Unit 3.1 - Legal Authority of the IRS

Substantial Authority

- Objective standard involving an analysis of the law and application of the law to relevant facts - serve as the basis for interpretation of current tax law and to establish precedents for the future

Taxpayer Advocate Service (TAS)

Independent organization within the IRS whose goal is help taxpayers resolve problems with the IRS. - free and confidential - available for businesses and individuals

Internal Revenue Service (IRS)

federal agency responsible for collecting income taxes and enforcing tax law "collection arm" for the US Treasury Dept

Internal Revenue Code

- Main body of tax law of the United States - Enacted by Congress - Published as Title 26 of the US code

Federal Tax Law

- Determined by all 3 branches of gov't - President is responsible for income tax regulations, revenue rulings, and revenue procedures - Congress responsible for originating tax laws

Taxpayer Bill of Rights

10 fundamental rights that are made clear, understandable, and accessible to both taxpayers and IRS employees.

FOIA Exclusions

3 Exclusions - Involve sensitive law enforcement records related to criminal: - FBI investigations - Counterintelligence investigations - Internation terrorism investigations

FOIA Exemptions

9 Exemptions - Information that would harm: - National security - Privacy of Individuals - Proprietary interests of business, - Functioning of the Gov't - Other important recognized interests

Procedural Regulation

A Regulation issued by commissioner of the IRS that is administration instruction indicating information that taxpayers should provide the IRS as well as information about the internal management and conduct of the IRS itself.

Freedom of Information Act Requests (FOIA)

A law designed to ensure public access to US Gov't records - Agencies may charge reasonable fees for searching, reviewing and copying requested records - May withhold records that fall under one of 9 exemptions or 3 exclusions - IRS has 20 days to say wether it will comply with FOIA request

Substantial Authority Weight

Depends on its "relevance and persuasiveness" - type of document providing the authority - date of document

IRS Divisions

Four Main operating Divisions 1. Large Business and International Division 2. Small Business and Self-Employed Division 3. Wage and Investment Division 4. Tax Exempt and Government Entities Division

10. The Right to a Fair and Just Tax System

Have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Have the right to request assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty.

9. The Right to Retain Representation

Have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Right to seek assistance from Low Income Taxpayer Clinic if they cannot afford representation.

IRS Publications and Forms

IRS gives information to both taxpayers and preparers through its official publications. Info in publications is drawn from the IRC, but they do not have substantial authority. Taxpayers may NOT rely on guidance issued by publications to avoid accuracy-related penalties

FOIA Fees

In most cases, first 100 pages are free - 20 cents per page after that

Revenue Procedure

Official IRS statements - providing instruction how to follow revenue rulings/IRS positions - Do not have the force of law - Does affect the rights/duties of taxpayers under the IRC

Treasury Regulations

Official interpretations of the IRC 3 types - Legislative - Interpretive - Procedural First published in Federal Register, then in Code of Federal Regulations (CFR)

Classification of Treasury Regulations

Proposed - open to commentary from the public Temporary - remain in effect for 3 years, used for immediate guidance Final - issued when a regulation becomes official Treasury decision. Highest authority.

Technical Advice Memorandum (TAM)

Provide interpretation of proper application of tax laws/treaties/regulations/rulings/etc in response to a technical or procedural question about a disputed item in a tax return and represent the positions of the IRS Made public after all private info is removed. Only relates to specific case in question.

IRS Notices

Public pronouncement that contains guidance involving substantive interpretations of the IRC of other provisions of the law - Inflation adjustments, interest rate updates

.Large Business and International Division

Serves corporations (including S corps), and partnerships with assets in excess of $10 million. Ex: Ford, Coca Cola

Small Business and Self-Employed Division

Serves corporations and partnerships with asses less than $10 million; filers of gift, estate, excise, employment and fiduciary returns; individuals filing an individual Federal income tax return with accompanying Schedule C, E, F, or Form 2106 (Business expenses).

