Part 1: Mark's Tax Situation:

Mark is a high school teacher whose annual income from teaching is $30,000. He has always enjoyed tennis and his local pro urged him to turn professional. He subsequently begins working for the pro as an unpaid assistant and enters an apprenticeship program with the Professional Tennis Association of America (PTA). As an apprentice, he accumulates credits toward becoming a member of the PTA by taking approved classes, working as an assistant pro, and competing in pro tournaments. Mark expects to be approved as a full member of the PTA next year.

Although Mark continues to teach full-time, he goes to the tennis courts each day after school and practices after fulfilling his duties as an unpaid assistant. During the summer, he spends 12 to 15 hours each day at the tennis courts. In addition, he participates in as many PTA tournaments as he can work into his schedule.

Since deciding to turn pro, he has won money in tournaments every year. However, his expenses have exceeded his earnings by $5,000 to $10,000 per year. Therefore, he has reported losses from this activity. The IRS sent a notice of deficiency disallowing Mark's losses from the activity. Mark has come to you for advice.

Part 2: Jennifer's Tax Situation:

Jennifer was getting ready to go to a party and couldn't find her necklace. She remembered wearing it last weekend and taking it off at a bar to show to friends. Her memory of the remainder of that evening is foggy, but she hadn't seen or worn the necklace since then. It had belonged to her grandmother, and Jennifer thinks the necklace might be worth about $800. She has no idea how much her grandmother paid for it, and the necklace is not insured. Jennifer contacted the bar and filed a police report, but the necklace was not recovered. Jennifer has come to you for tax advice pertaining to her necklace.

Tax Research Memo Format:

Title your memo either generally, e.g., "Research Memorandum" or more specifically, e.g., "name of the client and the specific tax situation at hand"

Address your memo to the client file [include the standard Date, To, From, and Re headings]
Organize the body of your memo using the following subheadings:
Facts
Issue(s)
Conclusion(s)
Analysis/Discussion

The Facts section should clearly and concisely summarize all relevant facts that may affect the tax outcomes. In particular, include dollar amounts, dates, and names of all parties to transactions.

The Issues section should include numbered issues if there is more than one. Write each issue as a question. Include enough of the facts to give context to the question. For example, "How much, if any, of the $3,000 John Doe paid for attending a Real Estate conference cruise from Miami to Galveston can he deduct as a business education expense?" is better than "What are the tax consequences of these facts?"

The Conclusion(s) should be numbered to correspond to the Issue(s). State a definite conclusion, if possible, for each Issue. If a definite conclusion is not possible, for example, because you are researching alternative ways to plan a transaction, then state the conclusion that will be appropriate IF each alternative is taken.

The Analysis/Discussion section should be organized to correspond to each issue if there is more than one.

Each numbered subsection in the Analysis section should be organized as follows:

Summarize the relevant Code section. For example, if you are analyzing a deductibility of a business expense, begin by summarizing the rule in §162(a). Paraphrase, do not copy and paste either from the Code or from commentary.
Summarize any other relevant law sources such as regulations, Revenue Rulings, and judicial opinions, if any. The summary of the law-Code and other sources-can usually be done in a single paragraph unless the issues are very complicated or there is a large volume of sources to consider.

Include a second paragraph in which you Apply the law to the client's facts or planned transactions. This application should bridge between the law and your conclusion regarding the issue.

Citations: use correct citation format. Always cite the smallest subdivision of the Code or regulation that contains the language you are referring to, e.g., §1031(c)(1)(B) instead of §1031. DO NOT CITE COMMENTARY-commentary, such as the prose contents of RIA's Federal Income Tax Reporter, is not a primary source of the tax law and thus is not authoritative. Read and use commentary to aid your understanding of the law and as a prelude to investigating primary sources such as the Code, regs, rulings, and cases.