Acct 414 Chapter 1

Does Title 26 contain statutory provisions dealing only with income taxation? Explain.

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.

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

None of the above. The CPA does not report the false information to any external agencies, unless required by law.

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.

True

Identify which of the following statements is false.

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.

Appeals from the U.S. Tax Court are to the Court of Appeals for the Federal Circuit.

False

The Senate equivalent of the House Ways and Means Committee is the Senate

Finance Committee.

In all situations, tax considerations are of primary importance. Do you agree or disagree? Support your 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.

Final regulations have almost the same legislative weight as the IRC.

True

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 citator

The citation "Reg. Sec. 1.199-2" refers to

a regulation that interprets Code Section 199.

The Tax Court departs from its general policy of ruling uniformly for all taxpayers where

the Court of Appeals in the circuit to which the Tax Court decision would be appealed has ruled differently on the issue.

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 phrase "Entered under Rule 155" indicates that

the computation of the exact amount of the tax deficiency has been left to the litigating parties.

Final regulations can take effect on any of the following dates except

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.

The citation "Rev. Rul. 2006-8, 2006-1 C.B. 541" refers to

the eighth ruling of 2006 found on page 541 in Vol. 1 of the 2006 Cumulative Bulletin.

A citator is used to find

the judicial history of a case. the cases that have cited a case subsequent to the issuance of the opinion. whether a case has been overturned. D) all of the above.

Why does a researcher use a citator?

to check on authorities issued subsequent to a court decision

Tax Court memorandum decisions

usually deal with factual variations of issues litigated previously.

If the U.S. Supreme Court decides to hear an appeal of a tax case, it will grant a

writ of certiorari.

A client wants to take a tax return position with less than a 10% probability of being upheld in court. The CPA should

inform the client that the position does not have a realistic possibility of success.

A Technical Advice Memorandum is usually

issued by the national office in response to an audit request.

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

legislative regulations

Which of the following documents is issued by the IRS to a specific taxpayer?

letter ruling

When a court discusses issues not raised by the facts, the comments

may be referenced by the parties in other cases having the same facts.

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

not published in the Federal Supplement.

Regulations are

presumed to be valid and to have almost the same weight as the IRC.

A tax bill introduced in the House of Representatives is then

referred to the House Ways and Means Committee for hearings and approval.

Statements on Standards for Tax Services are issued by

the AICPA.

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?

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.

Describe the appeals process in tax litigation.

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.

Compare and contrast "interpretative" and "statutory" regulations.

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.

Taxpayers must pay the disputed tax prior to filing a case with the Tax Court.

False

Identify which of the following statements is false.

The citation Ann. 2006-12, I.R.B. 2006-51, 22 refers to an annotation of an Internal Revenue Service release.

Small case procedures of the U.S. Tax Court requires that the amount in dispute not exceed

$50,000

Outline and discuss the tax research process.

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.

In list form, outline the steps to follow when using a tax service.

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

The tax statutes with the popular name "The Internal Revenue Code of 1986" are contained in which Title of the Code?

26

The primary citation for a federal circuit court of appeals case would be

3 F.3d 134.

Which of the following citations denotes a regular decision of the Tax Court?

35 T.C. 1083 (2003)

Which of the following citations is the primary citation for a U.S. District Court case?

40 F.Supp. 453

What is the minimum information that should be contained in a citation?

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.

Describe the format of a client memo.

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.

Identify which of the following statements is false.

A revenue ruling is issued by the Internal Revenue Service only in response to a written inquiry by a taxpayer.

Under what circumstances might a tax advisor find the provisions of a tax treaty useful?

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.

What is the difference between a taxpayer-requested letter ruling and a technical advice memorandum issued as a letter ruling?

A taxpayer-requested letter ruling deals with prospective transactions, whereas a TAM deals with past or consummated transactions.

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.

The term "tax law" includes

A) legislation. B) treasury regulations. C) judicial decisions. D) all of the above

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?

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.

Distinguish between an annotated tax service and a topical tax service.

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.

What are the purposes of citations in tax research?

Citations serve two purposes. First, they substantiate propositions, and second, they enable the reader to locate underlying authority.

What is the purpose of a citator?

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.

Internet versions of topical tax services include

Code and Regulations. Revenue rulings, letter rulings, and revenue procedures. Court cases involving tax issues. D) All of the above.

The number appearing immediately following the decimal place in a regulation citation refers to the

Code section being interpreted.

Explain how committee reports can be used in tax research. What do they indicate?

Committee reports can help resolve ambiguities in statutory language by revealing Congressional intent. They are indicative of this intent.

When the House and Senate versions of a tax bill are not in agreement, the disagreements are resolved by the

Conference Committee.

Identify which of the following statements is false.

Dicta in a court opinion has no influence on other tax proceedings.

