I’m Annette Nellen.
I’m a tax professor at San Jose State University
and I’m a member of the AICPA Tax Practice
and Procedure committee.
Today I’m going talk about tax research
with a focus on primary versus secondary authority
and the relevance to the work we need to do to figure out,
answers to questions that we’ve got.
Whether that comes up in planning
or it comes up in preparing return,
or in a controversy matter should that come up
when client’s being audited by the tax agency,
federal or state.
First, the term primary authority for any subject means,
where does that subject matter, the basics of it?
Where does it originate?
Of course for tax, we’re talking about the tax law.
So, where does that tax law originate?
And it comes from the three branches of government.
Now, we also should think about the primary authority,
whether you’re talking about at the federal level
or any state, it also would include
the constitution, whether the Federal Constitution
or the state constitution,
that typically does actually lay out
the taxing authority, typically for the legislative branch.
But in many states, the Constitution also lays out
various provisions that do need to be considered
as relevant to what a legislature can and can’t do
so far as enacting legislation without perhaps
having to amend the constitution.
Okay, so for primary authority,
let’s focus on at the federal level for our US income tax
or any federal tax.
What are the three branches the government provide?
And for the legislative branch, of course,
we’re getting the Internal Revenue Code,
and that’s something that the Congress then modifies,
by adding to it, subtracting from it
or modifying some of the words in there.
Then we’ve got the role of the administrative branch
at the federal level, that’s going to be
the Treasury Department and the IRS
and the main document that’s the authority
that we get from the IRS and Treasury, are regulations.
That’s the highest level of authority
we get from the administrative branch.
The IRS also of course issues items,
also published in the weekly Internal Revenue bulletin
revenue, rulings, revenue procedures,
and announcements as well as notices,
and those are considered authority.
And what do we get from the judicial branch
of the government?
Well, a whole host of tax cases,
in addition to one’s from the Tax Court
that only hears cases on federal tax matters,
we also have District Court, Court of Federal claims.
At the appeals level, we’ve got the appellate courts
and of course at the very top, we see the US Supreme Court
and that they do see tax cases and actually every year
between the Tax Court and other courts
as well over 600 cases are decided every year,
and that would be considered all primary authority.
So think of primary authority as something we can rely on.
And it comes from one of the three branches
of the government.
And it was intended to be something that was issued
with the intent of relying on it.
I’ll come back to that in just a moment.
So what’s secondary authority?
Well, secondary authority is something written
often by a tax practitioner, maybe by an employee
of a company that produces tax research materials for us,
or law firms and CPA firms produce a lot of items
that they’ll publish on their website,
where they’re summarizing some aspect of the law.
That’s secondary authority, because basically,
they are using the primary authority
to help explain something.
Secondary authority is not binding.
We can’t say, “Oh, I’m taking that deduction,
because I saw this journal article that said that was okay.”
Can’t do that, you’ve got to rely on
primary authority and the type of primary authority
that was issued with the intent that it could be relied on
for taking a position.
Okay, so far secondary authority examples would be
specifically, like an article in the AICPA Tax Advisor,
maybe something you see in a firm’s newsletter
summarizing the law.
It would also include IRS publications.
And that might be surprising because you’re thinking
what didn’t the publication come from the IRS
one of the three branches of the government,
the administrative branch, so isn’t that binding?
These publications actually were not written
with the purpose of being relied on
instead with the IRS and Treasury give us primary authority
that we can rely on such as to avoid a penalty
for taking a position on return for saying,
“do we have substantial authority
for something would be regulations
and anything else published
in that weekly Internal Revenue bulletin.”
So it also would include revenue rulings, ready procedures,
notices, and announcements, publications, as well as FAQ’s
that are posted on the IRS website,
various IRS websites for they’re pushing out information
is actually secondary authority, which is very helpful
to understand the law, but it’s not primary authority.
What we need from secondary authority
and secondary authority is very helpful to help us
find the primary authority.
For example, if you’re looking at an article
and the AICPA tax advisor,
there’s footnotes that will get you to the primary authority
that the author used in writing that article.
Okay, one more point I do wanna just emphasize
on these publications, and this comes up sometimes
in court cases where the taxpayer before the court has said,
“Oh, judge, I’m right,
I pulled this out of an IRS Publication.”
The court will often say,
“you rely on a publication at your peril.”
If you find something in a publication thinking,
“Oh, that answers my question,”
your next step is to go find the primary authority,
a code or regulation, a court case, an IRS ruling
where that came from.
The same with FAQ’s and we see a lot of FAQ’s
issued by the IRS and I think we often find them helpful
to understand the law itself.
Now sometimes FAQs actually,
there isn’t anything supporting it.
And those FAQs really should be published
in the Internal Revenue bulletin.
I know the AICPA often reminds IRS of that, as do others,
but FAQs, if you see, “Oh, that’s where I find the answer
to this question I’ve got,” go find the actual law,
it came from, a regulation search for that,
because you do need to be relying on primary authority,
FAQs are not primary authority.
Sometimes the IRS reminds us of that on the website.
It might say, “you know the FAQ is not included
in the Internal Revenue Bulletin
and therefore may not be relied upon as legal authority.”
This means that the information cannot be used
to support a legal argument and a court case
also couldn’t be used in a audit situation
or even just filing the return.
You can’t rely solely on an FAQ nugget.
I know that sometimes there isn’t anything backing up
a few of these FAQs.
When that’s the case, certainly make sure you have
made a copy of that FAQ to put in the file
because there’s no guarantee that FAQ will be there.
Should you need it later.
Okay, so just just to summarize what we’re relying on
for taking positions as primary authority,
the law itself that was intended to be something we rely on.
So it’s the Internal Revenue Code coming from Congress,
its regulations, IRS rulings, IRS revenue procedures,
notices published in the Internal Revenue bulletin
and court cases.
Our secondary authority helps us to find an understand
the primary authority and all of that is very, very useful
in the research process.
And yet AICPA does have a tool that reminds us
of a resource guide that reminds us of these levels
of authority and what we can rely on
and what we cannot rely on.
In closing, thank you for joining in
on this Tax Section Odyssey episode.
The AICPA tax section is your go to source
for technical content, guidance
and resources designed specifically
for CPA tax practitioners like you in mind.
For more, visit us at aicpa.org/tax.