1996 Tax Court Admission Examination
Four hours will be allowed to answer all of the questions in the
examination. Each question has been allocated a specific number
of minutes (see the notation in parenthesis at the beginning of
each Question). Each question will be weighted according to the
time allocated to the question.
Write your answers legibly in ink in the bound answer book/s
furnished you for this purpose. Write your name on the cover of
each answer book that you use. Identify each answer by the same
number as the Question. Remove no pages from your bound answer
book/s; you are being furnished loose sheets of paper for you to
use as scratch paper.
This examination is designed to test your overall knowledge of
Tax Court Rules of Practice and Procedure, Federal taxation,
the law of evidence, and rules of professional responsibility.
The examination consists of four parts. The first part (60 minutes)
deals with Tax Court Rules of Practice and Procedure.
The second part (96 minutes) deals with substantive Federal income,
gift, estate, and generation-skipping transfer taxation.
The third part (60 minutes) deals with the rules of evidence
applicable in the Tax Court. The fourth part (24 minutes) deals with
professional responsibility rules applicable to practice before the Tax
Court. Each part will be graded separately, and you must show
your proficiency with respect to each part of the examination.
The only reference materials permitted to be with you during the
examination are (1) a copy of the Internal Revenue Code, (2) a copy of
the Rules of Practice and Procedure of the Court, and (3) the Model Rules
of Professional Conduct. You may refer to these materials in taking the
Clarity and conciseness of expression will be a significant
factor in grading your examination. Answer only the questions
that are asked.
Do not inquire of the proctor regarding the examination
questions. If you think a question contains an ambiguity, state
the ambiguity, resolve the ambiguity by stating a reasonable
assumption in your answer, and then answer the question based
upon your resolution of the ambiguity.
Unless otherwise indicated, assume all taxpayers use the cash
method of accounting and are calendar year taxpayers. All
statutory references are to the Internal Revenue Code of 1986,
unless otherwise indicated.
The proctor will tell you when you may begin the test, and you
will be given a warning 5 minutes before the examination is
over. When time is called, put your pen down. Absolutely no
extension of time is permissible. When the time for completion
of your examination has elapsed, turn in to the proctor this
examination, your answer books, and the materials furnished to
you. If you complete the examination early, you may turn in the
materials and leave.
Part One: Practice And Procedure
Question P-1. (3 minute/s) Decedent died on April 21, 1989, and Decedent's estate obtained an extension to file an estate tax return until Saturday, July 21, 1990. The envelope containing the estate tax return bore a postmark of Friday, July 20, 1990. The return was delivered to the IRS on Monday, July 23, 1990. The IRS notice of deficiency was mailed to the estate on July 21, 1993. Discuss whether the IRS notice of deficiency was timely.
Question P-2. (8 minute/s) Determine whether the Tax Court has jurisdiction in each of the
situations below. State YES or NO.
(a) The IRS asserted an underpayment of Section 3402 withholding taxes against Taxpayer, a
sole proprietor who employed one other individual. Taxpayer petitioned the Tax Court for a
review of the asserted underpayment. Does the Tax Court have subject matter jurisdiction?
(b) Taxpayer, who is engaged in the business of preparing tax returns for other persons, received
from the IRS a notice and demand for penalty pursuant to Section 6695(a) for failing to furnish a
completed copy of return to the taxpayer for whom the return was prepared. Taxpayer
petitioned the Tax Court to challenge the penalty. Does the Tax Court have subject matter
(c) The I.R.S. issues a statutory notice of estate tax deficiency and also for additions to tax
pursuant to Section 6651(a)(2). Petitioner, the estate, petitioned the Tax Court to dispute the
deficiency amount and the additions to tax. Does the Tax Court have subject matter jurisdiction?
(d) A refund claim asserted by an individual taxpayer against the United States if the IRS has not
issued a statutory notice of deficiency to the taxpayer with respect to the taxable period as to
which the refund claim is asserted. Does the Tax Court have subject matter jurisdiction?
(e) The IRS issues a statutory notice of deficiency, but the taxpayer established an overpayment
of tax for the period in issue. Does the Tax Court have jurisdiction to determine an overpayment
and order that it be refunded?
(f) A taxpayer is properly before the Tax Court as a petitioner in response to an IRS statutory
notice of deficiency. The IRS then issues a jeopardy assessment against the taxpayer as to a year
properly before the Court pursuant to the taxpayer's petition. Does the Tax Court have subject
matter jurisdiction as to the jeopardy assessment?
