How to Write a Tax Research Memo That Holds Up: Structure, Authority and Confidence

A tax research memo has five parts: the question presented, the facts, the authorities, the analysis, and a conclusion that states how confident you are. Write the conclusion last, and match it to the standard in the preparer penalty regulation, Treas. Reg. 1.6694-2: substantial authority for a position you do not disclose, a reasonable basis for one you do, and "more likely than not" for a tax shelter or reportable transaction. Those standards come from the regulations. No regulation I cite below says you must write a memo.

That split is the whole point for a staff accountant or a solo EA. The structure is practice. The standards are law. A memo is how you show, months or years later, that the position you signed could clear the standard when you took it.

What Does a Tax Research Memo Need to Contain?

A defensible tax research memo answers five questions in this order. The order is my practice, not a legal requirement.

1. Question presented. One sentence, with the tax year and the code section in dispute. "Can the client deduct this?" is not a question. "Is the payment deductible in 2025 under section 162?" is.
2. Facts. Only the facts the answer depends on, labeled as given by the client or verified from a document. Under Circular 230 section 10.34(d), you generally may rely in good faith on client information, but you "must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete."
3. Authorities. Every authority that bears on the question, supporting and contrary, by citation and date. The next two sections show why contrary authority is not optional.
4. Analysis. Where you tie the law to the facts. Section 10.37(a)(2)(v) of Circular 230 lists this as a requirement for written advice: "Relate applicable law and authorities to facts."
5. Conclusion and confidence level. The answer, the standard it meets, and the one that it does not.

Section 10.37 applies to written advice a practitioner gives, so a memo that goes to a client falls under it. An internal workpaper that never leaves the firm is a closer call, and I would write both the same way.

Which Standard Must the Conclusion Clear?

For a preparer, the standard turns on whether the position is disclosed and whether it involves a tax shelter. Treas. Reg. 1.6694-2(a)(1) sets a penalty of "the greater of $1,000 or 50 percent of the income derived (or to be derived)" by the preparer when the preparer knew or reasonably should have known of the position and one of three things is true:

• Undisclosed, no tax shelter: "there was not substantial authority for the position."
• Disclosed as the regulation provides, no tax shelter: "there was no reasonable basis for the position."
• Tax shelter, or a reportable transaction to which section 6662A applies: "it was not reasonable to believe that the position would more likely than not be sustained on its merits."

So the conclusion in your memo is a statement about which of these lines the position crosses. The three standards sit on a ladder. Treas. Reg. 1.6662-4(d)(2) says substantial authority is "less stringent than the more likely than not standard (the standard that is met when there is a greater than 50-percent likelihood of the position being upheld), but more stringent than the reasonable basis standard."

Reasonable basis is not a low bar either. Treas. Reg. 1.6662-3(b)(3) calls it "a relatively high standard of tax reporting, that is, significantly higher than not frivolous or not patently improper," and it "is not satisfied by a return position that is merely arguable or that is merely a colorable claim."

Circular 230 sits underneath. Section 10.34(a)(1) bars a practitioner from willfully, recklessly or through gross incompetence signing a return that the practitioner knows or reasonably should know contains a position that "lacks a reasonable basis" or is an unreasonable position under section 6694(a)(2). Sections 10.34 and 10.37 bind credentialed practitioners, so check whether the people writing these memos are covered. I covered how the three regimes overlap in the research standards post.

How Do You Weigh Authorities in the Analysis?

You weigh them by relevance, persuasiveness and type, and you count the contrary ones. Treas. Reg. 1.6662-4(d)(3)(i) says that "there is substantial authority for the tax treatment of an item only if the weight of the authorities supporting the treatment is substantial in relation to the weight of authorities supporting contrary treatment." It adds that "all authorities relevant to the tax treatment of an item, including the authorities contrary to the treatment, are taken into account." A memo that lists only support has not applied the test.

Paragraph (d)(3)(ii) gives the weighing rules a memo should track:

• Weight "depends on its relevance and persuasiveness, and the type of document providing the authority."
• A case or revenue ruling with some facts in common "is not particularly relevant if the authority is materially distinguishable on its facts."
• An authority "that merely states a conclusion ordinarily is less persuasive than one that reaches its conclusion by cogently relating the applicable law to pertinent facts."
• "A revenue ruling is accorded greater weight than a private letter ruling addressing the same issue."

