TAX5065- Chapters 2-8
6. Explain what the numbers "99" and the "514" mean in P.L. 99-514.
-99 is the session of the Congress that enacted the law -514 is the number of the law enacted by that session of Congress
4. Identify the two types of tax services.
1) Annotative (arranged in numerical order) 2) Treatise type services (correlates all of the law on a subject in textbook fashion).
8. Identify the two sources of substantive principles of law in the case of tax law.
1) Internal Revenue Code 2) Primary interpretive authority
7. Identify the two parts of a substantive principle of law.
1) Propositions to be proven- the conditions that must be satisfied before the legal treatment rule can be applied 2) Legal treatment rule- generally a specific rule which specifies either an action to be taken or prohibited, or determines tax consequences of an issue and which has the force and effect of law.
9. Identify the three areas of potential uncertainty which may arise concerning tax law decisions.
1) The facts may be uncertain. 2) Uncertainty with respect to the identity of the correct tax treatment rule- we are not sure which one of a number of possible tax treatment rules is the correct one to apply to the agreed upon facts. 3) Uncertainty with respect to the proper application of an agreed upon tax treatment rule to the agreed upon facts.
10. List the three separate considerations that may cause us to be uncertain concerning the identity of the correct tax rule.
1) We may be uncertain regarding the identity of the propositions that are associated with each tax treatment rule. 2) Given that we have properly identified each of the propositions to be proven that are associated with any particular tax treatment rule, we may be uncertain exactly what it is that the propositions are requiring us to prove. In this case, the issue involves understanding and verbally expressing a particular proposition to be proven. 3) We may be uncertain whether a particular proposition to be proven has, in fact, been proven by the available facts. This is the case in a tax dispute, in which the parties agree upon what needs to be proven, but they disagree on whether or not it is proven.
5. The legal nature of any particular tax issue has implications regarding three items. List those three items.
1. Characteristics of any interpretive authority 2. The quantity of that authority 3. The legal effect of that authority
1. List the six steps of the federal tax research process.
1. Clarify the facts and identify the issues 2. Locate the relevant tax law information 3. Evaluated the tax law information that we have located 4. Formulate research conclusions which are defensibly correct for each individual uncertainty that was investigated with respect to the specified set of facts. 5. Use the results of our research effort in order to formulate recommendations regarding actions to take. 6. Communicate the results of our research effort and/or accommodations.
4. Trace through Congress the path usually followed by a tax bill.
1. Tax proposals originate in the House of Representatives and each new tax bill is given a number (prefix H.R. for House, S for Senate). 2. The bill is referred to the House Ways and Means Committee where they either kill the bill or submit it to the full house for its consideration. 3. If the house passes the bill, it goes to the Senate Finance Committee. 4. Unless the bill is killed, it is eventually sent to the full Senate for debate and vote along with a report explaining the amended bill. 5. If the bill is passed by the Senate, an "ad hoc" (temporary) committee, composed of members of the House Ways and Means Committee and of the Senate Finance Committee, resolves the differences between the bill versions of the House and Senate. 6. Once the House and Senate have approved an identical bill, it goes to the President for signature or veto. 7. Congress can make it a law by overriding the Presidential veto.
1. List the three sources of federal statutory tax law.
1. U.S. Constitution 2. Tax Treaties 3. Internal Revenue Code
11. List the two steps that we must complete in order to properly evaluate a substantive principle of law and its interpretive authority.
1. Verify the relevance 2. Determine the legal effect (whether authority is strong or weak)
8. Given that the "point of initial departure" is different in what other two ways does the tax planning engagement differ from a closed fact engagement?
1. We must be careful that the transaction has a business purpose 2. We must be careful that the IRS will not collapse a few transactions into one and therefore ruin our planning techniques.
5. Under what conditions is federal tax research ordinarily required?
1. When the tax consequences are not clear with respect to an item or transaction that is encountered in the course of preparing a client's return. 2. When the IRS raises a question on examination of our client's tax return. 3. When a claim for refund is to be prepared and filed with the IRS. 4. When it must be decided whether or not our client should litigate. This is usually a matter for our client's attorney but many times the client, or attorney, or both insist that we be involved. 5.When our client wants to know the tax consequences of a transaction that he or she plans to enter into.
