Solution Manual for
Pearson's Federal Taxation 2026 Corporations, Partnerships, Estates, &
Trusts, 39th edition Luke E. Richardson Mitchell Franklin
Chapter 1-15
Chapter C:1
Tax Research
Note: To complete the online research problems for this chapter, textbook users must have
access to an Internet-based tax service at their institution. Solutions are provided using
CHECKPOINT, when applicable. In some cases, solutions using other tax services may differ.
Discussion Questions
C:1-1 In a closed-fact situation, the facts have occurred, and the tax advisor‘s task is to analyze
them to determine the appropriate tax treatment. In an open-fact situation, by contrast, the facts
have not yet occurred, and the tax advisor‘s task is to plan for them or shape them so as to
produce a favorable tax result. p. C:1-2.
C:1-2 According to the AICPA‘s Statement on Standards for Tax Services No. 1, the tax
advisor must promptly inform the taxpayer of the error and advise on corrective measures that
should be taken. If the taxpayer refuses to take such recommended actions, the advisor should
consider resigning from the engagement. pp. C:1-31 through C:1-33.
C:1-3 When tax advisors speak about ―tax law,‖ they refer to the IRC as elaborated by Treasury
Regulations and administrative pronouncements and as interpreted by federal courts. The term
also includes the meaning conveyed by committee reports. p. C:1-7.
C:1-4 Committee reports concerning tax legislation explain the purpose behind Congress‘
proposing the legislation. Transcripts of hearings reproduce the testimonies of the persons who
spoke for or against the proposed legislation before the Congressional committees. Committee
reports are sometimes used to interpret the statute. p. C:1-7.
C:1-5 Committee reports can help resolve ambiguities in statutory language by revealing
Congressional intent. They are indicative of this intent. pp. C:1-7 and C:1-8.
C:1-6 The Internal Revenue Code of 1986 is updated for every statutory change to Title 26
subsequent to 1986. Therefore, it includes the post-1986 tax law changes enacted by Congress
and today reflects the current state of the law. p. C:1-8.
C:1-7 No. Title 26 deals with all taxation matters, not just income taxation. It covers estate tax,
gift tax, employment tax, alcohol and tobacco tax, and excise tax matters. p. C:1-8.
Copyright © 2025 Pearson Education, Inc.
C:1-1
,C:1-8 a. Subsection (c). It discusses the tax treatment of property distributions in general
(e.g., amount taxable, amount applied against basis, and amount exceeding basis).
b. Because Sec. 301 applies to the entire chapter, one should look throughout that
entire chapter (Chapter 1 of the IRC – which covers Sec. 1 through Sec. 1400U-3) for any
exceptions. One special rule – Sec. 301(e) – is found in Sec. 301. This special rule explains the
tax treatment of dividends received by a 20% corporate taxpayer. Section 301(f) indicates some
of the important special rules found in other IRC sections.
c. Legislative. Section 301(e)(4) authorizes the issuance of Treasury Regulations as
may be necessary to carry out the purposes of the subsection. pp. C:1-9 through C:1-10.
C:1-9 Researchers should note the date on which a Treasury Regulation was adopted because
the IRC may have been revised subsequent to that date. That is, the regulation may not interpret
the current version of the IRC. Discrepancies between the IRC and the regulation occur when the
Treasury Department has not updated the regulation to reflect the statute as amended. p. C:1-9.
C:1-10 a. Proposed regulations are not authoritative, but they do provide guidance
concerning how the Treasury Department interprets the IRC. Temporary regulations, which are
binding on the taxpayer, often are issued after recent revisions to the IRC so that taxpayers and
tax advisors will have guidance concerning procedural and/or computational matters. Final
regulations, which are issued after the public has had time to comment on proposed regulations,
are considered to be somewhat more authoritative than temporary regulations. pp. C:1-9 and C:1-
10.
b. Interpretative regulations make the IRC‘s statutory language easier to understand
and apply. They also often provide computational illustrations. In the case of legislative
regulations, Congress has delegated the rulemaking on a specific topic (either narrow or broad)
to the Treasury Department. However, after the Mayo Foundation case, both types of regulations
will have the same authoritative weight. p. C:1-10.
