Question

Many taxpayers think the tax law is all black and white with no room for gray areas. What do you think? Explain your answer.

Additionally, various tax services provide Internal Revenue Code (IRC) histories for researchers who need them. What value would this provide to researchers? Why would tax preparers need to review prior tax years' laws? Is this related to the perception of gray areas in tax law? Explain your answer in detail.

Answer 1

Tax laws are not always black and white. There are numerous areas in tax that are neither black nor completely white clearly rather these are grey in nature. Often it is difficult for tax laws to be either black or white on a particular subject due to the inherent limitations of a particular area. For example the amount of depreciation allowed as expenditures for tax purposes to businesses are different for different equipment and properties instead of having a single rate of depreciation for all equipment and properties. This is because of the different use of assets and properties that it is not possible to have a single rate of depreciation for all these assets for tax purposes.

Internal Revenue Code (IRC) histories help the researchers to understand the various facts about tax codes and how different items were taxed earlier. This provides the tax researchers a frame of reference for the past for better research work.

It is absolutely essential for the tax preparers to review the prior year tax laws simply to assess whether the tax returns and other aspects of tax laws have been correctly complied by the clients in the past. Apart from that the review of prior tax year laws will also help the tax preparers to understand the changes that have to be made in preparing tax returns in the present with the changes tax laws in the year compared to the tax laws of the past.

No, not entirely the review of pat tax year laws is related to the grey area concept in tax laws. However, certainly it plays its part to motivate the tax preparers to review the past tax year laws to assess whether any changes have been made in the grey areas of tax laws. In case any changes have been made in the present in tax laws that affect the grey areas than accordingly, the tax preparers must take those into consideration while preparing tax returns.