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2-2
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
True False

2-3
7. The statute of limitations for IRS assessment generally ends four years after the date a tax return is
filed.
True False
8. For fraudulent tax returns, the statute of limitations for IRS assessment is ten years.
True False
9. The IRS DIF system checks each tax return for mathematical mistakes and errors.
True False
10. Joel reported a high amount of charitable contributions as a deduction on his individual tax return
relative to taxpayers with similar income levels. The information matching program is the IRS
program most likely to identify Joel's tax return for audit.
True False
11. Office examinations are the most common type of IRS audit.
True False
12. The three basic types of IRS examinations are computer exams, office exams, and business exams.
True False
13. The "30-day" letter gives the taxpayer the opportunity to request an appeals conference or agree
to a proposed IRS adjustment on the taxpayer's income tax return.
True False
14. The "90-day" letter gives the taxpayer the opportunity to pay a proposed IRS tax adjustment or file
a petition in the U.S. District Court to contest the adjustment and hear the case.
True False

2-4
15. If a taxpayer has little cash and a very technical tax case that she feels very strongly that the tax
rules are "on her side," she should prefer to have her case tried in the U.S. Tax Court.
True False
16. In researching a tax issue, Eric finds that the U.S. Circuit Court of Appeals for the Federal Circuit
previously has ruled in favor of his tax position, whereas the 11th
Circuit (Eric's circuit) previously has
ruled against his tax position. If Eric is contemplating litigating his tax position with the IRS, he
should prefer to have his case first tried by the U.S. Tax Court.
True False
17. If a taxpayer loses a case at the Circuit Court level, he is granted an automatic appeal hearing with
the Supreme Court.
True False
18. Secondary authorities are official sources of the tax law with a lesser "weight" than primary
authorities.
True False
19. Revenue rulings and revenue procedures are examples of primary authorities.
True False
20. The Internal Revenue Code and tax treaties are examples of statutory authorities.
True False
21. Because the U.S. District Court hears a broader set of cases, decisions by the U.S. District Court
may be considered to have more authoritative weight than the U.S. Court of Federal Claims.
True False

2-5
22. Temporary Regulations have more authoritative weight than revenue rulings.
True False
23. Proposed and Temporary Regulations have the same authoritative weight.
True False
24. An acquiescence indicates that the IRS lost a court case and that it has decided to follow the
court's ruling in the future.
True False
25. The Internal Revenue Code of 1986 is the name of the current income tax code of the United
States of America.
True False
26. As required by the Constitution, all tax bills are supposed to originate in the House of
Representatives.
True False
27. The Senate Ways and Means Committee is in charge of drafting tax bills in the U.S. Senate.
True False
28. Closed facts are especially conducive to tax planning.
True False
29. Of the two basic types of tax services, beginning tax researchers often prefer topical tax services.
True False

2-6
30. In researching a question of fact, the researcher should focus her efforts on identifying authorities
with fact patterns similar to her client's facts.
True False
31. Under the Statement on Standards for Tax Services, a CPA may recommend a tax return position if
the position is frivolous and the position is not disclosed on the tax return.
True False
32. In general, a CPA will satisfy his professional responsibilities under the Statement on Standards for
Tax Services when recommending a tax return position if he complies with the standards imposed
by the applicable tax authority.
True False
33. Under the tax law, taxpayers may be subject to both civil and criminal penalties for underpaying
their tax liability (e.g., due to fraud).
True False
34. A taxpayer can avoid an underpayment penalty if there is substantial authority that supports her
tax return position.
True False
35. If the IRS assesses additional tax on a tax return upon audit, a taxpayer may be subject to interest
and penalties on the underpayment.
True False
Multiple Choice Questions

2-7
36. Which of the following is not a factor that determines whether a taxpayer is required to file a tax
return?
A. Filing status.
B. Taxpayer's gross income.
C. Taxpayer's employment.
D. Taxpayer's age.
E. None of the above.
37. If Paula requests an extension to file her individual tax return, the latest she could file her return
without a failure-to-file penalty is:
A. September 15th
.
B. October 15th
.
C. August 15th
.
D. November 15th
.
38. If Lindley requests an extension to file her individual tax return, the latest she could pay her tax due
without penalty is:
A. April 15th
.
B. October 15th
.
C. August 15th
.
D. November 15th
.

2-8
39. Corporations are required to file a tax return only if their taxable income is greater than:
A. $0.
B. $1,000.
C. $600.
D. $750.
E. None of the above. Corporations are always required to file a tax return.
40. This year April 15th
falls on a Saturday. Individual tax returns will be due on:
A. April 14th
.
B. April 15th
.
C. April 16th
.
D. April 17th
.
41. Dominic earned $1,500 this year, and his employer withheld $200 of federal income tax from his
salary. Assuming that Dominic will have zero tax liability this year, he:
A. is required to file a tax return.
B. is not required to file a tax return but should file a return anyway.
C. is required to file a tax return but should not file because he owes no tax.
D. is not required to file a tax return and should not file a return.

2-9
42. Greg earned $20,500 this year and had $1,500 of federal income taxes withheld from his salary.
Assuming that Greg will have a total tax liability of $1,000 (and thus will receive a $500) refund, he:
43. Bill filed his 2016 tax return on March 15th
, 2017. The statute of limitations for IRS assessment on
Bill's 2016 tax return should end:
A. March 15th
, 2019.
B. April 15th
, 2019.
C. March 15th
, 2020.
D. April 15th
, 2020.
44. Henry filed his 2016 tax return on May 15th
Henry's 2016 tax return should end:
A. May 15th
, 2019.
B. April 15th
, 2019.
C. May 15th
, 2020.
D. April 15th
, 2020.

2-
10
45. Allen filed his 2016 tax return on May 15th
, 2017 and underreported his gross income by 30 percent.
Assuming Allen's underreporting is not due to fraud, the statute of limitations for IRS assessment
on Allen's 2016 tax return should end:
A. May 15th
, 2019.
B. April 15th
, 2019.
C. May 15th
, 2020.
D. April 15th
, 2020.
46. Andy filed a fraudulent 2016 tax return on May 1, 2017. The statute of limitations for IRS assessment
on Andy's 2016 tax return should end:
A. May 1st
, 2019.
B. April 15th
, 2019.
C. May 1st
, 2020.
D. April 15th
, 2020.
47. Martin has never filed a 2016 tax return despite earning approximately $20,000 providing
landscaping work in the community. In what tax year, will the statute of limitations expire for
Martin's 2016 tax return?
A. 2019.
B. 2020.
C. 2023.
D. 2024.

2-10
48. Which of the following is not a common method that the IRS uses to select returns for audit?
A. DIF system.
B. Tax Select system.
C. Information matching.
D. Document perfection.
49. Leslie made a mathematical mistake in computing her tax liability. Which audit program will likely
catch Leslie's mistake?
A. DIF System.
B. Mathematical correction.
C. Document perfection.
D. Information matching.
50. Tyrone claimed a large amount of charitable contributions as a tax deduction relative to taxpayers
with similar levels of income. If Tyrone's tax return is chosen for audit because of his large
charitable contributions, which audit program likely identified Tyrone's tax return for audit?
A. DIF System.
B. Deduction Detective.

2-11
51. Ramon's tax return was randomly selected for audit. Which IRS program likely selected Ramon's
return for audit?
A. DIF System.
B. National Research Program.
52. Which of the following audits is the most common and typically less comprehensive?
A. Correspondence.
B. Random.
C. Office.
D. Field.
53. Which of the following audits is the least common, broadest in scope, and typically most
complex?
A. Correspondence.
B. Targeted.
C. Office.
D. Field.

2-12
54. Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with an
Appeals Officer or (2) agreeing to a proposed tax adjustment. Dan received the:
A. 30-day letter.
B. 90-day letter.
C. Appeals letter.
D. Tax adjustment letter.
55. Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or
(2) filing a petition with the U.S. Tax Court. Basu received the:
A. 30-day letter.
B. 90-day letter.
C. Appeals letter.
56. Which of the following courts is the only court that provides for a jury trial?
A. Tax Court.
B. U.S. Court of Federal Claims.
C. U.S. District Court.
D. U.S. Circuit Court of Appeals.

2-13
57. Lavonda discovered that the 5th
Circuit (where Lavonda resides) has recently issued a favorable
opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose
which of the following trial courts to hear her case?
A. Tax Court only.
B. U.S. Court of Federal Claims only.
C. U.S. District Court only.
D. Tax Court or the U.S. District Court.
E. Tax Court or the U.S. Court of Federal Claims.
58. Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently
issued a favorable opinion with respect to an issue that she is going to litigate with the IRS.
Lavonda should choose which of the following trial courts to hear her case?
A. Tax Court only.
59. Rowanda could not settle her tax dispute with the IRS at the appeals conference. If she wants to
litigate the issue but does not have sufficient funds to pay the proposed tax deficiency, Rowanda
should litigate in the:
A. U.S. District Court.
B. U.S. Circuit Court of Appeals.
C. U.S. Court of Federal Claims.
D. Tax Court.

2-14
60. Which of the following is not considered a primary authority?
A. Tax Court case.
B. Treasury Regulation.
C. Revenue Ruling.
D. Tax service.
61. Which of the following is not considered a secondary authority?
A. Text book.
B. Private Letter Ruling.
C. Tax article.
D. Tax service.
62. Which of the following has the highest authoritative weight?
A. Text book.
B. Private letter ruling.
C. Revenue ruling.
D. Tax service.
E. Tax article.
A. Legislative regulation.
C. Revenue ruling.
D. Action on decision.
E. Revenue procedure.

2-15
64. Josephine is considering taking a 6-month rotation in Paris for her job. Which type of authority
may be especially helpful in determining the tax consequences of Josephine's job in Paris?
A. Determination letter.
C. Tax treaty.
D. Regulation.
65. Generally, code sections are arranged (grouped together):
A. chronologically.
B. by topic.
C. randomly.
D. by length.
66. Which of the following has the lowest authoritative weight?
C. Revenue ruling.
D. Interpretative regulation.

2-16
67. Which judicial doctrine means that a court will rule consistently with its previous rulings and the
rulings of higher courts with appellate jurisdiction?
A. Judicial hierarchy.
B. The Goldman rule.
C. Judicial consistency.
D. Stare decisis.
68. The regulation with the lowest authoritative weight is the:
A. Procedural regulation.
B. Interpretative regulation.
C. Proposed regulation.
D. Legislative regulation.
69. Princess, who resides in the 2nd
Circuit, recently found a circuit court case that is favorable to her
income tax research question. Which of the following circuits would she prefer to have issued the
opinion?
A. 2nd
Circuit.
B. Federal Circuit.
C. 1st
Circuit.
D. 2nd
Circuit or the Federal Circuit.

2-17
70. Jaime recently found a "favorable" trial level court opinion directly on point for her tax question.
Which trial level court would she prefer to have issued the opinion?
A. Tax Court.
B. District Court.
C. Circuit Court.
D. Divorce Court.
71. Which of the following committees typically initiates tax legislation?
A. House Ways and Means Committee.
B. Joint Conference Committee.
C. Senate Finance Committee.
D. Senate Tax Committee.
72. Edie would like to better understand a new code section enacted four weeks ago. Which of the
following authorities will help Edie understand the newly enacted code section?
A. IRS regulations.
B. U.S. Tax Court cases.
C. Committee reports.
D. IRS revenue rulings.

