Test Bank for Pearson's Federal Taxation 2020 Comprehensive, 33rd Edition

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1Pearson's Federal Taxation 2020:Comprehensive, 33e (Rupert/Anderson/Hulse)Chapter C1: Tax ResearchLO1: Overview of Tax Research1) Tax planning is not an integral part of open-fact situations.Answer: FALSEExplanation:It is integral.Page Ref.:C:1-2Objective: 12) When a taxpayer contacts a tax advisor requesting advice as to the most advantageous way todispose of a stock, the tax advisor is faced withA) a restricted-fact situation.B) a closed-fact situation.C)an open-fact situation.D)a recognized-fact situation.Answer: CExplanation: Advice before transaction is open fact situation.Page Ref.: C:1-2Objective: 13) Investigation of a tax problem that involves a closed-fact situation means thatA) the client's transactions havealready 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 asthey exist.Answer: AExplanation: After the fact request is a closed fact situation.Page Ref.: C:1-2Objective: 14) 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 notsubject tochange. In an open-fact situation, the transaction is in the formative or projected stage, and thetaxpayer is able to structure the facts so that the tax consequences of the transaction can be morefavorable.Page Ref.: C:1-2Objective: 1

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25)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 awealthy client wants to minimize her estatetaxes while passing the greatest value possible to herdescendants, you would not suggest that she leave the majority of her estate to charity and only afew hundred thousand dollars to her descendants. Although this would reduce her estate taxliabilityto zero, it would be inconsistent with her objective of allowing her descendants toreceive as much after-tax wealth as possible.Page Ref.: C:1-2; Example C:1-2Objective: 1LO2: Steps in the Tax Research Process1) Identify which of the followingstatements istrue.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) TheStatements on Standards for Tax Servicesrecommend that only written tax advice beprovided to the client in all situations.D) All of the above are false.Answer: CExplanation: TheStatements on Standards for Tax Servicesrecommendthat only written taxadvice be provided to the client in all situations.Page Ref.: C:1-3 through C:1-5Objective: 22) Describe the format of a client memo.Answer: A client memo should include a statement of the facts, a list of issues, a discussion ofrelevant authority, analysis, and recommendations of appropriate actions to the client based onthe research results.Page Ref.: See Additional Comment page C:1-4Objective: 2

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33)Outline and discuss the tax research process.Answer:1)The facts must be determined. However, some facts may not have occurred inanopen-factsituation. Where facts have not yet occurred, it is useful to review tax research material todetermine whichfacts would produce the most favorable outcome.2)The issues must be determined. The issues may not always be clear and may be different thanthe client believes. Thus, only a thorough understanding of the facts permits an adequateformulation of the issues.3)Determine which authorities are applicable.4)Evaluate the authorities. Choose the ones to follow when there are conflictingauthorities.5)Communicate the result to the client. The communication with the client should not result ina misunderstanding. While discussions with the client may be suitable, it is recommended by theAICPA'sStatements on Standards for Tax Servicesthatthe communication be written whereissues are important, unusual or complicated. Many firms require that conclusions becommunicated in writing.Page Ref.: C:1-4Objective: 2LO3: Importance of the Facts to the Tax Consequences1) There are no questions for this section.LO4: The Sources of Tax Law1) The Internal Revenue Code of 1986 contains the current version ofthe tax law.Answer: TRUEExplanation: The last update was 1986.Page Ref.: C:1-8Objective: 42) Regulations issued prior to thelatest tax legislation dealing with a specific Code section arestill effective to the extent they do not conflict withthe provisions in the new legislation.Answer: TRUEExplanation: Per IRC this remains accurate.Page Ref.: C:1-9Objective: 43)Final regulations have almost the same legislative weight as the IRC.Answer: TRUEExplanation:The Courts have followed this concept.Page Ref.: C:1-10Objective: 4

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44) A revenue ruling is issued by the Internal Revenue Service only in response to averbalinquiry by a taxpayer.Answer: FALSEExplanation: The IRS may voluntarily issue a revenueruling.Page Ref.: C:1-12Objective: 45) Taxpayers must pay the disputed tax prior to filing a case with the Tax Court.Answer: FALSEExplanation: TaxCourt is the only court available in which taxpayer does not have to prepay thetax.Page Ref.: C:1-14 and C:1-15Objective: 46) Appeals from the U.S. Tax Court are to the Court of Appeals for the Federal Circuit.Answer: FALSEExplanation: Appealsfrom the US Tax Court are to the Court of Appeals for the respectivecircuit.Page Ref.: C:1-14 andC:1-15Objective: 47) Appeals from the Court of Appeals go to the Supreme Court under a writ of certiorari. TheSupreme Court decides whether or not theywill hear the case.Answer: TRUEExplanation: USSC reviews requests before acceptance.Page Ref.: C:1-14 and C:1-15Objective: 48)When the Tax Court follows the opinion of the circuit court of appeals to which the case isappealable, the court isfollowing theA)Golsenrule.B) Acquiescence rule.C) Forum shopping rule.D) Conformity rule.Answer: AExplanation: Since 1970 the TaxCourt has followed the Golsen concept.Page Ref.: C:1-21Objective: 4