C:1-11 Prior to 2011, courts gave more authority to legislative regulations than to interpretive
regulations. However, after the Supreme Court decision in Mayo Foundation, courts will hold
both interpretive and legislative regulations to the same standard and will overturn them only in
very limited cases. p. C:1-10.
C:1-12 Under the legislative reenactment doctrine, a Treasury Regulation is deemed to have been
endorsed by Congress if the regulation was finalized before a related IRC provision was
amended by Congress and in the interim, Congress did not amend the statutory provision to
which the regulation relates. p. C:1-10.
C:1-13 a. Revenue rulings are not as authoritative as court opinions, Treasury Regulations,
or the IRC. They represent interpretations by an interested party, the IRS. p. C:1-12.
b. If the IRS audits the taxpayer‘s return, the IRS likely will contend that the
taxpayer should have followed the ruling and, therefore, owes a deficiency. p. C:1-12.
C:1-14 a. The Tax Court, the U.S. Court of Federal Claims, or the U.S. district court for the
taxpayer‘s jurisdiction. p. C:1-14.
Copyright © 2025 Pearson Education, Inc.
C:1-2
, b. The taxpayer might consider the precedent, if any, existing within each
jurisdiction. The taxpayer might prefer to avoid expending cash to pay the proposed deficiency.
If so, the taxpayer would want to litigate in the Tax Court. If the taxpayer would like to have a
jury trial address questions of fact, he or she should opt for the U.S. district court. pp. C:1-14 through
C:1-19, p. C:1-21, and p. C:1-23.
c. Appeals from Tax Court and U.S. district court decisions are made to the circuit
court of appeals for the taxpayer‘s geographical jurisdiction. U.S. Court of Federal Claims
decisions are appealable to the Court of Appeals for the Federal Circuit. Appeals from any of the
circuit courts of appeals may be brought to the U. S. Supreme Court. pp. C:1-20 through C:1-21.
C:1-15 No. A taxpayer may not appeal a case litigated under the Tax Court‘s Small Cases
Procedure. p. C:1-17.
C:1-16 Tax Court regular and memo decisions have about the same precedential value. Decisions
issued under the Small Cases Procedure of the Tax Court have little or no precedential value.
pp. C:1-15 and C:1-17.
C:1-17 Yes. The IRS can acquiesce (or nonacquiesce) in any federal court decision that is
adverse to the IRS if the IRS decides to do so. In many cases the IRS does not acquiesce or
nonacquiesce. p. C:1-17.
C:1-18 In both the AFTR and USTC: decisions of U.S. district courts, U.S. bankruptcy courts,
U.S. Court of Federal Claims, circuit courts of appeal, and the U.S. Supreme Court. Tax Court
decisions are reported in neither of the two reporters. pp. C:1-16 and C:1-17 through C:1-22.
C:1-19 Prior to 2009, revenue rulings appeared in the weekly Internal Revenue Bulletin (I.R.B.),
and twice each year the decisions published in the I.R.B. were bound together and published in
the Cumulative Bulletin (C.B.). For pre-2009 rulings, the I.R.B citation was temporary and was
replaced by a citation to the C.B. After 2008, the IRS no longer publishes the Cumulative
Bulletin. Therefore for current rulings, the initial I.R.B. citation is final. p. C:1-12.
C:1-20 According to the Golsen Rule, the Tax Court will not follow a decision it made earlier,
but rather will follow a decision of the circuit court of appeals to which the case under
consideration is appealable. As an example, assume that the Tax Court, in a case involving a
First Circuit taxpayer, ruled for the taxpayer. The issue had not been litigated earlier. Then, a
U.S. district court in Georgia decided a case involving the same issue in favor of another
taxpayer. The Eleventh Circuit, however, reversed the decision. Now a taxpayer from the
Eleventh Circuit litigates the same issue in the Tax Court. Under the Golsen Rule, the Tax Court
will follow the Eleventh Circuit‘s decision favoring the government. The Tax Court need not
follow an appeals court decision if a case was litigated by a taxpayer whose appeal would have
been made to any circuit other than the Eleventh. p. C:1-21.
C:1-21 a. The precedent binding upon a California taxpayer would be the Tax Court case.
The Tax Court has national jurisdiction. pp. C:1-21 and C:1-23.
b. Under the Golsen Rule, the Tax Court will depart from its earlier decision and
follow the Fifth Circuit‘s decision favoring the government. p. C:1-21.
