4 Major Types of Federal Taxes 1. Income taxes Individual income tax and corporate income tax. 2. Employment taxes FICA Social Security, FICA Medicare and FUTA. 3. Estate and gift taxes Taxes on transfers of property 4. Excise and custom taxes Taxes on transactions (taxes on the purchase of alcohol) CCH Federal Taxation

Tax Avoidance v. Tax Evasion Tax avoidance—Saving tax dollars through specific actions to avoid the tax liability prior to the time it would have occurred according to the law. Tax evasion—The taxpayer does not properly report income and expenses even though the taxpayer already has a tax liability and all actions are definitely complete. CCH Federal Taxation

Tax Avoidance v. Tax Evasion What frequently distinguishes avoidance from evasion is the intent of the taxpayer. Some indications of taxpayer fraud are: Understatement of income Claiming of fictitious or improper deductions Accounting irregularities Allocation of income Acts and conduct of the taxpayer CCH Federal Taxation

Tax Legislative Process 1. The Constitution requires that all revenue legislation start in the House Ways and Means Committee. 2. The tax bill is sent to the House of Representatives for approval. The House debates the bill under a “closed rule” procedure (all amendments must be approved by the House Ways and Means Committee). 3. If approved by the House of Representatives, the bill is sent to the Senate Finance Committee. The Finance Committee may make amendments to the House bill. Exhibit 1 page 1-18 CCH Federal Taxation

Tax Legislative Process Cont… 4. The bill is sent to the Senate for approval. Any senator may offer amendments from the floor of the Senate. Bill may be sent to a Joint Conference Committee if the House and Senate differ. The bill would then be sent back to House and Senate for consideration. At this point, no further amendments can be made. 5. Approved or vetoed by the President 6. Incorporated into the Code if approved by President or if veto is overridden. Exhibit 1 page 1-18 CCH Federal Taxation

Classification of Materials Primary or “authoritative” Internal Revenue Code (statutory authority) Treasury Regulations (administrative authority) Internal Revenue Service Rulings (administrative authority) Judicial Authority Secondary or “reference” Looseleaf tax reference services Periodicals Textbooks Treatises Published papers from tax institutes Symposia Newsletters CCH Federal Taxation Chapter 2, Exhibit 1

Judicial Authority The three courts of original jurisdiction are: U.S. Tax Court U.S. District Court U.S. Court of Federal Claims CCH Federal Taxation Chapter 2, Exhibit 2a

Judicial Authority The appellate courts are: U.S. Circuit Courts of Appeals U.S. Court of Appeals for the Federal Circuit U.S. Supreme Court CCH Federal Taxation Chapter 2, Exhibit 2b

Five-Step Research Method 1. Gather the facts and identify the tax issues. 2. Locate and study the primary and secondary authorities relevant to the enumerated tax issues. 3. Update and evaluate the weight of the various authorities. 4. Re-examine various facets of the research. 5. Arrive at conclusions; communicate these conclusions to the client. CCH Federal Taxation Chapter 2, Exhibit 3

Research Sources for Legislative Authority Authoritative Documents Research Source Authorship Binding Persuasive 16th Amendment Constitution Congress  Internal Revenue Code CCH, RIA, and West tax services CCH Federal Taxation Chapter 2, Exhibit 4a

Research Sources for Legislative Authority Authoritative Documents Research Source Authorship Binding Persuasive Tax Treaties (to render mutual assistance between the U.S. and foreign countries in tax enforcement and to avoid double taxation.) Tax Treaties (CCH) Worldwide Tax Treaty Library (Tax Analysts) International Tax Treaties of All Nations (Oceana Publications) Congress  (overrides Code if more recent) CCH Federal Taxation Chapter 2, Exhibit 4b

Research Sources for Legislative Authority Authoritative Documents Research Source Authorship Binding Persuasive Committee Reports (useful for determining Congressional intent when Code and Regs. are unclear) Cumulative Bulletins [CB] (U.S. Government.). Internal Revenue Bulletin [IRB] if written within 6 months House Ways and Means Committee Senate Finance Committee Joint Conference Committee  (no legal effect; only guidance) Bluebook (interprets new legislation) Bluebook (a government-issued, blue-covered book) Joint Committee on Taxation CCH Federal Taxation Chapter 2, Exhibit 4c