(g) Husband and Wife were in the process of getting a divorce. The IRS issued a joint notice of
deficiency to them as husband and wife. The husband filed a petition with the Tax Court, forging
his wife's signature. The wife did not authorize or know about the Tax Court petition submitted
by husband. Does the Tax Court have jurisdiction as to wife?
(h) The IRS issued a notice of estate tax deficiency to the estate and a notice of deficiency to the executor of the estate asserting personal liability as fiduciary. The estate timely filed a petition as to the estate tax liability, and the executor signed the petition in his representative capacity, but the petition did not contest the personal liability of the executor. More than 90 days after receipt of the deficiency notice, the executor seeks to amend the petition filed by the estate to ask for a redetermination of the executor's personal liability. Does the Tax Court have subject matter jurisdiction as to the executor's personal liability?
Question P-3. (4 minute/s) Taxpayer is a United States citizen presently residing in the United States. On April 15, 1996, the IRS mailed a notice of deficiency (bearing the date of April 15, 1996) to Taxpayer regarding Taxpayer's 1994 income liability. Taxpayer received the notice on April 19, 1996. What is the last day on which Taxpayer timely can file a petition with the Tax Court? The following 1996 calendar may be of use to you:
S M T W Th F S
April 1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30
May 1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
July 1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31
Question P-4. (4 minute/s) Taxpayer had withheld from his 1987 wages substantially more in federal income taxes than the amount of Taxpayer's federal income tax liability for the year. Taxpayer did not file a return for 1987 when it was due. On September 26, 1990, the IRS mailed Taxpayer a notice of deficiency for 1987. On December 22, 1990, Taxpayer filed a tax return for 1987; the return claimed a refund of overpaid income taxes for 1987. Prior to December 22, 1990, Taxpayer had not filed a return or claim a refund of the overpaid taxes as to 1987.
On December 24, 1990, Taxpayer filed a timely petition in the Tax Court seeking a redetermination of the claimed deficiency and a refund. Explain whether the Tax Court has jurisdiction to award a refund of the overpaid income taxes.
Question P-5. (5 minute/s) On December 13, 1989, the IRS mailed to Taxpayer a statutory notice of deficiency for 1987, in which the IRS determined that petitioners had under reported their taxable income by $1,01 S. Taxpayer filed a timely petition with the Tax Court contesting the adjustment set forth in the December 13, 1989, notice of deficiency. On May 8, 1991, the respondent filed a motion for leave to file an amendment to answer out of time. The proposed amendment to answer sought, among other things, to increase the deficiency determined against
Taxpayer for 1987 and to impose certain additions to tax for fraud on virtually all of the increased deficiency. In the proposed amendment, the respondent averred that Taxpayer had failed to report income of $942,189 from NBC Corporation.
On May 15, 1991, Taxpayer filed an objection to respondent's motion to amend answer. On May 17, 1991, the Court entered a final order and decision. In that decision, the Court denied the respondent's motion for leave to amend the answer. The decision was not appealed by either party.
On May 20, 1992, the IRS mailed to Taxpayer a notice of deficiency in which the IRS determined that Taxpayer did not report on their 1987 joint Federal income tax return $942,189 of income received from NBC Corporation and that Taxpayer's failure to report that income was attributable to fraud under section 6653(b).
Taxpayer filed a timely petition contesting the IRS determination as set forth in the notice of deficiency of May 20, 1992. In that petition, Taxpayer set forth res judicata as an affirmative defense. How should the Tax Court rule on the res judicata defense?
Question P-6. (4 minute/s) Define and explain the phrase "collateral estoppel" as regards Tax Court litigation.
Question P-7. (8 minute/s) Explain the required contents of a Tax Court petition.
Question P-8. (3 minute/s) Describe the pre-trial discovery process in the Tax Court.
Question P-9. (3 minute/s) Define and explain the significance of the stipulation process in Tax Court proceedings.
Question P-10. (5 minute/s) Describe the essential features of the small case procedures in the Tax Court.
Question P-11. (2 minute/s) Describe the circumstances under which counsel, who has entered an appearance before the Tax Court, may withdraw from the representation.
Question P-12. (6 minute/s) Discuss the requirements that must be satisfied to authorize the Tax Court to award to a petitioner attorneys fees and costs.
