Clients describe situations in ordinary language. Practitioners have to convert those descriptions into tax facts before applying tax law.
The five-question practitioner test
- What exactly happened? Strip away the label and reconstruct the transaction, event, ownership, timing, payment flow, and documentation.
- Who are the actual parties? Identify the taxpayer, entity, owner, employee, trust, beneficiary, payor, and recipient before applying a rule.
- What is verified, and what is still assumed? Separate documents and records from client representations and practitioner inference.
- What tax rule attaches to those facts? Facts first. Rule second. Conclusion third.
- What changes if one material fact is different? Identify the hinge facts that would actually change the conclusion.
Practical takeaway: Before answering the tax question, make sure you have first answered the fact question.