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How to Research a Tax Question

A reader writes in asking:

“I read in one of your books that publications from the IRS don’t have any legal authority. What exactly do you mean by that? And second, if not IRS publications, where should we turn we want to know the definitive answer to how a particular part of the tax code works?”

Like most articles on the IRS website, IRS publications can be excellent for the purpose of gaining a general understanding of a given topic. They’re written in relatively plain language and, as you would expect, the information contained in them is usually an accurate representation of the applicable law.

However, because IRS publications do not carry any legal authority, if they say something that’s contrary to the actual law, it’s the actual law that matters, not what’s in the IRS publication or article. Said yet another way, IRS publications can be wrong. So if you ever want to be really, really sure about something when it comes to taxes, you’ll want to look for a more authoritative source.

And where should we turn if we want to know the definitive answer about a particular part of the tax code? Well, to the tax code. Read the law itself.

The Internal Revenue Code (IRC) is the actual body of law that contains the rules that make up the federal income tax, payroll taxes, estate and gift taxes, and so on. The language it uses is not exactly intended for a general audience, but when you want a definitive answer on a federal tax topic, the IRC is, without question, the first place to look.

How to Find the Relevant Code Section

My favorite place to reference the Internal Revenue Code is Cornell University Law School’s website. But that doesn’t mean that I’m perusing through the thousands of pages of tax law on the Cornell website, to try to find the answer to a question. I just use Google, like I do when searching for anything else.

For instance, if I can’t remember which IRC section gives information about health savings accounts, I would Google:

  • IRC section health savings accounts

And IRC §223 comes up immediately. Easy peasy.

Admittedly though, reading the Code itself takes practice. You’ll often end up with multiple tabs open at once, as one section refers to another. My tip would just be to read slowly and be patient with yourself. You will have to read things multiple times.

Other Authoritative Sources of Tax Information

In addition to the law itself, there are other authoritative sources of guidance from the Treasury department.

Treasury regulations are the Treasury Department’s interpretation of the Internal Revenue Code. They are necessary because the IRC sometimes leaves many questions unanswered with regard to how the law should actually be applied. There are multiple types of Treasury regulations, and the distinctions are important.

  • Final regulations are binding on the IRS — meaning you can rely on them.
  • Temporary regulations are also binding until superseded by another regulation.
  • Proposed regulations are not binding, but they can still be useful for getting an idea of the IRS’s viewpoint on a given topic.

Again, my favorite place to read the regulations is on the Cornell website.

Revenue rulings are an official form of guidance issued by the IRS explaining how the law would be applied to a specific set of facts.

Private letter rulings are akin to revenue rulings in that they show how the IRS would apply the law to a specific set of facts. But there’s one big difference: private letter rulings are only binding on the IRS with respect to the taxpayer who requested the ruling, so other taxpayers cannot rely on them as legal precedent. That said, like proposed regulations, private letter rulings can still be useful for getting an idea of the IRS’s view on a particular matter.

Finally, federal courts’ rulings about tax matters (e.g, opinions issued by the U.S. Tax Court) are a source of legal precedent.

Frankly though, it’s uncommon that I find myself reading revenue rulings or private letter rulings. And it’s extremely rare that I actually find myself looking at court cases. The overwhelming majority of tax questions that people ask me (and which I find myself asking) can be answered without having to look outside of the Internal Revenue Code and the regulations. And frankly, if you are faced with a situation which you are confident is not addressed in the law or in the regulations, that’s a good time to bring in a tax professional anyway.

Other Helpful Sources

And there are all sorts of other sources, which while having no authority can still be very helpful. IRS publications fall in this category. At roughly a similar level of credibility as IRS publications are articles in a trade publication, such as the Journal of Accountancy.

After that, the next step down (which I still find to be extremely accurate, in general) is what I would describe as “article by a tax attorney or CPA on his/her firm’s website” (even if you’ve never heard of this person).

The next step down would be an article in, for example, WSJ/Forbes/NYT. While these publications are of course reliable sources in general, I put them below the sources above. The article written by the CPA or tax attorney is generally going to be more reliable than the article written by somebody else, using the CPA or tax attorney as a source. I would put the Bogleheads wiki approximately at this level.

Finally, just ahead of “posts by your neighbor on Facebook,” we have Investopedia. Please don’t rely on it. (I’m calling out Investopedia specifically because it’s so pervasive in search engine results. It’s helpful when, for example, you want a simple explanation of a topic, and it’s perfectly fine if that explanation only turns out to be 85% correct. But in a context where you’re about to make a significant financial decision and the details matter, it’s not an appropriate source.)

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"
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