ADMINISTRATIVE REGULATIONS AND RULINGS
TEST BANK, Chapter 4
Multiple Choice
Choose the best answer for each of the following questions:
1. The IRS, as an administrative agency, is responsible for:
a. formulating and interpreting the tax laws
b. interpreting and enforcing the tax laws
c. formulating and evaluating the tax laws
d. planning and formulating the tax laws
Answer: b
Rationale:
The IRS is primarily responsible for interpreting and enforcing the tax laws rather than
formulating or evaluating them. Formulating and evaluating tax laws are typically tasks
performed by legislative bodies or policymakers.
2. Most official IRS pronouncements are written by:
a. The IRS Office of Chief Counsel
b. The IRS Commissioner
c. The Treasury Secretary
d. IRS Field Office Staff Members
Answer: a
Rationale:
The IRS Office of Chief Counsel is responsible for providing authoritative guidance and
interpretations of tax laws. They draft most official IRS pronouncements, such as revenue
rulings, revenue procedures, and other guidance documents.
3. The Commissioner of the IRS is appointed by the:
a. The Treasury Secretary
b. The President of the United States
c. The Chief Counsel of the IRS
d. General Counsel of the Treasury Department
Answer: b
Rationale:
The Commissioner of the IRS is appointed by the President of the United States, with the
appointment subject to Senate confirmation.
4. Which statement is CORRECT regarding Proposed Regulations?
a. They cannot become final until the expiration of at least 30 days after they are
published in proposed form.
b. The IRS cannot make changes to Proposed Regulations before they become final.
c. The public must be given an opportunity to comment on Proposed Regulations before
they become final.
d. Only (a) and (c) are correct.
Answer: d
Rationale:
Proposed Regulations must be published for public comment for at least 30 days before
they can become final. This allows stakeholders to provide feedback and input on the
proposed regulations before they are enacted.
5. Which of the following IRS pronouncements has the highest weight of authority?
a. IRS Revenue Rulings
b. IRS Taxpayer Publications
c. IRS Announcements
d. All of the above IRS pronouncements have equal weight of authority.
Answer: a
Rationale:
IRS Revenue Rulings have the highest weight of authority among the options listed. They
provide official interpretations of tax laws and serve as precedent for taxpayers and IRS
agents.
6. Treasury Decisions are published first, officially, in:
a. the Internal Revenue Bulletin
b. first in the Internal Revenue Bulletin and then in the Federal Register
c. the Federal Register
d. Congressional Committee Reports
Answer: c
Rationale:
Treasury Decisions are first officially published in the Federal Register before being
compiled in the Internal Revenue Bulletin. The Federal Register is the official daily
publication for rules, proposed rules, and notices of Federal agencies and organizations,
including executive orders and other presidential documents.
7. The IRS’s general authority to issue binding rules and regulations comes from which
source?
a. The United States Constitution
b. An Executive Order of the President
c. A section of the Internal Revenue Code itself.
d. None of the above.
Answer: c
Rationale:
The IRS's authority to issue binding rules and regulations comes from specific sections of
the Internal Revenue Code, which grants the agency the power to interpret and enforce
tax laws.
8. Which of the following Regulations bears the greatest precedential value?
a. Legislative Regulations
b. Proposed Regulations
c. General Regulations
d. Income Tax Regulations
Answer: a
Rationale:
Legislative Regulations, also known as "Final Regulations," are issued to implement the
specific provisions of the Internal Revenue Code as enacted by Congress. They have the
highest precedential value because they reflect the direct intent of Congress.
9. Temporary Regulations expire:
a. After an IRS hearing on the regulations.
b. At the end of the public comment period.
c. Five years after issuance pursuant to the statute.
d. Three years after issuance pursuant to the statute.
e. Temporary regulations never expire.
Answer: d
Rationale:
Temporary Regulations typically expire three years after issuance pursuant to the statute,
unless they are replaced by final regulations or extended by the IRS.
10. Which of the following statements is INCORRECT regarding the effective date of
Regulations?
a. A Regulation becomes effective 18 months after the statute on which it is based was
enacted.
b. A Regulation is effective on the date on which the Regulation is filed with the Federal
Register.
c. Temporary regulations are effective immediately upon publication.
d. All of the above statements are correct.