2-18
73. If the President vetoes tax legislation, Congress:
A. cannot override the President's veto.
B. can override the President's veto with a 50 percent positive vote in the House and Senate.
C. can override the President's veto with a 2/3rd
positive vote in the House and Senate.
D. can override the President's veto with a 75 percent positive vote in the House and Senate.
74. Jeremy has a new client. He has identified a research question that relates to a transaction that the
client completed several months ago. This type of research question will primarily involve:
A. open facts.
B. new facts.
C. old facts.
D. closed facts.
75. In a planning context,
A. closed facts are preferred to open facts.
B. new facts are preferred to old facts.
C. old facts are preferred to new facts.
D. open facts are preferred to closed facts.
76. Which of the following types of tax services are arranged by code section?
A. legal tax service.
B. annotated tax service.
C. professional tax service.
D. topical tax service.

2-19
77. Which of the following is not a common tool used in conducting tax research?
A. citator.
C. topical tax service.
D. keyword search.
78. Which of the following is not a source of a tax practitioner's professional responsibilities?
A. AICPA Code of Professional Conduct.
B. Statements on Standards for Tax Services.
C. Circular 230.
D. State Board of Accountancy statutes.
79. According to Statement on Standards for Tax Services No. 1, a tax practitioner can recommend a
tax return position:
A. if the position is frivolous and disclosed on the tax return.
B. if the position complies with the standards imposed by the applicable tax authority.
C. only if the position meets the "more likely than not" standard.
D. only if the position meets the "clear and convincing evidence" standard.
80. Circular 230 was issued by:
A. AICPA.
B. State Boards of Accountancy.
C. American Bar Association.
D. IRS.

2-20
81. Which of the following is a false statement? A taxpayer filing a fraudulent tax return:
A. is potentially subject to criminal penalties.
B. is potentially subject to civil penalties.
C. is potentially subject to fines and a prison sentence.
D. will have an unlimited statute of limitations for the fraudulent tax return.
82. For which of the following tax violations is a civil penalty not imposed on taxpayers?
A. failure to file a tax return.
B. failure to pay tax owed.
C. fraud.
D. failure to make estimated tax payments.
83. A taxpayer can avoid a substantial understatement of tax penalty:
B. if the position has a realistic possibility of being sustained by the IRS or courts.
C. if there is substantial authority to support the position.
D. if the position has a reasonable basis and is not disclosed on the tax return.
C. if the position is not frivolous and disclosed on the tax return.
D. if the position has a reasonable basis and is disclosed on the tax return.

2-21
85. Which types of penalties are only imposed after normal due process including a trial?
A. criminal penalties.
B. civil penalties.
C. criminal and civil penalties.
D. tax return.
86. A tax practitioner can avoid IRS penalty relating to a tax return position:
A. only if the position has a more likely than not chance of being sustained by the IRS or courts.
C. if there is not substantial authority to support the position.
Essay Questions

2-22
88. Tina has a very complex tax return and it looks like she will not be able to file her tax return by its
due date. When is her tax return due? What are Tina's options for paying her tax due and filing her
tax return this year? What are the consequences if Tina does not file or pay her tax timely? Be
specific.
89. For the following taxpayers indicate whether the taxpayer should file a tax return and why.
a. Robert earned $50,000 this year as a staff accountant. His estimated tax liability is $4,500, and he
expects to receive a $500 tax refund.
b. Amy earned $4,000 this year working part-time. She will have no federal tax liability and has not
made any federal tax payments.
c. Ty earned $2,500 this summer and had $200 of federal taxes withheld from his paycheck. He will
have no federal tax liability this year.
d. Startup Corporation had a $50,000 loss this year.
e. The Walker Family Trust earned $500 of gross income this year.

2-23
90. For the 2016 tax returns, indicate when the statute of limitation expires and why.
a. Phoenix filed his tax return on February 28, 2017.
b. Jill and Randy filed their tax return on August 16, 2017.
c. Although required to file, Catherine chose not to file a tax return this year because she was
expecting a tax refund and could not pull together all the information needed to file the return.
d. Jerry filed his tax return on May 22, 2017 but has accidentally underreported his taxable income
by 30%.
a. Simon filed his tax return on April 10, 2017.
b. Billy and Barbara filed their tax returns late on December 1, 2017.
c. Pearson earns a living through various illegal activities. He filed his tax return on March 14, 2017
but did not report his illegal income on his tax return.
d. Luther filed his tax return on July 17, 2017 but has accidentally underreported his taxable gross
income by 20%.

2-24
92. For the following tax returns, identify the method the IRS likely used to select the return for audit.
a. Dan made a mistake in adding his income on his tax return.
b. Juanita failed to report her salary from her 2nd
job on her tax return.
c. Michael and Venita deducted a relatively large amount of travel expenses on their tax return for
their business. The travel expense is large relative to other taxpayers in similar businesses with
similar levels of income.
d. Paul and Melissa recently went through a very nasty divorce. One of the issues was Paul's less
than forthright accounting of his income in determining the appropriate level of alimony.
93. For the following tax returns, identify which of the three audit types will most likely be utilized.
a. The IRS selected Don's return for audit because of his high itemized deductions. The IRS would
like documentation of these deductions.
b. Large Public Corporation is a very large publicly traded corporation. It is involved in many
complex transactions that have significant tax ramifications.
c. George and Barbara operate a small business out of their home. The IRS has identified a couple
of issues that may relate to their business.
d. The IRS selected Bill and Hillary's tax return for review because of some of their investment sales.
They would like a better understanding of the transactions and parties involved.

2-25
94. The IRS has recently completed its audit of Lorene's corporation. As a tax novice, she has very little
understanding regarding the audit process and what happens next. Describe the post-audit
process for Lorene and identify her options.
95. Mel recently received a 30-day letter from the IRS. Although his tax return being audited has
several potential large issues (potential tax consequences of $70,000 - $80,000), the IRS agent
auditing his return only identified one item that will require a modest adjustment of $10,000. Mel
feels strongly that the $10,000 adjustment would not hold up in court and was surprised that the
IRS agent did not identify some of the other potential larger issues. What are Mel's choices with
respect to the 30-day letter and what factors should influence his decisions?

2-26
96. Kim has decided to litigate a tax issue with the IRS. Describe the trial level courts that Kim may use
to litigate the case.
97. For the following taxpayers, please recommend the most advantageous trial level court(s) to
litigate a tax issue with the IRS.
a. Joe is litigating a tax issue with the IRS that is considered a question of fact (i.e., the answers
depends on the facts of the case). There is not a lot of authority on point for this case but Joe has
a very appealing story to justify his position that is likely to be viewed sympathetically by his peers.
b. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is very
favorable to the issue that Jesse plans to litigate with the IRS.
c. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is not
favorable to the issue that Hank plans to litigate with the IRS.
d. The 7th
Circuit (where Elizabeth resides) recently issued an opinion that is very favorable to the
issue that Elizabeth plans to litigate with the IRS.

2-27
98. A client has recently learned of a proposed tax bill that would increase the tax rates on investment
gains by 5 percent. The President does not support this increase. Please describe for your client
the process by which new tax legislation is created and how the President's disapproval may
influence the enactment of the bill.
99. Chris and Chuck were recently debating whether the Internal Revenue Code is "logical." Chris
offers that she has briefly reviewed the Code and could hardly understand its organizational
structure, if there is one. Please describe the basic organization of the code and how
understanding its organization may be especially beneficial to the tax researcher.

2-28
100.Carey was researching a tax issue and located what appears to be a favorable IRS regulation. He
knows that regulations serve different purposes and are issued in different forms. Which purpose
and which form of regulation would provide Carey the most confidence that he has found an
authority that carries a lot of weight for the long term? How could Carey check the status of this
regulation?
101. Campbell was researching a tax issue and found a favorable Tax Court opinion and an IRC Code
Section that appears to answer the question. Is she finished with the research process? If so, why?
If not, what must she do?

2-29
102.Roddy was researching an issue and found a favorable Tax Court decision that addresses his issue.
He also determined that there was a nonacquiescence for the case. Who issued the
nonacquiescence? What is it? What does it mean and how would it affect Roddy's reliance on the
court case?
103.Raul was researching an issue and found two Tax Court decisions issued within 6 months of each
other, one for a taxpayer residing in California and the other for a taxpayer residing in New York
whose rulings were inconsistent. Raul knows that the federal tax law does not differ by state and
the issue was exactly the same in both cases. Raul is confused because he thought that a basic
judicial doctrine was that a court is supposed to rule consistently. Name and describe this judicial
doctrine that requires judicial consistency and discuss why the Tax Court may have intentionally
ruled inconsistently in this example.

2-30
104.Rebecca is at a loss. A new tax law was recently passed, and she needs to get a better
understanding of why the tax law was passed and the intent of the law from an official authority.
Describe what authorities may be especially helpful to Rebecca and why she can't find many
authorities that discuss the new law.
105.Lakeisha, a 1st
year staff accountant, was researching a tax issue and found what appears to be the
answer to her question in her introductory tax textbook that she bought three years ago. She is
thrilled because she thought it would take much longer to find her answer. What type of authority
is the textbook? What are other examples of this type of authorities? Can Lakeisha base her
research conclusion on the textbook or similar authorities? Any suggestions for Lakeisha?

2-31
106.Kodak is a beginning 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.
107.Caitlin is a tax manager for an accounting firm, and Duff is a first year staff accountant. Describe
the differences in the manner in which Caitlin and Duff may identify research issues and in general
how one may identify research questions.

2-32
108.Lindy, a tax intern, is beginning her first tax research case for her employer. Her manager has given
her a basic understanding of the facts and has identified the basic research question. Lindy is now
ready to begin searching for relevant tax authorities. Describe the different types of research tools
available to help a tax researcher locate relevant authority and identify which type may be
especially useful for Lindy.
109.Hong, an introductory tax student, is beginning his first research project. He has a complete
understanding of the relevant facts for his project and has identified the initial research questions.
He is now ready to begin using a tax service to identify relevant authorities. What are some
suggestions for him on how to use tax services to identify relevant authorities?

2-33
110. Mary Ann is working on a pretty big research project. Her manager has alerted her to the
possibility that some of her research questions are likely to be questions of fact, whereas others
are likely to be questions of law. Explain the difference between the two types of questions and
how this would influence her research.
111. Nolene suspects that one of her new clients may be intentionally underreporting his taxable
income. What are the potential ramifications to her client of this behavior? What are the
consequences to Nolene if she assists the client in underreporting income? Any advice for
Nolene?

2-34
112. Houston has found conflicting authorities that address a research question for one of his clients.
The majority of the authorities provide a favorable answer for his client. Nonetheless, there are
several authorities that provide an unfavorable answer. Houston estimates that if the client takes
the more favorable position on its tax return that there is approximately a 60 percent chance that
the position will be sustained upon audit or judicial proceeding. If the client takes this position on
its tax return, will Houston be subject to penalty? Will the client potentially be subject to penalty?

