chapter 2 part 2

Chapter 2: 

1 Chapter 2 Working With The Tax Law

Federal Judicial System: 

2 Federal Judicial System FIGURE 2–3 Figure 2.3

Judicial Sources (slide 1 of 2): 

3 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

Judicial Sources (slide 2 of 2): 

4 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

Appeals Process: 

5 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

Courts’ Weights As Precedents: 

6 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

Tax Court (slide 1 of 3): 

7 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

Tax Court (slide 2 of 3): 

8 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

Tax Court (slide 3 of 3): 

9 Tax Court (slide 3 of 3) Memorandum decisions were—and 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. 2009–94 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. ¶ 2009,094 Paragraph 2009,094 of the RIA T.C. Memorandum Decisions

Examples Of District Court Decision Citations: 

10 Examples Of District Court Decision Citations Turner v. U.S. , 2004–1 USTC ¶60,478 (D.Ct. Tex., 2004) (CCH citation) Turner v. U.S. , 93 AFTR 2d 2004–686 (D.Ct. Tex., 2004) (RIA citation) Turner v. U.S. , 306 F.Supp.2d 668 (D.Ct. Tex., 2004)(West citation)

Supreme Court Decisions: 

11 Supreme Court Decisions Examples of citations U.S. v. The Donruss Co., (USSC, 1969) 69-1 USTC ¶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)

Tax Treaties: 

12 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)

Tax Research Tools (slide 1 of 2): 

13 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

Tax Research Tools (slide 2 of 2): 

14 Tax Research Tools (slide 2 of 2) A partial list of the available commercial tax services includes: Standard Federal Tax Reporter, CCH Tax Research NetWork, 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

Tax Research Process: 

15 Tax Research Process FIGURE 2.5

Tax Research: 

16 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

Assessing The Validity Of Tax Law Sources (slide 1 of 4): 

17 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

Assessing The Validity Of Tax Law Sources (slide 2 of 4): 

18 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

Assessing The Validity Of Tax Law Sources (slide 3 of 4): 

19 Assessing The Validity Of Tax Law Sources (slide 3 of 4) Revenue Rulings Carry less weight than Regulations Not substantial authority in court disputes

Assessing The Validity Of Tax Law Sources (slide 4 of 4): 

20 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

Tax Law Sources (slide 1 of 2): 

21 Tax Law Sources (slide 1 of 2) Primary sources of tax law include: The Constitution Legislative history materials Statutes Treaties Treasury Regulations IRS pronouncements (not IRS publications*), and Judicial decisions In general, the IRS considers only primary sources to constitute substantial authority

Tax Law Sources (slide 2 of 2): 

22 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

Tax Planning: 

23 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

Taxation on the CPA Examination: 

24 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 taxation—individuals Federal taxation—entities Knowledge is tested using both multiple-choice questions and case studies called simulations

Slide 25: 

25 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