Question P-13. (3 minute/s) The IRS issued a deficiency notice with respect to Taxpayer's 1989 taxable year. Taxpayer timely filed a petition with the Tax Court, and the case was docketed, tried, and submitted to the Court for decision. After the trial and while the case was under submission to the Tax Court, the IRS imposed a jeopardy assessment and levy on Taxpayer under authority of section 6861. Taxpayer challenged the jeopardy assessment in the Tax Court by motion made in accordance with section 7429(b)(2) and Tax Court Rule 56. The Tax Court held for Taxpayer and ordered abatement of the jeopardy assessment and release of the levy. Taxpayer then filed a motion for attorney's fees and administrative costs pursuant to section 7430 and Tax Court Rule 231. The underlying deficiency proceeding had not been decided at the time the motion for attorney's fees was filed. Discuss whether the motion for attorney's fees is premature such that the Tax Court should not rule on the motion.
Question P-14. (2 minute/s) Define the phrase "burden of proof" in Tax Court proceedings.
Part Two: Substantive Tax Law
Question S-1. (4 minute/s) Define and distinguish, for federal income tax purposes, the following doctrines: (1) "constructive receipt" and (2) "cash equivalence."
Question S-2. (4 minute/s) In 1996, Taxpayer received $150,000 in compensatory damages and $500,000 in punitive damages pursuant to a judgment on a claim for tortious interference with future employment, plus statutory interest on the judgment (relating to periods before and after the judgment). Discuss whether and to what extent any of the amounts received are included in gross income.
Question S-3. (4 minute/s) Taxpayer is an attorney who received a structured settlement (installment payments in the future) in payment of attorney's fees. The settlement agreement provided that defendant's insurance company was to purchase an annuity for Taxpayer. The insurance company remained the owner of the annuity policy and maintained the right to change the beneficiary under the policy without the consent of Taxpayer. The parties to the settlement agreement agreed that Taxpayer's rights under the annuity policy were no greater than those of a general creditor. Discuss whether the fair market value of Taxpayer's rights under the annuity policy is includable in gross income in the year in which the settlement agreements were effected (ignoring, for purposes of this question, the constructive receipt doctrine).
Question S-4. (3 minute/s) Taxpayer, an accrual basis taxpayer, established nonqualified deferred compensation arrangements for certain senior executives. Under the arrangements, Taxpayer and the executives agreed to defer payments for future personal services the executives otherwise would have been entitled to receive upon the performance of those services. The arrangements were unfunded and represented the unsecured contractual obligations of Taxpayer to pay each executive upon termination of employment, retirement, or attainment of a specified age. Taxpayer maintained bookkeeping accounts to calculate the deferred compensation of each executive. Each account reflected the amount of compensation that originally was deferred plus an amount designated as "interest." Taxpayer compounded and accrued the interest component of the as to [sic] each executive's accumulated account balance. Discuss whether and when Taxpayer may deducted this amount separately as an "interest expense."
Question S-5. (3 minute/s) Discuss whether the carryover of an individual taxpayer's disallowed investment interest to a succeeding taxable year under section 163(d)(2) is limited by the taxpayer's taxable income for the taxable year in which the interest was paid or accrued.
Question S-6. (3 minute/s) Taxpayer deducted the amount of interest paid with respect to the portion of a deficiency in Federal income tax arising out of adjustments caused by accounting errors relating to Taxpayer's unincorporated business, the tax consequences of which were reported on Taxpayer's Schedule C of the 1040 Form. Taxpayer claimed that the interest properly was allocable to business indebtedness and therefore not personal interest under section 163(h)(2)(A). Explain whether such portion of the interest is deductible.
Question S-7. (5 minute/s) Taxpayer is a professional musician who purchases and uses in Taxpayer's professional performances a very old and valuable musical instrument crafted several hundred years ago. As with all tangible property, the instrument eventually will deteriorate, but the market for antique musical instruments is such that Taxpayer's instrument has no provable determinable useful life because the value of similar instruments (as collector's items) generally rises over time. Discuss whether Taxpayer qualifies for section 168 deductions as to the instrument.
Question S-8. (9 minute/s) Taxpayer and Spouse separated in 1994 and are divorced in 1995. Pursuant to the terms of the divorce settlement agreement, which the divorce court approved and adopted as its order, Taxpayer is required to make the following transfers to Spouse:
Property settlement payments in 1995: (1) $100,000 in cash and (2) Whiteacre (Taxpayer's separate property), which has a value of $80,000 and an adjusted basis to Taxpayer of $ 100,000.