Subject to the written-determination rules in paragraph (d)(3)(iv), paragraph (d)(3)(iii) lists what counts as authority: statutes, proposed, temporary and final regulations, revenue rulings and revenue procedures, court cases, committee reports, and private letter rulings and technical advice memoranda issued after October 31, 1976, among others. It also says that "conclusions reached in treatises, legal periodicals, legal opinions or opinions rendered by tax professionals are not authority." My reading is that a summary from a colleague, a newsletter or a software tool is in the same position. Cite what it cites. The hierarchy among these sources is covered in the regulations, rulings and PLRs post, and the court side in when a Tax Court opinion becomes precedent.

What Does a Conclusion Look Like? A Hypothetical

This is a fictional fact pattern, built only to show the form. A client asks whether a particular payment is deductible. The memo finds three authorities: the statutory text, which can be read in the client's favor; one private letter ruling issued in 2019 to an unrelated taxpayer approving the treatment; and a revenue ruling reaching the opposite result on similar facts.

The conclusion could read:

Conclusion. The deduction has a reasonable basis but, in my judgment, does not reach substantial authority. The only direct support is a private letter ruling issued to another taxpayer, and under Treas. Reg. 1.6662-4(d)(3)(ii) a revenue ruling is accorded greater weight than a private letter ruling on the same issue. If the position is taken, it should be disclosed, because under Treas. Reg. 1.6694-2(a)(1)(ii) an undisclosed position without substantial authority exposes the preparer to a penalty. The statutory text and the private letter ruling make the position more than merely arguable (Treas. Reg. 1.6662-3(b)(3)), and the stated facts do not distinguish the contrary revenue ruling, so substantial authority is not met. No tax shelter or reportable transaction is involved. The client has been told of the exposure.

Three things make that conclusion usable. It names the standard it meets and the one it misses. It says why, using the weighing rules. And it tells the reader what to do next. A conclusion that says only "the deduction should be allowed" fails all three.

What Makes a Memo Defensible Later?

A defensible memo shows effort and honesty about the weak points. Four habits do most of the work.

Date it when the research happens. A memo written after the notice arrives is an argument, not a record. Dating it is practice. The narrower rule is in Treas. Reg. 1.6694-2(d)(3): when a preparer uses the disclosure exception by advising the taxpayer of the penalty standards, the preparer "must also contemporaneously document the advice in the tax return preparer's files."

Never reason from the odds of an audit. Treas. Reg. 1.6662-4(d)(2) says "the possibility that a return will not be audited or, if audited, that an item will not be raised on audit, is not relevant." Section 10.37(a)(2)(vi) says the same for written advice. A sentence like "this rarely gets examined" belongs nowhere in the memo.

Rest the conclusion on the authorities. Under Treas. Reg. 1.6662-4(d)(3)(i), "the taxpayer's belief that there is substantial authority for the tax treatment of an item is not relevant," because the standard is objective. Show the authorities and their weight, then state which standard they meet. Your confidence is a conclusion drawn from the authorities, not a substitute for them.

Do not treat the memo as immunity. On reasonable cause, Treas. Reg. 1.6664-4(b)(1) says that "generally, the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper tax liability," and that reliance on the advice of a professional tax advisor "does not necessarily demonstrate reasonable cause and good faith." The same paragraph adds that such reliance "constitutes reasonable cause and good faith if, under all the circumstances, such reliance was reasonable and the taxpayer acted in good faith." The preparer has a separate exception in Treas. Reg. 1.6694-2(e). A good memo is evidence of effort. It does not end the inquiry. If a position is later examined, the Appeals post covers how the file gets used, and the malpractice documentation post covers the carrier's side.

If a new hire is writing these, the research playbook post gives the intake template that feeds the question and facts sections.

Tax Orator searches the IRS guidance, Treasury regulations and rulings in its database and returns citations. The analysis and the conclusion stay with the person who signs the return.