• Legislative Authorities
  • Internal Revenue Code
  • Congressional Committee Reports
• Administrative Authorities
  • Treasury Regulations
  • Revenue Rulings
  • Other IRS Rulings and Releases
• Judicial Authorities
  • Court Decisions
  • U.S. Tax Court
  • Federal District Court
  • U.S. Court of Federal Claims
  • Court of Appeals Decisions
  • Supreme Court Decisions
  • States Within Court of Appeals Regions

The federal income tax law is based on statutes passed by Congress. The statutes are organized into a Code, which is currently cited as the Internal Revenue Code of 1986.

Ideally, there should be no need for legal sources other than the Code. This may be true where a statute as passed by Congress is so clear and specific that no one doubts its application. However, in the many cases where the wording of a statute in the Code is general and may be interpreted in several ways, you must seek interpretations that may help you resolve a tax question or support your point of view in a tax dispute. Authoritative interpretations are made by the Treasury and the Internal Revenue Service in regulations and rulings and by federal courts in specific decisions. The relative authoritativeness of these sources is discussed in this part.

LEGISLATIVE AUTHORITIES

Internal Revenue Code

The 1986 Tax Act redesignated the Internal Revenue Code as the Internal Revenue Code of 1986. The prior designation date was 1954.

The title of the Code remains fixed with the date 1986, although sections of the Code may be amended every year. Structurally, the Code is divided into:

• Subtitles (for example, Subtitle A: Income Taxes; Subtitle B: Estate and Gift Taxes, etc.);
• Chapters (for example, Chapter I of Subtitle A: Normal Taxes and Surtaxes);
• Subchapters (for example, Subchapter A of Chapter 1: Determination of Tax Liability);
• Parts (for example, Part I of Subchapter A: Tax on Individuals); and
• Sections (for example, Section I of Part 1: Tax Imposed).

Sections run consecutively in the Code from Section 1 up to Section 9834. However, in the sequence, many numbers are missing to allow for further expansion. Each section itself is then broken down as follows:

• Lettered subsections: (a), (b), (c), etc.
• Numbered paragraphs: (1), (2), (3), etc.
• Capital‐lettered subparagraphs: (A), (B), (C), etc.
• Roman‐numbered sub‐subparagraphs: (i), (ii), (iii), etc.

Congressional Committee Reports

The legislative history of a Code section may be found in the reports of the Congressional committee that wrote the section. Under the Constitution, tax bills originate in the House of Representatives, although in practice, the Senate has sometimes considered tax legislation before the House. In recent years, the House and Senate increasingly have moved tax bills towards enactment without following the traditional practice of having the House Ways and Means Committee and the Senate Finance Committee release formal written reports explaining the provisions in their respective Committee bills, prior to consideration by the full House and Senate. Where there are no formal Committee reports, each Committee typically prepares a bill summary, and the Joint Committee on Taxation issues a description of the provisions in the respective House and Senate bills.

Where the House and Senate approve different versions of a bill, the traditional means of settling the differences between the two versions is for House and Senate leaders to appoint a Conference Committee that prepares a compromise measure and a Conference Committee report that explains it. If the House and Senate both pass the compromise bill, it is sent to the President and becomes law after the President signs it. In recent years, House and Senate Conferees have often met informally, and at times there has been no Conference Report. The Joint Committee on Taxation typically releases an explanation of the Conference Agreement, commonly called the “Blue Book.” The Joint Committee explanation cannot be cited as the official Conference Committee Report, but it may be given deference by a reviewing court if it supports an official House, Senate, or Conference report, or is not contradicted by an official report.

House, Senate, and Conference Committee reports are available online from the Library of Congress (www.thomas.loc.gov) and from the Government Printing Office (www.gpo.gov). The Joint Committee on Taxation (www.jct.gov) has the Joint Committee explanations as well as links to the House Ways and Means Committee (www.waysandmeans.house.gov) and the Senate Finance Committee (www.finance.senate.gov).

ADMINISTRATIVE AUTHORITIES

Treasury Regulations

Regulations authorized by the Internal Revenue Code have the force and effect of law and may be relied upon as authority. Failure to comply with such a regulation can result in a negligence penalty.

The validity of a regulation can be questioned. Courts are not bound by regulations and can overrule them if they are unreasonable and plainly inconsistent with the Code.

