CHAPTER SIX
CULMINATION OF
THE TAX
RESEARCH
PROCESS
EXPECTED LEARNING
OUTCOMES
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Understand all steps in the
research process
Know when additional steps are
necessary
Recognize when the research is
complete
Appreciate the ethical
applicable standards
THE TAX RESEARCH
PROCESS
STEP ONE:
What are the facts? What is the Question?
STEP TWO
Locate and Analyze Authority
STEP THREE
Synthesize, Ponder, Conclude
STEP FOUR
Communicate
CRITICAL ANALYSIS OF
AUTHORITY

Always start with the LAW (First)
Applicable Treasury interpretations (Second)
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Applicable case law (Last)
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• IRS position on issue
• How close are facts of rulings & procs.
• Confirm Treasury Regulations reflect current statute.
• What court cases address research question
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•
•
•
•
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All cases not just the ones supporting your position
Appeals v. Court of original jurisdiction
Case still authoritative
If more than one case, which are strongest
Always citate cases
Balancing the two types of authority
What if limited treasury guidelines & cases?
Go over list on Page 312
SOURCES OF ETHICAL
GUIDELINES

All research and critical analysis
must be performed under umbrella of
legal and ethical guidelines:
• Circular 230 (Treasury)
• AICPA and ABA (Accounting & Legal
Profession)
• Internal Revenue Code (Congress) –
Section 6662 (accuracy related
penalties) and related regulations
Circular 230

Applies for all that practice
before the IRS
• CPAs, attorneys, enrolled agents

New rules: tax advisors
• Aspire to best practices standards
• Act fairly and with integrity
• Monetary penalties can apply.
Professional Membership
Guidelines

AICPA
• Subject to Code of Conduct:
• http://www.aicpa.org/about/code/index
.html
• Statements on Standards for Tax
Services (SSTSs)
• http://www.aicpa.org/download/tax/SS
TSfinal.pdf
Circular 230


http://www.irs.gov/pub/irspdf/pcir230.pdf
Guidelines on
•
•
•
•
Engaging the client/fact gathering
Researching
Communicating and Advising
Tax Return Reporting
Engaging the Client

Circular 230 – Best Practices
• Communicate clearly with the
client regarding terms of
engagement
• Determine clients expected
purpose for and use of advice
• Clear understanding of scope and
form of advice
• Risk management of the firm
Fact Gathering
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Reasonable Inquiries to check
that information is not
incorrect, inconsistent or
incomplete
Can’t hide behind ignorance of
facts or turning a blind eye.
Verify that source documents
exist (perhaps view some).
Researching

Due diligence/Realistic Possibility Stndrd •
•
•
•
•
•
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Sustainable on its merits
Circular 230 and Reg. 1.6694-2(b)
Reasonable and informed analysis
Chance of 33%+ of being sustained.
Audit lottery alone is not realistic stnd.
List on page 323 of where to get info.
If foregoing test not met, can take a
position if it is not frivolous.
Position taken must have substantial
authority for understatement of income.
Other Limitations
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Recognition of limits of current
professional competency
• Don’t play tax god.
• Solicit help from other
professionals
Different licenses CPA v. Law
• Lawyer for Litigation/Document
review
Beware of Firm Shopping
Engagement Letter

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Critical document to spell out
expectations of client & professional
– contract
If engagement changes, issue
addendum to letter.
Helps avoid malpractice claims
Possibly limit scope of work to
prevent future malpractice claims.
Other Considerations
Continued

Avoid conflicts of interests among clients.
• If representing conflicting clients get a waiver
spelling out duties.

Opinion Letters
• Are you/firm willing and competent to render
opinion
• Are opinion standards reasonable
• What conditions/exceptions do you place on the
persons relying on the opinions
• What person will be expressly or implicitly
entitled to rely on the opinions
Passage of Time - Duty to
Update and other Issues
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Engagement letter should spell out
whether you have a duty to update
work for changes subsequent to
original advice
No hard and fast guidelines here.
Avoid too many diverse
responsibilities that may imply
fiduciary relationship – esp
valuations and with estates
Go over chart on page 333
TAX RESEARCH
STANDARDS
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
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Fact gathering
Researching
and Advising
“Reasonable
inquiries”
“Realistic
possibility”
To avoid $
penalties
“Substantial
authority”
CHAPTER SEVEN
COMMUNICATING
RESEARCH RESULTS
EXPECTED LEARNING
OUTCOMES



Understand the various forms of
communication
Appreciate the purpose of an
office memo, client letter, and
protest letter
Effectively communicate
INTERNAL WRITTEN
COMMUNICATION
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Office memo: - firm record and road
map to research issue
•
•
•
•
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Material facts
Research question/issue
Citation to relevant authority
Conclusion and reasoning
Remember firm attrition accents
need for well document file.
EXTERNAL WRITTEN
COMMUNICATION

Client letter
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Protest letter
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Letter Ruling request
WRITING A CLIENT
LETTER
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Statement re: scope of research
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Statement re: facts
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Discussion of opinion (short form or
long form) – go over page 362-363
Summary statement
WRITING A PROTEST
LETTER – 30 day letter
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Used for T/P to present arguments about
the reporting position
Information to include (page 369)
Statement of purpose – pursuade taxing
authority
Statement re: facts
Statement of issue
Presentation of supporting arguments and
authority (consider alternative arguments)
Summary statement – role of client
advocate more pronounced here
WRITING A LETTER
RULING
See list on Page 371
 Statement of purpose
 Statement re: facts
 Statement of issue
 Presentation of supporting
arguments and authority
 Summary statement
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ORAL COMMUNICATION

Be prepared
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Talk without reading notes
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Establish eye contact
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Consider presentation aids
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Other – project voice / Speak at
reasonable pace / avoid filler / try to
relax.