Chapter 05 - Tax Research

Chapter 05 Tax Research

True / False Questions

1. Experienced tax professionals generally can answer most tax questions without the need for tax research. FALSE

Difficulty: Easy Learning Objective: 1

2. A single tax issue may result in multiple research questions. TRUE

Difficulty: Easy Learning Objective: 1

3. The first step in the tax research process is to locate relevant tax law authority. FALSE

Difficulty: Easy Learning Objective: 1

4. The final step in the tax research process is to document and communicate research conclusions. TRUE

Difficulty: Easy Learning Objective: 1

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5. Effective tax research often omits the first two steps of the tax research process. FALSE

Difficulty: Medium Learning Objective: 1

6. Professional tax research conclusions should always be based on relevant secondary authority. FALSE

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7. A research memorandum is typically less detailed than a client letter in terms of discussing supporting legal authorities. FALSE

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8. Novice tax researchers tend to exam less material in the course of a tax research project than experienced tax researchers. FALSE

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9. Tax research typically occurs as part of the tax compliance process; it is rarely important in tax planning. FALSE

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10. Tax research may occur as part of tax compliance or tax planning. TRUE

Difficulty: Easy Learning Objective: 1

11. Tax judicial decisions each have a single, unique citation. FALSE

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12. In the citation Rev. Proc. 2002-32, 2002-1 C.B. 959, the abbreviation C.B. refers to Congressional Bulletin. FALSE

Difficulty: Medium Learning Objective: 2

13. If a trial court decision has been appealed and the appellate court reversed the trial court's decision, the trial court decision is considered authoritative. FALSE

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14. Private letter rulings are authoritative only for the specific taxpayer to whom they are issued and cannot be relied on as authority by any other taxpayer. TRUE

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15. Editorial explanations provided by electronic tax services are examples of secondary authority. TRUE

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16. Technical advice memoranda are considered primary authority for any taxpayer in a similar tax situation. FALSE

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17. Private letter rulings and technical advice memoranda are primary authority for those taxpayers to whom they were issued. TRUE

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18. The Internal Revenue Code is the primary source of statutory authority for federal income tax law. TRUE

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19. Treasury regulations are considered statutory authority. FALSE

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20. Revenue rulings are an example of administrative authority. TRUE

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21. A revenue ruling cannot be relied on as authority by any taxpayer other than the taxpayer for whom the ruling was issued. FALSE

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22. A taxpayer who loses a case in the U.S. Tax Court may appeal the case directly to the U.S. Supreme Court. FALSE

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23. Revenue procedures are a type of secondary authority. FALSE

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24. When the Supreme Court denies certiorari, the decision of the appellate court is final. TRUE

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25. Secondary authorities explain and interpret the tax law in language often easier to understand than that of primary authorities. TRUE

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26. Tax services are typically organized either topically or by Code section. TRUE

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27. A citator may be used to determine the status of tax judicial decisions, revenue rulings, and revenue procedures. TRUE

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28. The Citator is a rarely used, unimportant source of information about the status of judicial and administrative tax decisions. FALSE

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29. Editorial explanations found within a tax service are a type of primary authority. FALSE

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30. Secondary authorities should always be cited when documenting tax research conclusions. FALSE

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31. Secondary authorities are typically used only by novice researchers in searching for answers to tax questions. FALSE

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32. Secondary authorities organize information about primary authorities in a manner that facilitates tax research. TRUE

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33. The topical index of a commercial tax service is considered primary authority. FALSE

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Multiple Choice Questions

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34. Which of the following is not one of the six steps in the tax research process? A. Understand the client's transaction and ascertain the facts. B. Locate relevant tax law authority. C. Analyze relevant authority and answer the research questions. D. All of the above are steps in the tax research process.

Difficulty: Easy Learning Objective: 1

35. Which of the following statements regarding the tax research process is true? A. Before a researcher can analyze the tax consequences of a transaction, he or she must thoroughly understand the transaction. B. Tax research is often conducted as part of both tax compliance and tax planning activities. C. Tax research is a critical skill for the tax practitioner. D. All of the above statements are true.

Difficulty: Easy Learning Objective: 1

36. What is the first step in the tax research process? A. Discover all the facts relevant to the taxpayer's transaction. B. Decide which tax library to use. C. Decide whether to read primary or secondary authority. D. Formulate a precise research question.