Answer: a
Rationale:
The correct statement is that a Regulation is effective on the date on which the
Regulation is filed with the Federal Register. The effective date of a regulation is not tied
to the enactment date of the statute; instead, it depends on when the regulation is filed
and published.
11. Which of the following Regulations deals with estate taxes?
a. Reg. §1.162-21(a)(2)
b. Reg. §25.2503-4
c. Reg. §1.6662-5T
d. Reg. §31.3121(a)-2
e. None of the above.
Answer: e
Rationale:
None of the provided regulations deal with estate taxes. Reg. §25.2503-4 relates to the
gift tax, while the others cover different areas such as business expenses, accuracy-related
penalties, and definitions related to employment taxes.
12. Regulations may have retroactive effect in which of the following circumstances:
a. The Regulation is designed to prevent abuse by taxpayers.
b. The Regulation relates to internal Treasury Department policies, practices, or
procedures.
c. Both (a) and (b).
d. Regulations can never be effective retroactively.
Answer: c
Rationale:
Regulations may have retroactive effect if they are designed to prevent abuse by
taxpayers or relate to internal Treasury Department policies, practices, or procedures.
This retroactive application helps ensure compliance and prevent exploitation of
loopholes.
13. In the citation Reg. §1.162-2(a)(1), the number ‘162’ stands for the:
a. type of Regulation.
b. related Code section.
c. Code of Federal Regulations.
d. Regulation paragraph.
Answer: b
Rationale:
In the citation Reg. §1.162-2(a)(1), the number "162" corresponds to the related section
of the Internal Revenue Code, which is Section 162. This section deals with deductions
for trade or business expenses.
14. All of the following types of tax documents are published in the Internal Revenue
Bulletin except:
a. IRS Revenue Procedures.
b. IRS Letter Rulings.
c. Treasury Decisions.
d. New Tax Treaties
e. All of the above documents are published in the Internal Revenue Bulletin.
Answer: b
Rationale:
IRS Letter Rulings are not published in the Internal Revenue Bulletin. They are private
rulings issued by the IRS to specific taxpayers in response to their requests for guidance
on tax matters.
15. Which of the following statements is INCORRECT with regard to IRS Revenue
Rulings?
a. Revenue Rulings apply the Code and Regulations to a specific fact situation.
b. Revenue Rulings are published chiefly to give guidance to taxpayers.
c. A Revenue Ruling is an official pronouncement of the IRS National Office.
d. All of the above statements are correct.
Answer: d
Rationale:
The incorrect statement is that all of the above statements are correct. While Revenue
Rulings do apply the Code and Regulations to specific situations and are published to
provide guidance to taxpayers, they are not always issued by the IRS National Office.
Some Revenue Rulings may be issued by district offices.
16. In the citation Rev Rul. 87-90, 1987-1 CB 198, the number ‘90’ is the:
a. Ruling number for the year.
b. Year of ruling.
c. Paragraph number in the CB.
d. Volume number in the CB.
Answer: a
Rationale:
In the citation Rev Rul. 87-90, the number "90" represents the ruling number for the year
1987. Revenue Rulings are sequentially numbered within each year of publication.
17. Revenue Procedures deal with:
a. Specific taxpayer requests for the IRS’s position on a tax issue.
b. Applying the Code and Regulations to a specific factual situation.
c. The internal practice and procedures of the IRS in the administration of the tax laws.
d. All of the above.
Answer: c
Rationale:
Revenue Procedures primarily deal with the internal practice and procedures of the IRS
in the administration of the tax laws. They provide guidance to IRS employees on various
administrative matters.
18. Which of the following is CORRECT with respect to Private Letter Rulings?
a. They are issued by the IRS National Office in response to a specific taxpayer request.
b. They can be cited as precedent by other taxpayers.
c. They are published weekly by the IRS in the Internal Revenue Bulletin.
d. They are also known as Technical Advice Memoranda.
e. None of the above statements is correct.
Answer: a
Rationale:
Private Letter Rulings are issued by the IRS National Office in response to specific
taxpayer requests for guidance on how the tax laws apply to their particular situations.
They are not published and cannot be cited as precedent by other taxpayers.
19. Determination Letters are:
a. issued by the National Office of the IRS on proposed transactions.
b. issued by a local IRS office, usually on completed transactions.
c. published first in the Internal Revenue Bulletin.
d. Issued to IRS field agents as audit guidance.