Research Sources for Administrative Authority Authoritative Documents Research Sources Authorship Binding Persuasive Final Regulations (Treasury Decisions) Federal register (U.S. Government.) Tax services (CCH, RIA and West). U.S. Treasury Department  Temporary Regulations (issued without opportunity for public comment because timing is critical) Federal Register (U.S. Government) Cumulative Bulletin (U.S. Government) Tax services (CCH, RIA, and West).  (binding if < 3 years old)  (nonbinding if over 3 years old) Proposed Regulations Federal Register (U.S. Government) Tax services (CCH, RIA, and West).  (nonbinding preview or final Regs.) CCH Federal Taxation Chapter 2, Exhibit 5a

Research Sources for Administrative Authority Authoritative Documents Research Sources Authorship Binding Persuasive Revenue Rulings (interprets tax laws) Cumulative Bulletins (U.S. Government) National office of IRS  (not approved by the Treasury) Revenue Procedures (addresses internal procedures of IRS) Cumulative Bulletins (U.S. Government) Letter Rulings (explains how IRS will treat a proposed transaction for tax purposes; issued to taxpayers) IRS Letters Rulings Reports (CCH) Private Letter Rulings (RIA) Daily Tax Reports (BNA) Tax Analysts & Advocates, TAX NOTES  (only precedent value is for the taxpayer addressed in letter) CCH Federal Taxation Chapter 2, Exhibit 5b

Research Sources for Administrative Authority Authoritative Documents Research Sources Authorship Binding Persuasive Technical Advice Memoranda [TAMs] (addresses how IRS will treat a completed transaction for tax purposes; issued to District Office, hence “memorandum”) IRS Position Reporter (CCH) Tax Notes (Tax Analysts) Internal Memoranda of the IRS (RIA) National office of IRS  (only precedent value is for the taxpayer addressed in memo) Determination Letters (mainly deal with pension plans and tax-exempt organizations) Not published, but available by IRS for public inspection District Director of IRS (only precedent value is for the taxpayer addressed in letter) CCH Federal Taxation Chapter 2, Exhibit 5c

Research Sources for Judicial Authority Binding Persuasive U.S. Supreme Court (4 of 9 justices needed to grant certiorari – often granted only when there is conflict among the appellate courts or where the tax issue is extremely important) USTC (CCH) AFTR (RIA) S.Ct. Series (West) L.Ed. (Lawyer’s Co-op) U.S. Series (U.S. Government)  (highest judicial body) CCH Federal Taxation Chapter 2, Exhibit 6a

Research Sources for Judicial Authority  (binding to other tax courts in same circuit) CCH services RIA services U.S. Government Printing Office U.S. Tax Court decisions – regular (deals with novel issues not previously resolved by TC; advance payment of tax not allowed)  (binding to lower courts in same circuit) USTC (CCH) AFTR (RIA) Federal 3d (West) U.S. Court of Appeal decisions (hears appeals from any of the three lower courts; the Federal Circuit Appellate Court hears all appeals from the Court of Federal Claims) Persuasive Binding Research Source Authority CCH Federal Taxation Chapter 2, Exhibit 6b

Research Sources for Judicial Authority No precedent authority Not published Small Cases Division of Tax Court (informal hearing for disputes of $50,000 or less; appeals process not available) TCM (CCH) T.C. Memo (RIA) U.S. Tax Court decisions— Memorandum (deals with factual issues necessitating application of established principles of tax law; advance payment of tax not allowed) Persuasive Binding Research Source Authority  (binding to other tax courts in same circuit) CCH Federal Taxation Chapter 2, Exhibit 6c

Research Sources for Judicial Authority Binding Persuasive U.S. District Court (jury trial available for factual issues but not for legal issues) USTC (CCH) AFTR (RIA) F. Supp. Series (West)  (binding to courts in same district) U.S. Court of Federal Claims (hears any claims against U.S. that is based on the Constitution, an Act of Congress, or a Regulation of any executive department) Federal Claims Reporter (West)  (binding to same court) CCH Federal Taxation Chapter 2, Exhibit 6d

