How to structure a source-linked tax memo for a contested deduction

Reviewed 2026-09-15 · AI-assisted draft and editing; sources and limitations remain visible for independent review.

Answer: A memo on a deduction you expect to be challenged is judged by whether a second reader can re-run it. The written-advice requirements at 31 CFR 10.37(a)(2) read closer to an outline than they look: base the advice on reasonable factual and legal assumptions, reasonably consider all relevant facts you know or reasonably should know, use reasonable efforts to identify and ascertain the relevant facts, decline to rely on representations where reliance would be unreasonable, relate the applicable law and authorities to the facts, and do not take into account the possibility that a return will not be audited. Turn that into seven blocks: facts, issue, short answer, authority inventory, analysis, contrary authority, and open facts. Attach a verification line to every proposition recording the document, the pinpoint, and the date you read the text. Which documents may enter the authority inventory is itself a legal question rather than a style choice: 26 CFR 1.6662-4(d)(3)(iii) enumerates the authorities that count for the substantial-authority standard and says in terms that conclusions reached in treatises, legal periodicals and opinions rendered by tax professionals are not authority. The same paragraph provides that an authority stops being an authority to the extent it is overruled or modified. None of this decides the deduction. It decides whether the memo survives the person who reads it after you.

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Scope

Jurisdiction: United States — federal

Tax periods: Written advice rendered after 2014-06-12, Checked 2026-09-15

Assumptions

The memo concerns a federal income tax deduction whose treatment is genuinely contestable, not a clerical question.
The writer is a practitioner subject to the Treasury rules governing practice before the Internal Revenue Service.
The memo is research work product, not a return position already taken.

Exclusions

State and local tax analysis and any non-tax legal opinion.
Covered-opinion or promoter-specific rules for advice marketed to multiple taxpayers.
Firm quality-control policy, engagement letters, and privilege or work-product strategy.
The substantive law of any particular deduction.

The standard that already shapes the outline

The Treasury rules on written advice list what the practitioner must do rather than how the document should look, but the list maps onto document blocks. Section 10.37(a)(2) requires reasonable factual and legal assumptions including assumptions as to future events, reasonable consideration of all relevant facts and circumstances the practitioner knows or reasonably should know, reasonable efforts to identify and ascertain the relevant facts, a refusal to rely on representations, statements, findings or agreements of the taxpayer or any other person where reliance would be unreasonable, relating applicable law and authorities to facts, and disregarding the chance that the return will not be audited or that the matter will not be raised on audit. Section 10.37(e) makes the section applicable to written advice rendered after June 12, 2014.

Three further paragraphs matter for a contested issue. Section 10.37(a)(3) makes reliance on representations, statements, findings or agreements unreasonable where the practitioner knows or reasonably should know that one or more representations or assumptions underlying them are incorrect, incomplete or inconsistent. Section 10.37(b) permits reliance on the advice of another person only where the advice was reasonable and the reliance is in good faith considering all the facts and circumstances. Section 10.37(c)(1) says the Commissioner or delegate applies a reasonable practitioner standard, considering all facts and circumstances including the scope of the engagement and the type and specificity of the advice sought by the client. A memo that never states its assumptions, or that states them without saying who supplied them, gives that standard nothing to work with.

Blocks 1 to 3: facts, issue, short answer

Write the facts as facts with attribution. For each material fact, record its source: a document, a client statement, an assumption, or a fact you still need. The diligence rule at 31 CFR 10.22(a) applies to determining the correctness of written representations made to the Treasury Department and of those made to clients, so a fact that entered the memo by inference should not be sitting in the same paragraph as one that came from a signed document.

State the issue at the level of the disputed element, not the label. A deduction question rarely turns on whether an expense was incurred; it turns on one element such as the character of the payment, its relationship to a trade or business, the period, or a limitation. Then give a short answer of two or three sentences that names the element, the direction of the conclusion, and the fact that would reverse it. A reader who stops there should still know where the risk is.

Block 4: the authority inventory, before any analysis

List the authorities you will use before you argue from them, because the list is governed. For the substantial-authority standard, 26 CFR 1.6662-4(d)(3)(iii) enumerates the categories: applicable Code and other statutory provisions; proposed, temporary and final regulations construing them; revenue rulings and revenue procedures; tax treaties and official explanations; court cases; congressional intent in committee reports, joint explanatory statements and pre-enactment floor statements by a bill's managers; the Joint Committee on Taxation's General Explanations; private letter rulings and technical advice memoranda issued after October 31, 1976; actions on decisions and general counsel memoranda issued after March 12, 1981; Service information and press releases; and notices, announcements and other administrative pronouncements published in the Internal Revenue Bulletin.

The same paragraph draws the line the other way: conclusions reached in treatises, legal periodicals, legal opinions or opinions rendered by tax professionals are not authority, although the authorities underlying them may be. Keep secondary material in a separate research-trail section so that it never migrates into the inventory. The IRS primer on guidance types is useful here for labeling each entry correctly, since it separates a regulation from a revenue ruling, a revenue procedure, a private letter ruling, a technical advice memorandum, a notice and an announcement.

