Chapter 2 American Institute Certified Public Accountants Kulsrud Quot the

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Tax Practice and Research

Solutions to Tax Research Problems

2-23

a. CA-7. This information is shown in the citation for the case.

b. No. There is no Supreme Court citation listed.

c. Tax Court and reported as a memorandum decision, as shown in the citation

of the case.

2-24 It would be difficult to tell from the Citator alone exactly what effect the decision

in Arkansas Best v. Comm. had on the Corn Products, v. Comm. case. For

example, in the Prentice Hall Citator Arkansas Best and Corn Products are

referenced by the symbol “k,” which stands for “the cited and citing case

principles are reconciled.” It is probably best to read the two cases to see how

they interrelate. The Citator does alert the reader to the fact that both cases

address the same issue, however.

2-25

a. The United States Court of Appeals for the Eleventh Circuit (CA-11) decided

the Robert Autrey, Jr. v. United States case on appeal.

b. A United States District Court originally tried the case.

c. The Court of Appeals affirmed part of the District Court’s decision and

reversed part of it.

2-26

a. The U.S. Tax Court tried the case of Fabry v. Commissioner.

b. The judge used the following sources in framing his opinion:

(1) Internal Revenue Code § 104;

(2) Legislative History to § 104—83rd Cong., 2nd Sess. 15 (1954);

(3) Various case citations; and

(4) S.Rept. 1622, 83rd Cong, 2nd Sess. 15-16 (1954).

2-27

a. No. The government won the case.

b. Judge Atkins.

c. Whether operating a farm with breeding cattle and incurring net losses

qualified as a business activity and therefore the net losses were deductible, or

as a hobby and therefore the losses were not deductible.

2-28

a. 1998-51 I.R.B. 6

b. Lawrence W. McCoy, 38 T.C. 841 (1962)

c. Reginald Turner, 13 TCM 462, T.C. Memo 1954-38

d. RCA Corp. v. U.S., 81-2 USTC ¶9783 (CA-2, 1981)

e. RCA Corp. v. CAS., 48 AFTR2d 6164 (CA-2, 1981)

f. RCA Corp. v. U.S., 664 F.2d 881 (CA-2, 1981)

g. Conim. v. JFJ/COJC, 66 S. Ct. 546 (USSC, 1946)

h. Thor Power Tool, 79-1 USTC ¶9139 (USSC, 1979)

i. M.G. Anton, 34 T.C. 842 (1960)

j. Brian E. Knutson, 60 TCM 540, T.C. Memo 1990-440

k. Samuel B. Levin v. Comm., 43 AFTR2d 79-1057 (Ct. Cls., 1979)

2-29

a. Issue: Whether Battelstein Investment Company unreasonably accumulated

earnings so as to be subject to the § 531 accumulated earnings tax.

b. Issue 1: Whether Code § 1034 fixes which of several sequential sales (within

the statutory replacement period) is entitled to the benefit-of-gain exclusion on

the sale of a taxpayer’s principal residence. Full cite is 47 TCM 904.

Issue 2: When gain goes unrecognized under § 1034(a), does § 1034(e)

require that the basis of the new principal residence be reduced by the amount

of the deferred gain?

c. Issue 1: Was the amount paid to the taxpayer a dividend taxable as ordinary

income, or was the transaction a redemption (i.e., treated as a sale-purchase)

by the corporation of all of the taxpayer’s stock?

Issue 2: Was the payment in question essentially equivalent to a dividend?

Issue 3: Was the payment in question a complete termination of the

taxpayer/shareholder’s interest, and therefore, to be treated as a qualifying

redemption (i.e., sale)?

d. Issue: Whether Code § 704(d) allows a former partner to deduct his payment

to the partnership of a portion of his distributive share of partnership losses,

which was not previously deductible while he was a partner because the basis

of his partnership interest was zero.

e. Issue: Whether the taxpayer permitted its earnings and profits to accumulate

beyond the reasonable needs of the business. (Note that this case is similar to

the Battelstein Investment Co. case cited in a above.)

f. Issue 1: Whether the taxpayer is entitled to an interest deduction under Code

§ 163(a).