Commercial Publishers of Comprehensive Services Description Standard Federal Tax Reporter (“Standard”), CCH Comprehensive, self-contained reference service. 25 coordinated and cross-referenced loose-leaf volumes that provide comprehensive coverage of the income tax law. Compiles legislative, administrative, and judicial aspects of the income tax law, arranged in Code section order. Also contains weekly supplements concerning current legislative, administrative, or judicial changes in tax law. United States Tax Reporter, RIA Comprehensive, self-contained reference service. 18 coordinated loose-leaf volumes organized by Code sections and updated weekly. Similar to CCH. RIA is known for its willingness to take a stand on controversial issues not covered by legislation or tax law. Federal Tax Service, CCH Contains several volumes of compilation material organized by topic. The Code, Regulations, and Committee Reports are contained in separate volumes. The chapters are prepared by over 250 practitioners. CCH Federal Taxation Chapter 2, Exhibit 7a

Commercial Publishers of Comprehensive Services Description Federal Tax Coordinator, RIA 26-volume service organized by topic, rather than Code sections. Popular features include editorial explanations, illustrations, planning ideas, and warnings of potential tax traps. Merten’s, Law of Federal Income Taxation, Clark, Boardman Callaghan & Co. Useful complement to traditional reference services. In-depth discussions of general concepts of tax law. Often quoted in judicial decisions. Sometimes difficult reading due to its legalistic style. Also, updating is less frequent than most other services and not as accessible. Tax Management Portfolios, BNA Useful complement to traditional reference services. Each booklet ranges in length from 50 to 200 pages and deals exclusively with a special tax topic covering Code, Regulations, reference to primary authorities, and extensive editorial discussion, including numerous tax planning ideas. Problems of inconvenience may develop when there is no one portfolio squarely on point and the research effort requires reference to many portfolios. Updates are convenient though not extensive. CCH Federal Taxation Chapter 2, Exhibit 7b

Commercial Publishers of Comprehensive Services Description CCH ONLINE An electronic research service. Incorporates practitioner-oriented access methods to successfully located the desired tax information and to retrieve documents of special interest. Available in many different “libraries” addressing tax and nontax topics. LEXIS/NEXIS, Reed Elsevier, Inc. An electronic research service. LEXIS accesses federal statutes, regulations, IRS rulings, and judicial decisions. NEXIS contains the full text of over 500 publications. WESTLAW, West Publishing Co. An electronic research service. Provides much of the same data as Lexis. Available online or CD-ROM. CCH Federal Taxation Chapter 2, Exhibit 7c

Commercial Publishers of Judicial Decisions Service Description CCH Citator, CCH Two-volume, loose-leaf reference service. Contains alphabetical listing of Tax Court (formerly Board of Tax Appeals, “BTA”) and federal court decisions since 1913. Indicates a paragraph reference where each case is digested in the Compilation Volumes of the Standard Federal Tax Reporter. Each listing outlines the judicial history of a selected case beginning with the highest court to have ruled on that issue. CCH Federal Taxation Chapter 2, Exhibit 8a

Commercial Publishers of Judicial Decisions Service Description Federal Tax Citator, RIA Seven-volume citator service organized in a manner consistent with CCH Citator. Provides an alphabetical list of court cases followed by a descriptive legislative history of each case. U.S. Tax Cases (USTC), CCH Series of volumes that cover Supreme Court, Courts of Appeals, District Courts, and Court of Federal Claims cases since 1913. CCH Federal Taxation Chapter 2, Exhibit 8b

Commercial Publishers of Judicial Decisions Service Description American Federal Tax Reports (AFTR), RIA Comparable to USTC above. Tax Court Memorandum Decisions (TCM), CCH Publishes memorandum decisions of the Tax Court. TC Memorandum Decisions (TC Memo), RIA Similar to TCM above. CCH Federal Taxation Chapter 2, Exhibit 8c

Penalties Delinquency penalties Accuracy-related and fraud penalties Negligence penalty Substantial understatement of tax liability Substantial valuation misstatement penalty Substantial overstatement of pension liabilities Estate of gift tax valuation understatements Penalty for aiding understatement of tax liability Civil fraud penalty Criminal fraud penalty Estimated taxes and underpayment penalties Failure to make deposits of taxes Tax preparer penalties CCH Federal Taxation Chapter 2, Exhibit 16