results to all interested parties.
Besides the steps of performing tax research, we will also discuss the practical implications of doing it. Not all tax research is effective - sometimes by design and other times by execution.
Internal Revenue Code
One of the main reasons why tax research is not easy is because of the sheer volume of materials that exist that may or may not contain the answers to tax questions. In this portion of the class, we discuss the most important resource of them all - the Internal Revenue Code (oftentimes referred as simply "the Code") - the codification of all the federal tax acts by the Congress and by the President.
When beginning tax research, it is always the best practice to start the process by searching the Code. If the answer is there, that is often all that is needed to answer the question. To help us navigate this complex document, our reading and discussion covers the authorship and the history of the Code (and why it's important), its organization (despite how large the Code is, it is well structured), its language, and how to find what you are looking for inside the Code.
The two key takeaways from this week's reading are -
1. There are four steps to effective tax research.
2. The Internal Revenue Code is structured, and can be navigated with care and effort.
3. Read the article Try Lady Gaga's Clever Clothes Write-Off On Your Taxes? The author of the article links the Hamper vs Commissioner court case. Review the case and discuss one of the key arguments the judge used to deny the deduction and why you agree or disagree with it. Use this week's readings and lecture to support your answer.
4. What steps must a researcher take to ensure the reliability of a court case? Use this week's readings and lecture to support your answer.
WEEK LECTURE FOR QUESTIONS 3 AND 4
During last week's discussion we covered the basic steps of performing tax research, and the first and most important resource of finding tax answers, the Internal Revenue Code. During this week's class, we will learn about other resources that are often used in tax research - treasury and judicial interpretations.
Treasury Interpretations
As we learned during the first week of the class, tax law is not limited to the Internal Revenue Code. The Treasury Department also publishes laws and its interpretations in regulations, rulings, revenue procedures and letter rulings, most of which are also considered primary authority for tax research.
The Internal Revenue Code is further expanded by the Treasury Regulations (also commonly referred as Regulations, or simply, ‘Regs'). The Treasury's purpose with these is to clarify, expand and interpret the provisions of the Code. This is where tax research is getting more complicated - because the regulations are lengthier than the Code, but are still oftentimes very broad and don't address particular facts. Not all regulations are final either; there are also proposed and temporary regulations.
Revenue rulings attempt to solve these issues with the regulations by providing more specific analysis of various transactions and relevant tax laws. Instead of being very general in nature, they address unnamed hypothetical tax situations and how the laws apply in these cases.
Revenue procedures are not fact specific like rulings, but they are formatted in similar ways as rulings. What makes them different is that they provide important procedural information on various tax-related topics, and can serve as a good source for research on topics that are more procedural in nature, such as how to change an accounting method.
Lastly, additional sources of tax information we cover include private letter rulings ("PLRs" in tax jargon) and technical advice memoranda (more frequently referred as "TAMs"). They are the least authoritative of the group due to their content - a response by the National Office of the IRS to a specific tax question from a taxpayer or an IRS officer about a certain fact specific question. They are published to serve as guidance about how the IRS interprets specific transactions and facts.
Judicial Interpretations
What makes tax law even more complex is that it is full of areas that are either not clear, incomplete, or usually both. The taxpayer reads the law, takes one position based on their interpretation of that law, but the IRS disagrees because it interprets that law differently. In situations where the written (administrative) law is unclear and both parties disagree, they go to court and have to rely on the court process and judges to interpret the law. Judicial interpretations (also known as "case law") are another resource for tax research that we cover this week.
To understand where the law comes from, we discuss various courts that decide tax matters. They include lower courts, such as district courts, and higher courts, such as circuit courts of appeals, and go up all the way to the highest court in the United States, the Supreme Court, which also on occasion decides on a tax matter.
As with the administrative interpretations, it's important to understand the relative authority of the decisions reached at various levels of judicial interpretations. We go through the logic of that in this week's reading. We also cover the structure of these cases, and the legal language used in the published cases, which you will find helpful as you begin reading them. We finish off with the discussion about avoiding common mistakes of using case law, such as forgetting to check the Citator about whether an earlier court case has been overruled.