Tax Research Test 2 - Homework Questions and Answers

Not all statutory tax laws are found in the IRC. Is this statement true or false? Discuss briefly.

It is true that not all statutory tax law is found in the IRC. Tax treaties and federal laws other than the code are two other statutory sources of tax law.

How many judges sit on the US tax court? What is the length of time of the appointment of each judge?

Nineteen judges hear Tax Court cases but normally a case is presented before only one of the judges. Each judge is appointed to a 15 year term by the president with the advice and confirmation of the Senate. Periodically the chief judge of the court designates additional temporary tax court judges to hear cases.

May a taxpayer take their tax case directly to the US Supreme Court?

No, an appeal from any of the three trial courts is to the US Court of Appeals. The parties have no direct access to the Supreme Court.

Can a taxpayer have a jury trial before a court of appeals?

No, jury trials are not available for the court of appeals.

Are CPAs required to communicate tax advice and the results of research project to clients in writing?

No, tax advice may be communicated either orally or in writing. There is no required format for tax advice under SSTS No. 7 or Circular 230. professional judgement should be used in determining the form of communication.

May a taxpayer have a jury trial in the US Tax Court?

No, taxpayers cannot request jury trials before the tax court.

What is a research memo designed to do?

- Organize the facts, issues, and conclusions of the project - Facilitate a review of the research activities by the practitioners supervisors or colleagues - Allow for a subsequent examination of the research issue by the original researcher or by their successor, with respect to a similar situation

List and discuss the primary parts of a tax research memo.

- Summary of the facts - Summary of the issues - Conclusion - A list of authorities relied upon - Analysis and summary

You are preparing for an audit with an IRS agent for an important client. Your research has uncovered several favorable rulings and court decisions. What are the key points that should guide you in evaluating sources of the law?

- The hierarchy of the court decisions and their relevance for the taxpayer given the taxpayers jurisdiction. - The recency of the court decision and administrative rulings. - The hierarchy of the administrative ruling. While regulations are seldom held to be invalid by a court, revenue rulings and revenue procedures are more likely to be successfully challenged.

Give the number that is associated with each of the following categories of regulations: a) Estate tax b) Income tax c) Gift tax d) Procedural regulations e) Employment tax

a) 20 b) 1 c) 25 d) 301 e) 31

Regulation Section 20.2039-1(a) a) What does "20" stand for? b) What does "2039" stand for? c) What does "1" stand for? d) What does "(a)" stand for?

a) Regulation type 20 - estate tax b) Code section 2039 - annuities c) Regulation number 1 d) Regulation paragraph (a)

Which code section contains the statute for the definition of: a) Gross income b) Interest deduction c) Depreciation and cost recovery

a) Section 61 b) Section 163 c) Sections 167, 168, and 169

What types of cases are heard by the US court of federal claims?

Cases concerning all monetary claims against the federal government, only one type of which involves tax refunds.

How many judges are appointed to the Supreme Court? How many hear each case?

The supreme court has 9 justices and all 9 will hear every case which is granted certiorari by the court.

In the citation Section 1031(a)(3)(B), what does the "a" stand for? What do the "3" and the "B" indicate to a tax researcher?

(a) = subsection (a) (3) = paragraph 3 (B) = subparagraph B

Briefly list and discuss the general writing tips introduced in the chapter.

- Be organized - Consider the reader - Be professional and courteous - Use correct grammar and punctuation - Be brief and to the point -Write in direct, active voice and use short sentences

Briefly summarize the key takeaways regarding the use of visual aids in oral presentations. (Part 1)

- General preparation for the talk should include a thorough, frank examination of the following set of questions by the presenter - Be prepared in the technical aspects of your discussion -Direct your remarks to the highlights and general results of the research and leave time for questions-and-comments period - Use visual aids effectively - For text in visual displays, use the "six and six" rule, keep font style simple - Before the presentation, find out your time length and do not exceed - Rehearse presentation at least once

Briefly summarize the key takeaways regarding the use of visual aids in oral presentations. (Part 2)

- Get physically close to the audience if you can - Eliminate nervous habits - Vary voice pitch - Don't be afraid of silence - Don't read directly from outline - Be enthusiastic and positive about comments - Rehearse the logistical aspects of the presentation - Do not take the risk of boring or offending the audience with a joke - Have a Plan B ready to go - Observe audience body language and use signals conveying interest, enthusiasm, boredom, or restlessness to your advantage

The US Tax Court has undergone an evolution since it was founded. What happened to its structure in 1926, 1943, and 1969?

