Legal Definitions - Technical Advice Memorandum

A Technical Advice Memorandum (TAM) is a written legal opinion issued by the national office of the Internal Revenue Service (IRS). It provides authoritative guidance on how complex or novel tax law issues apply to a specific set of facts, usually in the context of an ongoing audit or examination.

IRS field offices typically request a TAM when they encounter an unusual or difficult tax question that isn't clearly addressed by existing statutes, regulations, or rulings, often at the urging of the taxpayer involved. The TAM helps ensure consistent application of tax law across similar situations.

• Example 1: A multinational technology company is undergoing an IRS audit. The audit focuses on how to properly value and tax a new type of digital asset it created and uses internally for its operations, an issue for which there is no clear precedent in existing tax law or regulations.

  Explanation: The IRS auditor, recognizing the complexity and novelty of taxing this unique digital asset, requests a TAM from the national office. The TAM would provide the IRS's official interpretation on how to apply current tax principles to this specific valuation and taxation scenario, guiding the resolution of the audit for that particular company.

• Example 2: A small architectural firm specializing in sustainable building practices claims a significant tax credit for "eco-innovation research and development" costs. During an audit, the local IRS agent is unsure if these specific costs qualify under existing R&D tax credit regulations, as the firm's activities blend traditional architecture with experimental green technologies in a way not explicitly covered.

  Explanation: To resolve this ambiguity, the IRS agent, possibly at the firm's suggestion, requests a TAM. The national office would then analyze the firm's specific activities and provide a definitive ruling on whether the claimed costs meet the legal requirements for the R&D tax credit, ensuring a consistent application of tax law across similar innovative businesses.

• Example 3: An individual taxpayer receives a substantial payment from a foreign government as compensation for a historical land claim, an event that is extremely rare and has no direct parallel in U.S. tax treaties or domestic law regarding its taxability.

  Explanation: When the taxpayer's return is examined, the local IRS office is faced with a unique income source that doesn't fit neatly into standard categories. To determine the correct tax treatment, the IRS office would seek a TAM from the national office, which would provide an official interpretation on how U.S. tax law applies to this specific, unusual foreign compensation.