ADVANCED CONCEPTS IN FEDERAL INCOME TAXATION - BUS 586 - EXAM 2

Experienced tax professionals generally can answer most tax questions without the need for tax research. T/F

F

A single tax issue may result in multiple research questions. T/F

T

The first step in the tax research process is to locate relevant tax law authority. T/F

F

The final step in the tax research process is to document and communicate research conclusions. T/F

T

Effective tax research often omits the first two steps of the tax research process. T/F

F

Professional tax research conclusions should always be based on relevant secondary authority T/F

A research memorandum is typically less detailed than a client letter in terms of discussing supporting legal authorities. T/F

F

Novice tax researchers tend to examine less material in the course of a tax research project than experienced tax researchers. T/F

F

Tax research typically occurs as part of the tax compliance process; however, it is rarely important in tax planning T/F

F

Tax research may occur as part of tax compliance or tax planning. T/F

T

Step 4 of the tax research process is to repeat steps 1 through 3 as many times as necessary. T/F

F

The results of the tax research process should be documented in a research memo, in a letter to the client, or both. T/F

T

In circumstances requiring an evaluative judgment, the tax researcher can provide a definitive answer to the research question. T/F

F

Tax judicial decisions each have a single, unique citation. T/F

F

In the citation Rev. Proc. 2002-32, 2002-1 C.B. 959, the abbreviation C.B. refers to Congressional Bulletin. T/F

F

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. T/F

F

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. T/F

T

Editorial explanations provided by electronic tax services are examples of secondary authority. T/F

T

Technical advice memoranda are considered primary authority for any taxpayer in a similar tax situation. T/F

F

Private letter rulings and technical advice memoranda are primary authority for those taxpayers to whom they were issued. T/F

T

The Internal Revenue Code is the primary source of statutory authority for federal income tax law. T/F

T

Treasury regulations are considered statutory authority. T/F

F

Revenue rulings are an example of administrative authority. T/F

T

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

F

A taxpayer who loses a case in the U.S. Tax Court may appeal the case directly to the U.S. Supreme Court. T/F

F

Revenue procedures are a type of secondary authority. T/F

F

When the Supreme Court denies certiorari, the decision of the appellate court is final. T/F

T

Secondary authorities explain and interpret the tax law in language often easier to understand than that of primary authorities. T/F

T

Tax services are typically organized either topically or by Code section. T/F

T

A Citator may be used to determine the status of tax judicial decisions, revenue rulings, and revenue procedures. T/F

T

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

F

Editorial explanations found within a tax service are a type of primary authority. T/F

F

Secondary authorities should always be cited when documenting tax research conclusions. T/F

F

Secondary authorities are typically used only by novice researchers in searching for answers to tax questions. T/F

F

Secondary authorities organize information about primary authorities in a manner that facilitates tax research. T/F

T

The editorial explanations in a commercial tax service are considered primary authority. T/F

F

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 these choices are steps in the tax research process

D

Which of the following statements regarding the tax research process istrue?

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 these statements are true

D

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.

A

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

B

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.

B

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.

A

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.

A

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

D

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.

A

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.

C

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.

B

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

D

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.

D

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

B

Which of the following is not a 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.

A

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 these choices are primary authorities

C

Which of the following is not a 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

B

Which of the following is a primary authority on which to base research conclusions?

A) Textbook used in this class

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

C

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)

D

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

A

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 these choices are proper forms for citing a Revenue Ruling

C

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

C

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.

A

Which of the following is not administrative authority?

A) The Internal Revenue Code

B) Treasury regulations

C) Revenue rulings

D) Revenue procedures

A

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.

C

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

A

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 these choices are advantages of electronic tax research libraries.

D

Which of the following is not a commercial tax service?

A) RIA Federal Tax Coordinator 2d

B) CCH Federal Tax Services

C) BNA Tax Management Portfolios

D) Cumulative Bulletin

D

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.

D

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.

D

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.

B

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 these statements are true.

B

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.

C

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) Online commercial tax services provide access only to primary authorities, not secondary authorities.

D) The organization and content of the major topically-oriented services differs considerably.

C

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

C

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

C

Which of the following is not a secondary authority?

A) Tax textbook

B) Commercial tax service

C) Tax professional journal

D) Revenue procedure

D

Which of the following is not a primary authority?

A) Internal Revenue Code

B) Treasury regulations

C) Revenue Procedure

D) Tax textbook

D

Which of the following statements regarding administrative authorities is false?

