Deck 2: Tax Research Methodology

Question 1

Tax law provisions tend to change over time. Explain how this might affect tax research and planning.

Answer 1

Tax research provides relevant information to the person who is doing research. It is the research which is related to taxation. It is a multistep process and the tax researcher must be efficient while doing the research because sometimes it becomes costly.
The period length of the tax research may continue for longer time. The person who is researching must know the change in this period because these changes might effect the outcome of the research.
The law and facts applicable to the project of research might be subject to changes which can divert the conclusions and results of the researcher and sometimes the research which is complete their results are also diverted by overlooking these changes.

Question 2

It has been said that the tax research process is more circular than linear. Do you agree with this statement Explain your answer.

Answer 2

The accounting efficiency, effectiveness and the productivity with respect to the researching should be based on the appropriate tax research process. All the relevant steps must be meticulously planned and implemented for the smooth functioning.
For the correct results in the case of tax issues, it is very essential to have the research methodology that is helpful as well as informative. Right from establishing the facts and identifying the issues, all the steps are related to one another. The preceding step is thoroughly linked with the succeeding ones. For example the location of the authority is related with the fourth step that is evaluating the authority.
Whatever conclusions are developed in the fifth step must be communicated properly with the recommendations such that the tax research process has circular flow of information from one step to the other. The process cannot be linearly understood as the former step is related to the latter. So the tax research process is essentially circular in nature rather than linear as the linear process has no interconnected steps.

Question 3

One of the practical factors that could affect a tax research project is "potential tax liability involved." Discuss how this might influence your completion of a tax engagement.

Answer 3

The engagement costs associated with the tax research has various impacts on the research projects done. The time of the practitioner is very important and hence the person should maximize its time.
The potential tax liability is also another kind of the tax research engagement cost that has to be kept in mind while undertaking the particular research. Every tax research engagement does not have the same value to the clients. There is millions of tax liability that differently affects the tax liability.
The particular tax researcher has the inherent responsibility of not wasting the monetary resources of the clients with low cost benefit issue. There is practically no sense in wasting 6000 dollars in the research time in order to save the 2000 dollars of the taxes. The new researcher should be aware about such issues regarding the budget. The researcher must also check with its supervisor if the person is concerned about the time spent on the various kinds of tax related research projects.

Question 4

Go to thomas.loc.gov and search for bill summaries and the status of current bills dealing with taxation. Provide bill numbers, titles, and the current status for five bills dealing with taxation issues.

Question 5

Ned Naive operated several franchised stores, and at the home office's suggestion, he consolidated its payroll and accounting functions with Andy the Accountant. Andy is not a CPA. Last year, Andy began misappropriating taxpayers' escrowed tax withholdings to himself and failed to remit required amounts for the four quarters. The IRS assessed Ned penalties for failing to make the proper withholding deposits during the year.
a. What additional information might you want in this situation
b. Where might that information come from
c. Are all the given facts pertinent Which (if any) are irrelevant
d. Where might that information come from
e. What is the primary research question you would try to answer
f. Are there any additional research question(s) you want to address

Question 6

In the tax research process, the researcher has an obligation to the client to evaluate authority. Do the precedents in all tax authority carry the same value Explain.

Question 7

What is deemed to be substantial authority under the Internal Revenue Code § 6662 regulations Why is this important

Question 8

One of the practical factors that could affect a tax research project is "accuracy threshold." Discuss how this might influence your completion of a tax engagement.

Question 9

Jennifer owns 200 acres of land on which she grows flowers for sale to local nurseries. Her adjusted basis in the land is $30,000. She receives condemnation proceeds of $20,000 from the state for 10 acres of her land on which a new freeway will be built. The state also pays her $30,000 for the harmful effects that the increased auto exhaust might have on her flowers. List as many tax research issues as you can to determine the tax consequences of these transactions. Do not attempt to answer any of the questions you raise. Simply identify the research issues.

Question 10

Diego Dissolution is recently divorced and has some questions regarding payments he is making to his ex-wife (Mrs. D.). Diego is 45 years old and has a successful dental practice. Mrs. D. was divorced from her first husband six years ago. Diego is paying $12,000 per month to Mrs. D. He wants to know if the tax payments on the $12,000 per month are deductible.
a. What additional information might you want in this situation
b. Where might that information come from
c. Are all the given facts pertinent Which (if any) are irrelevant
d. What is the primary research question you would try to answer
e. Are there any additional research question(s) you want to address

Question 11

Primary tax authority can be classified as statutory, administrative, or judicial. Briefly describe each.

