---
name: us-tax-law-navigator
description: Use this skill when a request involves US federal or state tax issue-spotting, entity-treatment comparison, or cross-border reporting exposure. It produces an organised, well-cited issue map for a licensed CPA, tax attorney, or Enrolled Agent to review — never a filing position.
---

# US Tax Law Navigator

> **What this is** — a repeatable, AI-assisted working method for doing the structured legwork on a request in US federal & state tax issue-spotting and document-preparation support, often beyond one's own formal training, and producing a rigorous first-pass draft and issue map quickly, with a qualified licensed CPA, tax attorney, or Enrolled Agent kept in the loop.
> **What this is NOT** — **not tax advice, and not a substitute for a licensed CPA, tax attorney, or Enrolled Agent.** **This does not recommend, and must not be relied on for, any filing position, dollar amount, or election.** US tax law is fact-specific and changes frequently; every finding, position, or document is a draft that requires professional review before it is relied on, filed, signed, or acted on. No advisor-client relationship is created.
> **Circular 230 notice** — Written advice on federal tax matters is governed by **Treasury Department Circular No. 230**. Nothing here is a "covered opinion," a reliance opinion, or marketed tax advice; it is issue-spotting and organisation only, and cannot be used to avoid penalties. Any advice a taxpayer intends to rely on must come from a qualified practitioner.

## When to use this
- A business is choosing an entity type and someone needs the federal-vs-state tax trade-offs laid out before the CPA meeting.
- A stakeholder asks "what deductions or credits might apply here?" and wants them organised with the documentation each requires.
- Someone with foreign income, accounts, or operations needs the cross-border reporting obligations issue-spotted.
- A due-diligence, RFP, or board packet asks for a tax-issue summary or a document-prep checklist.
- The team needs raw tax facts assembled and cited so the professional spends time deciding, not gathering.

## Operating principle
AI and a repeatable structure map the issues, assemble the records, and organise the questions; a licensed CPA, tax attorney, or Enrolled Agent decides every position. The value is a faster, better-organised, well-cited starting point for the expert — never the final word, and never a filing position, dollar figure, or election recommendation.

## Capability 1 — Federal / state tax comparison
**Goal.** Lay out how federal and state rules diverge for a given situation so the professional can choose — not decide the treatment.
**Inputs.** Entity facts, states of formation and operation, activity description, ownership structure, prior returns if available.
**Method.**
1. Identify the **federal treatment** under the **Internal Revenue Code (Title 26)** for the entity type in question.
2. Lay out the **entity-type options** and their federal defaults: **C-corp** (Subchapter C), **S-corp** (Subchapter S, Form 2553 election), **partnership** (Subchapter K), **sole proprietorship** (Schedule C), and **LLC** default/elective classification (the "check-the-box" regime, Form 8832).
3. For each relevant state, note **conformity vs decoupling** from the IRC (rolling, static, or selective conformity) and call out common decoupled items.
4. Surface **state nexus** concepts (physical presence, economic nexus, factor-presence) and **apportionment** concepts (sales/payroll/property factors, single-sales-factor states) as issues to resolve.
5. Assemble a side-by-side matrix: item, federal treatment, state treatment, divergence, open question.
6. Flag every item where facts are missing or the answer is state-specific and fast-changing.
**Output.** A federal-vs-state comparison matrix and an entity-options summary, each cell sourced or flagged.
**Quality bar (what the professional receives).** Entity options and their federal defaults are laid out; state conformity and nexus/apportionment appear as issues, not conclusions; no election or entity choice is recommended.

## Capability 2 — Deduction & credit organisation
**Goal.** Organise the deductions and credits that *may* be in scope and the substantiation each requires — strictly illustrative, never a claim.
**Inputs.** Description of the activity, expense categories, industry, prior-year treatment if known.
**Method.**
1. Build a **candidate list** of commonly relevant deductions and credits for the stated facts, labelled clearly as "for professional evaluation."
2. For each, note the **general documentation / substantiation** it typically requires (contemporaneous records, receipts, logs, forms) so records can be gathered.
3. Note **timing considerations** in the abstract (cash vs accrual, capitalisation vs current deduction, when an item is generally recognised) without recommending a period.
4. Flag items with heightened substantiation or that are audit-sensitive as a general matter.
5. Assemble a checklist: item, what it generally requires, records status (have / need), open question for the professional.
6. **Do not** compute amounts, apply limitations to the taxpayer's numbers, or recommend claiming anything.
**Output.** An illustrative deduction/credit checklist with substantiation requirements and a records-gap list.
**Quality bar (what the professional receives).** Every item is labelled illustrative; documentation requirements are listed so evidence can be assembled; **no specific-dollar amounts, limitation calculations, or claim recommendations appear** — the professional decides what is actually claimable.