Answer: b
Rationale:
Determination Letters are typically issued by local IRS offices in response to completed
transactions or applications, providing official rulings on the tax consequences of those
transactions.
20. Which citation represents the CORRECT numbering scheme for identification of IRS
written determinations?
a. 199538005 where “1995” is the year, “38” is the week of the year, and “005” is the
number of the ruling/memoranda that week.
b. LTR 2010-43, where “2010” is the year and “43” is the number of the ruling or
memoranda for that year.
c. 1996 C.B. 6, where 1996 is the year and 6 is the page number for the ruling or
memoranda.
d. 200917024 where “2009” is the year, “17” is the week of the year, and “024” is the
number of the ruling/memoranda for that week.
Answer: d
Rationale:
The correct numbering scheme for IRS written determinations is represented by citation
d. It follows the format of year, week of the year, and number of the ruling/memorandum
for that week.
21. An acquiescence indicates that a court decision will be:
a. appealed by the IRS.
b. followed in similar situations only if it favors the IRS.
c. followed in similar situations, even if it is adverse to the IRS.
d. ignored by the IRS.
Answer: c
Rationale:
An acquiescence by the IRS indicates that the agency will follow a court decision in
similar situations, even if it is adverse to the IRS. This demonstrates the IRS's acceptance
of the court's interpretation of the law and its intention to apply it consistently.
22. Which of the following IRS pronouncement citations is INCORRECT?
a. Notice 07-10, 2007 C.B. 324
b. Publication 519
c. Rev. Proc. 2011-14, 2011 I.R.B. 532
d. Action on Decision 2010-002
e. All of the above citations are correct.
Answer: a
Rationale:
Notice 07-10, 2007 C.B. 324 is incorrect because IRS notices typically do not include a
citation to the Code of Federal Regulations (C.F.R.). The correct format for citing a
notice would be "Notice 2007-10" without referencing the Code of Federal Regulations.
23. IRS General Counsel Memoranda are legal analyses which:
a. convey the IRS decision to acquiesce/nonacquiesce in a court decision.
b. summarize and explain published IRS Regulations.
c. assist in preparation of both Revenue Rulings and Private Letter Rulings.
d. have only short-term value.
Answer: c
Rationale:
IRS General Counsel Memoranda assist in the preparation of both Revenue Rulings and
Private Letter Rulings by providing legal analysis and guidance on specific tax issues.
They are not limited to short-term value and can serve as references for future rulings.
24. Which of the following statements is INCORRECT regarding Actions on Decisions
(AODs)?
a. AODs are prepared when the IRS loses a case in a court.
b. AODs are published in the Internal Revenue Bulletin.
c. AODs are published when the IRS wins a case in court.
d. The IRS’s decisions on AODs are driven by litigation costs, revenue effects, and
administrative and policy directives.
e. All of the above statements are correct.
Answer: c
Rationale:
The incorrect statement is that AODs are published when the IRS wins a case in court.
AODs are typically prepared and published when the IRS loses a case in court. They
provide guidance on how the IRS will handle similar issues in the future and are not
published in the Internal Revenue Bulletin.
25. With regard to IRS Announcements and Notices, which of the following statements is
CORRECT?:
a. IRS Notices contain guidance on substantive interpretations of the law.
b. IRS Announcements and Notices are published in the weekly Internal Revenue
Bulletin.
c. IRS Announcements contain guidance on substantive interpretations of the law.
d. Only (a) and (b) are correct.
e. All of the above statements are correct.
Answer: d
Rationale:
Only statements (a) and (b) are correct. IRS Notices typically contain guidance on
substantive interpretations of the law, and both IRS Announcements and Notices are
published in the weekly Internal Revenue Bulletin, providing official IRS guidance to
taxpayers and tax professionals.
True or False
Indicate whether the following statements are true or false by circling the correct answer.
1. The U.S. Treasury Department is a part of the Internal Revenue Service.
Answer: False
Rationale:
The Internal Revenue Service is a part of the U.S. Treasury Department.
2. Proposed Regulations do not have the effect of law.
Answer: True
Rationale:
Proposed Regulations do not have the force of law until they are finalized. During the
period when they are proposed, they are open for public comment and are subject to
potential revisions based on the feedback received. Only after this process, when they are
finalized and published as Treasury Regulations, do they become binding and carry the
force of law. Until then, they are merely proposals and do not have legal effect.
