Introduction to Tax Research -- Finding and Reading Tax Authority
Question 1
0
98
MC
1
4
Log onto RIA
Checkpoint. Click on the Research tab and select “Federal” from the Practice Area drop down box. Check the
box beside “Internal Revenue Code, Treasury Regulations, Committee Reports (RIA).” Search for “first-time
homebuyers credit” (no parentheses necessary). Click Search.
The search results indicate that 21 documents are available from Committee Reports, 3 from the Internal
Revenue Code and 15 from RIA’s analysis of the Housing Assistance Tax Act of 2008. Click on Internal
Revenue Code and read Section 36.
At the top of the page, you will see a number of boxes. After reading the statute, click through these boxes
to see what information is available under each.
Which of the following statements with regard to Section 36 is not true?
a. The Code Sec. 36 first time home-buyer’s credit was initially passed as part of the Housing
Assistance Tax Act of 2008.
b. The credit can be claimed by a taxpayer even if he or she has previously owned a home.
c. The credit is equal to 10% of the purchase price of the new home, or $7,500, whichever is
greater.
d. The credit is not available to a taxpayer who acquires a home by gift from his or her aunt.
Question 2
1
100
MC
1
4
Oftentimes, the Code
does not address all the questions that arise with respect to a given issue. For example, Code Sec. 73,
Services of Child, does not define the term "child." For many years, the term was defined differently
depending on the statute for which it was being defined. That particular issue was resolved a few years ago,
with Congress passing a uniform definition of the term child to be applied across all statutes in the Internal
Revenue Code.
However, it still remains common for questions associated with a particular Code section not to be
addressed by the Code. For example, go back to the front page on the Research tab. This time, rather than
doing a key word search, click “Code & Regs” under the heading “Find by Citation” on the left hand side of
the page. The first box that appears (top of the page) is labeled “Current Code:”. Input 73 into this box and
click “Search.”
Code Sec. 73 should come up immediately. Reading the statute, you can see that §73(b) provides that "All
expenditures by the parent or the child attributable to amounts which are includible in the gross income of
the child ... shall be treated as paid or incurred by the child." This sentence would clearly require that
business expenses incurred to generate income earned by the child, and paid out of such income, be
deducted on the child's return. But what about other expenses, such as charitable contributions?
To assist taxpayers (and preparers) in answering such questions, the IRS and the Treasury Department
provide other sources of authoritative guidance. For example, Treasury Regulations, which generally have
the force of law, tend to be written in general terms to explain and illustrate individual Code sections. Note
that the Treasury Regulations are organized in section format, following the Internal Revenue Code. Thus,
Treas. Reg. 1.73 relates to IRC Sec. 73. (The prefix “1” indicates that the regulation addresses an income
tax issue. Regulations addressing the estate tax have a prefix of “20,” while those addressing gift taxes,
employment taxes or procedural matters are prefixed “25,” “31,” and “301,” respectively).
To read the regulations under §73, click on the box at the top of the page labeled “Regs.” Notice that
clicking on this box does not take you away from the Code Section in the white area of the page. Rather, the
shaded area on the left side of the screen changes. It now lists one section of the Regulations (1.73-1). Click
on this item, and the regs pop up in the white box. Alternatively, you could get to the regulations under §73
by typing 1.73-1 in the box under “Final, Temporary & Proposed Regulations,” and clicking Search. Note,
however, that a search for 73 turns up no documents in this search, nor does a search for 1.73. You have to
type 1.73-1 in this box to find the regs.
Notice that in this case, the structure of the regs follows the structure of the Code section exactly. This is
not often the case, as we will see in a subsequent assignment. Ignoring that for now, read Treas. Reg. Sec.
1.73-1. If a parent makes charitable contributions in the name of a child out of the child's earnings, which
taxpayer would be entitled to a deduction?
a. The parent.
b. The child.
c. Either the parent or the child.
d. Neither the parent nor the child.
