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This document provides an overview of the statutory and administrative sources of US tax law, as well as the federal judicial system for tax disputes. It discusses the Internal Revenue Code, Treasury regulations, revenue rulings, revenue procedures, letter rulings, and other administrative pronouncements. It also describes the four courts that have original jurisdiction over tax cases and their roles, as well as the appeals process. Precedent and citations for Tax Court, District Court, Court of Appeals, and Supreme Court decisions are covered.

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Chapter 2 Working With The Tax Law Individual Income Taxes 息 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
Statutory Sources of Tax Law (slide 1 of 2) Internal Revenue Code Codification of the Federal tax law provisions in a logical sequence Have had three codes: 1939, 1954, 1986 2
Statutory Sources of Tax Law (slide 2 of 2) Example of Code Citation: 則 2(a)(1)(A) 則 = Abbreviation for Section 2 = section number (a) = subsection (1) = paragraph designation (A) = subparagraph designation 3
Legislative Process For Tax Bills Figure 2.1 4
Administrative Sources of Tax Law Treasury Department Regulations Revenue Rulings Revenue Procedures, and Various other administrative pronouncements 5
Regulations (slide 1 of 4) Issued by U.S. Treasury Department Provide general interpretations and guidance in applying the Code 6
Regulations (slide 2 of 4) Issued as: Proposed: preview of final regulations Do not have force and effect of law Temporary: issued when guidance needed quickly Same authoritative value as final regulations Final: Force and effect of law 7
Regulations (slide 3 of 4) Example of Regulation citation: Reg. 則 1.2 Refers to Regulations under Code 則 2 Subparts may be added for further identification The numbering patterns of these subparts often have no correlation with the Code subsections 8
Regulations (slide 4 of 4) Example of Proposed Regulation citation: Prop. Reg. 則 1.2 Example of Temporary Regulation citation: Temp. Reg. 則 1.9562T(d)(2) 9
Revenue Rulings (slide 1 of 2) Officially issued by National Office of IRS Provide specific interpretations and guidance in applying the Code Less legal force than Regulations Issued in IRB and accumulated in the Cumulative Bulletins 10
Revenue Rulings (slide 2 of 2) Example of Temporary Revenue Ruling citation Rev.Rul. 201114, I.R.B. No. 27, 31 Explanation: Revenue Ruling Number 14, appearing on page 31 of the 27th weekly issue of the Internal Revenue Bulletin for 2011 Example of Permanent Revenue Ruling citation Rev.Rul. 201114, 20112 C.B. 31 Explanation: Revenue Ruling Number 14, appearing on page 31 of Volume 2 of the Cumulative Bulletin for 2011 11
Revenue Procedures (slide 1 of 2) Concerned with the internal management practices and procedures of the IRS Issued similar to Revenue Rulings Issued in IRB and accumulated in the Cumulative Bulletins 12
Revenue Procedures (slide 2 of 2) Example of Revenue Procedure citation Rev. Proc. 92-29, 1992-1 CB 748 29th Rev. Procedure in 1992 found in volume 1 of Cumulative Bulletin on page 748 13
Letter Rulings (slide 1 of 2) Provide guidance to taxpayer on how a transaction will be taxed before proceeding with it Issued for a fee upon a taxpayer's request Describe how the IRS will treat a proposed transaction Apply only to the taxpayer who asks for and obtains the ruling Post-1984 letter rulings may be substantial authority for purposes of the accuracy-related penalty Limited to restricted, preannounced areas of taxation 14
Letter Rulings (slide 2 of 2) Example of Letter Ruling citation Ltr.Rul. 201125030 30th ruling issued in the 25th week of 2011 15
Other Administrative Pronouncements (slide 1 of 3) Treasury Decisions-issued by Treasury Dept. to: Promulgate new or amend existing Regulations Announce position of the Government on selected court decisions Published in the Internal Revenue Bulletin Then transferred to the Cumulative Bulletin 16
Other Administrative Pronouncements (slide 2 of 3) Determination Letters Issued by Area Director at taxpayers request Usually involve completed transactions Not published Made known only to party making the request 17
Other Administrative Pronouncements (slide 3 of 3) General Counsel Memoranda Technical Advice Memoranda Field Service Advices 18
Federal Judicial System FIGURE 23 Figure 2.3 19
Judicial Sources (slide 1 of 2) There are four courts of original jurisdiction (trial courts) U.S. Tax Court: Regular U.S. Tax Court: Small Cases Division Federal District Court U.S. Court of Federal Claims 20