Once a regulation has interpreted a Code provision, passage of a similar law with the exact wording is regarded by the courts as evidence that Congress is satisfied with the regulation and, thus, the regulation generally will not be overruled. If a regulation is disapproved by a court, the IRS can continue to enforce the regulation unless the regulation is reversed by the Supreme Court.

New regulations are generally first announced as proposed regulations. During a stated time limit, tax professionals and taxpayers are allowed to suggest changes or additions. Often, the IRS will hold special hearings to discuss the proposals, and then, after reviewing the suggestions, will issue final regulations as Treasury Decisions (TDs), which include a general explanation of the regulations and are published in the Federal Register and in the IRS Internal Revenue Bulletin. The IRS also issues some regulations as temporary regulations, which generally are effective upon publication and remain in effect until replaced by final regulations. Temporary regulations must be simultaneously issued as proposed regulations and may remain in effect for no more than three years after the date of issuance. Temporary regulations, like final regulations, are issued as Treasury Decisions (TDs). Tax services for professionals provide the text of proposed, temporary, and final regulations to their subscribers.

Each section of the regulations is preceded by the section, subsection, or paragraph of the Internal Revenue Code that it interprets. The sections of the regulations are distinguished from sections of the Code by the Arabic numeral 1, followed by a decimal point (1.) before the corresponding provision of the Internal Revenue Code. This designation is then followed by a dash (‐) and a number further identifying a section of the regulation. With these numbers you can find regulations interpreting a Code provision. Thus, the regulation explaining IRC Section 301 is designated 1.301, and a section of that regulation is identified as 1.301‐1.

Revenue Rulings

Revenue Rulings make up a large body of IRS interpretations of the tax law. They are generally official replies by the IRS National Office to specific problems raised by taxpayers. They are published to provide guidance in cases having similar facts to those presented in the rulings.

Revenue Rulings are published weekly in the Internal Revenue Bulletin. Every half‐year, these rulings are republished in a book, called the Cumulative Bulletin, which is available to the public from the Government Printing Office. The weekly bulletins are available online from the IRS at https://apps.irs.gov/app/picklist/list/internalRevenueBulletins.html.

See below for references to Revenue Rulings appearing in the Internal Revenue Bulletin and the Cumulative Bulletin.

In the Weekly Internal Revenue Bulletin

Rev. Rul. 2017‐20, 2017‐41 IRB 273 means that the particular ruling is the 20^th ruling for 2017, it appears in the 41^st weekly bulletin for 2017, and can be found on page 273 of that bulletin.

In the Cumulative Bulletin

Rev. Rul. 94‐43, 1994‐2 CB 198—means that the ruling appears in the second semiannual Cumulative Bulletin for 1994 and, in that book, can be found on page 198.

Other IRS Rulings and Releases

After Revenue Rulings, there are several other IRS releases and rulings that are helpful in determining IRS policy.

Revenue procedures. These describe internal practices and procedures within the IRS and filing procedures for taxpayers. They are published in the Internal Revenue Bulletin. References to them are prefixed by the abbreviation “Rev. Proc.” For example, Rev. Proc. 2017‐34, 2017‐26 IRB 1282, means that the revenue procedure is the 34^th procedure for 2017, it appears in the 26^th weekly bulletin for 2017, and can be found on page 1282 of that bulletin.

Notices and announcements. These describe current IRS policy toward a specific issue. They are primarily intended to provide IRS guidance on new tax law developments. They are also used to update dollar limits, such as the annual mileage allowance, hi‐low substantiation limits for business travel in the continental U.S., and contribution and benefit amounts for qualified retirement plans and IRAs. They may contain the advance text of Revenue Rulings. Announcements and Notices are published in the Internal Revenue Bulletin.

Letter rulings. These include private rulings, determination letters, and technical advice memoranda. Such rulings are not officially published and may not be cited as a precedent by any other taxpayer. However, they may be helpful, as they reflect the IRS’ policy and interpretation of the law. In one case, the Supreme Court noted that private letter rulings are evidence of an IRS position, although they have no authoritative force. Virtually all letter rulings are open to public inspection after all information that could identify the taxpayer involved has been deleted.