Copyright © 2025 Pearson Education, Inc.
C:1-3
, C:1-22 a. Congressional Record
b. Internal Revenue Bulletin
c. Tax Court of the United States Reports
d. Federal Register, Internal Revenue Bulletin, and/or Cumulative Bulletin
e. Federal Supplement, American Federal Tax Reports (only tax-related), United
States Tax Cases (only tax-related).
f. Not found in an ―official‖ publication; published by tax services
pp. C:1-7, C:1-12 through C:1-14, and C:1-17 through C:1-19.
C:1-23 A tax advisor might find the provisions of a tax treaty useful where a U.S. taxpayer
engages in transactions in a foreign country. The United States has tax treaties with many
countries. p. C:1-24.
C:1-24 Citators (1) trace the history of the case in question and (2) list other authorities that have
cited such case. p. C:1-30.
C:1-25 Revenue rulings, revenue procedures, and judicial decisions. p. C:1-29.
C:1-26 Keyword, index, or citation are the three ways to search in tax service databases. p. C:1-
26.
C:1-27 a. The principal primary sources found in CHECKPOINT are as follows:
• IRC
• Treasury Regulations
• Court opinions
• Revenue rulings and procedures
• Letter rulings
• Committee reports
• Tax treaties
b. The principal secondary sources found in CHECKPOINT are as follows:
• Federal Tax Coordinator
• United States Tax Reporter
• Warren, Gorham & Lamont journals and treatises
Secondary sources will differ among the tax services. pp. C:1-26 through C:1-29.
C:1-28 The features (i.e., icons, templates, and command buttons) will vary depending upon the
particular tax service/Internet site accessed. Just about all commercial tax databases can be
searched by keyword and citation. Some can be searched by table of contents and topic. Most
noncommercial tax databases can be searched by keyword. Some can be searched by citation and
table of contents.
The advantages of using a commercial tax service (as opposed to a noncommercial
service) are broader database scope, greater historical coverage, and more efficient search
engines. The principal disadvantage is cost.
Copyright © 2025 Pearson Education, Inc.
C:1-4
Pearson's Federal Taxation 2026 Corporations, Partnerships, Estates, &
Trusts, 39th edition Luke E. Richardson Mitchell Franklin
Chapter 1-15
Chapter C:1
Tax Research
Note: To complete the online research problems for this chapter, textbook users must have
access to an Internet-based tax service at their institution. Solutions are provided using
CHECKPOINT, when applicable. In some cases, solutions using other tax services may differ.
Discussion Questions
C:1-1 In a closed-fact situation, the facts have occurred, and the tax advisor‘s task is to analyze
them to determine the appropriate tax treatment. In an open-fact situation, by contrast, the facts
have not yet occurred, and the tax advisor‘s task is to plan for them or shape them so as to
produce a favorable tax result. p. C:1-2.
C:1-2 According to the AICPA‘s Statement on Standards for Tax Services No. 1, the tax
advisor must promptly inform the taxpayer of the error and advise on corrective measures that
should be taken. If the taxpayer refuses to take such recommended actions, the advisor should
consider resigning from the engagement. pp. C:1-31 through C:1-33.
C:1-3 When tax advisors speak about ―tax law,‖ they refer to the IRC as elaborated by Treasury
Regulations and administrative pronouncements and as interpreted by federal courts. The term
also includes the meaning conveyed by committee reports. p. C:1-7.
C:1-4 Committee reports concerning tax legislation explain the purpose behind Congress‘
proposing the legislation. Transcripts of hearings reproduce the testimonies of the persons who
spoke for or against the proposed legislation before the Congressional committees. Committee
reports are sometimes used to interpret the statute. p. C:1-7.
C:1-5 Committee reports can help resolve ambiguities in statutory language by revealing
Congressional intent. They are indicative of this intent. pp. C:1-7 and C:1-8.
C:1-6 The Internal Revenue Code of 1986 is updated for every statutory change to Title 26
subsequent to 1986. Therefore, it includes the post-1986 tax law changes enacted by Congress
and today reflects the current state of the law. p. C:1-8.
C:1-7 No. Title 26 deals with all taxation matters, not just income taxation. It covers estate tax,
gift tax, employment tax, alcohol and tobacco tax, and excise tax matters. p. C:1-8.
