Tax Research and Communication
The TCP discipline on the CPA exam tests your ability to conduct tax research and communicate findings effectively. CPAs must understand the hierarchy of tax authority, the research process, and professional standards for tax practice.
Hierarchy of Tax Authority
| Authority Level | Source | Weight |
|---|---|---|
| Statutory | Internal Revenue Code (IRC / Title 26) | Highest - the law itself |
| Administrative (Regulations) | Treasury Regulations (Final, Temporary, Proposed) | Very high - carry force of law (Final regs); temporary regs expire after 3 years |
| Administrative (IRS Guidance) | Revenue Rulings, Revenue Procedures, Private Letter Rulings, Notices, Announcements | Revenue Rulings apply broadly; PLRs apply only to the requesting taxpayer |
| Judicial | Supreme Court, Circuit Courts of Appeals, Tax Court, District Courts, Court of Federal Claims | Supreme Court decisions are binding on all; circuit court decisions are binding within that circuit |
Types of Treasury Regulations
- Legislative (delegated) regulations: Issued under specific congressional authority; carry the force of law and are given substantial deference
- Interpretive regulations: Interpret the IRC without specific congressional mandate; given considerable weight but can be challenged
- Procedural regulations: Address administrative and procedural matters; given less judicial deference
The Tax Research Process
- Establish the facts: Gather all relevant facts and circumstances of the client's situation
- Identify the issues: Determine the specific tax questions that need to be answered
- Locate applicable authority: Search the IRC, regulations, rulings, and case law relevant to the issues
- Analyze the authority: Evaluate how the authorities apply to the client's specific facts
- Develop conclusions: Form a well-reasoned conclusion based on the analysis
- Communicate findings: Document the research in a clear, professional format (tax memo or client letter)
IRS Guidance Types
| Guidance Type | Description | Precedential Value |
|---|---|---|
| Revenue Ruling | IRS interpretation of law applied to a specific set of facts | Can be cited as authority by all taxpayers |
| Revenue Procedure | Official IRS procedural guidance | Applies to all taxpayers; explains procedures for compliance |
| Private Letter Ruling (PLR) | IRS response to a specific taxpayer's request for guidance | Applies only to the requesting taxpayer; cannot be cited as precedent |
| Technical Advice Memorandum | Guidance requested by IRS field agents during an audit | Applies only to the taxpayer under examination |
| Notice | IRS announcement of upcoming guidance or policy changes | Not binding but indicates IRS position |
Circular 230: Standards for Tax Practice
Treasury Department Circular 230 governs practice before the IRS:
- Due diligence: Practitioners must exercise due diligence in preparing and filing returns and other documents
- Return positions: Must have a reasonable basis for positions taken; positions must be disclosed if they lack substantial authority
- Written tax advice: Must consider all relevant facts, not rely on unreasonable assumptions, and consider all applicable tax authorities
- Conflicts of interest: May not represent conflicting interests unless all parties consent and the practitioner believes competent representation is possible
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