Discuss the differences and similarities between regular and memorandum decisions issued by the U.S. Tax Court.

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.

Identify which of the following statements is true.

Each state has at least one U.S. District Court.

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?

Estimates may be used, but Jane should disclose their use to the IRS.

What are some of the factors to consider when deciding in which court to file a tax-related claim?

Factors to consider include each court's 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.

1) Tax planning is not an integral part of open-fact situations.

False

A revenue ruling is issued by the Internal Revenue Service only in response to a verbal inquiry by a taxpayer.

False

According to the Statements on Standards for Tax Services, CPAs must verify all tax return information submitted by reviewing client documentation.

False

What is "forum-shopping"?

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.

When the Tax Court follows the opinion of the circuit court of appeals to which the case is appealable, the court is following the

Golsen rule

Identify which of the following statements is true.

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.

Explain the difference between a closed-fact and open-fact situation.

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.

Are letter rulings of precedential value to third parties?

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.

Which of the following is a true statement regarding primary authority of tax law?

Primary authority includes the Code, as well as administrative and judicial interpretations.

Compare and contrast proposed, temporary, and final regulations.

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.

Which of the following statements regarding proposed regulations is not correct?

Proposed regulations do not provide any insight into the IRS's interpretation of the tax law.

Identify which of the following statements is true.

RIA United States Tax Reporter and CCH Standard Federal Tax Reporter are topical tax services.

Which of the following is secondary authority?

RIA and CCH tax services

Which regulation deals with Code Section 165?

Reg. Sec. 1.165-5

Which regulation deals with the gift tax?

Reg. Sec. 25.2518-5

Identify which of the following statements is false.

Regular and memorandum decisions of the Tax Court are published by the government in the Tax Court of the United States Reports.

You have the following citation: Joel Munro, 92 T.C. 71 (1989). Which of the following statements is true?

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.

Which of the following best describes the weight of a revenue ruling?

Regulations carry more weight than revenue rulings.

Why should tax researchers take note of the date on which a Treasury Regulation was adopted?

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.

Discuss the purposes and scope of temporary regulations.

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.

Identify which of the following statements is true.

The American Federal Tax Reports contain only tax cases.

Which of the following statements about the Statements on Standards for Tax Services is true?

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.

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?

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.

Discuss the conflict between advocacy for a client and responsibility to the IRS.

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.

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?

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.

What is an information release?

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.

Identify which of the following statements is true.

The Statements on Standards for Tax Services recommend that only written tax advice be provided to the client in all situations.

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?

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.

In which courts may litigation dealing with tax matters begin? Discuss the factors that might be considered in deciding where to begin litigation.

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.

What is the purpose of Treasury Regulations?

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.

Identify which of the following statements is false.

The U.S. Tax Court must follow the previous decisions of the U.S. District Court for the district in which the taxpayer lives.

Identify which of the following statements is false.

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.

Identify which of the following statements is false.

The number "5" in the citation Reg. Sec. 1.166-5 refers to the paragraph number.

Where must a tax researcher look to access all Tax Court cases?

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.

What are some of the consequences of the small cases procedure of the Tax Court?

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.

According to the AICPA's Statements on Standards for Tax Services, what duties does the tax practitioner owe the client?

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.

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?"

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."

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?

There is no appeal.

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, 25 AFTR 2d 70-827, 70-1 USTC & 9289 (1970).

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.

Identify which of the following statements is true.

Title 26 of the United States Code and the Internal Revenue Code of 1986 are synonymous.

A citator enables tax researchers to locate authorities (e.g., cases and IRS pronouncements) that have

True

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.

True

The Internal Revenue Code of 1986 contains the current version of the tax law.

True

Is it possible for the Tax Court to intentionally issue conflicting decisions?

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.

Which of the following courts is not a trial court for tax cases?

U.S. Bankruptcy Court

A jury trial is permitted in the

U.S. District Court.

The acquiescence policy of the IRS extends to the

U.S. Tax Court regular decisions. U.S. District Court decisions.

A tax case cannot be appealed when initiated in the

U.S. Tax Court using the small case procedures.

The taxpayer need not pay the disputed tax in advance when the suit is initiated in

U.S. Tax Court.

Explain the legislative reenactment doctrine.

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.

Which tax service is usually deemed to be the most authoritative?

United States Tax Reporter Standard Federal Tax Reporter Federal Tax Coordinator 2d D) All are equally authoritative.

The committee that is responsible for holding hearings on tax legislation for the House of Representatives is the

Ways and Means Committee.

Identify which of the following statements is false.

When tax advisors speak of the "tax law," they usually have in mind just the Internal Revenue Code.

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

an open-fact situation

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

ask the client for permission to disclose the error to the IRS.

Which of the following steps, related to a tax bill, occurs first?

consideration by the House Ways and Means Committee