Question 12

Describe an online tax research system. What are the two advantages of such a system

Question 13

How might ethics considerations influence a tax research engagement

Question 14

Joey parked his car on the top of a hill when he went to watch the X Games in San Diego. He did not properly set his brakes or curb the wheels when he parked the car. When he returned from the games, he found his car had rolled down the hill, smashed into Nick's house, and injured Nick, who was watching TV in his den. Joey does not have car insurance. List as many tax research issues as you can to determine the tax consequences of this accident. Do not attempt to answer any of the questions you raise. Simply identify the research issues.

Question 15

Phred Phortunate won his state lotto two years ago. His lotto ticket was worth $10 million, which was payable in 20 annual installments of $500,000 each. Phred paid $1 for the winning ticket. The lotto in Phred's state does not allow winners to receive their payout in a lump sum. Phred wanted all the money now, so he assigned his future lotto winnings to an Unscrupulous Finance Company (UFC) for a discounted price of $4.5 million. Assignment of lotto winnings is permitted by Phred's state lotto. Phred filed his tax return and reported the assignment of the lotto winnings as a capital gain ($4.5 million-$1 basis) taxable at a 15 percent rate.
a. List as many possible tax research issues as you can to determine whether Phred correctly reported his lotto winnings.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.

Question 16

Classify each of the following items as a primary (P) or secondary (S) tax research authority:
a. The Internal Revenue Code
b. A Tax Court case
c. A textbook on corporate taxation
d. Treasury Regulations
e. An IRS revenue ruling

Question 17

Give the Web address of three free online Internet sites where someone could find information on various aspects of taxation.

Question 18

The Uniform CPA exam has four parts. Briefly summarize the tax and ethics issues covered in the REG section of the exam.

Question 19

John and Marsha are married and filed a joint return for the past year. During that year, Marsha was employed as an assistant cashier at a local bank and, as such, was able to embezzle $75,000, none of which was reported on their joint return. Before the defalcation was discovered, Marsha disappeared and has not been seen or heard from since. List as many tax research issues as you can to determine the tax consequences of this crime. Do not attempt to answer any of the questions you raise. Simply identify the research issues.

Question 20

The Mucho Oro Indian Tribe operates a casino on its reservation in Arizona. The casino is very profitable, and therefore the tribe has excess money to invest. The tribe is approached by an entrepreneur who wants to build an outlet mall next to the casino. The entrepreneur would like to operate the outlet mall as an S corporation. Both he and the tribe would be shareholders in the new S corporation.
a. List as many possible tax research issues as you can to determine whether this plan of organization would be allowed under the current tax law.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.

Question 21

Classify each of the following items as a primary (P) or secondary (S) tax research authority:
a. A U.S. District Court Case
b. An IRS revenue procedure
c. Code § 213
d. The Daily Tax Report newsletter
e. An article on recent tax rulings on inventory valuation in Practical Tax Strategies

Question 22

What is online tax research, and why is it necessary for the tax professional to be able to use online techniques to conduct tax research

Question 23

What are the three categories of skills tested on the CPA exam

Question 24

In the current year, Dave receives stock worth $125,000 from his employer. The stock is restricted and cannot be sold by Dave for seven years. Dave estimates the stock will be worth $300,000 after the seven years. List as many tax research issues as you can to determine the tax consequences of this transaction. Do not attempt to answer any of the questions you raise. Simply identify the research issues.

Question 25

Your client, Barney Green, and his wife, Edith, attended a three-day program in Maui entitled "Financial, Tax, and Investment Planning for Investors." The Greens went to Hawaii several days early so that they could adjust to the jet lag and be ready for the seminar. The $8,000 cost of the trip included the following expenses.

The Greens have records to substantiate all the above expenditures in a manner that is acceptable under I.R.C. § 274.
a. List as many possible tax research issues as you can to determine whether the Greens can deduct any or all of the $3,000 of expenditures on their current-year tax return.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.
c. Execute an online search using your query. For simplicity, select the IRS Publications database from whichever online tax service you use. Summarize your findings.

Question 26

Classify each of the following items as a primary (P) or secondary (S) tax research authority:
a. An article in the Journal of Taxation
b. Taxes on Parade (a newsletter)
c. A U.S. Supreme Court decision on a tax matter
d. The U.S./Australia Income Tax Treaty
e. A discussion on earnings and profits in the Checkpoint Tax Coordinator 2d Tax Service

Question 27

Briefly describe what is contained in each of the following tax services:
a. Thomson Reuters CheckPoint
b. CCH IntelliConnect
c. LexisNexis
d. Westlaw and WestlawNext

Question 28

Which of the selected tax journals listed in Exhibit 2-4 can be found online Which are available through your university's library in either electronic or hard copy

Question 29

On December 1, 2014, Ericka receives $18,000 for three months' rent (December 2014, January 2015, and February 2015) for an office building. List as many tax research issues as you can to determine the tax consequences of this transaction. Do not attempt to answer any of the questions you raise. Simply identify the research issues.