Spousal support in cash: (1) $90,000 in 1995, (2) $80,000 in 1996, (3) $60,000 in 1997, and (4) $50,000 per year after 1997 until the death or remarriage of Spouse.
Child support payments in cash of $8,000 per year until Junior, the child of Taxpayer and Spouse, attains the age of 21 years.
The divorce settlement agreement and the court order are silent as to the tax consequences of the various payments. Taxpayer makes all required payments.
(a) (1 minute/s) State the amount of gross income to Spouse as to the 1995 cash payment of $100,000 as part of the property settlement.
(b) (1 minute/s) State the amount of gross income to Spouse as to the 1995 transfer of Whiteacre as part of the property settlement.
(c) (1 minute/s) State the amount of Spouse's adjusted basis in Whiteacre on the date of receipt.
(d) (1 minute/s) State the amount of gross income to Spouse in 1995 attributable to the $90,000 cash payment as spousal support.
(e) (5 minute/s) State the amount of gross income to Taxpayer in 1997 attributable to the spousal support payments made by Taxpayer in 1995-97.
Question S-9. (4 minute/s) Define and explain the significance of the phrase "innocent spouse" for federal income tax purposes.
Question S-10. (4 minute/s) In 1990, Taxpayer received as a gift from Donor unimproved real property (which is not subject to depreciation in the hands of either Donor or Taxpayer). Donor's adjusted basis in the property at the time of the gift was $20,000. The fair market value of the property at the time of the gift transfer to Taxpayer was $15,000. No gift tax was paid on the transfer.
(a) If the property is sold by Taxpayer in 1996 for $22,000, what is Taxpayer's adjusted basis for determining the gain or loss?
(b) If the property is sold by Taxpayer in 1996 for $13,000, what is Taxpayer's adjusted basis for determining the gain or loss?
(c) What gain or loss is realized if the property is sold by Taxpayer in 1996 for $18,000?
(d) If Donor had paid a gift tax of $1,000 on the 1990 transfer, what effect would it have on Taxpayer's adjusted basis in part (a)?
Question S-11. (6 minute/s) In 1990, Taxpayer acquired unimproved real property. To acquire the property, Taxpayer (1) paid $250,000 cash, (2) took subject to a preexisting first mortgage debt secured by the property in the amount of $ 100,000 (for which Taxpayer was not personally liable), and (3) executed a $50,000 second mortgage indebtedness (for which Taxpayer was personally liable) to the seller. In 1994, Taxpayer borrowed $10,000 from a bank, in return for which Taxpayer executed a nonrecourse note (no personal liability to Taxpayer) and a third mortgage on the real property to secure the $10,000 debt. The $10,000 proceeds of the loan were used to purchase investment securities. In 1996, Taxpayer received an offer to buy the real property, which Taxpayer accepted. Buyer (1) paid $369,000 cash, (2) took subject to the first mortgage debt of $75,000 (it had been paid down from $100,000 to $75,000), (3) assumed the $50,000 second mortgage debt, and 4) took subject to the third mortgage debt of $6,000 (it had been paid down from $10,000 to $6,000).
(a) What was Taxpayer's basis in the property at the time of acquisition?
(b) Describe the federal income tax consequences of the 1994 borrowing and third mortgage transaction.
(c) Quantify Taxpayer's amount realized and any gain or loss realized upon the sale of the property to Buyer in 1996.
Question S-12. (4 minute/s) Taxpayer loaned money to AAA, a subchapter C corporation, and received a promissory note of AAA evidencing the loan. It was anticipated that AAA would develop a computer program for a corporation subsequently to be formed. BBB was later incorporated with Taxpayer as a shareholder. BBB properly elected subchapter S status under the Internal Revenue Code. BBB gave a promissory note to AAA for the amount AAA had expended in developing the computer program. Subsequently, BBB satisfied its note to AAA by the payment to AAA of cash and by assuming AAA's indebtedness to Taxpayer. AAA's note to Taxpayer was not canceled, and BBB did not issue a promissory note to Taxpayer. Discuss the consequences of Taxpayer's loan on Taxpayer's adjusted basis of the BBB shares for the purposes of determining the amount of BBB losses Taxpayer may deduct.