Judicial Sources (slide 2 of 2) U.S. Court of Issue U.S. Tax Court U.S. District Court Federal Claims Number of judges 19* Varies 16 per court Payment of deficiency No Yes Yes before trial Jury trial No Yes No Types of disputes Tax cases only Most criminal and Claims against the civil issues United States Jurisdiction Nationwide Location of Taxpayer Nationwide IRS acquiescence policy Yes Yes Yes Appeal route U.S. Court of U.S. Court of U.S. Court of Appeals Appeals Appeals for the Federal Court . *There are also 14 special trial judges and 9 senior judges. CONCEPT SUMMARY 2.1 21
Appeals Process Appeals from District Court or Tax Court go to the U.S. Court of Appeals for circuit where taxpayer resides Appeals from Court of Federal Claims is to Court of Appeals for the Federal Circuit Appeal to the Supreme Court is by Writ of Certiorari Only granted for those cases it desires to hear 22
Courts Weights As Precedents From high to low Supreme Court Circuit Court of Appeals Tax Court (Regular), U.S. Court of Federal Claims, & U.S. District Courts Decisions of the Small Cases Division of the Tax Court have no precedential value and cannot be appealed 23
Tax Court (slide 1 of 3) Issues two types of decisions: Regular and Memorandum Regular decisions involve novel issues not previously resolved by the court Regular decisions are published by the U.S. government, for example 24
Tax Court (slide 2 of 3) Tax Court Memorandum decisions Memorandum decisions deal with situations necessitating only the application of already established principles of law Memorandum decisions are made available but are not published by the government They are currently published on the U.S. Tax Court Web site 25
Tax Court (slide 3 of 3) Memorandum decisions wereand continue to be published by several tax services Consider, for example, three different ways that Nick R. Hughes can be cited: Nick R. Hughes, T.C.Memo. 200994 The 94th Memorandum decision issued by the Tax Court in 2009 Nick R. Hughes, 97 TCM 1488 Page 1488 of Vol. 97 of the CCH Tax Court Memorandum Decisions Nick R. Hughes, 2009 RIA T.C.Memo. 其2009,094 Paragraph 2009,094 of the RIA T.C. Memorandum Decisions 26
Examples Of District Court Decision Citations Turner v. U.S., 20041 USTC 其60,478 (D.Ct. Tex., 2004) (CCH citation) Turner v. U.S., 93 AFTR 2d 2004686 (D.Ct. Tex., 2004) (RIA citation) Turner v. U.S., 306 F.Supp.2d 668 (D.Ct. Tex., 2004)(West citation) 27
Supreme Court Decisions Examples of citations U.S. v. The Donruss Co., (USSC, 1969) 69-1 USTC 其9167 (CCH citation) 23 AFTR2d 69-418 (RIA citation) 89 S. CT 501 (West citation) 393 U.S. 297 (U.S. Government citation) 21 L.Ed.2d 495 (Lawyer's Co-operative Publishing Co. citation) 28
Tax Treaties The U.S. signs tax treaties with foreign countries to: Avoid double taxation Render mutual assistance in tax enforcement Neither a tax law nor a tax treaty takes general precedence When there is a direct conflict, the most recent item will take precedence A taxpayer must disclose on the tax return any position where a treaty overrides a tax law There is a $1,000 penalty per failure to disclose for individuals ($10,000 for corporations) 29
Tax Research Tools (slide 1 of 2) A crucial part of the research process is the ability to locate appropriate sources of the tax law Both electronic and paper-based research tools are available to aid in this search Unless the problem is simple (e.g., the Code Section is known, and there is a Regulation on point), the research process should begin with a tax service 30
Tax Research Tools (slide 2 of 2) A partial list of the available commercial tax services includes: Standard Federal Tax Reporter, CCH CCH IntelliConnect, CCH Internet service United States Tax Reporter, RIA RIA Checkpoint, RIA ATX/Kleinrock Tax Expert, CCH/Wolters Kluwer Business services Tax Management Portfolios, BNA Mertens Law of Federal Income Taxation, West Group Westlaw services (including access to Tax Management Portfolios) TaxCenter, LexisNexis Federal Research Library, Tax Analysts 31
Tax Research Process FIGURE 2.5 32
Tax Research Tax research is the method by which an interested party determines the best solution to a tax situation Tax research involves: Identifying and refining the problem Locating the appropriate tax law sources Assessing the validity of the tax law sources Arriving at the solution or at alternative solutions with due consideration given to nontax factors 33
Assessing The Validity Of Tax Law Sources (slide 1 of 4) Regulations IRS agents must give the Code and the Regulations equal weight when dealing with taxpayers and their representatives Proposed Regulations are not binding on IRS or taxpayer Burden of proof is on taxpayer to show Regulation incorrect 34