2-35
Chapter 02 Tax Compliance, the IRS, and Tax Authorities Answer Key
True / False Questions
1. Corporations are required to file a tax return annually regardless of their taxable income.
TRUE
AACSB: Reflective Thinking
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-01 Identify the filing requirements for income tax returns and the statute of limitations for assessment.
Level of Difficulty: 2 Medium
Topic: Taxpayer Filing Requirements
2. The tax return filing requirements for individual taxpayers only depend on the taxpayer's filing
status.
FALSE
AICPA: FN Reporting
Blooms: Remember
3. If a taxpayer is due a refund, she does not have to file a tax return.
FALSE
AICPA: FN Reporting
Blooms: Remember

2-36
4. If April 15th
falls on a Saturday, the due date for individual tax returns will be on Monday, April
17th
.
TRUE
AICPA: FN Reporting
Blooms: Remember
5. If an individual taxpayer is unable to file a tax return by its original due date, the taxpayer can
request an automatic 9-month extension to file the return.
FALSE
AICPA: FN Research
Blooms: Remember
Level of Difficulty: 1 Easy
6. An extension to file a tax return does not extend the due date for tax payments.
TRUE
AICPA: FN Research
Blooms: Remember

2-37
7. The statute of limitations for IRS assessment generally ends four years after the date a tax
return is filed.
FALSE
AICPA: FN Research
Blooms: Remember
8. For fraudulent tax returns, the statute of limitations for IRS assessment is ten years.
FALSE
AICPA: FN Research
Blooms: Remember
9. The IRS DIF system checks each tax return for mathematical mistakes and errors.
FALSE
AICPA: FN Research
Blooms: Remember
Learning Objective: 02-02 Outline the IRS audit process, how returns are selected, the different types of audits, and what
happens after the audit.
Topic: IRS Audit Selection

2-38
10. Joel reported a high amount of charitable contributions as a deduction on his individual tax
return relative to taxpayers with similar income levels. The information matching program is the
IRS program most likely to identify Joel's tax return for audit.
FALSE
AICPA: FN Research
Blooms: Remember
11. Office examinations are the most common type of IRS audit.
FALSE
AICPA: FN Research
Blooms: Remember
12. The three basic types of IRS examinations are computer exams, office exams, and business
exams.
FALSE
AICPA: FN Research
Blooms: Remember

2-39
13. The "30-day" letter gives the taxpayer the opportunity to request an appeals conference or
agree to a proposed IRS adjustment on the taxpayer's income tax return.
TRUE
AICPA: FN Research
Blooms: Remember
14. The "90-day" letter gives the taxpayer the opportunity to pay a proposed IRS tax adjustment or
file a petition in the U.S. District Court to contest the adjustment and hear the case.
FALSE
AICPA: FN Research
Blooms: Remember
15. If a taxpayer has little cash and a very technical tax case that she feels very strongly that the tax
rules are "on her side," she should prefer to have her case tried in the U.S. Tax Court.
TRUE
AICPA: FN Research
Blooms: Remember

2-40
16. In researching a tax issue, Eric finds that the U.S. Circuit Court of Appeals for the Federal Circuit
previously has ruled in favor of his tax position, whereas the 11th
Circuit (Eric's circuit) previously
has ruled against his tax position. If Eric is contemplating litigating his tax position with the IRS,
he should prefer to have his case first tried by the U.S. Tax Court.
FALSE
AICPA: FN Research
Blooms: Remember
17. If a taxpayer loses a case at the Circuit Court level, he is granted an automatic appeal hearing
with the Supreme Court.
FALSE
AICPA: FN Research
Blooms: Remember
18. Secondary authorities are official sources of the tax law with a lesser "weight" than primary
authorities.
FALSE
AICPA: FN Research
Blooms: Remember
Learning Objective: 02-03 Evaluate the relative weights of the various tax law sources.
Topic: Tax Law Sources

2-41
19. Revenue rulings and revenue procedures are examples of primary authorities.
TRUE
AICPA: FN Research
Blooms: Remember
20. The Internal Revenue Code and tax treaties are examples of statutory authorities.
TRUE
AICPA: FN Research
Blooms: Remember
Learning Objective: 02-04 Describe the legislative process as it pertains to taxation.
21. Because the U.S. District Court hears a broader set of cases, decisions by the U.S. District Court
may be considered to have more authoritative weight than the U.S. Court of Federal Claims.
FALSE
AICPA: FN Research
Blooms: Remember

2-42
22. Temporary Regulations have more authoritative weight than revenue rulings.
TRUE
AICPA: FN Research
Blooms: Remember
23. Proposed and Temporary Regulations have the same authoritative weight.
FALSE
AICPA: FN Research
Blooms: Remember
24. An acquiescence indicates that the IRS lost a court case and that it has decided to follow the
court's ruling in the future.
TRUE
AICPA: FN Research
Blooms: Remember

2-43
25. The Internal Revenue Code of 1986 is the name of the current income tax code of the United
States of America.
TRUE
AICPA: FN Research
Blooms: Remember
26. As required by the Constitution, all tax bills are supposed to originate in the House of
Representatives.
TRUE
AICPA: FN Research
Blooms: Remember
27. The Senate Ways and Means Committee is in charge of drafting tax bills in the U.S. Senate.
FALSE
AICPA: FN Research
Blooms: Remember

2-44
28. Closed facts are especially conducive to tax planning.
FALSE
AICPA: FN Research
Blooms: Remember
Learning Objective: 02-05 Perform the basic steps in tax research and evaluate various tax law resources when faced with
ambiguous statutes.
Topic: Tax Research
29. Of the two basic types of tax services, beginning tax researchers often prefer topical tax
services.
TRUE
AICPA: FN Research
Blooms: Remember
ambiguous statutes.
Topic: Tax Research
30. In researching a question of fact, the researcher should focus her efforts on identifying
authorities with fact patterns similar to her client's facts.
TRUE
AICPA: FN Research
Blooms: Remember
ambiguous statutes.
Topic: Tax Research

2-45
31. Under the Statement on Standards for Tax Services, a CPA may recommend a tax return
position if the position is frivolous and the position is not disclosed on the tax return.
FALSE
AICPA: FN Research
Blooms: Remember
Learning Objective: 02-06 Describe tax professional responsibilities in providing tax advice.
Topic: Tax Professional Responsibilities
32. In general, a CPA will satisfy his professional responsibilities under the Statement on Standards
for Tax Services when recommending a tax return position if he complies with the standards
imposed by the applicable tax authority.
TRUE
AICPA: FN Research
Blooms: Remember
33. Under the tax law, taxpayers may be subject to both civil and criminal penalties for underpaying
their tax liability (e.g., due to fraud).
TRUE
AICPA: FN Research
Blooms: Remember
Learning Objective: 02-07 Identify taxpayer and tax professional penalties.
Topic: Taxpayer and Tax Practitioner Penalties

2-46
34. A taxpayer can avoid an underpayment penalty if there is substantial authority that supports
her tax return position.
TRUE
AICPA: FN Risk Analysis
Blooms: Remember
35. If the IRS assesses additional tax on a tax return upon audit, a taxpayer may be subject to
interest and penalties on the underpayment.
TRUE
Blooms: Remember
Multiple Choice Questions

2-47
36. Which of the following is not a factor that determines whether a taxpayer is required to file a
tax return?
A. Filing status.
B. Taxpayer's gross income.
C. Taxpayer's employment.
D. Taxpayer's age.
AICPA: FN Research
Blooms: Remember
37. If Paula requests an extension to file her individual tax return, the latest she could file her return
without a failure-to-file penalty is:
A. September 15th
.
B. October 15th
.
C. August 15th
.
D. November 15th
.
AICPA: FN Research
Blooms: Remember

2-48
38. If Lindley requests an extension to file her individual tax return, the latest she could pay her tax
due without penalty is:
A. April 15th
.
B. October 15th
.
C. August 15th
.
D. November 15th
.
AICPA: FN Research
Blooms: Remember
39. Corporations are required to file a tax return only if their taxable income is greater than:
A. $0.
B. $1,000.
C. $600.
D. $750.
E. None of the above. Corporations are always required to file a tax return.
AICPA: FN Research
Blooms: Remember

2-49
40. This year April 15th
falls on a Saturday. Individual tax returns will be due on:
A. April 14th
.
B. April 15th
.
C. April 16th
.
D. April 17th
.
AACSB: Analytical Thinking
AICPA: FN Research
Blooms: Remember
41. Dominic earned $1,500 this year, and his employer withheld $200 of federal income tax from his
salary. Assuming that Dominic will have zero tax liability this year, he:
AICPA: FN Research
Blooms: Analyze

2-50
42. Greg earned $20,500 this year and had $1,500 of federal income taxes withheld from his salary.
Assuming that Greg will have a total tax liability of $1,000 (and thus will receive a $500) refund,
he:
AICPA: FN Research
Blooms: Analyze
43. Bill filed his 2016 tax return on March 15th
Bill's 2016 tax return should end:
A. March 15th
, 2019.
B. April 15th
, 2019.
C. March 15th
, 2020.
D. April 15th
, 2020.
The SOL ends three years from the later of (1) the date the tax return was filed or (2) the tax
return's original due date.
AICPA: FN Research
Blooms: Analyze

2-51
44. Henry filed his 2016 tax return on May 15th
, 2017. The statute of limitations for IRS assessment
on Henry's 2016 tax return should end:
A. May 15th
, 2019.
B. April 15th
, 2019.
C. May 15th
, 2020.
D. April 15th
, 2020.
The SOL ends three years from the later of (1) the date the tax return was filed or (2) the tax
return's original due date.
AICPA: FN Research
Blooms: Analyze

2-52
45. Allen filed his 2016 tax return on May 15th
, 2017 and underreported his gross income by 30
percent. Assuming Allen's underreporting is not due to fraud, the statute of limitations for IRS
assessment on Allen's 2016 tax return should end:
A. May 15th
, 2019.
B. April 15th
, 2019.
C. May 15th
, 2020.
D. April 15th
, 2020.
Because Allen underreported his gross income by 30 percent, the SOL ends six years from the
later of (1) the date the tax return was filed or (2) the tax return's original due date.
AICPA: FN Research
Blooms: Analyze
Learning Objective: 02-01 Identify the filing requirements for income tax returns and the statute of limitations for assessment
46. Andy filed a fraudulent 2016 tax return on May 1, 2017. The statute of limitations for IRS
assessment on Andy's 2016 tax return should end:
A. May 1st
, 2019.
B. April 15th
, 2019.
C. May 1st
, 2020.
D. April 15th
, 2020.
There is no statute of limitations for fraudulent tax returns.
AICPA: FN Research

AICPA: FN Research
2-53
Blooms: Analyze
47. Martin has never filed a 2016 tax return despite earning approximately $20,000 providing
landscaping work in the community. In what tax year, will the statute of limitations expire for
Martin's 2016 tax return?
A. 2019.
B. 2020.
C. 2023.
D. 2024.
There is no statute of limitations if a taxpayer fails to file a tax return.
AICPA: FN Research
Blooms: Analyze
48. Which of the following is not a common method that the IRS uses to select returns for audit?
A. DIF system.
B. Tax Select system.
C. Information matching.
D. Document perfection.

