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l l l l l l l l l l l
dition Rupert l
Pearson'slFederallTaxationl2021:lComp.,l34el(Rupert/Anderson)lC
hapterlC1: TaxlResearch
LO1:l OverviewloflTaxlResearch
1) Taxlplanninglislnotlanlintegrallpartloflopen-
factlsituations.lAnswer:l FALSE
Explanation:lItlislintegral.lP
agelRef.:l C:1-
2lObjective:l 1
2) Whenlaltaxpayerlcontactslaltaxladvisorlrequestingladvicelasltolthelmostladvantageouslwayltoldisp
oseloflalstock,ltheltaxladvisorlislfacedlwith
A) alrestricted-factlsituation.
B) alclosed-factlsituation.
C) anlopen-factlsituation.
D) alrecognized-
factlsituation.lAnswer:l C
Explanation:lAdvicelbeforeltransactionlislopenlfactlsituation.lPa
gelRef.:l C:1-2
Objective:l 1
3) Investigationloflaltaxlproblemlthatlinvolveslalclosed-factlsituationlmeanslthat
A) thelclient'sltransactionslhavelalreadyloccurredlandltheltaxlquestionslmustlnowlbelresolved.
B) thelclient'sltaxlreturnlhaslyetltolbelfiled.
C) futureleventslmaylbelplannedlandlcontrolled.
D) researchlislprimarilylconcernedlwithlapplyinglthellawltolthelfactslasltheylexist.lAns
wer:l A
Explanation:l Afterlthelfactlrequestlislalclosedlfactlsituation.lPagel
Ref.:l C:1-2
Objective:l 1
4) Explainltheldifferencelbetweenlalclosed-factlandlopen-factlsituation.
Answer:lInlalclosed-
factlsituation,ltheltransactionlhasloccurredlandlthelfactslarelnotlsubjectltolchange.lInlanlopen-
factlsituation,ltheltransactionlislinlthelformativelorlprojectedlstage,landltheltaxpayerlislableltolstructur
elthelfactslsolthatltheltaxlconsequenceslofltheltransactionlcanlbelmorelfavorable.
PagelRef.:lC:1-
2lObjective:l 1
1
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5) Inlalllsituations,ltaxlconsiderationslareloflprimarylimportance.lDolyoulagreelorldisagree?lSup
portlyourlanswer.
Answer:lItlislimportantltolconsiderlnontaxlobjectiveslaslwelllasltaxlobjectives.lForlinstance,liflalwealth
ylclientlwantsltolminimizelherlestateltaxeslwhilelpassinglthelgreatestlvaluelpossibleltolherldescendant
s,lyoulwouldlnotlsuggestlthatlshelleavelthelmajorityloflherlestateltolcharitylandlonlylalfewlhundredlthou
sandldollarsltolherldescendants.lAlthoughlthislwouldlreducelherlestateltaxlliabilityltolzero,litlwouldlbel
inconsistentlwithlherlobjectiveloflallowinglherldescendantsltolreceivelaslmuchlafter-
taxlwealthlaslpossible.
PagelRef.:lC:1-2;lExamplelC:1-
2lObjective:l 1
LO2:l StepslinlthelTaxlResearchlProcess
1) Identifylwhichloflthelfollowinglstatementslisltrue.
A) Taxlplanninglislanlintegrallpartloflbothlclosed-factlsituationslandlopen-factlsituations.
B) Thelfirstlsteplinlconductingltaxlresearchlisltolclearlylunderstandlthelissueslinvolved.
C) ThelStatementslonlStandardslforlTaxlServiceslrecommendlthatlonlylwrittenltaxladvicelbelpro
videdltolthelclientlinlalllsituations.
D) Allloflthelabovelarelfalse.l
Answer:l C
Explanation:lThelStatementslonlStandardslforlTaxlServiceslrecommendlthatlonlylwrittenltaxladvicelbel
providedltolthelclientlinlalllsituations.
PagelRef.:lC:1-3lthroughlC:1-
5lObjective:l 2
2) Describelthelformatloflalclientlmemo.
Answer:lAlclientlmemolshouldlincludelalstatementloflthelfacts,lallistloflissues,laldiscussionloflrelevantl
authority,lanalysis,landlrecommendationsloflappropriatelactionsltolthelclientlbasedlonlthelresearchlre
sults.
PagelRef.:lSeelAdditionallCommentlpagelC:1-
4lObjective:l 2
2
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3) Outlinelandldiscussltheltaxlresearchlprocess.lA
nswer:
1) Thelfactslmustlbeldetermined.lHowever,lsomelfactslmaylnotlhaveloccurredlinlanlopen-
factlsituation.lWherelfactslhavelnotlyetloccurred,litlislusefulltolreviewltaxlresearchlmaterialltoldeter
minelwhichlfactslwouldlproducelthelmostlfavorableloutcome.
