Question

Discuss the purposes of Tax File Memos for current and future uses

Answer 1

Answers

Tax File Memos for current and future uses

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

Tax research memos should contain features allowing reviewers to read and understand their contents quickly. Organization is the key ingredient. Under the method we recommend, the research memo contains two parts:

(1) The main text

(2) Authoritative support materials.

The main text is the portion the researcher writes and consists of facts, issues, conclusions, and analyses. We refer to the main text as Section A of the memo. The support materials, which are essentially attachments to Section A, are primary sources of the tax law (e.g., Code, regulations, judicial decisions, and rulings). We refer to the support materials as Section B.

All pages in Section A contain certain uniform features. At the top of each page, a two-line heading includes the clients name and the relevant tax year. Not only does this information provide ease of reference, but it allows pages that become separated to be reunited with the correct file or research memo. In addition, the preparer should date and initial all pages in Section A (e.g., in the bottom right-hand corner). The date allows the reviewer to know when the research was completed. Among other things, the exact date permits the reviewer to determine whether the research preceded or succeeded a change in the tax law (e.g., a relevant Tax Court decision). Initialing each page allows the reviewer to know who was responsible for the research, especially if questions should arise or clarifications are needed later.