1. Yariv Brauner University of Florida, Levin College of Law
Why Examples?
Yariv Brauner
University of Florida, Levin College of Law

2. Examples in Tax Regulations
Pervasive
Important
Over 85% of survey responders reported the use of examples as either frequent or very frequent
No guidance, no scholarship
Obvious?
Natural appeal: professional, human
Only 9% of the survey participants opined that the use / drafting of examples are "just right."
Lack of consensus over their status and purpose
The article limits itself to examples in tax regulations

3. The COI Example Treas. Reg. §1.368-1(e)(2)(v), ex. 1.
Context: reorganization (tax free) treatment for mergers
Logic: efficiency / paper transactions should not trigger tax
enough of the old target shareholders must “continue” with their investment even if now it is in the format of another legal entity: the surviving corporation.
Note: the extent of participation (or control) in the surviving entity is irrelevant for COI
40% line drawn based on case law
Other case law
50% required for a ruling

4. Transfer Pricing Example
Treas. Reg. § (c)(4), ex. 1
The norm: arm’s length (comparability)
A U.S. pharmaceutical company develops a new drug in the United States and licenses it to its subsidiary in country X and to an unrelated company in country Y. The IRS condones the use of this “internal comparable,” based on similarity of profit potential
X and Y are neighboring countries, similar in terms of population, per capita income and the incidence of disease. Costs of producing and marketing are also expected to be approximately the same. The terms for the licenses are also identical in every material respect.

5. Parks v. Commissioner, 145 T.C. No. 12 (2015)
Private foundation was hit with excise taxes for radio ads related to issues on ballots (§ 4945)
How to distinguish between an attempt to influence legislation and educating the public on same matters?
The Regs.: should not “refer to” ballot initiatives
Examples: messages using language "widely used" or "identified with" specific legislation are excisable - expand the prohibition…
The Court bases its decision on the examples, avoiding general interpretation of the regulatory language
Courts have, however, gone the other way (inconsistent)

6. Why Examples? Reliance on examples is natural & automatic
Limits of language
Cognitive processes / learning
Survey (primary purpose)
40% mere illustrations [coffee, ect.],
but…. Examples are never neutral
13% explanatory purpose [TP example]
5% shape the contours of norms [Parks example]
5% target specific actions or transactions [Pfizer]
2% no specific goal [routine, examples restating reg.]
33% mixed, inconsistent goals
Clientele
Behavioral insights

7. “Where” Examples?
Examples that simply rehash the regulatory language (43% state that they are inappropriate)
Examples that add little [TP / air tickets]
47%: inappropriate (simplistic/unrealistic)
Examples that shape the scope [Parks / VRDI]
68% inappropriate, but only 20% say they should be discontinued
Examples that blur the scope / contradictory
20% specify as inappropriate
Clearly unsystematic approach to the drafting of examples

8. Very Preliminary Conclusion
First, pay attention to impact
Settle legal status
Consider behavioral aspects
availability, representativeness, and anchoring
May use them actively / nudge
Clientele
Consider alternative guidance (rulings)
Second, clarify acceptable goals (and non exclusivity)
Targeting should be questioned
Third, provide guidance on the use of examples
Too general examples
Examples that add nothing to the regulatory language
Unrealistic examples
Encourage a learned use of examples to illustrate formulaic, ordering, and similar rules (safe harbors/No-Nos)