UDC for Unmarried Couples

[outwest]

And if reading the code were all it takes..

we could certainly dispense with the tax court, district court and all those pesky appeals court cases related to tax issues. My favorite is the appeals court that reversed itself on the taxability of lawsuit damages.

Which is of course why this notice will stand, I can't imagine who would be disadvantaged by this position whereby they would go to court. It may or may not be the correct reading from a purely legal point of view but I don't anticipate a challenge.

[New York Enrolled Agent]

You wrote:
Anyone who feels that they are not qualified to read the Internal Revenue Code itself, understand it, and interpret it, and possibly reach a conclusion that conflicts with what is stated in an IRS publication or other authoritative source, shouldn’t be a tax pro. The UDC debacle basically proves that even for routine tax returns, if you can't think for yourself, you shouldn't be doing someone else's tax return.

No one has time to read the entire tax code. Even if you read it, all of the above indicates that there is still about a 50/50 chance of misinterpreting it. There is so much ambiguity and convoluted language that much of the tax code must be interpreted and clarified by the type publications you mention, and even then, misinterpretation is possible by both the publication and the reader.

I don't think it is suggested that the entire tax code be read but rather it is imperative to look at the real sources of authority when addressing disputed tax issues.

IRS Publications and publications such as TTB (regardless of the good work of the authors) are not authority. Read this snip from the Tax Court in Miller:

Unfortunately, the fact that an IRS publication is unclear or inaccurate does not help the taxpayer. Well-established precedent confirms that taxpayers rely on such publications at their peril. Administrative guidance contained in IRS publications is not binding on the Government, nor can it change the plain meaning of tax statutes. ...[many citations omitted ..]. The authoritative sources of Federal tax law are the statutes, regulations, and judicial decisions; they do not include informal IRS publications.

[BOB W]

I don't think it is suggested that the entire tax code be read but rather it is imperative to look at the real sources of authority when addressing disputed tax issues.

IRS Publications and publications such as TTB (regardless of the good work of the authors) are not authority. Read this snip from the Tax Court in Miller:

Unfortunately, the fact that an IRS publication is unclear or inaccurate does not help the taxpayer. Well-established precedent confirms that taxpayers rely on such publications at their peril. Administrative guidance contained in IRS publications is not binding on the Government, nor can it change the plain meaning of tax statutes. ...[many citations omitted ..]. The authoritative sources of Federal tax law are the statutes, regulations, and judicial decisions; they do not include informal IRS publications.

Since now the T/P and Taxpreparers are moving into a substantial penalty phase of Congressional US deficite closure, can it be said that the Pubs will support a more than likely posistion if you take a posistion based on the Pubs? And what about other publications that seemed to be authoritive? Are any of them a basis for penalty abatement?

[Bees Knees]

Unfortunately, the fact that an IRS publication is unclear or inaccurate does not help the taxpayer. Well-established precedent confirms that taxpayers rely on such publications at their peril. Administrative guidance contained in IRS publications is not binding on the Government, nor can it change the plain meaning of tax statutes. ...[many citations omitted ..]. The authoritative sources of Federal tax law are the statutes, regulations, and judicial decisions; they do not include informal IRS publications.

There is a difference between something that might influence a court decision, and something that might help avoid a negligence penalty. The court case you cited basically said the Code, Regulations, and other Court rulings are the only authority the court will consider. I believe that was in the context of determining the outcome of the case. Not on whether the tax preparer is liable for negligence.

Regulation Section 1.6662-4(d)(3)(iii) is the regulation used to determine whether substantial authority is present:

(iii) Types of authority. Except in cases described in paragraph
(d)(3)(iv) of this section concerning written determinations, only the
following are authority for purposes of determining whether there is
substantial authority for the tax treatment of an item: Applicable
provisions of the Internal Revenue Code and other statutory provisions;
proposed, temporary and final regulations construing such statues;
revenue rulings and revenue procedures; tax treaties and regulations
thereunder, and Treasury Department and other official explanations of
such treaties; court cases; congressional intent as reflected in
committee reports, joint explanatory statements of managers included in
conference committee reports, and floor statements made prior to
enactment by one of a bill's managers; General Explanations of tax
legislation prepared by the Joint Committee on Taxation (the Blue Book);
private letter rulings and technical advice memoranda issued after
October 31, 1976; actions on decisions and general counsel memoranda
issued after March 12, 1981 (as well as general counsel memoranda
published in pre-1955 volumes of the Cumulative Bulletin); Internal
Revenue Service information or press releases; and notices,
announcements and other administrative pronouncements published by the
Service in the Internal Revenue Bulletin. Conclusions reached in
treatises, legal periodicals, legal opinions or opinions rendered by tax
professionals are not authority. The authorities underlying such
expressions of opinion where applicable to the facts of a particular
case, however, may give rise to substantial authority for the tax
treatment of an item. Notwithstanding the preceding list of authorities,
an authority does not continue to be an authority to the extent it is
overruled or modified, implicitly or explicitly, by a body with the
power to overrule or modify the earlier authority. In the case of court
decisions, for example, a district court opinion on an issue is not an
authority if overruled or reversed by the United States Court of Appeals
for such district. However, a Tax Court opinion is not considered to be
overruled or modified by a court of appeals to which a taxpayer does not
have a right of appeal, unless the Tax Court adopts the holding of the
court of appeals. Similarly, a private letter ruling is not authority if
revoked or if inconsistent with a subsequent proposed regulation,
revenue ruling or other administrative pronouncement published in the
Internal Revenue Bulletin.

