1.4 Steps in Tax Research
Learning Objectives
- Identify and explain the steps involved in the tax research process.
Steps in the Tax Research Process
Tax research is the systematic process of identifying and analyzing relevant tax authorities to arrive at well-reasoned conclusions and provide informed advice. Typically, the tax research process is organized into six key steps.
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Identify and Understand the Facts: The first and most critical step is to gather all relevant facts related to the tax issue. This includes analyzing the available facts, understanding the taxpayer’s situation, the transactions involved, the dates of the transactions, and any other pertinent details.
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Define the Tax Issue(s): Once the facts are gathered, the next step is to clearly define the specific tax question(s) that need to be answered. Framing the issue precisely will help focus the research efforts.
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Locate and Interpret Relevant Tax Authorities: This step involves identifying and accessing the appropriate primary and secondary tax authorities that address the defined tax issue(s). Once the relevant authorities are identified, the researcher needs to understand the specific rules, exceptions, and limitations outlined.
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Evaluate and Synthesize Findings: After analyzing the individual tax authorities, researcher needs to synthesize them to form a coherent understanding of the tax law as it applies to the issue. This may involve reconciling conflicting authorities or determining the weight of different authorities.
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Formulate a Conclusion and Recommendation: Based on the analysis and synthesis, researcher will arrive at a well-reasoned conclusion regarding the tax issue and formulate a clear recommendation for the client or stakeholder, outlining the best course of action.
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Communicate the Results: The final step is to effectively communicate the research findings. In tax practice, tax research findings are often communicated in two formats: a client letter and an internal tax research memorandum, each with distinct purpose, audience, tone, and structure.
The following table summarizes the fundamental distinctions between these two communication formats:
| Aspect | Client Letter | Internal Research Memorandum |
|---|---|---|
| Purpose | To communicate actionable advice to the client in a clear and accessible manner | To document detailed research and analysis for internal records and professional review |
| Audience | The client, who typically lacks specialized tax knowledge | Tax professionals within the firm (partners, managers, associates) |
| Tone | Professional, conversational, and client-friendly; avoids technical jargon | Formal, objective, and highly technical; uses precise legal terminology |
| Structure | Flexible; typically includes a summary, recommendation, simplified explanation, and next steps | Highly structured; includes Facts, Issue(s), Conclusion(s), Analysis, and Recommendation |
| Legal Citations | Minimal or none; focuses on practical implications rather than legal authority | Extensive; includes citations to I.R.C., Treasury Regulations, Revenue Rulings, court cases, etc. |
| Length | Generally brief (1-2 pages) to maintain client engagement | Can be lengthy (3-10+ pages) depending on complexity of the issue |
| Language | Plain English; explains concepts in terms the client can understand | Technical legal language; assumes reader has advanced tax knowledge |
| Focus | “What should I do?” and “Why does this matter to me?” | “What does the law say?” and “How do we support this position?” |