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59) Which of the following citations denotesa regular decision of the Tax Court?A) 41 TCM 1272B) 35 T.C. 1083 (2003)C) 39 AFTR 2d 77-640D) all of the aboveAnswer: BExplanation: TC is Tax Court citation.Page Ref.: C:1-17Objective: 410) The primary citation for a federal circuit courtofappeals case would beA) 40 AFTR 2d 78-1234.B) 44 F.Supp. 403.C) 3 F.3d 134.D) 79-2 USTC & 9693.Answer: CExplanation: Citation forfederal circuit.Page Ref.: C:1-20Objective: 411) You have the following citation: Joel Munro, 92 T.C. 71 (1989). Which of the followingstatements istrue?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 StatesReportsand the case was decided in1989.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: BExplanation: Citation locator is correct.Page Ref.: C:1-17Objective: 412) The term "tax law"includesA) legislation.B) treasury regulations.C) judicial decisions.D) all of the above.Answer: DExplanation: Each of these have value of tax law.Page Ref.: C:1-7Objective: 4

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613) Identify which of the following statements isfalse.A) Whentax advisors speak of the "tax law," they usuallyhave in mind just the Internal RevenueCode.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: AExplanation: IRC is the main source document.Page Ref.: C:1-7Objective: 414) The committee that is responsible for holding hearings on tax legislation for the House ofRepresentatives is theA) Finance Committee.B)Joint Committee on Taxation.C) Conference Committee.D) Ways and Means Committee.Answer: DExplanation: The Ways and Means is responsible for holding hearings on tax legislation.Page Ref.: C:1-7Objective: 415) A tax bill introduced in theHouse of Representatives is thenA) 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:AExplanation: Tax bills are referred to the Ways and Means Committee.Page Ref.: C:1-7Objective: 416) The Senate equivalent of the House Ways and Means Committee is the SenateA) Finance Committee.B) Ways and Means Committee.C) Tax Committee.D)Joint Conference Committee.Answer: AExplanation: Senate committee is Finance Committee.Page Ref.: C:1-7Objective: 4

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717)Which of the following steps, related to a tax bill, occurs first?A) signature or veto by the President of the UnitedStatesB) consideration by the Senate Finance CommitteeC) consideration by the entire SenateD) consideration by the House Ways and Means CommitteeAnswer: DExplanation: Tax bill is considered by House Ways and Means Committee.Page Ref.: C:1-7Objective: 418) When the House and Senate versions of a tax bill are not in agreement, the disagreements areresolved by theA) Ways and Means Committee.B) Mediation Committee.C) Revenue Committee.D) Conference Committee.Answer: DExplanation: Conference committee resolves disagreements.Page Ref.: C:1-7Objective: 419) Identify which of the following statements istrue.A) Paragraphreferences are most commonly used when citing or referring to the tax statutes.B) Title 26 of the United States Codeand 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: BExplanation: IRC is Title26 of the USC.Page Ref.: C:1-8Objective: 420) Title 26 of the U.S. Code includesA)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: DExplanation: Title 26 covers tax legislation.Page Ref.: C:1-8Objective: 4

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821) The tax statutes with the popular name "The Internal Revenue Code of 1986" are containedin which Title of the Code?A) 20B) 25C) 26D) 301Answer: CExplanation: Title 26 covers tax legislation.Page Ref.: C:1-8Objective: 422)Which of the following statements regarding proposed regulations isnotcorrect?A) Proposed regulations expire after three years.B) Practitioners and other interested partiesmay comment on proposed regulations.C) Proposed and temporary regulations aregenerally issued simultaneously.D) Proposed regulations do not provide any insight into the IRS's interpretation of the tax law.Answer: DExplanation:Proposed regulationsprovide insight into the IRS's interpretation of the tax law.Page Ref.: C:1-9Objective: 423) Final regulations can take effect on any of the following datesexceptA) the effective date of the statutory language they interpret, provided they are issuedwithin 18months 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: AExplanation: Once finalized, regulations can be effective the earliest of (1) the date they werefiled with theFederal Register,a daily publication that contains federal governmentpronouncements; ( 2) the datetemporary regulationspreceding them were first published in theFederal Register; or (3) the date on which a notice describing the expected contents of theregulation was issued to the public. For changes to the IRC enacted after July 29, 1996, theTreasury Department generallycannot issue regulations with retroactive effect.Page Ref.: C:1-10Objective: 4