A) Private letter rulings are considered authoritative only for the taxpayer to whom they were issued.

B) A technical advice memorandum is requested by a revenue agent or appeals officer during the examination or appeal of a taxpayer's return.

C) Revenue procedures are considered secondary authority.

D) Private letter rulings can only be obtained for a fee from the IRS.

C

Which of the following is not a secondary authority?

A) Tax Court Memorandum decision

B) BNA Tax Management Portfolio

C) United States Tax Reporter

D) All of these choices are secondary authorities

A

Which of the following statements regarding strategies to locate relevant authority is true?

A) Novice researchers tend to examine fewer materials during the research process than experienced researchers.

B) In an electronic tax service, keyword searching allows the researcher to combine words and phrases to target the search.

C) Keyword searches should be defined as narrowly as possible to maximize efficiencies in the search process.

D) All of these choices are true statements.

B

For federal tax purposes, gross income from the sale of tangible goods is reduced by the

seller's cost of goods sold. T/F

T

Taxable income is defined as gross income minus allowable deductions and credits. T/F

F

A taxpayer that wants to change its taxable year from a fiscal year to a calendar year is not

required to receive permission from the IRS to make the change. T/F

F

A firm's choice of taxable year is usually dictated by the annual operating cycle of the firm's

business. T/F

T

When an individual taxpayer begins a new business as a sole proprietorship and wants to

keep records on a fiscal year basis, permission to change taxable years is not required

because this is a new business. T/F

F

A taxpayer that operates more than one business may use a different method of accounting

for each business. T/F

T

PPQ Incorporated wants to change from a hybrid method of accounting to the accrual method

of accounting for tax purposes. PPQ can't make this change without receiving permission

from the IRS. T/F

T

Any taxpayers may adopt the cash receipts and disbursements method, the accrual method, or

a hybrid method of accounting for tax purposes. T/F

F

Accurate measurement of taxable income is the only objective of the federal income tax

laws. T/F

F

Political lobbying expenses are nondeductible. T/F

T

The after-tax cost of a dollar of business meal expense is 79 cents for a taxpayer with a 21%

marginal tax rate. T/F

F

Poole Services, a calendar year taxpayer, billed a client for $1,675 of services on November

30, 2023, and received a check in full payment from the client on January 12, 2024. If Poole

is a cash basis taxpayer, it reports $1,675 taxable income in 2023. T/F

F

Poole Company, a calendar year taxpayer, incurred $589 of long-distance telephone charges

in December 2023 and mailed a check to the telephone company on January 4, 2024. If Poole

is a cash basis taxpayer, it reports a $589 tax deduction in 2024. T/F

T

Mr. Stern, a cash basis taxpayer, was notified by his bank that he earned $1,193 of interest on

his savings account in 2023. Mr. Stern has not withdrawn any funds from this account for

eight years and did not receive the notification until January 26, 2024. Mr. Stern does not

recognize the interest as income in 2023. T/F

F

A cash basis taxpayer must account for any prepayment of interest expense under the accrual

method. T/F

T

Elcox Company, a calendar year, cash basis taxpayer, paid $950 to purchase eight months'

worth of office supplies on December 12. Elcox can deduct $950 in the year of payment. T/F

T

Elcox Company, a calendar year, cash basis taxpayer, paid a $6,340 premium to purchase a

casualty insurance policy with a 36-month term. Elcox can deduct $6,340 in the year of

payment. T/F

F

All taxpayers that sell merchandise to their customers must use the accrual method to account

for purchases and sales of merchandise. T/F

F

Taxpayers that sell merchandise to their customers must use the accrual method as their

overall method of accounting. T/F

F

Marz Services Incorporated is a personal service corporation with $60 million average annual

gross receipts. Marz must use the accrual method of accounting for tax purposes. T/F

F

On November 30, 2023, Laine Services, a calendar year taxpayer, billed a client $8,450 for

services rendered during 2023. Laine received a check in full payment from the client on

January 12, 2024. If Laine is an accrual basis taxpayer, it reports $8,450 taxable income in

2023. T/F

T

Keagan Company, a calendar year taxpayer, incurred $1,490 of long-distance telephone

charges in December 2023 and mailed a check to the telephone company on January 4, 2024.

If Keagan is an accrual basis taxpayer, it reports a $1,490 tax deduction in 2024. T/F

F

According to the GAAP principle of conservatism, firms should delay the realization of

uncertain revenues and gains and accelerate the realization of uncertain expenses and losses.T/F

T