Difficulty: Easy Learning Objective: 1

37. Which of the following is not one of the six steps in the tax research process? A. Identify the tax issues, problems, or opportunities suggested by the facts and formulate specific research questions. B. Consult a commercial tax service to identify potential legal authorities. C. Analyze relevant authority and answer the research questions. D. Document your research and communicate your conclusions.

Difficulty: Medium Learning Objective: 1

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38. When performing step one of the tax research process: A. The researcher generally can assume that the client's initial summary of the transaction is factually accurate and complete. B. The researcher must take into account the level of the client's tax knowledge. C. The client's motivation in undertaking the transaction is generally irrelevant. D. The researcher should presume that the client has some knowledge of the tax law.

Difficulty: Medium Learning Objective: 1

39. When performing step two of the tax research process: A. The identification of tax issues precedes the formulation of research questions. B. Research questions should be as broadly stated as possible. C. Each tax issue is always associated with a single research question. D. The order in which research questions are addressed is irrelevant.

Difficulty: Difficult Learning Objective: 1

40. When performing step three of the tax research process: A. A commercial tax service may provide an excellent starting point. B. The researcher must discover all the facts concerning the client's transaction. C. The researcher must communicate his or her conclusions to the client. D. The researcher should always consult primary authorities first before turning to secondary authorities for guidance.

Difficulty: Medium Learning Objective: 1

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41. Step five of the tax research process: A. Is typically performed only by novice researchers. B. Is required only if the researcher has made a careless mistake in a previous step. C. Should only be taken once. D. Is necessary when the researcher determines that additional facts are needed to complete the analysis of the transaction.

Difficulty: Medium Learning Objective: 1

42. Which of the following statements does not accurately describe the tax research process? A. A researcher may begin with any of the six steps in the process. B. The process is not linear because the researcher may have to repeat one or more of the steps before concluding the research. C. If a set of facts suggests multiple research questions, the researcher must decide on the order in which the questions should be answered. D. The last step in the process requires preparation of a written summary that communicates the researcher's conclusions.

Difficulty: Easy Learning Objective: 1

43. When analyzing tax authorities, the researcher must decide if the authority requires a factual judgment or an evaluative judgment. The difference between the two can be described as follows: A. In making an evaluative judgment, the researcher can provide a definitive answer to the research question. B. In making a factual judgment, the authority may be subject to interpretation. C. In making an evaluative judgment, the researcher must draw a subjective conclusion that results in a qualified answer. D. There is little difference between a factual judgment and an evaluative judgment.

Difficulty: Medium Learning Objective: 1

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44. When analyzing relevant legal authority: A. The researcher is finished only when an unambiguous answer to the research question has been located. B. Different sources of authority may provide conflicting answers. C. Interpretation and judgment on the part of the researcher is rarely required. D. The researcher should never give an unqualified answer to any research question.

Difficulty: Medium Learning Objective: 1

45. Which of the following is not generally included in a tax research memorandum? A. A statement of the pertinent facts B. An analysis of the relevant sources of authority C. The details of any advice given to the client as part of the research engagement D. A bill for fees charged to the client for the research engagement

Difficulty: Easy Learning Objective: 1

46. Which of the following statements regarding documentation of research conclusions is false? A. A research memorandum is a permanent record of the research process. B. A researcher communicates his or her conclusions to the client in a letter containing information similar to that in the research memorandum. C. Technical references are generally inappropriate in a client letter. D. A research memorandum contains only research conclusions and not a detailed analysis of legal authorities supporting those conclusions.

Difficulty: Medium Learning Objective: 1

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47. Which of the following is not one of the three sources of authority that comprise the federal tax law? A. Statutory authority B. Secondary authority C. Administrative authority D. Judicial authority

Difficulty: Medium Learning Objective: 2

48. Which of the following is not primary authority on which to base research conclusions? A. Journal of Taxation article written by a professor. B. Revenue ruling C. U.S. Tax Court decision D. U.S. Supreme Court decision

Difficulty: Easy Learning Objective: 2

49. Which of the following is not a primary authority? A. Section 465 of the Internal Revenue Code B. Munro v. Comm., 267 F.3d 1918 (CA-8, 2004) C. CCH Master Tax Guide D. All of the above are primary authorities.