Question 3
2
102
MC
1
4
Another source of
clarification of the Internal Revenue Code is found in the Committee Reports accompanying the legislation
enacting or revising a particular statute. Particularly with new legislation, reading the committee reports can
clarify how the statute should be interpreted or applied in a particular situation. The committee reports
explain the purpose of the legislation and discuss in general terms what the legislation is designed to
accomplish. This information, in turn, can help a taxpayer or practitioner determine how the law should be
applied in a given set of circumstances.
The legislative history of each statute in the Internal Revenue Code is generally provided in footnotes
accompanying that statute. A particular statute may have been affected by more than one piece of
legislation. In some cases, the number of tax acts and other bills amending a particular statute can be quite
large.
For example, find §199 in the Internal Revenue Code. Note that there are a number of ways to do this. One
approach would be to check the box beside “Internal Revenue Code, Treasury Regulations, Committee
Reports (RIA),” and conduct a search for "199." Notice that this approach yields 17 documents from the
Internal Revenue Code (and 31 from the Committee Reports). Section 199 is the last document listed.
Alternatively, you could search for "domestic production activities." Doing so yields 14 documents in the
Internal Revenue Code library, of which §199 is the first. Since we already know we are looking for Section
199, the most efficient approach is to click on “Find by Citation” on the left hand side of the page and type
199 in the box under “Current Code.”
Go to §199. Note that across the top of this page are a series of boxes: "Expl," "Annot," "FTC," "Regs,"
"Com Rpts," "Hist," etc. Click on Com Rpts. Again, note that the statute stays on the page, but the shaded
margin to the left hand side changes, listing 7 Committee Reports with respect to §199. At the end of each
COMREP reference is a parenthetical indicating the act to which the Committee Reports refer. Open the
Committee Reports accompanying the American Jobs Creation Act of 2004. Read these reports.
Which of the following was not discussed in the Conference Committee's report as an explanation for why
Congress implemented Sec. 199?
a. Congress believed that manufacturers should pay lower taxes than other U.S. corporations.
b. Congress felt that by lowering the tax rate on U.S. manufacturers, Sec. 199 would help the United
States attract and retain economically vibrant industries.
c. The corporate tax rate in the U.S. is higher than that imposed by member countries of the OECD.
d. Congress believed that many of our trading partners provide subsidies for their domestic
manufacturing companies, and was concerned about the adverse competitive impact of these
subsidies on U.S. manufacturers.
Question 4
3
104
MC
1
4
In addition to issuing
Treasury Regulations to clarify and explain the application of statutory law, the IRS also issues a number of
administrative interpretations that may be of help in determining how the law applies in a particular
situation. The most widely used of these interpretations are called Revenue Rulings.
Revenue Rulings differ from Treasury Regulations in a number of ways. First, they tend to be more narrowly
constructed. Unlike Treasury Regulations, which are designed to provide a broad overview of the application
of the statute, along with examples, Revenue Rulings address application of the tax law in the specific
circumstances described in the ruling. Revenue Rulings may be generated by specific inquiries made by
taxpayers that the IRS thinks are worthy of broader dissemination, or they may result from inquiries made
by IRS agents during the course of their work. Other times, Revenue Rulings respond to court cases, and
they occasionally arise from the Service's determination that additional guidance is needed in a particular
area.
Second, Revenue Rulings -- unlike Treasury Regulations -- are not legally binding on either taxpayers or the
IRS. Treasury Regulations, unless they conflict with the statutory language of the Internal Revenue Code or
are demonstrably inconsistent with Congressional intent (as evidenced by committee reports, etc.), have the
force of law. A Revenue Ruling, in contrast, is merely an explanation of how the IRS believes the law should
be interpreted in a given circumstance.