Question 30

Ban Vallew has a son, Katt, by a previous marriage. Ban's ex-wife has custody of Katt. Katt Vallew has a history of emotional problems, for which he has seen a psychiatrist for several years. This year he has become so disturbed, manifesting violence at home and school, that he was enrolled in a special school in Arizona for problem children. Ban pays Katt's school expenses, $3,000 per month. Ban would like to determine whether he is entitled to the medical-expenses deduction (over 7.5 percent of adjusted gross income) for the cost of sending his son to this school.
a. List as many possible tax research issues as you can to determine tax treatment(s) available to Ban on the payments to the school.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.
c. Execute an online search using your query. For simplicity, select the IRS Publications database from whichever online tax service you use. Summarize your findings.

Question 31

Briefly characterize and distinguish between annotated tax services and topical tax services.

Question 32

What are the disadvantages of using an online tax service

Question 33

Determine if your campus has any of the following online tax research services available for student use. If a service is available on your campus, describe how you would gain access to that system for research projects in your tax classes.
a. LexisNexis
b. Thomson Reuters Checkpoint
c. Westlaw and WestlawNext
d. CCH IntelliConnect

Question 34

Formulate a search query to determine whether your client is required to include in gross income the proceeds from redemption of a tax-exempt bond, purchased in 1998 and called by the school district this year. Redemption proceeds were $190,000, and the 1998 purchase price on the secondary market was $176,000. Give an example of an online search query using only the following Checkpoint connectors: "and," "or," "/n," and "not."

Question 35

Linda Larue has arthritis. Her chiropractor advised her that she needed to swim daily to alleviate her pain and other symptoms. Consequently, Linda and her husband, Philo, purchased for $400,000 a new home that had a swimming pool, after selling their old home for $325,000. If the Larues had constructed a pool at their former residence, it would have cost $75,000 to build, and it would have increased the value of their home by $50,000.
a. List as many possible tax research issues as you can to determine whether the Larues can deduct any of their current-year expenditures for Linda's arthritis.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.
c. Execute an online search using your query. For simplicity, select the IRS Revenue Rulings database from whichever online tax service you use. Summarize your findings.

Question 36

What is a court reporter Name three organizations that produce court reporters.

Question 37

List four benefits of using an online service to conduct your tax research.

Question 38

Go to www.taxsites.com and find the complete Web address for each of the following sites:
a. The California Franchise Tax Board
b. The New York Department of Taxation and Finance
c. The American Institute of CPAs (AICPA)

Question 39

Formulate a search query to determine the provisions of the treaty between the United States and Germany relative to graduate fellowship income received by a business student during a summer internship with the German Department of Price Controls. Give an example of an online search query using only the following Checkpoint connectors: "and," "or," "/n," and "not."

Question 40

Gwen Gullible was married to Darrell Devious. They were divorced two years ago. Three years ago (the year before their divorce), Darrell received a $500,000 retirement plan distribution, of which $100,000 was rolled over into an IRA. At the time, Gwen was aware of the retirement funds and the rollover. The distribution was used to pay off the couple's mortgage, purchase a car, and cover living expenses. Darrell prepared the couple's joint return, and Gwen asked him about the tax ramifications of the retirement distributions. He told her he had consulted a CPA and was advised that the retirement plan proceeds used to pay off a mortgage were not taxable income. Gwen accepted that explanation and signed the return. In fact, Darrell had not consulted a CPA.
One year ago (after the divorce), Gwen received a letter from the IRS saying it had not received the tax return for the last full year of marriage. On advice from a CPA, Gwen immediately filed the return (she had a copy of the unfiled return). The IRS notified Gwen that no estimated payments on the retirement distribution had been paid by Darrell, and that she owed $140,000 in tax, plus penalties and interest.
a. List as many possible tax research issues as you can to determine whether Gwen is liable for the tax, interest, and penalties.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.
c. Execute an online search using your query. For simplicity, select the IRS Revenue Rulings database from the online tax service you use. Summarize your findings.

Question 41

What are the purpose(s) of tax research

Question 42

Who publishes each of the following court reporters
a. United States Tax Cases
b. Federal Reporter
c. American Federal Tax Reports
d. Tax Court of the U.S. Reports

Question 43

What are the major steps in developing an effective online tax research query

Question 44

Go to irs.gov and print a copy of the most recent Instructions for Form 3903 of Form 1040.

