TAX RESEARCH METHODOLOGY
TEST BANK, Chapter 2
Multiple Choice
Choose the best answer for each of the following questions:
1. Which of the following statements describes the tax research process?
a. It is strictly linear.
b. It requires mechanical skills combined with critical thinking.
c. It requires the ability to use complex mathematical techniques to identify and locate tax
authorities.
d. All of the above.
Answer: b
Rationale:
The tax research process is not strictly linear but involves a combination of mechanical
skills and critical thinking. While mechanical skills are necessary for locating and
analyzing tax authorities, critical thinking is essential for interpreting and applying those
authorities to specific tax issues.
2. All of the following are goals of tax research EXCEPT?
a. to balance the need for efficiency against the need for thoroughness
b. to balance the client’s tax goals with the client’s nontax, personal considerations
c. to find a defensible solution to a client’s problem
d. to find a perfect solution to a client’s problem, no matter how long it takes
Answer: d
Rationale:
The goals of tax research include balancing efficiency and thoroughness, considering
both tax and nontax considerations, and finding a defensible solution to the client's
problem. However, the goal is not to find a perfect solution, as perfection may not always
be achievable within practical constraints.
3. Collateral estoppel is a legal concept which:
a. allows relitigation on the same facts or same issues
b. bars relitigation on the same facts or same issues
c. requires that the court resolve factual issues in a taxpayer’s favor
d. none of the above
Answer: b
Rationale:
Collateral estoppel, also known as issue preclusion, bars relitigation of the same facts or
issues that were previously determined in a prior case between the same parties or their
privies. It prevents parties from re-litigating issues that have already been conclusively
decided, promoting finality and judicial efficiency.
4. The first step in the tax research process is to:
a. establish the facts
b. identify the issues
c. locate authority
d. evaluate authority
Answer: a
Rationale:
Establishing the facts is crucial in tax research as it provides the foundation upon which
tax issues and potential solutions are based. Without a clear understanding of the relevant
facts, it becomes challenging to identify and apply applicable tax laws or regulations.
5. Once the initial facts have been gathered and the issues defined, the tax researcher
must:
a. develop conclusions and recommendations
b. evaluate the authority
c. contact the IRS
d. locate the authority
Answer: d
Rationale:
After establishing the facts and identifying the issues, the next step is to locate relevant
authority such as statutes, regulations, cases, and other sources of tax law. This is
essential for analyzing and addressing the tax issues effectively.
6. In a closed-fact problem, the main goal of tax research is to:
a. determine several alternative courses of future action for the taxpayer
b. find support for an action the taxpayer has already taken
c. both a and b
d. none of the above
Answer: b
Rationale:
In a closed-fact problem, where the facts are already determined, the goal of tax research
is to find support or authority for the action the taxpayer has already taken. This involves
locating relevant tax laws or regulations that justify the taxpayer's position.
7. The final step of the tax research process is to:
a. develop conclusions and recommendations
b. communicate recommendations
c. document conclusions and recommendations
d. litigate the tax-related dispute
Answer: b
Rationale:
The final step of the tax research process involves communicating the conclusions and
recommendations derived from the research to the relevant parties, such as the client or
stakeholders. Effective communication ensures that the research findings are understood
and can be acted upon appropriately.
8. Which of the following statements is CORRECT regarding computerized tax research?
a. The method of constructing queries is the same for all databases.
b. Most computer tax services allow the use of connectors and wild cards.
c. If a query generates too little information, the researcher should add more unique
keywords.
d. All of the above are correct.
Answer: b
Rationale:
Option b is correct. Most computer tax services indeed allow the use of connectors (such
as "and," "or," "not") and wildcards to refine search queries. This flexibility enhances the
effectiveness of the search process by enabling researchers to narrow down or broaden
their search criteria as needed.
9. Tax research issues can be divided into two main categories. These are:
a. fact and law issues
b. primary and secondary issues
c. major and minor issues
d. internal and external issues
e. tax and nontax issues
Answer: c
Rationale:
Option c is correct. Tax research issues can be categorized into major and minor issues.
