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Prentice
Hall's Federal Taxation 2012: Corporations, 25e (Pope/Anderson/Kramer)
Chapter C1 Tax
Research
1) Tax planning is not an integral part of
open-fact situations.
Answer:
FALSE
Page Ref.:
C:1-2
2) The Internal Revenue Code of 1986
contains the current version of the tax law.
Answer:
TRUE
Page Ref.:
C:1-8
3) Regulations issued prior to the latest
tax legislation dealing with a specific Code section are still effective to the
extent they do not conflict with the provisions in the new legislation.
Answer:
TRUE
Page Ref.:
C:1-9
4) Final regulations have almost the same
legislative weight as the IRC.
Answer:
TRUE
Page Ref.:
C:1-10
5) A revenue ruling is issued by the
Internal Revenue Service only in response to a verbal inquiry by a taxpayer.
Answer:
FALSE
Page Ref.:
C:1-12
6) Taxpayers must pay the disputed tax
prior to filing a case with the Tax Court.
Answer:
FALSE
Page Ref.:
C:1-14
7) Appeals from the U.S. Tax Court are to
the Court of Appeals for the Federal Circuit.
Answer:
FALSE
Page Ref.:
C:10-14
8) Appeals from the Court of Appeals go to
the Supreme Court under a writ of certiorari. The Supreme Court decides whether
or not they will hear the case.
Answer:
TRUE
Page Ref.:
C:1-14
9) A citator enables tax researchers to
locate authorities (e.g., cases and IRS pronouncements) that have cited a
particular case.
Answer:
TRUE
Page Ref.:
C:1-26
10) According to the Statements on
Standards for Tax Services , CPAs must verify all tax return information
submitted by reviewing client documentation.
Answer:
FALSE
Page
Ref.: C:1-27
11) When a taxpayer contacts a tax advisor
requesting advice as to the most advantageous way to dispose of a stock, the
tax advisor is faced with
A) a restricted-fact situation.
B) a closed-fact situation.
C) an open-fact situation.
D) a recognized-fact situation.
Answer:
C
Page Ref.:
C:1-2
12) Investigation of a tax problem that
involves a closed-fact situation means that
A) the client's transactions have already
occurred and the tax questions must now be resolved.
B) the client's tax return has yet to be
filed.
C) future events may be planned and
controlled.
D) research is primarily concerned with
applying the law to the facts as they exist.
Answer:
A
Page Ref.:
C:1-2
13) Identify which of the following
statements is true.
A) Tax planning is an integral part of
both closed-fact situations and open-fact situations.
B) The first step in conducting tax
research is to clearly understand the issues involved.
C) The Statements on Standards for Tax
Services recommend that only written tax advice be provided to the client
in all situations.
D) All of the above are false.
Answer:
C
Page Ref.:
C:1-5
14) The term "tax law" includes
A) legislation.
B) treasury regulations.
C) judicial decisions.
D) all of the above
Answer:
D
Page Ref.:
C:1-7
15) Identify which of the following
statements is false.
A) When tax advisors speak of the
"tax law," they usually have in mind just the Internal Revenue Code.
B) Members from both the House and the
Senate are on the Conference Committee.
C) Records of committee hearings are
helpful in determining Congressional intent.
D) All of the above are false.
Answer:
A
Page
Ref.: C:1-7
16) The committee that is responsible for
holding hearings on tax legislation for the House of Representatives is the
A) Finance Committee.
B) Joint Committee on Taxation.
C) Conference Committee.
D) Ways and Means Committee.
Answer:
D
Page Ref.:
C:1-7
17) A tax bill introduced in the House of
Representatives is then
A) referred to the House Ways and Means
Committee for hearings and approval.
B) referred to the entire House for
hearings.
C) voted upon by the entire House.
D) forwarded to the Senate Finance
Committee for consideration.
Answer:
A
Page Ref.:
C:1-7
18) The Senate equivalent of the House
Ways and Means Committee is the Senate
A) Finance Committee.
B) Ways and Means Committee.
C) Tax Committee.
D) Joint Conference Committee.
Answer:
A
Page Ref.:
C:1-7
19) Which of the following steps, related
to a tax bill, occurs first?
A) signature or veto by the President of
the United States
B) consideration by the Senate Finance
Committee
C) consideration by the entire Senate
D) consideration by the House Ways and
Means Committee
Answer:
D
Page Ref.:
C:1-7
20) When the House and Senate versions of
a tax bill are not in agreement, the disagreements are resolved by the
A) Ways and Means Committee.
B) Mediation Committee.
C) Revenue Committee.
D) Conference Committee.
Answer:
D
Page Ref.:
C:1-7
21) Identify which of the following
statements is true.
A) Paragraph references are most commonly
used when citing or referring to the tax statutes.
B) Title 26 of the United States Code and
the Internal Revenue Code of 1986 are synonymous.
C) Before 1939, tax statutes were codified
or compiled into one document.
D) The Internal Revenue Code contains
chapters, which are further subdivided into titles.
