Announcement

Collapse
No announcement yet.

Reading the Internal Revenue Code

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Reading the Internal Revenue Code

    On 12/26, in another thread, Bees Knees wrote:

    I think this case illustrates why reading and interpreting the tax code is not always a smart thing to do.

    Clearly, the code as written does not support this new ruling. The IRS is making up law here, and I read and interpret the tax code every day.

    Yes I remember our debate last year. I remember I was right and you were wrong. The fact that IRS now agrees with you, which makes you right, doesn't mean its right according to the code. The only reason IRS is stepping in here is because Congress messed up the code, which they do all the time. Every year they have to pass a technical corrections bill to fix hundreds of code errors.

    And you think the average tax pro is suppose to waste time reading that garbage?
    Bees, I'm not really following your argument here...

    On the one hand, you seem to be saying that the text of the tax code is full of technical and clerical errors, that any attempt to interpret it is an exercise in futility, and that tax pros should simply ignore the text of the law, and rely entirely on interpretations provided by the IRS and other sources such as The Tax Book and CCH.

    But then you assert that "the IRS is making up law," and that "the code as written" does not support the IRS interpretation of UDC.

    You are actually proving my point. When the law is ambiguous or vague, and there is no controlling court decision, we cannot and should not blindly rely on the interpretation of the IRS or other sources. We may have to read the law itself and reach our own conclusions. That is exactly what you are doing when you say that "the IRS is making up law here." You are declaring that the guidance from the IRS is incorrect, and that your own interpretation of the tax code is correct.

    In some cases, even when a court has ruled that an IRS interpretation is wrong, the IRS continues to print publications that present the "wrong" opinion. They sometimes refuse to honor a court decision if they plan to appeal it, or if it conflicts with a decision in another appellate district. The IRS actually tells us this right on the first or second page of Pub. 17.

    And in one noteworthy court decision, the tax court wrote that even a Revenue Ruling is merely "the opinion of one of the litigants" in the case.

    IRS notices (such as Notice 2008-5) and IRS publications and instructions are informal opinions and guidance from the IRS; revenue rulings are formal opinions and guidance from the IRS. Any of them can be wrong.

    While it is certainly true that the IRS instructions for 2005 and 2006 tax returns said that a qualifying relative cannot be the qualifying child "of anyone else," the IRS never offered any guidance on what this meant, and this language was itself an attempt to present the new law in plain English. Perhaps it was just a clerical error in the IRS instructions.

    The IRS, until now, has never addressed the questions we raised. I challenge anyone to find an IRS document that clearly and explicitly says that a nine year old with no income is the qualifying child of his twin brother. This conclusion is an interpretation of an interpretation. And no, that's not a typo. The claim that two brothers are qualifying children of each other is nowhere to be found in any IRS document; it is simply one way--and a rather far-fetched way--of reading the tax law and the IRS instructions.

    The IRS has now clarified that this is NOT how they are interpreting the code. I don't think the IRS ever interpreted the code this way. Notice 2008-5 does not reflect a change in the IRS interpretation; it clarifies what they meant all along.

    Okay... I'll concede that maybe the IRS itself couldn't really figure out what the new law meant, and intentionally used ambiguous language in their pubs and instructions because they wanted to leave these issues open to multiple interpretations while they tried to figure it out, or while their staff attorneys sought informal guidance from Congress. But that doesn't change my argument; the IRS is sometimes wrong.

    Bees, if they IRS is misinterpreting this section of the tax code, why did you say that "reading and interpreting the tax code is not always a smart thing to do"?

    If this section of the tax code is crystal clear, as you think it is, and the IRS is misinterpreting it, then why should I rely on the IRS interpretation of any section of the tax code?

    Burton M. Koss
    koss@usakoss.net
    Burton M. Koss
    koss@usakoss.net

    ____________________________________
    The map is not the territory...
    and the instruction book is not the process.

    #2
    Welcome Back

    Welcome back Mr. Koss. I didn't know whether you would respond to Bees comments or not. From my perspective, you are both colossal storehouses of knowledge, and I enjoy it when you visit. I think I know where Bees is coming from, although I'm sure he is perfectly capable of speaking for himself, so I'll be anxious to read what he has to say. I am more concerned about WHAT is right than WHO is right. And no, I don't think his answer means we should "all give up" because "nothing can be right."

    I would like to see a "hierarchy" of citations. At the very top would be the Code. Almost as sancrosanct would be the Regs, since the reg writers have been empowered to interpret the code with the force of law. Although I'm not aware of such a case, I believe a reg could be overturned if it failed miserably to reflect on the code section for which it was written.

    Go below this and the hierarchy becomes muddled indeed. There are, for example, the Technical corrections which arise after legislation. The theory is that these are necessary because the legislation is often so poorly written or defined that technical corrections must be added. I've heard some of them are written because new legislation stepped on the wrong toes, and not because the legislative intent was clouded.

    You have at any given time "temporary regs," so-called because even the IRS does not want to pour them in concrete. Some of them stay around for years, and often people follow them simply because there is nothing else in existence which is more authoritative.
    My own opinion is temporary regs are there because IRS does not yet want their feet held to the fire or create safe havens.

    Stir silently, and out come Chief counsel rulings, private letter rulings, revenue rulings, etc.
    I may be incorrect, but I believe a revenue ruling is written primarily to declare IRS positions which are to be used by their own staff members. All this stuff can be challenged in court, and court rulings themselves can be appealed.

    Almost all of the above, below the code and regs, can be extremely vapid and temporal. Sadly, I am old enough to remember the 70% tax bracket on unearned income. After that was taken out, there became a big push to collect revenue on "earned income." The IRS spent years modifying its own rulings to "more appropriately" define earned income to coincide with the government's plan to Save Social Security.

    I don't know how necessary or helpful this may be to readers, I'm sure I'm wasting my breath on you and on Bees. But I'm turning in for the evening, and thank you for your contributions.

    Comment

    Working...
    X