Early in my tax preparation career I used to get very frustrated in my job. I would often be asked a question by a client which I did not know the answer to and I would walk down to the owner of the firm and would present him the question as it was posed to me. I would then promptly go back down to my office and give the client the answer to the question that they had asked. This would inevitably lead to a follow-up question and I would once again travel down the owner’s office and he would give me an answer which was the complete opposite of the one he had just provided to me just moments before. Sound familiar?
“Facts and circumstances”, I would come to find out, can completely alter the answers that we give as tax professionals and receive as taxpayers. This can ultimately lead to a frustrating experience for a client who “just wants the quick answer”, because the correct answer to the question is often not the general answer I would want to give until after discovering the “facts and circumstances” of any given issue. For example, the U.S. Code: Title 26 – Internal Revenue Code or IRC is where Federal tax law begins. The IRS themselves state “…, the IRC is complex and its sections must be read in the context of the entire Code and the court decisions that interpret it.
At a minimum, please do not be misled by the false interpretations of the IRC promoted by the purveyors of anti-tax law evasion schemes” (IRS.gov). The IRC is followed up by Treasury regulations which provide the official interpretation of the IRC by the U.S. Department of the Treasury. In addition to the IRC and Treasury regulations the IRS publishes other forms of official tax guidance, including revenue rulings, revenue procedures, notices and announcements.
I have read several articles that put the current tax code somewhere between 4 and 10 times the length of the complete works of Shakespeare, depending on who’s counting! I would argue that it is probably safe to say that there is no one living person that knows it all and even if they did that’s only the half of it. Why you ask? Well, the saying “knowing is half the battle” is true, it is half the battle. For tax professionals we have to go to the code, however, we also have to understand the facts and circumstances related to the issue at hand to come up with the right answer for the situation given.
For instance, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin (Alaska is and opt-in community property state). The IRS, states that “Federal law determines how property is taxed, but state law determines whether, and to what extent, a taxpayer has “property” or “rights to property” subject to taxation (IRS.gov). Accordingly, federal tax is assessed and collected based upon a taxpayer’s state created rights and interest in property. In English, the IRC was written with common law in mind which has been adopted by the majority 41 of 50 states. There is a tendency for the common law “view” to be cited and yet could very well be inaccurate when dealing with a community property issue. Those of us living in a community property state must reread the source information a second time through a “community property lens” to determine if that changes how the law must be interpreted.
So the next time you think you have a “real quick tax question” for your tax professional or think that they are “dodging a question”, please understand they are probably trying to fight the urge to give you their first answer, which very well may end up being wrong, until they have gathered enough facts and circumstances to provide you the right answer.
Joe Webb
Senior Tax Professional