3. The IRS issues General Regulations under a mandate by Congress to specify the
substantive requirements of a tax provision.
Answer: False
Rationale:
Congress directs the IRS to issue Legislative Regulations to specify substantive
requirements of a tax provision.
4. Temporary Regulations must be followed by taxpayers until they are superseded or
until they expire.
Answer: True
Rationale:
Temporary Regulations, once issued by the IRS, have the force of law and must be
followed by taxpayers until they are superseded by final regulations or until they expire.
While temporary regulations are in effect, taxpayers are legally obligated to comply with
them as they interpret and apply the tax laws. Temporary regulations typically have a
specified expiration date, usually three years after issuance, unless they are replaced by
final regulations.
5. A Regulation can never be made effective retroactively.
Answer: False
Rationale:
There are certain situations in which a Regulation can be effective retroactively.
6. The IRS disclaims responsibility for damages that a taxpayer may suffer in erroneously
relying on its Taxpayer Publications.
Answer: True
Rationale:
The IRS explicitly states in its Taxpayer Publications that they are intended for general
informational purposes only and should not be relied upon as authoritative sources of
law. Taxpayer Publications aim to provide simplified explanations of tax laws and
procedures for taxpayers' understanding but are not legally binding. Therefore, the IRS
typically disclaims responsibility for damages that may occur if a taxpayer erroneously
relies on information contained in these publications. It's crucial for taxpayers to seek
professional advice or refer to official IRS guidance, such as Treasury Regulations or
Revenue Rulings, for accurate and authoritative information regarding their tax
obligations.
7. If a taxpayer disagrees with the scope or language of a Regulation, he or she has the
burden of proving that the Regulation is improper.
Answer: True
Rationale:
When a taxpayer disagrees with the scope or language of a Regulation issued by the IRS,
the burden of proof generally falls on the taxpayer to demonstrate that the Regulation is
improper. This burden exists because Regulations are presumed to be valid and
enforceable unless proven otherwise. Taxpayers seeking to challenge a Regulation
typically need to provide evidence or arguments showing why the Regulation is incorrect
or invalid, such as by demonstrating that it exceeds the IRS's authority, conflicts with
statutory law, or is arbitrary or capricious.
8. Field Service Advice (FSAs) are binding guidance provided by the IRS National
Office to IRS service centers.
Answer: False
Rationale:
Service Center Advice is guidance provided by the IRS National Office to the IRS
service centers.
9. The Internal Revenue Bulletin also is published in twice-yearly, bound volumes as the
Cumulative Bulletin.
Answer: True
Rationale:
The Internal Revenue Bulletin (IRB) is indeed published in twice-yearly, bound volumes
known as the Cumulative Bulletin. These volumes compile all the weekly issues of the
IRB for the respective six-month periods into a single, comprehensive publication. The
Cumulative Bulletin serves as a convenient reference for taxpayers, tax professionals, and
the IRS to access past IRS pronouncements, including Revenue Rulings, Revenue
Procedures, Treasury Decisions, and other official guidance.
10. IRS Publications are published in the monthly Internal Revenue Bulletin as well as on
the IRS website.
Answer: False
Rationale:
IRS Publications do not appear in the weekly Internal Revenue Bulletin.
11. The IRS, under no circumstances, has the authority to decline to issue Letter Rulings.
Answer: False
Rationale:
The IRS has the authority to decline to issue Letter Rulings under certain conditions.
12. An IRS Technical Advice Memorandum applies strictly to the taxpayer for whose
audit it was requested and cannot be relied upon by other taxpayers.
Answer: True
Rationale:
Technical Advice Memoranda (TAMs) are indeed issued in response to specific taxpayer
requests and are applicable only to the taxpayer for whom they were prepared. TAMs
provide guidance and advice on complex tax issues arising during audits or examinations.
However, they are not binding on other taxpayers and cannot be relied upon as precedent
or authoritative guidance for different taxpayers or situations.
