Unit 6 – Tax Authority

Unit 6 – Tax Authority

Key Points for Exam

1. Statutory Law (Legislative Law)

• Internal Revenue Code (IRC):

  • formed in 1986, Title 26 of the U.S. Code, the primary source of federal tax law.

  • Courts prioritize literal language but use legislative history (committee reports) if ambiguous.

  • Tax Treaties: Override the IRC for foreign residents (reciprocal provisions).

• Committee Reports:

  • Clarify Congressional intent (e.g., House Ways and Means, Senate Finance Committee).

2. Administrative Law

• Treasury Regulations:

  • Legislative: Issued under specific Congressional authority (binding as law).

  • Interpretative: Explain IRC sections (less binding but given substantial weight).

  • Procedural: Govern IRS processes (e.g., filing requirements).

  • Types:

    • Proposed (public comments invited).

    • Temporary (3-year validity, same authority as final).

    • Final (adopted after public input) and referred to as treasury decision.

• Revenue Rulings:

  • IRS interpretations of tax law applied to specific facts (non-binding on courts).

• Revenue Procedures:

  • IRS administrative guidelines (e.g., filing processes; non-binding but directive).

• IRS Publication:
  • IRS Publications: Publications explain the law in plain language
  • Announcements.
  • General Counsel Memos.
  • Internal Revenue Bulletins.

• IRS Promulgate:

  • The process by which agencies promulgate regulations that have the force and effect of law is known as rulemaking defined under The Administrative Procedure Act (APA).

• Internal Revenue Bulletin (IRB):

  • Publishes rulings, procedures, treaties, and notices weekly.

  • Includes Announcements (urgent guidance) and Notices (policy updates) are identified by year and sequence number.

• Private Letter Rulings (PLRs) & Technical Advice Memoranda (TAMs):

  • Binding only for the specific taxpayer/case; not precedential.

• Internal Revenue Manual (IRM):

  • IRS operational guidelines (directory, not legally binding).

3. Judicial Law

• Court Hierarchy:

  1. U.S. Tax Court (tax-specific, no jury).

  2. U.S. District Courts (jury trials allowed).

  3. U.S. Court of Federal Claims (monetary claims against the U.S.).

  4. Appellate Courts (Circuit Courts, Federal Circuit).

  5. U.S. Supreme Court (resolves conflicting lower court rulings).

• Types of Decisions:

  • Regular (published, precedential).

  • Memorandum (non-precedential, commercially published).

• Acquiescence/Nonacquiescence:

  • Acquiescence: IRS accepts a court decision for similar cases.

  • Nonacquiescence: IRS rejects the decision and will not follow it.

• Dictum:

  • Non-binding court commentary that may influence future rulings.

4. Tax Research

• Primary Authorities:

  • Statutory: IRC, treaties, committee reports.

  • Administrative: Regulations, rulings, procedures.

  • Judicial: Court decisions.

• Secondary Authorities:

  • Tax services, textbooks, and articles (used to locate primary sources).

Key Takeaways

✅ Hierarchy of Authority:

1. IRC > Treaties > Legislative Regulations > Judicial Decisions > Interpretative Regulations.

2. Revenue Rulings/Procedures < Regulations.

✅ Regulations:

• Legislative = Law; Interpretative = Guidance; Procedural = IRS processes.

✅ Court System:

• Tax Court specializes in tax disputes; Supreme Court resolves conflicts.

✅ Research:

• Always prioritize primary sources (IRC, regulations, court cases).

Visual Summary

┌───────────────────┐  
│ **Tax Authority** │  
└─────────┬─────────┘  
          │  
  ┌───────┴───────┐  
  │ Statutory Law │───▶ IRC, Treaties, Committee Reports  
  ├───────────────┤  
  │ Administrative│───▶ Regulations, Rulings, IRB, PLRs  
  ├───────────────┤  
  │ Judicial Law  │───▶ Courts, Acquiescence, Dictum  
  └───────────────┘  

Exam Tips:

• Treaties override IRC for foreign residents.

• Legislative regulations are binding; interpretative are not.

• Memorandum decisions lack precedential value.

• Acquiescence signals IRS acceptance of a court ruling.