Judicial Sources
Judicial decisions are the third primary source of tax law. The Internal Revenue Code is the basis for federal tax laws, and the administrative pronouncements of the IRS interpret provisions and explain their application. However when additional issues and questions regarding the interpretation or intended application of the tax law arise the judicial system is responsible for resolving these questions. Court decisions are official interpretations and applications of the IRC by the judicial branch of the government. In this process, additional tax law is generated that can carry the full force for the statute itself. From a research standpoint it is important to understand the precedential value of court cases, how they are cited, and the process for review of the court's decision.
The federal court system consists of three trial courts and two levels of appellate courts. The three trial courts are the U.S. Tax Court, the U.S. District Courts, and the U.S. Court of Federal Claims. The two appellate courts are the U.S. Court of Appeals and the U.S. Supreme Court. All litigation must start in one of the three types of trial courts. It is the trial court's responsibility to determine the facts and then interpret and apply the law. Each of the trial courts has different attributes and is designed to serve in a different capacity in the federal judicial system. Whenever the taxpayer or the IRS loses at the trial level, either party may appeal the decision to a higher court.