CHAPTER 1--UNDERSTANDING AND WORKING WITH THE FEDERAL TAX LAW

Student: ___________________________________________________________________________

1. A major, but not the sole, objective of the tax laws is to raise revenue. True False

2. Revenue neutrality means that any one taxpayers tax liability remains the same. True False

3. Shorter asset lives and accelerated methods increase the tax incentive for capital outlays. True False

4. The Internal Revenue Code appears in Title 26 of the U.S. Code. True False

5. There are two forms of fiscal policy: discretionary and automatic. True False

6. The lowering of tax rates will lead to lower taxes and will achieve revenue neutrality. True False

7. The desire to foster technological progress helps explain the favorable tax treatment accorded research and development expenditures. True False

8. The corporate tax rates are structured so as to favor small business. True False

9. The refundable earned income tax credit is explained by economic considerations (i.e., the need to create additional jobs). True False

10. The deduction for charitable contributions can be explained by social considerations. True False

11. The American Opportunity scholarship credit can be justified by economic considerations. True False

12. The adoption tax credit can be explained by social considerations. True False

13. Allowing a taxpayer to claim either a credit or a deduction for foreign taxes paid can be explained by equity considerations. True False

14. Neither the 1939 nor the 1954 Code substantially changed all the tax law existing on the date of its enactment. True False

15. Federal tax legislation generally originates in the House Ways and Means Committee. True False

16. Subchapter P refers to the Partners and Partnerships section of the Code. True False

17. Subchapter C refers to the Corporate Distributions and Adjustments section of the Code. True False

18. Some Regulations are arranged in different sequence than the Code. True False

19. Proposed Regulations have the force and effect of law. True False

20. Temporary Regulations have the same authoritative value as Finalized Regulations for 3 years. True False

21. Proposed Regulations are published in the Federal Register. True False

22. Regulations are issued by the Treasury Department. True False

23. Revenue Rulings carry the same legal force and effect as Regulations. True False

24. A Revenue Ruling is a legislative source of Federal tax law. True False

25. Revenue Procedures deal with the internal management practices and procedures of the IRS. True False

26. Treasury Decisions are issued by the Treasury Department to promulgate new Regulations. True False

27. Determination letters usually involve proposed transactions. True False

28. Unlike determination letters, letter rulings are issued by the National Office of the IRS. True False

29. A taxpayer must pay any tax deficiency assessed by the IRS and sue for a refund to bring suit in the U.S. District Court. True False

30. In a U.S. District Court, a jury can decide both questions of fact and questions of law. True False

31. A district court must abide by the precedents set by the court of appeals of jurisdiction. True False

32. Appeals from the Court of Federal Claims go to the U.S. Supreme Court. True False

33. A jury trial is available in a court of appeals situation. True False

34. Only one judge hears a trial in a U.S. District Court. True False

35. The Golsen rule has been overturned. True False

36. When there is a direct conflict between a Code section and a treaty provision, the most recent item takes precedence. True False

37. Legislative regulations are stronger than interpretative regulations. True False

38. Near the end of 2011, the national debt per person was approximately: A. $15,200. B. $21,700. C. $32,750. D. $47,000. E. $62,800.

39. Which is the major objective of our Federal tax laws? A. Economic factors. B. Social reasons. C. Equity factors. D. Raising revenue. E. Political reasons.

40. What is the overall objective of the write-off of research and development expenditures? A. Encouragement of certain activities. B. Control of economy. C. Encouragement of certain industries. D. None of the above.

41. Which, if any, of the provisions in the tax law enumerated below cannot be justified under the wherewithal to pay concept? A. The taxation of prepaid income in the year of receipt and not in the year it is earned. B. The installment method for reporting gain on the sale of property. C. The nontaxability of a like-kind exchange. D. The disallowance as a deduction of certain fines and penalties imposed for the violation of certain laws. E. The rules governing the formation of corporations.

42. Which state is a community property state? A. North Carolina. B. California. C. Vermont. D. Florida. E. All of the above.

43. Which, if any, of the provisions in the tax law below do not mitigate the effects of the annual accounting period concept? A. Post year-end contribution to retirement plans for a self-employed person. B. Carrybacks of net operating losses. C. Installment sales treatment. D. Carryovers of excess charitable contributions. E. The arms length concept.

44. Ralph sells property to Sam who, by prearranged plan, resells to Heather. If the IRS contends that the sale to Sam is to be disregarded, this position is an application of the: A. Substance over form concept. B. Wherewithal to pay concept. C. Tax benefit rule. D. Arms length concept. E. None of the above.

