IRS APPROVED PROVIDER OF CONTINUING EDUCATION FOR ENROLLED AGENTS & CPAs
To follow is an internal memorandum prepared by Jim Chapman and circulated among the Teaching Faculty at the Tax Law Institute in 2020. It is reprinted here for the benefit of bar applicants who will sit for the 2021 Non-attorney Examination. Hopefully this writing might help some to re-focus their thinking as to how they are going about preparing for the test. Especially, how one prepares for the most problematic sections of the test - the Substantive Tax Law section. L.B. Carpenter who passed the exam in 2016 requested that we once again offer the substance of Jim's original writing as insight for the hopeful.
The ABC's OF WRITING GOOD SUBSTANTIVE TAX LAW ANSWERS
A suggested approach to answer questions in the Substantive Tax Law section of the 2021 Non-attorney Examination about caselaw and published opinions. Keep in mind that the Substantive Tax Law section accounts for 40% of the overall grade.
A. First, understand that you are preparing to taking a bar exam...really!
Over the years, Michael Stuart and I have come to the conclusion that as the applicants prepare for the Tax Court bar examination aka the Non-attorney Exam that they have one key misunderstanding of the purpose of the examination. It seems that they approach the examination as though three of the four parts are oriented towards the legal profession but that the fourth part, the taxation portion, is oriented towards tax preparation. I have been unsuccessful in the past in communicating to them that the examination, all four parts, is oriented toward the legal profession. Everyone who has come through the program has either been an enrolled agent or a CPA, or both. Because they come to the program with an extensive background in tax preparation, and possibly audit representation, they think they have an understanding of what it takes to pass the examination and therefore focus all of their effort on the other three parts. It is my hope that the 2021 Tax Court Bar Review will be highly successful in helping them understand that they need to answer the questions on the tax portion of the exam from a legal perspective, not from simply a tax preparation perspective.
B. Take note that the non-attorney examination is formatted differently than prior years.
Every examination cycle, up to 2016, there have been anywhere from 1 to 3 questions on the exam that come directly from opinions issued by the Tax Court. In 2018, there were exactly 18 such question that appeared in the Substantive Tax Law section. If the student has not read the cases that the questions draw upon then they will be totally unprepared to write an answer for that question. Since the timeframe between examinations is two years, typically the questions drawn from Tax Court opinions that are issued between July 1 of the year prior to the exam year through 30 September of the exam year. For the current examination cycle this would be July 1, 2018 through September 30, 2020. In addition to this memorandum I have attached to the email message a zip file of all Tax Court Opinions from 1 July 2018 through 24 April 2020. Of those opinions there are five cases which are “First Impression” issues. Between now and the end of September 2021 there may be others.
C. Be sure to read those published opinions...there are going to be a few of questions on the examination about them...otherwise you're going to miss some points.
It is my personal opinion that there are several reasons why the applicant should be encouraged to read, study, and understand Tax Court Opinions, aside from the fact that one or more test questions will be drawn from this material. As the only legal training that the majority of the applicants have comes from the lectures and material presented to them by TLI, the more they are exposed to the legal reasoning of the Tax Court judges the greater the probability that their thinking and reasoning process will be influenced by what they are reading, studying and attempting to master. For this reason, I also believe that encouraging the applicants to read the Memorandum opinions is beneficial; however, there are some who disagree with me. Encouraging the applicants to read and understand the legal reasoning behind the decisions should help to shape and mold their reasoning and thinking process to transition from thinking like a tax preparer to thinking like that of a tax litigator aka USTCP.
D. Make sure you do understand the legal implications of the IRC code sections because the Substantive Tax Law section of the 2021 Non-attorney Examination is going to be mostly about the tax laws and will test your ability to explain them succinctly.
The person grading the tax portion of the examination doesn’t want the applicant to prove that they know how to prepare taxes, but rather they are looking for the applicant to tell them that they understand the legal ramifications of a position taken on the tax return, and how they are prepared to defend that position from a legal and regulatory standpoint.
It is my intention during the time period that I have been allotted today to provide the student with an understanding of the physical demands of the examination. Having to hand write their answers for a period of four hours presents a physical challenge that many people are not up to because, in this day and age of keyboarding everything, the use of pen and paper is becoming a lost art and therefore, without practice in preparation, they will be physically unprepared for the task.
Through the use of several select examples I will attempt to help them grasp the difference between a mindset of tax preparation and a mindset required for legal reasoning and analysis. A basic question that always seems to work effectively relates to unreimbursed employee business expenses. “Prior to Congress enacting the Tax Cut and Jobs Act, what is the legal rationale behind allowing an employee to deduct unreimbursed employee business expenses?” See IRC Sec 162 for additional info..
Prepared by James H. Chapman EA, MPA, MA, Director of Federal Tax Research at the Tax Law Institute and Chairman of the Board of Directors of the Hawaii Federal Tax Clinic
Dated: April 25, 2020
Reprinted courtesy of James H. Chapman ©Copyright 2020 Tax Law Institute. All rights Reserved
Louis 'L.B.' Carpenter CPA-USTCP | Chief Tax Litigation Counsel | U.S. Tax Court Litigators Corp.
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