Chapter 5- Tax Research

Question 1

What is Tax Research?

Answer 1

The process of determining the most probable tax consequences of a course of action by an individual or organization.

Question 2

What is a closed-fact transaction?

Answer 2

A transaction that has already occurred and whose tax consequences the taxpayer will have to deal with, good or bad.

Question 3

What is a prospective/open-fact transaction?

Answer 3

A transaction that has not yet occurred that can still be altered if need be for the most beneficial tax consequence for the taxpayer.

Question 4

What is the most practical benefit of a student learning about tax research?

Answer 4

They will start to develop their own analytic framework for determining the tax consequences of business, investment, and financial transactions.

Question 5

What are the six steps of the tax research process?

Answer 5

1. Understand the client’s transaction and get the fact
2. Identify the tax issues, problems, or opportunities suggested by the facts and formulate specific research questions.
3. Locate relevant tax law authority
4. Analyze relevant authority and answer the research questions
5. Repeat steps 1 through 4 as many times as is necessary.
6. Document your research and communicate your conclusions.

Question 6

Why would a researcher discuss the details of a transaction with her client?

Answer 6

To ascertain the client’s motivation.

Question 7

What are some types of questions that are useful for at tax professional to ask there client when getting information about a transaction? 3

Answer 7

• What are the client’s economic objectives in undertaking the transaction?
• What does the client foresee as the desired outcome?
• What risks has the client identified?

Question 8

What should a precise question (when working to identify the issues) do?

Answer 8

Is narrowly stated and provides clear parameters for the remaining steps in the research process.

Question 9

If the tax issued suggested in a transaction lead to multiple research questions, what must the researcher do? Why?

Answer 9

• Determine the order in which the questions should be answered.
• The answer to a question often depends on the answer to one or more preliminary questions.

Question 10

What are three advantages of tax libraries becoming electronic?

Answer 10

• The researcher can access sources and move among the sources more quickly
• The ease with which electronic databases can be updated to include current developments.
• An electronic library is portable.

Question 11

What are Primary Authorities?

Answer 11

Statutory, administrative, and judicial authority

Question 12

What are Secondary Authorities?

Answer 12

Textbooks, treaties, professional journals, and commercial tax services.

Question 13

What is the Internal Revenue Code of 1986

Answer 13

The compilation of statutory laws written and enacted by the Congress of United States.

Question 14

What are Treasury Regulation?

Answer 14

The official interpretation of a statutory tax rule written and published by the U.S. Treasury.

Question 15

What are Revenue Rulings?

Answer 15

An IRS pronouncement explaining how the IRS applies the tax law to a particular set of facts.

Question 16

What are Revenue Procedures?

Answer 16

An IRS pronouncement advising taxpayers how to comply with the IRS procedural or administrative mattes.

Question 17

What is Private Letter Ruling? (PLR)

Answer 17

The IRS’s written response to a taxpayer’s inquiry as to how the tax law applies to a proposed transaction.

Question 18

What is a Technical Advice Memorandum? (TAM)

Answer 18

The IRS position on a disputed item in a tax return

Question 19

What is the U.S. Tax Court?

Answer 19

A federal court that tries only federal income, gift, and estate tax cases.

Question 20

What is the U.S. District Court?

Answer 20

Federal trial courts in which taxpayers can sue the government for a refund of tax.

Question 21

What is the U.S. Court of Federal Claims?

Answer 21

A federal trial court located in Washington, D.C., in which taxpayers can sue the government for a refund of tax.

Question 22

What is the U.S. Circuit Courts of Appeals?

Answer 22

Thirteen federal courts that hear appeals of trial court decisions.

Question 23

What is the U.S. Supreme Court?

Answer 23

The highest federal court. The Supreme Court hears appeals of circuit court decisions.

Question 24

How does a taxpayer get a Private Letter Ruling (PLR)?

Answer 24

The must file a request. It must detail all relevant facts surrounding the transaction and requires the payment of a user’s fee that could be as high as several thousand dollars.

Question 25

Who are PLRs and TAMs relevant to?

Answer 25

Only the taxpayer they were issued to.

Question 26

Which judicial decision should a tax researcher rely on when relevant?

Answer 26

The final decision in the series of trials.

Question 27

How many and specifically what are the sources of information that make up primary authorities that come from the three branches of government?

Answer 27

Nine Sources

• Internal Revenue Code
• Treasury Regulations
• Revenue Rulings
• Revenue Procedures
• U.S Tax Court memorandum decisions
• U.S Tax Court regular decisions
• U.S District Court decisions
• U.S. Courts of Appeals
• U.S. Supreme Court

Question 28

Why would a person not look only at primary sources when doing research?

Answer 28

Because the primary sources are written in detailed legal and technical language and are often difficult to understand and interpret. Secondary sources are often better able to explain the tax law so it is more user friendly.

Question 29

In paper format, how are tax services normally organized?

Answer 29

Topically or by Code section

Question 30

What is a strategy for finding an answer when it can’t be so easily looked up directly in the Code?

Answer 30

The researcher may turn to one of the commercial tax services and either:

• Use the topical index
• Use the table of contents
• In an electronic service, use a keyboard search

Question 31

What may be necessary for a researcher, in secondary sources, when using a topical index?

Answer 31

• Check several reference locations before the relevant use of the term is located.
• Try to use several different wordings or related terms to ensure complete coverage of topics related to the issue being researched.

Question 32

When is the approach of using the table of contents particularly useful?

Answer 32

When researching in topically oriented services.

It also helps a novice become more familiar with the organization of the service.

Question 33

What is the benefit of using the keyword search when using electronic databases? What might be the risk?

Answer 33

• A researcher can combine words and phrases to target the search.
• They must take care to ensure that important information is not missed because the keywords were defined too narrowly.

Question 34

Before a researcher relies on a judicial opinion to support research conclusions, what final step should be taken to ensure that the opinion remains a valid interpretation of the law?

Answer 34

Find out if the decision has been appealed and, if so, what was the result? They may also want to determine whether other courts have supported the conclusion of the court in the opinion in question.

Question 35

What is the Citator?

Answer 35

A resource used to determine the status of tax judicial decisions, Revenue Rulings, and Revenue Procedures.

Question 36

What does a researcher do when making a factual judgment while analyzing the authority of a source?

Answer 36

Compares the authority to a set of facts. Assuming they are complete accurate, the researcher can provide a definitive answer to the research question.

Question 37

What does a researcher do when making an evaluative judgment while analyzing the authority of a source?

Answer 37

Made when relevant authority relates to a conclusion inferred from a set of facts, rather than to the facts themselves, the researcher should never give an unqualified answer to a research question requiring an evaluative judgment.

Question 38

What does it mean when a researcher qualifies the advice they give?

Answer 38

Explaining the potential risk that an IRS agent might draw the opposite conclusion and disallow the deduction.

Question 39

What might a research memo that is the conclusion of the tax researcher usually contain? 5

Answer 39

• A statement of pertinent facts
• A statement of the research issue or issues
• An analysis of the relevant sources of authority
• An explanation of the researcher’s conclusions.
• The details of any advice given to the client as part of the research engagement.

Question 40

What is the importance of a research memo?

Answer 40

It becomes a permanent record of the research process–a record to which the researcher (or any other professional) can refer at a future date.