Question S-13. (12 minute/s) During 1996, Z Corporation had current earnings and profits from operations of $10,000, and as of December 31, 1995, Z Corporation had accumulated earnings and profits of $15,000. The stock of Z Corporation is owned by X, an individual, and Y Inc., a corporation. X's adjusted basis in the 50 shares of stock of Z Corporation owned by X is $15,000. Y's adjusted basis in the 50 shares of stock of Z Corporation owned by Y is $60,000.
Z Corporation makes the following distributions on July I, 1996, that are characterized as nonliquidating dividends for state law purposes:
Distributee Property Fair Market Adjusted Basis
Shareholder Received Value to Z Corporation
X cash $10,000 $10,000
X 123 stock* $30,000 $10,000
Y cash $40,000 $40,000
* Stock of 123 Corporation, an unrelated corporation, acquired in 1993 by Z Corporation as an investment.
(a) Discuss and quantify the gain and loss recognition consequences to Z Corporation that result from the 1996 distributions.
(b) Determine the section 301 consequences to X of the 1996 distributions from Z Corporation, and determine X's adjusted basis in the stock of Z Corporation and in the stock of 123 Corporation.
(c) Determine the section 301 consequences to Y Inc. of the 1996 distributions from Z Corporation, and determine Y's adjusted basis in the stock of Z Corporation.
Question S-14. (10 minute/s) Discuss the standards applicable in classifying a domestic entity as either a partnership or an association taxable as a corporation, and discuss proposed changes to these standards.
Question S-15. (4 minute/s) Decedent's will divided the residue of the estate between the surviving spouse and a charity (qualified under section 2055(a)(2) and section 170(c)). The surviving spouse was named as beneficiary of two trusts: a marital trust over which she had a general power of appointment, and a qualified terminable interest property trust within the terms of section 2056(b)(7). The balance of the residue went to the charity. The estate allocated administration expenses to postmortem income of the estate, as authorized under the decedent's will and as permitted under state law. Discuss whether any part of the estate tax marital or charitable deductions are disallowed to the extent of administration expenses allocated to income.
Question S-16. (4 minute/s) Decedent's will contained alternative provisions as to specified property:
1. If Decedent's executor elects to treat the property as "qualified terminable interest property" within the meaning of section 2056(b)(7), the property would pass to a trust that would qualify within section 2056(b)(7).
2. If Decedent's executor did not elect to treat the property as "qualified terminable interest property" within the meaning of section 2056(b)(7), the property instead would be allocated to and administered under the terms of a family trust for the exclusive benefit of Decedent's descendants.
If the executor elects on the federal estate tax return to treat the property as "qualified terminable interest property" within the meaning of section 2056(b)(7), discuss whether the estate tax marital deduction is allowable as to such property.
Question S-17. (3 minute/s) State the limitations period (the "statute of limitations") that applies to the following income tax returns (that are properly, completely, timely, and nonfraudulently filed except as indicated below):
(a) An income tax return with respect to a gross income item not included in the return.
(b) An income tax return that is not signed by the taxpayer.
(c) A fraudulent income tax return for year 1 is filed in year 2, and in year 3 a nonfraudulent and correct return for year 1 is filed.
Question S-18. (5 minute/s) Explain whether a taxpayer is protected from application of the negligence penalty if the taxpayer uses a professional tax return preparer.
Question S-19. (5 minute/s) Taxpayer claims a section 170 charitable deduction on Taxpayer's 1996 federal income tax return for property contributed in kind to a qualifying section 170(c) organization. The amount of the deduction was based on the fair market value of the contributed property as evidenced by a written appraisal from a broker (a purchaser and seller) of property similar to that contributed by Taxpayer. Discuss whether Taxpayer is not at risk as to the substantial valuation misstatement penalty because of the appraisal from the broker.
Part Three: Evidence
Question E-1. (4 minute/s) Peter is a physician whose office records have been called into question. At trial, the records themselves are back in Peter's office because they are lengthy and voluminous, but Peter's attorney has prepared a chart summarizing the data contained on the office records. When the chart is offered into evidence by Peter, there is an objection by the opponent as follows: "Objection, the underlying records have not been made available to us." This is true. Neither Peter nor his attorney have exposed the voluminous records upon which the chart is based to the opponent. Under the Federal Rules of Evidence, is the chart admissible in evidence? Answer "yes" or "no," then explain briefly.
Question E-2. (3 minute/s) Refer to question E-1. You are the judge in the case involving Peter. Is there a step you can take to insure that the chart is correctly received? Describe.