Answer:
B
Page
Ref.: C:1-8
22) Title 26 of the U.S. Code includes
A) income tax legislation only.
B) gift tax and estate tax legislation
only.
C) alcohol and tobacco tax legislation
only.
D) all of the tax legislation mentioned
above.
Answer:
D
Page Ref.:
C:1-8
23) The tax statutes with the popular name
"The Internal Revenue Code of 1986" are contained in which Title of
the Code?
A) 20
B) 25
C) 26
D) 301
Answer:
C
Page Ref.:
C:1-8
24) Which of the following statements
regarding proposed regulations is not correct?
A) Proposed regulations expire after three
years.
B) Practitioners and other interested
parties may comment on proposed regulations.
C) Proposed and temporary regulations are
generally issued simultaneously.
D) Proposed regulations do not provide any
insight into the IRS's interpretation of the tax law.
Answer:
D
Page Ref.:
C:1-9
25) Final regulations can take effect on
any of the following dates except
A) the effective date of the statutory
language they interpret, provided they are issued within 18 months of the date
of the change to the statute.
B) the date on which final regulations
were proposed.
C) the date on which related temporary regulations
were first published in the Federal Register.
D) the date on which they were issued in
final form.
Answer:
A
Page Ref.:
C:1-10
26) When Congress passes a statute with
language such as, "The Secretary shall prescribe such regulations as he may
deem necessary," the regulations ultimately issued for that statute are
A) congressional regulations.
B) statutory regulations.
C) interpretative regulations.
D) legislative regulations.
Answer:
D
Page
Ref.: C:1-10
27) Regulations are
A) equal in authority to legislation.
B) equal in authority to legislation if
statutory.
C) presumed to be valid and to have almost
the same weight as the IRC.
D) equal in authority to legislation if
interpretative.
Answer:
C
Page Ref.:
C:1-10
28) Identify which of the following
statements is true.
A) If regulations are issued prior to the
latest tax legislation dealing with a specific Code section, the regulations
are no longer effective to the extent they conflict with the provisions in the
new legislation.
B) Legislative regulations are more likely
to be invalidated by the courts than are interpretative regulations.
C) Regulations have more authoritative
weight than tax statues.
D) All of the above are false.
Answer:
A
Page Ref.:
C:1-9
29) Identify which of the following
statements is false.
A) The number "5" in the
citation Reg. Sec. 1.166-5 refers to the paragraph number.
B) The Cumulative Bulletin is
issued semiannually while the Internal Revenue Bulletin is issued
weekly.
C) The citation Rev. Rul. 2006-5, I.R.B. 2006-1,
33, indicates that the revenue ruling can be found on page 33 of the 1st I.R.B.
for 2006.
D) All of the above are false.
Answer:
A
Page Ref.:
C:1-11
30) The number appearing immediately
following the decimal place in a regulation citation refers to the
A) general subject matter of the
regulation.
B) code section being interpreted.
C) sequential number of the regulation.
D) subsection of the Code section being
interpreted.
Answer:
B
Page Ref.:
C:1-11
31) The citation "Reg. Sec.
1.199-2" refers to
A) the first regulation issued in 1999.
B) the second regulation issued in 1999.
C) a regulation that interprets Code
Section 199.
D) a regulation that can be found on page
199.
Answer:
C
Page
Ref.: C:1-11
32) Which regulation deals with Code
Section 165?
A) Reg. Sec. 1.165-5
B) Reg. Sec. 165.183-5
C) Reg. Sec. 1.5-165
D) Reg. Sec. 165-5
Answer:
A
Page Ref.:
C:1-11
33) Which regulation deals with the gift
tax?
A) Reg. Sec. 1.165-5
B) Reg. Sec. 20.2014-5
C) Reg. Sec. 25.2518-5
D) Reg. Sec. 301.7002-5
Answer:
C
Page Ref.:
C:1-11
34) Which of the following best describes
the weight of a revenue ruling?
A) Revenue rulings carry more weight than
regulations.
B) Revenue rulings carry more weight than
federal court decisions.
C) Regulations carry more weight than
revenue rulings.
D) Revenue rulings should never be used as
authority since they only apply to the taxpayer requesting the ruling.
Answer:
C
Page Ref.:
C:1-12
35) The citation "Rev. Rul. 2006-8,
2006-1 C .B. 541" refers to
A) the eighth ruling of 2006 found on page
541 in Vol. 1 of the 2006
Cumulative Bulletin.
B) the eighth ruling of 2006 found on page
541 in the 2006 volume of the
Cumulative Bulletin.
C) the 541st ruling of 2006 found on page
eight in Vol. 1 of the 2006 Cumulative Bulletin.
D) the 1st ruling of 2006 found on page 541 in the 2006 volume of the Cumulative
Bulletin.
Answer:
A
Page Ref.:
C:1-12
36) Which of the following documents is
issued by the IRS to a specific taxpayer?
A) regulation
B) revenue procedure
C) letter ruling
D) information release
Answer:
C
Page Ref.:
C:1-12
37) Identify which of the following
statements is false.