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924) When Congress passes a statute with language such as, "The Secretary shall prescribe suchregulations as he may deem necessary," the regulationsultimately issued forthat statute areA) congressional regulations.B) statutory regulations.C) interpretative regulations.D) legislative regulations.Answer: DExplanation: Whenever the IRC contains language such as "The Secretary shall prescribe suchregulations as hemay deem necessary" or "under regulations prescribed by the Secretary," theregulations interpreting the IRC provision are legislative.Page Ref.: C:1-10Objective: 425) Regulations areA) 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: CExplanation:Final Treasury Regulations are presumed to be valid and have almost the sameauthoritative weight as the IRC.Page Ref.: C:1-10Objective: 426) Identify which of the following statements istrue.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 newlegislation.B) Legislative regulations are more likely to be invalidated by the courts than are interpretativeregulations.C) Regulations have more authoritative weight than tax statutes.D)All of the above are false.Answer: AExplanation: Because of frequent IRC changes, the Treasury Department does not alwaysupdate the regulations in a timely manner. Consequently, when consulting a regulation, a taxadvisor should check its introductory or end note to determine when the regulation was adopted.If the regulation was adopted before the most recent revision of the applicable IRC section, theregulation shouldbe treated as authoritative to the extent consistent with the revision. Thus, forexample, if a regulation issued before the passage of an IRC amendment specifies a dollaramount, and the amendment changed the dollar amount, the regulation should be regarded asauthoritative in all respects except for the dollar amount.Page Ref.: C:1-9Objective: 4

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1027) Identify which of the following statements isfalse.A) The number "5" in the citation Reg. Sec. 1.166-5 refers to the paragraph number.B) TheCumulative Bulletinis issued semiannually while theInternal Revenue Bulletinis issuedweekly.C) The citation Rev. Rul. 2006-5, I.R.B. 2006-1, 33, indicates that the revenue ruling can befound on page 33 of the 1st I.R.B. for 2006.D) All of the above are false.Answer: AExplanation:-# does not reference the paragraph number.Page Ref.: C:1-11Objective: 428) The number appearing immediately following the decimal place in a regulation citationrefers to theA) 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: BExplanation: # appearing after decimal refers to code section.Page Ref.: C:1-11Objective: 429)The citation "Reg. Sec. 1.199-2" refers toA) the first regulation issued in 1999.B) the secondregulation issued in 1999.C) a regulation that interprets Code Section 199.D) a regulation that can be found on page 199.Answer: CExplanation: # appearing after decimal refers to code section.Page Ref.: C:1-11Objective: 430) Which regulationdeals with Code Section 165?A) Reg. Sec. 1.165-5B) Reg. Sec. 165.183-5C) Reg. Sec. 1.5-165D) Reg. Sec. 165-5Answer: AExplanation: # appearing after decimal refers to code section.Page Ref.: C:1-11Objective: 4

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1131) Which regulation deals with thegift tax?A) Reg. Sec. 1.165-5B) Reg. Sec. 20.2014-5C) Reg. Sec. 25.2518-5D) Reg. Sec. 301.7002-5Answer: CExplanation:Code section 2518 is a gift tax matter.Page Ref.: C:1-11Objective: 432) Which of the following best describes the weightofa 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 sincethey only apply to the taxpayerrequesting the ruling.Answer: CExplanation: Regulations carry more weight than revenue rulings.Page Ref.: C:1-12Objective: 433) The citation "Rev. Rul. 2006-8, 2006-1 C.B. 541" refers toA) the eighth ruling of 2006found on page 541 in Vol. 1 of the 2006Cumulative Bulletin.B) the eighth ruling of 2006 found on page 541 in the 2006 volumeof theCumulative Bulletin.C) the 541st ruling of 2006 found on page eight in Vol. 1 of the 2006Cumulative Bulletin.D) the1st ruling of 2006 found on page 541 in the 2006 volume of theCumulative Bulletin.Answer: AExplanation: Citation log is correct.Page Ref.: C:1-12Objective: 434) Which of the following documents is issued by the IRS to a specific taxpayer?A) regulationB) revenue procedureC) letter rulingD) information releaseAnswer: CExplanation:Letter rulings are addressed to specific taxpayer.Page Ref.: C:1-12Objective: 4

