Example of Tax research letter
Content
2701 First City Plaza Suite 905 Dallas, Texas 75019 December 12, 2011 Elizabeth Fegali, President Slammin-Jammin Club Austin, Texas 78712 Dear Ms. Fegali: I appreciate the opportunity to advise you regarding this tax matter. To ensure a complete understanding between us, I am stating the pertinent information about the advice that I will be rendering and the facts you provided to me. Responsibilities I use my judgment in resolving questions where the tax law is unclear or where conflicts may exist between the taxing authorities. Unless you instruct me otherwise, I resolve such questions in your favor whenever possible. However, the opinion I express does not bind the Internal Revenue Service (IRS). Thus, I cannot guarantee the outcome in the event the IRS challenges my opinion. You remain responsible for any tax or related liabilities resulting from an adverse IRS or judicial decision. The law imposes various penalties when taxpayers understate their tax liabilities. Tax professionals also may be subject to penalties when an understated tax liability is based on a position that the professional recommends but has no realistic possibility of being sustained. A realistic possibility of success exists if the tax professional has a good faith belief that the position has at least a 1 in 3 chance of being sustained on its merits if challenged. Facts The following facts are based on your written correspondence to me dated June 2, 2011. If these facts are incomplete or incorrect, please let me know right away. You are a U.S. citizen and play point guard for a professional basketball team, the Wyoming Wildcats. To discourage laziness and mental errors, your teammates formed the Slammin-Jammin Club on August 30, 2011. Membership in the club was voluntary, but every Wildcat joined. Each time someone on the opposing team blocked a shot during a regular season game, the Wildcat who was “slammed and jammed” paid a $100 fine to the club. When a Wildcat was responsible for a turnover (e.g., having the ball stolen), he paid a $50 fine. Good performance (e.g., blocking the shot of or stealing the ball from an opposing player) did not reduce fines otherwise payable. At the end of the season, your club had collected approximately $40,000. According to club rules
determined at the season’s beginning, one-tenth of the fines were used to fund a barbecue for the players and their families on March 15, 2011. (You did not attend the barbecue because your grandmother’s funeral was the same day.) The rest of the funds, again according to previously-determined club rules, were given to the American Red Cross. The Red Cross knew nothing about the contribution until it occurred on May 12, 2011. One month later, the American Red Cross sent Elizabeth Fegali, President December 12, 2011 Page 2 individual letters of thanks and receipts to each member of the club. The donation amount on each receipt was based on a report the club’s treasurer prepared. Of the $40,000, you contributed $2,200 to the Slammin-Jammin Club in 2002 and $2,800 in 2011. You itemize deductions and file jointly. Your adjusted gross income is about $117,000. Conclusions and Recommendation Based on our research, you can deduct most of the fines you paid to the Slammin-Jammin Club as a charitable contribution since they are in the nature of gifts per Duberstein, a 1960 Supreme Court decision. In this judicial case, the taxpayer received a Cadillac in return for periodically giving names of potential customers to a business associate. The Supreme Court held that the Cadillac’s value was gross income to the taxpayer since the donor’s intent to make a gift was the key factor establishing the transfer as a gift. Similarly, you intended to make a gift to the American Red Cross. You voluntarily joined the club and were aware from the beginning that the bulk of fines you paid would benefit the American Red Cross. Thus, you are entitled to a deduction. You should deduct $4,500 of your $5,000 contributions. Since the club used 10% of the total contributions to pay for the barbecue (a personal expense), 10% of your contributions ($500) is not deductible. According to a 1967 revenue ruling, the fact that you missed the barbecue does not matter. The $4,500 deduction should be claimed on your federal tax return for 2003 since the club turned over funds to the American Red Cross during that year. My conclusions are based on the facts above and the tax law as it existed on September 12, 2003. Please let me know if you wish to discuss any of these issues further. I’ve certainly enjoyed working with you on this project and look forward to assisting you in the future when you need tax advice. Best regards,
Albert B. Smith Staff Accountant Professional Accounting Associates
determined at the season’s beginning, one-tenth of the fines were used to fund a barbecue for the players and their families on March 15, 2011. (You did not attend the barbecue because your grandmother’s funeral was the same day.) The rest of the funds, again according to previously-determined club rules, were given to the American Red Cross. The Red Cross knew nothing about the contribution until it occurred on May 12, 2011. One month later, the American Red Cross sent Elizabeth Fegali, President December 12, 2011 Page 2 individual letters of thanks and receipts to each member of the club. The donation amount on each receipt was based on a report the club’s treasurer prepared. Of the $40,000, you contributed $2,200 to the Slammin-Jammin Club in 2002 and $2,800 in 2011. You itemize deductions and file jointly. Your adjusted gross income is about $117,000. Conclusions and Recommendation Based on our research, you can deduct most of the fines you paid to the Slammin-Jammin Club as a charitable contribution since they are in the nature of gifts per Duberstein, a 1960 Supreme Court decision. In this judicial case, the taxpayer received a Cadillac in return for periodically giving names of potential customers to a business associate. The Supreme Court held that the Cadillac’s value was gross income to the taxpayer since the donor’s intent to make a gift was the key factor establishing the transfer as a gift. Similarly, you intended to make a gift to the American Red Cross. You voluntarily joined the club and were aware from the beginning that the bulk of fines you paid would benefit the American Red Cross. Thus, you are entitled to a deduction. You should deduct $4,500 of your $5,000 contributions. Since the club used 10% of the total contributions to pay for the barbecue (a personal expense), 10% of your contributions ($500) is not deductible. According to a 1967 revenue ruling, the fact that you missed the barbecue does not matter. The $4,500 deduction should be claimed on your federal tax return for 2003 since the club turned over funds to the American Red Cross during that year. My conclusions are based on the facts above and the tax law as it existed on September 12, 2003. Please let me know if you wish to discuss any of these issues further. I’ve certainly enjoyed working with you on this project and look forward to assisting you in the future when you need tax advice. Best regards,
Albert B. Smith Staff Accountant Professional Accounting Associates
