税务原理课后答案05.doc

Chapter 05 - Tax ResearchChapter 5Questions and Problems for Discussion1.The tax law is far too voluminous and complex for even experienced tax professionals to know the answer to all tax questions. In addition, the tax law changes constantly, through legislative changes, issuance of new regulations and rulings, and new judicial decisions. Tax research is necessary for the tax researcher to ensure a complete, accurate, and up-to-date answer to most tax questions.2.Particularly with proposed (rather than completed) transactions, an understanding of the clients motivation can help the tax researcher in seeking alternative ways to structure the transaction which produce better tax results.3.A tax issue is generally broader than a research question. Tax issues may be fairly general (e.g., is an expenditure deductible) while research questions should be precisely and narrowly stated (e.g., what are the requirements for deducting expenditures, when must an expenditure be capitalized). A single tax issue may lead to multiple research questions.4.Primary authorities represent the law itself (statutory authority) and administrative and judicial interpretations of the law issued by governmental entities. Primary authorities can be relied upon by a taxpayer in arguing his or her tax position in a court of law. Secondary authorities are interpretations of the law issued by nongovernmental entities. Secondary authorities represent the author(s) opinion about the tax law, and cannot be relied upon by a taxpayer in arguing his or her tax position in a court of law.5.Secondary authorities are often helpful to a tax researcher because they can be easier to read and understand than primary authorities. Secondary authorities often provide citations to relevant primary authorities. A tax researcher might use secondary authorities as a starting point in locating and understanding potentially relevant primary authorities.6.The appellate court decision is considered authoritative, because the appellate court has the legal authority to override the trial courts decision.7.The Citator will indicate whether a judicial decision has been appealed. If so, the appellate court decision is considered authoritative, not the trial court decision. In addition, the Citator will provide citations to subsequent court decisions referencing the decision under consideration. If such subsequent decisions support the decision under consideration, this support may strengthen the researchers conclusions. If subsequent decisions contradict the decision under consideration, the researcher may wish to explore these other decisions further before reaching conclusions.8.The chapter discusses three alternative strategies, of which the students answer should address two. The three strategies discussed are: (1) using the topical index, (2) using the table of contents, and (3) in an electronic service, using a keyword search. Use of the topical index involves identifying relevant tax terms and using the index to find use of those terms within the service. Use of the table of contents involves scanning the table for areas of discussion that appear relevant to the issue at hand. Finally, use of a keyword search involves specifying a combination of key words and phrase, and searching electronically for appearances of that set of keywords within the database.9.Often the analysis of legal authorities may indicate that research conclusions will turn on facts that the researcher had not previously considered or gathered from the client. In order to continue the research and reach conclusions, the researcher will need to question the client to ascertain these additional facts.10.A research memo is typically quite technical, containing extensive citations to legal authorities considered in the course of the research and upon which research conclusions are based. A research memo is also typically written in a standard format. A client letter is typically less formal, and often less technical in its presentation (depending upon the clients tax knowledge). Application Problems1.Under Section 318(a)(1), members of a taxpayers family include the taxpayers spouse, children, grandchildren, and parents. Thus, for purposes of this section, Marsha and Jan are not considered related parties. Under Section 267(b)(1), the family of an individual includes brothers and sisters, spouse, ancestors, and lineal descendants. Thus, for purposes of this section, Marsha and Jan are considered related parties.2.Many different questions could be proposed, including the following:- How long has the taxpayer owned the land?- For what purpose did the taxpayer originally acquire the land?- How has the taxpayer used the land?- Why is the taxpayer selling the land?- Has the taxpayer made any improvements to the land? If so, what kind of improvements?- Has the taxpayer sold any other land? If so, how many such sales has the taxpayer made in the past?