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Written by: T. Steel Rose, CPA, ACS Editor

Published: 17 March 2016

The dawn of a new year brings a fresh opportunity to help clients make tax-optimized decisions. Here are additional three tips and tricks to help tax professionals manage, enhance and expand their practice this tax season. Click HERE to view my 3 previous tax tips for this tax season

IRS Tax Tools

Reliable resources to answer common tax questions are worth their weight in gold. Two such tools are the IRS Tax Map and the IRS Interactive Tax Assistant tool. The Tax Map provides tax law information integrated with related tax forms, instructions and publications. While both resources are slow to the point of timing out, they are reliable and worthy of a spot in a tax professional’s toolbox.

AICPA Marginal Tax Rate Calculator

Helpful tools are available to enhance the work you already perform. The AICPA provides a Marginal Tax Rate Calculator to show clients and new staff members the effect of deductions and tax credits on the actual tax rate: http://www.360financialliteracy.org/Calculators/Marginal-Tax-Rate-Calculator. Whether clients are in the 15% or 39.6% tax bracket, it helps to show them their effective tax rate on tax decisions. This calculator is one of several provided by the AICPA at http://www.360financialliteracy.org.

Publishing CPA Magazine since 2002, T. Steel Rose began his career with Price Waterhouse leading to the start of Rose & Cash, CPAs. He was a VP for Solomon Software, now owned by Microsoft, and launched CPA Software News in 1991.

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Written by: Dean Zerbe and Steven Miller

Published: 28 January 2016

In all of the talk surrounding the $600 billion plus tax bill signed into law by the President last month, an underreported change within the deal could have the greatest impact of all for U.S. businesses. We are of course referring to the changes made to the Research and Development (R&D) Tax Credit, which was not only made permanent as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015, but also includes two key adjustments that will greatly expand the number of businesses able to take advantage of the credit.

Last year alone, the R&D Tax Credit provided over $10 billion in tax savings to U.S. companies. Taking into account the enhancements made to the credit, enhancements that were designed to allow startups and small businesses previously barred from the credit to now claim its tax benefits just as larger corporations currently do, it is estimated that the research credit could provide an additional $2 billion to U.S. businesses.

Considering the value on the table for U.S. companies, CPAs and tax practitioners should be getting in front of their clients now to discuss this tremendous opportunity to grow their businesses. To understand the full ramifications of the new and improved R&D Tax Credit, let’s explore three modifications in detail: (1) permanency, (2) the turnoff of the AMT bar and (3) the new startup provision.

1. Permanency

To begin, let’s start with those companies that were already claiming the credit, and what certainty can mean for tax practitioners and CPAs when planning for the future. Since its introduction over three decades ago, the R&D Tax Credit has, until now, been a temporary business credit. Although the credit has been renewed and its reach expanded multiple times, the constant (and often deadline-driven) extensions have prevented companies from being able to truly strategize the future of their businesses around its availability.

Since the beginning, the R&D Tax Credit was designed as a financial incentive for innovative companies that were investing time, money, and U.S.-based man hours into improving their products and processes. And while the words “R&D” may bring to mind the kind of research taking place in a lab, the credit is also very much about rewarding applied science as well—the steps taken to make a product or process cheaper, cleaner, faster, greener or more efficient. The credit was intended not only to reward this kind of technical problem solving, but to ensure businesses continue to invest in new and improved products and processes for years to come, while keeping well-paying technical jobs on U.S. soil.

As most business owners will tell you however, it is very difficult for them to plan and invest in future endeavors (and in this case, R&D endeavors) if they are unsure what the laws and regulations are going to be beforehand. Now, with respect to the R&D Tax Credit, those worries are a thing of the past. With permanency comes certainty, and businesses will now be able to tailor their future processes and investments knowing full well the credit will be around to offset the costs.

2. AMT Turnoff

Now, let’s move to the expansions—starting with the AMT turnoff.