Issue 2: Whether the incorporating shareholders’ 1968 advances to the

corporation (the petitioner in this case) are considered bona fide loans or

contributions to capital.

g. Permanent citation should be 1985-1 C.B. 184.

Issue 1: Whether a grantor’s receipt of the entire corpus of one irrevocable

trust in exchange for an unsecured promissory note given to the trustee, the

grantor’s spouse, constituted an indirect borrowing of the trust corpus that

caused the grantor to be the owner of the entire trust under § 675(3).

Issue 2: To the extent that a grantor is treated as the owner of a trust, whether

the trust will be recognized as a separate taxpayer capable of entering into a

sales transaction with the grantor. h. Permanent citation should be 1985-2

C.B. 716. This Revenue Procedure increases the operational standard mileage

rate for the business use of an automobile and for when the automobile is used

to render gratuitous service to a charitable organization.

i. Permanent citation should be 84 T.C. 210.

Issue 1. Whether the taxpayers were engaged in an enterprise entered into for

profit or whether their activity amounted to a hobby.

Issue 2. Whether certain nonrecourse notes may be included in the basis of

equipment acquired by the taxpayer.

j. Permanent citation should be 1986-2 C.B. 62.

Issue: Under a given set of circumstances, may a lump sum cash distribution

from a deferred plan be rolled over tax-free into an IRA?

k. Permanent citation should be 106 U.S. 522.

Issue: May a casino, on the accrual basis, deduct amounts guaranteed for

payment on “progressive” slot machines but not yet won by playing patrons?

1. Issue: Issues relating to a spin-off of a corporate subsidiary.

2-30 T should be advised that he is not eligible for an office in the home deduction.

Section 280A provides that a taxpayer may take expenses incurred in the use

of his or her home for business purposes if such expenses are attributable to the

portion of the home used exclusively and regularly as

1. The principal place of business for any trade or business of the taxpayer;

2. A place of business that is used by patients, clients, or customers in meeting or

dealing with the taxpayer in the normal course of his or her trade or business;

3. A separate structure, not attached to the dwelling unit, that is used in the

taxpayer’s trade or business.

First, this taxpayer probably fails the “exclusive use” test by using the den of

his home for his work. The “exclusive use” test is strictly interpreted, so the use of

the business portion of a home by the taxpayer or members of his family for

purposes not related to business will result in the disallowance of the business

expense deductions. Second, this taxpayer does not use his home office as the

principal place of business in meeting or dealing with patients, clients, or

customers in the normal course of his trade or business. It appears that the work

the taxpayer brings home is simply additional work connected to the work he does

during the day at the office. Third, the taxpayer has an office provided by his

employer available to him at all times. There is case precedent holding that lack

of amenities during the weekend and after hours does not produce an office in the

home deduction for a taxpayer who chooses to work at home rather than in his or

her office.

Because this is the first legal research problem the student has ever done, the

instructor should check the work as follows:

1. Make sure the citations are correct.

2. Correct spelling, punctuation, and grammar; and stress that unless the research

is well-organized and well-written, it will never be read.

The instructor might also wish to introduce § 280A’s treatment in CCH or RIA

here by bringing the appropriate volume to class and going through its

organization.

2-31 This research project is open-ended and therefore has no printed solution. The

quality of the article depends on the extent of tax journals held by your library.

The instructor is encouraged to evaluate the writing skills of the student as well as

the quality of their tax research.

2-32 Answers to this question should be fairly standard because the legal issue is a

relatively simple one. The student should show some ability to read and analyze

the appropriate cases. Most students will find the cases through CCH or RIA. The

instructor should stress that the cases themselves should be read and not simply

the summaries in the reporters. Emphasis should be placed on evaluating the

student’s writing skills. The instructor should stress that the use of English writing

skills is absolutely necessary in order to be an effective tax researcher. If time

permits, the instructor should discuss the student’s paper on an individual basis,

since students vary so greatly in writing skills and analytical ability.

