Federal Tax Law Rules of Precedence

Outlined below is the relative importance of sources of federal tax law, beginning with the highest authority

U.S. Constitution

The U.S. Constitution is the supreme law of the United States and gives Congress the power to impose and collect taxes. Under the U.S. Constitution, Congress has the power to enact tax laws as the framework for the federal tax system.

Federal Tax Statutes

The Internal Revenue Code (IRC) provides the foundation of all federal tax authority in the United States and is the ultimate authority when conducting federal tax research. The IRC is interpreted by Treasury Regulations, judicial decisions on tax matters, and IRS rulings.

Treasury Regulations

Treasury regulations are the Department of Treasury's official interpretation of how a particular IRC section is to be administered and applied. There are three types of regulations - proposed, temporary, and final. In addition, there are three types of tax regulations - legislative, interpretive, and procedural.

Final, Temporary, and Proposed Regulations

Final regulations are the highest authority issued by the Treasury Department and rank above all IRS rulings. Final regulations must be followed by the IRS and provide guidance to tax professionals for tax compliance and planning purposes.

However, a subsequent change to the IRC can reduce or eliminate the need to comply with a final regulation, as the regulation may no longer reflect the spirit of the IRC section to which it relates. Temporary regulations provide guidance until final regulations are adopted and have the same authority as final regulations. While proposed regulations can be useful in indicating the IRS's position, they are generally not binding. Taxpayers cannot rely on proposed regulations to support a tax position or for planning purposes unless the IRS clearly states otherwise.

Legislative, Interpretive, and Procedural Regulations

Legislative regulations are issued when the IRC authorizes the IRS to approve operational rules for specific IRC provisions. Generally, legislative regulations carry the same weight of authority as the law itself.

Interpretive regulations help to explain the IRS's position on various IRC sections. Interpretative regulations are issued under the IRS's general authority to interpret the language of the IRC, but they are not specifically authorized by the law. They are subject to challenge if they do not reflect Congressional intent.

Procedural regulations address procedural rather than interpretive matters, such as how to go about filing returns and making elections. Generally, procedural regulations relating to particular IRC sections are considered to be binding. However, the procedural regulations set forth in 26 CFR Part 601, known as the Statement of Procedural Rules, are considered to be directive and not mandatory. The Statement of Procedural Rules provides guidelines for conducting the internal affairs of the IRS. They are issued by the IRS Commissioner without the signature of the Treasury Secretary. Nevertheless, the procedural rules are published in the Federal Register and have the status of regulations. Therefore, such rules have higher weight of authority than other IRS pronouncements that are not published in the Federal Register.

Legislative History

Legislative history provides insight into what Congress intended when passing a law. The general hierarchy of legislative history documents is as follows:

Congressional Committee Reports or Conference Reports
Text of earlier or alternative versions of the bill
Floor debates
Statements or testimony at Committee Hearings
Committee Prints
Presidential Signing Statements

Judicial Authorities

Generally, the higher the level of court, the more weight accorded to that court's opinion and decisions.

The U.S. Supreme Court is the highest court in the federal judiciary. The Supreme Court's decisions are binding on all lower federal courts.

A decision by a U.S. Court of Appeals carries a higher authority than a decision by a trial court. A case decided by a particular Circuit Court of Appeals is only binding on the District Courts within that circuit but has high persuasive value in other Federal Courts of Appeals.

A trial court decision generally carries less authority than an appellate court decision. At the trial court level, the U.S. Tax Court is generally considered to have more technical expertise on tax matters than other trial courts, and thus, is often accorded more weight than a district court decision on the same issue.

A "regular" decision is issued when the Tax Court believes the case involves a new or unusual point of law and can be cited as legal authority. A Tax Court Memorandum Opinion addresses cases where the law is settled or factually driven and has less authority than a regular Tax Court decision, but can be cited as legal authority.

The U.S. Court of Federal Claims has similar authority as the U.S. Tax Court. The court's decisions have precedential value in the Court of Federal Claims or in the Court of Appeals for the Federal Circuit.

U.S. District Court decisions are not binding on any courts but are often cited as persuasive authority.

Finally, Tax Court Summary Decisions for small cases have no precedential value but can be persuasive if directly on point.

In addition to the rank of the court, there are several other factors that affect the strength of a court decision, such as whether the decision was unanimous or split, authority of the judges, and how other courts viewed the decision.

Revenue Rulings

A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statues, and regulations. A revenue ruling applies the law to a specific fact situation. A taxpayer can rely on the ruling to guide them in a similar situation. Revenue rulings may also be cited as authority.

Revenue Procedures

Revenue procedures outline procedures for complying with the tax law, such as claiming benefits or making elections. While a revenue ruling generally states an IRS position, a revenue procedure provides return filing or other instructions concerning an IRS position. Revenue procedures may be cited as authority.

IRS Letter Rulings

There are various IRS documents released to the public which may be helpful in determining the IRS's position on certain issues. The documents provide guidance but should not be cited as legal authority. The following types of documents represent a final determination of the IRS's position, but only with respect to a specific taxpayer's situation and issue:

Private letter rulings
Determination letters
Technical advice memoranda
Chief Counsel advice

Taxpayer Assistance

Tax forms are a common source for tax research, particularly as it relates to computing the amount of tax owed or the various tax credits available. Often, information and examples are included on a form or its instructions that are not otherwise published. However, these forms of taxpayer assistance - IRS publications, forms and form instructions, IRS FAQs - are provided for guidance only. Taxpayers should not rely solely on such documents.

Secondary Sources

Secondary sources are unofficial publications. Researchers often turn to secondary sources for an explanation of primary sources. Secondary sources are particularly useful when primary sources do not address particular tax issues, or in situations when there are conflicting primary source documents.