Tax Research and Professional Ethics
Tax Research and Professional Ethics
This domain tests how to locate and weigh authority, how to document a position, and the standards imposed on preparers and practitioners by Circular 230 and the Code.
Core rules
- Primary authority: IRC, Treasury regulations, court decisions, revenue rulings and procedures. Secondary authority (treatises, articles) is persuasive only. PLRs and TAMs bind only the taxpayer to whom issued; they are not precedent.
- Weight: Supreme Court > circuit court of appeals (Golsen rule in Tax Court) > district court > Tax Court; regulations issued under §7805 are generally authoritative; proposed regs are not.
- Return standards: reasonable basis, substantial authority (more than reasonable basis but less than more likely than not), more likely than not. §6662 accuracy penalty; §6694 preparer penalty for unreasonable positions; §6695 procedural penalties; §7216 confidentiality.
- Circular 230: §10.34 due diligence and reliance on client information in good faith; §10.22 diligence; §10.51 disreputable conduct; §10.27 contingent fees generally prohibited for returns.
- Research process: identify facts, frame issue, search primary sources, weigh, conclude, document.
Worked example
A client deducts $18,000 of business meals using a log but no receipts. The preparer may rely on the client's log in good faith, but must inquire if it appears inconsistent or incomplete. A Google summary is not authority. The preparer should check §162 and §274(d), the substantiation regulation, and a recent Tax Court case. If the position has substantial authority but is not more likely than not, Form 8275 disclosure may avoid the accuracy penalty but not the preparer penalty if the position is unreasonable. Document the inquiry and conclusion.
Traps
Citing a PLR as if it binds other taxpayers; relying on a blog; ignoring the Golsen rule; failing to disclose a return position; signing a return without substantial authority; treating Circular 230 as advice to clients rather than a standard for practitioners; overlooking §7216 consent.