45. Which citation is considered to be a legislative citation? A. Ltr. Rul. 199952058. B. Ann. 94-5, 1994-2 I.R.B. 39. C. Reg. 1.1014-1(c)(1). D. 351. E. None of the above.

46. A technical advice memorandum is issued by: A. Treasury Department. B. National Office of the IRS. C. Office of Chief Council. D. Area Director. E. None of the above.

47. Revenue Procedures are published semiannually in the: A. Cumulative Bulletin. B. Federal Revenue Bulletin. C. Internal Revenue Bulletin. D. I.R.S. Digest. E. None of the above.

48. Determine the incorrect citation: A. Ltr. Rul. 20012305. B. George W. Guill, 112 T.C.__, No. 22 (1999). C. John H. Wong, T.C. Summary Opinion 2009-152. D. Rev. Rul, 98-32, I.R.B. No. 25, 4. E. None of the above.

49. Regarding technical advice memoranda, which statement is incorrect? A. Issued by the National Office of IRS. B. Most often deal with a completed transaction. C. May be cited and used as precedent. D. Issued with multi-digit file numbers. E. None are incorrect.

50. Which of the following sources has the highest tax validity? A. Treasury Regulation. B. Revenue Procedure. C. Internal Revenue Code. D. Temporary Regulation. E. All have same weight.

51. Which of the following is an administrative source of tax law? A. Rev. Rul. 2010-19. B. Joint Conference Committee Report. C. Section 12(a) of the Internal Revenue Code. D. All of the above. E. None of the above.

52. Which of these citations does not refer to an administrative release? A. Notice 90-20, 1980-1 C.B. 328. B. Ltr. Rul. 9333032 (May 24, 1993). C. TAM 9510001 (March 6, 1995). D. T.C. Memo. 2009-94. E. All of the above.

53. Which of the following indicates that a decision has precedential value for future cases? A. Stare decicis. B. Golsen doctrine. C. En banc. D. Reenactment doctrine. E. None of the above.

54. A taxpayer who loses in a U.S. Tax Court may appeal directly to the: A. Supreme Court. B. U.S. Tax Court. C. U.S. Court of Federal Claims. D. U.S. Court of Appeals. E. All of the above.

55. Identify the number of the Court(s) of Federal Claims. A. 1. B. 3. C. 16. D. 19. E. None of the above is correct.

56. Which trial court allows a jury trial? A. U.S. District Court. B. U.S. Tax Court. C. U.S. Court of Federal Claims. D. U.S. Court of Appeals. E. None of the above.

57. The Golsen doctrine applies to which court? A. U.S. Tax Court. B. U.S. District Court. C. U.S. Court of Federal Claims. D. U.S. Supreme Court. E. Some other court.

58. Which state is located in the jurisdiction of the Fifth Court of Appeals? A. Louisiana. B. California. C. New York. D. South Carolina. E. None of the above.

59. Interpret the following citation: 64-1 USTC 9618, affd in 344 F. 2d 966. A. A U.S. Tax Court Small Cases Division decision that was affirmed on appeal. B. A U.S. Tax Court decision that was affirmed on appeal. C. A U.S. District Court decision that was affirmed on appeal. D. A U.S. Court of Appeals decision that was affirmed on appeal. E. None of the above.

60. Which citation refers to a Second Court of Appeals decision? A. 40 T.C. 1018. B. 159 F. 2d 848 (CA-2, 1947). C. 354 F. Supp. 1003 (D. Ct. Ga, 1972). D. 914 F. 2d 396 (CA-3, 1990). E. None of the above.

61. Which citation refers to a U.S. Court of Federal Claims decision? A. Appollo Computer, Inc. v. U.S., 95-1 USTC 50,015 (Fed. Cl., 1994). B. Westreco, Inc., T.C. Memo. 1992-561 (1992). C. Bausch & Lomb, Inc. v. Comm., 933 F. 2d 1084 (CA-2, 1991). D. Portland Manufacturing Co. v. Comm., 35 AFTR 2d 1439 (CA-9, 1975). E. None of the above.

62. If these citations appeared after a trial court decision, which one means that the decision was viewed favorably? A. Affd 633 F. 2d 512 (CA-7, 1980). B. Remd 399 F. 2d 800 (CA-5, 1968). C. Revd 914 F. 2d 396 (CA-3, 1990). D. Revd 935 F. 2d 203 (CA-5, 1991). E. None of the above.

63. Which trial court has 16 judges? A. U.S. Tax Court. B. U.S. Court of Federal Claims. C. U.S. Supreme Court. D. U.S. Court of Appeals. E. None of the above.