Indeed, the courts have ruled that a Revenue Ruling is “merely the opinion of a lawyer in the agency and
must be accepted as such. It may be helpful in interpreting a statute, but it is not binding on the Secretary
or the courts. It does not have the effect of a regulation or a Treasury Decision.” (Stubbs, Overbeck &
Associates, Inc., Plaintiff-Appellee v. United States of America, 28 AFTR 2d 7105122 (445 F2d 1142),
6/25/71, Aff'g District Court, 25 AFTR 2d 70-1341 (313 F. Supp. 23.) A Revenue Ruling has “no more
binding or legal force than the opinion of any other lawyer.” (Fleming v. A. H. Belo Corp., 121 F.2d 207)
Although Revenue Rulings are not binding, they do indicate how the Service views the application of a
statute at a particular point in time, and they generally must be followed by IRS agents -- at least until such
time as the IRS decides that it no longer agrees with the application of the law as indicated in the ruling. It
is important to note that the IRS does advise taxpayers when it changes it mind about the position taken in
a Revenue Ruling. In such cases, it will issue a new ruling indicating that the prior ruling is modified,
obsolete, superceded, or revoked. Each of these modifications has a slightly different meaning, as we will
discuss later in the semester.
Thus, Revenue Rulings, though somewhat narrow in scope, are an important source of information regarding
application of the tax law. They can be especially helpful when a taxpayer's question or facts are closely
related to the issue or facts underlying a particular ruling.
Back to CHECKPOINT -- under the Research tab, go to the Primary Source Materials section and check the
box beside "IRS Rulings and Releases." Type "76-332" in the search box and click search. Two documents
come up under the Revenue Rulings library. (3 others come up under other libraries). Click on the first one
"Rev. Rul. 76-332, 1976-2 CB 81—IRC Sec(s).213." Note that this ruling was the 332nd ruling issued in
1976. The citation indicates that the ruling is located on page 81 of the second volume of the Cumulative
Bulletin. Read the ruling and answer the following question:
According to Revenue Ruling 76-332, are fees paid to a plastic surgeon for a "face lifting" procedure
deductible as medical expenses on a taxpayer's individual tax return?
a. Yes, but only if the procedure is recommended by a physician.
b. No, unless the need for a facelift results from an accident, a disease, or a similar unexpected event
and the procedure is necessary to repair damage suffered by the taxpayer to his or her face.
c. Yes, but only if the procedure is necessary to provide relief for a medical disorder.
d. Yes, without qualification.
Question 5
4
106
MC
1
4
As noted in the above
question, the Service will notify taxpayers when its views, as previously expressed in a Revenue Ruling,
change. In some cases, however, the underlying law changes. In such cases, the Service has not changed
its view with regard to how the "old" law should be interpreted, and there is still value in the previous ruling
(e.g., in an audit of a tax return filed for a year before the law changed). Thus, it does not always issue a
new ruling or statement that the "old" ruling is outdated.
For that reason, it is always important to read the relevant law underlying a revenue ruling to make certain
that the law has not changed and rendered the revenue ruling moot. Read Section 213 of the Internal
Revenue Code. Under what conditions would a face lift be deductible now?
a. Although a facelift affects a "structure or function of the body," cosmetic procedures are elective
and therefore the related costs are non-deductible under current law.
b. The facelift must be necessary to ameliorate a deformity arising from, or directly related to a
congenital abnormality, an injury resulting from an accident or trauma, or a disfiguring disease.
c. Expenses related to a face lift will be deductible only if necessary to prevent or treat illness or
disease.
d. Section 213(d)(1)(A) still defines medical expenses as "amounts paid ... for the purpose of
affecting any structure or function of the body," so expenses incurred for a face lift procedure
remain deductible no matter the circumstances.
Question 6
5
108
MC
1
4
The IRS also issues
administrative pronouncements called Revenue Procedures. These pronouncements are used to convey
largely procedural information, but are also used to provide taxpayers and tax professionals with current
information regarding inflation adjustments to tax figures, interest rates at which penalties and interest
charges are computed, etc. They are therefore primarily informational, but highly relevant and useful.