Question E-3. (4 minute/s) A corporation's accountant is asked in a Tax Court trial to produce specific corporate documents. The accountant refuses, claiming the records are covered by the corporation's Fifth Amendment privilege against self-incrimination. If disclosed, the records would reveal wrongdoing by the corporation. Is this objection correct? Will it block forced production of the records? Answer "yes" or "no," then explain briefly.
Question E-4. (5 minute/s) A corporation's accountant is asked in a Tax Court trial to produce specific corporate documents. The accountant refuses, claiming the records are covered by the corporation's attorney-client privilege. The accountant explains that the accountant prepared the records at the request of the accountant's supervisor and the company's lawyer for the lawyer's use in this trial, to guide the lawyer in a trial strategy and for the lawyer to provide particular information relevant to the case back to the corporation. The accountant also stated the records had only been seen by the accountant and the company's lawyer. There is a factual basis for the accountant's claims. The attorney for the corporation asserts the attorney-client privilege objection. Is this objection correct? Will it block forced production of the records? Answer "yes" or "no," then explain briefly.
Question E-5. (2 minute/s) Taxpayer is under IRS audit. In a private moment in their bedroom Taxpayer tells Taxpayer's spouse, Spouse: "The government will never get me. I hid over 2 million in a Swiss bank!" Spouse is appalled. Later, in Taxpayer's Tax Court trial, Spouse is called as a witness against taxpayer. Spouse announces to the Court that Spouse is ready to testify against Taxpayer, whom Spouse is now in the process of divorcing. Over objection, can Spouse testify to the remark in the bedroom? Answer "yes" or "no," then explain briefly.
Question E-6. (2 minute/s) Refer to the trial described in question E-5. At trial, Taxpayer is cross-examined. The attorney for the government asks: "Aren't you the same John Taxpayer who was convicted of tax fraud in 1992 and sentenced to two years by the United States District Court for the State of Wyoming?" Taxpayer's attorney objected on the ground that the prior conviction was too old, too remote in time. Is it likely that the objection will be sustained? Answer"yes" or "no," then explain briefly.
Question E-7. (3 minute/s) Refer to the trial described in question E-5. In the same case, the IRS attorney cross-examines Taxpayer with this additional question: "In that 1992 offense, didn't you hide over $600,000 in a bank in the Bahamas that was owned by your business partner, who was himself later convicted?" There is a factual basis for this cross-examination question. Taxpayer's attorney objects on the ground of prejudicial and improper cross-examination. Is it likely that the objection will be sustained? Answer "yes" or "no," then explain briefly.
Question E-8. (2 minute/s) Refer to the trial described in question E-5. After Taxpayer leaves the stand, Taxpayer's lawyer calls a psychologist. Earlier in the trial, Taxpayer's lawyer sought and was granted the right to have this defense psychologist sit in court and hear all five government witnesses testify. If allowed to testify, the psychologist would offer the opinion that two of the five government witnesses were lying. Will this opinion be allowed in evidence, over objection? Answer"yes" or"no," then explain briefly.
Question E-9. (6 minute/s) Refer to the trial described in question E-5. As the last witness in the Taxpayer's case, Taxpayer calls an expert in accounting and finance, accountant A. A describes a new accounting method used to review Taxpayer's books, and if allowed to testify will state that the books and records clearly reflect income. The new accounting method was devised by A, and A explained its reliability and produced a recent accounting magazine. The latter revealed that A's process was praised in an accounting journal by a leading accountant. However, no national accounting society or association has officially recognized it yet. When A's testimony is offered, there is an objection to it. Should A's testimony be admitted, over an objection that the proponent of a novel technique must demonstrate official association-wide recognition or certification? Answer "yes" if the testimony is admissible, and "no" if it is inadmissible, then explain.
Question E-10. (2 minute/s) Refer to the trial described in question E-5. On cross-examination by the government, expert A was asked: "Are you aware the government tried to settle the case with Taxpayer, but Taxpayer refused and that is why we are here in court?" Taxpayer's attorney objected. Should the objection be sustained? Answer "yes" or "no," then explain briefly.
Question E-11. (3 minute/s) Refer to the trial described in question E-5. Expert A is asked if A is acquainted with the text by Rogers on Accounting Principles and Techniques. When A says A is acquainted with it because the book is a standard, the cross-examiner asks why A did not factor into A's document examination two or three elements which the Rogers text says are essential to a complete accounting review of business records. Taxpayer raises an objection that "opposing counsel is attacking the expert on the basis of hearsay." Is the objection good? Answer "yes" or "no," then explain briefly.
