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    Federal research and procedure textbook

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    21 views45 pages

    Tax Research Chp1

    Uploaded by

    lydia01234
    Federal research and procedure textbook

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 45
    CHAPTER ONE OVERVIEW OF TAX RESEARCH EXPECTED LEARNING OUTCOMES Identify the basic tax research steps Know the importance of determining the research question Appreciate the significance of gathering all relevant facts Understand the practical considerations impacting the tax researcher (CHAPTER OUTLINE Overview Step One — Gathering Relevant Facts Step Two — Researching Step Three — Analyzing Step Four — Communicating Practical Considerations in Tax Research Chapter Summary Problems OVERVIEW Virtually all persons or objects in this country... . may have tax problems. Every day the economy generates thousands of sales, loans, gifts, purchases, leases, wills, and the like, which suggests the possibility of tax problems for somebody. US. Supreme Court Justice Potter Stewart “What are the tax implications?” This question permeates almost every business or investment discussion. Business decisions are often based on a variety of considerations — some non tax, others tax related. Depending on the particular transaction, tax consequences may completely dictate or only minimally affect the ultimate course of action taken. For example, tax laws affect such diverse business decisions as: “Should we open an overseas office?” “What discount should we provide for store purchases?” “How much severance should we pay?” ——————— 2 Chapter 1 “Should I sell my stock in the business?” Tax considerations also significantly influence many personal decisions: “Should I exercise my stock options now or wait until they fully vest?” “How many days should I rent out my vacation home?” “Should I start gifting property to my children to reduce estate taxes on my death?” ch process Generally, tax research is necessary to address these questions. The res: begins with someone (perhaps a taxpayer, your employer, or yourself) identifying the need to explore the question “What are the tax implications?” Practitioner Observation Eric Lee, Senior Manager, Deloitte & Touche, LL.P “No matter how much experience tax professionals possess, they can not know everything about the complex, ever changing tax law. ‘Therefore, what separates the successful tax professionals from those who are not is their ability to effectively and efficiently research tax issues. A parable explains that you can feed a hungry man, but it is better to teach him to fish. Research is the skill tax Professionals must master to cure their hunger for tax knowledge.” There are four basic steps to the research process: gathering the relevant facts and determining the pertinent tax question; tesearching available tax resources to determine relevant authority; analyzing the authority you find; drawing a conclusion and communicating your results, Step One - Gathering Relevant Facts and Determining the Tax Question Determine the relevant tax question, . Identify all the material facts, Step Two — Researching Identify and read the pertinent resources, Refine the question if necessary and/or obtain additional facts. Overview of Tax Research 3 Step Three — Analyzing ‘Synthesize the information gathered. Ponder what you have leamed. Determine whether there is enough information and authority to render a conclusion. Consider all legal and ethical issues. Ponder and conclude. Step Four — Communicating ™ Determine the appropriate form of communication. = Communicate your conclusions. ‘The process flowchart at the beginning of each chapter illustrates these steps in the context of the tax resources available. Sometimes there is a tendency to focus solely on the tax research tools and pay little heed to the research process, A good tax researcher understands the s and in this context appreciates what each of the various research tools has to offer. In ion, the process is not simply a mechanical one nor linear one. Each step requires a large amount of critical reasoning, reviewing and thinking! ad This chapter explores the two stages of Step One in detail: determining the relevant tax question and identifying the relevant facts. The rest of the chapter provides an overview of the remaining steps, which are discussed in depth in the chapters that follow. STEP ONE —- GATHERING RELEVANT FACTS 7 Determine the relevant tax question. a Identify all the material facts. The first phase in the research process consists of two steps: determining the tax question and identifying the relevant facts. Because these first-phase steps appear so straightforward, sometimes researchers do not pay adequate attention to their overriding importance. The first phase sets the foundation for the research process. You must competently perform each of the first two research steps, or your research results may be significantly flawed, 4° Chapter | Determine the Question “Ifyou don’t know where you're going, you will probably end up somewhere else.” by Laurence Johnston Peter, The Peter Principle (1969) The most critical initial step in the research process is to