AICPA: FN Research
2-54
Blooms: Remember
49. Leslie made a mathematical mistake in computing her tax liability. Which audit program will
likely catch Leslie's mistake?
A. DIF System.
B. Mathematical correction.
AICPA: FN Research
Blooms: Remember
50. Tyrone claimed a large amount of charitable contributions as a tax deduction relative to
taxpayers with similar levels of income. If Tyrone's tax return is chosen for audit because of his
large charitable contributions, which audit program likely identified Tyrone's tax return for
audit?
A. DIF System.
B. Deduction Detective.

AICPA: FN Reporting
2-55
Blooms: Remember
51. Ramon's tax return was randomly selected for audit. Which IRS program likely selected Ramon's
return for audit?
A. DIF System.
B. National Research Program.
The National Research Program randomly selects returns for audit to provide the necessary
input into the DIF system.
AICPA: FN Research
Blooms: Remember
52. Which of the following audits is the most common and typically less comprehensive?
A. Correspondence.
B. Random.
C. Office.
D. Field.

2-56
Blooms: Remember
53. Which of the following audits is the least common, broadest in scope, and typically most
complex?
A. Correspondence.
B. Targeted.
C. Office.
D. Field.
AICPA: FN Reporting
Blooms: Remember
54. Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with
an Appeals Officer or (2) agreeing to a proposed tax adjustment. Dan received the:
A. 30-day letter.
B. 90-day letter.
C. Appeals letter.
AICPA: FN Reporting
Blooms: Remember

2-57
55. Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency
or (2) filing a petition with the U.S. Tax Court. Basu received the:
A. 30-day letter.
B. 90-day letter.
C. Appeals letter.
AICPA: FN Reporting
Blooms: Remember
56. Which of the following courts is the only court that provides for a jury trial?
A. Tax Court.
B. U.S. Court of Federal Claims.
C. U.S. District Court.
D. U.S. Circuit Court of Appeals.
AICPA: FN Research
Blooms: Remember

2-58
57. Lavonda discovered that the 5th
Circuit (where Lavonda resides) has recently issued a favorable
opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should
choose which of the following trial courts to hear her case?
A. Tax Court only.
The Tax Court and the U.S. District Court will appeal to the 5th
Circuit.
AICPA: FN Research
Blooms: Remember
58. Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently
issued a favorable opinion with respect to an issue that she is going to litigate with the IRS.
Lavonda should choose which of the following trial courts to hear her case?
A. Tax Court only.
The U.S. Court of Federal Claims will appeal to the U.S. Circuit Court of Appeals for the Federal
Circuit.
AICPA: FN Research

2-59
Blooms: Remember
59. Rowanda could not settle her tax dispute with the IRS at the appeals conference. If she wants to
litigate the issue but does not have sufficient funds to pay the proposed tax deficiency,
Rowanda should litigate in the:
A. U.S. District Court.
B. U.S. Circuit Court of Appeals.
C. U.S. Court of Federal Claims.
D. Tax Court.
AICPA: FN Resource Management
Blooms: Remember
60. Which of the following is not considered a primary authority?
A. Tax Court case.
B. Treasury Regulation.
C. Revenue Ruling.
D. Tax service.
AICPA: FN Research
Blooms: Remember

2-60
61. Which of the following is not considered a secondary authority?
A. Text book.
B. Private Letter Ruling.
C. Tax article.
D. Tax service.
AICPA: FN Research
Blooms: Remember
A. Text book.
C. Revenue ruling.
D. Tax service.
E. Tax article.
AICPA: FN Research
Blooms: Remember

2-61
C. Revenue ruling.
D. Action on decision.
AICPA: FN Research
Blooms: Remember
64. Josephine is considering taking a 6-month rotation in Paris for her job. Which type of authority
may be especially helpful in determining the tax consequences of Josephine's job in Paris?
A. Determination letter.
C. Tax treaty.
D. Regulation.
AICPA: FN Research
Blooms: Remember

2-62
65. Generally, code sections are arranged (grouped together):
A. chronologically.
B. by topic.
C. randomly.
D. by length.
AICPA: FN Research
Blooms: Remember
66. Which of the following has the lowest authoritative weight?
C. Revenue ruling.
D. Interpretative regulation.
AICPA: FN Research
Blooms: Remember

2-63
67. Which judicial doctrine means that a court will rule consistently with its previous rulings and the
rulings of higher courts with appellate jurisdiction?
A. Judicial hierarchy. B.
The Goldman rule. C.
Judicial consistency. D.
Stare decisis.
AICPA: FN Research
Blooms: Remember
68. The regulation with the lowest authoritative weight is the:
A. Procedural regulation.
B. Interpretative regulation.
C. Proposed regulation.
D. Legislative regulation.
AICPA: FN Research
Blooms: Remember

2-64
69. Princess, who resides in the 2nd
Circuit, recently found a circuit court case that is favorable to
her income tax research question. Which of the following circuits would she prefer to have
issued the opinion?
A. 2nd
Circuit.
B. Federal Circuit.
C. 1st
Circuit.
D. 2nd
Circuit or the Federal Circuit.
AICPA: FN Research
Blooms: Remember
70. Jaime recently found a "favorable" trial level court opinion directly on point for her tax question.
Which trial level court would she prefer to have issued the opinion?
A. Tax Court.
B. District Court.
C. Circuit Court.
D. Divorce Court.
AICPA: FN Research
Blooms: Remember

2-65
71. Which of the following committees typically initiates tax legislation?
A. House Ways and Means Committee.
B. Joint Conference Committee.
C. Senate Finance Committee.
D. Senate Tax Committee.
AICPA: FN Research
Blooms: Remember
72. Edie would like to better understand a new code section enacted four weeks ago. Which of the
following authorities will help Edie understand the newly enacted code section?
A. IRS regulations.
B. U.S. Tax Court cases.
C. Committee reports.
D. IRS revenue rulings.
Of the authorities listed, only committee reports will be available to aide in understanding a
new code section.
AICPA: FN Research
Blooms: Remember

2-66
73. If the President vetoes tax legislation, Congress:
A. cannot override the President's veto.
B. can override the President's veto with a 50 percent positive vote in the House and Senate.
C. can override the President's veto with a 2/3rd
positive vote in the House and Senate.
D. can override the President's veto with a 75 percent positive vote in the House and Senate.
AICPA: FN Research
Blooms: Remember
74. Jeremy has a new client. He has identified a research question that relates to a transaction that
the client completed several months ago. This type of research question will primarily involve:
A. open facts.
B. new facts.
C. old facts.
D. closed facts.
AICPA: FN Research
Blooms: Analyze
ambiguous statutes.
Topic: Tax Research

2-67
75. In a planning context,
A. closed facts are preferred to open facts.
B. new facts are preferred to old facts.
C. old facts are preferred to new facts.
D. open facts are preferred to closed facts.
AICPA: FN Research
Blooms: Remember
ambiguous statutes.
Topic: Tax Research
76. Which of the following types of tax services are arranged by code section?
A. legal tax service.
C. professional tax service.
D. topical tax service.
AICPA: FN Research
Blooms: Remember
ambiguous statutes.
Topic: Tax Research

2-68
77. Which of the following is not a common tool used in conducting tax research?
A. citator.
C. topical tax service.
D. keyword search.
AICPA: FN Research
Blooms: Remember
ambiguous statutes.
Topic: Tax Research
78. Which of the following is not a source of a tax practitioner's professional responsibilities?
A. AICPA Code of Professional Conduct.
B. Statements on Standards for Tax Services.
C. Circular 230.
D. State Board of Accountancy statutes.
AICPA: FN Decision Making
Blooms: Remember

2-69
79. According to Statement on Standards for Tax Services No. 1, a tax practitioner can recommend
a tax return position:
B. if the position complies with the standards imposed by the applicable tax authority.
C. only if the position meets the "more likely than not" standard.
D. only if the position meets the "clear and convincing evidence" standard.
AICPA: FN Reporting
Blooms: Remember
Level of Difficulty: 3 Hard
80. Circular 230 was issued by:
A. AICPA.
B. State Boards of Accountancy.
C. American Bar Association.
D. IRS.
AICPA: FN Reporting
Blooms: Remember

2-70
81. Which of the following is a false statement? A taxpayer filing a fraudulent tax return:
A. is potentially subject to criminal penalties.
B. is potentially subject to civil penalties.
C. is potentially subject to fines and a prison sentence.
D. will have an unlimited statute of limitations for the fraudulent tax return.
AICPA: BB Critical Thinking
Blooms: Analyze
82. For which of the following tax violations is a civil penalty not imposed on taxpayers?
A. failure to file a tax return.
B. failure to pay tax owed.
C. fraud.
D. failure to make estimated tax payments.
Blooms: Analyze

2-71
Blooms: Analyze
C. if the position is not frivolous and disclosed on the tax return.
Blooms: Analyze

2-72
85. Which types of penalties are only imposed after normal due process including a trial?
A. criminal penalties.
B. civil penalties.
C. criminal and civil penalties.
D. tax return.
Blooms: Analyze
Blooms: Analyze

2-73
A. only if the position has a more likely than not chance of being sustained by the IRS or
courts.
C. if there is not substantial authority to support the position.
Blooms: Analyze
Essay Questions

2-74
88. Tina has a very complex tax return and it looks like she will not be able to file her tax return by
its due date. When is her tax return due? What are Tina's options for paying her tax due and
filing her tax return this year? What are the consequences if Tina does not file or pay her tax
timely? Be specific.
Tina's tax return is due April 15th
. Tina may request an automatic 6-month extension to file her
tax return (i.e., until October 15th
). Extensions allow the taxpayer to delay filing a tax return but
do not extend the due date for tax payments. If a taxpayer fails to pay the entire balance of tax
owed by the original due date of the tax return, the IRS charges the taxpayer interest on the
underpayment from the due date of the return until the taxpayer pays the tax. The interest rate
charged depends on taxpayer type (e.g., individual vs. corporation) and varies quarterly with the
federal short-term interest rate. The interest rate for tax underpayments for individuals equals
the federal short-term rate plus three percentage points. Penalties are also imposed when a
taxpayer fails to file a tax return. Also, there is no statute of limitations if Tina fails to file her
return.
AICPA: FN Measurement
Blooms: Evaluate

2-75
89. For the following taxpayers indicate whether the taxpayer should file a tax return and why.
a. Robert earned $50,000 this year as a staff accountant. His estimated tax liability is $4,500, and
he expects to receive a $500 tax refund.
b. Amy earned $4,000 this year working part-time. She will have no federal tax liability and has
not made any federal tax payments.
c. Ty earned $2,500 this summer and had $200 of federal taxes withheld from his paycheck. He
will have no federal tax liability this year.
d. Startup Corporation had a $50,000 loss this year.
e. The Walker Family Trust earned $500 of gross income this year.
(a) Because his gross income exceeds the applicable gross income threshold, Robert is required
to file a tax return. (b) Amy is not required to file a tax return because her income is below the
applicable gross income threshold. (c) Ty is not required to file a tax return because his gross
income is below the applicable gross income threshold. However, he should file a tax return to
receive a refund of the $200 of taxes withheld. (d) Startup Corporation is required to file a tax
return as all corporations are required to file an annual tax return regardless of their
profitability. (e) Because the trust's income is below the applicable threshold, the Walker Family
Trust is not required to file a tax return this year.
Blooms: Evaluate