Old Policy Shortcomings
In the past, the greatest hurdle preventing small and medium businesses from claiming the R&D Tax Credit was the alternative minimum tax (AMT) bar provided in sec­tion 38(c) of the tax code. As tax advisors working in this area will tell you, the AMT barrier has long prevented owners of pass-through entities from using the research credit to reduce their taxes below their tentative minimum tax (TMT).

Let’s take a basic example—if business owner Bob was paying AMT in tax year x, he could not take the R&D Tax Credit for tax year x. If Bob was paying regular tax (and paying no AMT because his regular tax was above his TMT), he could reduce his tax liability, but only to his TMT level. So, in effect, a business owner would often get little to no benefit when filing for the research credit.

Many tax advisors have found that it is a good idea not to have any breakable ob­jects within arm’s-reach of a client when explaining that yes, the client has en­gaged in activities that make them eligible for the R&D Tax Credit, but no, the client cannot use the credit to reduce his or her taxes this year (or only a much re­duced portion of the taxes) because of the limitations of section 38(c). And, of course, this impacts Bob’s views on whether and to what extent he invests in future innovation.

Given that a strong majority of small and medium businesses are organized as pass-through entities (the owners of which are often subject to AMT), the reality of the AMT bar has been that tens of thousands of businesses are effectively pre­vented from taking full advantage of the credit. In our experience, under the old law, the vast majority of businesses that we talk to that would have qualified for the R&D Tax Credit could not utilize it due to the AMT bar in section 38(c).

Policy Solutions
In an effort to address this shortcoming and to provide an incentive to innovate while providing tax relief for small and medium businesses, the law was changed starting in 2016. The recently passed tax extenders bill effectively turns-off the AMT bar for “eligible small businesses” (defined by the PATH Act as businesses with less than $50 million in average gross receipts for the prior three years) that otherwise qualify for the R&D Tax Credit.

When it comes to calculating the credit, the tentative minimum tax is treat­ed as being zero for those qualifying companies defined as “eligible small businesses,” meaning they can use the credit to offset within parameters both regular and alternative minimum tax liability. The policy is very similar (although with some technical differences that we would highly recommend you review with a qualified tax advisor) to the AMT turn-off that was implemented as part of the Small Business Jobs Act of 2010. That year, we saw firsthand the game-changing impact this provision had in helping keep the doors open for businesses in the midst of a then challenging economy. With the removal of the AMT barrier, we foresee a similar positive economic impact, and estimate a ten-fold increase in the number of small businesses that can utilize the R&D Tax Credit.   

3. Startup Provision

Now, on to the startup provision.

For years, one of the real oddities of the R&D Tax Credit was that many of our nation’s most innovative companies were unable to claim the credit as they were just opening their doors. Taking into account that the majority of startups are not immediately profitable, and thus pay no federal income taxes, it follows that the majority of our nation’s most cutting-edge companies were essentially barred from a credit designed to reward business ingenuity—clearly, an obvious disconnect from the intent of the credit to its real-world application. And this disconnect occurred at the most sensitive time of a company’s life cycle, its nascent phase when every dollar is most essential.

An important amendment—the startup provision—changes all of that. Now, starting in 2016, startups (defined by the legislation as businesses with gross receipts of less than $5 million a year) will be able to take the credit, capped at $250,000 against certain payroll taxes, beginning in 2017. This is obviously big news for software and technology companies that, due to the innovative nature of their work, are among the best candidates for the R&D Tax Credit.

To show the provision in practice, let’s take a real-world example. One software development company whose R&D activities alone would have qualified them for around $100,000 in federal credits was unfortunately barred from their projected federal tax savings, largely a result of the company simply not being around long enough to generate profits for taxable income.

However, under the new provision, this same company with an annual payroll of $1.75 million­, that also pays $108,500 in payroll taxes, would be able to use the credit to reduce their payroll taxes down to $8,500. The net gain, $100,000 in added tax savings, could be reinvested in any way the business deems fit.

