Federal fTax fResearch, f12th fEdition Page f2-1
CHAPTER 2 f
TAX RESEARCH METHODOLOGY
f f
DISCUSSION fQUESTIONS
2-1. The fprimary fpurpose fof ftax fresearch fis fto faid fin ffinding fsolutions fto ftax fproblems. f
Page f46
2-2. The fbasic fsteps fin fconducting ftax fresearch finclude fthe ffollowing:
Establish fthe fFacts: fThis fstep finvolves fthe fgathering fof ffacts, fincluding ftax fand fnontax
considerations.
f
Identify fthe fIssues: fThe ftax fresearcher fmust fidentify fboth fissues fof ffact fand fissues fof flaw. fIn
so fdoing, fthe fresearcher fmust frely fon fa fcombination fof feducation, ftraining, fand fexperience.
f
Locate fthe fAppropriate fAuthority: fThe fresearcher fmust flocate fauthority frelevant fto fthe
client’s fsituation. fAuthority fmay finclude fboth fprimary fand fsecondary fauthority.
f
Evaluate fthe fAuthority: fThis fstep fin fthe ftax fresearch fprocess frequires fthe fresearcher fto
analyze fthe fauthority, fincluding fthe fcurrent fstatus fof fthe fauthority fand fthe fprecedential fvalue
f
of fthe fauthority.
f
Develop fConclusions fand fRecommendations: fThe fresearcher fmust farrive fat fhis for fher
conclusions fbased fon fthe ffirst ffour fsteps fof fthe ftax fresearch fprocess.
f
Communicate fthe fRecommendations: fThe ffinal fstep fin fthe fresearch fprocess fis fto
communicate fto fthe fclient fthe ffacts, fassumptions, fissues, fsources fof fauthority, fand
f
conclusions fand frecommendations.
f
Pages f47-56
2-3. First, fthe fresearcher fmust funderstand fthe fmechanical ftechniques fthat fare fused fto fidentify fand flocate
fthe ftax fauthorities fthat frelate fto fsolving fa fproblem. fSecond, fthe fresearcher fmust fbe fcreative fand
,Page f2-2 SOLUTIONS fMANUAL
explore fall fof fthe frelevant frelationships famong fthe ffacts fand fthe fproblems fat fhand.
f
Page f50
2-4. Significant ftax ffacts fthat fa ftax fpractitioner fmight fwant fto fobtain fcould finclude fany fof fthe ffollowing:
The fclient’s ftax fentity(ies).
The fclient’s ffamily fstatus fand fstability.
The fclient’s fpast, fpresent, fand fprojected fmarginal ftax frates.
The fclient’s flegal fdomicile fand fcitizenship.
The fclient’s fmotivation ffor fthe ftransaction.
Relationships famong fthe fclient fand fother fparties finvolved fin fthe ftransaction.
Whether fspecial ftax frules fapply.
Whether fthe ftransaction fis fproposed for fcompleted.
Pages f47-48
2-5. The fresearcher fshould fbe faware fof fthe ffollowing fpitfalls:
1. The fresearcher fmay fattempt fto fresearch fa fproblem fbefore ffully funderstanding fthe
f facts fand fcircumstances frelevant fto fthe fclient’s fsituation.
2. Often fthe fresearcher fmay fhave fa ftendency fto fignore fnew fquestions fthat farise fas fthe
research ftask fprogresses.
f
3. The fclient fmay ffail fto fprovide fall fof fthe finformation fthat fis fvital fto fan faccurate
solution.
f
4. The ftax fresearcher fmay fapproach fa ftax fproblem fwithout fconsidering fother fconstraints
on fthe fsolution fto fthe fproblem, fsuch fas feconomic ffactors for fpersonal fpreferences fof
f
the fclient.
f
Page f47-48
, Federal fTax fResearch, f12th fEdition Page f2-3
2-6. a. T f(lower ftax fliability)
b. NT f(economic fconstraints)
c. NT f(personal fpreference)
d. NT f(personal fpreference)
e. NT f(personal fpreference)
2-7. a. NT f(personal fpreference). fMight falso fbe fclassified fas fT, fsince fthe ftaxpayer’s fmotivation ffor fa
potential ftransaction fis fknown
f
b. NT f(personal fpreference)
c. NT f(family fpreference)
d. T f(lower ftax fliability)
e. T f(lower ftax fliability)
2-8. Research fissues fcan fbe fdivided finto ftwo fmajor fcategories, fnamely, ffact fissues fand flaw fissues. fFact
fissues fare fconcerned fwith fproblems fsuch fas fthe fdates fof fthe ftransactions, fthe famounts finvolved fin fan
fexchange, freasonableness, fintent, fand fpurpose. fLaw fissues farise fwhen fthe ffacts fare fwell festablished,
fbut fit fis fnot fclear fwhich fportion fof fthe ftax flaw fapplies.
Page f48
2-9. The flegal fconcept fof fcollateral festoppel fbars frelitigation fon fthe fsame ffacts for fthe fsame fissues.
fTherefore, fthe ftax fpractitioner fmust fbe fcertain fthat fhis for fher fcase fis fresearched ffully fand fno fissues
f have fbeen foverlooked. fIf fan fissue fis fnot faddressed fin fthe foriginal fcase, fit fmay fbe flost fforever.