General counsel memoranda, actions on decisions, technical memoranda. These are internal IRS documents that provide reasons for rulings, regulations, and acquiescences or nonacquiescences to court decisions. General Counsel Memoranda (GCMs) and Chief Counsel Advice (CCA) are legal opinions on proposed revenue rulings, private rulings, and technical advice memoranda. Actions on Decisions (AODs) recommend whether or not to appeal adverse court decisions. Technical Memoranda (TMs) indicate the legal and policy basis for proposed Treasury regulations. The documents are released by the IRS after deletions are made to remove identifying information.

Q&As. This type of guidance is provided on IRS web pages only.

JUDICIAL AUTHORITIES

A taxpayer who receives a notice of deficiency can appeal to the Tax Court without actually paying the deficiency. Alternatively, the deficiency can be paid and a claim for a refund filed with the IRS; if the refund claim is denied, a refund suit can be brought in Federal District Court. A refund suit may also be brought in the U.S. Court of Federal Claims. Appeals from these courts are heard by a Federal Court of Appeals.

Court Decisions

The authority of court decisions varies. When using court decisions, keep these points in mind:

• The IRS is not bound to follow a court decision in any case apart from the case in which the decision has been handed down. The only exception to this rule is a decision of the Supreme Court.

• Court decisions are not of equal weight. A decision of the Tax Court has substantially greater significance than a decision rendered by a Federal District Court and often by a Federal Court of Appeals, primarily because the Tax Court hears cases all over the nation and will apply its decisions on a nationwide basis.

  Federal District Courts are local federal courts and a Court of Appeals hears appeals only on a regional basis. So whereas one decision of the Tax Court will generally be applied throughout the United States, there may be several conflicting interpretations between district courts in various localities and Courts of Appeals in the various geographical regions. For example, a district court in California is not bound to follow a decision handed down by a district court in New York. And a Court of Appeals for one region is not bound to follow a decision of a Court of Appeals for another region. On the other hand, the precedent of a Tax Court decision rendered in New York is generally controlling authority in a Tax Court hearing held anywhere else in the United States. However, the Tax Court generally will follow a decision of the Court of Appeals to which the current case is appealable if that appeals court decision is squarely on point.

U.S. Tax Court

The Tax Court is a special court for taxpayers who appeal tax deficiencies imposed by the IRS for income, estate, or gift taxes. It is independent of the IRS and the Treasury department; its members are judges, and its decisions are subject to the same judicial review as that of any other federal court. They can be appealed at a Court of Appeals and then to the Supreme Court.

Between the years 1924 and 1942, the Court was known as the Board of Tax Appeals. In 1942, it received the present name of Tax Court. Cases decided by the Court before 1942 are referred to, for example, as 20 BTA 45 and cases afterwards as 30 TC 43. (The first number of the citation designates the volume of the particular series of court decisions; the second number designates the page within the volume in which the case can be found.)

The IRS is not bound by a Tax Court decision except in the particular case in which the decision has been rendered. It can continue to litigate the same issue in other cases before the Tax Court and in other courts. However, in a tax dispute with a taxpayer involving the same issue that the Court decided against the government, the IRS may be more inclined to negotiate a settlement than have the taxpayer bring a case before the Tax Court for another unfavorable decision against its position.

There are three types of Tax Court decisions:

Regular decisions. These are officially reported by the Tax Court and published in the United States Tax Court Reports by the U.S. Government Printing Office. Regular decisions are available on the Tax Court website, www.ustaxcourt.gov. They are also available from private tax publishers and online services. In Part 10 of this book, we reference regular decisions to the CCH Tax Court Reporter if a citation to the official reporter was not available.

Memorandum decisions. These are not reported by the Tax Court in official volumes, but are available on the Tax Court website, www.ustaxcourt.gov, and from private tax publishers and online services. In Part 10, memorandum decisions are referenced to the CCH Inc. series, Tax Court Memorandum Decisions, cited “ TCM,” where such a citation is available. Otherwise, citations are to decision number, such as TC Memo 2017‐169.

What is the court test for reporting a case as either a regular decision or as a memorandum decision? The Court says a memorandum decision involves no question of law, but merely facts that the Court believes are limited to a number of cases. If a memorandum decision does involve a question of law, the question is usually one that has been decided previously by the Tax Court and followed by the Court of Appeals. However, taxpayers can and do appeal memorandum decisions to the Court of Appeals as they can regular decisions.

Although these are considered by the Court as minor decisions, they are further examples of Tax Court policy toward a particular tax issue. Furthermore, memorandum decisions are often appealed and the decision of the appeals court in these cases may become important authority.

