Sources of Tax Law
There are numerous sources of tax law that tax practitioners (and the taxpayer who represents him or herself) must be familiar with in order to effectively resolve a tax dispute. These sources can be divided between legislative, administrative, and judicial sources.
Constitutional and Legislative Sources of Tax Law
The U.S. Constitution, U.S. statutes and their legislative histories, and U.S. tax treaties are all legislative sources of federal tax law.
The United States Constitution contains seven references to taxes, which provide the basis for our federal tax law. The Constitution’s Sixteenth Amendment authorizes Congress to lay and collect taxes on income; however, it does not describe how Congress is to go about doing so. As a result, Congress has enacted various statutes that provide for income, estate and gift, excise, and employment taxes.
The bulk of these statutes are published in title 26 of the United States Code and are often referred to as the Internal Revenue Code (IRC). However, other tax statutes appear outside of the IRC. For example, several tax rules applicable to retirement benefits appear in title 29 of the United States Code, which is part of the Labor Code.
Statutes are the primary source of federal tax law; they are the supreme law of the land outside of the Constitution (and Tax Treaties, discussed below). Because of the importance of statutory law, the legislative history underlying the enactment of these statutes is also an important source of federal tax law. This legislative history may consist of judicial committee reports or even documented debates in the House of Representatives or the Senate.
Tax treaties are another important legislative source of law. Tax treaties are relevant when taxpayers have ties with the United States and another country. Where tax treaties and statutes conflict, generally the source enacted or adopted last will govern. However, this is not always the case. In some instances, Congress will have specifically provided that either source will apply in different situations.
Both tax treaties and statutes are binding on the IRS and on the courts. However, courts may find either to be void as unconstitutional.
Administrative Sources of Tax Law
There are numerous administrative sources of federal tax law. Treasury Regulations are the most frequently encountered.
Treasury Regulations are the Treasury Department and the IRS’s statements of law. These Regulations can either be expressly authorized by Congress or they can result from the Treasury or IRS’s administrative powers. Most of these Regulations are found in Title 26 of the Code of Federal Regulations. The Regulations are very thorough, often providing very detailed examples. These Regulations are binding on the IRS, but not on the courts.
IRS documents provide additional sources of federal tax law. Many of these documents are published weekly in the Internal Revenue Bulletin (“IRB”). These are cumulated every six months and published in the Cumulative Bulletin. These documents include revenue rulings, revenue procedures, notices, and announcements. Chief counsel advice, private letter rulings, determination letters, technical advice memoranda, actions on decisions, general counsel memoranda, field service advice, technical expedited advice memoranda, service center advice, chief counsel bulletins, litigation guideline memoranda, chief counsel notices, IRS information letters, IRS compliance officer memoranda, IRS technical assistance, the internal revenue manual, and IRS publications are other IRS documents that establish federal tax law.
The IRS recently announced that it will start to use General Legal Advice Memorandums or GLAMs to replace chief counsel advice memoranda (CCA), field service advice (FSA), and general counsel memoranda (GCM). This change is intended to make it easier to search and find these records.
Generally, none of these sources are binding on the courts, but some are binding on the IRS and the courts often hold the IRS to positions taken in these documents. The documents that are binding are those that are published in the IRB as noted above. Those that are not published in the IRB are generally not binding on the IRS. Even if one of these sources is not binding on the courts or the IRS, they may disclose the IRS’s position on particular issues.
These sources of law are often beneficial for taxpayers, but taxpayers fail to take advantage of them. The IRS knows of these sources of law and they are quick to point to them when they favor the government’s position. Taxpayers should be prepared to do the same.
Judicial Sources of Tax Law
Judicial opinions form a third source of federal tax law. All of the federal courts that hear federal tax cases, publish judicial opinions that explain, supplement, and in some cases create new laws.
The authority of these opinions varies based on which court wrote the opinion and when it was written. The courts themselves impose restrictions on the precedential authority of their judicial opinions. For example, the U.S. Tax Court issues regular opinions, memorandum opinions, and summary opinions. Summary opinions have no precedential value and memorandum opinions have limited precedential value.
The courts may decide the law. They may also construe the statutes enacted by Congress. The courts have developed various rules of statutory construction that are used for this very purpose (here is an example of statutory construction in action).
As with the IRS documents, this source of federal tax law is often favorable for taxpayers and it must be considered in handling a case before the IRS and before the courts.
What Tax Law Can You Rely On?
Given the sources of law, you may be wondering what sources of tax law can you rely on. Not every document published by the Treasury or IRS can be relied on to support your tax positions.
You will notice that the list of “tax law you can rely on” does not include: private letter rulings (that are not issued to you), IRS counsel advice (such as CCAs, FSAs, GCMs, GLAMs, not issued in your case), IRS IRM, IRS publications, IRS forms and instructions, IRS FAQs, text from the IRS website or anyone else’s website. Even IRS audit techniques guides, industry guidance, and issue practice group training materials cannot be relied on.
This is often surprising to many taxpayers, but the courts have consistently rejected the taxpayer’s reliance on or citation to these sources of law. This does not mean that you should not cite them, it just means that they are merely persuasive–they are trumped by the sources of law you can rely on and, if they are not conflicting with the actual tax law, then the court may choose to follow them or not.
If you are looking for sources of law to rely on to avoid penalties, you can generally rely on the above-listed sources. You can find out more about this in Treas. Reg. § 1.6662-4. Also, a properly written tax opinion letter from an experienced tax attorney can also help avoid penalties in some cases.
- TAX LAW YOU CAN RELY ON
- U.S. Constitution & Tax Treaties
- Legislative History (e.g. Joint Committee Reports)
- Court Cases (those appealable to your circuit court of appeals or the federal circuit)
- Treasury Regulations
- Revenue Rulings & Revenue Procedures
- IRS Announcements & Notices (published in IRB)
About Tax Law Research
You can find most of these sources of tax law on the internet. We have compiled this list of paid and free research tools. You can access the list of tax research tools here.
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