Major issues are significant questions or problems requiring in-depth analysis and
consideration, while minor issues are relatively less critical or urgent in nature.
10. Which of the following are basic connectors you can use to construct a search query?
a. google
b. not
c. or
d. *
e. only b and c
Answer: b
Rationale:
Option b is correct. Basic connectors used to construct a search query include "not" and
"or." These connectors allow researchers to refine their search criteria by excluding
specific terms or including multiple alternatives in the search.
11. Which of the following represents a law issue?
a. intent of the transaction
b. definition of a term used in the code
c. date of transaction
d. location of the transaction
e. all of the above
Answer: b
Rationale:
Option b is correct. The definition of a term used in the tax code pertains to the
interpretation and application of the law itself, making it a law issue.
12. The amount of a transaction represents a:
a. law issue
b. social issue
c. fact issue
d. political issue
Answer: c
Rationale:
Option c is correct. The amount of a transaction is a factual detail rather than a legal or
social consideration, making it a fact issue.
13. Which of the following is an example of secondary authority?
a. tax treaties
b. tax journals
c. U.S. Constitution
d. tax laws by Congress
Answer: b
Rationale:
Option b is correct. Tax journals are examples of secondary authority as they provide
analysis, commentary, and interpretations of primary sources such as tax laws and
regulations.
14. A statutory source of Federal tax law is:
a. various rulings of the Treasury Department and the IRS
b. collected rulings of the various courts on Federal tax matters
c. textbooks
d. tax treaties
Answer: d
Rationale:
Option d is correct. Tax treaties, which are agreements between countries regarding
taxation, are a statutory source of Federal tax law.
15. Which of the following is an administrative source of primary authority?
a. U.S. Constitution
b. collected rulings of the various courts on Federal tax matters
c. regulations
d. newsletters
Answer: c
Rationale:
Option c is correct. Regulations issued by administrative agencies such as the IRS are
considered administrative sources of primary authority in tax law.
16. A reference source that enables the researcher to follow the judicial history of court
cases is known as:
a. a case reporter
b. a judicial directory
c. the Cumulative Bulletin
d. a citator
Answer: d
Rationale:
Option d is correct. A citator is a reference tool that provides information on the judicial
history of court cases, including subsequent rulings, citations, and related decisions.
17. CCH’s annotated, or code-based commercial tax service is:
a. the United States Tax Reporter
b. the Tax Coordinator 2d
c. the Standard Federal Tax Reporter
d. the Federal Tax Library
Answer: c
Rationale:
Option c is correct. The Standard Federal Tax Reporter is CCH's annotated commercial
tax service, providing comprehensive coverage of federal tax laws, regulations, and
rulings.
18. The Tax Management Portfolios are published by:
a. CCH
b. RIA
c. Bureau of National Affairs (BNA)
d. LexisNexis
Answer: a
Rationale:
Option a is correct. The Tax Management Portfolios are published by CCH, providing indepth analysis and guidance on various tax topics.
19. Once the research question has been stated, the researcher must next:
a. gather the facts
b. identify the keywords to construct a proper query
c. select a database and execute the search
d. interpret and refine the search
Answer: b
Rationale:
Option b is correct. After stating the research question, the next step is to identify
keywords and terms relevant to the question to construct an effective search query.
20. Secondary sources are useful when:
a. conflicting primary authority exists
b. the issue is a closed-fact problem
c. a researcher does not have access to primary sources
d. when a researcher disagrees with the client
Answer: a
Rationale:
Option a is correct. Secondary sources are valuable when conflicting primary authority
exists, as they can provide additional analysis, interpretations, and perspectives to help
resolve discrepancies.
21. The IRS website can be used to perform which of the following tasks:
a. obtain downloadable forms
b. keyword search IRS tax publications
c. search with connectors and wildcards
d. all of the above
Answer: d
Rationale:
Option d is correct. The IRS website offers various resources and functionalities,
including downloadable forms, keyword search capabilities for IRS tax publications, and
the ability to search using connectors and wildcards, making it a comprehensive tool for
tax-related tasks.