- To whom is the taxpayer selling the land?3.Section 103(a) provides that gross income does not include interest on any State or local bond.4.Section 1221(a) defines a capital asset.5.a.The revenue ruling addresses the tax consequences proceeds received by a race track on charity day that are subsequently distributed to a charitable organization.b.The ruling discusses the assignment of income doctrine.c.Section 61(a).d.Section 170.e.This ruling has been cited in two subsequent revenue rulings.6.a.Watkins v. Comm., 97 AFTR 2d 2006-2444 (CA-10, 2006)b.Roger L. Watkins v. Commissioner, TC Memo 2004-244c.The case addresses the character of income (ordinary versus capital gain) recognized by a taxpayer that received a lump sum payment in exchange for his right to future lottery winnings, pursuant to a divorce.d.Character variablee.Cited in three subsequent cases7.Answers to this question will vary. Below are three potential keyword searches:- sale AND “antique car”- sale AND “inherited property”- sale AND antique AND inherited8.In RIA Checkpoint, the search sale AND “antique car” located 32 documents. The search sale AND “inherited property” located 236 documents. The search sale AND antique AND inherited located 38 documents. In researching this issue, the second search might prove most useful because it identified a larger number of documents but not an overwhelming number. The number of documents found by the other two searches is relatively small and may not provide sufficient coverage.9.a.In RIA Checkpoint, this search located 662 documents.b.Of the 643 documents, 531 represent primary authorities and 131 are secondary authorities.c.Two primary authorities: Section 170 and Section 1033Two secondary authorities: 2124, Charitable deduction ceilings for individuals, Federal Tax Handbook; EXP 614.051 Farmers income generally, United States Tax Reporter Explanations10.a.Reg 1.117-3(a) defines a scholarship as follows:(a) Scholarship. A scholarship generally means an amount paid or allowed to, or for the benefit of, a student, whether an undergraduate or a graduate, to aid such individual in pursuing his studies. The term includes the value of contributed services and accommodations (see paragraph (d) of this section) and the amount of tuition, matriculation, and other fees which are furnished or remitted to a student to aid him in pursuing his studies. The term also includes any amount received in the nature of a family allowance as a part of a scholarship. However, the term does not include any amount provided by an individual to aid a relative, friend, or other individual in pursuing his studies where the grantor is motivated by family or philanthropic considerations. If an educational institution maintains or participates in a plan whereby the tuition of a child of a faculty member of such institution is remitted by any other participating educational institution attended by such child, the amount of the tuition so remitted shall be considered to be an amount received as a scholarship. Reg. 1.117-3(d) defines a fellowship grant as follows:(c) Fellowship grant. A fellowship grant generally means an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research. The term includes the value of contributed services and accommodations (see paragraph (d) of this section) and the amount of tuition, matriculation, and other fees which are furnished or remitted to an individual to aid him in the pursuit of study or research. The term also includes any amount received in the nature of a family allowance as a part of a fellowship grant. However, the term does not include any amount provided by an individual to aid a relative, friend, or other individual in the pursuit of study or research where the grantor is motivated by family or philanthropic considerations.b.The only really significant difference between a scholarship and a fellowship grant is that a scholarship relates to amounts aiding a student in pursuing studies, and a fellowship grant relates to amounts aiding a student in pursuing studies or research.11.Rev. Proc. 2008-66, 2008-45 IRB 1107Filing StatusStandard DeductionMarried filing jointly and surviving spouse$11,400Married filing separately5,700Head of household8,350Single5,70012.a.Using RIA Checkpoint, three secondary authorities dealing with hobby losses are:- M-5802. Who is subject to the hobby loss rules? Federal Tax Coordinator.- M-5804 Deductions allowed under hobby loss rules for activities not engaged in for profit. Federal Tax Coordinator.- EXP 424.03 Hobby loss rules. United States Tax Reporter Explanations.b. Three primary authorities cited in the secondary authorities from part a. are:- Section 183 Activities not engaged in for profit.- Rivera, Sharon M., (2004) TC Summary Opinion 2004-81.