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1235) Identify which of the following statements isfalse.A) A revenue rulingis issued by the Internal Revenue Service only in response to a writteninquiry 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 the11thweek of 2006.D) A technical advice memorandum is made available as a letter ruling.Answer: AExplanation: Letter rulings are only issued in response to written taxpayer request.Page Ref.: C:1-11 through C:1-13Objective: 436) Identify whichofthe following statements isfalse.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 toprovide 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 ofan Internal RevenueService release.D) Announcements are more technical than information releases.Answer: CExplanation: Citation is wrong.Page Ref.: C:1-13Objective: 437)A Technical Advice Memorandum is usuallyA) 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 thenational office inresponse to an audit request.Answer: DExplanation: TAMs are usually issued to address request from IRS auditors.Page Ref.: C:1-13Objective: 438) Which of the following courts isnota trial court for tax cases?A) U.S. Bankruptcy CourtB) U.S. District CourtC) U.S. Tax CourtD) U.S. Court of Federal ClaimsAnswer: AExplanation: Bankruptcy Court does not have jurisdiction for tax matters.Page Ref.: C:1-14 and C:1-15Objective: 4

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1339) The taxpayer neednotpay the disputed tax in advance when the suit is initiated inA) U.S. Court of Federal Claims.B) U.S. Tax Court.C) U.S. District Court.D) both A and B.Answer: BExplanation: Tax Court taxpayer does not have to pay disputed amount up front.Page Ref.: C:1-14 andC:1-15Objective: 440) If the U.S. Supreme Court decides to hear an appeal of a tax case, it will grant aA) writ of appeal.B) writ of certiorari.C) writ of detainer.D) writ of habeas corpus.Answer: BExplanation: Granting review by USSC is done viawrit of certiorari.Page Ref.: C:1-14 and C:1-15Objective: 441) Tax Court memorandum decisionsA) 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: DExplanation: Tax Court memos usually deal with factual variations of issues litigatedpreviously.Page Ref.: C:1-15 and C:1-17Objective: 442) George's case was handled under the "small tax case procedure." He does not agree with thefindings of the Tax Court. He would like to appeal the decision. Which one of the following istrue?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 tothe U.S. Court of Appeals for the Federal Circuit.D) He would appeal first to the U.S. Court of Federal Claims.Answer: AExplanation: Small Tax Case do not allow appeal process.Page Ref.: C:1-17Objective: 4

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1443)Identify which of the following statements isfalse.A) The acquiescence policy was adopted by the U.S. Tax Court to permit litigating parties toagree 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 casesprocedure of the U.S. Tax Court allows a less formal hearing but provides forno appeal.D) The IRS may retroactively revoke an acquiescence.Answer: AExplanation: Acquiescence policy the party states it does not agree but will not appeal thedecision.Page Ref.: C:1-17Objective: 444) The phrase "Entered under Rule 155" indicates thatA) the computation of the exact amount of the tax deficiency has been left to the litigatingparties.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: AExplanation: Rule 155 allows computation of exact amount been left to the litigating parties.Page Ref.: C:1-17Objective: 445) Small case procedures of the U.S. Tax Court requires that the amount in disputenotexceedA) $5,000.B) $10,000.C) $50,000.D) $100,000.Answer: CExplanation: Small tax court cap is 50,000.Page Ref.: C:1-17Objective: 446) Theacquiescence policy of the IRS extends to theA) U.S. Supreme Court decisions.B) U.S. Tax Court regular decisions.C) U.S. District Court decisions.D) both B and CAnswer: DExplanation: IRS cannot appeal USSCdecisions.Page Ref.: C:1-17Objective:4

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1547) A tax casecannotbe appealed when initiated in theA) 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 aboveAnswer: CExplanation: Smalltax case does not allow appeal.Page Ref.: C:1-17Objective: 448) Identify which of the following statements isfalse.A)Regular and memorandum decisions of the Tax Court are published by the government in theTax Court of the United States Reports.B) The citationCristofani, 97 T.C. 74(1991) indicates that the decision is a regular decision ofthe Tax Court.C) The citationEstate of Newhouse, 94 T.C. 193 (1990),nonacq.1991-1 C.B. 1 indicates thatthe IRS did not formally disagree with this 1990 Tax Court decision until 1991.D) The Board of Tax Appeals preceded the Tax Court.Answer: AExplanation:Tax Court decisions are not published in this reporter.Page Ref.: C:1-17Objective: 449) You need to locate a recent tax case that was tried in a Federal district court. The decisionisan "unreported" decision. This means the decision wasA) 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: AExplanation: Unreportedmeans it was not published in the federal supplement.Page Ref.: C:1-18Objective: 450) A jury trial is permitted in theA) 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 areused.Answer: AExplanation: Tax Court does not permit a jury trial.Page Ref.: C:1-18Objective: 4

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