Question

As a tax professional, you are responsible for using every tool at your disposal to ensure your client communicates effectively with the IRS. Sometimes valuable guidance can come from an analysis of documents published by the IRS.
Review the sample Chief Counsel Memorandum and the IRS Electronic Reading Room. Discuss the importance of structuring a response memo to the IRS similar to the Chief Counsel Memorandum.

Answer 1

Tax professionals often must document and communicate their tax research. Clear written communication is important since tax planning ideas or IRS audits can cause prior tax returns to be amended or adjusted long after originally filed. The tax professional may have long since forgotten the reasons for his or her research conclusions, so it is essential that the relevant tax authorities and rationales be thoroughly documented and clearly explained. In some cases, the tax professionals who prepared the research memo may no longer be with the firm, increasing the importance of written communication that others can follow easily.

Writing a tax research memo is an art. Tax professionals do not universally use the same techniques. Generally, the more time taken to prepare a research memo, the less time necessary to review it. The method we propose is biased toward the ease of review and, thus, becomes more appropriate as the difference in compensation rates between the memos reviewer and preparer increases.

A quality tax research memo is the result of thorough research, careful interpretation of the tax authority located, application of the tax authority to the clients facts, and clear communication of the research analysis and conclusions. On this web page, we focus primarily on the communication aspects of tax research. After reviewing these communication principles..

When the IRS issues a notice that proposes certain actions — such as changes to a tax return or collection activity — the taxpayer may be entitled to request an Appeals conference. Although the taxpayer alternatively may seek a remedy in court, Appeals is a less formal and typically far less costly forum to resolve disputes between the taxpayer and the IRS. Moreover, a taxpayer does not relinquish the right to pursue a remedy in court by taking a case to Appeals.

Here is the Office of Appeals’ mission statement:

To resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.

IRS Appeals proudly boasts independence as a core value. Appeals offers a fresh, objective and impartial perspective and provides taxpayers a fair hearing that would otherwise often inefficiently clog up a court’s and taxpayer’s time and resources.

To take a case to Appeals, the taxpayer must protest in writing the IRS’s proposed action. An effectively drafted protest sets the stage for obtaining a fair and desired result.

Over the last few years, the Appeals Judicial Approach and Culture (AJAC) project has implemented policy changes for IRS Appeals to more effectively bifurcate IRS compliance functions and the role of Appeals. The policies aim for IRS compliance functions to serve as finders of fact and for Appeals to not take investigative actions but instead resolve cases.

When drafting a protest, a taxpayer must be specific in his appeal of the tax items in dispute. The introduction of new information in Appeals may result in Appeals releasing jurisdiction on the case and returning the file to compliance.

The IRS website states to include all of the following in a written protest:

• Your name, address and a daytime telephone number
• A statement that you want to appeal the IRS findings to the Office of Appeals
• A copy of the letter you received that shows the proposed change(s)
• The tax period(s) or year(s) involved
• A list of each proposed item with which you disagree
• The reason(s) you disagree with each item
• The facts that support your position on each item
• The law or authority, if any, that supports your position on each item
• The penalties of perjury statement as follows: “Under the penalties of perjury, I declare that the facts stated in this protest and any accompanying documents are true, correct and complete to the best of my knowledge and belief”
• Your signature under the penalties of perjury statement.