Tax Research Methodology

Chapter 2

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Tax Research Methodology

Know and use the tools available to youDevelop your creative and reasoning

abilityEnhance and use your ability to

communicate

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Steps in Tax Research (An Efficient and Systematic Process)

1. Establish the Facts2. Identify the Issues3. Locate the Authorities4. Evaluate your Authorities5. Develop your Conclusions and

Recommendations6. Communicate your results

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1. What are Facts?So, what’s the problem. Facts are facts.Are frequently in the eye of the beholderWe have already discussed open vs.

closed fact transactionsClient’s intent / motivation should be the

determining factor, but intent is often difficult to describe, especially in tax language

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1. What are Facts? (Cont’d) Timing (Date) Amount Intent Useful life Fair market value Fair rental value Etc.

Purpose Parties involved Description Type of entity Relationships Business purpose Reasonableness

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1. How do you establish Facts? Contract terms Contemporaneous

documentation at time of the transaction

Testimony Credible Self-serving??? Expert witness

Independent Unrelated

Must continuously ask why, how, when, …….

Cancelled check Photo Reason and logic

Can you prove it

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2. Issue(s)

Fact Issues – Establishing the facts, as previously discussed.

Legal Issues – Interpretation of law in application to the established and undisputed facts.

Issue may include both.

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2. Issue(s) It isn’t simply a matter of “is it taxable,”

or “is it deductible.”Relate the “specific transaction” to the

IRC § involved; e.g. “Is the May 23rd payment to The Law Firm deductible an an ordinary and necessary business expense under §162, or must it be capitalized?”

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2. Issues

The resolution of an issue may bring up another issue; e.g. “Since the payment must be capitalized, may it be amortized under §

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2. Fact Issues (examples)

Small defined benefit plans (intent) Planned retirement age (now resolved)

Shareholder withdrawals Dividend vs. Loan

How do you distinguish?Employee vs. Independent Contractor

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3. Locate the Authorities

Primary Authorities:1. Statutory:

Constitution Statute – Internal Revenue Code

(IRC)Tax Treaties

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3. Authorities (Cont’d)

Primary Authorities2. Administrative sources

RegulationsRevenue RulingsPrivate Letter RulingsEtc.

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3. Authorities (Cont’d)

Primary Authorities3. Judicial sources

Supreme CourtAppeals CourtsTrial Courts

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3. Authorities (Cont’d)Secondary Authorities:

Tax Services Journals Textbooks Newsletters Etc., etc, etc. – and forever Chapters 7 - 9

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3. Authorities (Cont’d) Secondary authorities are not authoritative (So why

do we call them authorities?) They are good when

There is no primary authority with sufficient clarity There are conflicting primary authorities Although they are not authoritative, they may

provide good reasoning and logic (remember creativity) and are often quoted by judges

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What Do We Need to Know About “Authorities?”

What they are Their source Were to find them How to use them

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4. Evaluate your Authorities

It’s all about

“reliability”

Chapters 3 - 6

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5. Develop Your Conclusions and Recommendations

Exercise of your professional judgment based on your application of the facts to the law as you have determined them to be.

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6. Communicate Your Recommendations In terms meaningful to yourself or your

colleagues upon subsequent review. If going to the client, in terms

recognizable to the client who is probably not familiar to “tax law language.”

Chapter 10

RonBlair

Computerized (Electronic)Tax Research Advantages

Researcher can index any significant term, by using it as a search term in a query.

Researcher can tailor the query to fit the requirements of a specific tax term or problem.

Speed and flexibility (including, many tax documents are linked by hypertext.

Much more frequent / current updates than printed tax services.

Broader range of availability of documents.

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Electronic Tax ResearchVery important to plan

1. State the issue as a question 2. Establish key words 3. Arrange in a manner recognizable to

the computer (depends on the service). 4. Identify the appropriate database.

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Questions?