Once you have located the applicable authorities you must evaluate them to determine whether they actually apply to the facts and issues of your particular situation, and to assess their importance. Determining whether the authority is relevant to the tax issues under consideration is accomplished by reading the full text of the document. Determining the importance, or relative weight, of the authorities to your particular situation is not always straightforward. In many cases the Internal Revenue Code and Regulations do not provide a conclusive answer to the issues involved in a specific set of facts. You may have to rely on other administrative or judicial authorities. To determine the inherent strength or weakness of these authorities, you should have a general understanding of the hierarchy of the authorities, and how to use a citator.
Hierarchy of Authorities
Code and Regulations:
Sometimes, simply reading the applicable Internal Revenue Code section yields the answer to your tax question. However, the statutory language of the IRC is often ambiguous or does not directly address the issues that you have identified. Under these circ*mstances, the secondary authorities are useful for finding other primary authorities that may be helpful in evaluating and applying the law. It is important to remember that in "compliance" research (finding answers to an already completed transaction) that the version of the IRC or Treasury Regulation you are using applies to the period in which the transaction occurred.
The Internal revenue Code is generally considered the highest authority, because it is the law as enacted by Congress. If the issue deals with international tax matters, treaties as enacted by Congress may supersede provisions in the IRC. The courts can invalidate a section of the IRC or a treaty if it violates the U.S. Constitution. Treasury Regulations, representing the official interpretations of the law by the Treasury Department, are often referred to as having "the force and effect of the law." The courts can invalidate them only by determining that they are inconsistent with the statute to which they relate. In assessing the importance of Treasury Regulations, it is important to remember that there are different types of regulations. Temporary regulations are accorded the same weight as final regulations. Proposed regulations carry no authority, because they are only indications of what the Treasury Department may decide. They are not binding on either the taxpayer or the IRS.
Pronouncements:
Revenue Rulings issued by the IRS, represent agency policy and are binding on the IRS and its personnel until they are revoked, modified, superseded, or withdrawn. Although they are accorded considerable importance, they do not have the force and effect of a Treasury Regulation. The courts frequently find that a ruling is inconsistent with the IRC section or regulation it is interpreting. It is important to use a citator to determine not only the current status of the ruling but also how the ruling has been evaluated by the courts.
An acquiescence or nonacquiescence issued by the IRS to an adverse Tax Court decision is equivalent to a revenue ruling, acquiescenses or nonacquiescenses are accorded the same weight as revenue rulings.
Court Decisions:
Numerous factors affect the strength of a court decision. One factor is whether the decision was issued by a trial or appellate court. A decision by the U.S. Court of Appeals carries a higher authority than a decision by a trial court. An opinion by the Supreme Court would be the highest authority. Another important factor to consider is whether the decision was issued by the Tax Court or some other trial court. The Tax Court is generally considered to have more technical expertise, on tax matters, than other trial courts.
Other factors to be considered in determining the level of authority of a court decision include whether the decision was unanimous or split and the jurisdictional issues regarding where you live. Remember, court cases with similar facts and issues may have been decided differently in other circuits. Another very important factor in determining the relative importance of a court decision is how other courts have viewed the decision. Using a citator is crucial for determining how the opinion stacks up with other decisions on the same issue. A strong decision would be one with a long history of favorable evaluation by other courts.
Once you have assessed the importance of the different primary authorities and established what the overriding authority is, you need to draw some conclusions.
