Chapter 4

Tax ResearchLocating and Assessing Tax Authority

Answers to chapter problems
Answers to True or False Questions
1. False
2. True
3. False
4. False
5. False
6. False
7. False
8. True
9. False
10. True
2 Contemporary Tax Practice

Chapter 4 2013 CCH Incorporated. All Rights Reserved.

Answers to Fill in the Blanks Questions
11. closed
12. secondary
13. primary
14. horizontal
15. search for authority
16. planning
17. casualty w/10 loss
18. installment sale
19. Citator
20. policy
Textbook Solutions 3

2013 CCH Incorporated. All Rights Reserved. Chapter 4

Answers to Multiple Choice Questions
21. c.
22. a.
23. c.
24. e.
25. d.
26. a.
27. e.
28. d.
29. b.
30. b.
4 Contemporary Tax Practice

Chapter 4 2013 CCH Incorporated. All Rights Reserved.

Answers to Review Problems
31. 1. Identify the facts
2. Determine the issues or questions
3. Search for authority
4. Analyze authority
5. Develop conclusions and recommendations

6. Communicate the results

32. Planning research (also know as before-the-event or open research) is research performed before the
client
takes an action, before the facts are certain. The tax advisors goal is to identify the optimal set of facts to
achieve the desired business and tax outcomes.
Compliance research (also know as after-the-event or closed research) is performed after the fact. This
is probably the most common type of research because the issues are typically identified during the
preparation of the tax return or during an audit.
Policy research includes analyzing different tax reform proposals being considered by Congress. It may
also
involve research to influence legislation for clients or to promote a tax position for the profession.
Policytype
research may also be performed for education purposes.
33. A citator is a research tool that allows the tax researcher to both determine the history of a case and
evaluate
the strength of its holdings. A citator may also facilitate locating cases more on point with the clients
facts.
If a particular court decision is vital to the conclusion, then the researcher should use a Citator to examine
the cases history. This is usually done to make sure that the original decision was not overturned or
modified by subsequent decisions. This is also a good way to identify other relevant cases.
34. a. Revenue Ruling Primary
b. Tax Court Memorandum decision Primary
c. Private Letter Ruling (PLR) Primary
d. Joint Committee on Taxation Report Primary
e. Tax Analysts Tax Notes Today Secondary
f. Journal of Corporate Taxation Secondary
g. IRS Publications Secondary
35. Is the cost of Professor Baileys sons tuition taxable income? If so, to whom?
If the cost is taxable income, does it qualify for the tuition deduction or the education credits?
36. Can Paul deduct the $20,000 as a business expense?
37. Is Harold required to report the rental income?
How does Harold separate expenses between personal and rental expenses?
38. How much income must Holly report?
In what year must the income be reported?
If Holly must report the entire $50,000, can she deduct the $20,000 paid to the lawyer?
39. alternative minimum tax and stock options
alternative minimum tax w/20 stock options
40. Caddy and independent contractor
Textbook Solutions 5

2013 CCH Incorporated. All Rights Reserved. Chapter 4

Answers to Research Cases
41. Revenue Ruling 82-166, 1982-2 CB 190 addresses this issue. The Revenue Ruling held that the
exchange of
gold bullion held for investment for silver bullion held for investment does not qualify for nonrecognition
of gain as an exchange of like kind property under Code Sec. 1031(a).
42. Depreciation is allowable for the period an asset is available for use should the occasion arise even
though
it isnt actually placed in service or used until a later period. The unit would be depreciable in 2011 with a
date of October 21.

See Schrader, Erma, (1975) TC Memo 1975-364, PH TCM 75364, 34 CCH TCM 1572 , affd (1978,
CA6)
42 AFTR 2d 78-6006, 582 F2d 1374 , 78-2 USTC 9824.
43. See Rev. Rul. 2008-23 (2008-18 IRB 852), Situation 1. The Ruling provides that the Leasing
Company
(CG) bears the expense of the meals and entertainment and the Code Sec. 274(d) deduction limits.
44. See Rev. Rul. 2008-5, 2008-3 IRB 271, which held that the loss on the sale of stock is disallowed
under
Code Sec. 1091.
45. 55 TCM 250Gustafson v. Commissioner
7 AFTR2d 1438Alsop v. Commissioner
832 F2d 436American Fletcher Corp. v. United States
62-1 USTC 9387Poyner v. Commissioner
26 BTA 1369R. G. Bent Co. v. Commissioner
9 TC 159National Airlines, Inc. v. Commissioner
46. U.S. Court of Appeals for the 6th Circuit.
The Appeals Court affirmed the Tax Courts decision upholding deficiencies in taxpayers federal
personal
income tax returns as result of constructive dividend.
47. The cases all involve shareholder loans or expenses with related entities and whether a tax deduction
could
be taken for a worthless debt or expenses of the related entities. Deductions were denied in all three cases.