13. Technical Advice Memoranda are issued in response to a request by an IRS agent.
Answer: True
Rationale:
Technical Advice Memoranda (TAMs) are typically issued by the IRS Office of Chief
Counsel in response to specific requests made by IRS agents or examiners during the
course of audits or examinations. These requests seek guidance on intricate tax issues
encountered in the audit process. TAMs provide legal analysis and advice to assist IRS
agents in resolving the tax issues under consideration for a particular taxpayer's case.
14. T.D. 9479 refers to a Treasury Determination letter.
Answer: False
Rationale:
A T.D. number refers to a Treasury Decision, which is a temporary or final regulation.
15. Both Revenue Rulings and Letter Rulings have the same precedential value as far as
authority in tax matters is concerned.
Answer: False
Rationale:
Revenue Rulings have a greater weight of authority than Letter Rulings, which may not
be cited as precedent.
16. IRS Technical Memoranda summarize and explain regulations.
Answer: True
Rationale:
IRS Technical Memoranda, often referred to as Technical Advice Memoranda (TAMs),
do indeed provide detailed explanations and analyses of tax regulations. TAMs are issued
by the IRS Office of Chief Counsel in response to specific requests from IRS agents or
examiners seeking guidance on complex tax issues encountered during audits or
examinations. These memoranda serve to clarify regulations and provide legal
interpretations to aid IRS personnel in applying the tax laws accurately.
17. A nonacquiescence indicates that the IRS disagrees with the adverse decision in the
case and will follow the decision only for the specific taxpayer whose case resulted in the
adverse ruling.
Answer: True
Rationale:
Nonacquiescence by the IRS signifies its disagreement with an adverse court decision. In
such cases, the IRS states that it will not follow the court's decision in similar situations,
except for the specific taxpayer involved in the case that led to the adverse ruling.
Nonacquiescence allows the IRS to maintain consistency in its interpretation and
application of the tax laws while acknowledging its disagreement with the court's
decision.
18. Actions on Decision are published by the IRS in the Internal Revenue Bulletin first
and thereafter in the Cumulative Bulletin.
Answer: True
Rationale:
Actions on Decision (AODs) are indeed published by the IRS in the Internal Revenue
Bulletin initially. The Internal Revenue Bulletin serves as the official publication of IRS
pronouncements, including AODs, providing guidance on how the IRS will respond to
court decisions. Subsequently, AODs are compiled and published in the Cumulative
Bulletin, which serves as a comprehensive collection of IRS guidance documents for
reference and research purposes.
19. The IRS’s official publication for its pronouncements is the Internal Revenue Manual.
Answer: False
Rationale:
The IRS’s official publication for its pronouncements is the Internal Revenue Bulletin.
20. The courts may invalidate IRS Regulations if they are found to conflict with the
Code.
Answer: True
Rationale:
Courts have the authority to invalidate IRS Regulations if they determine that the
regulations conflict with the Internal Revenue Code (IRC). The IRC is the primary source
of tax law in the United States, and regulations must be consistent with its provisions. If a
court finds that a regulation directly contradicts or exceeds the authority granted by the
IRC, it may declare the regulation invalid and unenforceable. This ensures that
regulations are in harmony with the statutory framework established by Congress.
Short Answer
1. Define General and Legislative Regulations and explain the distinction.
Answer: General Regulations are issued under the general authority granted to the IRS to
interpret the language of the Code. Legislative Regulations are issued by the IRS as
directed by the Congress to effectively perform a law-making function and to specify the
substantive requirements of a tax provision. Legislative Regulations bear the greatest
precedential value of any IRS pronouncement.
2. List the three types of IRS written determinations and briefly explain the differences.
Answer: The three types of IRS written determinations are Private Letter Rulings,
Technical Advice Memoranda, and Determination Letters. Private Letter Rulings are
issued by the National Office of the IRS in response to a taxpayer’s request for the IRS’s
position on a specified tax issue, usually a proposed transaction. Technical Advice
Memoranda are issued by the IRS National Office in response to a request by an IRS
agent when a question arises during an audit. Thus, Technical Advice Memoranda deal
with completed transactions. Determination Letters are similar to Private Letter Rulings,
but they are issued by a local IRS office such as a District Director, to a taxpayer,
generally on the tax treatment of a completed transaction.
Essay Questions
1. Describe the Internal Revenue Bulletin and identify the types of documents published
in the Bulletin. Explain when it is published and the citations used to reference the
Bulletin.