The following themes, based on the student’s analysis of § 213, should be

fairly standard in most papers:

a. The expenditure is deductible to the extent it exceeds the increase in fair

market value. Most of the cases on point support this deduction.

b. Is the doctor’s “strong recommendation” enough to sustain this deduction? Is

something stronger required?

c. Is the fact that there are no swimming pools nearby relevant?

d. Will the courts question the $15,000 expenditure? Can she obtain almost the

same kind of facility for a lot less money?

Code § 213(a) provides a deduction for expenses paid during the taxable year,

not compensated for by insurance or otherwise, for medical care of the taxpayer.

The Regulations at Reg. § 1.213-l(e)(l)(iii) provide that capital expenditures are

generally not deductible for Federal income tax purposes. However, an

expenditure that otherwise qualifies as a medical expense under § 213 shall not be

disqualified merely because it is a capital expenditure.

The Internal Revenue Service itself has allowed a deduction in the case of

swimming pools. Rev. Rul. 83-33, 1983-1 C.B. 70 (modifying Rev. Rul. 54-57,

1954-1 C.B. 67) allowed a deduction for the cost of constructing a special

exercise or lap pool to treat severe osteoarthritis. The amount of the deduction

was the expenditure in excess of the resulting increase in the value of the

taxpayer’s related property. The Seventh Circuit has agreed with this approach in

C. H. Ferris, 78-2 USTC 1(9646, 582 F2d 1112 (CA-7, 1978), rev’g and rem’g 36

TCM 765. In Ferris, the taxpayer built a swimming pool for therapeutic purposes.

The Appeals Court held that the taxpayer was entitled to a deduction for the

minimally reasonable cost of a functionally adequate pool. Additionally, costs

related to luxuries unrelated to the therapeutic use of the pool were disallowed.

The Tax Court is in agreement with this approach, and has held (under similar

circumstances) that the taxpayer is entitled to deduct the cost of building a

swimming pool used for medical purposes to the extent that such costs exceed the

amount by which the addition of the pool had increased the fair market value of

the home. (See C. L. W. Haines, 71 T.C. 644, and R A. Polacsek, 42 TCM 1289.)

2-33 This problem should further introduce the beginning student to elements of tax

research. Instructors should check students’ writing style in addition to the

technical tax analysis. Technically, the obstacle this taxpayer will encounter is

that this course is part of an overall program of study that will prepare him for a

new trade or business. [See Reg. § 1.162-5(b)(3).]

The cases the students will uncover will be against this taxpayer. [See David

Roeberg, 29 TCM 1007, T.C. Memo 1970-236, and Danielson v. Quinn, 45

AFTR2d 80-1555, 482 F. Supp. § 275 (DC, 1980).]

The dicta in these and other cases may contain rays of hope for the taxpayer,

but they are slight indeed when compared to the overwhelming authority against

deductibility. You might ask the student if there is any hope for this taxpayer, and

whether a tax preparer could ethically prepare a return if the client insists on

taking this deduction.

Tax Practice and Research

Test Bank

True or False

________ 1. Once a tax law is enacted by Congress, any official interpretations of the

law are by subsequent court decisions.

________ 2. The House Ways and Means Committee holds hearings on proposed

revenue bills initiated by the Senate.

________ 3. The primary purpose of IRS regulations is to answer questions from

taxpayers concerning specific tax problems.

________ 4. Although temporary regulations have the same binding effect as final

regulations, proposed regulations have no force or effect.

________ 5. Unlike interpretative regulations, legislative regulations are not

controlling on a court. Thus, the courts will not hesitate to substitute

their own judgment for that of the Treasury Department.

________ 6. Both revenue rulings and revenue procedures are first published in the

Internal Revenue Bulletin and then eventually published in the

Cumulative Bulletin.

________ 7. The Internal Revenue Service may exercise discretion in determining

whether to issue a letter ruling to a particular taxpayer.

________ 8. A letter ruling, or private ruling, is an individual response to a taxpayer,

and it is generally understood to apply to all taxpayers.

________ 9. The three trial courts where tax matters may be litigated—the U.S.

District Court, the U.S. Court of Federal Claims, and the U.S. Tax

Court—are all courts of original jurisdiction.