Copyright © 2025 Pearson Education, Inc.
C:1-1
,C:1-8 a. Subsection (c). It discusses the tax treatment of property distributions in general
(e.g., amount taxable, amount applied against basis, and amount exceeding basis).
b. Because Sec. 301 applies to the entire chapter, one should look throughout that
entire chapter (Chapter 1 of the IRC – which covers Sec. 1 through Sec. 1400U-3) for any
exceptions. One special rule – Sec. 301(e) – is found in Sec. 301. This special rule explains the
tax treatment of dividends received by a 20% corporate taxpayer. Section 301(f) indicates some
of the important special rules found in other IRC sections.
c. Legislative. Section 301(e)(4) authorizes the issuance of Treasury Regulations as
may be necessary to carry out the purposes of the subsection. pp. C:1-9 through C:1-10.
C:1-9 Researchers should note the date on which a Treasury Regulation was adopted because
the IRC may have been revised subsequent to that date. That is, the regulation may not interpret
the current version of the IRC. Discrepancies between the IRC and the regulation occur when the
Treasury Department has not updated the regulation to reflect the statute as amended. p. C:1-9.
C:1-10 a. Proposed regulations are not authoritative, but they do provide guidance
concerning how the Treasury Department interprets the IRC. Temporary regulations, which are
binding on the taxpayer, often are issued after recent revisions to the IRC so that taxpayers and
tax advisors will have guidance concerning procedural and/or computational matters. Final
regulations, which are issued after the public has had time to comment on proposed regulations,
are considered to be somewhat more authoritative than temporary regulations. pp. C:1-9 and C:1-
10.
b. Interpretative regulations make the IRC‘s statutory language easier to understand
and apply. They also often provide computational illustrations. In the case of legislative
regulations, Congress has delegated the rulemaking on a specific topic (either narrow or broad)
to the Treasury Department. However, after the Mayo Foundation case, both types of regulations
will have the same authoritative weight. p. C:1-10.
C:1-11 Prior to 2011, courts gave more authority to legislative regulations than to interpretive
regulations. However, after the Supreme Court decision in Mayo Foundation, courts will hold
both interpretive and legislative regulations to the same standard and will overturn them only in
very limited cases. p. C:1-10.
C:1-12 Under the legislative reenactment doctrine, a Treasury Regulation is deemed to have been
endorsed by Congress if the regulation was finalized before a related IRC provision was
amended by Congress and in the interim, Congress did not amend the statutory provision to
which the regulation relates. p. C:1-10.
C:1-13 a. Revenue rulings are not as authoritative as court opinions, Treasury Regulations,
or the IRC. They represent interpretations by an interested party, the IRS. p. C:1-12.
b. If the IRS audits the taxpayer‘s return, the IRS likely will contend that the
taxpayer should have followed the ruling and, therefore, owes a deficiency. p. C:1-12.
C:1-14 a. The Tax Court, the U.S. Court of Federal Claims, or the U.S. district court for the
taxpayer‘s jurisdiction. p. C:1-14.
Copyright © 2025 Pearson Education, Inc.
C:1-2
, b. The taxpayer might consider the precedent, if any, existing within each
jurisdiction. The taxpayer might prefer to avoid expending cash to pay the proposed deficiency.
If so, the taxpayer would want to litigate in the Tax Court. If the taxpayer would like to have a
jury trial address questions of fact, he or she should opt for the U.S. district court. pp. C:1-14 through
C:1-19, p. C:1-21, and p. C:1-23.
c. Appeals from Tax Court and U.S. district court decisions are made to the circuit
court of appeals for the taxpayer‘s geographical jurisdiction. U.S. Court of Federal Claims
decisions are appealable to the Court of Appeals for the Federal Circuit. Appeals from any of the
circuit courts of appeals may be brought to the U. S. Supreme Court. pp. C:1-20 through C:1-21.
C:1-15 No. A taxpayer may not appeal a case litigated under the Tax Court‘s Small Cases
Procedure. p. C:1-17.
C:1-16 Tax Court regular and memo decisions have about the same precedential value. Decisions
issued under the Small Cases Procedure of the Tax Court have little or no precedential value.
pp. C:1-15 and C:1-17.