1926: first established as the Board of Tax Appeals and it was just an administrative board of the Treasury Department rather than a true judicial court. 1943: it became the US Tax Court which was an administrative court. 1969: its status was upgraded to that of a full judicial court with enforcement powers.

Explain the elements of this citation: Rev. Rul. 2013-5, 2013-9 IRB 525

2013 is the year the ruling was issued 5 is the ruling number for the year 2013-9 is the weekly issue of the IRB IRB = Internal Revenue Bulletin 525 is the first page number of the ruling in the IRB

How does one petition the Supreme Court to hear ones tax case?

A US citizen does not have an automatic right to have their case heard by the Supreme Court. The courts permission to present the case is petitioned by a writ of certiorari. Under this procedure, if the court decides to hear the case, the certiorari is granted. If the court refuses to hear the case then certiorari is denied.

What is a case headnote? How might it be useful to the tax researcher?

A case headnote is a brief case summary at the beginning of a case, which is usually inserted by the court reporter editors. They are useful t the researcher by helping to quickly determine if a particular case is of interest.

Discuss the evolution of today's IRC

After the 16th Amendment was ratified in 1913, Congress passed a series of revenue acts, each of which formed the entire income tax law of the United States. During the next two decades, Congress passed an additional revenue act every year or two. During the 1930s, this series of revenue acts and the task of rewriting frequently the entire tax statute had become unmanageable. Consequently, Congress replaced the revenue acts with the IRS of 1939. One major problem with the IRC of 1939 was the numbering system that was used. Specifically, the 1939 codification's numbering system did not leave adequate room for subsequent changes to the law. Therefore, the 1939 Code was replaced with a reorganized, more flexible codification in 1954. Due to extensive revisions to the code made as a part of the Tax Reform Act of 1986, the statute was renamed the IRC of 1986, which, as amended, constitutes the current tax law of the United States.

"A tax researcher should not ignore proposed regulations." Comment on this statement.

Although a proposed regulation has not yet been incorporated into the official administrative tax law, it should not be ignored because they generally represent the IRS' current understanding of an issue and many of the provisions of the proposed regulation may eventually become part of the final regulation.

Of what relevance to the tax practitioner is a revenue procedure?

Although a revenue procedure may not be useful in arriving at a solution to a technical tax problem, such pronouncements are important in that they provide information to the public as to the handling of certain administrative matters. The practitioner should be familiar with the relevant revenue procedures to implement recommendations or conclusions.

What is a revenue ruling?

An official pronouncement of the National Office of the IRS, and it deals with the application of the code and regulations to a specific factual situation, which usually has been submitted by a taxpayer. Consequently, most indicate how the IRS will treat a given taxpayer's transaction.

What is a public law number? In P.L. 100-203, what do the "100" and the "203" indicate?

Committee reports are referred to by public law number and every bill that is passed by Congress is assigned such a number. In P.L. 100-123, the prefix refers to the 100th session of Congress that passed the law. The suffix indicates this is the 203rd bill that this session of Congress adopted.

As a bill proceeds through Congress, various committee reports are generated. List the three committee reports that typically are prepared for a new tax law.

Committee reports usually are available for the deliberation of the Ways and Means Committee, the Finance Committee, and the Joint Conference Committee

Are the US courts of appeals national courts? What type of cases do they hear?

Congress created 13 courts of appeals, 11 are geographical and are responsible for cases in designated states, 1 is assigned to Washington DC, and 1 is known as the Court of Appeals for the Federal District The court of appeals considers issues in both tax and nontax litigation. The court of appeals for the federal district only hears cases that originate in the court of federal claims. The other courts consider issues brought form the tax court or a district court for their assigned geographical regions.

Who can initiate a court case that deals with a tax matter - the taxpayer or the IRS?

Either the taxpayer or the IRS may initiate legal proceedings in the federal court system.

Distinguish between a citation with "IRB" in it and one with "CB" in it.

IRB stands for Internal Revenue Bulletin which is a weekly publication in which both revenue rulings and revenue procedures are first published. CB stands for Cumulative Bulletin which is a bound book containing the ordered contents of many IRBs. It is no longer published.

What does the term en banc mean?

If a tax case involves an unusual, important, or novel issue, more than one judge, or the entire tax court, might hear the case. This rare occurrence is identified as an en banc sitting of the court.

