Hamill: In tax policy, what happened to citing the law?

I have been writing this column for a very long time. I say this because I doubt any of you have read it for the entire time.

I try to make it interesting to readers. Sometimes I am told I succeeded; sometimes I suspect I did not.

Writing an interesting tax column does not include the need to cite primary tax authorities to support statements made.

I can say, “The tax law says…,” or “A recent Tax Court case held…,” without the need to identify a section of the law or a name and citation for the case.

I have also authored articles for professional tax journals for a long time. I think I have published over 120 by now.

Professional tax journals require that statements be supported by primary tax authority citations.

Citations allow other professionals to check the validity of a writer’s statements. They also help the reader with his or her research efforts.

Petitions to the Tax Court, and other courts, require primary authority citations. One simply cannot explain how they feel about an IRS assessment.

Any writer has been advised to “know your audience.” For me, some audiences require detailed citations to the law, while others can survive with my feelings.

With that introduction, let’s consider a taxpayer group that wants the Treasury Department to change the position that the IRS is taking on some issue.

The group has decided to write to the Treasury Department. Let’s say the recipients are the IRS commissioner and the deputy in charge of tax policy.

What kind of a letter should this audience receive? To me, the content should be how primary tax authorities do not support the IRS position.

The very highest authorities in the government’s tax administration should not, I believe, be swayed by arguments about how the group feels about an issue.

Perhaps I am out of touch with our modern world. In the past year, the IRS has been quite concerned about “partnership basis shifting.”

For tax practitioners in the partnership area, this is an interesting issue. I won’t bore you with tedious details.

There are three transactions identified that allow a taxpayer to increase the tax basis of property by tax-free dealings with related parties.

Tax basis is useful because it is used to determine gain or loss on taxable transactions. More basis is better.

So “basis shifting” refers to the use of partnership tax law rules to move tax basis from one taxpayer to another.

This issue fascinates partnership tax people because the taxpayer’s position is right based on a literal reading of the law.

The IRS position is that the transactions used to get the additional basis have no purpose other than creation of the added basis.

The tax law does have a subjective provision that allows the government to challenge transactions that have no “economic substance.”

So, the taxpayer says, “Technically, I am allowed to do this.” The IRS says, “Yes, but what you are doing has no economic purpose, so we can ignore it.”

The Treasury issued a 2024 revenue ruling that said you cannot do these things. They followed that with proposed regulations saying the same thing.

The new administration’s anti-regulation views caused the Treasury to withdraw the regulations. They kept the ruling as their stated position.

Revenue rulings are the IRS’ position on an issue. They can be ignored, but the taxpayer would be wise to have primary authorities to support their position.

A group called the “Taxpayers Protection Alliance” has asked the IRS commissioner and tax policy head to withdraw the ruling.

What is the authority for this request? There were no primary authorities provided. What, then, was offered to the top Treasury tax officials?

“Condemnable weaponization of the IRS.” “Correct the mistakes of past administrations.” “Rogue enforcement … of the passthrough exam unit.”

“Further weaponization of the agency through unconstrained enforcement.” “IRS can pick winners and losers.”

“Undo the mistakes of the Biden administration’s IRS.” “An avenue for the IRS to step over the law to prosecute taxpayers.” “Contrary to the American values.”

The IRS ruling is just the agency’s position. Appeals to the top tax administrative people should, I always thought, cite primary authorities.

But we now seem to be someplace else. And this appeal may be successful. I know the request would never satisfy the standards for publication in a professional journal.