2-76
a. Phoenix filed his tax return on February 28, 2017.
b. Jill and Randy filed their tax return on August 16, 2017.
c. Although required to file, Catherine chose not to file a tax return this year because she was
expecting a tax refund and could not pull together all the information needed to file the return.
d. Jerry filed his tax return on May 22, 2017 but has accidentally underreported his taxable
income by 30%.
(a) April 15, 2020. The statute of limitations expires three years from the later of the original due
date of the return or the date the return was filed. (b) August 16, 2020. The statute of limitations
expires three years from the later of the original due date of the return or the date the return
was filed. (c) Because Catherine failed to file a tax return, the statute of limitation will not lapse
for her 2016 tax return. (d) May 22, 2023. Because Jerry underreported his gross income by
30%, the statute of limitations is extended to six years.
Blooms: Evaluate

2-77
a. Simon filed his tax return on April 10, 2017.
b. Billy and Barbara filed their tax returns late on December 1, 2017.
c. Pearson earns a living through various illegal activities. He filed his tax return on March 14,
2017 but did not report his illegal income on his tax return.
d. Luther filed his tax return on July 17, 2017 but has accidentally underreported his taxable
gross income by 20%.
(a) April 15, 2020. The statute of limitations expires three years from the later of the original due
date of the return or the date the return was filed. (b) December 1, 2020. The statute of
limitations expires three years from the later of the original due date of the return or the date
the return was filed. (c) Because Pearson filed a fraudulent tax return, the statute of limitation
will not lapse for his 2016 tax return. (d) July 17, 2020. Because Luther accidentally
underreported his income by only 20%, the statute of limitations will expire three years from
the date the return is filed (i.e., the statute of limitation is not extended to six years).
Blooms: Evaluate

2-78
92. For the following tax returns, identify the method the IRS likely used to select the return for
audit.
a. Dan made a mistake in adding his income on his tax return.
b. Juanita failed to report her salary from her 2nd
job on her tax return.
c. Michael and Venita deducted a relatively large amount of travel expenses on their tax return
for their business. The travel expense is large relative to other taxpayers in similar businesses
with similar levels of income.
d. Paul and Melissa recently went through a very nasty divorce. One of the issues was Paul's less
than forthright accounting of his income in determining the appropriate level of alimony.
(a) Document perfection (b) Information matching (c) DIF system (d) Spousal tip.
Blooms: Evaluate

2-79
93. For the following tax returns, identify which of the three audit types will most likely be utilized.
a. The IRS selected Don's return for audit because of his high itemized deductions. The IRS
would like documentation of these deductions.
b. Large Public Corporation is a very large publicly traded corporation. It is involved in many
complex transactions that have significant tax ramifications.
c. George and Barbara operate a small business out of their home. The IRS has identified a
couple of issues that may relate to their business.
d. The IRS selected Bill and Hillary's tax return for review because of some of their investment
sales. They would like a better understanding of the transactions and parties involved.
(a) Correspondence exam (b) Field exam (c) Office exam (d) Correspondence exam and possibly
an office exam.
Blooms: Evaluate

2-80
94. The IRS has recently completed its audit of Lorene's corporation. As a tax novice, she has very
little understanding regarding the audit process and what happens next. Describe the post-
audit process for Lorene and identify her options.
After the examination, the IRS agent provides a list of proposed adjustments (if any) to the
taxpayer for review. If the taxpayer agrees to the proposed changes, the taxpayer signs an
agreement form (Form 870) and pays the additional tax owed (or receives the proposed
refund). If the taxpayer disputes the proposed changes, the taxpayer will receive a "30-day
letter" which instructs the taxpayer that he or she has 30 days to either (1) request a conference
with an Appeals Officer, who is independent and resides in a separate IRS division from the
examining agent or (2) agree to the proposed adjustment. An appeals officer would consider
the merits of the unresolved issues as well as the "hazards of litigation" - that is, the probability
that the IRS will lose if the case is brought to court and the resulting costs of a taxpayer-
favorable ruling. If the taxpayer chooses the appeals conference and reaches an agreement
with the IRS there, the taxpayer can then sign the Form 870. If the taxpayer and IRS still do not
agree on the proposed adjustment at the appeals conference, or the taxpayer chooses not to
request an appeals conference, the IRS will then send the taxpayer a "90-day letter." The 90-day
letter (also known as a statutory notice of deficiency) explains that the taxpayer has 90 days to
either (1) pay the proposed deficiency or (2) file a petition in the U.S. Tax Court to hear the case.
If the taxpayer would like to litigate the case but would prefer that the case be heard in the
local U.S. District Court or the U.S. Court of Federal Claims, the taxpayer must pay the tax
deficiency first and then sue the IRS for refund in the court.
Blooms: Evaluate

2-81
95. Mel recently received a 30-day letter from the IRS. Although his tax return being audited has
several potential large issues (potential tax consequences of $70,000 - $80,000), the IRS agent
auditing his return only identified one item that will require a modest adjustment of $10,000.
Mel feels strongly that the $10,000 adjustment would not hold up in court and was surprised
that the IRS agent did not identify some of the other potential larger issues. What are Mel's
choices with respect to the 30-day letter and what factors should influence his decisions?
The "30-day letter" instructs the taxpayer that he or she has 30 days to either (1) request a
conference with an Appeals Officer, who is independent and resides in a separate IRS division
from the examining agent or (2) agree to the proposed adjustment. An appeals officer would
consider the merits of the unresolved issues as well as the "hazards of litigation" - that is, the
probability that the IRS will lose if the case is brought to court and the resulting costs of a
taxpayer-favorable ruling. Thus, the appeals officer has a bit more latitude to settle cases than
examining agents. Because the appeals division is independent, it may be possible for the
taxpayer to receive a more favorable resolution as the appeals officer is less emotionally
invested in the audit. On the downside, the appeals officer may raise new issues, and thus,
increase the taxpayer's tax exposure. In addition, the longer the dispute continues without
resolution, the more interest will accrue on the assessment. In Mel's case, the potential risk of
the appeals officer raising additional questions probably outweighs the potential benefits of
appeal. Thus, it may be better for him to forego the appeals conference and either agree to the
proposed adjustment or litigate the case.
AACSB: Analytical Thinking
Blooms: Evaluate

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96. Kim has decided to litigate a tax issue with the IRS. Describe the trial level courts that Kim may
use to litigate the case.
There are three trial level courts that hear federal tax cases; The U.S. Tax Court, The U.S. District
Court, and the U.S. Court of Federal Claims. The U.S. District Court is the only court that
provides for a jury trial; the U.S. Tax Court is the only court that allows tax cases to be heard
before the taxpayer pays the disputed liability and the only court with a small claims division
(hearing claims involving disputed liabilities of $50,000 or less); the U.S. Tax Court judges are tax
experts, whereas the U.S. District Court and U.S. Court of Federal Claims judges are generalists.
Both the U.S. Tax Court and local U.S. District Court cases appeal to the specific Circuit Court
based on the taxpayer's residence. In contrast, all U.S. Court of Federal Claims cases appeal to
the U.S. Circuit Court of Appeals for the Federal Circuit.
Blooms: Evaluate

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97. For the following taxpayers, please recommend the most advantageous trial level court(s) to
litigate a tax issue with the IRS.
a. Joe is litigating a tax issue with the IRS that is considered a question of fact (i.e., the answers
depends on the facts of the case). There is not a lot of authority on point for this case but Joe
has a very appealing story to justify his position that is likely to be viewed sympathetically by his
peers.
b. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is very
favorable to the issue that Jesse plans to litigate with the IRS.
c. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is not
favorable to the issue that Hank plans to litigate with the IRS.
d. The 7th
Circuit (where Elizabeth resides) recently issued an opinion that is very favorable to
the issue that Elizabeth plans to litigate with the IRS.
(a) U.S. District Court because it is the only court that offers a jury trial. (b) The U.S. Court of
Federal Claims because its appellate court is the Circuit Court of Appeals for the Federal Circuit.
(c) The U.S. Tax Court or the U.S. District Court because they will not appeal to the Circuit Court
of Appeals for the Federal Circuit. (d) The U.S. Tax Court or the U.S. District Court because they
will appeal to the 7th
Circuit.
Blooms: Evaluate

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98. A client has recently learned of a proposed tax bill that would increase the tax rates on
investment gains by 5 percent. The President does not support this increase. Please describe for
your client the process by which new tax legislation is created and how the President's
disapproval may influence the enactment of the bill.
As required by the U.S. Constitution (Article 1, Section 7), "All bills for raising revenue shall
originate in the House of Representatives." The Senate may propose tax legislation, but the first
to formally consider a bill will be the House, typically within its Ways and Means Committee.
After the committee debates the proposed legislation and drafts a bill, the bill is sent to the
House of Representatives for debate and ultimately a vote (either yea or nay without
modification). If the bill is approved, it becomes an "Act" and is sent to the Senate, which refers
the Act to the Senate Finance Committee. Not to be outdone by the House, the Senate Finance
Committee typically amends the Act during its deliberations. After the revised Act passes the
Senate Finance Committee, the Act is sent to the Senate for debate and vote. Unlike the
process in the House of Representatives, Senators may modify the proposed legislation during
their debate. If the Senate passes the Act, both the House and Senate versions of the legislation
are sent to the Joint Conference Committee, which consists of members of the House Ways and
Means Committee and the Senate Finance Committee. During the Joint Conference Committee
deliberations, committee members debate the two versions of the proposed legislation.
Possible outcomes for any specific provision in the proposed legislation include adoption of the
Senate version, House version, or some compromise version of the two acts. Likewise, it is
possible that the Joint Conference Committee will simply choose to eliminate specific provisions
from the proposed legislation or fail to reach a compromise on the proposed legislation,
thereby terminating the legislation. After the Joint Conference Committee approves the Act, the
revised legislation is sent to the House and Senate for vote. If approved by both the House and
Senate, the Act is sent to the President for his or her signature. If the President signs the act, it
becomes law and is incorporated into the Internal Revenue Code of 1986 (i.e., Title 26 of the
United States Code, which contains all codified laws of the U.S.). If the President vetoes the
legislation, Congress may override the veto with a 2/3rd
positive vote in both the House of
Representatives and Senate. Given the President's disapproval of the proposed tax increase and
supermajority required to override a Presidential veto, the legislation most likely will not be
enacted.