C:1-17 Yes. The IRS can acquiesce (or nonacquiesce) in any federal court decision that is
adverse to the IRS if the IRS decides to do so. In many cases the IRS does not acquiesce or
nonacquiesce. p. C:1-17.
C:1-18 In both the AFTR and USTC: decisions of U.S. district courts, U.S. bankruptcy courts,
U.S. Court of Federal Claims, circuit courts of appeal, and the U.S. Supreme Court. Tax Court
decisions are reported in neither of the two reporters. pp. C:1-16 and C:1-17 through C:1-22.
C:1-19 Prior to 2009, revenue rulings appeared in the weekly Internal Revenue Bulletin (I.R.B.),
and twice each year the decisions published in the I.R.B. were bound together and published in
the Cumulative Bulletin (C.B.). For pre-2009 rulings, the I.R.B citation was temporary and was
replaced by a citation to the C.B. After 2008, the IRS no longer publishes the Cumulative
Bulletin. Therefore for current rulings, the initial I.R.B. citation is final. p. C:1-12.
C:1-20 According to the Golsen Rule, the Tax Court will not follow a decision it made earlier,
but rather will follow a decision of the circuit court of appeals to which the case under
consideration is appealable. As an example, assume that the Tax Court, in a case involving a
First Circuit taxpayer, ruled for the taxpayer. The issue had not been litigated earlier. Then, a
U.S. district court in Georgia decided a case involving the same issue in favor of another
taxpayer. The Eleventh Circuit, however, reversed the decision. Now a taxpayer from the
Eleventh Circuit litigates the same issue in the Tax Court. Under the Golsen Rule, the Tax Court
will follow the Eleventh Circuit‘s decision favoring the government. The Tax Court need not
follow an appeals court decision if a case was litigated by a taxpayer whose appeal would have
been made to any circuit other than the Eleventh. p. C:1-21.
C:1-21 a. The precedent binding upon a California taxpayer would be the Tax Court case.
The Tax Court has national jurisdiction. pp. C:1-21 and C:1-23.
b. Under the Golsen Rule, the Tax Court will depart from its earlier decision and
follow the Fifth Circuit‘s decision favoring the government. p. C:1-21.
Copyright © 2025 Pearson Education, Inc.
C:1-3
, C:1-22 a. Congressional Record
b. Internal Revenue Bulletin
c. Tax Court of the United States Reports
d. Federal Register, Internal Revenue Bulletin, and/or Cumulative Bulletin
e. Federal Supplement, American Federal Tax Reports (only tax-related), United
States Tax Cases (only tax-related).
f. Not found in an ―official‖ publication; published by tax services
pp. C:1-7, C:1-12 through C:1-14, and C:1-17 through C:1-19.
C:1-23 A tax advisor might find the provisions of a tax treaty useful where a U.S. taxpayer
engages in transactions in a foreign country. The United States has tax treaties with many
countries. p. C:1-24.
C:1-24 Citators (1) trace the history of the case in question and (2) list other authorities that have
cited such case. p. C:1-30.
C:1-25 Revenue rulings, revenue procedures, and judicial decisions. p. C:1-29.
C:1-26 Keyword, index, or citation are the three ways to search in tax service databases. p. C:1-
26.
C:1-27 a. The principal primary sources found in CHECKPOINT are as follows:
• IRC
• Treasury Regulations
• Court opinions
• Revenue rulings and procedures
• Letter rulings
• Committee reports
• Tax treaties
b. The principal secondary sources found in CHECKPOINT are as follows:
• Federal Tax Coordinator
• United States Tax Reporter
• Warren, Gorham & Lamont journals and treatises
Secondary sources will differ among the tax services. pp. C:1-26 through C:1-29.
C:1-28 The features (i.e., icons, templates, and command buttons) will vary depending upon the
particular tax service/Internet site accessed. Just about all commercial tax databases can be
searched by keyword and citation. Some can be searched by table of contents and topic. Most
noncommercial tax databases can be searched by keyword. Some can be searched by citation and
table of contents.
The advantages of using a commercial tax service (as opposed to a noncommercial
service) are broader database scope, greater historical coverage, and more efficient search
engines. The principal disadvantage is cost.
Copyright © 2025 Pearson Education, Inc.
C:1-4