## Capability 3 — Cross-border tax risk assessment
**Goal.** Issue-spot the cross-border reporting and exposure areas so the professional can scope the work — not conclude on any of them.
**Inputs.** Residency/citizenship facts, foreign income sources, foreign accounts and assets, foreign entity involvement, related-party transactions.
**Method.**
1. Spot potential **treaty relief**: whether a US income tax treaty may apply and which articles are worth the professional's review.
2. Spot **foreign tax credit** issues at a concept level (**Form 1116** for individuals, **Form 1118** for corporations) — as an area to analyse, not a computed credit.
3. Spot **foreign account reporting**: **FBAR (FinCEN Form 114)** thresholds and **FATCA (Form 8938)** reporting, and flag that thresholds and rules differ between the two.
4. Spot **information-return** exposure for foreign entities/transfers as a general area (e.g., Forms 5471/5472/8865 by concept) for the professional to confirm.
5. Spot **permanent-establishment** exposure where activities may create a taxable presence abroad, referencing PE concepts.
6. Spot **transfer-pricing** exposure for related-party dealings, referencing the arm's-length principle and OECD/Section 482 concepts.
7. Emphasise that penalties for missed foreign-reporting can be severe, so anything uncertain is escalated, not resolved here.
**Output.** A cross-border issue register: area, why it may apply, relevant form/concept, and open question for the professional.
**Quality bar (what the professional receives).** Each cross-border area is flagged with its relevant form or concept and framed as an issue to analyse; nothing is concluded, computed, or represented as a filing obligation determination.

## Worked example (illustrative)
*Illustrative only — plainly hypothetical facts.* A US-citizen founder runs a single-member LLC that took on a co-owner and now earns consulting income from a client in Germany, holding €90,000 in a German bank account. The first-pass draft would: (1) note the LLC's default federal classification changed from disregarded to partnership on adding an owner, and lay out the S-corp election as an *option* for the CPA to weigh, with a note on the operating state's conformity; (2) list *candidate* deductions (home office, software, professional fees) with the records each generally needs — no amounts; (3) issue-spot a possible **US-Germany treaty** position, **foreign tax credit** via **Form 1116**, likely **FBAR (FinCEN 114)** and possible **FATCA (Form 8938)** filings given the account, and note **PE/transfer-pricing** are unlikely but worth a quick professional check. Every item is marked draft. The CPA or tax attorney decides.

## Guardrails & escalation
- **Escalate immediately to a licensed professional:** any foreign account or asset (FBAR/FATCA exposure), any potential penalty situation, amended or late filings, any entity election with a deadline, ownership changes, and anything where the taxpayer intends to rely on the answer.
- **Never** compute a tax liability for filing, recommend a filing position, recommend a specific dollar deduction/credit, sign or file a return, or present any of this as tax advice or a covered opinion under **Circular 230**.
- **Flag uncertainty explicitly:** every missing fact, state-specific rule, and unresolved position is listed in an "open questions for the tax professional" section rather than silently resolved. Because US tax law changes frequently, note that all citations must be re-verified against current authority.

## References & sources
- **Internal Revenue Code (Title 26, U.S. Code)** — including Subchapters C, K, S; check-the-box regulations (Form 8832); S-election (Form 2553).
- **Treasury Department Circular No. 230** — regulations governing practice before the IRS and written tax advice.
- **FBAR** — **FinCEN Form 114** (Report of Foreign Bank and Financial Accounts).
- **FATCA** — **Form 8938** (Statement of Specified Foreign Financial Assets).
- **Foreign Tax Credit** — **Form 1116** (individuals), **Form 1118** (corporations).
- **Transfer pricing** — IRC **Section 482** and the **OECD Model Tax Convention** / OECD Transfer Pricing Guidelines (arm's-length principle) concepts.
- IRS instructions, Revenue Rulings, and applicable **state** revenue-department guidance, current as of 2025. US tax law is fact-specific and changes frequently; verify every provision against current authority before reliance.

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*Part of Ed Chen's AI skill set — how one designer absorbs unfamiliar, regulated, C-level work quickly by pairing AI with rigor and professional review. https://edwson.com*