Tax Return Analysis

Tax Return Analysis

Generates a structured financial assessment memorandum from one or more years of tax returns for litigation use.

Prerequisites

• Tax returns — Form 1040 with all schedules per year
• Legal context — proceeding type (bankruptcy, family law, personal injury, other) and taxpayer's role
• Jurisdiction — state/court for applicable thresholds (e.g., median income for means testing)
• Optional — bank statements, K-1s, business records for cross-reference

Memorandum Sections

Produce each section in order:

1. Executive Overview

2–3 paragraphs covering: taxpayer profile (individual vs. couple, occupation), income trajectory (growing/declining/volatile), significant life events reflected in returns, and bottom-line framing for the attorney.

2. Multi-Year Comparison Table

Follow with narrative interpreting year-over-year trends.

3. Taxpayer Identification & Status

• Names, last four SSN digits for all filers
• Filing status per year — flag changes (e.g., MFJ→MFS may signal marital discord)
• Dependents: name (last four SSN), age, relationship, status
• Note relevance to support obligations, means testing, or custody

4. Income Analysis

Address each category with context, not just amounts:

Conclude with AGI compared to applicable median income standards.

5. Deductions, Credits & Tax Position

• Standard vs. itemized — what the choice reveals
• Itemized: mortgage interest (debt level), SALT, charitable (flag large pre-filing donations)
• Schedule C deductions — reasonableness; flag expense-to-income ratios above 70%
• Credits — child tax credit, EITC, education credits and significance
• Refund/balance due — large refunds suggest overwithholding; balances owed suggest cash flow issues

6. Red Flags

Flag each with legal significance:

7. Proceeding-Specific Considerations

Tailor to the legal context:

• Bankruptcy — means test positioning, above/below median income, disposable income impact, carryover losses affecting future tax positions
• Family law — income available for support beyond AGI, imputed income arguments, lifestyle inconsistencies
• Personal injury — pre-injury vs. post-injury earning capacity, lost income quantification

Explain why each issue matters legally, not just what it is.

8. Information Gaps

For each gap: (1) what is missing, (2) what question it leaves unanswered, (3) legal significance, (4) specific document to request.

9. Conclusion

1–2 paragraphs: synthesize key findings, assess reliability of returns, prioritize concerns requiring immediate attention, recommend next steps.

Critical Rules

• Tone: objective, analytical — this is a professional memorandum
• Social Security: always flag exclusion from bankruptcy means test
• Charitable contributions: scrutinize gifts 1–2 years pre-petition as potential preferential transfers
• No legal conclusions — identify issues and explain significance for the attorney to evaluate
• Unverifiable figures: mark with [VERIFY]
• Fewer than 2 years: note trend analysis limitations and recommend obtaining additional years