A) A revenue ruling is issued by the
Internal Revenue Service only in response to a written inquiry by a taxpayer.
B) Rev. Proc. 2006-19 is a revenue
procedure that was published in 2006.
C) The citation Ltr. Rul. 200611075
usually indicates the ruling was made public in the 11th week of 2006.
D) A technical advice memorandum is made
available as a letter ruling.
Answer:
A
Page
Ref.: C:1-11 through C:1-13
38) Identify which of the following
statements is false.
A) Letter rulings are not published by the
U.S. Government Printing Office.
B) Technical advice memoranda are issued
by the Internal Revenue Service's National Office to provide an answer to a
technical question that arises in an audit.
C) The citation Ann. 2006-12, I.R.B.
2006-51, 22 refers to an annotation of an Internal Revenue Service release.
D) Announcements are more technical than
information releases.
Answer:
C
Page Ref.:
C:1-13
39) A Technical Advice Memorandum is
usually
A) an internal IRS document describing
alternative legislative proposals.
B) part of a Tax Court decision.
C) requested by the taxpayer before
entering into a taxable transaction.
D) issued by the national office in
response to an audit request.
Answer:
D
Page Ref.:
C:1-13
40) Which of the following courts is not
a trial court for tax cases?
A) U.S. Bankruptcy Court
B) U.S. District Court
C) U.S. Tax Court
D) U.S. Court of Federal Claims
Answer:
A
Page Ref.:
C:1-14
41) The taxpayer need not pay the
disputed tax in advance when the suit is initiated in
A) U.S. Court of Federal Claims.
B) U.S. Tax Court.
C) U.S. District Court.
D) both A and B.
Answer:
B
Page Ref.:
C:1-14
42) If the U.S. Supreme Court decides to
hear an appeal a tax case, it will grant a
A) writ of appeal.
B) writ of certiorari.
C) writ of detainer.
D) writ of habeas corpus.
Answer:
B
Page Ref.:
C:1-14
43) Tax Court memorandum decisions
A) cannot be appealed.
B) are not published.
C) have less precedential value than
regular decisions.
D) usually deal with factual variations of
issues litigated previously.
Answer:
D
Page
Ref.: C:1-15 and C:1-17
44) George's case was handled under the
"small tax case procedure." He does not agree with the findings of
the Tax Court. He would like to appeal the decision. Which one of the following
is true?
A) There is no appeal.
B) He can appeal the case, but only if the
amount of tax involved is greater than $5,000.
C) He would appeal first to the U.S. Court
of Appeals for the Federal Circuit.
D) He would appeal first to the U.S. Court
of Federal Claims.
Answer:
A
Page Ref.:
C:1-17
45) Identify which of the following
statements is false.
A) The acquiescence policy was adopted by
the U.S. Tax Court to permit litigating parties to agree on the exact amount of
the tax due.
B) Letter rulings are binding only with
respect to the taxpayer requesting the ruling.
C) The small cases procedure of the U.S.
Tax Court allows a less formal hearing but provides for no appeal.
D) The IRS may retroactively revoke an
acquiescence.
Answer:
A
Page Ref.:
C:1-17
46) The phrase "Entered under Rule
155" indicates that
A) the computation of the exact amount of
the tax deficiency has been left to the litigating parties.
B) the court has not reached a decision
concerning the appropriate tax treatment of an issue.
C) the parties have agreed not to appeal
the decision.
D) only one Tax Court judge reviewed the
case.
Answer:
A
Page Ref.:
C:1-17
47) Small case procedures of the U.S. Tax
Court requires that the amount in dispute not exceed
A) $5,000.
B) $10,000.
C) $50,000.
D) $100,000.
Answer:
C
Page Ref.:
C:1-17
48) The acquiescence policy of the IRS
extends to the
A) U.S. Supreme Court decisions.
B) U.S. Tax Court regular decisions.
C) U.S. District Court decisions.
D) both B and C
Answer:
D
Page
Ref.: C:1-17
49) A tax case cannot be appealed
when initiated in the
A) U.S. Court of Federal Claims.
B) U.S. Tax Court.
C) U.S. Tax Court using the small case
procedures.
D) none of the above
Answer:
C
Page Ref.:
C:1-17
50) Identify which of the following
statements is false.
A) Regular and memorandum decisions of the
Tax Court are published by the government in the Tax Court of the United
States Reports.
B) The citation Cristofani, 97 T.C.
74 (1991) indicates that the decision is a regular decision of the Tax Court.
C) The citation Estate of Newhouse,
94 T.C. 193 (1990), nonacq. 1991-1 C.B. 1 indicates that the IRS did not
formally disagree with this 1990 Tax Court decision until 1991.
D) The Board of Tax Appeals preceded the
Tax Court.
Answer:
A
Page Ref.:
C:1-17
51) Which of the following citations
denotes a regular decision of the Tax Court?
A) 41 TCM 1272
B) 35 T.C. 1083 (2003)
C) 39 AFTR 2d 77-640
D) all of the above
Answer:
B
Page Ref.:
C:1-17
52) You have the following citation: Joel
Munro, 92 T.C. 71 (1989). Which of the following statements is true?
