There are numerous sources of tax law that tax practitioners (and the taxpayer who represents him or herself) must be familiar with in order to effectively resolve a tax dispute. These sources can be divided between legislative, administrative, and judicial sources.
The U.S. Constitution, U.S. statutes and their legislative histories, and U.S. tax treaties are all legislative sources of federal tax law.
The United States Constitution contains seven references to taxes, which provide the basis for our federal tax law. The Constitution’s Sixteenth Amendment authorizes Congress to lay and collect taxes on income; however, it does not describe how Congress is to go about doing so. As a result, Congress has enacted various statutes that provide for income, estate and gift, excise, and employment taxes.
The bulk of these statutes are published in title 26 of the United States Code and are often referred to as the Internal Revenue Code (IRC). However, other tax statutes appear outside of the IRC. For example, several tax rules applicable to retirement benefits appear in title 29 of the United States Code, which is part of the Labor Code.
Statutes are the primary source of federal tax law; they are the supreme law of the land outside of the Constitution (and Tax Treaties, discussed below). Because of the importance of statutory law, the legislative history underlying the enactment of these statues is also an important source of federal tax law. This legislative history may consist of judicial committee reports or even documented debates in the House of Representative or the Senate.
Tax treaties are another important legislative source of law. Tax treaties are relevant when taxpayers have ties with the United States and another country. Where tax treaties and statutes conflict, generally the source enacted or adopted last will govern. However, this is not always the case. In some instances, Congress will have specifically provided that either source will apply in different situations.
Both tax treaties and statutes are binding on the IRS and on the courts. However, courts may find either to be void as unconstitutional.
There are numerous administrative sources of federal tax law. Treasury Regulations are the most frequently encountered.
Treasury Regulations are the Treasury Departments and the IRS’s statements of law. These Regulations can either be expressly authorized by Congress or they can result from the Treasury or IRS’s administrative powers. Most of these Regulations are found in Title 26 of the Code of Federal Regulations. These Regulations are binding on the IRS, but not on the courts. The Regulations are very thorough, often providing very detailed examples.
IRS documents provide additional sources of federal tax law. Many of these documents are published weekly in the Internal Revenue Bulletin. These are cumulated every six months and published in the Cumulative Bulletin. These documents include revenue rulings, revenue procedures, notices, and announcements. Chief counsel advice, private letter rulings, determination letters, technical advice memoranda, actions on decisions, general counsel memoranda, field service advice, technical expedited advice memoranda, service center advice, chief counsel bulletins, litigation guideline memoranda, chief counsel notices, IRS information letters, IRS compliance officer memoranda, IRS technical assistance, the internal revenue manual, and IRS publications are other IRS documents that establish federal tax law.
Generally, none of these sources are binding on the courts, but some are binding on the IRS and the courts often hold the IRS to positions taken in these documents. Even if one of these sources is not binding on the courts or the IRS, they may disclose the IRS’s position on particular issues.
These sources of law are often beneficial for taxpayers, but taxpayers fail to take advantage them. The IRS knows of these sources of law and they are quick to point to them when they favor the government’s position. Taxpayers should be prepared to do the same.
Judicial opinions form a third source of federal tax law. All of the federal courts that hear federal tax cases, publish judicial opinions that explain, supplement, and in some cases create new law.
The authority of these opinions varies based on which court wrote the opinion and when it was written. The courts themselves impose restrictions on the precedential authority of its judicial opinions. For example, the U.S. Tax Court issues regular opinions, memorandum opinions, and summary opinions. Summary opinions have no precedential value and memorandum opinions have limited precedential value.
As with the IRS documents, this source of federal tax law is often favorable for taxpayers and it must be considered in handling a case before the IRS and before the courts.
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