Check the “+” beside “IRS Rulings and Releases.” This opens up 17 boxes. The third box from the bottom is
“Revenue Procedures (1955-Present)(RIA).” Check this box. Type "2009 Tax Rates" in the search box and
click Search. Find Rev. Proc. 2008-66. (It should be the first one listed). At what level of taxable income will
a single taxpayer with no children or other dependents begin paying income tax at a 33% tax rate?
a. $372,950.01
b. $171,550.01
c. $104,425.01
d. $82,250.01
Question 7
6
110
MC
1
4
The statutory and
administrative authorities discussed to this point are one-sided explanations -- the government tells citizens
what the tax laws are (in the Internal Revenue Code), and explains in a variety of administrative authorities
how those laws should be applied in specific situations. The economy, however, is highly complex, and these
administrative pronouncements cannot possibly address every fact pattern encountered by taxpayers.
Inevitably, people find themselves in circumstances for which no previously published explanation exists. In
such cases, they are left to reach their own judgments about how the tax system should be applied.
Not surprisingly, the IRS does not always agree with the judgments reached by taxpayers or their advisers.
In such cases, they often turn to the courts. There are several courts of original jurisdiction to which
taxpayers or the IRS can take their claims. The first of these is the District Court with jurisdiction over the
taxpayer involved.
To take a case to District Court, the taxpayer typically must pay the amount assessed by the IRS and then
sue for refund. The taxpayer may have his or her case heard by a jury, and the resulting judgment will then
be published for use by other taxpayers and their advisers who may find themselves in similar situations.
The results of tax cases heard in District Courts are published in three locations. The official reporter for U.S.
District Court cases is the Federal Supplement (F. Supp., and F. Supp. 2d). The Federal Supplement
publishes all cases heard in the U.S. District Court, however, not just tax cases. Two unofficial reporters
exist which publish only tax cases heard in the District Court: United States Tax Cases (USTC) published by
Commerce Clearing House (CCH), and American Federal Tax Reporter (AFTR, and AFTR2d) published by
Research Institute of America (RIA). It is important to properly cite cases in your research so that readers
can find the cases and read them themselves either for confirmation or clarification.
To find a specific case in RIA's online CHECKPOINT Network, use the "Find by Citation" search on the left
hand side of the page. Click on “Cases” and find the following case:
Robert W. Juback v. U.S., 526 F. Supp 78, 82-1 USTC ¶9219 (DC NY, 1981).
Note that in the citations above the numerical prefix indicates the volume of the reporter in which the case
is reported, while the numerical suffix indicates the page or paragraph number within the volume on which
the case can be found. Thus, Juback can be found on page 78 of volume 526 of the Federal Supplement, or
at paragraph 9219 of volume 82-1 of United States Tax Cases.
Find and read Juback. In this case, was the taxpayer's case heard by a jury or decided by a judge?
a. The case was not heard by a jury. The District Court judge dismissed the taxpayer's case because
the judge found no evidence that a theft occurred and further that even if a theft did occur, the
taxpayer would not be entitled to deduct the loss in the year in which he claimed it.
b. No, the case was not heard by a jury, because the judge determined that no collusion occurred
between the owner of the warehouse and the owner's relative to whom the taxpayer's property
was sold.
c. Yes, a jury heard the case and ruled for the IRS on all counts.
d. No jury heard the case because the taxpayer withdrew his suit before the case went to trial.
Question 8
7
112
MC
1
4
Taxpayers not wishing to
take their cases to District Court can take disputes with the IRS to the Tax Court. The Tax Court is often a
preferable alternative because, unlike with the District Court, the taxpayer does not have to pay the
assessed tax deficiency before taking the case to Tax Court. Generally, taxpayers go through an internal
appeals process with the IRS, and if the issue(s) is not solved to their satisfaction, they can file a petition
with the Tax Court to have their case heard by a federal judge who is an expert in tax law. Jury trials are
not an option. It should be noted, however, that although the taxpayer does not have to pay the tax before
taking the case to court, if (s)he loses, interest on the deficiency will be assessed for the time during which
the case was being heard and decided by the court. That is, interest is not stopped by filing with the Tax
Court.