15. When is it appropriate to cite secondary interpretive authority?
1. if we are referring to the analysis and conclusions that are stated in a secondary authority 2. if we have identified no primary authorities that control the perceived issue
5. Interpret each of the citations appearing below:
60 T.C. 814 (1973)- Page # 814 in volume 60 of the Tax Court of US reports. Court reached decision in 1973. 303 F.2d 326 (CA-2, 1962)- Page #326 volume 303 of Federal Reporter Second Series. 2nd Court of Appeals. Court reached decision in 1962. 62-2 USTC ¶9494 (CA-2 1962)- Volume 62-2, US Tax Cases, Paragraph 9494, 2nd Court of Appeals, Court reached decision in 1962. 9 AFTR2d 1557 (CA-2, 1962)- Page #1557 volume 9 of American Federal Trade Reports 2nd Series. 2nd Court of Appeals. Court reached decision in 1962. 332 F.Supp. 906 (D.Ct, La 1971)- Page #906 volume 332 of Federal Supplement. District Court, Louisiana. Court reached decision in 1971. 71-1 USTC ¶9347 (D.Ct, La. 1971)- Volume 71-1, US Tax Cases, Paragraph 9347, District Court, Louisiana. Court reached decision in 1971. 27 AFTR2d 71-1239 (D.Ct., La 1971)- Page #27-1239, Volume 27 of American Federal Trade Reports 2nd Series. District Court, Louisiana. Court reached decision in 1971. 103 S.Ct. 2017 (1983)- Page #2017 Volume 103 of Supreme Court Reporter. Court reached decision in 1983. 83-1 USTC ¶9366 (1983)- Volume 83-1, US Tax Cases, Paragraph 9366. Court reached decision in 1983. 52 AFTR 5001 (1983)- Page #5001 volume 52 of American Federal Trade Reports. Court reached decision in 1983. 418 F.2d 511 (Ct.Cls., 1969)- Page #511 volume 418 Federal Reporter Second Series. US Court of Claims report, Court reached decision in 1969.
8. What is a citator?
A citator is a book, or set of volumes, that enables us to determine the history of a cited authority and what other interpreting tribunals have said about it.
13. Explain why we say that our conclusions are "defensible" rather than that they are correct.
A lot of potential uncertainty exists, making it impossible for us to say whether any particular conclusion is right or wrong because right or wrong is a value judgment.
8. What is the difference between a Regular and a Memorandum decision of the U.S. Tax Court?
A regular decision theoretically involves a new or unusual point of law. A memorandum decision concerns only the application of existing law or only a question of fact.
17. What information do all communications usually contain?
A restatement of the pertinent facts, any assumptions that were made, the issues that were addressed, the applicable substantive principle of law and its supporting authority, and our recommendations.
10. What is the "substance over form" concept?
Allows the IRS and the courts to ignore the legal form of a transaction if it perceives that the structural formalities are present only for the purpose of allowing the actual substance of the arrangement to masquerade in tax avoidance clothing.
6. What is the difference, if any, between the Internal Revenue Bulletin and the Cummulative Bulletin?
An Internal Revenue Bulletin is a weekly newsletter of the IRS. The Cumulative Bulletin are the Internal Revenue Bulletins reorganized by code sections and bound into a set of volumes twice a year.
1. What is the doctrine of stare decisis?
An approach to resolving legal controversies where courts refer to, and tend to follow, prior decisions handed down by themselves or a higher court in the same jurisdiction. When a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases where the facts are substantially the same.
10. Discuss what we mean when we refer to "annotative citing authorities."
Annotative citing authorities identify the citations to other interpreting authorities which cite or refer to the cited authority. These types of citations are usually listed after the historical citations and include all other court decisions, revenue rulings, and revenue procedures that cite or refer to the cited decision, ruling, or procedure.