Impact on CPAs and Tax Advisors
As you can see, the benefits of this legislation regarding the research credit are massive. Quite frankly, this is probably the biggest news on taxes for startups and small businesses in years, and tax practitioners with clients in fields as diverse as computer software, pharmaceuticals, chemistry, biology, nanotechnology, robotics, energy, engineering, architecture, construction, manufacturing, food processing, and agriculture (and that’s just to name a few) should take a second look when evaluating their clients’ eligibility for the credit.

Now, it is up to CPAs and tax consultants to ensure their clients are taking advantage of every opportunity afforded under the R&D Tax Credit.

Dean Zerbe is alliantgroup’s National Managing Director and the former Senior Counsel to the U.S. Senate Finance Committee.

Steven Miller is alliantgroup’s National Director of Tax and the former IRS Acting Commissioner.

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Written by: Adam S. Fayne, J.D.

Published: 27 January 2016

The IRS has had an Offshore Voluntary Disclosure Initiative (OVDI) now for approximately seven years. What began as a temporary OVDI program is now indefinite until further notice. However, seven years later, taxpayers have more options to choose when deciding the best method to disclose their foreign activities.

Traditional OVDI Program – 27.5% penalty or greater

Under this program, the taxpayer is eligible to make an OVDI if he/she is not currently under audit, the money in the foreign account or asset was earned legally, and the IRS does not already know about the taxpayer’s foreign account or assets. The wild card is whether the IRS already knows about the taxpayer. This can be confirmed in advance by doing a pre-clearance request with the IRS OVDI centralized office.

[This article is course content for the Tax Season 2016 CPE quiz, worth 3 CPE credits! Reach the quiz and additional content HERE.]

Once accepted to this program, the IRS will provide the taxpayer a letter stating that it is their policy to not recommend criminal proceedings as long as the taxpayer remains truthful and transparent during the OVDI process. The IRS does not (and cannot) grant immunity, but it is their policy not to seek criminal charges in an OVDI.

Once the taxpayer is accepted to the OVDI, the taxpayer must prepare and file eight years of amended (or original) income tax returns and the same amount of Forms 114a (FBARs) to report the income and the bank account, respectively. The taxpayer will be required to pay the tax, a 20% penalty on the tax, and interest.

The taxpayer will also be required to pay a minimum 27.5% penalty on the highest value of the account over the eight-year period, but it could be 50% if the bank is a “listed bank.” The IRS has a list of banks that have cooperated to such an extent that the value of the taxpayer’s OVDI is not as great and, in turn, it penalizes the taxpayer and requires her to pay a 50% penalty.

IRS OVDI Streamlined Program

Beginning in the summer of 2014, the IRS introduced the Streamlined Program. This program is designed for non-willful taxpayers. That is, taxpayers who did not intentionally fail to report the existence of the foreign asset or its income. Under this program, a taxpayer must submit three years of amended income tax returns (or original income tax returns for non-residents) and six years of Form 114a (FBARs).

A taxpayer that resides in the United States must pay the tax, a 20% penalty on the tax, and interest. This taxpayer must also sign a statement under penalties of perjury and pay a 5% penalty on the highest year-end value of the foreign bank account.

A taxpayer that does not reside in the United States must pay the tax and interest only. This taxpayer is also required to sign a statement under penalties of perjury that she did not intentionally fail to report the income and the assets.

This program is a relief for those non-compliant taxpayers that are able to sign the required statement under penalties of perjury.

Quiet Disclosure

A taxpayer that does not want to participate in the above programs, but desires to come into compliance, may do what practitioners call a “quiet disclosure.” This type of disclosure is where the taxpayer prepares a certain number of amended income tax returns or original returns, and a certain number of FBARs and simply files the materials in the ordinary course.

This type of disclosure may still qualify as a voluntary disclosure under the IRS’s Internal Revenue Manual and provide the same level of criminal protection as any other choice listed above, but the unknown is the penalties. If a taxpayer is selected for examination or civil audit, there are many penalties that may apply.

