The Tax Research Process

The value Research address The overriding purpose of measure explore is to find solutions to the impose businesss of matchlesss lymph nodes or employer. The help is similar to that of traditional legal inquiry. The tec moldiness find role, respect the reclaimableness of that ascendency, and apply the results of the interrogation to a specific situation. One mass identify two essential valuate question skills * The first is using certain mechanical techniques to identify and show up the task government that relate to solving a problem. * The second entails a combination of reasoning and creativity and is much difficult to learn.A detective must begin with native intelligence and imagination and add training and take in properly to apply the breeding found. Creativity is necessary to explore the pertinent relationships among the circumstances and problems at hand to find a satisfying (and defensible) solution. In many cases, no legal trust exists that is dire ctly on bit for the problem. If much(prenominal) a situation comes up, the tec must combine seemingly unrelated facts, ideas (including those that he or she has derived from previous inquiry work), and legal authority to arrive at a truly novel cobblers last.This creative world supply of the tec oftentimes spells the difference amid success and failure in the research process. Outline of levy Research Process As the revenue problems of the invitee become more signifi enduret, the related valuate research can become time-consuming and, thus, expensive to the leaf node. A moderate revenue enhancement research problem often takes up to eight or ten hours of research time, and the bill for these services whitethorn approach or even return $2,000. Beca mapping of the costs that are involved, the levy revenue tec must work as efficiently as possible to obtain the solution to the lymph nodes problem.The tec needs a framework for the research process, so that he or she does non waste time and effort in arriving at a solution to the problem. The revenue research process can be broken d declare into six major steps. Tax tecs (especi anyy those without a gigantic amount of witness at the t quest) must approach the resolution of a measure problem in a structured manner, so that the depth psychology of the problem will be thorough and the solution complete. tread 1 Establish the Facts Before a researcher can analyze the assess consequences of a transaction, he or she must understand the transaction itself.Specific every last(predicate)y, the researcher should discuss the details of the transaction with the client to ascertain the clients motivation. What are the clients business or financial objectives in job the transaction? What does the client foresee as the desired number? What risks has the client identified? By asking these types of questions, the researcher gets to be more acquainted with the non- value features of the transactions. Discover every(prenominal) the Facts The researcher must discover all the facts concerning the clients transaction.Like a newspaper reporter, the researcher should question the client or so the precise who, when, where, why, and how of the transaction. The researcher should non assume that the clients initial summary of the transaction is factually accurate and complete. Perhaps the client hasn t determined all the facts that the researcher needs. Or the client may put on discounted the significance of certain facts and omitted them from the initial summary. The researcher should encourage the client to be objective in stating the facts.Often, a client unwittingly presents the researcher with the clients inhering conclusions about the facts rather than with the facts themselves. Impact of invitees Tax cognition When a researcher is working with a client to uncover the relevant facts, the researcher must take into theme the level of the clients tax fellowship. If the client has almost knowledge of the tax law, the researcher can ask questions that presume such knowledge. On the other hand, if the client is unsophisticated in tax matters, the researcher should ask only questions that the client can serve up without reference to the tax law.Step 2 Identify the Issues After the researcher is satisfied that he or she understands the clients transaction and knows all the relevant facts, the researcher can stay fresh to the second step in the research process. In this step, the researcher identifies the tax issue or issues suggested by the transaction. The ability to recognize tax issues is the return of technical education and professional experience. Consequently, this step is commonly the most challenge for new tax researchers. The identification of issues leads to the formation of tax research questions.The tax researcher should be as precise as possible in formulating questions. A precise question is narrowly stated ands provides clear parameters for the be steps in the research process. An imprecise question that is vague or overly broad in scope may provide shy(predicate) parameters and result in wasted time and effort. Multiple Research Questions If the tax issue suggested by a transaction lead to multiple research questions, the researcher must determine the order in which the questions should be answered.In our complicated tax system, the answer to a question often depends on the answer to iodine or more preliminary questions. Tax researchers who understand the pecking order of their research questions can address each(prenominal) question in the flop order and conduct their research with maximum efficiency. A combination of education, training, and experience is necessary to enable the researcher to identify all of the issues with respect to a tax problem successfully. In some situations, this step can be the most difficult gene of a tax research problem to carry out.Issues in a closed-fact tax research proble m often come near from a