Differentiate between the Supreme Courts overturning of a lower courts decision and its denial of a writ of certiorari.

In denying a petition for certiorari, the supreme court is not "upholding" or in any way confirming a lower court decision. Rather, the court did not find the case to be interesting or important enough to consider during its limited sessions. The lower courts decision does stand but it cannot be inferred that this decision is necessarily correct or should be followed in the future by other taxpayers with similar situations.

Who has the burden of proof in most cases involving the tax law? Why?

In most cases involving issues of the tax law, the taxpayer has the burden of proof. The burden of proof is placed on the taxpayer by statute, under the IRC. There are certain designated areas of the tax law where the burden of proof is on the government.

What resources are available to help the tax researcher who wishes to check the status of a revenue ruling?

Online and commercial tax services present finding lists and other references used to examine the status of a ruling.

Identify three types of letter rulings that are of interest to the tax researcher. Indicate whether each of these rulings is published by the IRS.

Private letter rulings Determination letters Technical advice memoranda. The IRS does not publish any of these rulings in an official collection but they are available from several commercial services.

Distinguish among a regular, memorandum, and summary decision of the Tax Court.

Regular decision - involves a new or unusual point of law, as determined by the chief judge of the court. Memorandum - If the chief judge believes that the decision concerns only the application of existing law or an interpretation of factual questions. Summary decisions - issued in cases tried under the small case procedures and have no precedential value.

The burden of proof is on the taxpayer to prove that a provision of the regulations is improper. How could this affect one's tax research?

Regulations are generally viewed as having the full force and effect of law. Consequently, a taxpayer's challenge to a regulation typically must assert an improper exercise of IRS power, or an overly broad application of a rule that is not authorized by the code. When questioning the validity of a regulation, the tax researcher must be aware of the accuracy penalties that Congress has enacted. If a practitioner chooses to ignore an administrative element of the tax law, they must possess substantial authority to do so to avoid these penalties.

Define the terms regulation and Treasury decision. Where are TDs published so that interested parties can comment on them?

Regulations constitute the IRS's official interpretation of a portion of the Internal Revenue Code. Treasury decisions are documents that explain and contain the text of a final or temporary decision. They are published in the Federal Register and sometime later, in the Internal Revenue Bulletin.

Construct the permanent CB citation for the fifth revenue procedure of 2001, which was published in the second week of the year. It is published on page 164 of the appropriate volume.

Rev. Proc. 2001-5, 2001-2 C.B. 164

Can Tax Court summary opinions be cited as precedent. Discuss.

Tax court summary opinions, which are small case decisions, cannot be used as precedents when dealing with the IRS; however, they do provide insight into how the tax court has treated similar tax situations.

Briefly summarize the usually steps of the legislative process for the development of federal tax legislation.

Tax legislation generally begins in the Ways and Means Committee of the House of Representatives. The approved bill is then voted on by the full House of Representatives. The bill is the sent to the Senate Finance Committee, and after the bill is approved by the Finance Committee, it is voted on by the full Senate. The Joint Conference Committee resolves differences in the House and Senate versions of the tax bill, after which the revised bill must be approved by both the House and the Senate. The approved bill is the signed into law by the president and then incorporated into the IRS, assuming the president does not choose to veto the bill.

Must the taxpayer pay the disputed tax deficiency to the government before their case will be hear in a district court? In the US court of federal claims? In the US tax court?

Tax paid before: - District Court - Court of Federal Claims Tax not paid before: - Tax Court

What is a tax treaty? Explain the purpose of a tax treaty. What matters generally are covered in a tax treaty?

Tax treaties are agreements negotiated between countries concerning the treatment of individuals and companies subject to the tax laws of multiple countries. The primary purpose of these treaties is to eliminate the "double taxation" that the taxpayer would face if their income were subject to tax in more than one country. Any tax matter may be covered in a tax treaty. Estate and gift taxation, withholding, and multinational corporate taxation problems can be addressed in a tax treaty.

What are temporary regulations? What weight do they carry in the tax researcher's analysis?

Temporary regulations are issued to provide the taxpayer with some immediate guidelines concerning a new provision of the law. Until a temporary regulation is replaced with the final regulation, the tax researcher should treat the temporary regulation as though it were finalized and assign it the presumption of the force of law. Consequently, it is important to distinguish between temporary and proposed regulations. Temporary regulations are fully in effect and must be followed until they are superseded, whereas proposed regulations are not in effect and are issued to solicit comments and to expose the IRS's proposed interpretation of the law.

