When performing tax research, the researcher needs to know specifically what the client’s facts are
so that the research can look in various location to get some of the information to support the
facts. If the Internal Revenue code is vague, I usually would research the treasure Regulations
which sometimes give additional information that you can use to get a better understanding. a If the
Treasury Regulations does not give the answer, then the researcher should review Internal Revenue
Bulletin or check the Federal Register where all federal regulations are published (“tax code,
regulation and official guidance,” 2023). a Another resource would be to do research within tax court
cases using key words that the client has provided you with the facts. a All this information can be
accessed within CCH and/or LexisNexis. a
We as researchers should be in the know when the House of Representatives are in session and
are having a hearing, but the most important part is when the bill passes the House and the Senate
and is signed by the president (“4.10.7 issue Resolution”, 2023). a These bills become new laws or
can be changes to IRC law already published. a I would say the researcher should reference the
committee report when the facts of the client’s case are in line with some of the committee report
that could help understand and provide evidence of how the tax law applies to them. a
The example ill provide is as a former IRS Revenue Agent and Tax Compliance Officer, I was
auditing a taxpayer who was taking employee business expense for makeup, clothing, hair supplies
and many other expenses because the taxpayer was a local news anchor. a I had to dig into the
other resources because the IRC 212 and 162 is very vague in regards to employee business
expenses. I found a tax court case within LexisNexis and Westlaw that was a news anchor that all
the similar expenses of the taxpayer were disallowed and a tax liability was given for the change on
the tax return. a I referenced the tax court case within my working papers and the taxpayer’s CPA
reviewed the case and agreed with the changes.
Depending on the size of your client base or the types of clients you have, there will be questions
that are not easy to answer. This is why CPAs always have secondary sources at their fingertips that
they can rely on to help them ensure they are interpreting the law in a correct manner. If the code
section does not provide an answer, one should look to additional sources and items such as
committee reports. Committee reports explain the elements of the proposed changes to the bill
(passing through houses of congress) and the reasons for each of the proposals (Swayers & Gill
2021). In many situations in which the tax law is unclear or legislation has recently been passed,
they can provide insight concerning the meaning of a specific phrase of the statute or intention of
Congress concerning a certain provision of the law (Swayers & Gill 2021). Committee reports can be
extremely useful if the topic you are researching is unclear and you can find the reports that help
you understand the laws better.
The only example I can think of recently has to do with when I have been answering a client
question that I needed additional information has to do with the individual income tax in the state
of Virginia. I have a client who files a California resident return and various non-resident returns
including a non-resident return in Virginia. This client owns about 40 rental properties. A question
arose regarding whether you can deduct a federal NOL on the Virginia non-resident individual
income tax return as part of the federal income (for the allocation calculation of Virginia tax). We
could not find any definitive answer regarding non-resident NOL calculations, only resident NOL
calculations. The first secondary source we looked at was the form instructions. It was still unclear.
We looked at our state CCH website and it was still unclear but did not state that the way we were
calculating it was incorrect. We ending up taking the federal NOL as part of the federal adjusted
income to in turn use that to calculate the Virginia allocation percentage. This percentage was
obviously zero in our case since the client has a large federal NOL. Once we concluded what we
were going to do we had a conference call with our client and sent them the sources we found and
what our plan was. At the end of the day the client agreed with our computation, and we believe
we have sufficient support if the Virginia Department of Revenue were to question our calculations.
References:
Sawyers, Roby B. PH.D., CPA and Gill, Steven L. PH.D. (2021). Federal Tax Research. 12th Edition.
Cengage Learnings, Inc. Boston, MA.
Tax code, regulations, and Official Guidance. Internal Revenue Service. (2023b).
https://www.irs.gov/privacy-disclosure/tax-code-regulations-and-official-
guidance#:~:text=Internal%20Revenue%20Code&text=The%20sections%20of%20the%20IRC,of%20c
ontents%20for%20the%20IRC.
4.10.7 issue resolution: Internal Revenue Service. 4.10.7 Issue Resolution | Internal Revenue
Service. (2023). https://www.irs.gov/irm/part4/irm_04-010-007#idm139859651188144
