Internal Research Memo

Assume you own and operate your own tax accounting business. Listed below are several tax issues that you need to research for current tax clients. Select one tax issue and then write a memo for your tax files that explains the facts, analysis, and conclusions based on your tax research on CCH Tax Research Network / Intelliconnect. You need to rely on (and cite) at least one primary source of law (e.g., Internal Revenue Code or Treasury Regulation).

  • Your client,Jane Smith, traveled to Las Vegas for a fun weekend with her friends from college.The first night she did well at the black jack table and won $2,000. Unfortunately, her luck turned and she lost $500 the second night and another $1,000 the third night of the trip. Your client has otherwise never gambled in her life, and thus has requested your help in the proper treatment of these gambling winnings and losses. What is the proper tax treatment? Are thesewinnings and losses included in taxable income?
  • Your client, Ricky Smith, works full-time as a computer programmer. In his spare time, Ricky makes custom wood cabinets and bookcases. Ricky started this hobby years ago when he and his wife had little furniture and storage in their home. Ricky’s skills and artistry improved through the years, and he now occasionally builds and sells pieces for family and friends. In fact, he now earns more revenue from his woodworking than his costs (e.g., costs of materials and supplies). He has come to you, his accountant, to find out whether the revenues from his hobby need to be reported on his Federal tax return. What is the proper tax treatment? Are the revenues and costs included in taxable income?
  • Your client, Pierre Latrell, recently received a tax penalty for failing to file his tax return. He was very upset to receive the penalty. However, he paid it and tells you that he is happy he will get a tax deduction for paying the penalty. Is this true? Can the penalty be deducted?
  • Your clients, Gary and Judy Olson, have 3 children. Their eldest child is currently enrolled at USD in their first year of college. Their second child intends to enroll at USD next year, and their youngest child expects to enroll at a university two years after. Gary and Judy are concerned about the rising costs of college tuition and the possibility of having 3 children enrolled in college at the same time. They are aware of the American Opportunity Credit (AOC) that helps taxpayers pay for the costs of higher education. Will Gary and Judy be able to claim the AOC? What requirements must be met?


(See Exhibit 2-9, Sample Internal Research Memo, on page 2-20 of the textbook, for more detail)


MEMO #:  ____

NAME: ________________________

FACTS:  Briefly describe the facts behind the tax issue.

ISSUE:  What is the tax issue you are trying to answer?

AUTHORITIES: [List at least one primary source of law on which this memorandum is based, e.g., IRC Sections, Treasury Regulation Sections, Revenue Ruling, etc.]

CONCLUSION:  Briefly state your conclusion.

ANALYSIS:  The analysis should start with a description of the general area(s) of tax law that applies to the issue (e.g., IRC Section), followed by a discussion of specific authorities (e.g., Regulation Sections, Revenue Ruling, etc.). Next explain how the law applies to the tax issue. Complete your analysis with a brief conclusion.

 Writing ‘Basics’ to Keep in Mind:

  1. The memo should be one- to two-pages in length.
  2. Double-space the text.
  3. Indent the paragraphs.
  4. Use one-inch margins.
  5. Use topic sentences.
  6. Paragraphs must have at least three sentences.
  7. Keep sentences short. If a sentence goes over two lines, check to see if you can use two sentences in place of one.  Resist wordiness.
  8. Use the ‘Spelling and Grammar’ tool available on Microsoft Word! Note that a spelling error occurs even if the word is spelled correctly, but the word usage is incorrect (e.g. there instead of their).
  9. Do not use contractions.
  10. Focus on subject/verb agreement when using terms such as ‘Congress’, ‘Internal Revenue Service’, and ‘Treasury Department’. (These terms are singular, not plural!)
  11. Write ‘12 percent’ instead of ‘12%’ or ‘twelve %’.
  12. Limit usage of the passive voice.

Grading Rubric

  Needs Improvement Competent Excellent
Use of Primary Sources to Support Analysis No primary sources are used to support analysis. One primary source is used to support analysis. Two or more primary sources are used to support analysis.
Accuracy Conclusions and analysis are not accurate based on the facts. Conclusions and analysis are accurate based on facts. However, conclusions and analysis may be limited to the specific situation. Conclusions and analysis are accurate based on facts. The analysis expands on the specific situation and recognizes exceptions or special circumstances that may apply to the taxpayer.
Writing Response is poorly organized and difficult to read. There are several spelling and/or grammatical errors. Writing lacks clarity and conciseness. Response is generally well organized and most of the analysis is easy to follow. There are only a few minor spelling or grammatical errors. Writing is mostly clear but may lack conciseness. Response is coherently organized, and the analysis is easy to follow. There are no spelling or grammatical errors. Writing is clear, concise, and persuasive.



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