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CHAPTER 2
DISCUSSION QUESTIONS
2. (LO 1) The many gray areas, the complexity of the tax laws, and the possibility for different
interpretations of the tax law create the necessity of alternatives for structuring a business transaction.
3. (LO 1) Federal tax legislation generally originates in the House Ways and Means Committee.
This letter is in response to your request about information concerning a conflict between
a U.S. treaty with Spain and a section of the Internal Revenue Code. The major reason for treaties
between the United States and certain foreign countries is to eliminate double taxation and to render
mutual assistance in tax enforcement.
Section 7852(d) provides that if a U.S. treaty is in conflict with a provision in the Code, neither will
take general precedence. Rather, the more recent of the two will have precedence. In your case, the
Spanish treaty takes precedence over the Code section.
A taxpayer must disclose on the tax return any positions where a treaty overrides a tax law. There is a
$1,000 penalty per failure to disclose for individuals and a $10,000 penalty per failure for
corporations.
Sincerely,
2-1
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Type of Regulation
Related Code Section
Regulation Number
Regulation Paragraph
Regulation Subparagraph
6. (LO 1) Notice 90–20 is the 20th Notice issued during 1990, and it appears on page 328 of Volume 1
of the Cumulative Bulletin in 1990.
7. (LO 1, 4) The items would probably be ranked as follows (from lowest to highest):
8. (LO 1)
a. This is a Temporary Regulation; 1 refers to the type of Regulation (i.e., income tax), 956 is
the related Code section number, 2 is the Regulation section number, and T refers to
temporary.
b. Revenue Ruling number 15, appearing on page 975 of the 23rd weekly issue of the Internal
Revenue Bulletin for 2012.
SUBJECT: Telephone conversation with Sally Andrews on applicability of 2007 letter ruling
I told Sally Andrews that only the taxpayer to whom the 2007 letter ruling was issued may rely on the
pronouncement. I stressed that a letter ruling has no precedential value under § 6110(k)(3).
I pointed out that a letter ruling indicates the position of the IRS on the specific fact pattern present as
of the date of the letter ruling. As such, a letter ruling is not primary authority. However, under Notice
90–20, 1990–1 C.B. 328, a letter ruling is substantial authority for purposes of the accuracy-related
penalty in § 6662.
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Working with the Tax Law 2-3
10. (LO 1) Sri should consider the following factors in determining whether he should request a letter
ruling from the IRS with respect to the proposed stock redemption:
• For a fee, the IRS will issue a letter ruling at a taxpayer’s request and describe how the IRS will
treat a proposed transaction. The letter ruling applies only to the requesting taxpayer. A Revenue
Ruling is applicable to all taxpayers.
• Sri must determine whether the possible tax amount is large enough to warrant the costs and time
to apply for a letter ruling. Here, the tax issue is probably important enough to do so.
• If Sri is likely to obtain an adverse letter ruling from the National Office, he should forgo the
ruling request.
• The letter ruling would have substantial authority for purposes of the accuracy-related penalty.
• Sri needs to consult Rev. Proc. 2014–3 to be certain the IRS will issue a ruling about this tax
issue. The IRS will not rule in certain areas that involve fact-oriented situations, but will probably
issue one here.
• Although not referenced in the text, letter rulings are also available in the IRS Letter Rulings
Report (CCH).
12. (LO 1) TEAMs are issued by the Office of Chief Counsel to expedite legal guidance to field agents as
disputes are developing. TEAMs differ from TAMs as follows:
• In the event of a tentatively adverse conclusion to the taxpayer or to the field, a conference of
right will be offered to the taxpayer and to the field.
13. (LO 1) Dwain must consider several factors in deciding whether to take the dispute to the judicial
system:
• How expensive will it be?
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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BILIBID.
As we are going to press, there comes to hand a little pamphlet
describing the industries and production of Bilibid.
Why not send our wardens who desire to do things to Bilibid?
