CHAPTER SIX

CULMINATION OF THE TAX RESEARCH

PROCESS

EXPECTED LEARNING OUTCOMES

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

S T E P F O U RC om m u n ica te

S T E P T H R E ES yn th es ize , P on d er, C on c lu d e

S T E P T W OL oca te an d A n a lyze A u th ority

S T E P O N E :W h at a re th e fac ts? W h at is th e Q u es tion ?

CRITICAL ANALYSIS OF AUTHORITY

Always start with the LAW (First) Applicable Treasury interpretations (Second)

• IRS position on issue• How close are facts of rulings & procs.• Confirm Treasury Regulations reflect current statute.

Applicable case law (Last)• What court cases address research question

• 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 MembershipGuidelines

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/

SSTSfinal.pdf

Circular 230

http://www.irs.gov/pub/irs-pdf/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

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 - • 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

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

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

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

Fact gathering “Reasonable inquiries”

Researching “Realistic and Advising possibility”

To avoid $ “Substantial penalties 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

Office memo: - firm record and road map to research issue• 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

Protest letter

Letter Ruling request

WRITING A CLIENT LETTER

Statement re: scope of research Statement re: facts Discussion of opinion (short form or long

form) – go over page 362-363 Summary statement

WRITING A PROTEST LETTER – 30 day letter

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

ORAL COMMUNICATION

Be prepared Talk without reading notes Establish eye contact Consider presentation aids Other – project voice / Speak at

reasonable pace / avoid filler / try to relax.