Test Bank for All Chapters
Pearson's Federal Taxation 2023: Corporations, 36e (Anderson et al.)
Chapter C1: Tax Research
LO1: Overview of Tax Research
1) Tax planning is not an integral part of open-fact situations.
Answer: FALSE
Explanation: It is integral.
Page Ref.: C:1-2
Objective: 1
2) 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
A) a restricted-fact situation.
B) a closed-fact situation.
C) an open-fact situation.
D) a recognized-fact situation.
Answer: C
Explanation: Advice before transaction is open fact situation.
Page Ref.: C:1-2
Objective: 1
3) Investigation of a tax problem that involves a closed-fact situation means that
A) the client's transactions have already occurred and the tax questions must now be resolved.
B) the client's tax return has yet to be filed.
C) future events may be planned and controlled.
D) research is primarily concerned with applying the law to the facts as they exist.
Answer: A
Explanation: After the fact request is a closed fact situation.
Page Ref.: C:1-2
Objective: 1
4) Explain the difference between a closed-fact and open-fact situation.
Answer: 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.
Page Ref.: C:1-2
Objective: 1
5) In all situations, tax considerations are of primary importance. Do you agree or disagree? Support your
answer.
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.
Page Ref.: C:1-3
1
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,Objective: 1
LO2: Steps in the Tax Research Process
1) Identify which of the following statements is true.
A) Tax planning is an integral part of both closed-fact situations and open-fact situations.
B) The first step in conducting tax research is to clearly understand the issues involved.
C) The Statements on Standards for Tax Services recommend that only written tax advice be provided to
the client in all situations.
D) All of the above are false.
Answer: C
Explanation: The Statements on Standards for Tax Services recommend that only written tax advice be
provided to the client in all situations.
Page Ref.: C:1-3 through C:1-5
Objective: 2
2) Describe the format of a client memo.
Answer: 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.
Page Ref.: See Additional Comment page C:1-4
Objective: 2
3) Outline and discuss the tax research process.
Answer:
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.
Page Ref.: C:1-5
Objective: 2
4) Client approaches you regarding the tax implications of an acquisition of a competitor's business.
Describe the six basic steps of tax research process to assist the client.
Answer: In both open- and closed-fact situations, the tax research process involves six basic steps:
1. Determine the facts.
2. Identify the issues (questions).
3. Locate the applicable authorities.
4. Evaluate the authorities and choose those to follow where the authorities conflict.
5. Analyze the facts in terms of the applicable authorities.
2
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,6. Communicate conclusions and recommendations to the client.
Page Ref.: C:1-3
Objective: 2
5) When should oral client communications be followed up in writing?
Answer: Written communications are recommended in important, unusual, substantial
dollar value, or complicated transactions.
Page Ref.: C:1-5
Objective: 2
LO3: Importance of the Facts to the Tax Consequences
1) The tax consultant can give an opinion on a tax fact pattern without all the facts.
Answer: FALSE
Explanation: Tax practitioner should not provide an opinion without all relevant facts.
Page Ref.: C:1-6
Objective: 3
2) Tax compliance is the biggest component of a tax practice.
Answer: FALSE
Explanation: Tax consulting is the biggest component of tax practice.
Page Ref.: C:1-6
Objective: 3
LO4: The Sources of Tax Law
1) The Internal Revenue Code of 1986 contains the current version of the tax law.
Answer: TRUE
Explanation: The last update was 1986.
Page Ref.: C:1-8
Objective: 4
2) 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.
Answer: TRUE
Explanation: Per IRC this remains accurate.
Page Ref.: C:1-9
Objective: 4
3) Final regulations have almost the same legislative weight as the IRC.
Answer: TRUE
Explanation: The Courts have followed this concept.
Page Ref.: C:1-10
Objective: 4
4) A revenue ruling is issued by the Internal Revenue Service only in response to a verbal inquiry by a
taxpayer.
Answer: FALSE
3
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, Explanation: The IRS may voluntarily issue a revenue ruling.
Page Ref.: C:1-12
Objective: 4
5) Taxpayers must pay the disputed tax prior to filing a case with the Tax Court.
Answer: FALSE
Explanation: Tax Court is the only court available in which taxpayer does not have to prepay the tax.
Page Ref.: C:1-14 and C:1-15
Objective: 4
6) Appeals from the U.S. Tax Court are to the Court of Appeals for the Federal Circuit.
Answer: FALSE
Explanation: Appeals from the US Tax Court are to the Court of Appeals for the respective circuit.
Page Ref.: C:1-14 and C:1-15
Objective: 4
7) 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.
Answer: TRUE
Explanation: USSC reviews requests before acceptance.
Page Ref.: C:1-14 and C:1-15
Objective: 4
8) When the Tax Court follows the opinion of the circuit court of appeals to which the case is appealable,
the court is following the
A) Golsen rule.
B) Acquiescence rule.
C) Forum shopping rule.
D) Conformity rule.
Answer: A
Explanation: Since 1970 the Tax Court has followed the Golsen rule.
Page Ref.: C:1-21
Objective: 4
9) Which of the following citations denotes a regular decision of the Tax Court?
A) 41 TCM 1272
B) 35 T.C. 1083 (2003)
C) 39 AFTR 2d 77-640
D) 41 USSC 1099
Answer: B
Explanation: TC is Tax Court citation.
Page Ref.: C:1-17
Objective: 4
10) The primary citation for a federal circuit court of appeals case would be
A) 40 AFTR 2d 78-1234.
B) 44 F.Supp. 403.
C) 3 F.3d 134.
4
Copyright © 2023 Pearson Education, Inc.