________ 10. In the Small Claims Section of the U.S. Tax Court, the taxpayer forgoes

the right to appeal the decision if she or he loses.

________ 11. An appeal of an adverse decision by the Tax Court may be taken as a

matter of right to the appropriate U.S. Court of Appeals.

________ 12. Under the Golsen rule, the Tax Court follows the decisions of the Circuit

Court to which a particular case would be appealed.

________ 13. It is not possible for the Appellate Court to affirm the decision of a lower

court on one particular issue and reverse it on another.

________ 14. A Writ of Certiorari is the means by which the United States Court of

Appeals grants review to a decision of the Tax Court.

________ 15. In the following citation, Eugene Coloman, 33 TCM 411, T.C. Memo

¶974-78, affd. in 76-2 USTC 19581, 38 AFTR2d 76-5523, 540 F.2d 427

(CA-9, 1976), the researcher would know that the original decision in

the trial court was made by the Tax Court in a memorandum decision

and that the case on appeal was affirmed by the Ninth Circuit, U.S. Court

of Appeals.

________ 16. The IRS announces its acquiescence or nonacquiescence to the

memorandum decisions of the Tax Court.

________ 17. A major difference between primary authorities and secondary

authorities is that secondary sources are merely unofficial interpretations

of tax law and have no legal authority.

________ 18. A tax service has limited value because it only summarizes court

decisions on a particular point of tax law.

________ 19. For a tax researcher, the weight (or value) accorded a particular court

decision often may be determined by the reliance placed on that decision

by other courts.

________ 20. Taxpayers are subject to a penalty if there is a substantial underestimate

of tax attributable to a particular treatment for which they have no

substantial authority, unless the treatment is disclosed on the tax return.

Multiple Choice

________ 21. The body or group that generally initiates revenue bills is

a. The IRS

b. The House of Representatives

c. The Senate

d. The Joint Conference Committee on Taxation

e. The Ways and Means Committee

________ 22. Which of the following sources of authority would most likely contain a

review of Congress’s intentions with respect to a particular piece of tax

legislation?

a. Internal Revenue Code

b. Report of the House Ways and Means Committee

c. Code of Federal Regulations

d. Revenue procedures

e. Technical advice memoranda

________ 23. For the most accurate indication of Congressional intent for the

enactment of a particular tax bill, a researcher would most likely consult

the

a. Report issued by the House Ways and Means Committee

b. Report issued by the Senate Finance Committee

c. Report issued by the Joint Conference Committee on Taxation

d. Records of debate on the bill

e. Regulations and rulings of the Internal Revenue Service

________ 24. Which of the following statements is not a characteristic of the Internal

Revenue Code?

a. The basis of Congressional authority for the Federal income tax is

the Sixteenth Amendment to the U.S. Constitution.

b. Changes made in the tax law after 1986 are incorporated into the

1986 Code as amended.

c. Any change in the Internal Revenue Code generally starts in the

House of Representatives.

d. When a tax advisor is citing a particular item within the Internal

Revenue Code, citation of the section number alone is usually

sufficient.

e. The reasons why Congress made a particular change or addition to

the Internal Revenue Code are given within the Code itself.

________ 25. Which of the following administrative interpretations would be generally

accorded the force and effect of law?

a. Technical advice memoranda

b. Interpretative regulations

c. Letter rulings

d. Procedural regulations

e. Legislative regulations

________ 26. Which of the following best describes IRS interpretative regulations?

a. They are binding on both the IRS and the courts.

b. They commit the IRS to a particular position on the Code.

c. They apply only to the particular person for whom they were written.

d. Both a. and b.