Question E-12. (2 minute/s) Refer to question E- 1 1. What if A had refused to recognize the book? Assume that A said, contrary to the way A answered in question E-11, that A had never heard of the Rogers text. How will the government lawyer, seeking to move ahead with cross-examination, proceed? Describe.
Question E-13. (5 minute/s) Certain forms of hearsay are admitted under the Federal Rules of Evidence only after the proponent of the hearsay establishes unavailability of the declarant. Describe the ways in which an out-of-court declarant's unavailability can be shown prior to introducing a hearsay statement or document which depends on such a showing.
Question E-14. (1 minute/s) When one party to a civil case calls the opposing party to the stand to examine the opposing party as an adverse witness, what will be the form of the calling party's questions.
Question E-15. (2 minute/s) What is the scope of the cross-examination under the Federal Rules of Evidence?
Question E-16. (2 minute/s) What is the rule in federal practice regarding whether a witness' credibility may be impeached by showing he or she does not believe in God?
Question E-17. (4 minute/s) An accountant is called to the witness stand in a Tax Court trial by counsel for the taxpayer and is testifying on direct examination. When counsel for the taxpayer asks the accountant about several complicated transactions that occurred two years ago, the accountant has difficulty remembering, becomes frustrated, and finally says: "I don't even recall those transactions." At this point, counsel for the taxpayer starts to read to the accountant the accountant's pretrial written statement containing a detailed account of the transactions, but counsel for the Internal Revenue Service objects: "Objection; counsel cannot impeach his own witness." May counsel for the taxpayer continue to contradict his own witness' memory in the described manner? Answer"yes" or"no," then explain briefly.
Question E-18. (3 minute/s) Taxpayer's expert testifies in a Tax Court trial. On cross-examination the government asks, "How much are you being paid to come here and testify today?" There is an objection. What is the single best ground for the cross-examiner to urge in order to elicit an answer? Explain briefly how the question asserted by the cross-examiner should be supported.
Question E-19. (2 minute/s) Can a witness be called to the stand by the judge on the judge's own motion, with the parties in the case entitled to cross examine the witness thus called?. Answer "yes" or "no," then explain briefly.
Question E-20. (3 minute/s) Your opponent has produced hearsay. A witness the IRS called to the stand reported what X told the trial witness. You have some damaging material against X material that would be usable had X appeared as a live trial witness. Can you use it to impeach X? Answer "yes" or "no," then explain briefly.
Part Four: Professional Responsibility
Question PR-1. (6 minute/s; see allocation below) A consults tax advisor B for advice about taking a charitable deduction on A's tax return for certain large gifts A gave to individuals during the past year. B tells A that A may deduct as a charitable contribution all of the gifts that A has given directly to needy individuals.
(a) (3 minute/s): Under the ABA ethics opinion interpreting the ABA Model Rules of Professional Conduct, what standard is used to determine whether B could ethically advise A to take a charitable contribution deduction for the gifts?
(B) (3 minute/s): If B were representing A in Tax Court litigation contesting a deficiency assessed against A for understating A's tax liability by taking this charitable contribution deduction, could B advance the position that the charitable deductions were proper?
Question PR-2. (15 minute/s; see allocation below) A represents the promoter (P) of an investment venture that was promoted as having significant tax benefits. The IRS has asserted a deficiency against a group of investors in P's investment venture. The investors (I) ask A to represent them in a Tax Court contesting the deficiency.
(a) (3 minute/s): Can A represent the investors in the deficiency matter if she continues to represent P?
(b) (3 minute/s): If A cannot represent the investors in the deficiency matter, could another partner in A's firm do so?
(c) (3 minute/s): A located the properties that were involved in the investment venture and drafted various documents relating to the investments. If A is likely to be a potential witness in the deficiency litigation, can A represent I if she obtains a waiver from I?
(d) (3 minute/s): If P previously has revealed information to A in confidence about the investment venture that would be helpful in representing I, may A reveal this information to I?
(e) (3 minute/s): Could A represent the investors if she no longer represents P, i.e., P is a former client?
Question PR-3. (3 minute/s) A represents T in a Tax Court proceeding. After trial and after receiving the opening brief from the respondent IRS, A discovers a decision by the Second Circuit Court of Appeals, which could be interpreted as adverse to T's position. Must A reveal the authority in his reply brief if the case would be appealed to the Second Circuit?