2) Thelissueslmustlbeldetermined.lThelissueslmaylnotlalwayslbelclearlandlmaylbeldifferentlthanlthelcl
ientlbelieves.lThus,lonlylalthoroughlunderstandingloflthelfactslpermitslanladequatelformulationloflthel
issues.
3) Determinelwhichlauthoritieslarelapplicable.
4) Evaluatelthelauthorities.lChooselthelonesltolfollowlwhenltherelarelconflictinglauthorities.
5) Communicatelthelresultltolthelclient.lThelcommunicationlwithlthelclientlshouldlnotlresultlinlalmis
understanding.lWhileldiscussionslwithlthelclientlmaylbelsuitable,litlislrecommendedlbylthelAICPA'sl
StatementslonlStandardslforlTaxlServiceslthatlthelcommunicationlbelwrittenlwherelissueslarelimport
ant,lunusuallorlcomplicated.lManylfirmslrequirelthatlconclusionslbelcommunicatedlinlwriting.
PagelRef.:lC:1-
4lObjective:l 2
LO3:l ImportanceloflthelFactsltolthelTaxlConsequences
1) Theltaxlconsultantlcanlgivelanlopinionlonlaltaxlfactlpatternlwithoutlalllthelfacts.lAns
wer:l FALSE
Explanation:l Taxlpractitionerlshouldlnotlprovidelanlopinionlwithoutlalllrelevantlfacts.lPagelR
ef.:l C:1-6
Objective:l 3
2) Taxlcompliancelislthelbiggestlcomponentloflaltaxlpractice.lA
nswer:l FALSE
Explanation:lTaxlconsultinglislthelbiggestlcomponentlofltaxlpractice.lPagelR
ef.:l C:1-6
Objective:l 3
LO4:l ThelSourcesloflTaxlLaw
1) ThelInternallRevenuelCodelofl1986lcontainslthelcurrentlversionlofltheltaxllaw.lAns
wer:l TRUE
Explanation:lThellastlupdatelwasl1986.lP
agelRef.:l C:1-8
Objective:l 4
2) RegulationslissuedlpriorltolthellatestltaxllegislationldealinglwithlalspecificlCodelsectionlarelstilll
effectiveltolthelextentltheyldolnotlconflictlwithlthelprovisionslinlthelnewllegislation.lAnswer:l TRU
E
Explanation:l PerlIRClthislremainslaccurate.lPagel
Ref.:l C:1-9
Objective:l 4
3
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3) FinallregulationslhavelalmostlthelsamellegislativelweightlaslthelIRC.lAn
swer:l TRUE
Explanation:l ThelCourtslhavelfollowedlthislconcept.lPagel
Ref.:l C:1-10
Objective:l 4
4) AlrevenuelrulinglislissuedlbylthelInternallRevenuelServicelonlylinlresponseltolalverballinqu
irylbylaltaxpayer.
Answer:l FALSE
Explanation:lThelIRSlmaylvoluntarilylissuelalrevenuelruling.lPa
gelRef.:l C:1-12
Objective:l 4
5) TaxpayerslmustlpayltheldisputedltaxlpriorltolfilinglalcaselwithlthelTaxlCourt.lAns
wer:l FALSE
Explanation:l TaxlCourtlislthelonlylcourtlavailablelinlwhichltaxpayerldoeslnotlhaveltolprepayltheltax.
PagelRef.:lC:1-14landlC:1-
15lObjective:l 4
6) AppealslfromlthelU.S.lTaxlCourtlareltolthelCourtloflAppealslforlthelFederallCircuit.lAns
wer:l FALSE
Explanation:l AppealslfromlthelUSlTaxlCourtlareltolthelCourtloflAppealslforlthelrespectivelcircuit.
PagelRef.:lC:1-14landlC:1-
15lObjective:l 4
7) AppealslfromlthelCourtloflAppealslgoltolthelSupremelCourtlunderlalwritloflcertiorari.lThelSupr
emelCourtldecideslwhetherlorlnotltheylwilllhearlthelcase.
Answer:l TRUE
Explanation:lUSSClreviewslrequestslbeforelacceptance.lPa
gelRef.:l C:1-14landlC:1-15
Objective:l 4
8) WhenlthelTaxlCourtlfollowslthelopinionloflthelcircuitlcourtloflappealsltolwhichlthelcaselislappe
alable,lthelcourtlislfollowinglthe
A) Golsenlrule.
B) Acquiescencelrule.
C) Forumlshoppinglrule.
D) Conformitylrule.