Assessing The Validity Of Tax Law Sources (slide 2 of 4) Final Regulations tend to be of three types Procedural: housekeeping-type instructions Interpretive: rephrase what is in Committee Reports and the Code Hard to get overturned Legislative: allow the Treasury Department to determine the details of law Congress has delegated its legislative powers and these cannot generally be overturned 35
Assessing The Validity Of Tax Law Sources (slide 3 of 4) Revenue Rulings Carry less weight than Regulations Not substantial authority in court disputes 36
Assessing The Validity Of Tax Law Sources (slide 4 of 4) Judicial sources Consider the level of the court and the legal residence of the taxpayer Tax Court Regular decisions carry more weight than Memo decisions Tax Court does not consider Memo decisions to be binding precedents Tax Court reviewed decisions carry even more weight Circuit Court decisions where certiorari has been requested and denied by the U.S. Supreme Court carry more weight than a Circuit Court decision that was not appealed Consider whether the decision has been overturned on appeal 37
Tax Law Sources (slide 1 of 2) Primary sources of tax law include: The Constitution Legislative history materials Statutes Treaties Treasury Regulations IRS pronouncements, and Judicial decisions In general, the IRS considers only primary sources to constitute substantial authority 38
Tax Law Sources (slide 2 of 2) Secondary Sources include: Legal periodicals Treatises Legal opinions General Counsel Memoranda, and Written determinations In general, secondary sources are not authority 39
Tax Planning Consider social, economic, and business goals as well as tax motives Tax avoidance is the legal minimization of tax liabilities and one goal of tax planning Tax evasion is the illegal minimization of tax liabilities Suggests the use of subterfuge and fraud as a means to tax minimization Can lead to fines and jail 40
Taxation on the CPA Examination Taxation is included in the 3-hour Regulation section and covers: Federal tax process, procedures, accounting, and planning Federal taxation of property transactions Federal taxationindividuals Federal taxationentities Knowledge is tested using both multiple- choice questions and case studies called simulations 41
If you have any comments or suggestions concerning this PowerPoint Presentation for South-Western Federal Taxation, please contact: Dr. Donald R. Trippeer, CPA trippedr@oneonta.edu SUNY Oneonta 息 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 42

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P pt ch 02

  • 1. Chapter 2 Working With The Tax Law Individual Income Taxes 息 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
  • 2. Statutory Sources of Tax Law (slide 1 of 2) Internal Revenue Code Codification of the Federal tax law provisions in a logical sequence Have had three codes: 1939, 1954, 1986 2
  • 3. Statutory Sources of Tax Law (slide 2 of 2) Example of Code Citation: 則 2(a)(1)(A) 則 = Abbreviation for Section 2 = section number (a) = subsection (1) = paragraph designation (A) = subparagraph designation 3
  • 4. Legislative Process For Tax Bills Figure 2.1 4
  • 5. Administrative Sources of Tax Law Treasury Department Regulations Revenue Rulings Revenue Procedures, and Various other administrative pronouncements 5
  • 6. Regulations (slide 1 of 4) Issued by U.S. Treasury Department Provide general interpretations and guidance in applying the Code 6
  • 7. Regulations (slide 2 of 4) Issued as: Proposed: preview of final regulations Do not have force and effect of law Temporary: issued when guidance needed quickly Same authoritative value as final regulations Final: Force and effect of law 7
  • 8. Regulations (slide 3 of 4) Example of Regulation citation: Reg. 則 1.2 Refers to Regulations under Code 則 2 Subparts may be added for further identification The numbering patterns of these subparts often have no correlation with the Code subsections 8
  • 9. Regulations (slide 4 of 4) Example of Proposed Regulation citation: Prop. Reg. 則 1.2 Example of Temporary Regulation citation: Temp. Reg. 則 1.9562T(d)(2) 9
  • 10. Revenue Rulings (slide 1 of 2) Officially issued by National Office of IRS Provide specific interpretations and guidance in applying the Code Less legal force than Regulations Issued in IRB and accumulated in the Cumulative Bulletins 10
  • 11. Revenue Rulings (slide 2 of 2) Example of Temporary Revenue Ruling citation Rev.Rul. 201114, I.R.B. No. 27, 31 Explanation: Revenue Ruling Number 14, appearing on page 31 of the 27th weekly issue of the Internal Revenue Bulletin for 2011 Example of Permanent Revenue Ruling citation Rev.Rul. 201114, 20112 C.B. 31 Explanation: Revenue Ruling Number 14, appearing on page 31 of Volume 2 of the Cumulative Bulletin for 2011 11