6. What are the three primary sources for journal articles?
Annual proceedings, academic journals, and tax practitioner journals
7. Contrast the process of stating an inductively derived substantive principle of law "narrowly" with the process of stating such a principle "abstractly."
Any substantive principle of law that is inductively derived from the clarification of a question of fact is to be stated: ● narrowly, in the sense that all facts crucial to the decision become propositions to be proven, in order to restrict its mandatory application of its tax treatment rule only to fact situations which are almost identical to the facts before the interpreting tribunal. ● abstractly, in the sense that the precise facts, which originally caused the uncertainty, are a pure question of law. In that case, the more general facts which are relevant may be adopted as the propositions to be proven rather than the precise facts associated with the particular precedent.
19. Why are tax research work papers important to the tax researcher who prepared them?
Because they reflect our technical and professional competence.
5. Explain completely the way in which statutory law is similar to common law.
Both statutory law and common law are characterized by using a reasoning from precedent process. Both have an inductive and deductive element. As situations arise where it is unclear how a statute applies, interpretive tribunals resolve this issue. That process creates interpretive authority. Interpretive tribunals seeking additional clarification in similar circumstances, which arise in the future, will refer to previous authorities. This decisional process is inductive and works a lot like common law.
6. Explain the following abbreviations:
CA-5- Court of Appeals 5th Circuit Ct.Cls- US Court of Claims Report B.T.A- US Board of Tax Appeals USTC- US Tax Cases AFTR- American Federal Tax Reports F.2d- Federal Reporter Second Series F.Supp.- Federal Supplement USSC- US Supreme Court Reporter S.Ct.- Supreme Court Reporter D.Ct.- District Court
4. What does the term "common law" describe?
Common law is the situation where the rules of law are inductively determined from the body of case law and they are deductively applied to future similar controversies.
5. Why are single topic tax treatises good research tools?
Each of them provide an in depth analysis of a narrow area of federal tax law. They may be used for initial orientation as well as to round out or to complete our analysis. They may help to identify additional primary or secondary interpretive authorities which provide a more detailed discussion.
4. What is perhaps the only consideration which would cause us intentionally to perform only "minimally acceptable" research?
Economic necessity, if the client isn't willing to pay for the time and we can't charge it to an education code.
16. What are "external communications?"
External communications include client letters, protest letters written to the IRS, requests for private letter rulings, technical advice, and determination letters
4. What is a Proposed Regulation? How would a Proposed Regulation under Section 469 be cited?
From the time a Treasury Decisions is initially promulgated until it is issued in final form, it is a proposed Treasury Decision or a Proposed Regulation. They are in the Federal Register to allow time for comments, etc.
9. Discuss what we mean when we refer to "historical citing authorities."
Historical citing authorities provide us with the history of the cited authority. The citations to such authorities are usually listed immediately below the cited authority.
7. In these materials it is concluded that the "point of initial departure" is different in the case of tax planning engagement as compared to a closed fact engagement. Explain the nature of this single difference between these two types of engagements.
In the case of a closed fact situation, we will make sure we have the correct facts and will proceed to finding the correct tax treatment. In the case of a tax planning engagement, we will make sure we understand the client's objectives before we start by exploring the different ways to go about the transaction.
6. Is tax law a system of known rules deductively applied to economic events? Why or why not?
It is both inductive and deductive. Deductive application occurs through statute reading. There is also interpretive authority that is inductively identified. Interpretive materials based on inductive reasoning are used to help establish meaning to the Code by establishing common law principles of law with respect to statutory provisions.
8. Identify two reasons why it is important to know the effective date of a statutory provision.
It is necessary to (1) confirm that we are considering the version of the provision in effect when our client's facts occurred or will occur (2) be sure that any interpretive authority that may appear to be on point deals with the same version of the code provision that will be applied to our client's facts
11. List the four computerized databases available for tax research.
LEXISNEXIS, WESTLAW, RIA Checkpoint, and CCH Tax Research Network.
15. Sometimes laws other than federal statutory tax law can affect one's tax research conclusions. Briefly describe the impact of local law on the interpretation of a term in a federal taxing statute.