A) The taxpayer, Joel Munro, won the case
because there is no reference to the IRS.
B) The case appears on page 71 in Volume
92 of the official Tax Court of the United States Reports and the case
was decided in 1989.
C) This citation refers to a taxpayer
conference between the IRS and the taxpayer.
D) The case was tried in 1989 and was
appealed in 1992.
Answer:
B
Page Ref.:
C:1-17
53) You need to locate a recent tax case
that was tried in a Federal district court. The decision is an
"unreported" decision. This means the decision was
A) not published in the Federal
Supplement.
B) not published in American Federal Tax
Reports.
C) not published in United States Tax
Cases.
D) settled out of court.
Answer:
A
Page
Ref.: C:1-18
54) A jury trial is permitted in the
A) U.S. District Court.
B) U.S. Tax Court.
C) U.S. Court of Federal Claims.
D) U.S. Tax Court when the small case procedures
are used.
Answer:
A
Page Ref.:
C:1-18
55) Which of the following citations is
the primary citation for a U.S. District Court case?
A) 43 AFTR 2d 79-1023
B) 79-1 USTC &9323
C) 55 F.2d 930
D) 40 F.Supp. 453
Answer:
D
Page Ref.:
C:1-19
56) Identify which of the following
statements is true.
A) The citation, 41 TCM 1272, refers to a
Tax Court regular decision published by Commerce Clearing House.
B) The Federal Supplement contains
only tax cases.
C) The American Federal Tax Reports
contain only tax cases.
D) All of the above are false.
Answer:
C
Page Ref.:
C:1-19
57) Identify which of the following
statements is true.
A) The U.S. Court of Federal Claims hears
cases only in Washington, D.C.
B) Each state has at least one U.S.
District Court.
C) Federal district court decisions and
federal courts of appeals decisions are not printed by the U.S. Government
Printing Office.
D) All of the above are false.
Answer:
B
Page Ref.:
C:1-18
58) The primary citation for a federal
circuit court of appeals case would be
A) 40 AFTR 2d 78-1234.
B) 44 F.Supp. 403.
C) 3 F.3d 134.
D) 79-2 USTC & 9693.
Answer:
C
Page Ref.:
C:1-20
59) Identify which of the following
statements is false.
A) Citations to the AFTR and the USTC are
referred to as secondary citations.
B) A circuit court of appeals must follow
the opinion of another circuit court of appeals if the latter appeals court has
previously ruled on the tax issue.
C) A U.S. Supreme Court opinion in a tax
matter has the same status as Congressional tax legislation.
D) Circuit Court decisions are reported in
the Federal Reporter.
Answer:
B
Page
Ref.: C:1-20
60) Identify which of the following
statements is false.
A) The U.S. Tax Court must follow the
previous decisions of the U.S. District Court for the district in which the
taxpayer lives.
B) The U.S. Tax Court follows the previous
decisions of the U.S. Court of Appeals to which the tax matter is appealable.
C) The opportunity for "forum
shopping" occurs when different precedents on the same point exist.
D) The U. S. Tax Court may intentionally
issue conflicting decisions.
Answer:
A
Page Ref.:
C:1-21
61) When the Tax Court follows the opinion
of the circuit court of appeals to which the case is appealable, the court is
following the
A) Golsen rule.
B) Acquiescence rule.
C) Forum shopping rule.
D) Conformity rule.
Answer:
A
Page Ref.:
C:1-21
62) The Tax Court departs from its general
policy of ruling uniformly for all taxpayers where
A) a U.S. District Court has ruled
differently on the issue in the taxpayer's jurisdiction.
B) the U.S. Court of Federal Claims has
ruled differently on the issue in the taxpayer's jurisdiction.
C) the Court of Appeals in the circuit to
which the Tax Court decision would be appealed has ruled differently on the
issue.
D) the IRS has indicated that it will
acquiesce.
Answer:
C
Page Ref.:
C:1-21
63) Identify which of the following
statements is false.
A) When a court opinion discusses facts
and issues on which the court does not rule, the comments are called dicta.
B) Dicta in a court opinion has no
influence on other tax proceedings.
C) Published articles and tax services are
examples of secondary sources of authority.
D) Dicta are not authoritative.
Answer:
B
Page Ref.:
C:1-23
64) When a court discusses issues not
raised by the facts, the comments
A) are excluded from the formal court
opinion.
B) may be referenced by the parties in
other cases having the same facts.
C) are not dicta.
D) will cause the court's decision to be
declared invalid.
Answer:
B
Page
Ref.: C:1-23
65) Which of the following is a true
statement regarding primary authority of tax law?
A) Articles in The Journal of Taxation
are viewed as primary authority.
B) Primary authority includes the Code, as
well as administrative and judicial interpretations.
C) The BNA Daily Tax Reporter is a source
of primary tax authority.
D) Tax services are sources of primary tax
authority.