Question 45

Formulate a search query to determine whether your client is required to capitalize fringe benefits and general overhead that is attributable to employees who are building an addition to your client's factory during a "slack time" at work. Give an example of an online search query using only the following Checkpoint connectors: "and," "or," "/n," and "not."

Question 46

Several years ago, Maurice and Maureen (both Mo, for short) Morris, a married couple from Ohio, purchased a used piano at an auction sale for $500, and their daughter used the piano for piano lessons. In the current year, while cleaning the piano, Mo and Mo discovered $14,467 in cash tucked inside the piano. Being unable to ascertain who put the money there, and after consulting with local authorities, the Morrises kept the $14,467 (which, in accordance with Ohio law, is legal).
a. List as many possible tax research issues as you can to determine whether the Morrises are liable for any tax on the money they found.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.
c. Execute an online search using your query. For simplicity, select the IRS Publications database from whichever online tax service you use. Summarize your findings.

Question 47

What are the six basic steps in conducting tax research Briefly discuss each step in the tax research process.

Question 48

What kind of information can be found in a citator

Question 49

If you were researching an issue and the computer informed you it had located 1,000 pertinent documents, what would you do to reduce the number of retrieved documents to a more reasonable number

Question 50

Go to irs.gov and print a copy of the most recent Instructions for Form 4952 of Form 1040.

Question 51

Formulate a search query to determine whether your client can retroactively elect to change its accounting method. Give an example of an online search query using only the following Checkpoint connectors: "and," "or," "/n," and "not."

Question 52

Trevor recently purchased a beautiful house on a hillside in sunny California at a cost of $1 million. One evening while enjoying a barbeque on his patio and after a particularly heavy rain, Trevor is surprised to see his neighbor's house disappear in a mudslide. Visibly shaken, Trevor makes immediate efforts to sell his home. Although the view from his lot has improved considerably, he meets severe buyer resistance when forced to explain why he lacks one set of neighbors. Trevor's best offer, made by a family just arrived in town, is $500,000. Trevor reevaluates his life insurance portfolio, places his personal affairs in order, and decides not to sell. Presuming the landslide caused no physical damage to his property; does Trevor have a casualty loss
a. List as many possible tax research issues as you can to determine Trevor's potential casualty-loss deduction from the decrease in value of his house.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.
c. Execute an online search using your query. For simplicity, select the IRS Publications database from whichever online tax service you use. Summarize your findings.

Question 53

What are the two chief tax research skills, as identified in this text Explain the importance of each basic skill.

Question 54

Name the primary bound publication where IRS pronouncements (i.e., Revenue Rulings) can be found.

Question 55

What are the search connectors discussed in the text used by Checkpoint Describe how each operates.

Question 56

Go to irs.gov. Which IRS publication number addresses tax rules that apply to personnel in the armed forces Print the first page of the IRS publication to hand in.

Question 57

Formulate a search query to find all the cases in which the word "constructive" occurs within 10 words of the word "dividend." Give an example of an online search query using only the following Checkpoint connectors: "and," "or," "/n," and "not."

Question 58

The tax researcher must find the facts as the first step in tax research. Give examples of the kind of information that a tax practitioner might want to obtain.

Question 59

Tax practitioners use the term "tax service" regularly. What is a tax service

Question 60

For the following Checkpoint databases, state if they generally contain primary or secondary authority: (1) Federal Tax Coordinator 2d , (2) Source Material Cases, (3) Source Material IRS Rulings and Releases, and (4) WG L Journals.

Question 61

Go to irs.gov. What IRS publication number addresses tax rules for pension and annuity income Print the first page of the IRS publication to hand in.

Question 62

Sam Manuel has been employed on a full-time basis as an electrical engineer for the past three years. Prior to obtaining full-time employment, he was self-employed as an inventor of complex electronic components. During this period of self-employment, most of his projects produced little income, although several produced a significant amount of revenue.
Because of the large expenditures necessary and the failure of the majority of the products to produce a profit, Sam was forced to seek full-time employment. After obtaining full-time employment, he continued to work long hours to perfect several of his inventions. He continued to enjoy relatively little success with most of his products, but certain projects were successfully marketed and generated a profit. For the past two years, Sam's invention activity has generated a net loss.
a. List as many possible tax research issues as you can to determine whether the losses may be deducted.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.