The IRS Agent has great discretion in the assertion of penalties. There is a penalty ceiling but no minimum amount. The examiner may determine that the facts and circumstances of a particular case do not justify a penalty. If there was an FBAR violation but no penalty is appropriate, the examiner will issue the FBAR warning letter, Letter 3800.

However, when a penalty is appropriate, the IRS has established penalty mitigation guidelines so that the penalties determined through the examiner’s discretion are uniform. The examiner may determine that a penalty under these guidelines is not appropriate, or a lesser amount than the guidelines would otherwise provide is appropriate.

To qualify for mitigation, the person must meet four criteria including:

1. The person has no history of criminal tax or Bank Security Act (BSA) convictions for the preceding ten years and has no history of prior FBAR penalty assessments.

2. No money passing through any of the foreign accounts associated with the person was from an illegal source or used to further a criminal purpose;

3. The person cooperated during the examination; and,

4. IRS did not determine a fraud penalty against the person for an underpayment of income tax for the year in question due to the failure to report income related to any amount in a foreign account.

The following is a chart from the IRS’s Internal Revenue Manual:

Normal FBAR Penalty Mitigation Guidelines for Violations Occurring After October 22, 2004 - Per Person Per Year

Adam Fayne is a partner with the law firm of Arnstein & Lehr LLP. Fayne was an attorney with the IRS Office of Chief Counsel. He may be reached at 312-876-7883 or This email address is being protected from spambots. You need JavaScript enabled to view it..

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Written by: Peter J. Scalise

Published: 26 January 2016

In order to maximize your accounting firm’s overall effectiveness in connection to researching and resolving a tax issue and determining the sustainability of the tax return filing position, the appropriate tax research processes must be meticulously executed. These five steps will guide you in establishing an all-inclusive tax research effort on behalf of your client base while properly ascertaining the likelihood of success should a tax position(s) taken on a tax return be challenged by the IRS upon examination.

Tax Research Methodology

Establish the Facts and Circumstances - The first step in the tax research process is to establish all of the facts and circumstances provided by your client in order to determine which tax laws(s) apply to your client’s fact pattern. At this initial stage, it is imperative not to overlook any of your client’s facts and circumstances whether appearing material or immaterial. Always be guided by the axiom that facts and circumstances appearing to be immaterial individually may, in fact, be material in the aggregate.

Determine All the Issues - The second step in the tax research process entails determining all of the tax issues affecting your client’s specific circumstances and any mitigating factors. Normally, complex tax issues evolve through several stages of development. For instance, an experienced tax professional based upon his or her prior knowledge of the tax laws, can normally determine most of the initial pertinent issues in terms of general tax laws. However, after performing an initial search of the authorities to answer the initial issues, a tax professional often discovers additional specific technical questions of interpretations must be resolved before the initial issues can be fully addressed. Consequently, at this stage, a tax professional may need to obtain additional facts from the client. Accordingly, the tax research process may have to move back from step two to step one. In addition, you may learn that facts initially not considered to be important may prove critical to the resolution of your client’s tax issues.

Identify Statutory, Administrative, and Judicial Authority - The third step in the tax research process entails identifying the specific authorities to support all of your client’s tax issues while appropriately weighing authorities that may be contrary to your supporting position. Generally, this process begins with consulting statutory authority (e.g., the Internal Revenue Code) and quickly expands to encompass administrative authority (e.g., Proposed Treasury Regulations, Temporary Treasury Regulations, Final Treasury Regulations, Revenue Rulings, Revenue Procedures, Private Letter Rulings, Technical Advice Memorandum, General Counsel Memorandum, Circular 230, Internal Revenue Manual, Internal Revenue Bulletins, IRS Field Service Advice Memorandum, IRS Determination Letters, and IRS Notices) and judicial authority (e.g., decisions by the U.S. Tax Court, U.S. District Court, U.S. Court of Federal Claims, U.S. Circuit Court of Appeals, U.S. Court of Appeals for the Federal Circuit, and the U.S. Supreme Court). In addition, at times, you the tax professional may have to consult the legislative history (e.g., the Public Laws and Congressional Committee Reports from the House of Representatives and the Senate) of a particular Internal Revenue Code section to fully address what Congress’s intent was in passing a particular bill. Lastly, you may also want to consult the voluminous range of editorial interpretations (e.g., Tax Treatises, Tax Journals, etc.) available to assist in the interpretation a particular tax issue. However, it must be duly noted that editorial interpretations are generally impressible sources of authority before the IRS and the judicial system. For clarification purposes, the subsequent synopsis will elaborate upon the aforementioned statutory, administrative, and judicial interpretations:

Statutory Authority

The Internal Revenue Code - All federal level tax statutes passed by Congress into law are compiled and published in Title 26 of The United States Code. As it should be recalled, Title 26 of The United States Code contains the specific statutes that authorize the IRS to collect taxes for the federal government. Generally, the tax research process begins with consulting the Internal Revenue Code and quickly expands to encompass administrative and judicial authorities based upon the complexity of the tax issue under analysis.

Administrative Authority

The Treasury Regulations - The Treasury Regulations provide the official interpretations of the Internal Revenue Code by the Treasury Department and have the force and effect of law. The most common forms of Treasury Regulations include:

• Proposed Treasury Regulations (e.g., binding only on the IRS and not the taxpayers);

• Temporary and Final Treasury Regulations (e.g., binding on both the IRS and the taxpayers); and

• Preambles (e.g., treated just like legislative histories to demonstrate congres­sional intent and may underlie either type of the aforementioned treasury regulations regardless of status as Proposed, Temporary, or Final).

Revenue Rulings - A Revenue Ruling is an official interpretation by the IRS of the tax laws. Initially, Revenue Rulings are published in the weekly Internal Revenue Bulletin. The same rul­ings later appear in the permanently bound Cumulative Bulletin, a semi-annual publi­cation of the Government Printing Office. Revenue Rulings hold less weight than the Treasury Regulations because they are intended to cover only specific fact patterns. Regardless, Revenue Rulings can provide valid precedent if your client’s facts and circumstances are substantially identical.

Revenue Procedures - A Revenue Procedure is a statement of procedure that affects the rights or duties of taxpayers or other members of the public under the Code. Similar to Revenue Rulings, Revenue Procedures are less authoritative than Treasury Regulations. However, Revenue Procedures should be binding on the IRS and may be relied upon by taxpayers.

Private Letter Rulings - Private Letter Rulings (PLR) are issued directly to taxpayers who formally request and pay for advice about the tax consequences applicable to a specific business transaction. Such PLR requests have been employed frequently by either taxpayers them­selves or the taxpayer’s representatives (e.g., a taxpayers’ representation through a CPA firm or law firm) to assure themselves of a preplanned tax result before they consum­mate a transaction and as a subsequent aid in the preparation of the tax return’s filing position. When the IRS issues a PLR it is understood that the PLR is limited in scope and application to the taxpayer making the request.

Technical Advice Memorandum - A Technical Advice Memorandum (TAM) is a special after-the-fact rul­ing that may be requested from the taxpayer or the technical staff of the IRS. For instance, if a disagreement arises in the course of an audit between the taxpayer or the taxpayer’s representative and the revenue agent, either side may request formal technical advice on the issues(s) through the District Director. Under certain circumstances, TAM’s can be used as a basis for the issuance of a Revenue Ruling and can also be subsequently published as a PLR.

General Counsel Memorandum - General Counsel Memorandum (GCM) are legal memorandum prepared by the IRS Chief Counsel’s Office. GCM’s analyze proposed Revenue Rulings, Private letter Rulings, and Technical Advice Memorandum. GCM’s issued after 1981 constitute substantial authority for purposes of the penalty assessed for the substan­tial understatement of income tax.

