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1 Copyright © 2024 Pearson Education, Inc.
Pearson's Fed. Taxation 2024: Corp., 37e (Richardson et al.)
Chapter C1: Tax Research
LO1: Overview of Tax Research
1) Tax planning is not an integral part of open-fact situations.
Answer: FALSE
Explanation: It is integral.
Page Ref.: C:1-2
Objective: 1
2) 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 restricted-fact situation.
- a closed-fact situation.
- an open-fact situation.
- a recognized-fact situation.
Answer: C
Explanation: Advice before transaction is open fact situation.
Page Ref.: C:1-2
Objective: 1
3) Investigation of a tax problem that involves a closed-fact situation means that
- the client's transactions have already occurred and the tax questions must now be resolved.
- the client's tax return has yet to be filed.
- future events may be planned and controlled.
- research is primarily concerned with applying the law to the facts as they exist.
Answer: A
Explanation: After the fact request is a closed fact situation.
Page Ref.: C:1-2
Objective: 1
4) 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
Objective: 1
(Pearson's Federal Taxation 2024 Corporations, Partnerships, Estates, & Trusts, 37e Mitchell Franklin, Luke Richardson) (Test Bank all Chapters) 1 / 4
2 Copyright © 2024 Pearson Education, Inc.5) 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 descendants, you would not suggest that she leave the majority of her estate to charity and only a few hundred thousand dollars to her descendants. Although this would reduce her estate tax liability to zero, it would be inconsistent with her objective of allowing her descendants to receive as much after-tax wealth as possible.Page Ref.: C:1-3
Objective: 1
LO2: Steps in the Tax Research Process
1) Identify which of the following statements is true.
- Tax planning is an integral part of both closed-fact situations and open-fact situations.
- The first step in conducting tax research is to clearly understand the issues involved.
- The Statements on Standards for Tax Services recommend that only written tax advice be provided to
- All of the above are false.
the client in all situations.
Answer: C
Explanation: The Statements on Standards for Tax Services recommend that only written tax advice be provided to the client in all situations.Page Ref.: C:1-3 through C:1-5
Objective: 2
2) 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.: See Additional Comment page C:1-4
Objective: 2
3) 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:1-4
Objective: 2 2 / 4
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4) A client approaches you regarding the tax implications of an acquisition of a competitor's business.Describe the six basic steps of tax research process to assist the client.Answer: In both open- and closed-fact situations, the tax research process involves six basic steps:
- Determine the facts.
- Identify the issues (questions).
- Locate the applicable authorities.
- Evaluate the authorities and choose those to follow where the authorities conflict.
- Analyze the facts in terms of the applicable authorities.
- Communicate conclusions and recommendations to the client.
Page Ref.: C:1-3
Objective: 2
5) When should oral client communications be followed up in writing?Answer: Written communications are recommended in important, unusual, substantial dollar value, or complicated transactions.Page Ref.: C:1-5 through C:1-6
Objective: 2
LO3: Importance of the Facts to the Tax Consequences
1) The tax consultant can give an opinion on a tax fact pattern without all the facts.
Answer: FALSE
Explanation: Tax practitioner should not provide an opinion without all relevant facts.Page Ref.: C:1-6
Objective: 3
2) Tax compliance is the biggest component of a tax practice.
Answer: FALSE
Explanation: Tax consulting is the biggest component of tax practice.
Page Ref.: C:1-6
Objective: 3
3) Explain the difference between tax compliance versus tax consulting.Answer: Tax compliance is assisting taxpayers in preparing and filing necessary tax forms and often includes responding to communications from tax authorities. Tax consulting is research and analysis, often referred to as tax planning, that addresses various scenarios to determine the best tax outcome given the law and the underlying facts in the case. Tax consulting will vary depending if the facts are closed or open. Closed facts generally involve tax compliance. Open facts allow for the flexibility to structure transactions for the best possible outcome.Page Ref.: C:1-5 through C:1-6
Objective: 3
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LO4: The Sources of Tax Law
1) The Internal Revenue Code of 1986 contains the current version of the tax law.
Answer: TRUE
Explanation: The last update was 1986.
Page Ref.: C:1-8
Objective: 4
2) 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
Explanation: Per IRC this remains accurate.
Page Ref.: C:1-9
Objective: 4
3) Final regulations have almost the same legislative weight as the IRC.
Answer: TRUE
Explanation: The Courts have followed this concept.
Page Ref.: C:1-10
Objective: 4
4) A revenue ruling is issued by the Internal Revenue Service only in response to a verbal inquiry by a taxpayer.
Answer: FALSE
Explanation: The IRS may voluntarily issue a revenue ruling.
Page Ref.: C:1-12
Objective: 4
5) Taxpayers must pay the disputed tax prior to filing a case with the Tax Court.
Answer: FALSE
Explanation: Tax Court is the only court available in which taxpayer does not have to prepay the tax.Page Ref.: C:1-14 and C:1-15
Objective: 4
6) Appeals from the U.S. Tax Court are to the Court of Appeals for the Federal Circuit.
Answer: FALSE
Explanation: Appeals from the US Tax Court are to the Court of Appeals for the respective circuit.Page Ref.: C:1-14 and C:1-15
Objective: 4
7) 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
Explanation: USSC reviews requests before acceptance.
Page Ref.: C:1-14 and C:1-15
Objective: 4
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