________ 27. Which one of the following types of Regulations cannot be cited as

authoritative?

a. Proposed regulations

b. Temporary regulations

c. Procedural regulations

d. Interpretative regulations

e. Legislative regulations

________ 28. Temporary regulations are generally issued

a. Shortly after enactment of a major change in the tax law so that a

taxpayer has guidance until final regulations are formulated

b. To clarify existing regulations that are incomplete

c. To deal with taxpayers living temporarily overseas who may be

subject to tax treaties between the United States and foreign

countries

d. To define tax treatment for a general set of facts on which the Code

is silent; they have the full force and effect of law until the Code

addresses the issue

e. To interpret the Code, but they do not have the same binding effect

as final regulations

________ 29. The difference between regulations and revenue rulings is that

a. Revenue rulings are not limited to a given set of facts and regulations

are limited.

b. Revenue rulings are the direct law-making powers of Congress and

regulations are not.

c. Rulings require approval by the Secretary of the Treasury;

regulations do not.

d. Revenue rulings do not have the authority of regulations; regulations

are a direct extension of the law-making powers of Congress.

e. Only regulations are official pronouncements of the National Office

of the IRS.

________ 30. Which one of the following authorities is not correctly paired with a

source where that authority might be found?

a. Revenue procedures may be found in the Cumulative Bulletin.

b. Legislative regulations may be found in the Code of Federal

Regulations.

c. Revenue rulings may be found in the Internal Revenue Bulletin.

d. Revenue procedures may be found in the Internal Revenue Bulletin.

e. Letter rulings may be found in the Code of Federal Regulations.

________ 31. Taxpayers who are in doubt about the particular tax consequences of a

contemplated transaction may ask the IRS for a ruling on the tax

question involved. Which one of the following statements is not true?

a. The IRS may decline to issue a letter ruling.

b. Letter rulings apply only to the particular taxpayers with a particular

set of facts asking for the ruling.

c. During the process of obtaining a ruling, the IRS may recommend

changes in a proposed transaction to assist taxpayers in reaching the

result they wish.

d. Letter rulings are available in digest form to allow other taxpayers to

cite them as authority when they match the particular set of facts for

which the letter ruling was issued.

e. None of the above; all are true.

________ 32. Letter ruling 201008048 was issued in which of the following months

a. January 2010

b. February 2010

c. March 2010

d. April 2010

e. May 2010

________ 33. Before litigating a tax case in court, the taxpayer must

a. Have exhausted the required administrative remedies available

within the IRS

b. Convince the judiciary branch that the IRS misinterpreted tax law or

wrongly applied it to the taxpayer’s case

c. Try to find a similar court decision from the past and present the case

to that Court

d. Enter into agreement with the IRS to use the Court as arbiter

e. Not be guilty of fraud in the original or amended return at issue

________ 34. Which of the following could be a reason for a taxpayer not taking his

tax case to a federal court of appeals?

a. Too expensive

b. Failure to exhaust all the administrative remedies

c. No appealable decision from a trial court

d. All of the above

________ 35. The trial court that a taxpayer may not select is

a. The Tax Court

b. The U.S. District Court

c. The U.S. Court of Federal Claims

d. The U.S. Court of Appeals

________ 36. Which of the statements below is not a characteristic of the Tax Court?

a. Appeal is taken to the U.S. Court of Appeals.

b. A jury trial is not available.

c. The Court accepts only tax cases.

d. Taxpayers must pay the alleged deficiency and then sue for a refund.

e. The Court has nationwide jurisdiction.

________ 37. Which of the following is not a characteristic of U.S. District Courts?

a. A District Court is not a national court.

b. A taxpayer need not pay any alleged deficiency in order to bring an

action against the IRS.

c. The District Court hears many kinds of cases, including but not

limited to tax cases.

d. The District Court judges are appointed for life.

e. The taxpayer may obtain a jury trial; the jury decides matters of fact

but not matters of law.

________ 38. A taxpayer may take a case into the District Court

a. Only in the district where he or she resides

b. Only if the disputed tax deficiency has not been paid

c. Only to appeal the decision of the Tax Court or U.S. Court of Federal

Claims

d. Only if a Writ of Certiorari is granted

e. Only if the Tax Court or U.S. Court of Federal Claims declines to

hear the case

________ 39. Although the Small Claims Section of the U.S. Tax Court allows a

taxpayer to obtain a decision with little formality or expense, a

disadvantage is that

a. The taxpayer loses the right to appeal the decision.

b. The case can be remanded to Tax Court.

c. Special judges outside their area of expertise may be ruling.

d. Priority on the trial calendars is not received.

e. Cases eligible to be tried by the Court are limited to tax assessments

of $50,000 or less.