Difficulty: Easy Learning Objective: 2

50. Which of the following is not primary authority on which to base tax research conclusions? A. U.S. District Court decision B. Editorial in the Wall Street Journal C. U.S. Court of Federal Claims decision D. Revenue procedure

Difficulty: Easy Learning Objective: 2

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51. Which of the following is primary authority on which to base research conclusions? A. This textbook B. An editorial explanation in a commercial tax service C. A Treasury regulation D. A treatise written by a tax attorney and published in a legal journal

Difficulty: Medium Learning Objective: 2

52. Which of the following is not a proper citation to a Treasury regulation? A. Reg. Sec. 1.61-1(a) B. Reg. 1.61-1(a) C. Reg. 1.61-1(a) D. Treasury Regulation 61-1(a)

Difficulty: Medium Learning Objective: 2

53. Which of the following is not a proper citation to an Internal Revenue Code section? A. IRC 1001 B. Sec. 1001 C. Section 1001 D. 1001

Difficulty: Medium Learning Objective: 2

54. Which of the following is a proper citation to a revenue ruling? A. Revenue Ruling 2004 - 33 B. RR 2004-33 C. Rev. Rul. 2006-33, 2004-1 C.B. 628 D. All of the above are proper forms for citing a Revenue Ruling

Difficulty: Medium Learning Objective: 2

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55. Which of the following is not a citation to a primary authority? A. Sec. 1245 B. Lengsfield v. Comm., 50 AFTR 1683 (CA-5, 1957) C. M-5800 Activities Not Engaged in for Profit - Hobby Losses D. Rev. Proc. 2002-32, 2002-1 C.B. 959

Difficulty: Medium Learning Objective: 2

56. Based on the citation Rev. Rul. 89-157, 1989-1 C.B. 221: A. This revenue ruling was issued in 1989. B. This revenue ruling is no longer valid. C. The abbreviation C.B. stands for Comprehensive Bulletin. D. This revenue ruling appears on page 157.

Difficulty: Medium Learning Objective: 2

57. Which of the following is not administrative authority? A. The Internal Revenue Code B. Treasury regulations C. Revenue rulings D. Revenue procedures

Difficulty: Easy Learning Objective: 2

58. The U.S. Supreme Court: A. Typically hears hundreds of tax cases each year. B. May deny certiorari for a tax case because the court believes that the case involves a significant principle of law. C. May grant certiorari for a tax case because two or more appellate courts have rendered conflicting opinions on the proper resolution of a tax issue. D. Does not hear cases on tax issues.

Difficulty: Easy Learning Objective: 2

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59. Which of the following primary authorities is least likely to provide a detailed description of facts to which a researcher can compare his or her client's fact pattern? A. Internal Revenue Code section B. Treasury regulation C. Revenue ruling D. Tax Court decision

Difficulty: Medium Learning Objective: 2

60. The advantages of electronic tax research libraries do not include: A. The ease with which such libraries can be updated for new developments. B. Portability. C. Speed of access and search. D. All of the above are advantages of electronic tax research libraries.

Difficulty: Easy Learning Objective: 2

61. Which of the following is not a commercial tax service? A. RIA Federal Tax Coordinator 2d B. CCH Federal Tax Services C. Tax Management Portfolios D. Cumulative Bulletin

Difficulty: Medium Learning Objective: 3

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62. Which of the following statements regarding commercial tax services is false? A. Commercial tax services explain and interpret the tax law. B. Commercial tax services organize information about primary authorities in a manner that facilitates tax research. C. Commercial tax services contain both primary authority and secondary authority. D. Consulting a commercial tax service is typically the final step rather than a preliminary step in the tax research process.

Difficulty: Easy Learning Objective: 3

63. Which of the following is not a typical strategy for using a commercial tax service? A. Using the topical index B. Using the table of contents C. In an electronic service, using a keyword search D. All of the above are typical strategies for using a commercial tax service.

Difficulty: Easy Learning Objective: 3

64. A keyword search in an electronic tax service: A. Allows the researcher to combine words and phrases to define the search. B. Is identical to using the topical index in a paper service. C. Is not an efficient way to conduct tax research. D. Cannot be restricted to only a part or portion of the data base.

Difficulty: Medium Learning Objective: 3

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65. A citator: A. Is not an important tax research resource. B. May be used to determine the status of tax judicial decisions, revenue rulings, and revenue procedures. C. Is published by the federal government. D. Provides an editorial explanation of tax judicial decisions.

