Pearson’s Federal Taxation 2022: Corporations, Partnerships, Estates and Trusts, 35e
(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
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
2
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, 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:1-4
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
Copyright © 2022 Pearson Education, Inc.
(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
1
Copyright © 2022 Pearson Education, Inc.
,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
2
Copyright © 2022 Pearson Education, Inc.
, 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:1-4
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
Copyright © 2022 Pearson Education, Inc.