conflict with the IRS. In such a case, one can ascertain the issue(s) easily. Research of this nature ordinarily consists of finding brave for an action that the client has al provey interpreted. Types of Issues In most research projects, however, the researcher must develop a list of issues. Research issues can be divided into two major categories * Fact issues are concerned with information having an objective reality, such as the dates of transactions, the amounts involved in an exchange, reasonableness, intent, and purpose. Law issues arise when the facts are rise established, but it is not clear which portion of the tax law applies to the issue. Step 3 Locate Authority As the trine step in the research process, the researcher heads for a tax program library. A researchers mission is to locate the authority that provides answers to the research question. tralatitious libraries consist of shelves filled with books, loose-leaf binders, magazines, an d other published materials containing all the technical minutiae of the tax law.Today, traditional libraries are disappearing as professional tax advisors educe access to the electronic libraries available on the Internet. Once obvious prefer of electronic libraries is the speed at which researchers can access blood lines of authority and scarper among the sources. A second advantage is the ease with which electronic sources can be updated to allow in current developments. A third advantage is that an electronic library is portable. A tax researcher with a laptop computer can access the library at any time and from any location.Regardless of whether a tax researcher is working in a traditional or electronic library, a researcher must be knowledgeable about the content and organization of the reference pertaining to the problem at hand. The researcher overly must be able to distinguish between the two briny categories of reference materials sources of authority and sources of information. Primary Authority Primary authority is an element of the Federal tax laws that was issued by coition, the Treasury Department, or Internal gross Service. Primary authority carries greater senior weight than collateral authority.Each first-string authority also has a relative weight to other chief(a) authorities. Weight is best described as an assessment of relative wideness compared to other authority. statutory sources include the Constitution, tax treaties, and tax laws passed by Congress. Statutory authority is the basis for all tax provisions. The Constitution grants Congress the power to impose and collect taxes and also authorizes the creation of treaties with other countries. The power of Congress to implement and collect taxes is summarized in the Internal tax income Code, the official patronage of U. S. tax law.The Internal revenue Code constitutes the basis for all tax law, and, therefore, the basis for arriving at solutions to all tax questions. The other primary sources of the tax law, administrative and judicial authority, function primarily to interpret and explain the masking of the provisions of the Internal revenue Code and the intent of Congress. Administrative sources include the various rulings of the Treasury Department and the IRS. These are issued in the form of Regulations, Revenue Rulings, and other pronouncements. Judicial sources consist of collected rulings of the various courts on federal tax matters. thirdhand Authority Secondary Authority Sources consist of unofficial sources of tax information, such as * tax services * journals * textbooks * treatises * newsletters. Secondary authority is an element of the tax law that was issued by a professional or intellectual writer. It is an interpretation of the tax law issued by primary sources. Many secondary sources exist. Some of the most useful are the editorial analysis and description contained in many of the major tax services, articles published in the legion(predicate) professional journals and newsletters, treatises, and textbooks.Secondary authority carries less precedential weight than primary authority. Secondary authorities are useful in finding, analyzing, and evaluating primary authorities. The distinction between primary and secondary (or editorial) sources of authority is more important because of IRC 6662, which imposes a penalty on substantial understatements of tax, except where the taxpayer has substantial authority for the position taken on the return. Substantial Authority The Regulation under 6662 specifies the sources of substantial authority to include * provisions of the Internal Revenue Code temporary and concluding Regulations * court cases * administrative pronouncements * tax treaties * Congressional intent as reflected on Committee Reports. This list was expanded by the Committee Report for the Revenue Reconciliation Act of 1989 to include * Proposed Regulations * Private Letter Rulings * Technical Adv ice Memoranda, * teaching or Press Releases * Notices * Any other similar documents published by the IRS in the Internal Revenue Bulletin. Treatises and articles in legal periodicals, however, are not considered substantial authority under this statute.Conflicting Authority Secondary authority is useful when conflicting primary authority exists, when there appears to be no existent primary authority, or when the researcher needs an explanation or illuminance of the primary authority. Over the past 15 years, as the support staffs of governing body agencies and (especially) Federal courts have been decreased in number or other become inadequate, more dependence has been placed upon the secondary authorities of the tax law, even by the IRS, the Treasury Department, and the court system.Tax researchers must be careful, though, not to rely too heavily upon secondary authority and always to read any pertinent primary authority that is referred to in the secondary sources. technical Tax Services Because of the vast amount