64. Which trial courts jurisdiction depends on the geographical location of the taxpayer? A. U.S. Tax Court. B. U.S. District Court. C. U.S. Court of Federal Claims. D. Small Cases Division of the Tax Court. E. None of the above.

65. Which trial court decision is generally less authoritative? A. U.S. District Court. B. U.S. Tax Court. C. U.S. Court of Federal Claims. D. Small Cases Division of the Tax Court. E. All of the above are the same.

66. A Memorandum decision of the U.S. Tax Court could be cited as: A. T.C. Memo. 1990-650. B. 68-1 USTC 9200. C. 37 AFTR 2d 456. D. All of the above. E. None of the above.

67. Which court decision is generally more authoritative? A. A U.S. Tax Court decision. B. Court of Federal Claims decision. C. District Court decision. D. U.S. Court of Appeals decision. E. U.S. Tax Court Memorandum decision.

68. Which of the following statements about an acquiescence is correct? A. An acquiescence is issued in the Federal Register. B. Acquiescences are published only for certain regular decisions of the U.S. Tax Court. C. An acquiescence is published in the Internal Revenue Bulletin. D. The IRS does not issue acquiescences to adverse decisions that are not appealed. E. All of the above are correct.

69. Which is a primary source of tax law? A. J.W. Yarbo v. Comm., 737 F. 2d 479 (CA-5, 1984). B. Article by a Federal judge in Harvard Law Review. C. Determination letter. D. Letter ruling. E. All of the above are primary sources.

70. What is the wherewithal to pay concept? Give an example.

71. Explain the function of Temporary Regulations.

72. Explain the Golsen doctrine.

73. What is the value of Actions on Decisions to a tax researcher?

74. What value is a tax citator to a tax researcher?

CHAPTER 1--UNDERSTANDING AND WORKING WITH THE FEDERAL TAX LAW Key
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29. TRUE 30. FALSE 31. TRUE 32. FALSE 33. FALSE 34. TRUE 35. FALSE 36. TRUE 37. TRUE 38. D 39. D 40. A 41. D 42. B 43. E 44. A 45. D 46. B 47. A 48. A 49. C 50. C 51. A 52. D 53. A 54. D 55. A 56. A 57. A 58. A 59. C 60. B 61. A 62. A

63. B 64. B 65. D 66. A 67. D 68. C 69. A 70. The wherewithal to pay concept recognizes the inequity of taxing a transaction when the taxpayer lacks the means with which to pay the tax. It is particularly suited to situations when the taxpayers economic position has not changed significantly as a result of a transaction. Some examples include like-kind exchanges, involuntary conversions, incorporating a corporation, transfers to a partnership, and tax-free reorganizations. 71. Sometimes the U.S. Treasury Department issues Temporary Regulations relating to matters where immediate guidance is important. These regulations are issued without the comment period required for Proposed Regulations. Temporary Regulations have the same authoritative value as Final Regulations and may be cited as precedents. Temporary Regulations also must be issued as Proposed Regulations, but they automatically expire within three years after the date of issuance. Temporary Regulations and the simultaneous Proposed Regulations carry more weight than traditional Proposed Regulations. 72. Because the Tax Court is a national court, it decides cases from all parts of the country. For many years, the Tax Court followed a policy of deciding cases based on what it thought the result should be, even though its decision might be appealed to a U.S. Circuit Court of Appeals that had previously decided a similar case differently. A number of years ago this policy was changed in the Golsen decision. Now the Tax Court will decide a case as it feels the law should be applied only if the Circuit Court of Appeals of appropriate jurisdiction has not yet passed on the issue or has previously decided a similar case in accord with the Tax Courts decision. If the Circuit Court of Appeals of appropriate jurisdiction has previously held otherwise, the Tax Court will conform under the Golsen rule even though it disagrees with the holding. 73. Actions on Decisions tell a taxpayer the IRSs reaction to certain court decisions. The IRS follows a practice of either acquiescing (agreeing) or nonacquiescing (not agreeing) with court decisions where guidance may be helpful. This practice does not mean that a particular decision has no value if the IRS has nonacquiesced in the result. It does, however, indicate that the IRS will continue to litigate the issue involved. 74. The use of manual citators or a computer citator search is invaluable to tax research. A citator provides the history of a case including the authority relied on (e.g., other judicial decisions) in reaching the result. Reviewing the references listed in the citator discloses whether the decision was appealed and, if so, with what result (e.g., affirmed, reversed, and remanded). It also reveals other cases with the same or similar issues and how they were decided. Thus, a citator reflects on the validity of a case and may lead to other relevant judicial material.