- Rev Rul 77-320, 1977-2 CB 78.c.No, Section 183 does not use the phrase “hobby loss;” instead, it refers to hobbies as “activities not engaged in for profit.”13.According to the Citator, this case was reversed on appeal. The appellate court decision can be found at Stern, Sidney B. v Comm., 54 AFTR 2d 84-6412 , 747 F2d 555 (CA9, 11/15/1984)14.There are many possible answers to this question. One such tax glossary can be found at: /glossary/_tax_glossary.htm. a.Definition of long-term capital gain: Your profit from the sale of a capital asset that you held for more than 1 year.b.Section 1222(3) defines a long-term capital gain as follows: “The term “long-term capital gain” means gain from the sale or exchange of a capital asset held for more than 1 year, if and to the extent such gain is taken into account in computing gross income.”c.A taxpayer without extensive tax knowledge would probably find the tax glossary definition easier to understand, because it is shorter, and less legalistic in its language.d.A tax researcher would use the IRC definition, because it constitutes primary authority.15.a.Section 61.b.Individuals joined a barter club to obtain access to the services of other members. As a condition of membership, each member agrees to provide services to the other members at their request. Thus, while members may anticipate receiving services from the other members, they must also anticipate providing their services to the other members. If a taxpayer receives income under a claim of right and without restriction as to its disposition, the income is includible in gross income at time of receipt (even though a repayment of part or all of the income may be required at a later date). c.Barter Systems, Inc. of Wichita, 1990 PH TC Memo 90-546.16.a.In general, the IRS is challenging the reasonableness of compensation paid to Mortex executives.b. In general, the taxpayer won. However, the IRS did successfully disallow a deduction for part of the salary paid to one executive.c. Carlene is married to Maxs son, so Max is Carlenes father-in-law.d. Carlene was paid $46,000 and $68,000 for 1988 and 1989, respectively. The court found that a reasonable salary for these years was $20,000 and $25,000.e. The court did not feel that during 1988 and 1989 Carlene was actually serving in an executive capacity and concluded that her salary was excessive for a new employee who was still in training.f. No, the case was not appealed, which could be determined using the Citator.Issue Recognition Problems1.Does the judicial decision still constitute authority? Has the law changed in the last 34 years in a way that makes the decision no longer relevant?2.Which of the authorities identified matches Guenthers fact situation most closely? What are the criteria for deducting versus capitalizing remodeling costs?3.Is an IRS publication considered primary authority?4.Should Allisons stained glass activity be considered a hobby or a business? Can Allison take a tax deduction for expenses associated with her stained glass activities?5.What are the tax consequences of this exchange? Does John recognize income for the value of the floor received? Does Wade recognize income for the value of the dental services received? Are their related expenses deductible?6.Can Marybeth deduct her tuition costs? Is Marybeth taxable on the amount paid by her brokerage firm?7.Can Argonaut take a tax deduction for the cost of the new roof and the other repairs? Must any of these costs be capitalized? What are the tax consequences of any insurance reimbursement Argonaut might receive?8.How much taxable income must Natalie recognize? Will Natalie recognize any gain or loss on the sale of the car?Research Problems1.a.Publication 521b.Publication 504c.Publication 526d.Form 4562e.Alternative Minimum Tax - Corporations2.There are many possible answers to this question. One website providing the Internal Revenue Code is: /uscode/html/uscode26/usc_sup_01_26.html.This website is maintained by Cornell Law School, a highly respected educational institution. The website does contain the following disclaimer:“The information in the published US Code is a year or two old, having been subjected to extensive review and codification edits. It is not supposed to directly represent the news from Congress. There are other publications for the latest laws.”Another potential site students may find is: http:/www.fourmilab.ch/ustax/. This website was created and maintained by an individual named John Walker, and contains two important disclaimers:“The source document for this Web server was obtained from the U.S. House of Representatives Office of the Law Revision Counsel, and is current up to January 19th, 2004.”“I make absolutely no representations or warranties regarding this document and I accept no responsibility whatsoever for any consequences of your use of it. Ive tried to be careful in converting a huge mass of unindexed ASCII text into a live document thats genuinely useful for research, but Im a fallible human who insists that other members of his species assume total responsibility for their own actions.”3.The URL for the U.S. Treasury Department is: /. For the listed countries:Western Australia: .au/cms/dtf_index.aspGermany: /international/germany.htmlJapan: /international/japan.htmlSpain: /international/spain.htmlTax Planning Cases1.Section 1(h)(11)(B) sets forth the definition of qualified dividend income for purposes of the preferential tax rates. Under this section, most dividends from domestic corporations, and some dividends from foreign corporations, are qualified. Qualified dividend income does not include distributions from tax-exempt corporations (Section 1(h)(11)(B)(ii)(I) or mutual savings ban