22. Which of the following statements is INCORRECT regarding the CPA exam:
a. The National Association of State Boards of Accountancy administers the test.
b. Each state has its own test.
c. CPA exam candidates must pass all four sections of the exam.
d. The Regulation section requires tax research.
Answer: b
Rationale:
Option b is correct. Each state does not have its own CPA exam; rather, the exam is
administered by the National Association of State Boards of Accountancy (NASBA) and
is uniform across all states.
23. Which of the following forms the basis for all tax provisions?
a. secondary authority
b. the administrative authority of the IRS
c. judicial interpretation of the law
d. the statutory authority of Congress
Answer: d
Rationale:
Option d is correct. The statutory authority of Congress, through the enactment of tax
laws, forms the basis for all tax provisions in the United States.
24. The distinction between primary and secondary authority is important for which of
the following reasons?
a. to meet the accuracy threshold of “substantial authority.”
b. to avoid penalties under Section 6662 of the Code.
c. to search properly with connectors and wildcards.
d. only a and b
Answer: d
Rationale:
Options a and b are correct. Distinguishing between primary and secondary authority is
crucial to ensure compliance with tax laws and regulations, thereby meeting the accuracy
threshold of "substantial authority" and avoiding penalties under Section 6662 of the
Internal Revenue Code.
25. Tax journals perform which of the following functions:
a. offer researchers expert analysis of unclear tax issues
b. keep researchers aware of current developments
c. suggest tax planning techniques
d. all of the above
Answer: a
Rationale:
Option a is correct. Tax journals provide researchers with expert analysis and insights
into complex or unclear tax issues, helping them understand and navigate intricate tax
laws and regulations.
True or False
Indicate which of the following statements are true or false by circling the correct answer.
1. Skilled tax research requires a combination of reasoning and creativity.
Answer: True
Rationale:
Skilled tax research involves more than just locating relevant tax authorities; it requires
the ability to analyze complex tax issues, apply legal principles, and think critically to
develop effective solutions. Reasoning helps in understanding the legal framework and
interpreting tax laws, while creativity allows researchers to explore alternative
approaches and think outside the box when addressing unique or novel tax situations.
Therefore, a combination of reasoning and creativity is essential for conducting thorough
and effective tax research.
2. A tax researcher can rely on tax journals as substantial authority under Section 6662 of
the Code
Answer: False
Rationale:
Under Section 6662 of the Code, which deals with the accuracy-related penalty, taxpayer
must have “substantial authority” for an undisclosed position. That authority must be
based on only on primary sources, not secondary sources. Tax journals may give some
insight to the preparer, but they are not considered “substantial authority” under the
Code.
3. The tax research process should be approached in a structured, step-by-step manner.
Answer: True
Rationale:
“Hit and miss” searching can be time-consuming and may result in gaps in a researcher’s
analysis. Therefore, a structured approach is generally more efficient and leads to more
accurate results.
4. After the researcher has located authority that deals with the client's problem, he or she
must develop conclusions and recommendations.
Answer: False
Rationale:
After the researcher has located authority that deals with the client's problem, he or she
must evaluate the usefulness of that authority.
5. A tax researcher should ignore the personal preferences of a client and concentrate
only on minimizing the client’s tax liability.
Answer: False
Rationale:
The researcher must be aware of the nontax considerations pertinent to a client’s situation
such as economic constraints and personal preferences.
6. If a computer search generates too much information, the research may use fewer
libraries or more unique keywords.
Answer: True
Rationale:
When a computer search generates an overwhelming amount of information, it may
indicate that the search criteria are too broad. To refine the search results, the researcher
can use fewer databases or sources to narrow down the scope of the search. Additionally,
using more unique keywords can help to filter out irrelevant results and focus on specific
aspects of the research question. Therefore, adjusting the number of libraries or using
more unique keywords are valid strategies for managing excessive search results.
7. “Wildcards” such as an asterisk can be used to search for word variations in most tax
services.