Answer: THE INTERNAL REVENUE BULLETIN
The Internal Revenue Bulletin (IRB) is the IRS’s primary publication used to
communicate with the public. It is issued weekly on Mondays and is available on the IRS
website. Every six months, it is bound into the Cumulative Bulletin (CB), which is the
official print publication of IRB documents.
Many, but not all, of the IRS’s administrative pronouncements are published in the IRB,
including IRS Regulations, Revenue Rulings, Revenue Procedures, Actions on Decisions,
Announcements, and Notices. IRS Letter Rulings, Technical Advice Memoranda, and
Determination Letters are not published in the IRB. Other types of documents besides
IRS pronouncements are published in the IRB, including congressional tax acts and
committee reports, procedural rules, tax treaties, and other notices.
Internal Revenue Bulletin citations: 2010-17 I.R.B. 609 or 2008-1 C.B. 310
The first citation is to the weekly Internal Revenue Bulletin in 2010. The IRB citation
indicates the 17th weekly I.R.B. in 2010, page 609. For the Cumulative Bulletin, the
citation above indicates the first volume of the C.B. for 2008 beginning on page 310.
2. Compare and contrast IRS Proposed Regulations, IRS Temporary Regulations, and
IRS Final Regulations. Explain the weight of authority and citations for each type of
regulation and tell where the regulations are published by the IRS.
Answer: REGULATIONS
Regulations issued by the IRS are the Treasury Department’s official interpretation of the
Internal Revenue Code. The IRS issues three types of regulations: proposed regulations,
temporary regulations, and final regulations.
Proposed Regulations
Proposed regulations are issued by the IRS as a preliminary interpretation of the Code in
a particular area. Proposed regulations do not have the full force of law and the IRS is not
bound by them, but they provide clues as to the IRS’s position on tax issues. Regulations
must be issued in proposed form 30 days before they can be finalized to allow for public
comment. Proposed regulations are published officially first in the Federal Register and
later in the Internal Revenue Bulletin.
Temporary Regulations
Temporary regulations are issued by the IRS and are effective immediately upon
publication. They have the full force and effect of law and can be relied upon by tax
practitioners as authority. The IRS generally issues temporary regulations when there is
an immediate need for guidance. There is no notice and comment period associated with
temporary regulations, so the IRS frequently issues regulations as both temporary and
proposed at the same time. When this happens, the regulations have immediate effect, but
the public also is provided with at least a 30-day notice and a comment period.
Temporary regulations expire in three years if they are not finalized.
Temporary regulations are issued as “Treasury Decisions” or “T.D.s”. They are published
in the Federal Register and in the Internal Revenue Bulletin. (Ex. T.D. 9403)
Final Regulations
After the required notice and comment period, the IRS may make changes to proposed
regulations and then issue them as final regulations. Final regulations have the force of
law and must be followed by taxpayers. Final regulations are issued as Treasury
Decisions, so have a T.D. number (Ex. T.D. 8462). They are published in the Federal
Register and in the Internal Revenue Bulletin.
Retroactive Effect of Regulations
Regulations can have retroactive effect in certain circumstances:
Within 18 months of enactment of the underlying Code section.
To prevent taxpayer abuse.
To correct a procedural defect.
If it relates to Treasury and IRS internal policies.
By specific Congressional directive.
The Commissioner can allow taxpayers to elect to apply new regulations retroactively.
Citing a Regulation
The text of the regulations have regulation numbers with a leading number, followed by a
period, then followed by a Code section and paragraph and subparagraph numbers. The
leading number indicates the type of regulation as follows:
1 – Income Tax
20 – Estate Tax
25 – Gift Tax
31 – Employment Tax
301 – Procedural
Also, temporary regulations are indicated by a “T” after the regulation number as
follows: §31.6302-1T
Regulation Citation Example:
Reg. §1.162-24, Travel expenses of state legislators or 26 C.F.R. §1.162-24 (Code of
Federal Regulations).
In the above example, the “1” indicates the type of regulation—an Income Tax
regulation. “162” indicates the related Code section. “24” indicates regulation number.
Test Bank for Federal Tax Research
Roby B. Sawyers, Steven Gill, Debra Sanders, William A. Raabe, Gerald E. Whittenburg
9781111221645, 9781337282987, 9781285439396