________ 40. Which one of the following authorities is not correctly paired with a

reporter or case system where that authority might be found?

a. Regular decisions of the United States Tax Court may be found in

the United States Tax Court Reports.

b. A tax decision of the Court of Federal Claims may be found in the

U.S. Tax Cases.

c. A decision of the Small Claims Section of the Tax Court may be

found in the United States Tax Court Reports.

d. A decision of the Supreme Court of the United States may be found

in the Supreme Court Reports (U.S.).

e. A tax decision of the Court of Federal Claims may be found in the

American Federal Tax Reports.

________ 41. Which one of the following is not true of the Supreme Court’s appellate

jurisdiction?

a. Most of the time the Supreme Court indicates that it will accept a

case by granting a Writ of Certiorari.

b. The Supreme Court reviews many tax cases during the year because

of their national importance.

c. The Supreme Court often accepts cases when two or more Courts of

Appeals are in conflict over an issue.

d. The Supreme Court does not conduct another trial but reviews the

record of the trial court to determine if that court correctly applied

the law to the facts.

e. The Supreme Court may accept a case where a Court of Appeals has

settled an important question of Federal law and the Supreme Court

feels such a question should have another review.

________ 42. In general, the Supreme Court only hears tax cases when one or more of

certain conditions apply. These conditions exclude which of the

following?

a. The Courts of Appeals are in conflict on an issue.

b. A decision of a Court of Appeals is in apparent conflict with a

decision of the Supreme Court.

c. The Supreme Court has already decided an issue but feels that the

issue should be looked at again, possibly to reverse its previous

decision.

d. The tax deficiency involved exceeds $100,000.

e. The Court of Appeals has not used accepted or usual methods of

judicial procedure or has sanctioned an unusual method by the trial

court.

________ 43. Which of the following is not true of the Supreme Court’s appellate

jurisdiction?

a. All cases reach the Supreme Court through the Court’s granting a

Writ of Certiorari.

b. The Supreme Court will not hold another trial but merely reviews the

records of the lower courts.

c. Review by the Supreme Court is almost entirely discretionary.

d. For most taxpayers, the final review is at the Court of Appeals level

because the Supreme Court does not hear many tax cases.

e. The Supreme Court’s decision not to grant a Writ of Certiorari means

that the decision of the lower court still stands.

________ 44. All of the following citations are to trial court decisions except

a. George E. Jones, 21 B.T.A. 431 (1940)

b. Harper Smith, 511 F.2d 212 (CA-3, 1978)

c. Jerome Prizant, 30 TCM 817

d. George F. Dowell v. U.S., 370 F. Supp. 69 (D. Ct. Tx, 1974)

e. Raymond R. Windle, 65 T.C. 483

________ 45. Which one of the following is not a citation to a Tax Court decision?

a. Simon Shield v. U.S., 19-1 USTC ¶8431

b. Robert L. Lynch, 84 T.C.__________, 29 (1984)

c. James Pretzfelder, T.C. Memo 1983-147

d. Timothy Kirby, 47 TCM 814

e. /. Simpson Dean, 35 T.C. 1083 (1961)

________ 46. Which of the choices below is the publisher in this citation: Johnson v.

Oregon, 86-1, USTC ¶322 (D. Ct. Cal, 1986).

a. Commerce Clearing House

b. Prentice Hall

c. West Publishing Co.

d. Research Institute of America

e. Senate Finance Committee

________ 47. Which one of the following is not a secondary source of tax authority?

a. The Accountant’s Index, American Institute of Certified Public

Accountants

b. Kulsrud, “The Alternative Minimum Tax: Its Operation and Effect

after TEFRA,” The Review of Taxation of Individuals, 1 (Summer,

1983)

c. Crane v. Comm., 47-1 USTC 9217, 35 AFTR 776, 331 U.S. 1

(USSC, 1947)

d. Harris, “The Effect of the Installment Sales Revision Act of 1980 on

Like-Kind Exchanges: Non-simultaneous Exchanges Reviewed,”