Wage and Investment Division

Serves individuals with wage and investment income only filing and individual Federal income tax return without accompanying schedules C, E, F or Form 2106

Tax Exempt and Government Entities Division

Serves three dissecting taxpayer segments: employee plans (including IRAs), exempt organizations, and government entities

Internal Revenue Manual

Single official compilation of policies, delegated authorities, procedures, instructions, etc. Primarily used by IRS employees to guide them in all facets of operations. IRM is public information.

Revenue Ruling

States the IRS position, intended to promote uniform application of the IRC. Not binding in tax court or US Court, but can be used to avoid accuracy related IRS penalties

5. The Right to Appeal an IRS Decision in an Independent Forum

Taxpayer's are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the decision. Generally have the right to take case to court.

7. The Right to Privacy

Taxpayer's have the right to expect that any IRS inquiry, examination or enforcement action will comply with the law and be no more intrusive than necessary, will respect al due process rights, etc.

8. The Right to Confidentiality

Taxpayer's have the right to expect that any information they provide to the IRS will not be disclosed (unless authorized by taxpayer or law). Have the right to expect appropriate action will be taken against employees, return preparer's who wrongfully use or disclose information.

4. The Right to Challenge the IRS's Position and Be Heard

Taxpayer's have the right to raise objections and provide additional documentation in response; to expect that the IRS will consider their timely objections promptly and fairly; to receive a response about it all

6. The Right to Finality

Taxpayer's have the right to the know the max amount of time they have to challenge the IRS's position, as well as the amount of time the IRS has to audit, collect tax debt and when an audit is finished.

1. The Right to be Informed

Taxpayers have the right to know what they need to do to comply with the tax laws. Entitled to clear explanations of the laws/procedures. Right to be informed of IRS decisions.

3. The Right to Pay No More than the Correct Amount of Tax

Taxpayers have the right to pay only the amount legally due, including interest and penalties. And to have the IRS apply all tax payments properly

2. The Right to Quality Service

Taxpayers have the right to receive prompt, courteous and professional assistance in the dealings with the IRS, to be spoken to in a way they can understand, to speak to a supervisor about inadequate service

Private Letter Ruling (PLR)

The IRS's written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer's specific case - communicates tax consequences before the tax return is filed - Legally binding on the IRS (if taxpayer accurately describes transaction) for that individual taxpayer - Minimum fee ranges from $10,000 and up per request - Made public after private info deleted

Legislative Regulations

The rarest type of regulation, issued when Congress specifically directs the Treasury Department to create regulations to address an issue in an area of law. In these instances, the Treasury is actually writing the law instead of interpreting the Code. Because legislative regulations actually represent tax law instead of an interpretation of tax law, legislative regulations have more authoritative weight than interpretative and procedural regulations.

Interpretive Regulations

Treasury's interpretation of the IRC - only explains the meaning of the code. Has less authority than legislative regulation.

Tax Forms and Schedules

Used by taxpayers to report financial information to the IRS, calculate taxes to be paid , disclose other information - More than 800 forms/schedules in use

Internal Revenue Bulletin

Weekly collection of items for tax guidance. Announces official IRS rulings, publishes treasury decisions, executive orders, tax conventions, significant legislation and court decisions. Public information.

Written Case Law

When taxpayers/preparers disagree with the IRS's interpretation of the IRC, it is up to the courts to determine Congressional intent or the constitutionality of the tax law/IRS position that is being challenged. - Court decisions serve as guidance for future tax decisions - IRS may ignore the ruling of the court, not bound to change its regulations due to a loss in court (unless supreme court) - IRS does not have to announce its position in every case. If it does they will in the Internal Revenue Bulletin

IRS Written Determinations

documents the IRS is required to make open to public inspection - Technical Advice Memorandum (TAM) - Private Letter Ruling (PLR) - IRS Notice - Internal Revenue Manual - IRS Publications and Forms - Tax forms and schedules - Written Case Law - Freedom of Information Act Requests (FOIA) - Taxpayer Bill of Rights