Tax Research Methodology Chapter 2

RonBlair Tax Research Methodology  Know and use the tools available to you  Develop your creative and reasoning ability  Enhance and use your ability to communicate

RonBlair Steps in Tax Research (An Efficient and Systematic Process)  1. Establish the Facts  2. Identify the Issues  3. Locate the Authorities  4. Evaluate your Authorities  5. Develop your Conclusions and Recommendations  6. Communicate your results

RonBlair 1. What are Facts?  So, what’s the problem. Facts are facts.  Are frequently in the eye of the beholder  We have already discussed open vs. closed fact transactions  Client’s intent / motivation should be the determining factor, but intent is often difficult to describe, especially in tax language

RonBlair 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

RonBlair 1. How do you establish Facts? CContract terms CContemporaneous documentation at time of the transaction TTestimony CCredible SSelf-serving??? EExpert witness IIndependent UUnrelated MMust continuously ask why, how, when, ……. CCancelled check PPhoto RReason and logic CCan you prove it

RonBlair 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.

RonBlair 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 23 rd payment to The Law Firm deductible an an ordinary and necessary business expense under §162, or must it be capitalized?”

RonBlair 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 §

RonBlair 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

RonBlair 3. Locate the Authorities  Primary Authorities:  1. Statutory: Constitution Statute – Internal Revenue Code (IRC) Tax Treaties

RonBlair 3. Authorities (Cont’d)  Primary Authorities  2. Administrative sources Regulations Revenue Rulings Private Letter Rulings Etc.

RonBlair 3. Authorities (Cont’d)  Primary Authorities  3. Judicial sources Supreme Court Appeals Courts Trial Courts

RonBlair 3. Authorities (Cont’d)  Secondary Authorities:  Tax Services  Journals  Textbooks  Newsletters  Etc., etc, etc. – and forever  Chapters 7 - 9

RonBlair 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

RonBlair What Do We Need to Know About “Authorities?”  What they are  Their source  Were to find them  How to use them

RonBlair 4. Evaluate your Authorities It’s all about “reliability” Chapters 3 - 6

RonBlair 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.

RonBlair 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.

RonBlair Electronic Tax Research  Very 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.

RonBlair  Questions?