Brooklyn Journal of Corporate, Financial & Commercial Law

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Tax law has a unique analytical framework, which the nature of tax law requires. In areas of uncertainty, advisors and taxpayers are unable to determine the outcome of some reporting positions. If a taxpayer takes a reporting position that results in the taxpayer paying less tax at the time a tax return is filed, the taxpayer runs the risk of being required to pay tax later upon an IRS audit. Congress recognizes that there are areas of uncertainty in tax law and only imposes penalties if the authority supporting a reporting position is weak. To determine the strength of a reporting position, a tax advisor must be able to identify and analyze legal authority that relates to the reporting position and determine whether the authority supports the desired reporting position or is contrary to it. The analysis then requires assessing the relevance, persuasiveness, and type of document of each authority that relates to a reporting position and weighting each authority. By weighting the types of authority based upon those three criteria, an advisor is able to determine the likelihood that a reporting position will be upheld. That likelihood determines whether the support for a reporting position is sufficient for the taxpayer to avoid penalties in the event a court determines that tax was owed with respect to the reporting position

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