If you are suffering or about to suffer an IRS audit, you should know how your tax positions stack up against the IRS examiners’ positions.
In most cases, you are discussing the facts, not the law, and you prove your facts with receipts, canceled checks, and logbooks. Once you get into the law, the rules of engagement work pretty much as described below.
Here are three general rules on the persuasiveness of tax documents:
• Statutes and regulations are highly persuasive with both the courts and the IRS.
• The next-best authority with the courts is prior case law.
• The next-best authorities with the IRS are IRS documents. But as you’ll see, IRS documents range from very strong to very weak.
Your tax dispute always begins with the IRS.
At the earliest stages of the audit, you work with auditors and agents whose knowledge of the law comes primarily (or solely) from IRS documents, not statutes or court cases. As you advance your case within the IRS, 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: IRS documents remain hugely important at all levels within the IRS.
After the tax code and regulations, the first type of official IRS publication is a revenue ruling. The revenue ruling reads like a condensed court case and describes how the IRS applies the law to a particular set of facts.
The second type of official publication is the revenue procedure. The IRS uses the revenue procedure to administer the law by updating dollar amounts for inflation and by explaining procedures for making elections or filing forms.
The third type of official publication is the acquiescence or non-acquiescence. At its discretion, the IRS 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 IRS’s official position on recent issues. You’ll also find private letter rulings and technical advice memoranda that carry weight with the IRS.
The IRS also publishes IRS forms, instructions, publications, and FAQs (guides). The guides are less technical than official pronouncements, and they don’t include citations. The IRS writes the guides in clear terms so that non-professionals can easily understand them.
Most tax disputes begin and end with the IRS. So where do court cases fit into your legal research? Court cases matter at the IRS level for two reasons:
• At the highest level of IRS review (appeals), IRS officers consider court cases.
• Court cases usually describe all the statutes, regulations, and other important IRS documents you need in order to support your case. Plagiarizing court cases is not only within the rules for engagement with the IRS but also a great strategy!
In conclusion, once your tax dispute leaves the IRS and enters court, your best sources of tax authority are statutes, regulations, and prior court cases.
We specialize in helping clients clarify their taxes so they keep more of their money. Many small business owners who come to see us in Fort Worth, TX generally do not understand the tax law enough to explain it to a fifth grader.