1
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
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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
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
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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.
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
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
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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
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
ACCESS Test Bank for Pearson's Federal Taxation 2023 Comprehensive 36th
Edition Rupert
mynursytest.store
3
Copyright © 2023 Pearson Education, Inc.
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.
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