Pearson's Federal Taxation 2023: Corporations, 36e (Anderson et al.)
Chapter C1: Tax Research
LO1: Overview of Tax Research
1) Tax planning is not an integral part of open-fact situations.
Answer: FALSE
Explanation: It is integral.
Page Ref.: C:1-2
Objective: 1
2) 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
A) a restricted-fact situation.
B) a closed-fact situation.
C) an open-fact situation.
D) a recognized-fact situation.
Answer: C
Explanation: Advice before transaction is open fact situation.
Page Ref.: C:1-2
Objective: 1
3) Investigation of a tax problem that involves a closed-fact situation means that
A) the client's transactions have already occurred and the tax questions must now be resolved.
B) the client's tax return has yet to be filed.
C) future events may be planned and controlled.
D) research is primarily concerned with applying the law to the facts as they exist.
Answer: A
Explanation: After the fact request is a closed fact situation.
Page Ref.: C:1-2
Objective: 1
4) Explain the difference between a closed-fact and open-fact situation.
Answer: 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.
Page Ref.: C:1-2
Objective: 1
5) In all situations, tax considerations are of primary importance. Do you agree or disagree? Support your
answer.
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.
Page Ref.: C:1-3
1
Copyright © 2023 Pearson Education, Inc.
,Objective: 1
LO2: Steps in the Tax Research Process
1) Identify which of the following statements is true.
A) Tax planning is an integral part of both closed-fact situations and open-fact situations.
B) The first step in conducting tax research is to clearly understand the issues involved.
C) The Statements on Standards for Tax Services recommend that only written tax advice be provided to
the client in all situations.
D) All of the above are false.
Answer: C
Explanation: The Statements on Standards for Tax Services recommend that only written tax advice be
provided to the client in all situations.
Page Ref.: C:1-3 through C:1-5
Objective: 2
2) Describe the format of a client memo.
Answer: 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.
Page Ref.: See Additional Comment page C:1-4
Objective: 2
3) Outline and discuss the tax research process.
Answer:
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.
Page Ref.: C:1-5
Objective: 2
4) Client approaches you regarding the tax implications of an acquisition of a competitor's business.
Describe the six basic steps of tax research process to assist the client.
Answer: In both open- and closed-fact situations, the tax research process involves six basic steps:
1. Determine the facts.
2. Identify the issues (questions).
3. Locate the applicable authorities.
4. Evaluate the authorities and choose those to follow where the authorities conflict.
5. Analyze the facts in terms of the applicable authorities.
2
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,6. Communicate conclusions and recommendations to the client.
Page Ref.: C:1-3
Objective: 2
5) When should oral client communications be followed up in writing?
Answer: Written communications are recommended in important, unusual, substantial
dollar value, or complicated transactions.
Page Ref.: C:1-5
Objective: 2
LO3: Importance of the Facts to the Tax Consequences
1) The tax consultant can give an opinion on a tax fact pattern without all the facts.
Answer: FALSE
Explanation: Tax practitioner should not provide an opinion without all relevant facts.
Page Ref.: C:1-6
Objective: 3
2) Tax compliance is the biggest component of a tax practice.
Answer: FALSE
Explanation: Tax consulting is the biggest component of tax practice.
Page Ref.: C:1-6
Objective: 3
LO4: The Sources of Tax Law
1) The Internal Revenue Code of 1986 contains the current version of the tax law.
Answer: TRUE
Explanation: The last update was 1986.
Page Ref.: C:1-8
Objective: 4
2) 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.
Answer: TRUE
Explanation: Per IRC this remains accurate.
Page Ref.: C:1-9
Objective: 4
3) Final regulations have almost the same legislative weight as the IRC.
Answer: TRUE
Explanation: The Courts have followed this concept.
Page Ref.: C:1-10
Objective: 4
4) A revenue ruling is issued by the Internal Revenue Service only in response to a verbal inquiry by a
taxpayer.
Answer: FALSE
3
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, Explanation: The IRS may voluntarily issue a revenue ruling.
Page Ref.: C:1-12
Objective: 4
5) Taxpayers must pay the disputed tax prior to filing a case with the Tax Court.
Answer: FALSE
Explanation: Tax Court is the only court available in which taxpayer does not have to prepay the tax.
Page Ref.: C:1-14 and C:1-15
Objective: 4
6) Appeals from the U.S. Tax Court are to the Court of Appeals for the Federal Circuit.
Answer: FALSE
Explanation: Appeals from the US Tax Court are to the Court of Appeals for the respective circuit.
Page Ref.: C:1-14 and C:1-15
Objective: 4
7) 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.
Answer: TRUE
Explanation: USSC reviews requests before acceptance.
Page Ref.: C:1-14 and C:1-15
Objective: 4
8) When the Tax Court follows the opinion of the circuit court of appeals to which the case is appealable,
the court is following the
A) Golsen rule.
B) Acquiescence rule.
C) Forum shopping rule.
D) Conformity rule.
Answer: A
Explanation: Since 1970 the Tax Court has followed the Golsen rule.
Page Ref.: C:1-21
Objective: 4
9) Which of the following citations denotes a regular decision of the Tax Court?
A) 41 TCM 1272
B) 35 T.C. 1083 (2003)
C) 39 AFTR 2d 77-640
D) 41 USSC 1099
Answer: B
Explanation: TC is Tax Court citation.
Page Ref.: C:1-17
Objective: 4
10) The primary citation for a federal circuit court of appeals case would be
A) 40 AFTR 2d 78-1234.
B) 44 F.Supp. 403.
C) 3 F.3d 134.
4
Copyright © 2023 Pearson Education, Inc.
