Module 2 Tax Research: Primary and Secondary Sources of Tax Law.

Module 2

Tax Research: Primary and Tax Research: Primary and Secondary Sources of Tax Secondary Sources of Tax

LawLaw

Module Topics

Overview of a Professional Tax PracticeOverview of a Professional Tax Practice Primary Sources of Tax LawPrimary Sources of Tax Law Secondary Sources of Tax LawSecondary Sources of Tax Law Tax Research MethodologyTax Research Methodology

Overview of a Professional Tax Practice

Key Learning ObjectiveKey Learning Objective

Understand the general nature of a Understand the general nature of a professional tax practiceprofessional tax practice

Major Areas of Tax Services Provided to Clients

Tax return preparationTax return preparation Tax planningTax planning Representation of a client before the IRSRepresentation of a client before the IRS

Importance of Tax Research

Integral part of return preparation, tax Integral part of return preparation, tax planning, and client representationplanning, and client representation

Tax research includes:Tax research includes: Identifying the tax issuesIdentifying the tax issues Locating and analyzing relevant tax authorityLocating and analyzing relevant tax authority Developing answers to the tax issuesDeveloping answers to the tax issues

Legal and Ethical Responsibilities in Tax Research Treasury Department Circular 230Treasury Department Circular 230 Taxpayer and tax preparer penaltiesTaxpayer and tax preparer penalties Codes of professional conductCodes of professional conduct Statements on Responsibilities in Tax Statements on Responsibilities in Tax

PracticePractice

Primary Sources of Tax Law

Key Learning ObjectivesKey Learning Objectives

Identify the primary sources of tax lawIdentify the primary sources of tax law Understand the use of these sources in tax Understand the use of these sources in tax

researchresearch

Overview of the Primary Sources

The StatuteThe Statute Administrative PronouncementsAdministrative Pronouncements Judicial DecisionsJudicial Decisions

The Statute

Legislative ProcessLegislative Process House; Senate; Joint Conference; PresidentHouse; Senate; Joint Conference; President Importance of committee reportsImportance of committee reports

Internal Revenue CodeInternal Revenue Code Authoritative weightAuthoritative weight HistoryHistory OrganizationOrganization CitationCitation

Research Query: Code Cite

Give the full cite of the code section that Give the full cite of the code section that states whether or not a states whether or not a qualified scholarshipqualified scholarship is gross income.is gross income.

Solution--Research Query:Code Cite: §117(a)

§117 (a) states:§117 (a) states:

(a) General rule.(a) General rule.

Gross income does Gross income does notnot include any amount include any amount received as a qualified scholarship by an received as a qualified scholarship by an individual who is a candidate for a degree at individual who is a candidate for a degree at an educational organization described in an educational organization described in section 170(b)(1)(A)(ii).section 170(b)(1)(A)(ii).

Major Administrative Major Administrative PronouncementsPronouncements

Treasury RegulationsTreasury Regulations Legislative vs. interpretativeLegislative vs. interpretative Authoritative weightAuthoritative weight Proposed; temporary; finalProposed; temporary; final OrganizationOrganization CitationCitation

Revenue RulingsRevenue Rulings Revenue ProceduresRevenue Procedures

Research Query: Regulation Cite

Give the full cite of the regulation that defines Give the full cite of the regulation that defines a qualified scholarship.a qualified scholarship. Caution: The Treasury has not yet amended Reg Caution: The Treasury has not yet amended Reg

§1.117-6 to reflect changes made by P.L. 100-647.§1.117-6 to reflect changes made by P.L. 100-647. HINT: The tax treatment of scholarships was HINT: The tax treatment of scholarships was

changed in 1986. New regulations were changed in 1986. New regulations were proposed several years ago, but they have not proposed several years ago, but they have not been issued in final form.been issued in final form.

Solution--Research Query: Prop Reg §1.117-6(c)(1)

(c) Definitions.(c) Definitions.

(1) Qualified scholarship.(1) Qualified scholarship.

For purposes of this section, a qualified scholarship is any For purposes of this section, a qualified scholarship is any amount received by an individual as a scholarship or amount received by an individual as a scholarship or fellowship grant (as defined in paragraph (c)(3) of this fellowship grant (as defined in paragraph (c)(3) of this section), to the extent the individual establishes that, in section), to the extent the individual establishes that, in accordance with the conditions of the grant, such accordance with the conditions of the grant, such amount was used for qualified tuition and related amount was used for qualified tuition and related expenses (as defined in paragraph (c)(2) of this expenses (as defined in paragraph (c)(2) of this

section).section).

