In: Accounting
Subject Tax Accounting:1
Kodack is a begining tax researcher. He knows that the 1st step of the research process is to get an understanding of the facts surrounding the transaction being researched. Describe the two basic types of facts, the sources of facts for a research project and any advice that may help Kodak.
Solution:-
There are two basic types of facts: open facts and closed facts. Open facts have not yet occurred,such as the facts associated with a proposed transaction. Closed facts have already occurred. Thedistinction between open and closed facts is important because unlike closed facts, open facts canbe altered, and different facts may result in very different tax consequences. Open facts allow thetaxpayer to arrange a transaction to achieve the most advantageous outcome. Thus, they areespecially important in tax planning.
There are several sources of facts for the typical research projects. Common sources includeinterviewing clients, speaking with third parties (e.g., attorneys, brokers), and reviewing client documents (contracts, prior tax returns, wills, trust documents, deeds, corporate minutes, etc.). When interviewing clients, you must remember that many clients are not tax experts. Thus, it is up to the tax researcher to ask the correct initial and follow-up questions to obtain all the relevant facts. Within a tax planning context, one shouold also consider non-tax factors, such as a client's personal values or objectives, as these often put constraints on tax planning strategies.