Question 63

What are some of the potential pitfalls in the first step of the tax research process

Question 64

What is the target readership of each of the following tax journals
a. TAXES
b. Journal of Taxation
c. Practical Tax Strategies
d. The Tax Adviser
e. The ATA Journal of Legal Tax Research

Question 65

How would a tax researcher find an exact phrase (e.g., trade or business) when searching the irs.gov Website

Question 66

Go to irs.gov. Find information on abusive tax shelters. Give an example of an abusive tax shelter listed by the IRS.

Question 67

Matthew Broadway was a partner in the law firm of Johnson Smith, a partnership of 20 partners, for the past 10 years. Without the knowledge or consent of the other partners, Matthew worked on a highly complicated acquisition and merger project for six months, at all times using the law firm's resources. Several months later, the firm for which Matthew provided the professional services made out a check for $300,000 to Johnson Smith. Matthew insisted that the fee should rightly be his, while the firm disputed his claim. Because of the dispute, the fee was held in escrow until the following year when the dispute was settled.
The dispute was settled with Matthew agreeing to withdraw from the partnership. Included as part of the withdrawal agreement was a clause that specified he would receive $45,000 of the $300,000 fee, with the law firm retaining the remainder. Six months later, Matthew received a total payment of $125,000, which included the $45,000 fee, from Johnson Smith.
a. List as many possible tax research issues as you can to determine the tax treatment of the $125,000 payment received by Matthew.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.

Question 68

In each of the following independent situations, indicate whether the item generally would be a tax (T) or a non-tax (NT) consideration in solving a tax research or tax planning problem.
a. The taxpayer hates to pay federal taxes. He will take any legal action to avoid paying any federal income, estate, or gift taxes.
b. The taxpayer does not trust the U.S. banking system and moves all her money to a bank in Switzerland.
c. The taxpayer is married and his spouse is financially naive. Since he is in bad health, the taxpayer wants to make sure his wife will be taken care of financially if he were to suddenly die.
d. The taxpayer wants to purchase rental real estate. He wants to make sure that he will not be subject to a high state tax where he buys.
e. The taxpayer owns city of San Diego bonds instead of putting his money in a commercial bank.

Question 69

Specific items of tax authority have different "values" in helping the tax researcher to solve his or her problem. Explain this statement and describe how it applies to the tax research process.

Question 70

Can a tax researcher conduct a search at irs.gov for a specific kind of file format (e.g., a pdf file) If so, how

Question 71

Go to irs.gov. Find a copy of Form 1040-PR, the Puerto Rico individual tax return. Print and turn in page 1 of the 1040-PR Form.

Question 72

Juanita Sharp purchased a large parcel of property for $120,000. A short time after purchasing the property, Sharp submitted plans for the division of the parcel into six lots and the construction of three single-family residences on three of the lots. The city permits required that the property be divided into six lots and that street improvements and water and sewer access be provided. Sharp spent $22,000 for the street, water, and sewer improvements. As a result of the improvements, the value of each of the three vacant lots increased by $10,000, based on an appraisal completed subsequent to the completion of the improvements. The costs of constructing the three single-family residences totaled $200,000.
a. List as many possible tax research issues as you can to determine how the original purchase price of $120,000, the $22,000 cost of the improvements, and the $200,000 cost of the construction of the homes should be allocated to the basis of each of the lots for purposes of determining gain or loss on the sale of the lots.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.

Question 73

Identify and briefly describe the two major types of tax research issues.

Question 74

Step 5 in the tax research process is concerned with reaching a conclusion or making a recommendation. If one has not found a clear answer to a tax research problem, how is a conclusion or recommendation to be reached

Question 75

Are search terms at irs.gov case sensitive

Question 76

Go to irs.gov. Find a copy of Form 1040-C (PDF) U.S. Departing Alien Income Tax Return. Print and turn in page 1 of the 1040-C Form.

Question 77

Tom and Donna were divorced three years ago. At the time of their divorce, they owned a residence whose value had significantly increased during the marriage. Tom remained half-owner of the house, but he moved out and allowed Donna to continue living in the house. In the current year, Tom and Donna sold the house for $500,000. Last year, Tom purchased a new house for $390,000.
a. List as many possible tax research issues as you can to determine tax treatment(s) available to Tom on the sale and purchase of the residence.
b. After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.

Question 78

What is collateral estoppel How does it affect tax research and planning

Question 79

The final step in the research process typically involves a memorandum to the client file and/or a letter to the client communicating the results of the research. List the items that should be found in the body of both of these documents.

Question 80

One of the practical factors that could affect a tax research project is "engagement time cost." Discuss how this might influence your completion of a tax engagement.