determine the research question or issue. Prior to achieving a complete understanding of the subject matter, you may initially phrase the question in very general terms: “Are the lottery winnings income?” Or “ Is interest Paid on a consumer loan deductible?” Regardless of how precisely you frame the initial research uestion, as you work through the research process and become more informed, you will likely refine, amend, and perhaps add to the question. For example, you may determine the initial research question is, simply stated, “Is the ‘mortgage interest deductible?” As you research, you will discover that there are special requirements in order for mortgage interest to be deductible. For example, it may need to be “aoquisition” debt. “You may further refine your question as “Is the debt ‘acquisition’ debt?” As you explore the meaning of the term acquisition debt, you discover that the home must be a “qualified residence.” Now you have anew question you must answer: “Is the home qualified residence?” Consequently, as you frame the initial question, it is important to be mentally flexible enough to feel free to refine orre-frame the question, Depending on your experience and knowledge of the Particular tax area you are researching youmay be able to quickly develop a specific set of relevant, focused research 2 es —— ifyou are a novice ina Particular area, a logical and careful development of the question is essential to arrive at a circumspect, professional conclusion. Overview of Tax Research 5 planning situation, the facts are not yet completely established. For example, perhaps a manager is considering whether to pay year-end bonuses to certain employees. In addition to determining what facts are already set in stone, it is imperative that you fully understand the goals of the manager. What the manager wishes to accomplish directly affects how you frame your tax question and, thus, the analysis that follows. Practitioner Observation Robert Evans, Vice President — Tax and Acquisition Services, The Fremont Group “In my opinion, the ultimate goal in tax research is to know how to find authorities which will allow your client to get where he/she wants to go with as high a comfort level as possible. To do this, the professional most often works to present alternatives which tweak the original legal and or/economic deal in order to fit fact patterns in tax authorities which provide the greatest comfort as to the achievability of the desired tax results. ‘The best professionals, therefore, gain the proper understanding of the client's pre-tax economic goals, understand the business deal and the latitude and limitations on potential alterations. The professional ‘then can present tax alternatives which take all of these pre-tax factors into account.” Unfortunately, taxpayers do not always call in advance to permit planning considerations. Frequently, you may only be asked to determine the appropriate way to report a completed transaction on a tax return. Or you may be required to research a matter to justify or bolster the taxpayer's position taken in a previously filed tax return, In this type of research role, the existing facts, rather than the taxpayer’s goals, will likely determine the appropriate tax research question. The best way to start research is to frame an initial research question. Recognize, however, that identifying and refining the tax research question continues throughout much of the research process as you begin to peel back the layers of information and uncover issues. Of ITO 6 Chapter 1 course, you bring to this stage of the process your Previous experiences which may impact how you formulate the initial tax question, You may determine later that you have posed a question too narrowly drawn. Framing the question too narrowly often posal in the failure to properly address the ultimate research question. Initially, you may have missed the key question altogether. Be open to changing or adding to your research question as you move through the process. Alvays try to take the proverbial “step back” after you have commenced your research, and consider whether your question, as initially framed, continues to be relevant as you explore applicable tax laws. A good researcher should try to maintain a professional and detached outlook. Also recognize the value of discussing the facts and question with other colleagues when this option is available. They may provide you with further insight. EXAMPLE 1: Framing the Research Question Taxpayer is taking courses toward an M.B.A. degree. Taxpayer was employed by an accounting firm and decided to take a leave of absence in order to attend graduate school full-time. Taxpayer would like to know if she can deduct her tuition expenses. a In this situation, perhaps the most general question is “Are tuition expenses deductible?” Some may intially believe that there may be a problem because Taxpayer is working toward a degree. This may result in framing the initial question oo narrowly. For example, “Does the fact that Taxpayer is working ‘owarda degree prohibit her from taking the deduction?” This may be an ‘appropriate initial question, but if it isthe only one researched, the general

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