Module 2
Tax Research: Primary and
Secondary Sources of Tax
Law
Module Topics
Overview of a Professional Tax Practice
 Primary Sources of Tax Law
 Secondary Sources of Tax Law
 Tax Research Methodology

Overview of a Professional Tax
Practice
Key Learning Objective

Understand the general nature of a
professional tax practice
Major Areas of Tax Services
Provided to Clients
Tax return preparation
 Tax planning
 Representation of a client before the IRS

Importance of Tax Research
Integral part of return preparation, tax
planning, and client representation
 Tax research includes:

 Identifying
the tax issues
 Locating and analyzing relevant tax authority
 Developing answers to the tax issues
Legal and Ethical
Responsibilities in Tax Research
Treasury Department Circular 230
 Taxpayer and tax preparer penalties
 Codes of professional conduct
 Statements on Responsibilities in Tax
Practice

Primary Sources of Tax Law
Key Learning Objectives
Identify the primary sources of tax law
 Understand the use of these sources in tax
research

Overview of the Primary Sources
The Statute
 Administrative Pronouncements
 Judicial Decisions

The Statute

Legislative Process
 House;
Senate; Joint Conference; President
 Importance of committee reports

Internal Revenue Code
 Authoritative
 History
 Organization
 Citation
weight
Research Query: Code Cite

Give the full cite of the code section that
states whether or not a qualified scholarship
is gross income.
Solution--Research Query:
Code Cite: §117(a)
§117 (a) states:
(a) General rule.
Gross income does not include any amount
received as a qualified scholarship by an
individual who is a candidate for a degree at
an educational organization described in
section 170(b)(1)(A)(ii).

Major Administrative
Pronouncements

Treasury Regulations
 Legislative
vs. interpretative
 Authoritative weight
 Proposed; temporary; final
 Organization
 Citation
Revenue Rulings
 Revenue Procedures

Research Query: Regulation Cite

Give the full cite of the regulation that
defines a qualified scholarship.
 Caution: The
Treasury has not yet amended
Reg §1.117-6 to reflect changes made by P.L.
100-647.

HINT: The tax treatment of scholarships
was changed in 1986. New regulations
were proposed several years ago, but they
have not been issued in final form.
Solution--Research Query:
Prop Reg §1.117-6(c)(1)
(c) Definitions.
(1) Qualified scholarship.
For purposes of this section, a qualified scholarship
is any amount received by an individual as a
scholarship or fellowship grant (as defined in
paragraph (c)(3) of this section), to the extent the
individual establishes that, in accordance with the
conditions of the grant, such amount was used for
qualified tuition and related expenses (as defined
in paragraph (c)(2) of this section).
Other Administrative
Pronouncements
Private letter rulings
 Determination letters
 Technical advice memoranda
 General counsel memoranda
 Information releases and announcements
 IRS publications
 IRS press releases

Federal Tax Judicial System

Courts of original jurisdiction
 Tax
Court
 Small
cases division (no appeal)
 District
Courts
 Claims Court

Appellate courts
 Circuit
Courts of Appeal
 Supreme Court
Judicial Considerations
Jurisdiction
 Publication and citation of decisions
 Commissioner's acquiescence and
nonacquiescence
 Appeals
 Precedence
 Authoritative weight

Research Query: Case Cite
National Labor Relations Board (NLRB)
ruled that hospital interns and resident
physicians are students NOT employees.
 Find a court case that helps determine
whether the NLRB ruling means that
payments to interns are not for services
since the interns are not employees.

Solution--Research Query:
Case Cite
Saber, Joseph, (1981) TC Memo 1981-477
An NLRB ruling that hospital interns and
resident physicians are students rather than
employees for labor relations purposes isn't
binding for tax purposes.
 Also cited in other services as follows:

 PH
TCM ¶81477,
 42 CCH TCM 945;
Secondary Sources of Tax Law
Key Learning Objectives
Determine the secondary tax reference
materials
 Understand the manner in which these
materials are utilized in tax research

Overview of Secondary Sources
Annotated tax services
 Topical tax services
 Electronic databases and tax services
 Textbooks, periodicals, and newsletters
 Published proceedings of tax institutes and
conferences

Secondary Sources Help
Researchers To
Understand the tax topics under study
 Formulate ideas and identify tax issues
 Locate the primary sources of authority that
apply to the issues
 Evaluate the primary authority

Tax Services

Annotated tax services
 Code

oriented
Topical tax services
 Subject

oriented
Special features
 Code;
regulations; committee reports;
annotations; explanations; illustrations; citator
Computer-Assisted Tax Research
Rapidly Replacing Paper Tax Services

Web based services
 RIA:
http://www.riag.com/
 LEXIS: http://www.lexis-nexis.com/lncc/
 CCH: http://www.cch.com/

CD-ROM systems
 e.g.,
OnPoint; OneDisc; Kleinrock
Computer Search Techniques
Develop a search query and request
documents
 Narrow or broaden search, if necessary
 Select and study documents

Tax Research Methodology
Key Learning Objective

Conduct a tax research project in a
systematic and organized manner
Types of Research Projects

Closed fact
 Past
transaction
 Objective: tax compliance

Open fact
 Future
transaction
 Objective: tax planning
Tax Research Process
Gather the facts
 Define the tax issues
 Locate applicable primary authority
 Evaluate the authority
 Form conclusions to the issues
 Communicate the results of the research

 Client
letter
 Legal memorandum
Legal Memorandum

Facts
 Include

Issues
 Posed

as concise questions
Conclusions
 Stated

all relevant facts; omit all irrelevant
as brief, direct answers to the issues
Arguments and authorities
 Discuss
applicable primary authority
Ethical Consideration
Small Co. and Rich Co. each enter into
substantially identical profitable
transactions.
 Small Co. reports the transaction and pays
$100,000 in taxes.
 Big Co. pays a CPA $10,000 for tax
research resulting in a $35,000 tax savings.
 Who is the more ethical taxpayer?