Answer: True
Rationale:
Wildcards, such as an asterisk (*), are commonly used in computerized tax research to
represent any sequence of characters within a word. This allows researchers to search for
word variations with different suffixes or prefixes efficiently. For example, using "tax*"
as a search term would retrieve results for words like "taxes," "taxable," "taxation," etc.
The ability to use wildcards enhances the flexibility and effectiveness of search queries,
making it easier to locate relevant information within tax services.
8. Topical tax services are arranged by subject as defined by the publisher's editorial
staff.
Answer: True
Rationale:
Topical tax services, such as CCH's Standard Federal Tax Reporter or RIA's United
States Tax Reporter, are organized based on specific tax topics or subjects. The
arrangement of content within these services is determined by the publisher's editorial
staff, who categorize tax laws, regulations, rulings, and other relevant materials into
logical subject areas. This organization facilitates easy navigation and access to tax
information related to particular topics, allowing researchers to quickly locate relevant
materials for their research needs.
9. Westlaw is an example of an online, free tax-related internet site.
Answer: False
Rationale:
Westlaw is a commercial, subscription law library online with extensive tax and other
legal and business information databases.
10. The power of Congress to implement and collect taxes is summarized in the Internal
Revenue Code, the official title of U.S. tax law.
Answer: True
Rationale:
The Internal Revenue Code (IRC) is indeed the official title of U.S. tax law. It contains
the primary statutory authority for federal taxation in the United States. The IRC outlines
the rules, regulations, and procedures governing federal taxation, including income taxes,
estate taxes, gift taxes, and other types of taxes. As such, it serves as the foundation for
the administration and enforcement of the U.S. tax system, reflecting the authority
granted to Congress to levy and collect taxes under the U.S. Constitution. Therefore, the
statement is true.
11. Tax researchers should not consider the client’s potential liability in determining how
much time to spend on a client’s problem.
Answer: False
Rationale:
The researcher has an obligation to a client not to waste the client’s money on a low
cost/benefit issue.
12. The Tax Adviser journal is published by the AICPA.
Answer: True
Rationale:
The Tax Adviser is indeed published by the American Institute of Certified Public
Accountants (AICPA). It is a leading publication in the field of taxation, providing indepth analysis, insights, and practical guidance on various tax-related topics for tax
practitioners, including CPAs, tax attorneys, and enrolled agents. The journal covers a
wide range of tax issues, including federal, state, and international taxation, as well as
updates on tax laws, regulations, and court decisions. Therefore, the statement is true.
13. RIA Checkpoint is a web-based tax research service that contains all the RIA material
on Federal, state, local, and international taxation.
Answer: True
Rationale:
RIA Checkpoint is indeed a comprehensive tax research platform provided by Thomson
Reuters that includes a wide range of materials on Federal, state, local, and international
taxation. It offers access to primary sources such as tax laws, regulations, rulings, and
court decisions, as well as secondary sources like expert analysis, commentary, and
practice aids. Therefore, the statement is true.
14. Kleinrock’s ATX service is designed for small firm practitioners conducting tax
research.
Answer: True
Rationale:
Kleinrock’s ATX service is specifically tailored to meet the needs of small firm
practitioners who engage in tax research. It provides these practitioners with user-friendly
tools and resources to efficiently conduct tax research, prepare tax returns, and navigate
complex tax issues commonly encountered in their practice. Therefore, the statement is
true.
15. The search “stock or securities” would find documents that contain both the term
“stock” and the term “securities.”
Answer: False
Rationale:
This search would find documents that have either the word “stock” or the word
“securities.”
16. The IRS website is a full-service, tax research resource.
Answer: False
Rationale:
The IRS website, while containing much useful information, is not a full-service tax
research resource.
17. One of the issues a tax researcher should be concerned about is how definitive a
research result must be.
Answer: True
Rationale:
This statement is true. Tax researchers often need to consider the level of certainty or
definitiveness required for their research results, especially when advising clients or
making decisions that could have significant financial implications. The degree of
certainty required may vary depending on factors such as the complexity of the issue, the
consequences of an incorrect conclusion, and the preferences of the client or stakeholders
involved.