The 16th Amendment to the Constitution had a significant effect on the U.S. income tax. What was it?

The 16th Amendment was ratified on February 3, 1913 and eliminated the claim that the Federal income tax was unconstitutional. Evidence of this face can be found in the terminology of the amendment: "The Congress shall have the power to lay and collect taxes on incomes, from whatever sources derived, without apportionment among the several States, and without regard to any census or enumeration."

What is the official name of P.L. 115-123? What year was the law enacted?

The Bipartisan Budget Act of 2018. It was enacted in 2018. Could have used RIA Checkpoint to find this information.

Discuss the powers of taxation that are granted to Congress by the U.S. Constitution. Are any limits placed on the powers of Congress to impose tax?

The Constitution is the source for all of the federal tax laws of the country. The Constitution expressly provides that Congress may not impose export taxes but may impose import taxes. In addition, the constitutional rights of due process and privacy of the citizen apply in tax as well as nontax, environments. The Constitution also requires that taxes imposed by Congress be uniform from state to state. Direct and per capita taxes are prohibited unless the revenues generated are apportioned to the population of the states from which they were collected.

One of the most important IRS publications is the IRB. How often is this document published? Name six items that typically are published in the IRB.

The Internal Revenue Bulletin is published online weekly by the IRS Can contain any of the following: - Revenue rulings - Revenue procedures - IRS acquiescence's and nonacquiescences - New tax (public) laws - Committee reports - Procedural rules - New tax treaties - Treasury decisions - Other notices

What department and agency of the U.S. government has the responsibility to administer the federal tax laws?

The Internal Revenue Service, part of the U.S. Treasury Department, is responsible for the administration of the income tax law.

Discuss the effect of Pollock v. Farmers' Loan & Trust Co. on the development of U.S. income tax laws.

The Supreme Court held that the income tax was unconstitutional, because it was a constitutionally prohibited direct tax. Supporters of the income tax proposed an amendment to the Constitution in order to dispense with the question of the constitutionality of the income tax. As a result, the 16th amendment to the Constitution was ratified.

Differentiate between a primary and secondary case citation.

The West citation (F.Supp) is referred to as the primary citation for a case and the CCH and RIA reporters are used to construct secondary citations since they only contain tax decisions.

Which of the trial courts is most appropriate for a taxpayer who wishes to limit the judicial review of the relevant years tax return to the specific issue(s) involved in the case?

The district court or the US court of federal claims because they only address the specific issue(s) that are involved. The tax court can examine the entire return.

What is the jurisdiction of a US District Court?

The district courts hear cases involving legal issues that are based upon the entire US Code, and not just the IRC.

The IRS issues numerous pronouncements. Name and describe four that are the most important in conducting federal tax research.

The four most important to tax research are regulations, revenue rulings, revenue procedures, and letter rulings. The IRS issues other notices that are generally less important than these four.

Discuss some of the key points that the tax researcher must consider with respect to evaluating administrative sources of law as part of a research project.

The hierarchy of the administrative sources of law particularly with regard to revenue rulings and revenue procedures compared to regulations.

Discuss some of the key points that the tax researcher must consider with respect to evaluating court cases as part of a research project.

The hierarchy of the court, similarity of the fact situation, and the date of the court decision. In addition, relevant information may be discovered in dissenting and concurring opinions in a court case.

Discuss the precedential value of PLRs, determination letters, and TAM. What role do these items play in conducting tax research?

The precedential value of any of these written determinations is strictly limited. Overall, such pronouncements may not be cited as authority in a tax matter by either the taxpayer or the IRS. However, letter rulings can be used as "examples" of IRS treatment of similar factual patterns when dealing with the IRS. In addition, taxpayers may rely on private letter rulings, technical advice memoranda, actions on decisions, general council memoranda, and other similar documents published by the IRS in the Internal Revenue Bulletin, to avoid certain understatement of tax penalties.

Which of the trial courts would best serve a taxpayer litigating an issue of a technical tax nature? Why?

The tax court because the judges are tax law specialists and should be better able to understand and discuss technical issues in the tax law.

What is the small tax case procedure of the US Tax Court? What is the maximum amount of the deficiency that can be the subject of a small tax case hearing? Comment on the trial procedures in small tax cases.

