In general, tax authority can be classified as primary and secondary authority.
The following graphic shows the relationship between Primary and Secondary sources and how a research topic can include a little bit of all the sources:
Primary authority is an element of the Federal tax laws that was issued by Congress, the Treasury Department, or Internal Revenue Service. Primary authority carries greater precedential weight than secondary authority. Each primary authority also has a relative weight to other primary authorities. Weight is best described as an assessment of relative importance compared to other authority.
Statutory sources include the Constitution, tax treaties, and tax laws passed by Congress. Statutory authority is the basis for all tax provisions. The Constitution grants Congress the power to impose and collect taxes and also authorizes the creation of treaties with other countries. The power of Congress to implement and collect taxes is summarized in the Internal Revenue Code, the official title of U.S. tax law. The Internal Revenue Code constitutes the basis for all tax law, and, therefore, the basis for arriving at solutions to all tax questions.
The other primary sources of the tax law, administrative and judicial authority, function primarily to interpret and explain the application of the provisions of the Internal Revenue Code and the intent of Congress.
Administrative sources include the various rulings of the Treasury Department and the IRS. These are issued in the form of Regulations, Revenue Rulings, and other pronouncements.
Judicial sources consist of collected rulings of the various courts on federal tax matters.
Secondary Authority Sources consist of unofficial sources of tax information, such as:
Secondary authority is an element of the tax law that was issued by a professional or scholarly writer. It is an interpretation of the tax law issued by primary sources. Many secondary sources exist. Some of the most useful are the editorial analysis and explanation contained in many of the major tax services, articles published in the numerous professional journals and newsletters, treatises, and textbooks. Secondary authority carries less precedential weight than primary authority. Secondary authorities are useful in finding, analyzing, and evaluating primary authorities.
The distinction between primary and secondary (or editorial) sources of authority is more important because of IRC § 6662, which imposes a penalty on substantial understatements of tax, except where the taxpayer has "substantial authority" for the position taken on the return.
The Regulation under § 6662 specifies the sources of "substantial authority" to include:
This list was expanded by the Committee Report for the Revenue Reconciliation Act of 1989 to include:
Treatises and articles in legal periodicals, however, are not considered substantial authority under this statute.
Secondary authority is useful when conflicting primary authority exists, when there appears to be no extant primary authority, or when the researcher needs an explanation or clarification of the primary authority. Over the past 15 years, as the support staffs of government agencies and (especially) Federal courts have been decreased in number or otherwise become inadequate, more dependence has been placed upon the secondary authorities of the tax law, even by the IRS, the Treasury Department, and the court system. Tax researchers must be careful, though, not to rely too heavily upon secondary authority and always to read any pertinent primary authority that is referred to in the secondary sources.
Because of the vast amount of tax authority that is available, the tax researcher would have a tremendous problem in undertaking a tax research problem for a client if it were not for commercial tax services and treatises. Several publishers have produced coordinated sets of reference materials, such as RIA’s Checkpoint, that organize the tax authority into a usable format, making the Internal Revenue Code and other primary authorities much more accessible.
Commercial tax services, such as RIA’s Checkpoint, are useful in that they provide simplified explanations with footnote citations, as well as examples illustrating the application of the law.
Checkpoint leads the tax researcher, via the footnote references, to the primary source that is pertinent to the question at hand.
A tax service can be classified as chiefly an annotated service or as a topical service. Annotated services are organized in Internal Revenue Code section order, such as RIA’s United States Tax Reporter. A topical service, such as RIA’s Federal Tax Coordinator, is organized by topical areas determined by the editors.