Module 2

1
Module 2

• Tax Research Primary and Secondary Sources of
  Tax Law

2
Module Topics

• Overview of a Professional Tax Practice
• Primary Sources of Tax Law
• Secondary Sources of Tax Law
• Tax Research Methodology

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Overview of a Professional Tax Practice

• Key Learning Objective
• Understand the general nature of a professional
  tax practice

4
Major Areas of Tax Services Provided to Clients

• Tax return preparation
• Tax planning
• Representation of a client before the IRS

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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

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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

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Primary Sources of Tax Law

• Key Learning Objectives
• Identify the primary sources of tax law
• Understand the use of these sources in tax
  research

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Overview of the Primary Sources

• The Statute
• Administrative Pronouncements
• Judicial Decisions

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The Statute

• Legislative Process
• House Senate Joint Conference President
• Importance of committee reports
• Internal Revenue Code
• Authoritative weight
• History
• Organization
• Citation

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Research Query Code Cite

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

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Solution--Research QueryCode 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).

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Major Administrative Pronouncements

• Treasury Regulations
• Legislative vs. interpretative
• Authoritative weight
• Proposed temporary final
• Organization
• Citation
• Revenue Rulings
• Revenue Procedures

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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.

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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).

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Other Administrative Pronouncements

• Private letter rulings
• Determination letters
• Technical advice memoranda
• General counsel memoranda
• Information releases and announcements
• IRS publications
• IRS press releases

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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

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Judicial Considerations

• Jurisdiction
• Publication and citation of decisions
• Commissioner's acquiescence and nonacquiescence
• Appeals
• Precedence
• Authoritative weight

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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.

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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

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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

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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

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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

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Tax Services

• Annotated tax services
• Code oriented
• Topical tax services
• Subject oriented
• Special features
• Code regulations committee reports
  annotations explanations illustrations citator

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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

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Computer Search Techniques

• Develop a search query and request documents
• Narrow or broaden search, if necessary
• Select and study documents

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Tax Research Methodology

• Key Learning Objective
• Conduct a tax research project in a systematic
  and organized manner

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Types of Research Projects

• Closed fact
• Past transaction
• Objective tax compliance
• Open fact
• Future transaction
• Objective tax planning

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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

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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

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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?