Block 5: analysis that relates law to these facts

The analysis block exists to satisfy one requirement: relating the applicable law and authorities to the facts. Practically, that means each paragraph should start from a specific provision or holding, restate the fact it attaches to, and say what the provision does with that fact. An analysis that recites a rule and then asserts a conclusion has skipped the step the standard names.

Weight is not a fixed ranking of document types. Under 26 CFR 1.6662-4(d)(3)(ii), weight depends on relevance and persuasiveness and on the type of document, an authority that merely states a conclusion is ordinarily less persuasive than one that cogently relates the law to the facts, a case or ruling that is materially distinguishable on its facts is not particularly relevant, and an older private letter ruling, technical advice memorandum, general counsel memorandum or action on decision generally gets less weight than a more recent one, with documents more than ten years old generally accorded very little weight. Say which of these considerations you applied.

Block 6: contrary authority, disposed of on the page

A contested memo that contains no contrary authority is usually incomplete rather than fortunate. Under 26 CFR 1.6662-4(d)(3)(i), all authorities relevant to the treatment, including those contrary to it, are taken into account, and the regulation states that there may be substantial authority for more than one position with respect to the same item. Write the contrary authority in its strongest form before answering it.

For each contrary item, record one of four dispositions and the reason: materially distinguishable on stated facts, of lesser weight for a reason the regulation recognizes, no longer an authority because it has been overruled or modified by a body with power to do so, or unresolved. The fourth disposition is a legitimate result. A memo that reports an unresolved conflict, with both sides pinpointed, is more useful than one that quietly picks a side.

Block 7: open facts, and the verification line

Close with what you do not know. List each open fact, who can supply it, and which way the conclusion moves if it comes back the other way. This is the block that makes the memo re-runnable months later, and it is the direct expression of the requirement to use reasonable efforts to identify and ascertain the relevant facts rather than to assume them.

Then give every material proposition a one-line verification record: the document title, the exact pinpoint such as a subsection or paragraph, the version or currency date of the text you read, and the date you read it. Where you relied on another person's work product, 31 CFR 10.22(b) presumes due diligence only if you used reasonable care in engaging, supervising, training and evaluating that person, taking proper account of the nature of the relationship, so name the reliance instead of absorbing it silently.

How this differs from the neighboring pages

This page builds a document. The sibling page Reviewing tax representations in a document: a verification checklist takes the opposite seat and audits a document someone else wrote. Where the authorities in your inventory point in opposite directions, the sibling page Weighing conflicting tax authorities: venue, nonacquiescence and later guidance sets out the triage.

A reasonable next step is to ask Taxterity a research question on the contested element and then use the Federal Tax Memo workflow to assemble the authority inventory, verifying each pinpoint and each currency date yourself before the memo leaves your desk.

Related research

Official sources

eCFR: 31 CFR 10.37 — Requirements for written advice — Section 10.37(a)(2)(i)-(vi); (a)(3) unreasonable reliance; (b) reliance on advice of others; (c)(1) reasonable practitioner standard; (e) applicable to advice rendered after June 12, 2014. eCFR title 31 as of 9/14/2026
eCFR: 31 CFR 10.22 — Diligence as to accuracy — Section 10.22(a)(1)-(3) diligence as to accuracy; (b) presumption of due diligence on another person's work product where reasonable care was used. eCFR title 31 as of 9/14/2026
eCFR: 26 CFR 1.6662-4 — Substantial understatement of income tax — Section 1.6662-4(d)(3)(iii): types of authority; treatises, periodicals and practitioner opinions are not authority; authority ceases to the extent overruled or modified. eCFR title 26 as of 9/14/2026
eCFR: 26 CFR 1.6662-4 — Substantial understatement of income tax — Section 1.6662-4(d)(3)(i), contrary authorities and more than one position; (d)(3)(ii), relevance, persuasiveness, document type and age. eCFR title 26 as of 9/14/2026
IRS: Understanding IRS guidance — a brief primer — Entries headed Regulation, Revenue Ruling, Revenue Procedure, Private Letter Ruling, Technical Advice Memorandum, Notice and Announcement

Limitations

This is a drafting architecture for research work product. It does not supply the substantive law of any deduction and does not conclude that any position is correct.
Regulatory text was read on the eCFR, which states that its content is authoritative but unofficial; title 31 was shown up to date as of 9/14/2026 and title 26 as of 9/14/2026. Confirm against the official Code of Federal Regulations or the Federal Register where official text is required.
The authority list in 26 CFR 1.6662-4(d)(3)(iii) is drawn for the substantial-authority standard under section 6662. Other standards, including the return-preparer standards, use their own tests, and a memo is not by itself a penalty defense.
Nothing here addresses whether a memo is privileged, discoverable, or appropriate to share outside the engagement.