Solution Manual for South-Western Federal Taxation 2016 Comprehensive, 39th Edition

Solution Manual for South-Western

Federal Taxation 2016 Comprehensive,
39th Edition
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 Alice Hanks, CPA
Tax Partner

2-1

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2-2 2016 Comprehensive Volume/Solutions
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Tax Law 2-3

5. (LO 1, 2) Income tax

Reg. § 1. 163–10 (a) (2)

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):

(1) Letter ruling (valid only to the taxpayer to whom issued).

(2) Proposed Regulation (most courts ignore these).

(3) Revenue Ruling.

(4) Interpretive Regulation.

(5) Legislative Regulation.

(6) Internal Revenue Code.

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.

c. Letter Ruling 51, issued in the 4th week of 2002.

9. (LO 1, 5) TAX FILE MEMORANDUM

DATE: September 23, 2015

FROM: George Ames

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.

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Tax Law 2-4

10. (LO 1) Letter rulings may be found in:

• Private Letter Rulings (RIA).

• BNA Daily Tax Reports.

• Tax Notes (Tax Analysts).

• Although not referenced in the text, letter rulings are also available in the IRS Letter Rulings
Report (CCH).

11. (LO 1) Dwain must consider several factors in deciding whether to take the dispute to the judicial
system:
• How expensive will it be?

• How much time will be consumed?

• Does he have the temperament to engage in the battle?

• What is the probability of winning?

• Once a decision is made to litigate the issue, the appropriate judicial forum must be selected.
• Tax Court judges have more expertise in tax matters.

• The tax deficiency need not be paid to litigate in the Tax Court. However, if Dwain loses, interest
must be paid on any unpaid deficiency.

• If a trial by jury is preferred, the U.S. Tax Court is the appropriate forum.

• The tax deficiency must be paid before litigating in the District Court or the Court of Federal
Claims.

• If an appeal to the Federal Circuit is important, Dwain should select the Court of Federal Claims.

• A survey of the decisions involving the issues in dispute is appropriate. If a particular court has
taken an unfavorable position, that court should be avoided.

12. (LO 1) The main advantage of the U.S. Court of Federal Claims occurs when a taxpayer’s applicable
Circuit Court previously rendered an adverse decision. Such a taxpayer may select the U.S. Court of
Federal Claims because any appeal will be to the Federal Circuit.

One disadvantage of the U.S. Court of Federal Claims is that the tentative deficiency must be paid
before the Court will hear and decide the controversy.

The U.S. Court of Federal Claims is a trial court that usually meets in Washington, D.C. It has
jurisdiction for any claim against the United States that is based on the Constitution, any Act of
Congress, or any Regulation of an executive department.

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13. (LO 1, 5) Hoffman, Maloney, Raabe, & Young, CPAs

5191 Natorp Boulevard
Mason, OH 45040
July 8, 2015
Mr. Eddy Falls
200 Mesa Drive
Tucson, AZ 85714
Dear Mr. Falls:
You have three alternatives should you decide to pursue your $229,030 deficiency in the court
system. One alternative is the U.S. Tax Court, the most popular forum. Some people believe that the
Tax Court judges have more expertise in tax matters. The main advantage is that the U.S. Tax Court
is the only trial court where the tax need not be paid prior to litigating the controversy. However,
interest will be due on an unpaid deficiency. The interest rate varies from one quarter to the next as
announced by the IRS.
One disadvantage of the U.S. Tax Court is the delay that might result before a case is decided. The
length of delay depends on the Court calendar, which includes a schedule of locations where cases
will be tried. Another disadvantage is being unable to have the case heard before a jury.
The major advantage of another alternative, the U.S. District Court, is the availability of a trial by
jury. One disadvantage of a U.S. District Court is that the tentative tax deficiency must be paid before
the Court will hear and decide the controversy.
The Court of Federal Claims, the third alternative, is a trial court that usually meets in Washington,
D.C. It has jurisdiction for any claim against the United States that is based on the Constitution, any
Act of Congress, or any regulation of an executive department. The main advantage of the U.S. Court
of Federal Claims occurs when a taxpayer’s applicable Circuit Court previously rendered an adverse
decision. Such a taxpayer may select the Court of Federal Claims because any appeal will be to the
Federal Circuit instead. One disadvantage of the Court of Federal Claims is that the tentative
deficiency must be paid before the Court will hear and decide the controversy.
I hope this information is helpful, and should you need more help, please contact me.
Sincerely,
Agnes Reynolds, CPA
Tax Partner
14. (LO 1) The U.S. Tax Court hears only tax cases and is the most popular forum for tax cases
(generally viewed as an advantage). Some people suggest that the Tax Court has more expertise in tax
matters. A taxpayer does not have to pay the tax deficiency assessed by the IRS before trial, but a
taxpayer may deposit a cash bond to stop the running of interest (also viewed as an advantage). Appeals
from a Tax Court are to the appropriate U.S. Court of Appeals. A disadvantage is that the taxpayer
may not obtain a jury trial in the U.S. Tax Court.

15. (LO 1) See Exhibit 2.4, Exhibit 2.5, and Concept Summary 2.1.
a. There is no appeal by either the taxpayer or the IRS from a decision of the Small Cases
Division of the U.S. Tax Court.

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