Perhaps, it would be better to send our legislators, who after
observing the practical achievements of Bilibid may be induced to
authorize our wardens to inaugurate a sound industrial policy.
Where is Bilibid? Take the train for San Francisco, engage passage
on some leviathan of the deep and get off probably at the second
station which is Manila. Thence it is a short excursion to Bilibid, a trip
taken by twenty thousand visitors in a single year, not to mention
those who take involuntary trips thither.
Forty buildings, seventeen acres of ground, plan of main building like
Eastern Penitentiary, one of the best ever constructed if we consider
continual inspection as an essential factor. 2800 prisoners there; as
many others in prisons elsewhere in the islands but all co-ordinated
under a central administration.
The great aim is to prepare the inmates for “honorable position in the
community upon their release.”
The men work and play. We enumerate some of the industries.
PENNSYLVANIA.
William E. Mikell, Member of State Commission to Revise
the Criminal Code.
The work of the commissioners who framed the Code of 1860 shows
an utter lack of any consistent theory not only of grading the crimes
as felonies and misdemeanors, but also in grading the punishment
fixed for the various crimes. It may not be easy to do this in all cases.
Persons may intelligently differ as to whether perjury should be more
seriously punished than assault and battery, and whether larceny or
bigamy be deserving of the greater penalty. But it is difficult to see
why embezzlement by a consignee or factor should be punished with
five years’ imprisonment and embezzlement by a person
transporting the goods to the factor should be punished by one
year’s imprisonment. * * *
Under the Act of 1860, having in possession tools for the
counterfeiting of copper coin is punished by six years’ imprisonment,
while by the next section the punishment for actually making
counterfeit copper coin is only three years, though it cannot be made
without the tools to make it. * * *
The distinction just mentioned is, however, no stranger than that
made by the code between a councilman on the one hand and a
judge on the other, in the provisions against bribery. Section 48 of
the Act of 1860 provides that if any judge * * * shall accept a bribe,
he shall be fined not more than $1000 and be imprisoned for not
more than five years. But by Section 8 of the Act of 1874, a
councilman who accepts a bribe may be fined $10,000, ten times as
much as a judge, and be imprisoned the same number of years—
five years. The statute also provides that the councilman shall be
incapable of holding any place of profit or trust in this
Commonwealth thereafter. But the convicted judge is placed under
no such disability.
In the case of almost every crime denounced by the code fine and
imprisonment are associated. In most cases the penalty provided is
fine and imprisonment, in some it is fine or imprisonment. In a few
cases imprisonment alone without a fine is prescribed, and in a few
others it is a fine alone without imprisonment. We seek in vain for
any principle on which the fine is omitted, where it is omitted; or for a
principle on which it is inflicted in addition to imprisonment in some
cases, and as an alternative to imprisonment in others. Thus the
penalty for exhibiting indecent pictures on a wall in a public place is a
fine of $300, but no imprisonment, while by the same act the drawing
of such pictures on the same wall carries a fine of $500 and one
year’s imprisonment. Manslaughter carries a fine of $1000 as well as
imprisonment for twelve years, but train robbery and murder in the
second degree involve no fine, but fifteen and twenty years in prison
respectively. It cannot be the length of the imprisonment that does
away with the fine in this latter case, for the crime of aiding in
kidnapping may be punished with twenty-five years in prison, but
also has a fine of $5000.
More striking still, perhaps, is the lack of any relation between the
amount of the fine and the length of the imprisonment provided in the
code. In the case of some crimes the fine is small and the
imprisonment short, as in blasphemy, which is punished by a fine of
$100 and three months in prison, extortion and embracery punished
with $500 and one year. In a few the fine is large and the
imprisonment long, as in accepting bribes by councilmen, $10,000
and five years, and malicious injury to railroads, $10,000 and ten
years. But in others the fine is small while the imprisonment is long
and in others the fine large and the imprisonment short.
Incomplete Crimes.
CLINICAL WORK.