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Multiple Choice
Choose the best answer for each of the following questions:
1. To effectively convey the results of a tax research project, the practitioner must:
a. consult IRS officials.
b. apply professional judgment and communication skills.
c. have an informal discussion with the client.
d. all of the above.
Answer: b
Consulting IRS officials may not always be feasible or necessary for conveying research
results. However, applying professional judgment and communication skills is essential as it
allows the practitioner to effectively communicate complex tax issues and conclusions to the
client in a clear and understandable manner.
2. The audience for tax research communication is primarily:
a. IRS officials.
b. the practitioner’s supervisor.
c. the client.
d. Both (b) and (c).
Answer: d
While IRS officials and the practitioner's supervisor may be secondary audiences for tax
research communication, the primary audience is the client. The research findings and
recommendations are ultimately directed towards assisting the client in understanding their
tax situation and making informed decisions.

3. The heart of tax research communication is:
a. the File Memo
b. primary source material.
c. secondary source material.
d. network links.
Answer: a
The File Memo serves as a comprehensive document that outlines the research process,
analysis, conclusions, and recommendations. It is the central piece of communication that
synthesizes the findings for the client in a structured and organized manner.
4. Which of the following is CORRECT with respect to a file memo?
a. It should include only the strengths of the client’s position.
b. It should include a list of the tax issues that are in dispute and a matching conclusion for
each identified issue.
c. It should be prepared only in closed-fact situations.
d. All of the above.
Answer: b
The File Memo should provide a balanced assessment of the tax issues, including both
strengths and weaknesses of the client's position. It should identify the issues in dispute and
provide corresponding conclusions based on thorough research and analysis, regardless of
whether the situation is closed-fact or not.
5. Initial determinations of the facts of a tax issue are likely to be incomplete because:
a. taxpayers tend to see the dispute only from their side.
b. taxpayers not being trained in the tax law may be unable to determine which facts are
important to convey.

c. fact-gathering often depends on the reliability of the memory of taxpayers.
d. all of the above.
Answer: d
Taxpayers often have a biased perspective, may lack understanding of relevant tax laws, and
memory reliability can vary. These factors contribute to incomplete initial determinations of
facts, necessitating thorough fact-checking and analysis during tax research.
6. Which of the following statements is CORRECT with respect to conflicting tax laws?
a. Revenue Rulings and Revenue Procedures seldom are held to be invalid by a court.
b. Regulations are frequently held to be invalid by a court.
c. The decisions of courts that are higher in the judicial hierarchy should receive additional
precedential weight.
d. All of the above are correct.
Answer: c
When conflicting tax laws arise, decisions of higher courts carry more precedential weight,
indicating that they should be given additional consideration in resolving the conflict.
7. Other factors being equal, decisions of which of the following Circuit Courts should be
given additional weight when evaluating sources?
a. the Second and Ninth Circuits.
b. the Sixth and Ninth Circuits.
c. the Federal and First Circuits.
d. All the above courts have equal weight.
Answer: a

The Second and Ninth Circuits are considered influential in tax law jurisprudence. Therefore,
decisions from these circuits should be given additional weight when evaluating sources, as
they may set precedents that impact tax cases nationwide.
8. Which of the following statements is INCORRECT with regard to the weight of authority
of tax documents?
a. District and Circuit Court opinions have direct bearing on the taxpayer only if they were
issued in the taxpayer’s jurisdiction.
b. The opinions of the Court of Federal Claims and Tax Court are not binding on a taxpayer if
they were issued with respect to a taxpayer who lives in a different jurisdiction.
c. Revenue Rulings and Revenue Procedures are frequently modified or held to be invalid by
d. Older court decisions should be given a declining degree of importance unless they are
Supreme Court cases.
Answer: b
The opinions of the Court of Federal Claims and Tax Court are generally binding on
taxpayers nationwide, regardless of jurisdiction. Therefore, statement b is incorrect.
9. By far the most common form of substantive communication between the tax professional
and his or her client is a:
a. File Memo.
b. text message.
c. tax-oriented blog.
d. telephone call or e-mail.
Answer: d