Circular 230
Circular 230 is an IRS publication that sets forth the requirements and responsibilities of professionals (e.g., Attorneys, Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries) admitted to practice before the IRS. It should be duly noted that Circular 230 was most recently revised on June 12, 2014 and all tax professionals admitted to practice before the IRS must adhere to this latest version which can be downloaded and referenced at: http://www.irs.gov/pub/irs-pdf/pcir230.pdf

Internal Revenue Manual - The Internal Revenue Manual (IRM) is an official compilation of policies, procedures, instructions, and guidelines for the organization, function, operation and administration of the IRS. It is not legally binding and the policies are not mandatory. The IRM guidelines do not confer any rights on taxpayers.

IRS Field Service Advice - IRS Field Service Advice (FSA) are taxpayer specific rulings furnished by the IRS National Office in response to requests made by the taxpayers or IRS Officials.

IRS Determination Letters - A Determination Letter is issued by the IRS at the taxpayer’s request to outline the IRS’ position on a particular transaction that has already been completed. Generally, Determination Letters are issued only when a determination can be made on the basis of clearly established rules in the statute or regulations.

IRS Notices - When prompt guidance concerning an item of the tax law is needed, the IRS publishes notice in the Internal Revenue Bulletin. These notices are intended to be relied upon by the taxpayers to the same extent as a Revenue Ruling or Revenue Procedure.

Judicial Authority

U.S. Tax Court - The U.S. Tax Court is an independent 19 judge federal administrative agency that func­tions as a court to hear appeals by taxpayers from adverse administrative decisions by the IRS.

U.S. District Court - The U.S. District Court hears civil actions against the United States for the recovery of any tax alleged to have been erroneously or illegally assessed or collected by the IRS. Trial by jury is available at the preference of either the petitioner or defendant.

U.S. Court of Federal Claims - The U.S. Court of Federal Claims is a Washington D.C. based appellate-level court in which a taxpayer may sue the government for a refund of overpaid taxes.

U.S. Circuit Court of Appeals - The U.S. Court of Appeals is one of thirteen courts including the District of Columbia and the Federal Circuit Courts, to which appeals from a trial court, such as the U.S. Tax Court, are directed.

U.S. Court of Appeals for the Federal Circuit - The U.S. Court of Appeals for the Federal Circuit hears appeals from the U.S. Court of Federal Claims.

U.S. Supreme Court - The U.S. Supreme Court is the highest appellate court in the federal court system and in most states. The U.S. Supreme Court, under its certiorari procedure authority, reviews the constitutionality of a tax law and a small number of tax decisions by the Court of Ap­peals.

The subsequent chart illustrates the geographic boundaries of The United States Courts of Appeals and the United States District Courts:

Resolve the Issues - The fourth step in the tax research process entails the resolution of your client’s tax issues after identifying, analyzing, and interpreting all of the applicable authorities. It cannot be overstated that you should have provided, as needed, reasonable statutory, administrative, and judicial support to demonstrate your position could be upheld if challenged by the IRS upon examination and you exercised due diligence and acted in good faith. Furthermore, at times, positions taken on tax returns may need to be disclosed on Form 8275 entitled “Disclosure Statement” or Form 8275-R entitled “Regu­lation Disclosure Statement” depending upon the complexity and controversial nature of the tax issue. Noting, by disclosing positions on your client’s tax returns you may be able to avoid paid preparer penalties should your position be disallowed and avoid the appli­cation of the six year statutory period for assessment under I.R.C. § 6501(e).

From a risk management perspective, in order to mitigate or avoid income tax return paid preparer penalties pursuant to I.R.C. § 6694 (e.g., penalties are assessed on both paid tax return preparers and tax advisers that are deemed paid tax return preparers due to their consulting on matters that constitute a substantial portion of their client’s tax returns even if they were not engaged to prepare nor review the tax return), a “More-Likely-Than-Not” standard should be satisfied. The subsequent standards of the appli­cable levels of opinions should be scrupulously analyzed when assessing your tax return filing position:

• “Will” Standard: Generally, a 95% or greater probability of success if challenged by the IRS. A “Will” opinion generally represents the highest level of assurance that can be provided by an opinion;