Other Administrative Other Administrative PronouncementsPronouncements

Private letter rulingsPrivate letter rulings Determination lettersDetermination letters Technical advice memorandaTechnical advice memoranda General counsel memoranda General counsel memoranda Information releases and announcementsInformation releases and announcements IRS publicationsIRS publications IRS press releasesIRS press releases

Federal Tax Judicial System

Courts of original jurisdictionCourts of original jurisdiction Tax CourtTax Court

Small cases division (no appeal)Small cases division (no appeal)

District CourtsDistrict Courts Claims CourtClaims Court

Appellate courtsAppellate courts Circuit Courts of AppealCircuit Courts of Appeal Supreme CourtSupreme Court

Judicial Considerations

JurisdictionJurisdiction Publication and citation of decisionsPublication and citation of decisions Commissioner's acquiescence and Commissioner's acquiescence and

nonacquiescencenonacquiescence AppealsAppeals PrecedencePrecedence Authoritative weightAuthoritative weight

Research Query: Case Cite

National Labor Relations Board (NLRB) National Labor Relations Board (NLRB) ruled that hospital interns and resident ruled that hospital interns and resident physicians are students NOT employees.physicians are students NOT employees.

Find a court case that helps determine Find a court case that helps determine whether the NLRB ruling means that whether the NLRB ruling means that payments to interns are not for services payments to interns are not for services since the interns are not employees.since the interns are not employees.

Solution--Research Query: Case Cite

Saber, Joseph, (1981) TC Memo 1981-477Saber, Joseph, (1981) TC Memo 1981-477

An NLRB ruling that hospital interns and An NLRB ruling that hospital interns and resident physicians are students rather than resident physicians are students rather than employees for labor relations purposes isn't employees for labor relations purposes isn't binding for tax purposes. binding for tax purposes.

Also cited in other services as follows:Also cited in other services as follows: PH TCM ¶81477, PH TCM ¶81477, 42 CCH TCM 945; 42 CCH TCM 945;

Secondary Sources of Tax Law

Key Learning ObjectivesKey Learning Objectives

Determine the secondary tax reference Determine the secondary tax reference materialsmaterials

Understand the manner in which these Understand the manner in which these materials are utilized in tax researchmaterials are utilized in tax research

Overview of Secondary Sources

Annotated tax servicesAnnotated tax services Topical tax servicesTopical tax services Electronic databases and tax servicesElectronic databases and tax services Textbooks, periodicals, and newslettersTextbooks, periodicals, and newsletters Published proceedings of tax institutes and Published proceedings of tax institutes and

conferencesconferences

Secondary Sources Help Researchers To

Understand the tax topics under studyUnderstand the tax topics under study Formulate ideas and identify tax issuesFormulate ideas and identify tax issues Locate the primary sources of authority that Locate the primary sources of authority that

apply to the issuesapply to the issues Evaluate the primary authorityEvaluate the primary authority

Tax Services

Annotated tax servicesAnnotated tax services Code orientedCode oriented

Topical tax servicesTopical tax services Subject orientedSubject oriented

Special featuresSpecial features Code; regulations; committee reports; Code; regulations; committee reports;

annotations; explanations; illustrations; citatorannotations; explanations; illustrations; citator

Computer-Assisted Tax ResearchRapidly Replacing Paper Tax Services

Web based services Web based services RIA: http://www.riag.com/RIA: http://www.riag.com/ LEXIS: http://www.lexis-nexis.com/lncc/LEXIS: http://www.lexis-nexis.com/lncc/ CCH: http://www.cch.com/CCH: http://www.cch.com/

CD-ROM systemsCD-ROM systems e.g., OnPoint; OneDisc; Kleinrocke.g., OnPoint; OneDisc; Kleinrock

Computer Search Techniques

Develop a search query and request Develop a search query and request documentsdocuments

Narrow or broaden search, if necessaryNarrow or broaden search, if necessary Select and study documentsSelect and study documents

Tax Research Methodology

Key Learning ObjectiveKey Learning Objective

Conduct a tax research project in a Conduct a tax research project in a systematic and organized mannersystematic and organized manner

Types of Research Projects

Closed factClosed fact Past transactionPast transaction Objective: tax complianceObjective: tax compliance

Open factOpen fact Future transactionFuture transaction Objective: tax planningObjective: tax planning

Tax Research Process

Gather the factsGather the facts Define the tax issuesDefine the tax issues Locate applicable primary authorityLocate applicable primary authority Evaluate the authorityEvaluate the authority Form conclusions to the issuesForm conclusions to the issues Communicate the results of the researchCommunicate the results of the research

Client letterClient letter Legal memorandumLegal memorandum

Legal Memorandum

FactsFacts Include all relevant facts; omit all irrelevantInclude all relevant facts; omit all irrelevant

IssuesIssues Posed as concise questionsPosed as concise questions

ConclusionsConclusions Stated as brief, direct answers to the issuesStated as brief, direct answers to the issues

Arguments and authoritiesArguments and authorities Discuss applicable primary authorityDiscuss applicable primary authority

Ethical Consideration

Small Co. and Rich Co. each enter into Small Co. and Rich Co. each enter into substantially identical profitable transactions. substantially identical profitable transactions.

Small Co. reports the transaction and pays Small Co. reports the transaction and pays $100,000 in taxes.$100,000 in taxes.

Big Co. pays a CPA $10,000 for tax research Big Co. pays a CPA $10,000 for tax research resulting in a $35,000 tax savings.resulting in a $35,000 tax savings.

Who is the more ethical taxpayer?Who is the more ethical taxpayer?