Difficulty: Medium Learning Objective: 3

66. Which of the following statements regarding secondary authorities is true? A. Most secondary authorities are published by the federal government. B. Secondary authorities should never be cited as the authority for final research conclusions. C. Secondary authorities should always cite primary authority to support conclusions about the application of the tax law. D. None of the above statements is true

Difficulty: Medium Learning Objective: 3

67. In locating relevant authorities: A. Only a novice researcher will use secondary authorities as a guide. B. Experienced researchers always conduct their search in exactly the same way for every research project. C. Tax researchers may consult more than one tax service. D. Skilled researchers usually consult a broader range of library materials than novice researchers.

Difficulty: Medium Learning Objective: 3

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68. Which of the following statements regarding secondary authorities is false? A. In paper format, commercial tax services are organized either topically or by Code section. B. Commercial tax services provide legislative history of each Internal Revenue Code section. C. Only topically-organized commercial tax services provide a detailed topical index. D. The organization and content of the major topically-oriented services differs considerably.

Difficulty: Medium Learning Objective: 3

69. A keyword search using an electronic database is part of which step in the research process? A. Understand the client's transaction and ascertain the facts B. Identify the tax issues, problems, or opportunities suggested by the facts and formulate specific research questions C. Locate relevant tax law authority D. Analyze relevant authority and answer the research questions

Difficulty: Easy Learning Objective: 1 Learning Objective: 3

70. The use of secondary authorities might be appropriate as part of which step in the research process? A. Understand the client's transaction and ascertain the facts B. Identify the tax issues, problems, or opportunities suggested by the facts and formulate specific research questions C. Locate relevant tax law authority D. Document your research and communicate your conclusions

Difficulty: Medium Learning Objective: 1 Learning Objective: 3

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71. Which of the following is not a secondary authority? A. Tax textbook B. Commercial tax service C. Tax professional journal D. Revenue procedure

Difficulty: Easy Learning Objective: 3

Application Problems

72. Alex inherited an antique diamond bracelet from her grandmother. She is thinking of selling the bracelet to raise cash for her college tuition and wonders about the tax consequences of such a sale. If you were to research this question using a keyword search in an electronic library, what keywords would you use? Propose three distinct keyword searches. There are many acceptable answers to this question. Three possible keyword searches are:

Difficulty: Easy Learning Objective: 1

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73. Using an electronic research database such as Checkpoint, CCH Tax Research NetWork, or Lexis-Nexis, perform a keyword search that includes the phrase business expense and the keyword charity. Include both primary sources and editorial materials in your search. a. How many documents did your search retrieve? b. How many documents are primary authorities and how many are secondary authorities? c. Provide citations to two primary authorities and two secondary authorities. The answers to this problem depends on the date on which the search is conducted and the database used.

Difficulty: Easy Learning Objective: 2 Learning Objective: 3

74. Locate the revenue procedure that includes the inflation-adjusted individual tax rate schedules for 2011. This revenue procedure usually is released in November or December of the previous year. Provide a complete citation for your source. Rev. Proc. 201-12, 2011-2 IRB 297.

Difficulty: Medium Learning Objective: 1 Learning Objective: 2

75. Find a tax glossary on any freely accessible Web site and provide the URL. Also find and provide a citation for the IRC section that defines the term gross income. a. What is the tax glossary's definition of gross income? b. How does the IRC define gross income? c. Of the two definitions, which would a taxpayer without extensive tax knowledge find easier to understand? Why? d. Which of the two definitions is relevant for a tax researcher? Why?

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The MSN Money Tax Glossary can be found at: http//moneycentral.msn.com/taxes/glossary. It defines gross income as "Your total income before adjustments, deductions, or exemptions." IRC Section 61(a) defines gross income as follows: (a) General definition. Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items; (2) Gross income derived from business; (3) Gains derived from dealings in property; (4) Interest; (5) Rents; (6) Royalties; (7) Dividends; (8) Alimony and separate maintenance payments; (9) Annuities; (10) Income from life insurance and endowment contracts; (11) Pensions; (12) Income from discharge of indebtedness; (13) Distributive share of partnership gross income; (14) Income in respect of a decedent; and (15) Income from an interest in an estate or trust. A taxpayer without extensive tax knowledge would find the Tax Glossary definition easier to understand because it is shorter and less technical. However, the IRC definition is more relevant for a tax researcher because it represents primary authority.
Difficulty: Medium Learning Objective: 2 Learning Objective: 3

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