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Blooms: Evaluate
99. Chris and Chuck were recently debating whether the Internal Revenue Code is "logical." Chris
offers that she has briefly reviewed the Code and could hardly understand its organizational
structure, if there is one. Please describe the basic organization of the code and how
understanding its organization may be especially beneficial to the tax researcher.
The Internal Revenue Code is segregated into subtitles, chapters, subchapters, parts, subparts,
and sections. All existing and any new tax laws are placed in the Code within a specific subtitle,
chapter, subchapter, part, subpart, and section of the Code. When referencing a tax law, the
researcher generally refers to the law simply by its code section. Code sections are numbered
from 1 to 9833, with gaps in the section numbers to allow new code sections to be added to
the appropriate parts of the Code as needed. Each code section is further segregated into
subsections, paragraphs, subparagraphs, and clauses to allow more specific reference or
citation.
One must understand the organization of a code section (i.e., into subsections, paragraphs,
subparagraphs, and clauses) to be able to cite the respective law correctly (e.g., IRC Sec.
162(b)(2)). Many provisions in the Code apply only to specific parts of the Code. If one does not
understand what laws are encompassed in the chapter, it would be very difficult to interpret the
code section and determine its applicability to a research question. Finally, the Code has been
arranged such that, in general, similar code sections are grouped together. Understanding this
organization allows the researcher to be much more efficient in locating relevant code sections.
Blooms: Evaluate

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100. Carey was researching a tax issue and located what appears to be a favorable IRS regulation.
He knows that regulations serve different purposes and are issued in different forms. Which
purpose and which form of regulation would provide Carey the most confidence that he has
found an authority that carries a lot of weight for the long term? How could Carey check the
status of this regulation?
Regulations are the Treasury Department's official interpretation of the Internal Revenue Code
and have the highest authoritative weight. Regulations are issued in three different forms:
proposed, temporary, and final. Final regulations are regulations that have been issued in final
form, and thus, until revoked, they represent the Treasury's interpretation of the Code.
Temporary regulations, as the name suggests, have a limited life (three years for regulations
issued after November 20, 1988). Nonetheless, during their "life," they carry the same
authoritative weight as final regulations. Finally, proposed regulations are, as the name
suggests, "proposed," and thus do not carry the same authoritative weight as temporary or final
regulations. In addition to being issued in three different forms, regulations also serve three
basic purposes: interpretative, procedural, and legislative. Most regulations are issued as
interpretative or procedural regulations. As the names suggest, interpretative regulations
represent the Treasury's interpretation of the Code. Procedural Regulations explain Treasury
Department procedures as they relate to administering the Code. Legislative regulations, the
rarest type, are issued when Congress specifically directs the Treasury Department to create
regulations to address an issue in an area of law. In these instances, the Treasury is actually
writing the law instead of interpreting the Code. Because Legislative Regulations actually
represent tax law instead of an interpretation of tax law, Legislative Regulations generally have
been viewed to have more authoritative weight than Interpretative and Procedural Regulations.
However, in Mayo Foundation for Medical Education & Research v. U.S., 131 S.Ct. 704 (2011), the
Supreme Court held (subject to specific conditions) that all Treasury regulations warrant
deference.
Checking the status of regulations is a bit complicated. Most tax services alert researchers if a
regulation has not been updated for certain changes in the Code. If this is the case, the
researcher should evaluate whether the changes in the Code make the regulation obsolete.
Blooms: Evaluate

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ambiguous statutes.
Topic: Tax Research
101. Campbell was researching a tax issue and found a favorable Tax Court opinion and an IRC
Code Section that appears to answer the question. Is she finished with the research process? If
so, why? If not, what must she do?
Campbell is not finished. Once the tax researcher has identified relevant authorities, she must
make sure that the authorities are still valid and up to date. For court cases, a citator can be
used to review the history of the case to find out, for example, whether it was subsequently
appealed and overturned or and to identify subsequent cases that cite the case. Favorable
citations strengthen a case, while unfavorable citations weaken the case. Citators can also be
used to check the status of revenue rulings, revenue procedures, and other IRS
pronouncements. Checking the status of the code is fairly simple: just locate the current version.
Blooms: Evaluate
ambiguous statutes.
Topic: Tax Research

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102. Roddy was researching an issue and found a favorable Tax Court decision that addresses his
issue. He also determined that there was a nonacquiescence for the case. Who issued the
nonacquiescence? What is it? What does it mean and how would it affect Roddy's reliance on
the court case?
Except for Supreme Court cases, whenever the IRS loses, it may issue an acquiescence or
nonacquiescence as guidance for how the IRS intends to respond to the loss. An acquiescence
indicates that the IRS has decided to "follow" the court's adverse ruling in the future - i.e., the
IRS will no longer litigate this issue. A nonacquiescence has the exact opposite implications. A
nonacquiescence alerts taxpayers that the IRS plans to continue to litigate this issue. Roddy can
still rely on the favorable Tax Court case but should alert his client that the IRS has stated very
clearly that it does not agree with the Tax Court opinion and will continue to litigate this issue.
Blooms: Evaluate
ambiguous statutes.
Topic: Tax Research

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103. Raul was researching an issue and found two Tax Court decisions issued within 6 months of
each other, one for a taxpayer residing in California and the other for a taxpayer residing in
New York whose rulings were inconsistent. Raul knows that the federal tax law does not differ
by state and the issue was exactly the same in both cases. Raul is confused because he thought
that a basic judicial doctrine was that a court is supposed to rule consistently. Name and
describe this judicial doctrine that requires judicial consistency and discuss why the Tax Court
may have intentionally ruled inconsistently in this example.
In rendering court decisions, all courts apply the judicial doctrine of stare decisis. This doctrine
means that a court will rule consistently with (a) its previous rulings (i.e., unless, due to evolving
interpretations of the tax law over time, they decide to overturn an earlier decision) and (b) the
rulings of higher courts with appellate jurisdiction (i.e., the courts their cases are appealed to).
The implication of stare decisis is that a Circuit Court will abide by Supreme Court rulings and
its own rulings, whereas a trial level court will abide by Supreme Court rulings, its respective
Circuit Court's rulings, and its own rulings. For example, a district court in California would
follow 9th
Circuit and Supreme Court rulings as well as the court's own rulings.
The doctrine of stare decisis presents a special problem for the Tax Court because it appeals to
different Circuits based on the taxpayer's residence. To implement the doctrine of stare decisis,
the Tax Court applies the Golsen rule. The Golsen rule simply states that the Tax Court will
abide by the Circuit Court's rulings that has appellate jurisdiction for a case. The implication of
the Golsen rule is that the Tax Court may issue conflicting opinions in different Circuits and
thus, most likely explains the differing Tax Court decisions that Raul located.
Blooms: Evaluate

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104. Rebecca is at a loss. A new tax law was recently passed, and she needs to get a better
understanding of why the tax law was passed and the intent of the law from an official
authority. Describe what authorities may be especially helpful to Rebecca and why she can't
find many authorities that discuss the new law.
The House Ways and Means Committee, Senate Finance Committee, and Joint Conference
Committee each produce a committee report that explains the current tax law, proposed
change in the law, and justification for the change. These committee reports are considered
"statutory" sources of the tax law and may be very useful in interpreting tax law changes and
understanding Congressional intent. This is especially important after new legislation has been
enacted because, with the exception of the Code, there will be very little authority interpreting
the new law (i.e., no judicial or administrative authorities because of the time it takes for the
new law to be litigated or for the IRS to issue interpretative guidance - e.g., regulations, etc.).
Blooms: Evaluate

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105. Lakeisha, a 1st
year staff accountant, was researching a tax issue and found what appears to be
the answer to her question in her introductory tax textbook that she bought three years ago.
She is thrilled because she thought it would take much longer to find her answer. What type of
authority is the textbook? What are other examples of this type of authorities? Can Lakeisha
base her research conclusion on the textbook or similar authorities? Any suggestions for
Lakeisha?
There are two broad categories of tax authorities: primary authorities and secondary authorities.
Primary authorities are "official" sources of the tax law generated by the legislative branch (i.e.,
statutory authority issued by Congress), judicial branch (i.e., rulings by the U.S. District Court,
U.S. Tax Court, U.S. Court of Federal Claims, U.S. Circuit Court of Appeals, or U.S. Supreme
Court), or executive/administrative branch (i.e., IRS pronouncements). Secondary authorities are
"unofficial" tax authorities that interpret and explain the primary authorities, such as tax
research services, tax articles, newsletters, and textbooks. Secondary authorities may be very
helpful in understanding a tax issue, but they hold little weight in a tax dispute (hence, the term
"unofficial" tax authorities). Thus, tax advisors should always be careful to verify their
understanding of tax law by examining primary authorities directly and never cite a secondary
authority in a research memo. In Lakeisha's case, this is particularly important because her
textbook is three years old. Thus, not only is the textbook not an "official" tax authority, it may
also be out of date.
Blooms: Evaluate
ambiguous statutes.
Topic: Tax Research

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106. Kodak is a beginning 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.
To answer a tax question, you must understand the question. To understand the question, you
must know the facts. 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. The distinction between open and closed facts is important because
unlike closed facts, open facts can be altered, and different facts may result in very different tax
consequences. Open facts allow the taxpayer to arrange a transaction to achieve the most
advantageous outcome. Thus, they are especially important in tax planning.
There are several sources of facts for the typical research projects. Common sources include
interviewing 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 should also consider non-tax factors, such as a
client's personal values or objectives, as these often put constraints on tax planning strategies.
Blooms: Evaluate
ambiguous statutes.
Topic: Tax Research

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107. Caitlin is a tax manager for an accounting firm, and Duff is a first year staff accountant. Describe
the differences in the manner in which Caitlin and Duff may identify research issues and in
general how one may identify research questions.
A tax researcher's ability to identify issues is largely a function of his or her type of tax expertise.
A tax expert in a particular area will typically be able to identify quickly the specific tax issues
that relate to transactions in that area. For example, an expert in corporate acquisitions would
quickly identify the tax consequences and specific issues of alternative acquisition types. A
novice, on the other hand, would likely identify broader issues first and then more specific
issues as he researched the relevant tax law.
The best method to identify tax issues is to first get a good understanding of the client's facts.
Then combine your understanding of the facts with your knowledge of the tax law. For an
expert in this particular area, the issues will be immediately evident. For a novice, the initial
response to a set of facts may take the form of a series of general questions: (1) Is this item of
expense deductible? (2) Is that item of income taxable? (3) In what year should the expense be
deducted? (4) In what year should the item of income be taxed? etc. After you identify these
types of general issues, your research will enable you to identify the more specific issues that
ultimately determine the tax ramifications of the transaction being researched.
Blooms: Evaluate
ambiguous statutes.
Topic: Tax Research

