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Module 2. Tax Research: Primary and Secondary Sources of Tax Law. Module Topics. Overview of a Professional Tax Practice Primary Sources of Tax Law Secondary Sources of Tax Law Tax Research Methodology. Overview of a Professional Tax Practice. Key Learning Objective
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Module 2 Tax Research: Primary and Secondary Sources of Tax Law
Module Topics • Overview of a Professional Tax Practice • Primary Sources of Tax Law • Secondary Sources of Tax Law • Tax Research Methodology
Overview of a Professional Tax Practice Key Learning Objective • Understand the general nature of a professional tax practice
Major Areas of Tax Services Provided to Clients • Tax return preparation • Tax planning • Representation of a client before the IRS
Importance of Tax Research • Integral part of return preparation, tax planning, and client representation • Tax research includes: • Identifying the tax issues • Locating and analyzing relevant tax authority • Developing answers to the tax issues
Legal and Ethical Responsibilities in Tax Research • Treasury Department Circular 230 • Taxpayer and tax preparer penalties • Codes of professional conduct • Statements on Responsibilities in Tax Practice
Primary Sources of Tax Law Key Learning Objectives • Identify the primary sources of tax law • Understand the use of these sources in tax research
Overview of the Primary Sources • The Statute • Administrative Pronouncements • Judicial Decisions
The Statute • Legislative Process • House; Senate; Joint Conference; President • Importance of committee reports • Internal Revenue Code • Authoritative weight • History • Organization • Citation
Research Query: Code Cite • Give the full cite of the code section that states whether or not a qualified scholarship is gross income.
Solution--Research Query:Code Cite: §117(a) • §117 (a) states: (a) General rule. Gross income does not include any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization described in section 170(b)(1)(A)(ii).
Major Administrative Pronouncements • Treasury Regulations • Legislative vs. interpretative • Authoritative weight • Proposed; temporary; final • Organization • Citation • Revenue Rulings • Revenue Procedures
Research Query: Regulation Cite • Give the full cite of the regulation that defines a qualified scholarship. • Caution: The Treasury has not yet amended Reg §1.117-6 to reflect changes made by P.L. 100-647. • HINT: The tax treatment of scholarships was changed in 1986. New regulations were proposed several years ago, but they have not been issued in final form.
Solution--Research Query: Prop Reg §1.117-6(c)(1) (c) Definitions. (1) Qualified scholarship. For purposes of this section, a qualified scholarship is any amount received by an individual as a scholarship or fellowship grant (as defined in paragraph (c)(3) of this section), to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses (as defined in paragraph (c)(2) of this section).
Other Administrative Pronouncements • Private letter rulings • Determination letters • Technical advice memoranda • General counsel memoranda • Information releases and announcements • IRS publications • IRS press releases
Federal Tax Judicial System • Courts of original jurisdiction • Tax Court • Small cases division (no appeal) • District Courts • Claims Court • Appellate courts • Circuit Courts of Appeal • Supreme Court
Judicial Considerations • Jurisdiction • Publication and citation of decisions • Commissioner's acquiescence and nonacquiescence • Appeals • Precedence • Authoritative weight
Research Query: Case Cite • National Labor Relations Board (NLRB) ruled that hospital interns and resident physicians are students NOT employees. • Find a court case that helps determine whether the NLRB ruling means that payments to interns are not for services since the interns are not employees.
Solution--Research Query: Case CiteSaber, Joseph, (1981) TC Memo 1981-477 • An NLRB ruling that hospital interns and resident physicians are students rather than employees for labor relations purposes isn't binding for tax purposes. • Also cited in other services as follows: • PH TCM ¶81477, • 42 CCH TCM 945;
Secondary Sources of Tax Law Key Learning Objectives • Determine the secondary tax reference materials • Understand the manner in which these materials are utilized in tax research
Overview of Secondary Sources • Annotated tax services • Topical tax services • Electronic databases and tax services • Textbooks, periodicals, and newsletters • Published proceedings of tax institutes and conferences
Secondary Sources Help Researchers To • Understand the tax topics under study • Formulate ideas and identify tax issues • Locate the primary sources of authority that apply to the issues • Evaluate the primary authority
Tax Services • Annotated tax services • Code oriented • Topical tax services • Subject oriented • Special features • Code; regulations; committee reports; annotations; explanations; illustrations; citator
Computer-Assisted Tax ResearchRapidly Replacing Paper Tax Services • Web based services • RIA: http://www.riag.com/ • LEXIS: http://www.lexis-nexis.com/lncc/ • CCH: http://www.cch.com/ • CD-ROM systems • e.g., OnPoint; OneDisc; Kleinrock
Computer Search Techniques • Develop a search query and request documents • Narrow or broaden search, if necessary • Select and study documents
Tax Research Methodology Key Learning Objective • Conduct a tax research project in a systematic and organized manner
Types of Research Projects • Closed fact • Past transaction • Objective: tax compliance • Open fact • Future transaction • Objective: tax planning
Tax Research Process • Gather the facts • Define the tax issues • Locate applicable primary authority • Evaluate the authority • Form conclusions to the issues • Communicate the results of the research • Client letter • Legal memorandum
Legal Memorandum • Facts • Include all relevant facts; omit all irrelevant • Issues • Posed as concise questions • Conclusions • Stated as brief, direct answers to the issues • Arguments and authorities • Discuss applicable primary authority
Ethical Consideration • Small Co. and Rich Co. each enter into substantially identical profitable transactions. • Small Co. reports the transaction and pays $100,000 in taxes. • Big Co. pays a CPA $10,000 for tax research resulting in a $35,000 tax savings. • Who is the more ethical taxpayer?
