TAX EXAM UPDATED ACTUAL QUESTIONS AND CORRECT
Answers
What is the doctrine of stare decisis? "to stand on decided cases" : judges are obligated to follow the precedents
(legal decisions) established within their jurisdiction
What is precedent and what does it usually contain? A precedent is a prior court decision that must be followed in future cases with
similar facts, under the doctrine of stare decisis.
What do we compare when we are ascertaining We compare the material facts of the two cases — the facts that were legally
degrees of similarity and relevant to the court's decision in the precedent case.
difference?
What does the term "common law" describe? the situation where the rules of law are inductively determined from the body
of case law AND THEN applied to future similar controversies. AKA law is built
upon past rulings.
Explain completely the way in which statutory law is Both are binding, enforceable law. Both require judicial interpretation. Both
similar to common law? evolve over time. Both aim for consistency and predictability. Both interact with
and influence each other — courts interpret statutes using common law
principles, and legislatures often codify common law rules into statute.
Is tax law a system of known rules deductively applied No. While tax statutes provide rules applied to transactions, the law is too
to economic events? Why or why not? ambiguous, complex, and constantly interpreted by courts to be purely
deductive. Discretion, interpretation, and unanticipated economic
arrangements mean certainty is the exception, not the rule.
Identify the two parts of a substantive principle of law. The operative facts (the conditions that trigger the rule) and the legal
consequence that follows when those facts are present.
Identify the two sources of substantive principles of law Statute and judicial decisions (common law/precedent).
in the case of tax law.
Identify the three areas of potential uncertainty which Uncertainty of fact — what actually happened
may arise concerning tax law decisions. Uncertainty of law — what the rule means
Uncertainty of application — how the rule applies to the facts
List the three separate considerations that may cause us Statutory interpretation — ambiguity in the words of the legislation
to be uncertain Conflicting precedents — uncertainty about which prior decision applies
concerning the identity of the correct tax rule. No existing rule — a gap in the law where no rule has yet been established
List the three sources of federal statutory tax law. The Constitution
Acts of Congress (the Internal Revenue Code)
Treaties
When do we have to worry about the federal tax law When a transaction involves a foreign party or cross-border element where a
that is contained in tax treaty between the US and another country may override the normal
treaties? domestic tax rules.
, Trace through Congress the path usually followed by a Introduced in the House Ways and Means Committee
tax bill. Passed by the full House
Reviewed by the Senate Finance Committee
Passed by the full Senate
Differences resolved in Conference Committee
Final bill passed by both chambers
Signed into law by the President
What is the function of the Joint Conference Committee To reconcile differences between the House and Senate versions of a tax bill
of the House Ways and Means Committee and the and produce a single agreed final version for both chambers to vote on.
Senate Finance Committee?
Identify two reasons why it is important to know the To determine whether the provision applies to the transaction in question
effective date of a statutory provision. To identify which version of the law governed past transactions or filing
positions
Define the phrase "canon of statutory construction." A rule or principle used by courts to interpret the meaning of statutory
language.
Why are committee reports of Congress important as a They reveal legislative intent — what Congress meant when enacting a
source of tax law? provision — which courts use to interpret ambiguous statutory language.
Distinguish "primary" interpretive authority from Primary authority is legally binding — statutes, regulations, and court decisions
"secondary" interpretive that courts must follow.
authority. Secondary authority is persuasive but not binding — treatises, law review
articles, and commentary that courts may consider but are free to ignore.
Distinguish the "tax decision process" from the "tax The tax decision process determines the correct tax treatment of a transaction
research process." — what the law requires.
The tax research process is how you find and analyze the law to support that
determination.
List the five areas of uncertainty that are associated with Uncertainty of fact
tax decisions. Uncertainty of law
Uncertainty of application
Uncertainty of procedure
Uncertainty of documentation
List the three questions that guide the process of Are the material facts sufficiently similar?
determining degrees of Is the legal issue the same?
similarity and difference between a current situation Is the court that decided the precedent one whose decisions are binding or
and any apparently relevant precedent. merely persuasive?
The legal nature of any particular tax issue has The burden of proof
implications regarding three items. List those three The standard of review
items. The forum in which the dispute is resolved
What does the phrase "the legal effect of interpretive Whether a particular source of law is binding (must be followed) or merely
authority" mean? persuasive (may be considered but can be ignored) on a court deciding a tax
issue.