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108. Lindy, a tax intern, is beginning her first tax research case for her employer. Her manager has
given her a basic understanding of the facts and has identified the basic research question.
Lindy is now ready to begin searching for relevant tax authorities. Describe the different types
of research tools available to help a tax researcher locate relevant authority and identify which
type may be especially useful for Lindy.
Tax services aid the researcher in identifying relevant authorities. There are two basic types of
tax services: Annotated tax services and topical tax services. Annotated tax services are
arranged by code section - i.e., for each code section, an annotated service includes the code
section, a listing of the code section history, copies of congressional committee reports that
explain changes to the code section, a copy of all the regulations issued for the specific code
section, the service's "unofficial" explanation of the code section, and brief summaries (called
annotations) of relevant court cases, revenue rulings, revenue procedures, letter rulings, etc.
that address issues specific to the code section. Two examples of annotated tax services are
Commerce Clearing House's (CCH) Standard Federal Tax Reporter and RIA's United States Tax
Reporter.
Topical tax services are arranged by topic (e.g., taxable forms of income, tax-exempt income,
trade or business expenses, etc.). For each topic, the services identify tax issues that relate to
each topic, and then explain and cite authorities relevant to the issue (code sections,
regulations, court cases, revenue rulings, etc.). Beginning tax researchers (like Lindy) often
prefer topical services, as they generally are easier to read. Some examples of topical federal tax
services include BNA's Tax Management Portfolios, CCH's Tax Research Consultant, and RIA's
Federal Tax Coordinator.
Blooms: Evaluate
ambiguous statutes.
Topic: Tax Research

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109. Hong, an introductory tax student, is beginning his first research project. He has a complete
understanding of the relevant facts for his project and has identified the initial research
questions. He is now ready to begin using a tax service to identify relevant authorities. What are
some suggestions for him on how to use tax services to identify relevant authorities?
A novice may conduct a keyword search in the service, use the tax service's topical index, or
"browse" the tax service to identify the relevant portions. Some suggestions for identifying
keywords: Try to describe the transaction in three to five words. An ideal keyword search
typically includes (1) the relevant area of law and (2) a fact or two that describes the transaction.
Try to avoid keywords that are too broad (e.g., income, deduction, taxable, etc.) or that may be
too narrow.
If keyword searching is not proving beneficial, check your spelling, make sure you are searching
the correct database, rethink your keywords, use another research method, use another tax
service, or at as a last resort, take a break.
While utilizing keyword searches or other research methods to identify potentially relevant
areas of law and tax authorities, you must constantly ask yourself whether you are indeed in the
correct area of law. Once the answer to this question is an authoritative "yes," you can delve
deeper into the area of law and related authorities to answer the question.
Blooms: Evaluate
ambiguous statutes.
Topic: Tax Research

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110. Mary Ann is working on a pretty big research project. Her manager has alerted her to the
possibility that some of her research questions are likely to be questions of fact, whereas others
are likely to be questions of law. Explain the difference between the two types of questions and
how this would influence her research.
Two basic types of issues that researchers will encounter are questions of fact and questions of
law. The answer to a question of fact hinges upon the facts and circumstances of the taxpayer's
transaction. For example, whether a trade or business expense is "ordinary," "necessary," and
"reasonable" and thus, deductible, is a question of fact. If you are researching a question of fact,
it is important for the researcher to understand which facts determine the answer - in this case,
which facts make an expense "ordinary," "necessary," and "reasonable" and which facts do not.
In this type of question, the researcher will focus much of her efforts toward understanding how
various facts impact the research answer and identifying authorities with fact patterns similar to
her client's fact pattern.
The answer to a question of law hinges upon the interpretation of the law, such as, interpreting
a particular phrase in a code section. If a researcher is faced with this type of question, she will
spend much of her time researching the various interpretations of the code section and take
note of which authorities interpret the code differently and why.
Blooms: Evaluate
ambiguous statutes.
Topic: Tax Research

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111. Nolene suspects that one of her new clients may be intentionally underreporting his taxable
income. What are the potential ramifications to her client of this behavior? What are the
consequences to Nolene if she assists the client in underreporting income? Any advice for
Nolene?
There are serious ramifications of committing fraud for both the taxpayer and the tax
practitioner. First, there is no statute of limitations on assessing tax due to fraudulent reporting.
Thus, Nolene's client will be at risk for additional tax, interest, penalties, etc. for the period of
time he commits fraud. Second, the penalties associated with fraud are substantial. In addition
to having to pay the assessed tax and interest on the assessed tax (which can be quite
substantial), the client may be subject to both civil and criminal penalties for fraud. Both
penalties carry potentially substantial monetary fines, and the criminal penalty may include a
prison term.
For Nolene, assisting in fraud will clearly violate her professional responsibilities established by
the Statement on Standards for Tax Services, Circular 230, and her State Board of Accountancy.
She will also be subject potentially to both civil and criminal penalties.
Nolene should discuss the severe negative consequences of committing tax fraud (civil and
criminal penalties) as well as her own professional standards with her client. If Nolene suspects
that her client is not fully reporting his income, she should carefully consider terminating the
client relationship.
Blooms: Evaluate

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112. Houston has found conflicting authorities that address a research question for one of his clients.
The majority of the authorities provide a favorable answer for his client. Nonetheless, there are
several authorities that provide an unfavorable answer. Houston estimates that if the client
takes the more favorable position on its tax return that there is approximately a 60 percent
chance that the position will be sustained upon audit or judicial proceeding. If the client takes
this position on its tax return, will Houston be subject to penalty? Will the client potentially be
subject to penalty?
A tax preparer (Houston) may recommend any tax return position and avoid penalty if there is
substantial authority that supports the tax return position. Substantial authority suggests that
the probability that the taxpayer's position is sustained upon audit or litigation is in the 35 to 40
percent range or above. The tax practitioner can also avoid penalty if the tax return position has
a reasonable basis (i.e., supported by one or more tax authorities) and the position is disclosed
on the taxpayer's return. Given that there is a 60% chance that the position will be sustained
upon audit or by the courts, Houston should not be subject to penalty and no disclosure is
required.
Taxpayers are subject to the same standards as tax practitioners (substantial authority without
disclosure; reasonable basis with disclosure). Thus, Houston's client will not need to disclose the
position on its tax return to avoid penalty.
Blooms: Evaluate

Exploring the Variety of Random
Documents with Different Content

go as soon as possible, and examine for himself, whether there yet
remained any means of making good his claims.
When he spoke of his intended departure, Mrs. Arnott turned pale,
and I saw that she was much agitated, but she tried both to look
and to speak cheerfully. Florence, to whom it was quite a new
thought, could not so command herself. She looked from her father
to her mother, said in an accent of the utmost surprise, "Go away,
papa?" and burst into tears.
Mr. Arnott rose, and with an agitated countenance left the room.
Mrs. Arnott knew that her husband had much at present to disturb
him, much which would make any unhappiness in her or Florence
peculiarly painful to him. He was parting from them for a long and
dangerous winter's journey—he left her in feeble health—knew not
how long he might be detained from home, or whether he should
ever return to this place as to a home. As soon as he went out, she
turned to Florence, and while her own voice trembled with emotion,
said, "My daughter, we must not let our regret make us selfish.
Remember, your father is the greatest sufferer. He must not only
endure the pain of parting, but he goes to meet great difficulty and
perplexity of mind, and perhaps much hardship. Let us do our best
not to add to his distress by ours. To leave us cheerful and well, will
do much to keep him so." Florence tried to subdue her sobs, but for
some time very unsuccessfully. "Go to your own room, my love," said
the tender mother, as she drew Florence to her and kissed her
cheek, "go to your own room, and come back to us when you can
come with a happy face. It is not an easy effort, Florence, but you
can make it, I am sure, for your father's sake."
Florence went to her room, and when, in about an hour, she
returned to us, it was with a cheerful face, and all her usual
animation of manner; and though I often saw the tears rush to her
eyes when her father's absence was named, I never again saw them
fall. Even when he went, in their parting interview, she tried to look
and speak cheerfully; and, though some tears would not be

restrained, it was not till he was out of sight and hearing, that she
gave full vent to her sorrow.
Mr. Arnott left us early in January. The weather, during the whole of
this month, was very cold and stormy, and the bleak, cheerless days
seemed drearier than ever after his departure. Mrs. Arnott's health,
too, continued delicate, and yet I felt that she really little needed
me, for she could not have a more careful nurse, a more tender
comforter, than she found in the young Florence.
The last week in January brought letters from Mr. Arnott. He had just
arrived in Montreal when he wrote. Of course he could say nothing
of business, but he was safe and well, and Mrs. Arnott felt that her
worst apprehensions were relieved. She had tried to be cheerful
before, she was now cheerful without trying.
February opened with mild, delightful weather. Florence went out
one morning for a walk, but she soon came back with a bounding
step, a bright color, and a countenance animated and joyous. "Oh,
mamma!" she exclaimed, "it is a most delightful day, just such a day
as you used to enjoy so much at the South. I almost thought I could
smell the jessamine and orange flowers."
"Why, Florence," said Mrs. Arnott, "you almost tempt me to go out
too," and she looked wistfully from the windows.
"And why not, dear mamma, why should you not go too? It could
not hurt you—do you think it could?—to take a drive in this bright,
sunshiny day. I dare say, Aunt Kitty would enjoy it, too," turning to
me.
Mrs. Arnott smiled; "Not such a drive as I should have strength for,
Florence. I could not go more than a mile or two, and that must be
in the close carriage. No, no, it would be a very dull drive for both of
you.
"Dull, mamma, a dull drive with you, the first time you were able to
go out after being so long sick? I am sure Aunt Kitty does not think

so—do you, Aunt Kitty?"
"No, my dear; and, I think, if you will order the carriage, that your
mother will be persuaded to try it."
Florence was off like an arrow. Every thing was so soon prepared for
our excursion, that Mrs. Arnott had no time to change her mind. Our
drive was a very quiet one, yet Mrs. Arnott enjoyed keenly the
change, the motion, and the little air which she ventured to admit.
To see her enjoyment was very pleasant to me, and put Florence
into the gayest spirits. We went about two miles, and were again
approaching home, when we saw a handsome open sleigh coming
towards us, driven by a gentleman, and almost filled with young
people of Florence's age. The bells drew Mrs. Arnott's attention.
"Who are those, Florence? Can you see at this distance?"
"It looks like Mr. Morton's sleigh, mamma," said Florence, coloring.
"But I did not think they would come this way," she added.
"Come this way!—to go where, my child? Do you know where they
are going, Florence?"
"Yes, mamma, they are going—at least they were going to M., to see
some animals that were to be exhibited there to-day."
"And which you have talked so much of, and wished so much to see.
I think it was scarcely kind in Clara and Edward not to ask you to go
with them."
"Oh, mamma! they did ask me."
"And why did you not go, Florence?"
"I meant to go, mamma—that is, I meant to ask you this morning if
I might go, but I thought—that is—when you talked of coming, I
liked so much better to come with you that I gave it up."
"That is," said Mrs. Arnott, smiling, "you thought I would enjoy my
drive more if you were with me, and you thought very truly, but you

