chapter 5 tax research mcgraw-hill/irwin copyright © 2014 by the mcgraw-hill companies, inc. all...
TRANSCRIPT
Chapter 5Chapter 5
Tax Research
McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
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ObjectivesObjectives
Understand and apply the six steps of the tax research process
Identify primary sources of tax law Utilize secondary sources of tax law to locate
primary authorities
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The Tax Research ProcessThe Tax Research Process
Step 1: Understand the client’s transaction and get the facts
Step 2: Identify the tax issues, problems, or opportunities suggested by the facts and formulate specific research questions
Step 3: Locate relevant tax law authority Step 4: Analyze relevant authority and
answer the research questions Step 5: Repeat steps 1 through 4 as
many times as necessary Step 6: Document your research and
communicate your conclusions
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The Tax Research Process GraphicallyThe Tax Research Process Graphically
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Step 1: Get the FactsStep 1: Get the Facts
Researcher must understand client’s motivation, economic objectives, desired outcome, and identified risks
Get the “who, what, when, where, why, and how” of the transaction or proposed transaction
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Step 2: Identify the IssuesStep 2: Identify the Issues
Given the facts, researcher must identify the related tax issues and formulate specific research questions Issues may be quite broad
Example: Is a loss deductible? Research questions should be as precise as possible
Example: Can the loss be recognized? What is the character of the recognized loss? Given the character, to what extent can the loss be deducted in the year of sale?
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Step 3: Locate AuthorityStep 3: Locate Authority
Primary authorities Internal Revenue Code of 1986 Treasury Regulations IRS guidance
Revenue Rulings Revenue Procedures Items representing authority only for taxpayer to whom
issued Private letter rulings Technical advice memoranda
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Step 3 continuedStep 3 continued
Additional primary authorities Judicial decisions – Trial courts
U.S. Tax Court U.S. District Court U.S. Court of Federal Claims
Judicial decisions – Appellate courts 13 U.S. Circuit Courts of Appeals U.S. Supreme Court
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Step 3 continuedStep 3 continued
Secondary authorities Textbooks Professional journals Commercial tax services
Code-arranged services, such as RIA’s United States Tax Reporter, and CCH’s Standard Federal Tax Reporter
Topically arranged services, such as RIA’s Federal Tax Coordinator 2d, CCH’s Federal Tax Service, Law of Federal Income Tax (Mertens), and BNA’s Tax Management Portfolios
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Strategies for Locating Relevant AuthorityStrategies for Locating Relevant Authority
For simpler questions, it may be possible to go directly to the Code, via its topical index, and find the relevant Code section This strategy may not be sufficient, if more
than one Code section seems to apply, or the Code seems too general for the researcher’s specific questions
Secondary authorities are often valuablein leading to researcher to relevant primary authorities, and may be written in less technical language
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Using Commercial Tax Services to Locate Primary Using Commercial Tax Services to Locate Primary AuthoritiesAuthorities
Using the topical index Search a variety of terms related to research questions,
to find relevant references
Using the table of contents Scan for chapters of the service to
locate relevant areas of discussion
Keyword searching in an electronic service Combine words and phrases for a targeted search of all
or any portion of the database
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Using Commercial Tax Services to Locate Primary Using Commercial Tax Services to Locate Primary AuthoritiesAuthorities
Once a starting point has been located, examine related material referenced in the service Read related Code sections, Treasury regulations,
rulings and judicial decisions Use cross-references
(hyperlinks) within the service to explore further
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Using Commercial Tax Services to Locate Primary Using Commercial Tax Services to Locate Primary AuthoritiesAuthorities
When relying on judicial authorities or IRS rulings, use the Citator to check the validity of the opinion Indicates any appeal of a judicial decision Lists subsequent decisions
and rulings that have cited the decision, with a brief indication of the nature of the subsequent reference
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Step 4: Analyze AuthorityStep 4: Analyze Authority
Authorities requiring a factual judgment Compare the authority to the client’s fact pattern If facts are complete and accurate, authority can provide a
definitive answer to the research question Authorities requiring an evaluative judgment
Subjective judgment requiring that a conclusion be inferred from a set of facts – often a ‘facts and circumstances’ test
With evaluative judgments, different observers may draw different conclusions from the same set of facts
An unqualified answer is not possible in this situation, and the IRS may challenge the researcher’s conclusion
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Step 5: Repeat Steps Step 5: Repeat Steps 1 through 41 through 4
Authorities identified during the research process may indicate the need to gather additional facts, not previously considered
Additional facts may suggest additional research questions The researcher must repeat the process as many times as
needed to thoroughly address the tax consequences of the client’s transaction
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Step 6: Communicate Your ConclusionsStep 6: Communicate Your Conclusions
Document research conclusions, via a research memo that includes Statement of the facts Statement of research issue(s) Analysis of relevant authorities Explanation of conclusions Details of advice given to client
Communicate conclusions to the client, often via letter May be less technical than the
research memo, depending on the client’s tax knowledge
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ConclusionConclusion
Tax research is a critical skill for tax practitioners – even the most experienced professionals cannot know the answers to all tax questions!
Tax research can support tax planning, as well as be part of the tax compliance process
Tax research skills must be developed through experience
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