Hierarchy of authority
| Tier | Sources |
|---|---|
| Primary — statutory | Internal Revenue Code (highest), tax treaties, the Constitution |
| Primary — administrative | Treasury Regulations (final > temporary > proposed), Revenue Rulings, Revenue Procedures, Private Letter Rulings (binding only on the requesting taxpayer) |
| Primary — judicial | Supreme Court, Courts of Appeals, Tax Court / District Court / Court of Federal Claims |
| Secondary | Treatises, journals, editorial services — helpful for understanding, never citable as authority |
IMPORTANT: A Private Letter Ruling may be relied upon only by the taxpayer who requested it. It can indicate the IRS's thinking, but it is not precedent for anyone else — a classic exam distinction.
Research methodology
- Establish the facts and identify what is still unknown
- Identify the issues — frame precise questions
- Locate authority, starting with the Code and regulations
- Evaluate the authority, resolving conflicts by weight and currency
- Develop conclusions and recommendations
- Communicate — memo to file and a client letter in plain language
Confidence levels
From weakest to strongest: reasonable basis (~20%) → substantial authority (~40%) → more likely than not (>50%) → should → will. Disclosure on Form 8275 lowers the standard a preparer must meet to avoid penalties from substantial authority down to reasonable basis.
Documenting the position
A tax memo should state the facts relied on, the issue, the applicable authority, the analysis, and the conclusion — including contrary authority and why it doesn't control. Documentation created contemporaneously is far more persuasive than an explanation constructed after an examination begins.
EXAM TIP: Watch out for stale authority. A Revenue Ruling can be superseded, modified, or obsoleted by later guidance or legislation — always confirm a source is still good law before relying on it. This is especially important right now given the volume of OBBBA changes.