Telephone calls and emails are the most common forms of substantive communication
between tax professionals and clients due to their convenience, efficiency, and ability to
convey detailed information.
10. The best way for a practitioner to confirm his or her understanding of the discussion in a
telephone conversation with a client is to:
a. tape all client telephone calls.
b. take accurate notes during the conversation.
c. send a hard copy of a follow-up letter to the client.
d. Important discussions with clients should only take place face-to-face.
Answer: c
Sending a follow-up letter to the client summarizing the discussion ensures clarity and
confirms understanding. It provides a written record of the conversation's key points and any
agreements reached, serving as a reference for both the practitioner and the client.
11. Which statement is CORRECT regarding the proper form for a client letter?
a. Client letters should be brief.
b. Client letters should be lengthy and detailed in order to avoid malpractice problems.
c. Client letters should not exceed four pages.
d. All of the above statements are correct.
Answer: a
Client letters should be brief to ensure that the main points are conveyed clearly and
concisely without overwhelming the client with unnecessary information. Lengthy letters can
be burdensome for clients to read and may obscure the key messages.
12. The two major elements of a client file are:
a. invoices and full-text court opinions.

b. internal firm memos and invoices.
c. a client letter and a file memo.
d. a written summary of telephone conversations and emails.
Answer: c
A client file typically consists of a client letter, which communicates research findings and
recommendations to the client, and a file memo, which serves as a comprehensive document
outlining the research process, analysis, conclusions, and recommendations.
13. In client files, a practitioner should include all of the following types of underlying legal
authority except?
a. Underlined or highlighted portions of important legal documents.
b. Case, regulation, and ruling briefs that are pertinent to the file memo.
c. A listing of legal citations and computer files that would show a researcher’s analysis.
d. All of the above information should be included in a client file.
Answer: d
While underlined or highlighted portions of important legal documents, case briefs,
regulations, rulings, and legal citations should be included in a client file to support the
analysis presented in the file memo, excessive or irrelevant information should be avoided to
maintain clarity and relevance.
14. Most CPAs and other tax advisors include some form of blanket disclaimer in the tag line
of all their e-mail and other written correspondence sent to clients because of:
a. malpractice avoidance.
b. The 10-80-10 rules.
c. Circular 230 covered opinions rules.
d. all of the above.

Answer: c
Including a blanket disclaimer in written correspondence helps tax advisors comply with
Circular 230 covered opinions rules, which require practitioners to disclose whether the
communication is covered by written advice concerning federal tax issues.
15. Effective written business communication often makes use of which of the following
a. The main point should be in the first paragraph.
b. Use clichés and trendy jargons to add interest to your communications.
c. Follow the 10-80-10 rules for structure of the communication.
d. Only (a) and (c).
Answer: d
Effective written business communication follows guidelines such as placing the main point
in the first paragraph for clarity and adhering to structured formats like the 10-80-10 rules to
ensure coherence and organization.
16. Under the 10-80-10 rules for the structure of technical tax communications:
a. the introduction should identify three to six key points.
b. the introduction should be 10 percent, the body should be 80 percent, and the conclusion
should be 10 percent.
c. Fifty percent of the body of the communication should be examples.
d. all of the above.
Answer: b
The 10-80-10 rules dictate that the introduction should be brief (10%), the body should
contain the substantive content (80%), and the conclusion should summarize key points
(10%), providing a structured format for technical tax communications.

17. Which of the following statements is CORRECT regarding the use of visual aids in oral
a. Visual aids should be used to illustrate ideas that are difficult to convey strictly with words.
b. On average, allow at least six minutes of spoken presentation for each slide.
c. Slides should be colorful with substantial amounts of text.
d. Only (a) and (c).
Answer: a
Visual aids should complement oral presentations by illustrating complex ideas or data that
are difficult to convey verbally alone. They should be clear, concise, and relevant to enhance
understanding and retention among the audience.
18. An effective speaker should:
a. not be afraid of silence.
b. get physically close to the audience.
c. vary the pitch of his or her voice.
d. all of the above.
Answer: d
Effective speakers exhibit a range of qualities, including comfort with silence, appropriate
proximity to the audience, and variation in pitch, tone, and pace of speech to maintain
engagement and convey emphasis.
19. Which of the following statements is INCORRECT regarding letters to unsophisticated
a. Citations to controlling authority should not be included.
b. The letter should give the answer in the first paragraph.