Answer:
B
Page Ref.:
C:1-24
66) Which of the following is secondary
authority?
A) Internal Revenue Code
B) Treasury Regulations
C) RIA and CCH tax services
D) Revenue Ruling
Answer:
C
Page Ref.:
C:1-24
67) Identify which of the following
statements is true.
A) RIA United States Tax Reporter and CCH
Standard Federal Tax Reporter are topical tax services.
B) An annotated tax service is organized
by broad subject areas.
C) Annotations are summaries of IRS
pronouncements and court opinions.
D) All of the above are false.
Answer:
A
Page Ref.:
C:1-25
68) Internet versions of topical tax
services include
A) Code and Regulations.
B) Revenue rulings, letter rulings, and
revenue procedures.
C) Court cases involving tax issues.
D) All of the above.
Answer:
D
Page Ref.:
C:1-26
69) Which tax service is usually deemed to
be the most authoritative?
A) United States Tax Reporter
B) Standard Federal Tax Reporter
C) Federal Tax Coordinator 2d
D) All are equally authoritative.
Answer:
D
Page Ref.:
C:1-25
70) Assume that you want to read a
description of a particular area of the law, along with one or more
illustrations of how that law is applied.You will not find that type of
material in
A) a citator.
B) the Treasury Regulations.
C) the Cumulative Bulletin.
D) the Committee Reports.
Answer:
A
Page
Ref.: C:1-30
71) Why does a researcher use a citator?
A) to check on authorities issued
subsequent to a court decision
B) to determine whether a private letter
ruling exists on the subject
C) for examples of the application of a
tax provision
D) none of the above
Answer:
A
Page Ref.:
C:1-30
72) A citator is used to find
A) the judicial history of a case.
B) the cases that have cited a case
subsequent to the issuance of the opinion.
C) whether a case has been overturned.
D) all of the above.
Answer:
D
Page Ref.:
C:1-30
73) Which of the following statements
about the Statements on Standards for Tax Services is true?
A) A CPA is never allowed to use a
taxpayer's estimates when preparing a tax return.
B) The CPA must tell the IRS upon becoming
aware that an error has been made on a past tax return.
C) The CPA may in good faith rely on
information provided by the taxpayer, without verifying the reliability of that
information if reasonable inquiries are made where the information furnished
appears to be incorrect.
D) The CPA should not recommend that a
taxpayer take a certain position if there is any doubt as to whether the
position would be approved by the IRS upon audit.
Answer:
C
Page Ref.:
C:1-33 through C:1-35
74) Statements on Standards for Tax
Services are issued by
A) the SEC.
B) the IRS.
C) the AICPA.
D) the FASB.
Answer:
C
Page Ref.:
C:1-27
75) A client wants to take a tax return
position with less than a 10% probability of being upheld in court. The CPA
should
A) take the client's desired position, but
not sign the tax return.
B) inform the client that the position
does not have a realistic possibility of success.
C) ask the client to sign a waiver of his
right to sue the CPA in the event the IRS disallows the position.
D) take the client's desired position and
sign the return as usual.
Answer:
B
Page
Ref.: C:1-27
76) According to the Statements on
Standards for Tax Services , if a CPA believes that a client's prior-year tax return contains false information, the CPA should report
this to the
A) IRS.
B) SEC.
C) AICPA.
D) None of the above. The CPA does not
report the false information to any external agencies, unless required by law.
Answer:
D
Page Ref.:
C:1-33
77) Ralph's business records were lost as
a result of Hurricane Katrina. CPA Jane prepares Ralph's return using
estimates. What do the Statements on Standards for Tax Services state about the use of estimates?
A) Estimates may not be used.
B) Estimates may be used without
disclosing their use to the IRS.
C) Estimates may be used, but Jane should
disclose their use to the IRS.
D) The Statements on Standards for Tax
Services do not address the use of estimates.
Answer:
C
Page Ref.:
C:1-33
78) During the course of an audit, a CPA
discovers an error in a prior return. According to the Statements on
Standards for Tax Services, the CPA should
A) ask the client for permission to disclose
the error to the IRS.
B) withdraw from the engagement.
C) inform the IRS of the error, regardless
of whether the client grants permission.
D) correct the error in the current year's
tax return.
Answer:
A
Page Ref.:
C:1-33
79) Explain the difference between a
closed-fact and open-fact situation.
Answer:
In a closed-fact situation, the transaction has occurred and the facts
are not subject to change. In an open-fact situation, the transaction is in the
formative or projected stage, and the taxpayer is able to structure the facts
so that the tax consequences of the transaction can be more favorable.
Page Ref.:
C:1-2
80) In all situations, tax considerations
are of primary importance. Do you agree or disagree? Support your answer.
Answer:
It is important to consider nontax objectives as well as tax objectives.
For instance, if a wealthy client wants to minimize her estate taxes while
passing the greatest value possible to her descendents, you would not suggest
that she leave the majority of her estate to charity and only a few hundred
thousand dollars to her descendents. Although this would reduce her estate tax
liability to zero, it would be inconsistent with her objective of allowing her
descendents to receive as much after-tax wealth as possible.