  • 12. Revenue Procedures (slide 1 of 2) Concerned with the internal management practices and procedures of the IRS Issued similar to Revenue Rulings Issued in IRB and accumulated in the Cumulative Bulletins 12
  • 13. Revenue Procedures (slide 2 of 2) Example of Revenue Procedure citation Rev. Proc. 92-29, 1992-1 CB 748 29th Rev. Procedure in 1992 found in volume 1 of Cumulative Bulletin on page 748 13
  • 14. Letter Rulings (slide 1 of 2) Provide guidance to taxpayer on how a transaction will be taxed before proceeding with it Issued for a fee upon a taxpayer's request Describe how the IRS will treat a proposed transaction Apply only to the taxpayer who asks for and obtains the ruling Post-1984 letter rulings may be substantial authority for purposes of the accuracy-related penalty Limited to restricted, preannounced areas of taxation 14
  • 15. Letter Rulings (slide 2 of 2) Example of Letter Ruling citation Ltr.Rul. 201125030 30th ruling issued in the 25th week of 2011 15
  • 16. Other Administrative Pronouncements (slide 1 of 3) Treasury Decisions-issued by Treasury Dept. to: Promulgate new or amend existing Regulations Announce position of the Government on selected court decisions Published in the Internal Revenue Bulletin Then transferred to the Cumulative Bulletin 16
  • 17. Other Administrative Pronouncements (slide 2 of 3) Determination Letters Issued by Area Director at taxpayers request Usually involve completed transactions Not published Made known only to party making the request 17
  • 18. Other Administrative Pronouncements (slide 3 of 3) General Counsel Memoranda Technical Advice Memoranda Field Service Advices 18
  • 19. Federal Judicial System FIGURE 23 Figure 2.3 19
  • 20. Judicial Sources (slide 1 of 2) There are four courts of original jurisdiction (trial courts) U.S. Tax Court: Regular U.S. Tax Court: Small Cases Division Federal District Court U.S. Court of Federal Claims 20
  • 21. Judicial Sources (slide 2 of 2) U.S. Court of Issue U.S. Tax Court U.S. District Court Federal Claims Number of judges 19* Varies 16 per court Payment of deficiency No Yes Yes before trial Jury trial No Yes No Types of disputes Tax cases only Most criminal and Claims against the civil issues United States Jurisdiction Nationwide Location of Taxpayer Nationwide IRS acquiescence policy Yes Yes Yes Appeal route U.S. Court of U.S. Court of U.S. Court of Appeals Appeals Appeals for the Federal Court . *There are also 14 special trial judges and 9 senior judges. CONCEPT SUMMARY 2.1 21
  • 22. Appeals Process Appeals from District Court or Tax Court go to the U.S. Court of Appeals for circuit where taxpayer resides Appeals from Court of Federal Claims is to Court of Appeals for the Federal Circuit Appeal to the Supreme Court is by Writ of Certiorari Only granted for those cases it desires to hear 22
  • 23. Courts Weights As Precedents From high to low Supreme Court Circuit Court of Appeals Tax Court (Regular), U.S. Court of Federal Claims, & U.S. District Courts Decisions of the Small Cases Division of the Tax Court have no precedential value and cannot be appealed 23
  • 24. Tax Court (slide 1 of 3) Issues two types of decisions: Regular and Memorandum Regular decisions involve novel issues not previously resolved by the court Regular decisions are published by the U.S. government, for example 24
  • 25. Tax Court (slide 2 of 3) Tax Court Memorandum decisions Memorandum decisions deal with situations necessitating only the application of already established principles of law Memorandum decisions are made available but are not published by the government They are currently published on the U.S. Tax Court Web site 25
  • 26. Tax Court (slide 3 of 3) Memorandum decisions wereand continue to be published by several tax services Consider, for example, three different ways that Nick R. Hughes can be cited: Nick R. Hughes, T.C.Memo. 200994 The 94th Memorandum decision issued by the Tax Court in 2009 Nick R. Hughes, 97 TCM 1488 Page 1488 of Vol. 97 of the CCH Tax Court Memorandum Decisions Nick R. Hughes, 2009 RIA T.C.Memo. 其2009,094 Paragraph 2009,094 of the RIA T.C. Memorandum Decisions 26
  • 27. Examples Of District Court Decision Citations Turner v. U.S., 20041 USTC 其60,478 (D.Ct. Tex., 2004) (CCH citation) Turner v. U.S., 93 AFTR 2d 2004686 (D.Ct. Tex., 2004) (RIA citation) Turner v. U.S., 306 F.Supp.2d 668 (D.Ct. Tex., 2004)(West citation) 27
  • 28. Supreme Court Decisions Examples of citations U.S. v. The Donruss Co., (USSC, 1969) 69-1 USTC 其9167 (CCH citation) 23 AFTR2d 69-418 (RIA citation) 89 S. CT 501 (West citation) 393 U.S. 297 (U.S. Government citation) 21 L.Ed.2d 495 (Lawyer's Co-operative Publishing Co. citation) 28