Answer:l A
Explanation:lSincel1970lthelTaxlCourtlhaslfollowedlthelGolsenlconcept.lPag
elRef.:l C:1-21
Objective:l 4
4
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l l l l l l l l l l l
dition Rupert l
Pearson'slFederallTaxationl2021:lComp.,l34el(Rupert/Anderson)lC
hapterlC1: TaxlResearch
LO1:l OverviewloflTaxlResearch
1) Taxlplanninglislnotlanlintegrallpartloflopen-
factlsituations.lAnswer:l FALSE
Explanation:lItlislintegral.lP
agelRef.:l C:1-
2lObjective:l 1
2) Whenlaltaxpayerlcontactslaltaxladvisorlrequestingladvicelasltolthelmostladvantageouslwayltoldisp
oseloflalstock,ltheltaxladvisorlislfacedlwith
A) alrestricted-factlsituation.
B) alclosed-factlsituation.
C) anlopen-factlsituation.
D) alrecognized-
factlsituation.lAnswer:l C
Explanation:lAdvicelbeforeltransactionlislopenlfactlsituation.lPa
gelRef.:l C:1-2
Objective:l 1
3) Investigationloflaltaxlproblemlthatlinvolveslalclosed-factlsituationlmeanslthat
A) thelclient'sltransactionslhavelalreadyloccurredlandltheltaxlquestionslmustlnowlbelresolved.
B) thelclient'sltaxlreturnlhaslyetltolbelfiled.
C) futureleventslmaylbelplannedlandlcontrolled.
D) researchlislprimarilylconcernedlwithlapplyinglthellawltolthelfactslasltheylexist.lAns
wer:l A
Explanation:l Afterlthelfactlrequestlislalclosedlfactlsituation.lPagel
Ref.:l C:1-2
Objective:l 1
4) Explainltheldifferencelbetweenlalclosed-factlandlopen-factlsituation.
Answer:lInlalclosed-
factlsituation,ltheltransactionlhasloccurredlandlthelfactslarelnotlsubjectltolchange.lInlanlopen-
factlsituation,ltheltransactionlislinlthelformativelorlprojectedlstage,landltheltaxpayerlislableltolstructur
elthelfactslsolthatltheltaxlconsequenceslofltheltransactionlcanlbelmorelfavorable.
PagelRef.:lC:1-
2lObjective:l 1
1
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5) Inlalllsituations,ltaxlconsiderationslareloflprimarylimportance.lDolyoulagreelorldisagree?lSup
portlyourlanswer.
Answer:lItlislimportantltolconsiderlnontaxlobjectiveslaslwelllasltaxlobjectives.lForlinstance,liflalwealth
ylclientlwantsltolminimizelherlestateltaxeslwhilelpassinglthelgreatestlvaluelpossibleltolherldescendant
s,lyoulwouldlnotlsuggestlthatlshelleavelthelmajorityloflherlestateltolcharitylandlonlylalfewlhundredlthou
sandldollarsltolherldescendants.lAlthoughlthislwouldlreducelherlestateltaxlliabilityltolzero,litlwouldlbel
inconsistentlwithlherlobjectiveloflallowinglherldescendantsltolreceivelaslmuchlafter-
taxlwealthlaslpossible.
PagelRef.:lC:1-2;lExamplelC:1-
2lObjective:l 1
LO2:l StepslinlthelTaxlResearchlProcess
1) Identifylwhichloflthelfollowinglstatementslisltrue.
A) Taxlplanninglislanlintegrallpartloflbothlclosed-factlsituationslandlopen-factlsituations.
B) Thelfirstlsteplinlconductingltaxlresearchlisltolclearlylunderstandlthelissueslinvolved.
C) ThelStatementslonlStandardslforlTaxlServiceslrecommendlthatlonlylwrittenltaxladvicelbelpro
videdltolthelclientlinlalllsituations.
D) Allloflthelabovelarelfalse.l
Answer:l C
Explanation:lThelStatementslonlStandardslforlTaxlServiceslrecommendlthatlonlylwrittenltaxladvicelbel
providedltolthelclientlinlalllsituations.
PagelRef.:lC:1-3lthroughlC:1-
5lObjective:l 2
2) Describelthelformatloflalclientlmemo.
Answer:lAlclientlmemolshouldlincludelalstatementloflthelfacts,lallistloflissues,laldiscussionloflrelevantl
authority,lanalysis,landlrecommendationsloflappropriatelactionsltolthelclientlbasedlonlthelresearchlre
sults.
PagelRef.:lSeelAdditionallCommentlpagelC:1-
4lObjective:l 2
2
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,DOWNLOAD THE Test Bank for Pearsons Federal Taxation 2021 Comprehensive34th E
l l l l l l l l l l l
dition Rupert l
3) Outlinelandldiscussltheltaxlresearchlprocess.lA
nswer:
1) Thelfactslmustlbeldetermined.lHowever,lsomelfactslmaylnotlhaveloccurredlinlanlopen-
factlsituation.lWherelfactslhavelnotlyetloccurred,litlislusefulltolreviewltaxlresearchlmaterialltoldeter
minelwhichlfactslwouldlproducelthelmostlfavorableloutcome.