Local law's effect on the interpretation of a term on the federal level will vary depending on: ● Whether federal law expressly states to use state law. This is called "mandatory". As a result, the state definition will be used ● Whether federal law implicitly states to use state law. This is called "strongly persuasive". As a result, the courts will generally use the state definition ● Whether federal law neither implicitly nor explicitly states to use state law. This is called "persuasive". As a result, the courts will look to the provided rights under state law and attempt to tax these rights consistently with Congressional intent. ● Whether federal law expressly rejects state law. In this case, local law is irrelevant regarding federal taxation.
6. What is the first thing that we must do in a tax planning engagement?
Make sure we have a clear and full understanding of our client's objectives.
13. Define the phrase "canon of statutory construction."
Mechanical rules (standards) that either ● Advocate interpretation from point-of-view of the public reader or from authoring legislative body, or ● state how conflicting intrinsic and extrinsic aids prevail over one another
2. What is precedent and what does it usually contain?
Precedent is prior authority on a legal issue applied through stare decisis. Contains (1) similarity between current problem and prior authority, (2) inductive reasoning of the rule of inherent law, and (3) deductive application of the rule the current situation.
12. What do we do when we "verify the relevance" of a substantive principle of law and its supporting authority?
Read the actual text of the authorities in order to determine whether each authority is applicable to the facts when they occurred or when they will occur, whether the authorities are cited by a secondary authority in support of the apparently applicable substantive principle of law actually support that principle, and whether any other authorities exist.
6. What does the phrase "the legal effect of interpretive authority" mean?
Refers to the degree of certainty that the authority provides with respect to an answer to the uncertainty being researched. Degree of certainty is measured on a scale from mandatory that the interpretive authority be followed to merely suggestive of the proper resolution of the uncertainty.
3. Distinguish between: -Revenue Rulings and Treasury Regulations -Revenue Rulings and Revenue Procedures -Revenue Rulings and individual/private rulings -Individual rulings and determination letters
Revenue Rulings and Treasury Regulations: Revenue Ruling is an official statement by the IRS regarding its interpretation of the provisions of the Code, regulations, and other interpretative authority as applied to a specific set of facts. Treasury Regulation statements are statements of general applicability. Regulations are issued to provide guidance to taxpayers and their advisors regarding the government's interpretation of the IRC. Revenue Rulings and Revenue Procedures: A Revenue Procedure is an official statement by the IRS regarding statements of procedure that affect the rights and duties of taxpayers or other members of the public. Revenue Procedures deal with the internal practice and procedures of the IRS Revenue Rulings and individual (i.e., "private") rulings: Private Letter Rulings are issued in order to answer the specific inquires of individuals and organizations about tax effects of their proposed acts or proposed transactions. Private Letter Rulings provide the IRS with ideas for Revenue Rulings. Individual rulings and determination letters: A determination letter is a written statement issued by a district director in response to a written inquiry by a taxpayer. It applies principles and precedents previously announced to a specified set of facts. They generally deal with issues that are not controversial. Individual rulings deal with prospective transactions, while determination letters deal with completed transactions.
2. Why do we use secondary interpretive authority almost solely for the purpose of locating primary interpretive authority?
Secondary interpretive authority does not have the force and effect of law and cannot be used as precedent, therefore it should be used to locate primary interpretive authority that may be used as precedent. It would be appropriate to cite secondary interpretive authority in the case that no primary interpretive authority exists.
1. What authorities are included in the "secondary interpretive authority" grouping?
Secondary interpretive authority includes all administrative pronouncements other than Treasury Regulations, Revenue Rulings, and Revenue Procedures,; all tax services, all single topic tax treatises, all journal articles; all citators, all computerized data bases, all firm research files, and all tax newsletters. In addition, there are a number of other miscellaneous sources of secondary interpretive authority. These include various classified digest of court decisions, audio and video tape cassettes concerning the federal tax law, and various tax planning aids.
