Share This Post

Why Tax Planners Need a Written Tax Plan

What if there was a straightforward way to improve profitability and reduce liability for your tax practice? Creating a written tax plan can separate the professionals from the amateurs. Anyone can come up with an idea and call it a tax plan. The real question is whether that idea will hold up under scrutiny. Will your client actually implement the plan and realize the savings? Will you as the tax planner be at risk as a result of rendering that advice? If so, how can you protect yourself legally? It all comes down to what you put in writing. 


A written tax plan is key to clearing up miscommunications, clarifying the scope of an engagement, providing you with legal protection, and ultimately improving your tax practice.

Clearing up miscommunications

Tax planners sometimes find that their clients have a different memory of their conversations, especially if they are explaining something complex. When it comes time to file the tax return, you want to have clear documentation of these conversations that you can point to if there are any disagreements on what you did or did not discuss.

Clarifying scope

A project can become significantly less profitable when a client does not share all relevant information for their tax return and then expects you to incorporate the missing information into their tax plan at the last minute. By defining the project scope in the written tax plan, you can clarify what you agreed to handle and what would require a separate engagement.

Providing legal protection

Whether you have a small practice or a larger company with ample resources, tax professionals are bound by the same legal requirements. These requirements are outlined in Circular 230—regulations that govern practice before the IRS. The IRS is concerned with practices in providing advice to clients and preparing or assisting in the preparation of a tax form. This can include representing someone in an audit or assisting with a response to an IRS notice.

Circular 230 requires tax professionals to document any tax advice they provide. Since email and even texting is a preferred method of communication for many business owners, every written communication must follow all legal requirements. Legal discipline can include censure, suspension, disbarment, monetary sanctions, and in egregious cases, even imprisonment. Many of the penalties listed use the term “willful,” meaning that a practitioner knew they had a legal duty and yet voluntarily and intentionally violated that duty. Depending on your license, you may be required to take ethics courses in order to renew your license. This makes it difficult to claim that you didn’t know the rules in question—and even more important to carefully compile a written tax plan.


A best practice is to begin with a tax research memo. The purpose of this memo is to find a solution to your client’s tax problems and to help you organize the facts, issues, and conclusions on the project. Having this document on file can make it easier to enlist your colleagues for help. Drafting a memo can also give you a headstart on the tax plan itself by outlining the relevant facts and laws you will use. 

A tax memo has three main parts:

  1. Brief introduction that acts as a summary of the facts, including specific dates and details like amounts, addresses, and names of businesses
  2. Supporting analysis
  3. Recommended actions

The process of conducting tax research for this memo can be broken down into six steps:

  1. Establish the facts

Facts are the most important part of the memo. You need to support where you are getting those facts, whether that is a past tax return, a client questionnaire, or a documented conversation with the client. Clarify whether the facts are provided by the client themselves or another source. For example, if you are working with a business owner who has directed you to their bookkeeper or their attorney, document the full name, date of the conversation, and how the information was relayed.

Since tax planning cases can suffer from long delays, depending on how much time lapses, you may need to renew the facts. In your summary, cite the dates and timing of any information you are waiting on and any changes to the facts over time.

  • Identify the issues

If you don’t recognize and ask the right questions, you can’t begin to solve the problem—or you may come up with the wrong solution. Always state the issues in question form. For example, you might ask: Is the taxpayer’s swimming pool deductible as a medical expense? If you focus on the question and avoid writing a complete citation when talking about the issue, chances are better that you will see everything that you need to see and not prematurely arrive at a conclusion. When it comes to stating the issues, provide enough detail so that the tax implication is clear without actually detailing the citation in the memo. 

  • Locate the authority

Tax authorities can be legislative, judicial, or administrative. The legislative branch focuses on the Internal Revenue Code. An administrative source would be the IRS and Treasury Department’s interpretations, including regulations and memos. The judicial branch includes federal court opinions from the US Tax Court or US Court of Appeals. 

  • Evaluate the authority

Ultimately, you are looking for a persuasive authority that provides insight into how the US Treasury might regard a particular transaction. A primary authority is generally enacted or issued by the government or a governmental agency. This includes tax law from legislative administrative and judicial sources. A secondary authority includes anything else—journal articles, textbooks, treatises, or newsletters. You typically do not want to rely on a secondary authority, but you may get useful ideas on how to make your case. 

  • Develop conclusions

Tax planners should deal in conclusions, not answers. The language to use in the written tax plan is “I recommend….” However, you do want to ensure your recommendations are explicit, so the client cannot come back later and claim you did not complete all the work you agreed on. If you provide a number of alternatives, you will want to note the pros and cons of each one.

  • Communicate the results

Once you have completed your documentation, you will verbally walk your client step-by-step through results. This is the most important part of the whole plan. Remember to create your presentation with your audience in mind, and use citations to provide proof for your conclusions.


Creating a tax plan for your client is an investment well worth making. Not only will organizing your information ensure that you and your client are on the same page, having ample documentation can protect you against liability in the event of an audit. 

AICTP has a comprehensive training and certification to learn the sophisticated tax strategies that can reduce your client’s taxes using every legal avenue they can qualify for. You will learn how to communicate complex information in an accessible way, to mitigate liability, and to protect their intellectual capital. We also offer Tru Tax Planner software to aid in the tax planning process. 

Find out how to amplify your tax planning expertise—contact us about becoming a Certified Tax Planner today.

Start saving on your taxes right now!

Reduce My Taxes!

LEARN about the tax saving strategies that cOULD work for you at MIDAS IQ! 

I Want To


More To Explore