of tax authority that is available, the tax researcher would have a tremendous problem in undertaking a tax research problem for a client if it were not for commercial tax services and treatises.Several publishers have produced coordinated sets of reference materials, such as RIAs Checkpoint, that organize the tax authority into a available format, making the Internal Revenue Code and other primary authorities much more accessible. Checkpoint Commercial tax services, such as RIAs Checkpoint, are useful in that they provide simplified explanations with footnote citations, as well as examples illustrating the application of the law. Checkpoint leads the tax researcher, via the footnote references, to the primary source that is pertinent to the question at hand.A tax service can be classified as chiefly an annotated service or as a topical service. Annotated services are organized in Internal Revenue Code section order, such as RIAs United State s Tax Reporter. A topical service, such as RIAs Federal Tax Coordinator, is organized by topical areas determined by the editors. Step 4 Evaluate Authority Regardless of whether a researcher is reading from a printed page or a computer screen, the researcher must have the skill to interpret and evaluate the authority at hand. In some cases, the authority may provide an unambiguous answer to the researchers question.In other cases, the answer may be equivocal because the authority is neck and neck or subject to interpretation. Or perhaps different sources of authority provide conflicting answers. In these cases, the researcher must bring his or her own judgment to bear in analyzing the authority and answering the question. Weighting regime All tax authority does not carry the same precedential value. For example, the tax court could hold that an item should be excluded from gross income at the same time that an outstanding IRS Revenue Ruling asserts the item is taxable.The tax rese archer must evaluate the two authorities and decide whether to advise that his or her client report the disputed item. How Research Can lace In the process of evaluating the authority for the issue(s) under research, new issues previously not considered by the researcher may come to light. If this is the case, the researcher may be required to gather supernumerary facts, find additional pertinent authority, and evaluate the new issues. All of these research activities must be related to the clients research problem.The researcher uses professional judgment in selecting issues and determine the effort to expend on the issues. This loop is illustrated below Step 5 Develop Conclusions As part of the analytic process, the researcher should decide if the authority requires him or her to make a factual judgment or an critical judgment. Factual ruling In making a factual judgment, the researcher compares the authority to a set of facts. Assuming that the facts are complete and accurat e, the researcher can provide a definitive answer to the research question.Evaluative Judgment Researchers are required to make evaluative judgments when the relevant authority relates to a conclusion inferred from a set of facts, rather than to the facts themselves. By definition, conclusions are subjective different observers may draw different conclusions from the same facts. A researcher who must draw a conclusion to complete a research project can never be sure that such conclusion will go unchallenged by the IRS. Therefore, the researcher should never come about an unqualified answer to a research question requiring an evaluative judgment.Getting All the Facts At some point in the research process, even an keen may discover that he or she does not have all the facts necessary to complete the analysis of the clients transaction. In such case, the researcher must fall back Step 1 by obtaining additional information from the client. Oftentimes the additional information sugges ts additional tax issues and research questions that the researcher must address. A researcher may have to repeat Steps 1 through 4 several times onward he or she is satisfied with the analysis. Handling Unresolved IssuesWhere unresolved issues exist, the researcher might inform the client about alternative possible outcomes of each disputed transaction, and give the best recommendation for each. If the research involved an consecrate fact situation, the recommendation might detail several alternative unravel of future action, (for example, whether to complete the deal, or how to document the intended effects of the transaction). In many cases, the researcher may find it appropriate to present his or her recommendation of the best solution from a tax perspective, as well as one or more alternative recommendations that may be much more workable solutions.In any case, the researcher will exigency to discuss with the client the pros and cons of all reasonable recommendations and th e risks associated with each course of action. Step 6 Communicate The final step in the research process is to communicate the results and recommendations of the research. The results of the research effort usually are summarized in a memorandum to the client file and a letter to the client. Both of these items usually contain a restatement of the pertinent facts as the researcher understands them, any assumptions the researcher made, issues addressed, the applicable authority, and the tax researchers recommendations.The memorandum to the file usually contains more detail than does the letter to the client. Clients Tax Knowledge In any event, the researcher must temper his or her communication of the research results so that it is understandable by the intended reader. For instance, the researcher should use vastly different jargon and citation techniques in preparing an article for the ledger of Taxation than in preparing a client memo for a burgher or layperson who is not sophi sticated in tax matters.