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John Klein Acc.

455 Corporate Taxation Professor Goodman Due: 9/5/11 Tax Source Paper
The first primary source of tax law is the Internal Revenue Code or IRC, which comprises Title 26 of the United States Code. It is considered the foundation of all tax law (Anderson, 2010). There are three other primary sources of tax law, which are Legislative Sources, Administrative Sources, and Judicial Sources. Legislative sources consist primarily of the U.S. Constitution, new tax laws, treaties with foreign countries, and reports issued by congressional committees as new laws are enacted. Legislative sources are generally accorded a higher level of authority than the other judicial and administrative authorities (Timber Tax, 2010) Administrative interpretations are found within treasury regulations. Treasury regulations are used to provide users with computations that help the user understand how IRC provisions apply (Anderson, 2010). Administrative interpretations are sources addressing revenue rulings, revenue procedures, letter rulings, and other interpretations. The difference between the two revenue subjects is that revenue rulings address the tax consequences of specific transactions that were encountered in practice, where revenue procedures deal with the procedural aspects of tax practice such as how to account for tips received. Revenue rulings and revenue procedures are not ranked as high in the hierarchy of authorities as Treasury Regulations, but more so represent the Internal Revenue Services view of the tax law (Anderson, 2010). The third topic of administrative pronouncements is letter rulings, which are issues that are initiated by taxpayers who ask the IRS to explain the tax

consequences of a particular transaction. Judicial interpretations involve court opinions and rulings (Anderson, 2010). Secondary sources of tax law are found within tax services. Tax services comprise the majority of the secondary sources. Examples are tax treaties and tax periodicals. Tax treaties address the alleviation of double taxation and other matters. Secondary sources are good to consult if there is conflicting primary authorities that exist, or if you need an explanation of the primary authority (Timber Tax, 2010).

The Internal Revenue Code has put in place many rules and regulations for how to properly represent taxpayers when reporting to the IRS. One of the checks used to help ensure accuracy of tax reporting is substantial authority. Substantial authority is an objective standard that a tax practitioner must meet in validating the accuracy of reporting a tax position. According to (The Tax Adviser, 2009), the definition can be found in Regs. Sec. 1.6662-4(d)(3)(i) and it states There is substantial authority for the tax treatment of an item only if the weight of the authorities support the treatment is substantial in relation to the weight of authorities support in contrary treatment. This measure is put in place for practitioners in order to avoid the penalty for an understatement of a tax position. The acceptable authorities to consult whether there is substantial authority for the tax treatment of an item can be found in Regs. Sec. 1.6662(d)(3)(iii) (The Tax Adviser, 2009). Some of the key authorities are provisions within the Internal Revenue Code, temporary and final rulings addressing the statute, and administrative pronouncements. Though an exact number has not been set by the IRS, in an attempt to quantify the accuracy of what is considered substantial authority, it has

been perceived that if it is considered to be an approximately 40% chance of success on the merits if the issue were to be litigated, then the standard of substantial authority would have been met. This would then exempt the tax practitioner from any potential penalties from understating a tax position. (The Tax Adviser, 2009. If substantial authority is no met, then the position must be fully disclosed and there must be an acceptable reason for the position in order to not be penalized.

The role of the courts in interpreting and applying the sources of tax law is dependent on court precedents relating to the issue. Depending on court precedents the litigation will begin in the U.S. Tax Court, the U.S. Federal Court of Claims, or the U.S. district courts. The U.S. district courts are the only courts in which trial by jury can take place (Anderson, 2010). The U.S. Tax Court was created in 1942 and is a court of national jurisdiction which only hears tax related cases. All tax payers, regardless of state, may litigate in tax court. The judges of Tax Court travel throughout the country to hear cases. Their role is to issue both regular and memo decisions. Regular decisions occur when the court decides a legal issue for the first time. Memo decisions happen when there is a case with factual variations relating prior court cases. Both decisions carry the same authoritative weight (Anderson, 2010). Lower court decisions such as ones made in district court, are appealable by the losing party to the court of appeals within the district that the hearing was held in. If the party ends up losing their appeal, they are then able to request that the U.S. Supreme Court hear the case. However, the Supreme Court hears very few tax cases each year so the odds of a single case being pushed few are very small (Anderson, 2010). The role of the Internal Revenue Service in interpreting and applying

the source of tax law is to provide taxpayers with services to help them understand and meet their tax responsibilities and enforce the law with those who unwilling to comply and pay their fair share (IRS Gov, 2011)

Works Cited

1.) The Tax Adviser. (2009). Establishing substantial authority for undisclosed tax positions. Retrieved from sclosed+tax+positions.-a0202072459 2.) Anderson, K. E. (2010). Prentice Halls Federal Taxation 2010: Corporations, Partnerships, Estates and Trusts, 23e. : Pearson Education Inc. 3.) IRS.Gov (2011), The Agency, its Mission and statutory authority. Retrieved from,,id=98141,00.html 4.) Timber Tax (2010), Resarch Process. Retrieved from