7. Diagram the trial and appellate court system for Federal tax litigation.
Starts with a Trial Courts. Trial courts for federal tax litigation are the Tax Court of US (review deficiencies before they are paid), US District Courts (must first pay tax and then sue), and US Court of Federal Claims (must first pay tax and then sue). If the taxpayer is unhappy with the trial court decision, they can appeal to the 1st level of Appeal, which is the Us Court of Appeals. Must appeal to the appropriate circuit out of 13th Court of Appeals. If the taxpayer is unhappy with the decision, they can appeal to the 2nd level of appeal, the US Supreme Court, by petition for writ of certiorari.
3. What are tax services?
Tax services are comprehensive federal tax law research books. Essentially, they organize the vast and constantly changing documents which together constitute the organized as well as the unorganized sources of law. These sources include the law itself, primary interpretive authorities, and many secondary interpretive authorities. A tax service is a KEY to the generally unorganized mass of authorities in which the tax law that is relevant to answering our tax questions can be found.
1. What department and agency of the US government has the responsibility to administer the federal tax laws?
The Department of the Treasury.
5. What is the function of the Joint Conference Committee of the House Ways and Means Committee and the Senate Finance Committee?
The Joint Conference Committee is composed of members of the House Ways and Means Committee and of the Senate Finance Committee, although other members of the two houses can be selected as members. The committee reviews each provision of the bill on which the two houses disagree and the committee will generally agree on either the House version or the Senate version, however it sometimes drafts a new, compromise version. The committee also prepares a report explaining amendments and provisions and indicates which house recedes from its disagreement with the other.
9. What is the "business purpose" concept?
The business purpose concept means that transactions must possess some nontax or business purpose in addition to that of tax avoidance in order to be considered valid for tax purposes.
1. Who are the parties in a tax dispute?
The taxpayer and the IRS
2. List the three most important sources of administrative interpretive authority. Explain why they are the most important sources.
The three most important sources of administrative interpretive authority are the three types of primary interpretive authority which include: Revenue Rulings, Revenue Procedures, and Treasury Regulations. They are important because they can be used as precedent in the case of litigation. They have the force and effect of law and are directed to the general public.
14. Why are committee reports of Congress important as a source of tax law?
These committee reports may contain statements that provide insight concerning the meaning of a phrase in the statute or indicate the intent of Congress with respect to certain provisions. These reports act as extrinsic aids for the "legislative intent" side. The courts have gone as far as to deem these reports and other "legislative history" as primary interpretive authority.
14. Why is it unusual to cite secondary interpretive authorities?
They are not considered precedent. Do not have the force and effect of law.
7. Why would we be interested in referring to journal articles?
They may cut our research time by putting to use the commentator's analysis and bibliography concerning a relevant topic. We can in effect use the author of the article as a research associate. This can save hours of research time.
18. Why are tax research workpapers important to an accounting firm?
They may serve as a basis for client billing, serve as protection against subsequent confusion or misinterpretation, save time when referring back to the client's file at a later date, because promotions, transfers, and staff turnover are common, and supervisory review of a staff person's research can be accomplished quickly.
12. Why should we be interested in tax newsletters?
To help up keep up to date with what is going on in the tax world, whether it be new laws, primary interpretations, or regulatory matters.
3. What is the purpose of federal tax law research?
To help us determine the position which we will recommend that our client take before the IRS.
2. What is the objective of federal tax law research?
To locate the substantive principles of law and their supporting authorities that are applicable to our client's facts when they occurred or will occur and the supporting authorities for that principle
4. What does it mean to say that an appellate court has "remanded" a lower court decision?
To remand the lower court's decision means that they have returned the case to the lower courts. This happens when the appellate court has decided that the lower court has applied to wrong substantive principle of law and if application of the correct substantive principle requires additional facts which were not presented to the trial court initially. In such cases, a new decision will be rendered by the lower court, which may be appealed by either party just as the original decision.