Page f49
CHAPTER 2 f
TAX RESEARCH METHODOLOGY
f f
DISCUSSION fQUESTIONS
2-1. The fprimary fpurpose fof ftax fresearch fis fto faid fin ffinding fsolutions fto ftax fproblems. f
Page f46
2-2. The fbasic fsteps fin fconducting ftax fresearch finclude fthe ffollowing:
Establish fthe fFacts: fThis fstep finvolves fthe fgathering fof ffacts, fincluding ftax fand fnontax
considerations.
f
Identify fthe fIssues: fThe ftax fresearcher fmust fidentify fboth fissues fof ffact fand fissues fof flaw. fIn
so fdoing, fthe fresearcher fmust frely fon fa fcombination fof feducation, ftraining, fand fexperience.
f
Locate fthe fAppropriate fAuthority: fThe fresearcher fmust flocate fauthority frelevant fto fthe
client’s fsituation. fAuthority fmay finclude fboth fprimary fand fsecondary fauthority.
f
Evaluate fthe fAuthority: fThis fstep fin fthe ftax fresearch fprocess frequires fthe fresearcher fto
analyze fthe fauthority, fincluding fthe fcurrent fstatus fof fthe fauthority fand fthe fprecedential fvalue
f
of fthe fauthority.
f
Develop fConclusions fand fRecommendations: fThe fresearcher fmust farrive fat fhis for fher
conclusions fbased fon fthe ffirst ffour fsteps fof fthe ftax fresearch fprocess.
f
Communicate fthe fRecommendations: fThe ffinal fstep fin fthe fresearch fprocess fis fto
communicate fto fthe fclient fthe ffacts, fassumptions, fissues, fsources fof fauthority, fand
f
conclusions fand frecommendations.
f
Pages f47-56
2-3. First, fthe fresearcher fmust funderstand fthe fmechanical ftechniques fthat fare fused fto fidentify fand flocate
fthe ftax fauthorities fthat frelate fto fsolving fa fproblem. fSecond, fthe fresearcher fmust fbe fcreative fand
,Page f2-2 SOLUTIONS fMANUAL
explore fall fof fthe frelevant frelationships famong fthe ffacts fand fthe fproblems fat fhand.
f
Page f50
2-4. Significant ftax ffacts fthat fa ftax fpractitioner fmight fwant fto fobtain fcould finclude fany fof fthe ffollowing:
The fclient’s ftax fentity(ies).
The fclient’s ffamily fstatus fand fstability.
The fclient’s fpast, fpresent, fand fprojected fmarginal ftax frates.
The fclient’s flegal fdomicile fand fcitizenship.
The fclient’s fmotivation ffor fthe ftransaction.
Relationships famong fthe fclient fand fother fparties finvolved fin fthe ftransaction.
Whether fspecial ftax frules fapply.
Whether fthe ftransaction fis fproposed for fcompleted.
Pages f47-48
2-5. The fresearcher fshould fbe faware fof fthe ffollowing fpitfalls:
1. The fresearcher fmay fattempt fto fresearch fa fproblem fbefore ffully funderstanding fthe
f facts fand fcircumstances frelevant fto fthe fclient’s fsituation.
2. Often fthe fresearcher fmay fhave fa ftendency fto fignore fnew fquestions fthat farise fas fthe
research ftask fprogresses.
f
3. The fclient fmay ffail fto fprovide fall fof fthe finformation fthat fis fvital fto fan faccurate
solution.
f
4. The ftax fresearcher fmay fapproach fa ftax fproblem fwithout fconsidering fother fconstraints
on fthe fsolution fto fthe fproblem, fsuch fas feconomic ffactors for fpersonal fpreferences fof
f
the fclient.
f
Page f47-48
, Federal fTax fResearch, f12th fEdition Page f2-3
2-6. a. T f(lower ftax fliability)
b. NT f(economic fconstraints)
c. NT f(personal fpreference)
d. NT f(personal fpreference)
e. NT f(personal fpreference)
2-7. a. NT f(personal fpreference). fMight falso fbe fclassified fas fT, fsince fthe ftaxpayer’s fmotivation ffor fa
potential ftransaction fis fknown
f
b. NT f(personal fpreference)
c. NT f(family fpreference)
d. T f(lower ftax fliability)
e. T f(lower ftax fliability)
2-8. Research fissues fcan fbe fdivided finto ftwo fmajor fcategories, fnamely, ffact fissues fand flaw fissues. fFact
fissues fare fconcerned fwith fproblems fsuch fas fthe fdates fof fthe ftransactions, fthe famounts finvolved fin fan
fexchange, freasonableness, fintent, fand fpurpose. fLaw fissues farise fwhen fthe ffacts fare fwell festablished,
fbut fit fis fnot fclear fwhich fportion fof fthe ftax flaw fapplies.
Page f48
2-9. The flegal fconcept fof fcollateral festoppel fbars frelitigation fon fthe fsame ffacts for fthe fsame fissues.
fTherefore, fthe ftax fpractitioner fmust fbe fcertain fthat fhis for fher fcase fis fresearched ffully fand fno fissues
f have fbeen foverlooked. fIf fan fissue fis fnot faddressed fin fthe foriginal fcase, fit fmay fbe flost fforever.
Page f49