Current Tax Court policy in issues disputed by two or more Courts of Appeals is to follow the opinion of the Court to which the appeal may be taken, if that Court has ruled on the issue.

Summary opinions. These are cases decided under the Tax Court’s small tax case procedure for deficiencies of $50,000 or less (IRC §7463). Such cases are handled expeditiously and informally. It is available at the option of the taxpayer if the Court concurs. Cases may be heard by appointed special trial judges. A small claim case can be discontinued at any time before a decision, but the decision, when made, is final. No appeal can be taken. A decision does not have precedential value. Summary opinions are available on the Tax Court website, www.ustaxcourt.gov, and from private tax publishers and online services.

IRS response to decision. The IRS may announce its acceptance of or disagreement with a Tax Court holding against a position held by the IRS in an officially reported decision. No policy statements are made for memorandum decisions. These announcements are made in the weekly Internal Revenue Bulletin, as acquiescences or nonacquiescences. The IRS cautions that an acquiescence of a particular decision merely signifies its acceptance of the Court’s conclusion. It does not necessarily mean that it has accepted or approved of the Court’s reasons for the conclusion, and it advises its officials to apply the rule of acquiesced cases only to cases that have substantially the same facts and circumstances as the acquiesced case. An acquiescence or nonacquiescence of a reported case can be recognized by the abbreviation (Acq.) or (Nonacq.) at the end of the case citation. However, if you are going to rely on an acquiesced case, try to find the exact terms of the IRS approval from the weekly Internal Revenue Bulletin or Cumulative Bulletin. Sometimes an acquiescence is limited only to one particular issue of a case. Finally, the IRS is free to withdraw an acquiescence or non‐acquiescence.

Federal District Court

There is at least one Federal District Court for each state, with the more populous states having two or more district courts. A Federal District Court can hear only tax cases in which a taxpayer sues for a refund after his or her claim has been denied by the IRS.

Not all district court decisions are rendered in written form. But where they are in writing, they may be handed down as an Opinion, Findings of Fact and Conclusions of Law, or both. Generally, a district court opinion is not strong authority, primarily because of the local nature of a district court. However, a well‐reasoned district court decision may be accepted by other courts and even the IRS, and in the absence of any other authority on a particular issue, a decision of a district court may prove helpful as presenting at least one published view of the problem.

District court decisions are referred in this book to their place in the Federal Supplement Series published by the West Publishing Company. For example, take the case Seymour Gale, 768 F. Supp. 1305 (N.D. IL. (1991)). Seymour Gale is the name of the case; 768 refers to the volume of the Federal Supplement Series, 1305 to the page within that volume, N.D. IL. to the Northern District of Illinois, and 1991 to the year of decision. District court decisions not cited to the Federal Supplement Series are cited to the U.S. Tax Cases published by CCH Inc. These citations are explained in the section on Court of Appeals decisions below.

U.S. Court of Federal Claims

The only tax cases heard by the U.S. Court of Federal Claims (formerly called the U.S. Claims Court) are those involving refunds of taxes. Decisions by the U.S. Court of Federal Claims on income tax questions have not had an important effect on the development of the income tax law. However, a favorable decision of the Court of Federal Claims on a particular issue that you may be disputing with the IRS may encourage you to choose that court to hear your case. And a well‐reasoned decision rendered by the Court of Federal Claims may be followed by the other courts. Appeals from the Court of Federal Claims decisions are heard by the Court of Appeals for the Federal Circuit.

Court of Federal Claims decisions are referred in this book to their place in the Federal Claims Reporter published by West Publishing Company. If citations to the Federal Claims Reporter are not available, Court of Federal Claims decisions are cited to the U.S. Tax Cases published by CCH Inc.

Court of Appeals Decisions

There are 12 Courts of Appeals that hear appeals taken either by taxpayers or the government from decisions rendered by the Tax Court or Federal District Court. Eleven of these are regional courts that hear cases arising within their regions, which are technically called “circuits”; the twelfth hears cases arising within the District of Columbia. The circuits and the states within each circuit are listed in the table below.

Appeals of tax refund decisions from the U.S. Court of Federal Claims are heard by a separate appeals court, the U.S. Court of Appeals for the Federal Circuit.

