There have been several times in which clients' questions become more of a headache than
expected when some of the Internal Revenue Code is complicated to decipher. When performing
tax research, it is important to be aware of the limitations of the code sections. The code is often
vague and open to interpretation, making it difficult to find a definitive answer to a particular
question. If the code sections do not provide a solution most likely you will end up searching
several additional resources to find the answer. A valuable resource is the committee reports issued
when the tax law was enacted. The reports often provide insight into Congress's intent when
drafting the law and, also help understand how the courts have interpreted the law. If the question
is relatively straightforward, you may not need to reference the committee reports. However, if the
question is complex or has no clear answer in the code sections, then referencing the committee
reports would be advised. Another essential resource is the administrative rulings and regulations
the IRS issued. Rulings and regulations provide guidance on how the IRS interprets the law. Other
resources can be used to find the answer to a tax question, such as tax treaties, tax journals, tax
newsletters, and tax software.
An example of when I used additional resources to find the answer to a client's situation. I was
recently working with a client who was a small business owner. The client had incurred a large
amount of debt to expand his business. He was concerned about the deductibility of the interest
expense on this debt. I reviewed the code sections but could not find a definitive answer to the
client's question. I then referenced the committee reports for the tax law that was enacted in 2017.
The committee reports indicate that Congress intended to limit the deductibility of interest expense
for highly leveraged businesses. So, based on the information, I let my client know that his business
interest expense will be limited due to the changes imposed by the TCJA of 2017. In this case, I
used various sources as well as the committee reports which were a vital resource that helped me
to provide the client with accurate and timely advice.
When there is no clear-cut answer to what I am looking for, my first stop is to IRS.gov. This has
helped me understand some of the complicated 'if-then' that I find when looking at the IRC. But
even the IRS.gov reminds users to check dates when they are looking to make sure that it is within
the time they need. There are always Committee reports to review to get an understanding of what
they were intending on accomplishing with the new code or change. There are also the Treasury
regulations that may be helpful in find clarification on matters. An interesting source to find plain
language summaries is Treasury Decisions, however they only cover regulations from August 1995
to March 2007 (IRS.gov, 2023). There are also the Internal Revenue Bulletin that can help with
clarification and this goes back to 1936 (IRS.gov, 2023).
In referencing the Committee reports to see what was discussed, I feel it would hurt to review
them on any topic that you have a great deal of handling. I always go with knowledge is power and
if there is any chance that a topic may be challenged, having as much back up as possible is best.
For example, if they have changed deductions for a subcontractor working from their home and
you have many clients that fall in that category, you need to be up to date on that. While the law
may seem straightforward, you may be interrupting it different than the intention.
My example of using additional resources is for the fringe benefit of driving a company vehicle. We
have always calculated an auto fringe benefit and added it to income each quarter to be taxed as a
non-monetary income. This has never been an issue but I had one of our technicians feel that he
should not have to pay this tax ($58/quarter for him) since he was required to drive the vehicle. In
reading the IRC, I was still not sure that it fell this way so I then looked at IRS.gov and a few other
sites that probably did not have the best information. I felt that it could go either way as he did
drive a van with equipment and supplies in the back but it was not set up to prevent other
passengers from being in there. He could still pick up his kids and groceries on the way home from
work. I ended up putting together all the information I had found and sent to our CPA firm for a
final decision from them. What I feel is that we should still charge him the auto fringe as he had the
possibility of using for personal use. I am still waiting to hear from our CPA firm if they agree.
Reference
IRS.gov. (January 18, 2023). Tax Code, Regulations, and Official Guidance. Retrieved
https://www.irs.gov/privacy-disclosure/tax-code-regulations-and-official-guidance
About committee reports of the U.S. congress. (n.d.-a). https://www.congress.gov/help/committee-
reports
H.R.976 - 118th Congress (2023-2024): TCJA Permanency act. (n.d.-d).
https://www.congress.gov/bill/118th-congress/house-bill/976
