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Solution Manual for Pearsons Federal Taxation 2019 Individuals 32nd Edition by Rupert
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SOLUTION MANUAL FORPEARSONS FEDERAL TAXATION
2019 INDIVIDUALS 32ND
EDITION BY RUPERT
, Chapter C:1
Tax Research
Note: To do the online research problems for this chapter, textbook users must have access to an
Internet-based tax service at their institution. Solutions are provided using RIA Checkpoint,
when applicable. In some cases, solutions using other tax services may differ.
Discussion Questions
C:1-1 In a closed-fact situation, the facts have occurred, and the tax advisor’s task is to analyze
them to determine the appropriate tax treatment. In an open-fact situation, by contrast, the facts
have not yet occurred, and the tax advisor’s task is to plan for them or shape them so as to produce
a favorable tax result. p. C:1-2.
C:1-2 According to the AICPA’s Statements on Standards for Tax Services, the tax practitioner
owes the client the following duties: (1) to inform the client of (a) the potential adverse
consequences of a tax return position, (b) how the client can avoid a penalty through disclosure,
(c) errors in a previously filed tax return, and (d) corrective measures to be taken; (2) to inquire of
the client (a) when the client must satisfy conditions to take a deduction and (b) when information
provided by him or her appears incorrect, incomplete, or inconsistent on its face; and (3) not to
disclose tax-related errors without the client’s consent. pp. C:1-31 through C:1-33.
C:1-3 When tax advisors speak about “tax law,” they refer to the IRC as elaborated by Treasury
Regulations and administrative pronouncements and as interpreted by federal courts. The term
also includes the meaning conveyed by committee reports. p. C:1-7.
C:1-4 Committee reports concerning tax legislation explain the purpose behind Congress’
proposing the legislation. Transcripts of hearings reproduce the testimonies of the persons who
spoke for or against the proposed legislation before the Congressional committees. Committee
reports are sometimes used to interpret the statute. p. C:1-7.
C:1-5 Committee reports can help resolve ambiguities in statutory language by revealing
Congressional intent. They are indicative of this intent. pp. C:1-7 and C:1-8.
C:1-6 The Internal Revenue Code of 1986 is updated for every statutory change to Title 26
subsequent to 1986. Therefore, it includes the post-1986 tax law changes enacted by Congress and
today reflects the current state of the law. p. C:1-8.
C:1-7 No. Title 26 deals with all taxation matters, not just income taxation. It covers estate tax,
gift tax, employment tax, alcohol and tobacco tax, and excise tax matters. p. C:1-8.
,C:1-8 a. Subsection (c). It discusses the tax treatment of property distributions in general (e.g.,
amount taxable, amount applied against basis, and amount exceeding basis).
b. Because Sec. 301 applies to the entire chapter, one should look throughout that
entire chapter (Chapter 1 of the IRC – which covers Sec. 1 through Sec. 1400U-3) for any
exceptions. One special rule – Sec. 301(e) – is found in Sec. 301. This special rule explains the
tax treatment of dividends received by a 20% corporate taxpayer. Section 301(f) indicates some
of the important special rules found in other IRC sections.
c. Legislative. Section 301(e)(4) authorizes the issuance of Treasury Regulations as
may be necessary to carry out the purposes of the subsection. pp. C:1-9 through C:1-10.
C:1-9 Researchers should note the date on which a Treasury Regulation was adopted because the
IRC may have been revised subsequent to that date. That is, the regulation may not interpret the
current version of the IRC. Discrepancies between the IRC and the regulation occur when the
Treasury Department has not updated the regulation to reflect the statute as amended. p. C:1-9.
C:1-10 a. Proposed regulations are not authoritative, but they do provide guidance concerning how
the Treasury Department interprets the IRC. Temporary regulations, which are binding on the
taxpayer, often are issued after recent revisions to the IRC so that taxpayers and tax advisers will
have guidance concerning procedural and/or computational matters. Final regulations, which are
issued after the public has had time to comment on proposed regulations, are considered to be
somewhat more authoritative than temporary regulations. pp. C:1-9 and C:1-10.
b. Interpretative regulations make the IRC’s statutory language easier to understand and
apply. They also often provide computational illustrations. In the case of legislative regulations,
Congress has delegated the rulemaking on a specific topic (either narrow or broad) to the Treasury
Department. However, after the Mayo Foundation case, both types of regulations will have the
same authoritative weight. p. C:1-10.