c. A practitioner should always attach a file memo to give the client more detailed
d. All of the above are correct.
Answer: c
While letters to unsophisticated clients should prioritize clarity and simplicity, attaching a file
memo may overwhelm them with technical details. Therefore, it's not always necessary to
include a file memo with such letters.
20. IRS agents are bound only by which types of authority?
a. The Code.
b. The Code, administrative pronouncements and Supreme Court decisions.
c. Second and Ninth Circuit Court Decisions.
d. The Code and Regulations.
Answer: b
IRS agents are bound by a range of authorities, including the Internal Revenue Code,
administrative pronouncements (such as Treasury Regulations and Revenue Rulings), and
Supreme Court decisions, ensuring that they apply and enforce tax laws consistently and
True or False
Indicate whether the following statements are true or false by circling the correct answer.
1. The tax researcher spends most of his or her time writing the memorandum to the client's
Answer: False

The tax researcher spends most of his or her time reviewing primary and secondary sources
of the Falseederal tax law, redefining pertinent issues, and attempting to discover additional
facts concerning the client's situation
2. The tone and nature of the file memo should recognize that its reader (the client) probably
is not well versed in the Federal tax law.
Answer: True
The file memo serves as a communication tool between the tax practitioner and the client,
conveying the results of tax research and analysis. Since the client is likely not well versed in
Federal tax law, the tone and nature of the memo should be considerate of this fact. Using
clear and plain language, avoiding technical jargon, and providing explanations where
necessary help ensure that the client can understand the content of the memo without
confusion or difficulty. By recognizing the client's level of familiarity with tax law, the memo
can effectively fulfill its purpose of informing and advising the client on relevant tax matters.
3. A file memorandum should not include citations to secondary sources of tax law, such as
commercial tax services.
Answer: False
It often is helpful to include pertinent references to secondary sources, including one or more
of the commercial tax services to which the researcher's firm subscribes, to facilitate
subsequent review and commentary concerning the tax issue.
4. Generally, the file memo should be accompanied in the file by briefs of one or more
pertinent cases or administrative pronouncements.
Answer: True
Including briefs of pertinent cases or administrative pronouncements in the file along with the
memo provides additional support and context for the analysis and conclusions presented in
the memo. These briefs help the client understand the legal basis for the recommendations

and decisions made by the tax practitioner, enhancing the overall comprehensiveness and
credibility of the communication.
5. Generally, it is better to cite more recent court decisions than older decisions to support
one’s position.
Answer: True
More recent court decisions are often more reflective of current legal interpretations and
precedents, making them more relevant and persuasive in supporting one's position.
Additionally, citing recent decisions demonstrates that the practitioner is up-to-date with
developments in tax law and jurisprudence, which can bolster the credibility of their
arguments. However, the relevance and applicability of older decisions should not be
dismissed entirely, especially if they remain authoritative and directly address the issues at
6. Tax treatises and journal articles should not be used in the formation of the practitioner’s
research schedule.
Answer: False
Tax treatises and journal articles can be utilized in the formation of the practitioner’s research
schedule, because they often include both a comprehensive summary of the evolution of the
controlling law and a thorough list of citations concerning prior interpretive court decisions.
7. Even if all of the judicial precedent supports a taxpayer’s position, the court still may hold
against the taxpayer.
Answer: True
Judicial decisions are not solely determined by precedent; other factors such as statutory
interpretation, factual considerations, and judicial discretion also play significant roles. While
precedent provides guidance, courts have the authority to interpret the law independently, and
they may reach decisions that deviate from established precedent under certain
circumstances. Therefore, even if all judicial precedent supports a taxpayer's position, there is