• “Should” Standard: Generally, a 70% or greater probability of success if challenged by the IRS. A “Should” opinion provides a lower level of assur­ance than is provided by a “Will” opinion, but a higher level of assurance than is provided by a “More-Likely-Than- Not” opinion;

• “More-Likely-Than-Not” Standard: A greater than 50% probability of success if challenged by the IRS. The “More-Likely-Than-Not” standard is the highest level of accuracy required for purposes of avoiding the accuracy-related penalties under I.R.C. 6662A;

• “Substantial Authority” Standard: Typically, greater than a “Realistic Possibility of Success” standard and lower than “More-Likely-Than-Not” standard (i.e., 40% probability of success);

• “Realistic Possibility of Success” Standard: Approximately a one-in-three or greater possibility of success if challenged by the IRS;

• “Reasonable Basis” Standard: Significantly higher than the “Not Frivo­lous” standard (i.e., that is, not deliberately improper) and lower than the “Realistic Possibility of Success” standard. The position must be reason­able based on at least one tax authority that can be cited as valid legal authority;

• “Non-Frivolous” Standard: Approximately a 10% chance of being upheld upon examination by the IRS and accordingly under no cir­cumstance should a tax professional ever render services with this level of comfort; and

• “Frivolous” Standard: Approximately a percentage less than a 10% chance of being upheld upon examination by the IRS and accordingly under no circumstances should a tax professional ever render services with this level of comfort.

Each of the aforementioned standards above has a relevant meaning to both the taxpayers and tax professionals when evaluating a tax position and the related disclosure requirements. The percentages listed for “More-Likely-Than-Not” and “Realistic Possibility of Success” are specifically provided for and dis­cussed in the treasury regulations. In contrast, the percentages for “Substantial Authori­ty”, “Reasonable Basis”, “Non-Frivolous”, “Frivolous” have been developed based upon their relative importance in the hierarchy of standards of opinion as principally provided for in congressional committee reports. Moreover, while not mathematically calculable, the percentages are still practical in demonstrating the relative strength of one level as opposed to another level.

Communicate with Your Client - The fifth and final step in the tax research process entails communicating the conclusion to your client. Your client, of course, must ultimately make the final decision concerning what course of action to take, even though the client’s decision is guided by and often dependent upon the conclusions reached by you, the tax professional. It is strongly rec­ommended this tax advice be rendered to your client in a written format, as opposed to verbal communication, and preferably in a formal tax advice memorandum format (e.g., Facts & Circumstances Section; Issue(s) Section; Analysis Section; and Conclusion Section) meticulously discussing the applicable statutory, administrative, and judicial authority to appropriately document your due diligence in assessing the tax issues(s) and resolving them satisfactorily to reach a strong tax return filing position (e.g., “More-Likely-Than-Not”, “Should”, “or “Will” filing positions). Finally, caveat language in the form of a disclaimer should be documented within the tax advice memorandum for any areas of the tax law that were not within the scope and application of your tax research services (e.g., the scope and application of this tax advice memorandum analyses the federal-level tax consequences only and does not provide any advice or analysis in con­nection to any multi-state tax consequences nor any international tax consequences).

Conclusion

By following the preceding all-inclusive steps in the tax research process you should be able to render your research services to your entire client base in a more efficient manner while adequately weighing risk management concerns in connection to tax return filing positions. As a final reminder, the guidance contained in this article should be applied with due professional care including seeking further professional advice from a subject matter expert should it be deemed warranted based upon both the complexity and contentious nature (e.g., taking a tax position contrary to a Treasury Regulation on Form 8275-R, etc.) of the tax matter under review.

Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC a member of The Prager Metis International Group. Peter is a BIG 4 Alumni Tax Practice Leader and has over twenty years of progressive CPA Firm experience developing, managing and leading multi-million dollar tax advisory practices on a regional, national, and global level. Peter serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (“ASTP”) and is the Founding President and Chairman of The Northeastern Region Tax Roundtable, an operating division of ASTP.