C:1-11 Prior to 2011, courts gave more authority to legislative regulations than to interpretive
regulations. However, after the Supreme Court decision in Mayo Foundation, courts will hold
both interpretive and legislative regulations to the same standard and will overturn them only in
very limited cases. p. C:1-10.
C:1-12 Under the legislative reenactment doctrine, a Treasury Regulation is deemed to have been
endorsed by Congress if the regulation was finalized before a related IRC provision was enacted
and in the interim, Congress did not amend the statutory provision to which the regulation relates.
p. C:1-10.
C:1-13 a. Revenue rulings are not as authoritative as court opinions, Treasury Regulations, or the
IRC. They represent interpretations by an interested party, the IRS. p. C:1-12.
b. If the IRS audits the taxpayer’s return, the IRS likely will contend that the taxpayer
should have followed the ruling and, therefore, owes a deficiency. p. C:1-12.
, C:1-14 a. The Tax Court, the U.S. Court of Federal Claims, or the U.S. district court for the
taxpayer’s jurisdiction. p. C:1-14.
b. The taxpayer might consider the precedent, if any, existing within each jurisdiction.
The taxpayer might prefer to avoid expending cash to pay the proposed deficiency. If so, the
taxpayer would want to litigate in the Tax Court. If the taxpayer would like to have a jury trial
address questions of fact, he or she should opt for the U.S. district court. pp. C:1-14 through C:1-
19, p. C:1-21, and p. C:1-23.
c. Appeals from Tax Court and U.S. district court decisions are made to the circuit
court of appeals for the taxpayer’s geographical jurisdiction. U.S. Court of Federal Claims
decisions are appealable to the Court of Appeals for the Federal Circuit. Appeals from any of the
circuit courts of appeals may be brought to the U. S. Supreme Court. pp. C:1-20 through C:1-21.
C:1-15No. A taxpayer may not appeal a case litigated under the Tax Court’s Small Cases
Procedure. p. C:1-17.
C:1-16 Tax Court regular and memo decisions have about the same precedential value. Decisions
issued under the Small Cases Procedure of the Tax Court have little or no precedential value. pp.
C:1-15 and C:1-17.
C:1-17 Yes. The IRS can acquiesce (or nonacquiesce) in any federal court decision that is adverse
to the IRS if the IRS decides to do so. In many cases the IRS does not acquiesce or nonacquiesce.
p. C:1-17.
C:1-18 In both the AFTR and USTC: decisions of U.S. district courts, U.S. bankruptcy courts,
U.S. Court of Federal Claims, circuit courts of appeal, and the U.S. Supreme Court. Tax Court
decisions are reported in neither of the two reporters. pp. C:1-16 and C:1-17 through C:1-22.
C:1-19 Prior to 2009, revenue rulings appeared in the weekly Internal Revenue Bulletin (I.R.B.),
and twice each year the decisions published in the I.R.B. were bound together and published in the
Cumulative Bulletin (C.B.). For pre-2009 rulings, the I.R.B citation was temporary and was
replaced by a citation to the C.B. After 2008, the IRS no longer publishes the Cumulative Bulletin.
Therefore for current rulings, the initial I.R.B. citation is final. p. C:1-12.
C:1-20 According to the Golsen Rule, the Tax Court will not follow a decision it made earlier, but
rather will follow a decision of the circuit court of appeals to which the case under consideration
is appealable. As an example, assume that the Tax Court, in a case involving a First Circuit
taxpayer, ruled for the taxpayer. The issue had not been litigated earlier. Then, a U.S. district
court in Georgia decided a case involving the same issue in favor of another taxpayer. The
Eleventh Circuit, however, reversed the decision. Now a taxpayer from the Eleventh Circuit
litigates the same issue in the Tax Court. Under the Golsen Rule, the Tax Court will follow the
Eleventh Circuit’s decision favoring the government. The Tax Court need not follow an appeals
court decision if a case was litigated by a taxpayer whose appeal would have been made to any
circuit other than the Eleventh. p. C:1-21.
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