Answers
What is the doctrine of stare decisis? "to stand on decided cases" : judges are obligated to follow the precedents
(legal decisions) established within their jurisdiction
What is precedent and what does it usually contain? A precedent is a prior court decision that must be followed in future cases with
similar facts, under the doctrine of stare decisis.
What do we compare when we are ascertaining We compare the material facts of the two cases — the facts that were legally
degrees of similarity and relevant to the court's decision in the precedent case.
difference?
What does the term "common law" describe? the situation where the rules of law are inductively determined from the body
of case law AND THEN applied to future similar controversies. AKA law is built
upon past rulings.
Explain completely the way in which statutory law is Both are binding, enforceable law. Both require judicial interpretation. Both
similar to common law? evolve over time. Both aim for consistency and predictability. Both interact with
and influence each other — courts interpret statutes using common law
principles, and legislatures often codify common law rules into statute.
Is tax law a system of known rules deductively applied No. While tax statutes provide rules applied to transactions, the law is too
to economic events? Why or why not? ambiguous, complex, and constantly interpreted by courts to be purely
deductive. Discretion, interpretation, and unanticipated economic
arrangements mean certainty is the exception, not the rule.
Identify the two parts of a substantive principle of law. The operative facts (the conditions that trigger the rule) and the legal
consequence that follows when those facts are present.
Identify the two sources of substantive principles of law Statute and judicial decisions (common law/precedent).
in the case of tax law.
Identify the three areas of potential uncertainty which Uncertainty of fact — what actually happened
may arise concerning tax law decisions. Uncertainty of law — what the rule means
Uncertainty of application — how the rule applies to the facts
List the three separate considerations that may cause us Statutory interpretation — ambiguity in the words of the legislation
to be uncertain Conflicting precedents — uncertainty about which prior decision applies
concerning the identity of the correct tax rule. No existing rule — a gap in the law where no rule has yet been established
List the three sources of federal statutory tax law. The Constitution
Acts of Congress (the Internal Revenue Code)
Treaties
When do we have to worry about the federal tax law When a transaction involves a foreign party or cross-border element where a
that is contained in tax treaty between the US and another country may override the normal
treaties? domestic tax rules.
, Trace through Congress the path usually followed by a Introduced in the House Ways and Means Committee
tax bill. Passed by the full House
Reviewed by the Senate Finance Committee
Passed by the full Senate
Differences resolved in Conference Committee
Final bill passed by both chambers
Signed into law by the President
What is the function of the Joint Conference Committee To reconcile differences between the House and Senate versions of a tax bill
of the House Ways and Means Committee and the and produce a single agreed final version for both chambers to vote on.
Senate Finance Committee?
Identify two reasons why it is important to know the To determine whether the provision applies to the transaction in question
effective date of a statutory provision. To identify which version of the law governed past transactions or filing
positions
Define the phrase "canon of statutory construction." A rule or principle used by courts to interpret the meaning of statutory
language.
Why are committee reports of Congress important as a They reveal legislative intent — what Congress meant when enacting a
source of tax law? provision — which courts use to interpret ambiguous statutory language.
Distinguish "primary" interpretive authority from Primary authority is legally binding — statutes, regulations, and court decisions
"secondary" interpretive that courts must follow.
authority. Secondary authority is persuasive but not binding — treatises, law review
articles, and commentary that courts may consider but are free to ignore.
Distinguish the "tax decision process" from the "tax The tax decision process determines the correct tax treatment of a transaction
research process." — what the law requires.
The tax research process is how you find and analyze the law to support that
determination.
List the five areas of uncertainty that are associated with Uncertainty of fact
tax decisions. Uncertainty of law
Uncertainty of application
Uncertainty of procedure
Uncertainty of documentation
List the three questions that guide the process of Are the material facts sufficiently similar?
determining degrees of Is the legal issue the same?
similarity and difference between a current situation Is the court that decided the precedent one whose decisions are binding or
and any apparently relevant precedent. merely persuasive?
The legal nature of any particular tax issue has The burden of proof
implications regarding three items. List those three The standard of review
items. The forum in which the dispute is resolved
What does the phrase "the legal effect of interpretive Whether a particular source of law is binding (must be followed) or merely
authority" mean? persuasive (may be considered but can be ignored) on a court deciding a tax
issue.
