Wednesday, June 22, 2011

Tax Litigation and Tax Law

 Sources of Tax Law in the United States

The Constitution is the highest authority of law on all taxation issues. The Internal Revenue Code is subject to any constraints imposed by the U.S. Constitution. Common Law Doctrine = Judicial Interpretation of Vague Statutes

Treasury Regulations have the force of law under the IRC unless they are inconsistent with the statute. Although courts invalidate regulations more often than they find constitutional violations in the statute, judicial invalidation of regulations is not common. Congress has delegated to the IRS department the task of establishing substantive rules rather than merely interpreting the statute.

These rules are Legislative Regulations. Because the grants of authority are so broad, legislative regulations are seldom invalidated. Harder to convince a court that a legislative regulation is wrong.
Interpretive regulations are interpreting current law. Easier to overturn.

Revenue Rulings and Revenue Procedures published by the Internal Revenue Service are next on the level of hierarchy.  A revenue ruling sets forth the Service’s view as to how the Code applies to a hypothetical set of facts.  Unlike a regulation, a ruling does not have a presumption of validity or correctness, however a taxpayer may rely on it. A revenue procedure has the same legal status as revenue ruling in tax litigation with the IRS, but they resemble regulations in format, in contrast with the use of hypothetical facts typical of rulings.

General Counsel Memoranda and Private Letter Rulings are private opinions issued to a private taxpayer that they may rely on for a substantial fee. It has the effect of a revenue ruling.  Another taxpayer may not rely on the binding authority of the letter.  It shows how the IRS is thinking about specific facts. Better to withdraw a ruling requests. General Counsel Memoranda, they have much more detail about the law and can be useful in tax litigation.

Legislative History can show what was congress thinking as it wrote tax law. In tax law, it is very common to use legislative history to prove points. Tax laws are often enacted in response to specific societal problems and trends and there is usually lots of information on the reasons

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