Assignment
WEEK LECTURE FOR QUESTION 3 AND 4
It is now time to discuss another critical step in the tax research process - communicating the results. The question was formed, the research is largely completed, and it is now the time to document it. This step is no doubt a step that can make or break the research process and can either satisfy the client and the party relying on this research, or can force a researcher to go back to the beginning and start over with the research process.
Tax communication is done primarily through writing because the subject is so technical in nature. The writing itself is not as standardized as academic writing where you are often asked to follow formats and strict standards, such as APA. However, effective tax writing is very similar to effective academic writing - it answers the questions posed, it does it in as clear of language as possible, and it uses good references to support the conclusions.
There are many types of tax memos and their length and language used will largely depend on who it is written for. The very first question that every tax researchers should ask before starting writing a memo is "who is the audience?"
A good place to start answering that question is to determine whether the memo is written for an internal purpose (to be kept within the files of an organization as reference of support for a tax position taken) or for an external purpose, such as letter to the client, or to the tax authorities (IRS, state revenue agency and so forth).
The next important question to answer is how technical is the person who will be reading this memo? If a tax researcher is writing a memo to the CFO (who typically has a light tax background), it is important to keep the discussion high level, and explain the basic terms and principles as needed. If the memo is for a client who is a tax director or your boss who is a tax expert, there is no need to dwell on the basics. That kind of letter can be very technical and deep in the level of tax knowledge it covers.
The main purpose of the memo is to educate the reader about the facts, the questions the research is addressing, and the solution(s) to these questions, based on the tax law and regulations.
Besides written communication, as tax professionals we are often also communicating the results of our research orally. Before attempting to read a 60-page tax memo, our client may want to hear the high- level overview of what is in the memo - a shorter summary. When this is the case, tax professionals should be confident in their knowledge of the materials and in their conclusions.
1. What are the elements of a client opinion letter? Why are client are letters the riskiest form of communication for the tax practitioner? Use this week's readings and lecture to support your answer.
2. Which is more important in tax communication: form or content? Why? Use this week's readings and lecture to support your answer.
WEEK LECTURE FOR QUESTION 3 AND 4
It is important that we cover two more areas that every researcher needs to understand as a tax practitioner. First, we will spend time this week discussing the actual tax procedure (also known as process), and how tax research is a critical element of it. Second, we will cover the basics of state tax research, and what the issues associated with it are.
Overview of Tax Procedure
One of the more unique features of the tax process in the United States is the voluntary nature of the compliance process. Taxpayers are responsible for filing out the forms and filing tax returns within the rules and time tables specified in the law. But, as we discussed earlier in the course, the tax law in the United States is complex and sometimes unclear, forcing taxpayers and tax practitioners to take positions on their tax returns that are based on their own interpretations of the law.
When a tax return is filed, the IRS reviews it for accuracy and completeness and to verify that the taxpayer is complying with all applicable laws. A small percentage of tax returns are selected for further review and audit. If the IRS finds errors on the tax return or disagrees with the position taken, it sends a notice to the taxpayer with the finding and any asserted tax deficiencies. The taxpayer has various options for how to respond to these notices, including taking the government to court, and in this week's reading we cover the main highlights of that process.
State Tax Research
One of the main reasons why the US tax system is considered one of the more complex systems in the world is because tax is imposed on multiple levels. First, there is a federal tax system that taxes income at the federal level. Second, there is state tax system that taxes income that is connected to the state where it economically takes place. Third, the same transaction can oftentimes also be taxed at a local level, such as by county or city. Lastly, there are also other taxes that can be imposed on economical activities, such as property taxes, sales taxes, and so forth.
As a tax practitioner, you should always keep in mind that the transaction or position you are advising your client on likely has both federal and state tax implications. The first question that usually comes up is whether or not the state has the right to tax the taxpayer and his or her income (the question of "nexus"). If nexus is found, each state has its own set of rules and regulations that govern the taxation of individuals and organizations connected to that state.
The steps of performing state tax research are the same we already discussed in the class. But, what makes state tax research difficult is the lack of materials for such research, as it is oftentimes not as well organized and readily published as materials by the Treasury and the IRS that administer federal taxes.
3. Read "Tax Court Petitions - UPS v USPS - One Letter - Big Difference." Do you agree or disagree with the position taken by the Tax Court and why? Use this week's readings and lecture to support your answer.
4. List and briefly describe all the types of taxes that your state imposes. Are there any unique taxes your state imposes to compensate for lack of other more standard taxes? Use this week's readings and lecture to support your answer.