Taxes—The Tax Magazine, (July, 1981)

e. The Tax Law Review

________ 48. Which one of the following is not a primary authority of tax law?

a. Code § 1245(b)(3)

b. Regulations § 1.47-3(f)(2)

c. May v. U.S., 81-1 USTC ¶9286, 47 AFTR2d 81-1124, 644 F.2d 578

(CA-6, 1981)

d. Bailey, “Using Voting Preferred Stock to Avoid CFC Status,” The

International Tax Journal 2 (January 1976) pp. 101-13

e. Revenue Rul. 80-219, 1980-2 C.B. 18

________ 49. Tax periodicals are an important source of information for the tax

practitioner. Which of the following is not true about tax periodicals?

a. They may be cited as authority in disputes with the IRS during

administrative review or appeal.

b. They may give insight into recent court interpretations of tax laws.

c. They may provide question and answer sections to ensure that the

reader comprehends the concepts and ramifications of recent rulings.

d. They generally offer concise summaries of new tax laws.

e. They serve to convey new tax planning opportunities.

________ 50. When researching a complex tax question, a researcher with little

previous experience with the issue would be best served at the outset by

consulting

a. The Internal Revenue Code

b. The Treasury Regulations

c. The applicable legislative history

d. A “tax service” (e.g., CCH, RIA)

________ 51. After completing basic research on a tax question, but before acting on

the results of this research, it is wise to

a. Check the newest updates to the “tax services.”

b. Run a search on LEXIS or WESTLA W for the period not covered by

your research sources.

c. Send a copy of the research to the IRS for validation.

d. Both a. and b.

________ 52. After doing extensive research on a tax question that involved certain

matters that did not fall into established guidelines, the tax researcher

made a filing that was based on what he reasonably believed the current

law to be. This interpretation resulted in a substantial tax savings for his

client. The return

a. Should contain a statement disclosing the manner in which the

“grey” tax question was treated

b. Should not contain any reference to a “grey” tax area in order to

avoid arousing the IRS’s curiosity

c. Should not be filed if any of it is based on assumptions by the tax

researcher on what the law is “likely to be”

d. Both b. and c.

________ 53. Which of the following is true of revenue rulings?

a. Although they represent the official policy of the IRS, courts may

overrule them.

b. Lower courts are bound by them.

c. They are a subset of Treasury Regulations.

d. Once affirmed by an appellate court, they have the force of law.

e. All of the above are true.

________ 54. Which of the following statements is false?

a. Tax benefits of an otherwise legal transaction may be denied if it

lacks economic substance.

b. The economic substance doctrine is similar to the business purpose

doctrine.

c. Reducing taxes is a good business purpose under the economic

substance doctrine.

d. A transaction has economic substance if it changes the taxpayer’s

economic position or the taxpayer has a substantial business purpose.

e. More than one of the above statements is false.

________ 55. ASC 740 deals with which of the following.

a. The financial accounting treatment of transactions that lack business

purpose

b. The economic substance doctrine

c. The financial reporting of uncertainty related to positions taken in a

tax return

d. None of the above

________ 56. Under ASC 740, a tax position is recognized for financial accounting

purposes if it meets which of the following standards.

a. More likely than not

b. Realistic possibility of success

c. Reasonable basis

d. None of the above

________ 57. In this year’s tax return, T Corporation decided to account for certain

international transactions in a specific matter. However, the tax

treatment is not certain and there is a chance that if audited, the company

would not prevail. Which of the following statement is false regarding

the corporation’s requirement to report the transaction for tax purposes

(i.e., file Schedule UTP)?

a. The corporation need not file if its assets are less than $100 million.

b. The corporation need not file if it is an S corporation.

c. The corporation need not file if it did not record a reserve for the

position in its audited financial statements.

d. The corporation need not file if it did not issue audited financial

statements.

e. More than one of the above is false.

Tax Practice and Research

Solutions to Test Bank

True or False

Tax Practice and Research

Comprehensive Problems

Solutions to Comprehensive Problems