The Tax Court, which as noted above hears only tax cases, was called the Board of Tax Appeals prior to
1942, so pre-1942 cases are referred to as BTA, rather than TC. Both types of decisions are published in
bound volumes by the U.S. Government Printing Office. Unlike district court cases, there are no competing
private publishers of Tax Court decisions. Thus, all citations will reference either TC or BTA publications.
Find and read Carson v. Commissioner, 71 TC --, No. 22, 71 TC 252 (11/22/78). How does this case relate
to Rev. Rul. 72-355 (1972-2 CB 532)?
a. The case does not affect Rev. Rul. 72-355. It overturns the IRS' position in Rev. Rul. 59-57.
b. This case invalidates the IRS' position in Revenue Ruling 72-355, holding that contributions to
candidates for political office are not subject to the gift tax.
c. The case confirms the IRS' position in Revenue Ruling 72-355 in part, and invalidates it in part.
d. The case confirms the IRS' position in Revenue Ruling 72-355, holding that a contribution to a
candidate for political office constitutes a "transfer for less than an adequate and full consideration
in money or money's worth" and is therefore a gift.
Question 9
8
114
MC
1
4
The Tax Court issues two
types of decisions -- regular decisions and memorandum decisions. The latter type of decision is used for
cases that, in the court's view, involve established principles of law (i.e., settled issues) and only the facts of
the particular case are in dispute.
Because memorandum decisions address settled issues of law, they are not published by the U.S.
Government Printing Office or by West Publishing Company. However, both CCH and RIA publish
Memorandum decisions in separate reporters (Tax Court Memorandum Decisions and RIA Tax Court
Memorandum Decisions, respectively). It may not always be clear why the Tax Court decided to designate a
particular case as a memorandum decision rather than a regular decision. It is always important, therefore,
to read a case that addresses a similar issue to the one in question, regardless of the Tax Court's
designation.
Find and read Deisher, TC memo 1990-347, 60 TCM 77 (7/10/90). Which of the following was not a factor
cited by the court in ruling that the $50,000 the taxpayers received from developer Danny Faulkner was not
a gift?
a. The court emphasized that subsequent to receiving the payment from Mr. Faulkner, the Deishers
invested in Faulkner's projects and guaranteed substantial liabilities relating to them.
b. Mr. Deisher was regional vice president of the Federal National Mortgage Association (Fannie Mae)
in Dallas at the time of the transfer from Mr. Faulkner to Mr. Deisher's wife. The court held that
Mr. Faulkner made the payment to Ms. Deisher because of Mr. Deisher's role in encouraging
Empire Federal Savings & Loan Association to provide financing for one of Mr. Faulkner's projects.
c. The Tax Court concluded that Faulkner had an expectation of receiving future benefits when he
provided Mrs. Deisher with the $50,000.
d. The evidence in the case suggested that the Deishers did not consider Mr. Faulkner to be a close
friend and only rarely socialized with him.
Question 10
9
116
MC
1
4
The decision of a District
Court, the Tax Court or the U.S. Claims court is not necessarily the final word. The losing party, whether it is
the taxpayer or the IRS, can appeal to a higher court for reconsideration. Appeals from either the District
Court or the Tax Court go to the U.S. Court of Appeals for the circuit in which the taxpayer lives. Appeals
from the U.S. Claims Court go to the Court of Appeals for the Federal Circuit. Appellate court decisions are
reported in the case reporters previously discussed -- West's Federal Reporter publishes all appellate court
decisions, while CCH's United States Tax Cases publishes appellate court decisions related to tax disputes,
as does RIA's American Federal Tax Reporters.
A decision issued by a Court of Appeals is cited as follows:
Rosenberg v. Commissioner, 198 F2d 46, 42 AFTR 303, 52-2 USTC ¶9377 (CA-8, rev'g and rem'g TC, 1952).
In this case, the 8th Circuit Court of Appeals (CA-8) reversed a decision by the Tax Court and remanded the
issue back to that court for further consideration. The Appeals Court's decision is located at page 46 of the
Federal Reporter, second series, volume 198, or at page 303 of volume 42 of American Federal Tax
Reporter.