5. What are Treasury Decisions (T.D.)? (a) What purpose do they serve? (b) Where are they published?
Treasury Decisions are notices of proposed rule-making in the Federal Register. (a) A Treasury Decision will specify how sections of the regulations are to be modified or renumbered and how new sections or subsections are to be added or deleted. (b) In the Federal Register and the Internal Revenue Bulletin, and the two CBs. Once finalized, they are permanently published in Title 26 of the Code of Federal Regulations.
15. What are "internal communications?"
Usually include a memorandum to the client's file and documentation concerning what we did in order to complete the research engagement.
13. List the miscellaneous sources of secondary interpretive authority.
Various classified digests of court decisions, audio and video tape cassettes concerning the federal tax law, and various tax planning aids.
3. What do we compare when we are ascertaining degrees or similarity and difference?
We compare the facts contained within particular legal authorities, as well as the reasoning. We must consider whether the same reasoning and conclusion is logical, fair, just, and equitable when applied to a particular similar fact pattern.
3. When do we have to worry about the federal tax law that is contained in treaties?
We must worry about said federal tax law contained in treaties when: ● Our tax research involves the federal tax liability of a foreign individual or corporation, or ● A US individual or corporation does business in a foreign country, affecting his federal tax liability and/or foreign tax liability
3. List the three things that an appellate court may decide with respect to any appealed issue.
● Affirm or agree with the decision ● Reverse or disagree with the decision ● Remand (disagree and return) the decision
4. List the three questions that guide the process of determining degrees of similarity and difference between a current situation and any apparently relevant precedent.
● Are the facts associated with the current situation more similar to the facts of the particular interpretive authority that is being considered as precedent than they are to any other interpretive authority that may be used as precedent? ● Is it more reasonable to apply the logic that was applied in the particular interpretive authority that is being considered as precedent to the current situation than the logic of any other interpretive authority that may be used as precedent? ● Does the application of the particular interpretive authority as precedent lead to a more equitable, fair, and reasonable conclusion in the current situation than the application of other interpretive authority?
2. List the three things that a trial court does.
● Determines any disputed facts that are associated with the issues. ● Hears the evidence and the legal arguments of the parties to the litigation. ● Decides each issue by deductively applying the correct substantive principle of law to the relevant facts.
3. List the five areas of uncertainty that are associated with tax decisions.
● Facts may be uncertain ● The identification of the propositions that are associated with each tax treatment rule that might be applicable to the facts ● Exactly what each individual proposition is requiring the taxpayer to prove ● Whether the facts actually prove any particular proposition ● The proper application of the correct tax treatment rule
1. Distinguish primary and secondary interpretive authority.
● Primary interpretive authority means the interpretive authority holds the value of "precedence" and the force of law. ● Secondary interpretive authority is treated only as "evidence". Secondary does not have the force and effect of law. Use secondary sources as supplemental material
9. Distinguish the term "ratio decidendi" from the term "stare decisis".
● Ratio decidendi refers to the reasoning and statements that are essential to the decision based on the facts and issues before it. It is the overall reason why the court ruled the way they did. ● Stare decisis refers to judicial doctrine which holds that once a court has laid down a principle of law applicable to certain set of facts, it will adhere to that principle and apply it to all cases where the facts are substantially the same. It is the broader term saying the courts will handle a similar issue in the future in the same way.
2. Distinguish the "tax research process" and the "tax decision process".
● Tax decision process- steps taken by any tax decision maker in order to determine the tax consequences associated with a specific set of facts ● Tax research process- the steps we perform in order to resolve any specific uncertainty encountered when we try to determine tax consequences associated with a specific set of facts. Basically, tax decision process is making the basic easily found decisions. Tax research is going into further detail for tougher issues.
14. What things do we consider when we formulate recommendations concerning actions to take?
● all of our research conclusions ● the course of action our client desires to take ● our professional obligation to minimize our client's taxes ● our legal and professional obligation not to be a party to tax evasion ● the fact that the tax liability remains subject to possible adjustment for a long period of time ● the fact that tax law is constantly changing
8. List the five parts of a "brief."
● authority citation ● statement of the facts ● statement of the issues or questions ● summary of the underlying logic (reasoning) ● the holding or decision