2) Thelissueslmustlbeldetermined.lThelissueslmaylnotlalwayslbelclearlandlmaylbeldifferentlthanlthelcl
ientlbelieves.lThus,lonlylalthoroughlunderstandingloflthelfactslpermitslanladequatelformulationloflthel
issues.
3) Determinelwhichlauthoritieslarelapplicable.
4) Evaluatelthelauthorities.lChooselthelonesltolfollowlwhenltherelarelconflictinglauthorities.
5) Communicatelthelresultltolthelclient.lThelcommunicationlwithlthelclientlshouldlnotlresultlinlalmis
understanding.lWhileldiscussionslwithlthelclientlmaylbelsuitable,litlislrecommendedlbylthelAICPA'sl
StatementslonlStandardslforlTaxlServiceslthatlthelcommunicationlbelwrittenlwherelissueslarelimport
ant,lunusuallorlcomplicated.lManylfirmslrequirelthatlconclusionslbelcommunicatedlinlwriting.
PagelRef.:lC:1-
4lObjective:l 2
LO3:l ImportanceloflthelFactsltolthelTaxlConsequences
1) Theltaxlconsultantlcanlgivelanlopinionlonlaltaxlfactlpatternlwithoutlalllthelfacts.lAns
wer:l FALSE
Explanation:l Taxlpractitionerlshouldlnotlprovidelanlopinionlwithoutlalllrelevantlfacts.lPagelR
ef.:l C:1-6
Objective:l 3
2) Taxlcompliancelislthelbiggestlcomponentloflaltaxlpractice.lA
nswer:l FALSE
Explanation:lTaxlconsultinglislthelbiggestlcomponentlofltaxlpractice.lPagelR
ef.:l C:1-6
Objective:l 3
LO4:l ThelSourcesloflTaxlLaw
1) ThelInternallRevenuelCodelofl1986lcontainslthelcurrentlversionlofltheltaxllaw.lAns
wer:l TRUE
Explanation:lThellastlupdatelwasl1986.lP
agelRef.:l C:1-8
Objective:l 4
2) RegulationslissuedlpriorltolthellatestltaxllegislationldealinglwithlalspecificlCodelsectionlarelstilll
effectiveltolthelextentltheyldolnotlconflictlwithlthelprovisionslinlthelnewllegislation.lAnswer:l TRU
E
Explanation:l PerlIRClthislremainslaccurate.lPagel
Ref.:l C:1-9
Objective:l 4
3
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3) FinallregulationslhavelalmostlthelsamellegislativelweightlaslthelIRC.lAn
swer:l TRUE
Explanation:l ThelCourtslhavelfollowedlthislconcept.lPagel
Ref.:l C:1-10
Objective:l 4
4) AlrevenuelrulinglislissuedlbylthelInternallRevenuelServicelonlylinlresponseltolalverballinqu
irylbylaltaxpayer.
Answer:l FALSE
Explanation:lThelIRSlmaylvoluntarilylissuelalrevenuelruling.lPa
gelRef.:l C:1-12
Objective:l 4
5) TaxpayerslmustlpayltheldisputedltaxlpriorltolfilinglalcaselwithlthelTaxlCourt.lAns
wer:l FALSE
Explanation:l TaxlCourtlislthelonlylcourtlavailablelinlwhichltaxpayerldoeslnotlhaveltolprepayltheltax.
PagelRef.:lC:1-14landlC:1-
15lObjective:l 4
6) AppealslfromlthelU.S.lTaxlCourtlareltolthelCourtloflAppealslforlthelFederallCircuit.lAns
wer:l FALSE
Explanation:l AppealslfromlthelUSlTaxlCourtlareltolthelCourtloflAppealslforlthelrespectivelcircuit.
PagelRef.:lC:1-14landlC:1-
15lObjective:l 4
7) AppealslfromlthelCourtloflAppealslgoltolthelSupremelCourtlunderlalwritloflcertiorari.lThelSupr
emelCourtldecideslwhetherlorlnotltheylwilllhearlthelcase.
Answer:l TRUE
Explanation:lUSSClreviewslrequestslbeforelacceptance.lPa
gelRef.:l C:1-14landlC:1-15
Objective:l 4
8) WhenlthelTaxlCourtlfollowslthelopinionloflthelcircuitlcourtloflappealsltolwhichlthelcaselislappe
alable,lthelcourtlislfollowinglthe
A) Golsenlrule.
B) Acquiescencelrule.
C) Forumlshoppinglrule.
D) Conformitylrule.
Answer:l A
Explanation:lSincel1970lthelTaxlCourtlhaslfollowedlthelGolsenlconcept.lPag
elRef.:l C:1-21
Objective:l 4
4
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