If you are enduring or about to endure an I.R.S. audit, you should know how your tax positions stack against the I.R.S. examiners’ positions.
In most cases, you discuss the facts, not the law, and prove your facts with receipts, canceled checks, and logbooks.
Once you get into the law, the rules of engagement work pretty much as I describe below.
Rules:
Here are three general rules on the persuasiveness of tax documents:
Statutes and regulations are highly persuasive with both the courts and the I.R.S.
The next-best authority with the courts is prior case law.
The next-best authorities with the I.R.S. are I.R.S. documents. But as you’ll see, I.R.S. documents range from very strong to very weak.
Your tax dispute always begins with the I.R.S.
At the earliest stages of the audit, you work with auditors and agents whose knowledge of the law comes primarily (or solely) from I.R.S. documents, not statutes or court cases. As you advance your case within the I.R.S., you deal with supervisors and officers who are more knowledgeable and pay more attention to the code, regulations, and (to a lesser extent) court cases.
Throughout the audit, one thing remains constant: I.R.S. Code remains hugely crucial at all levels within the I.R.S.
After the tax code and regulations, the first type of official I.R.S. publication is a revenue ruling. The revenue ruling reads like a condensed court case and describes how the I.R.S. applies the law to a particular set of facts.
The second type of official publication is the revenue procedure. The I.R.S. uses the revenue procedure to administer the law by updating dollar amounts for inflation and explaining procedures for making elections or filing forms.
The third type of official publication is acquiescence or non-acquiescence. At its discretion, the I.R.S. can issue a statement indicating its agreement (acquiescence) or disagreement (non-acquiescence) with a Tax Court ruling.
Last, you’ll find notices and announcements that describe the I.R.S.’s official position on recent issues. You’ll also find private letter rulings and technical advice memoranda that carry weight with the I.R.S.
The I.R.S. also publishes I.R.S. forms, instructions, publications, and F.A.Q.s (guides). The guides are less technical than official pronouncements, and they don’t include citations. The I.R.S. writes the guides in clear terms so that non-professionals can easily understand them.
Most tax disputes begin and end with the I.R.S. So, where do court cases fit into your legal research?
Court cases matter at the I.R.S. level for two reasons:
At the highest level of I.R.S. review (APPEALS), I.R.S. officers consider court cases.
Court cases usually describe all the statutes, regulations, and other important I.R.S. documents you need to support your case. Plagiarizing court cases is not only within the rules for engagement with the I.R.S. but also a great strategy!
Once your tax dispute leaves the I.R.S. and enters the court, your best sources of tax authority are statutes, regulations, and prior court cases.
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