The tax court maintains a small cases procedure, similar to a small court of federal claims. If the amount of the disputed deficiency does not exceed $50,000, a taxpayers case may be hear before the small case procedure, upon approval of the tax court. The hearing is conducted as informally as possible, and the taxpayer may represent themselves or with an attorney. Neither written briefs nor formal oral arguments are required in the small cases procedure.

Why should the tax researcher exercise caution in relying on an IRS publication, such as published instructions to tax forms, in undertaking a research project?

These publications typically do not cite the code, regulations, or other authority upon which they rely. More importantly, the service disclaims any responsibility for damages the taxpayer may suffer in relying upon the publications, and the service may take positions that are contrary to those included in the publications in certain court cases or appeals hearings. In addition, these documents are prepared from the government's point of view and may not disclose the existence of unfavorable court rulings with respect to the issue involved.

Each court of appeals has approximately 20 judges. How many of these judges hear a typical case?

Typically a 3 judge panel hears a court of appeals case.

Describe the structure of a typical revenue ruling.

Typically, the ruling begins with a statement of the issues that are involved. Then, those facts that will bear upon the IRS's analysis and conclusion are stated in a summary fashion. In the laws and analysis section of the ruling, the service identifies and discusses the applicable statutes, regulations, and court cases that relate to the factual situation. Finally, the IRS holding is stated, usually accompanies by an explanation as to how and why the IRS arrived at the conclusions to treat the transaction in this matter.

Tax protestors who file "frivolous" tax returns or bring "frivolous" proceedings before the U.S. Tax Court are subject to certain fines or other penalties. What are the grounds for imposing each penalty? What is the maximum amount of each penalty?

Under Code Section 6702, the maximum penalty a taxpayer is subject to is a $5,000 fine for filing a frivolous tax return as a form of protest against the IRS. This fine would be levied if the taxpayer files a blank tax return accompanied by a note suggesting that the Federal income tax is unconstitutional. Internal Revenue Code (IRC) Section 6673 levies a penalty, not to exceed $25,000 if a taxpayer brings a frivolous matter before the Tax Court. This fine might be applied when the proceedings are found to have been instituted primarily to delay the revenue collection process and where the taxpayer's grounds for bringing the proceedings are found to be frivolous or groundless.

The US Tax Court is a national court that hears cases of taxpayers who may appeal to various geographical courts of appeals. How does the tax court reconcile the opposite holdings of two or more of these courts of appeals for taxpayers who work or reside in different parts of the country?

When confronted with opposite holdings, the tax court will follow the court of appeals holding, if any, that has direct jurisdiction over the taxpayer whose case is before the tax court (Golsen Rule). If the court of appeals that has jurisdiction over the taxpayer has not ruled on the matter, the tax court will decide the case based on its own interpretation of the statute. The tax court may reach opposite decisions, based upon identical facts, for taxpayers differentiated solely by the geographical area in which they live.

Sometimes a PLR is generalized and included in an official IRS publication. What form does this recast private ruling take?

When the IRS comes across an unusual transaction that it believes to be of general interest, or when it receives many private letter ruling requests concerning very similar factual situations, a private letter ruling may be converted into revenue ruling form and published in official administrative sources.

Which subchapter of Subtitle A, Chapter 1 of the IRC contains the provisions related to the following? a) Deferred compensation b) Partners and partnerships c) Corporate distribution and adjustments d) Banks

a) Subchapter D b) Subchapter K c) Subchapter C d) Subchapter H

Give the title of the following: a) Publication 54 b) Publication 225 c) Publication 334

a) Tax Guide for US Citizens and Resident Aliens Abroad b) Child and Dependent Care Expenses c) US Tax Guide for Aliens

Locate Section 1245 of the IRC and answer the following. Section 1245 is part of which: a) Title b) Subtitle c) Chapter d) Subchapter

a) Title 26 b) Subtitle A c) Chapter 1 d) Subchapter P

By using only the citation, state which court issued each of the following decisions. a) Davis v. US, 43 Fed. Cl. 92 (1999) b) D.C. Crummey v. US, 68-2 USTC Paragraph 12,541 c) US v. Goode, 86 AFTR2d 2000-7273 d) James v. US, 81 S.Ct. 1052 (1961)

a) United States Court of Federal Claims (Fed. Cl.) b) Unable to determine c) Unable to determine d) US Supreme Court (S.Ct.)