Page Ref.:
C:1-2; Example C:1-2
81) Describe the format of a client memo.
Answer:
A client memo should include a statement of the facts, a list of issues,
a discussion of relevant authority, analysis, and recommendations of
appropriate actions to the client based on the research results.
Page
Ref.: C:1-4
82) Explain how committee reports can be
used in tax research. What do they indicate?
Answer:
Committee reports can help resolve ambiguities in statutory language by
revealing Congressional intent. They are indicative of this intent.
Page Ref.:
C:1-7
83) In 1998, Congress passed legislation
concerning shifting the burden of proof to the IRS. The taxpayer must introduce
"credible evidence" to shift the burden of proof to the IRS. What
constitutes "credible evidence?"
Answer:
The term is not defined in the IRC. Because the provision is relatively
new, few courts have had an opportunity to interpret what "credible
evidence" means. In the absence of relevant statutory or judicial
authority, you might look to the committee reports to ascertain what Congress
intended by the term. Senate Report No. 105-174 states that "credible
evidence" means evidence of a quality, which, "after critical
analysis, the court would find sufficient upon which to base a decision on the
issue if no contrary evidence were submitted."
Page Ref.:
C:1-7 and C:1-8; Example C:1-4
84) Does Title 26 contain statutory
provisions dealing only with income taxation? Explain.
Answer:
No; Title 26 deals with all taxation matters, not just income taxation.
It covers estate tax, gift tax, employment tax, alcohol and tobacco tax, and
excise tax matters.
Page Ref.:
C:1-8
85) What is the purpose of Treasury
Regulations?
Answer:
The Treasury Department issues regulations that expound upon the IRC.
Treasury Regulations often contain examples with computations that provide
valuable assistance in understanding the statutory language.
Page Ref.:
C:1-9
86) Why should tax researchers take note
of the date on which a Treasury Regulation was adopted?
Answer:
Researchers should note the date on which a Treasury Regulation was
adopted because the IRC may have been revised subsequent to the date of
adoption. That is, the regulation may not interpret the current version of the
IRC. Discrepancies between the IRC and the regulation occur when the Treasury
Department has not updated the regulation to reflect the current statute.
Page Ref.:
C:1-9 and C:1-10
87) Discuss the purposes and scope of
temporary regulations.
Answer:
Temporary regulations are issued by the Treasury Department after
statutory changes have occurred to give guidance with respect to procedural and
computational matters. Temporary regulations are also issued as proposed
regulations with the same authoritative value as final regulations.
Page Ref.:
C:1-9
88) What are the purposes of citations in
tax research?
Answer:
Citations serve two purposes. First, they substantiate propositions, and
second, they enable the reader to locate underlying authority.
Page
Ref.: C:1-11
89) Are letter rulings of precedential
value to third parties?
Answer:
Not really. A letter ruling is binding only on the taxpayer to whom the
ruling was issued. However, the rulings can be useful in proving insights as to
the IRS opinion about the tax consequences of various transactions.
Page Ref.:
C:10-12 and C:10-13
90) What is the difference between a
taxpayer-requested letter ruling and a technical
advice memorandum issued as a letter ruling?
Answer:
A taxpayer-requested letter ruling deals with
prospective transactions, whereas a TAM deals with past or consummated
transactions.
Page Ref.:
C:10-12 and C:10-13
91) What is an information release?
Answer:
The IRS issues information releases when it wants to release information
to the general public. They are written in lay terms and are sent to thousands
of newspapers throughout the country.
Page Ref.:
C:1-13
92) What are some of the factors to
consider when deciding in which court to file a tax-related claim?
Answer:
Factors to consider include each courts published precedents pertaining
to the issue; the desirability of a jury trial; the tax expertise of each
court; the effect on the taxpayer's cash flow.
Page Ref.:
C:1-14
93) What are some of the consequences of
the small cases procedure of the Tax Court?
Answer:
The small cases procedure allows a taxpayer the advantage of having a
day in court without the expense of an attorney. But if the taxpayer loses, the
decision cannot be appealed.
Page Ref.:
C:1-17
94) Where must a tax researcher look to
access all Tax Court cases?
Answer:
The regular opinions are found in the Tax Court of the United States
Reporter, published by the U. S. Government Printing Office, and the memo
decisions are published by both RIA and CCH in their own court reporters.
Page Ref.:
C:1-17
95) What is the minimum information that
should be contained in a citation?
Answer:
A citation should contain, at a minimum, the name of the case, the
reporter that publishes the case, a volume number, a page or paragraph number,
the year the case was decided, and the court that decided the case.
Page Ref.:
C:1-30
96) Is it possible for the Tax Court to
intentionally issue conflicting decisions?
Answer:
Yes. If the Tax Court is issuing two decisions that are appealable to
different circuit courts and these circuit courts have previously reached
different conclusions on the issue, the Tax Court follows the respective
precedent in each circuit and issues conflicting decisions. This is a result of
the Golsen Rule.