  • 29. Tax Treaties The U.S. signs tax treaties with foreign countries to: Avoid double taxation Render mutual assistance in tax enforcement Neither a tax law nor a tax treaty takes general precedence When there is a direct conflict, the most recent item will take precedence A taxpayer must disclose on the tax return any position where a treaty overrides a tax law There is a $1,000 penalty per failure to disclose for individuals ($10,000 for corporations) 29
  • 30. Tax Research Tools (slide 1 of 2) A crucial part of the research process is the ability to locate appropriate sources of the tax law Both electronic and paper-based research tools are available to aid in this search Unless the problem is simple (e.g., the Code Section is known, and there is a Regulation on point), the research process should begin with a tax service 30
  • 31. Tax Research Tools (slide 2 of 2) A partial list of the available commercial tax services includes: Standard Federal Tax Reporter, CCH CCH IntelliConnect, CCH Internet service United States Tax Reporter, RIA RIA Checkpoint, RIA ATX/Kleinrock Tax Expert, CCH/Wolters Kluwer Business services Tax Management Portfolios, BNA Mertens Law of Federal Income Taxation, West Group Westlaw services (including access to Tax Management Portfolios) TaxCenter, LexisNexis Federal Research Library, Tax Analysts 31
  • 33. Tax Research Tax research is the method by which an interested party determines the best solution to a tax situation Tax research involves: Identifying and refining the problem Locating the appropriate tax law sources Assessing the validity of the tax law sources Arriving at the solution or at alternative solutions with due consideration given to nontax factors 33
  • 34. Assessing The Validity Of Tax Law Sources (slide 1 of 4) Regulations IRS agents must give the Code and the Regulations equal weight when dealing with taxpayers and their representatives Proposed Regulations are not binding on IRS or taxpayer Burden of proof is on taxpayer to show Regulation incorrect 34
  • 35. Assessing The Validity Of Tax Law Sources (slide 2 of 4) Final Regulations tend to be of three types Procedural: housekeeping-type instructions Interpretive: rephrase what is in Committee Reports and the Code Hard to get overturned Legislative: allow the Treasury Department to determine the details of law Congress has delegated its legislative powers and these cannot generally be overturned 35
  • 36. Assessing The Validity Of Tax Law Sources (slide 3 of 4) Revenue Rulings Carry less weight than Regulations Not substantial authority in court disputes 36
  • 37. Assessing The Validity Of Tax Law Sources (slide 4 of 4) Judicial sources Consider the level of the court and the legal residence of the taxpayer Tax Court Regular decisions carry more weight than Memo decisions Tax Court does not consider Memo decisions to be binding precedents Tax Court reviewed decisions carry even more weight Circuit Court decisions where certiorari has been requested and denied by the U.S. Supreme Court carry more weight than a Circuit Court decision that was not appealed Consider whether the decision has been overturned on appeal 37
  • 38. Tax Law Sources (slide 1 of 2) Primary sources of tax law include: The Constitution Legislative history materials Statutes Treaties Treasury Regulations IRS pronouncements, and Judicial decisions In general, the IRS considers only primary sources to constitute substantial authority 38
  • 39. Tax Law Sources (slide 2 of 2) Secondary Sources include: Legal periodicals Treatises Legal opinions General Counsel Memoranda, and Written determinations In general, secondary sources are not authority 39
  • 40. Tax Planning Consider social, economic, and business goals as well as tax motives Tax avoidance is the legal minimization of tax liabilities and one goal of tax planning Tax evasion is the illegal minimization of tax liabilities Suggests the use of subterfuge and fraud as a means to tax minimization Can lead to fines and jail 40
  • 41. Taxation on the CPA Examination Taxation is included in the 3-hour Regulation section and covers: Federal tax process, procedures, accounting, and planning Federal taxation of property transactions Federal taxationindividuals Federal taxationentities Knowledge is tested using both multiple- choice questions and case studies called simulations 41
  • 42. If you have any comments or suggestions concerning this PowerPoint Presentation for South-Western Federal Taxation, please contact: Dr. Donald R. Trippeer, CPA trippedr@oneonta.edu SUNY Oneonta 息 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 42