Find and read this case. Generally speaking, are termite damages deductible as a casualty loss?
a. Yes, but only for taxpayers living in the 8th Circuit.
b. Yes. This decision expressly allows taxpayers to claim a casualty loss deduction for losses caused
by termite damage to their home.
c. Yes, but only if the damages do not exceed a specified percentage of the value of the property.
Damages in excess of 25% of the value of the property will be deemed to have occurred too
gradually to qualify as sudden and unexpected.
d. No. The courts have generally ruled that termite damage does not occur with the suddenness
necessary to qualify as a casualty loss for federal income tax purposes.
Question 11
10
118
MC
1
4
Lower courts are bound
by the decisions of the appellate courts for the circuit in which the taxpayer lives. They are not, however,
bound to follow a decision of a different appellate court (though they often will). Likewise, while an appellate
court may be influenced by the decision of an appellate court for a different circuit, that decision is not
binding on the other appellate courts. It is not particularly unusual for appellate courts to disagree on an
issue. When that happens, the dispute is often settled by the U.S. Supreme Court. The Supreme Court does
not have to accept appeals from the losing side of an appeals court decision, but it seldom agrees to hear
tax cases that do not involve a dispute between the appellate courts.
Find and read the following case:
Karns Prime & Fancy Food, Ltd v. Commissioner, 2007 USTC ¶50,570 (CA-3, aff'g TC, 7/20/2007)
In this decision, the Third Circuit Court of Appeals disagrees with the position taken by the 9th circuit in a
case decided just one year prior. In Karns, the 3rd circuit ruled that money advanced to a grocery retailer by
one of its suppliers should have been included in the grocer's taxable income despite the presence of an
agreement between the parties that would have required the grocer to repay the funds upon the occurrence
of certain circumstances. Does this decision of the 3rd circuit directly contradict the position taken by the
9th circuit in Westpac Foods the year before?
a. No. The 3rd Circuit agreed with an earlier decision of the Supreme Court.
b. No. The court states that the facts in Westpac Pacific Foods v. Comm'r are distinguishable from
those "before us" (i.e., in the case at hand).
c. No. The court determined that "access to credit is extremely important to retailers like Karns, and
it makes sense that suppliers might step in to provide that credit. That Super Rite served dual
functions of supplier and creditor does not mean that in this case, the loan was not a loan."
d. Yes. The Third Circuit expressly states that it disagrees with the 9th Circuit's decision in Westpac.
Question 12
11
120
MC
1
5
Which of the following
could not be a valid citation for a decision of the Court of Appeals for the 7th Circuit?
a. 350 US 46
b. 76 SCt 20
c. 55 USTC ¶9748
d. 484 F2d 954
e. All of the other answers could be valid citations
Question 13
12
122
MC
1
5
Which of the following
could not be a valid citation for a decision of the Tax Court?
a. 76-2 USTC ¶9637
b. 67 TC 736
c. 33 TCM 553
d. 36 BTA 1222
e. All of the other answers could be valid citations
Question 14
13
124
MC
1
5
The Tax Court strictly
follows the precedent of prior decisions of the Court of Appeals for a particular circuit when:
a. the Tax Court judge does not disagree with the opinion of the Court of Appeals
b. The Tax Court is obligated to follow the precedent of all prior decisions of the Courts of Appeals
c. the IRS requests that it do so
d. the taxpayer requests that it do so
e. the taxpayer resides in that circuit
Question 15
14
126
MC
1
5
You are representing a
client in a disagreement with the IRS. Your client resides in Texas, which is located in the 5th Circuit. Which
of the following cases is most likely to influence the IRS to agree with your opinion?
a. A Tax Court decision which has not been appealed by either the IRS or the taxpayer to a higher
court.
b. An appellate court decision from another circuit in which no dissenting opinions were issued.
c. A "split" decision from the Court of Appeals for the circuit in which the taxpayer resides. (A split
decision means that at least one judge issued a dissenting opinion).
d. All of these cases should carry equal weight with the IRS.
e. A District Court opinion from another state