Page
Ref.: C:1-21
97) The Tax Court decides an expenditure
is deductible in the year the issue was first litigated. The government
appealed and won a reversal in the Ninth Circuit Court of Appeals. It is the
only appellate decision regarding the issue. If and when the Tax Court
encounters this issue again, how will it hold?
Answer:
The Tax Court will hold that the expenditure is deductible except in the
Ninth Circuit. The taxpayers in the Ninth Circuit will be denied the deduction.
Page Ref.:
C:1-21; Example C:1-8
98) Indicate which courts decided the case
cited below. Also indicate on which pages and in which publications the
authority is reported.
U.S. v. Maclin P. Davis, 397 U.S. 301,
25AFTR 2d 70-827, 70-1 USTC &9289 (1970).
Answer:
This case appears in Vol. 397, page 301, of the United States Supreme
Court Reports. It is also recorded in Vol. 25, pages 70-827, of the American
Federal Tax Reports, Second Series, and in Vol. 1, paragraph 9289 of the
1970 CCH reporter the U.S. Tax Cases.
Page Ref.:
C:1-21
99) If the U. S. District Court for Rhode
Island, the Tax Court, and the Eleventh Circuit have all ruled on a particular
issue, then what precedents have been set for which courts in the future?
Answer:
Any U. S. District court within the Eleventh Circuit must follow that
circuit's decision. The U. S. District Court for Rhode Island must rule
consistently with its previous ruling. Tax Court decisions are not binding on
district courts, thus all district courts other than the one for Rhode Island
and those in the Eleventh Circuit are free to decide the issue independently.
Page Ref.:
C:1-23; Example C:1-9
100) What is "forum-shopping"?
Answer:
Forum-shopping involves choosing where among the various courts to file
a lawsuit. Since courts often disagree as to the appropriate tax treatment of
the same item, a taxpayer can file in the jurisdiction that has precedents that
favor his circumstances.
Page Ref.:
C:1-23
101) Under what circumstances might a tax
advisor find the provisions of a tax treaty useful?
Answer:
A tax advisor might consult the provisions of a tax treaty if a U.S.
taxpayer engages in transactions in a foreign country. The United States has
tax treaties with about 55 countries.
Page Ref.:
C:1-24
102) Distinguish between an annotated tax
service and a topical tax service.
Answer:
An annotated tax service is organized by IRC section. The IRC-arranged subdivisions of this service are likely to encompass
several topics. A topical tax service is organized by broad topic. The
topically arranged subdivisions of this service are likely to encompass several
IRC sections.
Page Ref.:
C:1-25
103) What is the purpose of a citator?
Answer:
Citators give a history of the case, and they list other authorities
such as other cases or revenue rulings that cite the case in question.
Page Ref.: C:1-30
104) According to the Statements on
Standards for Tax Services , what belief should a CPA have before taking a
pro-taxpayer position on a tax return?
Answer:
The CPA should have a good faith belief that the pro-taxpayer position
is warranted in existing law or can be supported by a good-faith argument for an extension, modification, or reversal of
existing law. The position should have a realistic possibility of being
sustained administratively or judicially on its merits if challenged.
Page Ref.:
C:1-27
105)
According to the AICPA's Statements on Standards for Tax Services,
what duties does the tax practitioner owe the client?
Answer:
The tax practitioner owes the client the following duties: (1) to inform
the client of (a) the potential adverse consequences of a tax return position,
(b) how the client can avoid a penalty through disclosure, (c) errors in a
previously filed tax return, and (d) corrective measures to be taken; (2) to
inquire of the client (a) when the client must satisfy conditions to take a
deduction and (b) when information provided by him or her appears incorrect,
incomplete, or inconsistent on its face, and (3) not to disclose tax-related
errors without the client's consent.
Page Ref.:
C:1-33 through C:1-35
106) Outline and discuss the tax research
process.
Answer:
1) The facts must be determined. However, some
facts may not have occurred in an open-fact situation. Where facts have not yet
occurred, it is useful to review tax research material to determine which facts
would produce the most favorable outcome.
2) The issues must be determined. The issues
may not always be clear and may be different than the client believes. Thus,
only a thorough understanding of the facts permits an adequate formulation of
the issues.
3) Determine which authorities are applicable.
4) Evaluate the authorities. Choose the ones to
follow when there are conflicting authorities.
5) Communicate the result to the client. The
communication with the client should not result in a misunderstanding. While
discussions with the client may be suitable, it is recommended by the AICPA's
Statements on Standards for Tax Services that the communication be written
where issues are important, unusual or complicated. Many firms require that
conclusions be communicated in writing.
Page Ref.:
C:1-3, C:1-4
107) Compare and contrast proposed,
temporary, and final regulations.
Answer:
Proposed regulations are not authoritative, but they do provide guidance
concerning how the Treasury Department interprets the IRC. Temporary
regulations, which have the same effect as final regulations, often are issued
after major revisions to the IRC so that taxpayers and tax advisers will have
guidance concerning procedural and/or computational matters. Final regulations,
which are issued after the public has had time to comment on the proposed
regulations, have nearly the same authoritative weight as the IRC.