Note that any information published by the Internal Revenue Service is considered substantial authority under the regulations for purposes of whether the taxpayer or tax preparer relied on substantial authority to avoid the negligence penalty. IRS instructions, Publications, and press releases from the IRS website fall within this category.

Therefore, you are not negligent as a tax professional if you rely on IRS Publications and instructions to do your job. The notion that all tax professionals need to read and interpret that tax code is not a requirement, according to IRS Regulations.

[BOB W]

Thanks Bees, I just wanted to get that issue understood. The outcome of a case will not effect preparer/taxpayer in regards to penalties where it can be shown that the IRS Pubs or other IRS info was followed correctly.

[Zee]

You wrote:
Anyone who feels that they are not qualified to read the Internal Revenue Code itself, understand it, and interpret it, and possibly reach a conclusion that conflicts with what is stated in an IRS publication or other authoritative source, shouldn’t be a tax pro. The UDC debacle basically proves that even for routine tax returns, if you can't think for yourself, you shouldn't be doing someone else's tax return.

No one has time to read the entire tax code. Even if you read it, all of the above indicates that there is still about a 50/50 chance of misinterpreting it. There is so much ambiguity and convoluted language that much of the tax code must be interpreted and clarified by the type publications you mention, and even then, misinterpretation is possible by both the publication and the reader.

JMHO, I would agree the choice of words is far too strong.

Would the "I told you so" tone of the post have been changed to a lengthy, "I was wrong" had the ruling been different? I understand this wasn't intended as a personal attack. But frankly, the tone towards other preparer's that didn't spend more time on this issue reading IRS regs seems offensive to me. A simple reporting of the change would be have been more professional without the "I'm better than thou" attitude.

[thomtax]

Zee,
I agree with you - although lip service is given to no insults intended, the very long post comes out as "I told you so, I was right - yah, yah, yah, take that."

After a certain point, I just quit reading the tiresome history.

[dtlee]

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.

Bees,

In §152(d)(1)(D), the code says a Qualifying Relative is an individual "who is not a qualifying child of such taxpayer or of any other taxpayer for any taxable year beginning in the calendar year in which such taxable year begins." It was the IRS interpretation of this that changed this to "anyone."

In the 2006 version of Publication 17, the IRS translated the code to say of a Qualifying Relative that, "The person cannot be your qualifying child or the qualifying child of anyone else." Their interpretation usually is that "taxpayer" means "anyone."

However, with their current interpretation, the IRS is now more closely aligned with the code and no longer translates "taxpaer" to "anyone." In the same section in the 2007 version of Publication 17, the IRS now translates this requirement as, "The person cannot be your qualifying child or the qualifying child of any other taxpayer."

The notice defines what constitutes a taxpayer and I believe that it fully supports what Burton said in 2006.

However, some of this is not written in the code.

As you will recall, many of the arguments on this forum back in 2006 were about what comes first, the taxpayer or the Qualifying Child. The IRS indicated that the Qualfiying Child rule was applied first before any filing requirements. That is why the IRS believed that you did not first need a taxpayer. The position they are now taking is that you can't have a Qualfiying Child without a taxpayer. This makes greater logical sense.

I am not arguing that Congress has any solid tax understanding nor that the legislation was written perfectly only to have it misinterpreted by the IRS. It was the IRS who initially proposed the UDC changes to Congress. They had wanted the UDC to exist on its own. They did not want five slightly different definitions of a Qualifying Child which all look alike but are somewhat different, they wanted a single definition that would stand on its own. That is not what Congress handed them. However, as the IRS tried to interpret these rules to match their original goals, they were wrong and their interpretation was logically unsound.

Their current interpretation is now significantly more rational.

While there are still some apparent unintended consequences of these new rules which would require code changes rather than interpretation changes, the main issues that we discussed in 2006 were caused by the misinterpretation of the code, not by the code itself.

[Bees Knees]

I recall the "taxpayer" argument. People had to claim Mom was not a taxpayer because she did not pay any tax. Therefore she did not have a qualifying child. Therefore, boyfriend could claim the child as a qualifying relative.

The flaw with that argument is there are a number of code references to situations where a taxpayer is still a taxpayer, even thought the taxpayer does not pay tax.

Take fore example, the Earned Income Credit. The taxpayer actually pays negative tax. Yet in order to qualify for the Earned Income Credit, you have to file a tax return, to get your negative tax.

The code defines anyone who is subject to the Internal Revenue Code as a taxpayer, regardless of whether or not they pay any taxes.

[Larmil]

I recall the "taxpayer" argument. People had to claim Mom was not a taxpayer because she did not pay any tax. Therefore she did not have a qualifying child. Therefore, boyfriend could claim the child as a qualifying relative.

The flaw with that argument is there are a number of code references to situations where a taxpayer is still a taxpayer, even thought the taxpayer does not pay tax.

Take fore example, the Earned Income Credit. The taxpayer actually pays negative tax. Yet in order to qualify for the Earned Income Credit, you have to file a tax return, to get your negative tax.

The code defines anyone who is subject to the Internal Revenue Code as a taxpayer, regardless of whether or not they pay any taxes.

The I.R.S. has made their own technical correction to the Code.