18. The CPA exam is prepared by the AICPA.
Answer: True
Rationale:
This statement is true. The Certified Public Accountant (CPA) exam is developed and
administered by the American Institute of Certified Public Accountants (AICPA). The
AICPA plays a central role in setting the content, format, and standards for the CPA
exam to ensure that candidates possess the necessary knowledge and skills to practice as
competent and ethical accountants.
19. All primary source material has the same precedential value.
Answer: False
Rationale:
Different types of primary authority have different value as precedent. The researcher
must understand the hierarchy of primary sources.
20. The U.S. Constitution is a statutory source of tax law.
Answer: True
Rationale:
This statement is true. While the U.S. Constitution itself does not contain specific tax
provisions, it provides the foundational framework within which tax laws are created and
implemented. Congress, empowered by the Constitution, has the authority to enact tax
laws, and these laws are codified in statutes such as the Internal Revenue Code (IRC).
Therefore, the U.S. Constitution indirectly influences tax law as the basis for statutory
authority.
Short Answer
1. List in sequential order the major steps involved in the tax research process.
Answer: The tax research process can be broken down into six major steps, each an
essential part of the overall research methodology. The steps in tax research are as
follows.
•
Establish the facts
•
Identify the issues
•
Locate authority
•
Evaluate authority
•
Develop conclusions and recommendations
•
Communicate the recommendations
2. Explain the difference in primary and secondary sources of tax information and give
several examples of each.
Answer: Primary authority consists of original pronouncements that come from
government sources, including statutory, administrative, or judicial sources. Statutory
authority comes out of the legislative branch of government, the U.S. Congress, and
includes the Internal Revenue Code, legislative history, and tax treaties. Administrative
documents come out of the IRS, including regulations, rulings, taxpayer publications, and
other guidance documents. The judiciary releases court opinions which are a judicial
primary source.
Secondary sources consist of interpretations of primary authority and are an unofficial
source of tax information. Secondary authority includes tax services, journals, textbooks,
treatises and newsletters.
3. Describe the types of factual issues of importance in a tax research case.
Answer: Significant facts that often influence the client’s situation include the following:
•
The client’s tax entity, for example, individual, corporation, or trust.
•
The client’s family status and stability.
•
The client’s past, present, and projected marginal tax rates.
•
The client’s place of legal domicile and citizenship.
•
The client’s motivation for the transaction.
•
The relationships among the client and other parties who are involved in the
transaction.
•
Whether special tax rules apply to the taxpayer due to the type of business in
which the taxpayer is engaged (i.e., he or she is a farmer, fisherman, or long-term
contractor).
•
Whether the transaction is proposed or completed.
Essay Question
1. Tax research has been described as an “iterative process.” Explain what this means to
the researcher give an example of how this process might work with a hypothetical client.
Answer: The process of tax research is iterative in the sense that, once an answer is
found, it often causes a new issue to appear, which then requires the gathering of more
information. After the researcher has more information, he or she has to go back to the
research materials to reevaluate the problem. For example, if a client comes in asking if
they can deduct alimony, the researcher can look up the general federal tax rules for
alimony. When looking at those rules, the researcher finds that the alimony must be made
under a divorce or separation instrument. When the researcher goes back to the client to
question the client about the details of the divorce instrument, the client explains that it
was not a divorce, but an annulment. Now the researcher must go back and research the
issue of whether an alimony deduction is allowed for payments made under a decree of
annulment. The researcher then finds that if an annulment has the same effect or support
purposes as a divorce under local law, payments under an annulment decree qualify as
deductible alimony.
In conclusion, the tax research process is not a linear process. Rather, the direction the
research takes is dependent on how the facts and issues develop as the researcher gathers
more information.
Test Bank for Federal Tax Research
Roby B. Sawyers, Steven Gill, Debra Sanders, William A. Raabe, Gerald E. Whittenburg
9781111221645, 9781337282987, 9781285439396