Page
Ref.: C:1-9
108) Compare and contrast
"interpretative" and "statutory" regulations.
Answer:
Both types of regulations are issued by the Treasury Department.
Interpretative regulations make the statutory language easier to understand and
apply. Statutory regulations are issued when Congress delegates its rule-making
authority to the Treasury Department. This delegation of authority is made
explicitly in the legislation.
The courts are less likely to invalidate a
statutory regulation than an interpretative regulation. The reluctance of the
court to invalidate a statutory regulation is based on the recognition that
Congress has abdicated its rule-making authority to the Treasury Department.
Page Ref.:
C:1-10
109) Explain the legislative reenactment
doctrine.
Answer:
Under the legislative reenactment doctrine, a Treasury Regulation is
deemed to have been endorsed by Congress if the regulation was finalized before
a related IRC provision was enacted, and during the interim, Congress did not
amend the provision to which the regulation relates.
Page Ref.:
C:1-10
110) In which courts may litigation
dealing with tax matters begin? Discuss the factors that might be considered in
deciding where to begin litigation.
Answer:
The Tax Court, the U.S. Court of Federal Claims, or the U.S. district
court for the taxpayer's jurisdiction is where tax-related litigation may begin. The taxpayer would be interested in
the precedent, if any, existing within each jurisdiction. The taxpayer might
prefer to avoid parting with cash to pay the proposed deficiency. If so, the
taxpayer would want to litigate in the Tax Court. If the taxpayer would like to
have a jury trial address questions of fact, he or she should opt for the U.S.
district court.
Page Ref.:
C:1-14
111) Describe the appeals process in tax
litigation.
Answer:
Appeals from Tax Court and U.S. district court decisions are made to the
circuit court of appeals for the taxpayer's jurisdiction. U.S. Court of Federal
Claims decisions are appealable to the circuit court of appeals for the Federal
Circuit. Appeals from any of the circuit courts of appeals may be brought to
the U. S. Supreme Court.
Page Ref.:
C:1-14
112) Discuss the differences and
similarities between regular and memorandum decisions issued by the U.S. Tax
Court.
Answer:
Differences:
1) Regular decisions involve an issue decided
for the first time. A memorandum decision frequently involves a variation in
the facts for an issue where the law has been previously decided.
2) The IRS's acquiescence policy extends to
regular decisions but not to memorandum decisions.
3) Regular decisions are published by the U.S.
Government Printing Office in the Tax Court of the United States Reports,
while memorandum decisions are published by private companies.
Similarity:
1) Regular and memorandum decisions have the
same precedential value.
Page Ref.: C:1-15 and C:1-17
113) Assume that the Tax Court decided an
expenditure in question was deductible. The government appealed to the Fifth
Circuit, which reversed the decision and held it was not deductible. No other
circuits have ruled on the issue.
A new case has just been filed in the Tax Court.
How will the Tax Court rule if this new case is appealable to the Tenth
Circuit? Would your answer be different if the case was appealable to the Fifth
Circuit?
Answer:
The Golsen rule provides that the Tax Court rules consistently
with decisions of the circuit court of appeals to which the taxpayer's case is
appealable. If the new case is appealable to the Tenth Circuit, the Tax Court
will hold the expenditure is deductible, thereby following its own precedent.
In a case appealable to the Fifth Circuit, the Tax Court will rule that it is
not deductible, thereby following the appellate court's earlier decision.
Page Ref.:
C:1-21
114) In list form, outline the steps to
follow when using a tax service.
Answer:
1) Use a key word search.
2) Read the applicable material.
3) Check the supplementary (current
developments) material.
4) Read the cases and rulings referenced in the
database.
5) Use a citator to determine the current
status of the relevant cases and rulings and if there are any additional cases
and rulings.
6) Analyze the information; make analogies and
reach a conclusion.
7) Communicate the conclusions to the client.
8) Refine the issues and perhaps return to step
1.
Page Ref.:
C:1-27
115) Your client wants to deduct commuting
expenses on his tax return. You explain to the client that there is no legal
authority allowing this deduction. The client, however, continues to insist on
this action. What guidance do the Statements on Standards for Tax Services
provide in this dilemma?
Answer:
According to Statement on Tax Standards, the CPA should explain to the
client that this action is a violation of the tax law and would trigger IRS
penalties. If the client insists on the deduction, the CPA should consider
withdrawing from the engagement.
Page Ref.:
C:1-33
116) Discuss the conflict between advocacy
for a client and responsibility to the IRS.
Answer:
The CPA's primary duty is to his or her client, not the IRS. The CPA
should provide quality advice based on sound legal authority. CPAs do not have
to verify client data unless it appears inconsistent, erroneous, or incomplete.
CPAs also are not required to report most potential tax law violations to the
IRS. If a client refuses to correct a tax-related error, the CPA may terminate
the relationship.
Page Ref.:
C:1-33 through C:1-35
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