Overview

1. Overview • The tax research process • Establish the facts • Identify the issues • Locate authority (rules) • Evaluate authority • Analyze (apply rules to facts) • Develop conclusions and recommendations • Communicate the recommendations

2. Steps in the Tax Research Process

3. Step 1: Establish the Facts • Gather all relevant facts • All facts necessary to determine rule(s) to apply to the transaction or event • Irrelevant facts may become relevant later • Constantly be aware that new facts may be needed as the research progresses.

4. Significant Facts • Client’s tax entity • Client’s personal (family) situation • Client’s marginal tax rates • Client’s legal domicile/citizenship • Motivation for the transaction • Related party involvement • Entity’s/business’ special tax status • Whether transaction is proposed or completed

5. Step 2: Identify the Issues • Fact issues • Information with objective reality • Dates • Amounts • Reasonableness, intent, or purpose • Law issues • Unclear how tax law applies • Possible conflict between IRC sections • Possible conflict among jurisdictions • No provision found that addresses the client’s specific issue

6. Tax or nontax? TP wants to set up a private foundation to reduce her annual income tax liability.

7. Tax or nontax? TP has poor cash flow due to prior investments. He has limited ability to make tax-advantaged investments.

8. Tax or nontax? TP wants to transfer as much of her property to her grandchildren as possible. She does not want any of the property to fall into the hands of their mother (her daughter-in-law).

9. Tax or nontax? TP lived through the Great Depression. He does hates investment risk from investments such as stocks or bonds.

10. Tax or nontax? TP likes to maintain highly liquid investments, such as money market funds and CDs in insured financial institutions.

11. Tax or nontax? TP hates the Federal government and Federal taxes. She will take any action to legally avoid paying Federal income, estate, or gift taxes.

12. Step 2: Identify the Issues • Fact issues • Are additional facts needed? • Assumptions? • If issue spans more than one year, have facts changed? • Law issues • What law applies? • If issue spans more than one year, has law changed? • Simple situations can generate many research issues • New issues may arise when researching the original problem

13. Critical thinking • Logical analysis • The most difficult skill for a researcher to develop. • Essential for earning a living in tax • Tax research requires both mechanical skills and critical thinking. • Knowledge is useless when it cannot be applied to solve the problem at hand.

14. Critical thinking A client sold stock in a bank for $100,000 to a corporation in which she owns 30% of the stock. She has records documenting the stock acquisition 10 years ago and a basis of $135,000. She has current long-term gains of $50,000. • What if her husband also owns stock in the corporation? • What if her husband owns 25% of the stock?

15. Critical thinking IRC § 267

16. Iterative Research Process

17. Step 3: Locate Authority • Primary Authority • Statutory • Administrative • Judicial • Secondary Authority • Annotated services • Topical services • Court reporters • Tax journals

18. Primary or secondary? Internal Revenue Code Tax Court decision Corporate tax textbook Treasury Regulations IRS Revenue Ruling Tax Adviser (periodical published by the AICPA)

19. Primary or secondary? U.S. District Court opinion IRS Revenue Procedure U.S./Australia Income Tax Treaty RIA Tax Coordinator 2d

20. Commercial Tax Services

21. Selected Tax Journals

22. Step 4: Evaluate Authority • Different authorities may suggest different treatments (e.g., court decisions versus IRS pronouncements) • Precedential value • Current status

23. Synthesize Ponder

24. Step 5: Conclusions and Recommendations • May have no single “best” alternative • Alternatives must be considered • Client’s preferences must be considered • Recommendations should include alternatives, if any

25. Step 6: Communicate Recommendations • Memo to client file • Include the facts, assumptions, issues, authorities, and recommendations • Letter to client • Generally less technical than memo to file • Client should understand the limitations of the research and available alternatives

26. Computerized Tax Research • Given the volume of tax-related information, electronic online tax research systems facilitate effective and efficient tax research • Online tax research systems • Accessible through the internet and public telecom networks • Databases stored at centralized computer locations • Documents may be printed or saved to computer

27. Online Tax Research Systems • RIA Checkpoint • CCH Tax Research Network • Kleinrock’s • Tax Analysts • LexisNexis • Westlaw • Practitioners’ Publishing Company

28. Computerized Tax Services - Benefits • Less reliance on editor’s judgment about importance • Creation of user-specific indices • Hyperlinks allow ease in moving among documents • Updates incorporated efficiently • Quick processing of large volumes of material • Cost effective

29. Choosing a Computerized Tax Service • Database contents • Search capabilities • Training • Customer Support • Price

30. Steps in the Online Research Process

31. Westlaw – Search Tools

32. IRS Web Site Research • IRS web site (www.irs.gov) is not a full-service tax research site • Limited tax research can be conducted • Contains searchable and downloadable tax information including: • Tax forms • Instructions • IRS publications • Other IRS information