still a possibility that the court may rule against the taxpayer based on other legal
8. IRS agents are bound by District Court decisions.
Answer: False
IRS agents are only bound by the Code, administrative pronouncements, and Supreme Court
9. Consulting firms and tax departments all use the same format for client files.
Answer: False
Each consulting firm and tax department has its own formatting requirements for client files.
10. In oral communications, a speaker should always aim the presentation at the audience
members who have the least amount of knowledge.
Answer: False
In oral communications, a speaker must decide whether to aim at the median knowledge base
or above or below it. The stakes are high in exercising this judgment and the decision is
dependent on the makeup of the particular audience.
11. Well-written case opinions typically provide a summary of the evolution of the pertinent
tax law and a discussion of the parties’ competing interpretations.
Answer: True
Well-written case opinions serve as comprehensive legal documents that not only present the
court's decision but also provide valuable insights into the development of relevant tax law
and the arguments presented by the parties involved. By offering a summary of the evolution
of pertinent tax law, these opinions contextualize the issues at hand and demonstrate how
legal principles have evolved over time. Additionally, a discussion of the parties' competing

interpretations helps readers understand the arguments presented by each side and the
rationale behind the court's decision. Overall, these elements contribute to the clarity,
coherence, and educational value of well-written case opinions.
12. In slides and other visual aids, fancy fonts and many colors should be used to create a
more sophisticated presentation.
Answer: False
For effective and professional slides and other visual aids, presenters should use simple fonts
and a limited number of conservative colors.
13. Public speaking is an important part of the tax practitioner’s professional life and can be
an accurate predictor of success.
Answer: True
Public speaking skills are essential for tax practitioners as they often need to communicate
complex tax concepts, research findings, and recommendations to clients, colleagues, and
sometimes even in court or regulatory settings. Effective public speaking enhances a
practitioner's ability to convey information persuasively, build rapport with clients, and
represent their interests competently. Moreover, public speaking engagements can serve as
opportunities to showcase expertise, establish credibility, and network within the professional
community, all of which can contribute to a practitioner's success in their field.
14. More research engagements entail closed-fact settings than open-fact situations.
Answer: True
In closed-fact settings, all relevant information necessary for conducting tax research is
provided upfront, typically by the client. This allows the practitioner to analyze the facts
within a defined scope and develop conclusions based on the available information. Closedfact settings are more common in research engagements as they provide a clear starting point
and limit the need for additional fact-gathering. In contrast, open-fact situations involve
incomplete or ambiguous information, requiring the practitioner to gather additional facts

before conducting research. Since closed-fact settings are more prevalent and straightforward,
it is true that more research engagements tend to entail closed-fact settings than open-fact
15. Paper reduction should be the main goal in deciding whether or not to include
duplications of controlling law in a client file.
Answer: False
Paper reduction should not be the main goal in deciding whether or not to include
duplications of controlling law in a client file. The client file should contain enough
information to provide a road map by which to retrace a researcher’s line of thinking.
Short Answer
1.State the purposes for which a file memorandum is designed.
Answer: A file memorandum is designed to:
• organize the facts, issues, and conclusions of the project;
• facilitate a review of the research activities by the practitioner’s supervisors or colleagues;
• allow for a subsequent examination of the research issue, by the original researcher or by
his or her successor, with respect to the same or another client’s identical or related fact
2.Identify the major elements of a client letter, and briefly discuss the difference between a
letter to a sophisticated client and to an unsophisticated client.
Answer: In general, the client letter should be structured as follows:
• Salutation/social graces/general conclusion.
• Summary of the research project results.
• Objective of the report.
• Statement of facts and disclaimer as to the scope of the tax professional’s knowledge base.

• Summary of critical sources of law that lead to result.
The “answer” to client’s question should be in the first paragraph. A letter to an
unsophisticated client should not include any detailed references to the controlling law, but
should only discuss the research results in a general way. A letter to an unsophisticated client
should not use technical tax terms, but instead should be written in a more conversational
style. The file memo should not be attached to an unsophisticated client letter, but may be
attached for a more sophisticated client.
3.Identify five types of tax-related communications.
Answer: Tax-related communications can include any of the following:
• Telephone call or text message.
• Informal discussion in person or via e-mail.
• Letters prepared for someone familiar with the tax laws or someone unfamiliar with the tax
• Tax articles for publication in a newspaper, magazine, or professional journal.
• Directed discussion among tax peers.
• Speech to general audience or to a conference of tax professionals.
• File Memoranda to be read in the future by the author or by a peer with similar training.
• Appearance on a news broadcast or program.
• Posting on a general, business, or tax-oriented blog.
Essay Questions
1.You are preparing for an audit with an IRS agent for an important client. Your research has
uncovered several favorable rulings and court decisions. What are the key points that should
guide you in evaluating sources of the law?
Answer: The following points must be considered in evaluating the research results relating
to favorable rulings and court decisions:

• The IRS agent is bound only by the Code, administrative pronouncements (Regulations,
rulings, notices, etc) and Supreme Court decisions. Support your best arguments by building
on a use of those items.
• The most important Court of Appeals decisions are those from the taxpayer's circuit. If the
taxpayer’s circuit has not ruled on the issue, then look to the Second, Ninth, and Federal
• Regulations are seldom held to be invalid while revenue rulings and revenue procedures are
frequently modified or held to be invalid by courts.
• Generally, taxpayers are bound by decisions of the national courts—the Tax Court and
Court of Federal Claims—unless they are overturned in a pertinent appeal or the taxpayer’s
Circuit has held differently.
• Higher-level court decisions are more important than lower-level court decisions.
• More recent decisions generally are better authority than older decisions.
2. Lisa and David got married and they have approached you seeking your views about the
gift tax and income tax consequences on the following facts.
As per the prenuptial agreement, Lisa gave to David $100,000 of appreciated stock on the
morning of their wedding. Lisa’s basis in the stock was $35,000. Under the terms of the
agreement, David surrendered all other marital rights and claims to Lisa’s assets in exchange
for these securities. Both David and Lisa are residents of Arizona.
The file memo you prepared contains the following legal conclusions, based on controlling
IRC Section 2501 imposes a tax on the transfer of property by gift, not when it is received by
the donee, but upon the transfer. The donor is taxed, not the donee.
The Supreme Court has held that prenuptial transfers in relinquishment of marital rights are
not adequate and full consideration for the transfer of property. So, the transfer is treated as a
Since the prenuptial agreement is enforceable only after the marriage, the transfer has not
taken place until after the marriage occurred. Thus, the transfer is eligible for the gift tax
marital deduction.

Although the transaction resulted in a gift, no gift tax is imposed due to the application of the
annual exclusion and the unlimited gift tax marital deduction.
Neither party recognizes gross income upon release of the marital rights. Gross income does
not include the value of property acquired by gift.
The donee takes the donor’s income tax basis in the transferred property.
Based on the information provided above, draft a client letter to an unsophisticated client
explaining the gift tax consequences and the income tax consequences of the stock transfer.
Answer: Client Letter:
Citi Tax Services
San Luis AZ 85706
October 08, 20XX
Lisa and David
Skyline Heights
San Luis, AZ 85738
Dear David and Lisa,
Thank you for approaching me on the matter relating to the tax treatment of your prenuptial
agreement. I understand that the transfer of appreciated stock that took place on the morning
of the wedding is as per the prenuptial agreement. It is my pleasure to inform you that the
transaction will not result in the imposition of any Federal tax for either of you.
My research has uncovered that the Supreme Court has held that the transfer of property
under a prenuptial agreement is not supported by ‘full and adequate consideration’ because
relinquishment of marital rights does not amount to ‘full and adequate consideration’.
Therefore, it is to be treated as a gift.
Fortunately, however, the treatment of your transaction as a gift will not result in the
imposition of Federal income tax or Federal gift tax.

Federal income tax is not imposed upon the transfer because ‘gifts’ do not form a part of
gross income either for the donor or for the donee. Although a gift has occurred, no gift tax is
due, because the unlimited gift tax marital deduction neutralizes the transfer.
This research has been restricted to the identical cases, that is, in which, pursuant to a
prenuptial agreement, a taxpayer surrendered his or her other marital rights in exchange for a
sum of money or other property.
My conclusion is based upon the facts that you have given me and upon the reliability of the
court cases that I found.
Good Student, CPA
for Citi Tax Services

Test Bank for Federal Tax Research
Roby B. Sawyers, Steven Gill, Debra Sanders, William A. Raabe, Gerald E. Whittenburg
9781111221645, 9781337282987, 9781285439396

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