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Tax Research Methodology

Tax Research Methodology. Chapter 2 . Tax Research Methodology. Know and use the tools available to you Develop your creative and reasoning ability Enhance and use your ability to communicate. Steps in Tax Research (An Efficient and Systematic Process). 1. Establish the Facts

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Tax Research Methodology

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  1. Tax Research Methodology Chapter 2

  2. Tax Research Methodology • Know and use the tools available to you • Develop your creative and reasoning ability • Enhance and use your ability to communicate

  3. 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

  4. 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

  5. Timing (Date) Amount Intent Useful life Fair market value Fair rental value Etc. Purpose Parties involved Description Type of entity Relationships Business purpose Reasonableness 1. What are Facts? (Cont’d)

  6. Contract terms Contemporaneous documentation at time of the transaction Testimony Credible Self-serving??? Expert witness Independent Unrelated Must continuously ask why, how, when, ……. Cancelled check Photo Reason and logic Can you prove it 1. How do you establish Facts?

  7. 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.

  8. 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 23rd payment to The Law Firm deductible an an ordinary and necessary business expense under §162, or must it be capitalized?”

  9. 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 §

  10. 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

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

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

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

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

  15. 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

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

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

  18. 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.

  19. 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

  20. 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.

  21. 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.

  22. Questions?

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