Court of Appeals decisions make up an important part of federal tax law. But the effectiveness of a particular decision may vary because of these factors:

• The IRS is not bound to follow any precedent set by an appeals court decision. The IRS will sometimes announce its decision to follow or not to follow a Court of Appeals decision.
• The Tax Court does not consider itself bound to follow any precedent set by an appeals court decision. The Tax Court view is that its nationwide jurisdiction cannot be restricted by the rules of the 12 different appeals courts. However, it will generally follow an appeals court decision in the circuit to which the case before it may be appealed.
• A Court of Appeals of one region is not bound to follow the precedent of a Court of Appeals in another region. Consequently, a decision of a particular appeals court is far stronger for taxpayers who can bring their appeals before that court than for taxpayers who must appeal to other appeals courts. A court will generally follow its own precedents unless it is overruled or later decides its original position was wrong.

Court of Appeals decisions are referred in this book to their place in the Federal Series reports published by the West Publishing Company. The first series is cited as “F.,” the second series as “F.2d,” and the third as “F.3d.” For example, take the citation Albertson’s, Inc., 12 F.3d 1529 (9th Cir. (1994)). Albertson’s, Inc., is the name of the taxpayer, 12 refers to the volume of the third series of the Federal Series reports, 1529 to the page within that volume, 9th Cir. refers to the circuit appeals court, and 1994 is the year of the decision.

In some instances, citations may be reported in unofficial sources. For example, John F. Morrissey, 2017‐2 USTC ¶50,360 (11th Cir. 2017), may be found in U.S. Tax Cases published by CCH Inc. These reports contain tax decisions from all levels of federal courts except the Tax Court. Except for years prior to 1934, two CCH Inc. volumes appear for each year. 2017‐2 refers to the second volume of 2017; ¶50,360 is the paragraph at which the case is located.

Appeals court decisions may also be obtained from online services.

Supreme Court Decisions

Supreme Court decisions are the only decisions that the Internal Revenue Service and lower courts are required to follow. They have the same force as the Code and remain in force until Congress specifically changes the Court’s interpretation or unless the Supreme Court in a later decision reverses its own position. Tax cases come before the Supreme Court when either a taxpayer or the government files a petition for a Writ of Certiorari, asking the Court to review the decision of a U.S. Court of Appeals. However, the Supreme Court generally limits its review of tax disputes to cases where there is a conflict of decisions among several U.S. Courts of Appeals on a specific interpretation of a tax law. An example of a reference to a Supreme Court decision is: Harold Davis, 495 U.S. 472 (1990).

Harold Davis is the name of the taxpayer involved in the case; 495 refers to the official volume in which the case can be found; U.S. designates the official Supreme Court volumes; 472 refers to the page within a volume; and 1990 refers to the year of the decision.

The case can also be found in volumes published by private publishers that are released before the official Supreme Court volumes. For example, unofficial Supreme Court decisions may be found in the Supreme Court Reporter, put out by West Publishing Company, or in U.S. Tax Cases, published by CCH Inc. An example of a U.S. Tax Cases citation is: King v. Burwell, 2015‐1 USTC ¶50,356.

States Within Court of Appeals Regions

FIRST CIRCUIT

Maine
Massachusetts
New Hampshire
Rhode Island
Puerto Rico

SECOND CIRCUIT

Connecticut
New York
Vermont

THIRD CIRCUIT

Delaware
New Jersey
Pennsylvania
Virgin Islands

FOURTH CIRCUIT

Maryland
North Carolina
South Carolina
Virginia
West Virginia

FIFTH CIRCUIT

Canal Zone
Louisiana
Mississippi
Texas

SIXTH CIRCUIT

Kentucky
Michigan
Ohio
Tennessee

SEVENTH CIRCUIT

Illinois
Indiana
Wisconsin

EIGHTH CIRCUIT
Arkansas
Iowa
Minnesota
Missouri
Nebraska
North Dakota
South Dakota

NINTH CIRCUIT
Alaska
Arizona
California
Hawaii
Idaho
Montana
Nevada
Oregon
Washington
Guam

TENTH CIRCUIT
Colorado
Kansas
New Mexico
Oklahoma
Utah
Wyoming

ELEVENTH CIRCUIT
Alabama
Florida
Georgia

CIRCUIT FOR THE DISTRICT OF
COLUMBIA

Washington, D.C.