should not have broken your promise, Florence, without some
apology, even for such a reason."
"It was not a positive promise, mamma, and you know it would not
take them out of their way at all to stop for me, and I did leave a
note for Clara, to tell her why I did not go. But what can bring them
this way, I wonder?"
The sleigh was now quite near, and the gentleman driver, who
proved to be Mr. Morton himself, the father of Edward and Clara,
making a sign to our coachman to stop, drew up alongside of our
carriage. Giving the reins to Edward, Mr. Morton sprang out, and
opening the door of the carriage, shook his finger playfully at
Florence, saying, "So, young lady, this is your good manners, is it?—
to tell not only young ladies and gentlemen, but an old man like me,
that you like your mother's company better than ours, with all the
lions, and elephants, and giraffes to boot. But we have caught you
at last;—I may take her, may I not, Mrs. Arnott?"
"Oh, yes," said Mrs. Arnott, smiling at his playfulness.
"How kind it was of you, Mr. Morton, to come so much out of your
way for me!"
"Kind, was it?—I understand your wheedling ways; but come along,
Miss Florence, you are my prisoner now," and snatching up the
laughing Florence, he bore her in triumph to the sleigh. After seating
her there, and seeing that she was carefully wrapped up, he turned
back to the carriage with more grave inquiries after Mrs. Arnott's
health, and assurances that he would take good care of Florence.
"I am very much obliged to you for coming for her," said Mrs. Arnott,
"for this exhibition is one which she has long wished to see, and I
should have been grieved had she lost it."
"As to my coming for her, I could not well help myself," said the
good-humored Mr. Morton, with a laugh. Then turning to me, he
added, "Our friend Florence never thinks of herself, so we feel

obliged to think a great deal of her, and the grave looks and
grumbling tones with which the announcement that she would not
go with us was received, showed me that the only chance I had of
making our little party a party of pleasure, was to overtake and
capture her. You were easily tracked by your wheels, for nobody else
seems willing to lose the little sleighing which this fine weather will
probably leave us; but, fine as it is, I am keeping you out too long in
it," seeing Mrs. Arnott draw her cloak more closely around her, "so
good-by."
Hastily mounting his sleigh, he drove rapidly off, many a hearty
laugh and gay voice mingling their music with the merry bells.
Another letter from Mr. Arnott came about this time, written
cheerfully, hopefully, though he had not yet made even an effort to
accomplish the objects of his journey. This delay was occasioned by
the absence of a lawyer, who had always been employed by his
deceased friend, Mr. Atwater, and from whom Mr. Arnott hoped to
receive important information and advice. He had been absent when
Mr. Atwater died, and no one knew enough of his movements to be
quite certain when he would return, yet Mr. Arnott determined to
wait his arrival as patiently as he could, and to do nothing till he saw
him. He would probably be detained but a short time after seeing
him.
From the day this letter arrived, Florence began to prepare for her
father's return, and to cast many an eager glance up the road with
the hope of seeing him. But even her father's return was not the
most interesting subject of thought to Florence just now. She knew
the apprehensions of her parents, the change of circumstances
which possibly awaited them. For herself, this change of
circumstances was not at all dreaded; for, though Florence loved her
home, and would be sorry to leave it, she thought it would be
almost as pleasant to live in a beautiful little cottage, covered over
with roses and woodbine, with a pretty flower-garden before the
door; and to raise chickens, and make butter and cheese for the
market, seemed to her delightful employments. Pleasant as this

picture was, and it was the only one which poverty presented to her,
Florence saw that her father and mother did not regard it with quite
such agreeable feelings as herself, and for their sakes she began to
think how it might be avoided.
Mr. Arnott had always been a great lover of music, and to this part of
Florence's education great attention had been paid, yet I had never
heard her play so frequently as now. Had she not been afraid of
wearying her mother, she would, I think, scarce ever have left her
piano. She suddenly stopped, one morning, when I was the only
person in the room with her, in the midst of a piece of music, and
turning quickly to me, said, "Aunt Kitty, do you not think I play very
well?"
I was amazed, for Florence had never seemed to me a vain child. I
looked at her—she met my eye, and did not seem in the least
confused.
"Yes, Florence, I think you do play very well."
"As well as Miss Delany?" she again asked. This was a young lady
who was a teacher of music, and whom I had once heard play at Mr.
Arnott's.
Still more amazed, I replied, "I am not, perhaps, a fair judge of Miss
Delany's powers, as I heard her play but once, but I think you do."
"Oh! I am so glad you think so," said Florence, springing from her
seat, "for then I can give music lessons too, and make something for
papa and mamma, if he should lose that money. Do you not think I
may, Aunt Kitty?"
"Yes, my dear Florence, I do not doubt you can, if it become
necessary, which I hope it will not—but what put such an idea into
your head?"
"I have had a great many ideas in my head about making money,
since I heard papa talking of this business; but I believe what made
me think of this, was Lucy Dermot's coming here last week. Lucy's

mother, you know, Aunt Kitty, is very poor, and I remembered
hearing Miss Delany say once, that Lucy had the finest voice and
quickest ear for music of any child she had ever known, and that she
thought it a great pity they could not be cultivated, for then she
might support both her mother and herself handsomely. So I said to
myself, mine have been cultivated, and if they are not so good as
Lucy's, I may do something for papa and mamma with them."
Mrs. Arnott came in, and nothing more was said on the subject, but
I now understood Florence's devotion to her music, and the pleasant
expression which her countenance wore when she was practising. It
was her generous motive which gave a charm to what would
otherwise have been very tiresome.

CHAPTER XIII.
THE THREE WISHES.
"Run to the window, mamma, run to the window, and see who is
come," cried Florence, a few days after, bursting into the room
where her mother and I were sitting, just before dinner.
It was not necessary to run to the window, it was only necessary to
look into Florence's joyful face to see that her father had come. I
lifted my eyes to Mr. Arnott's face as he entered: there was no cloud
on his brow, no expression but that of grateful joy in his eyes, and I
said to myself, all has gone prosperously with him. It was even so.
The lawyer, on his return, delivered to Mr. Arnott papers which he
had drawn up for Mr. Atwater, and which, with his will, had been left
in his hands for safe-keeping. These papers fully secured Mr. Arnott's
property. He had lost nothing, but had gained from past anxiety a
very useful lesson—never to put off important business, even for a
day.
In the evening we gathered around the fire, with grateful and happy
hearts, to hear and to tell the events of those weeks of separation.
Already, however, when Florence was not present, Mr. Arnott had
heard from his wife of her constant tenderness, and watchful
attention to her comfort, and from me of her generous plans for
aiding them, should the ill fortune come which they anticipated. He
did not praise her in words, but she could not meet his eye, or hear
his tones, without feeling that she was dearer than ever to her
father's heart. Just before we separated for the night, he drew her
to him, and seating her on his knee, said, "Florence, did you ever
read the fairy story of the three wishes?"
"Yes, papa."

"Well, I will be your good fairy. Make three wishes, and they shall be
granted."
Florence laughed gayly.
"Why, papa! fairies are always women."
"Well, I will be a magician; they are men, are they not?"
"Yes."
"Now make your wishes."
"What shall I wish for, mamma?"
"Stop," said Mr. Arnott, "they must be your own wishes; nobody
must prompt them, or the spell is broken."
"And if I make a wrong wish, may I not take it back, and wish over
again?"
"No—so be careful what you say."
Florence became grave, and was silent for a few minutes; then
looking up with a smile, said, "I have two wishes, but I cannot think
of a third."
"Let me hear the two, and you can take a longer time to think of the
third."
"Well, first, I wish little Jem O'Donnel could be sent to school, and
when he gets big enough, could be taught a trade—that is one
wish."
"That is one wish! I thought that was two wishes."
"Oh no, papa! only one."
"Well, let it pass for one. It shall be done, that is, with his parents'
consent, which you must get Aunt Kitty to procure for you. Now for
the second wish."

"I wish little Lucy Dermot could be taught music, so as to give
lessons, and support her mother and herself."
"You extravagant girl," said Mr. Arnott, "it is well I limited your
wishes to three, or I should be a ruined man."
"Oh, papa! fairies and magicians never find any fault with our
wishes, if they are ever so extravagant."
"Well, Lucy Dermot shall be taught music, if she be able and willing
to learn. Now for the third wish."
"Oh! I must have till to-morrow to think of that. That is my last wish,
and it must be something very good."
"To-morrow, then, I shall expect to hear it; and now you may go and
dream of it. Good-night."
I went down early the next morning to put some books, which I had
finished reading, into their places in the library, an apartment
communicating with the breakfast-parlor by a door, now standing
open. While I was there, Mr. Arnott entered the parlor, and
immediately after, Florence bounded in, exclaiming, "Oh, papa! I
have found out my third wish."
"Well, my daughter, what is it?"
"Why, you know, papa, nurse has a daughter, and she is her only
child, just as I am your only child; and she is very good, too, nurse
says."
"Just as you are very good, I suppose."
"Oh no, papa, I did not mean that; but she is going to be married—
at least, she would have been married a year ago, nurse says, but
the man she is to be married to is working hard to try and get a
house for her to live in first—"
"And how did you hear all this, Florence? Did nurse know of my
promise to you, and did she ask you to speak of this?"

"Oh no, papa! she does not know any thing about it. I thought when
I had such a good chance, I ought to do something for nurse; so,
when she was putting me to bed last night, I asked her what she
wished for most in the world, and she said she was so well taken
care of that she had not any thing to wish for; and I said, 'Not if
anybody was to promise to give you just what you should ask for,
nurse, could you not find any thing to wish for then?' and so nurse
told me about her daughter, and said she did wish sometimes she
had a home for her, and I thought my third wish should be for a
house for her. Just a small house, you know, papa, with flowers all
about it, and a garden, and a poultry yard, and a dairy, and—"
"Stop, Florence—here are half a dozen wishes at once. I will tell you
what I will do. I will have a small but comfortable house built—"
"And a garden to it, papa?"
"Yes, a garden and a poultry yard; the dairy can wait until it is
wanted, and the flowers they can plant themselves. This house you
shall give to nurse, and she can let her children have it until she
wants to occupy it herself. It is only right, as you say, that something
should be done for her."
"Oh, thank you—thank you, papa! That will be my very wish."
"And now, Florence, your three wishes have been wished, and not
one of them for yourself. Have you no selfish desires, my child?"
"Oh yes, papa!" said Florence, in a serious tone, "a great many."
"I should like to know how you find them, Florence?"
Mr. Arnott meant to express by this, that he never saw these selfish
desires manifested by Florence; but she understood him literally to
mean, that he wished to know how she discovered them, and she
answered; "Why, you know, papa, Aunt Kitty made a little prayer for
me once, when I was very, very selfish, and I thought I would say
that prayer every night till I had no more selfishness left; so every
night I went over in my own mind what had happened in the day, to

see if I must say it, and, papa, there has never been a single night
that I have not had to say it, and I am afraid it always will be so."
"It will, my dear child, for there is selfishness in our hearts as long
as we live; but while you watch over yourself, and pray earnestly to
God against it, he will give you power always to act generously—to
subdue your selfish feelings."
I have told you enough of Florence, my dear young friends, to
enable you to answer the question—is she generous? But my book
has done little if it has not made you ask a question of much more
importance to each one of you—are you yourself generous? Before
you answer, yes, remember that the truly excellent are always
humble, and that Florence never felt how much selfishness was in
her heart, till she became generous. Should your conscience answer,
no, imitate Florence in her simple, earnest prayer, and honest efforts
to amend, and be assured that the same heavenly Father will hear
and help you.
THE END.

GRACE AND CLARA:
OR,
BE JUST AS WELL AS GENEROUS.

CHAPTER I.
AUNT KITTY'S GREETING.
Nearly a year has passed, my dear young friends, since first Aunt
Kitty met you with a "Merry Christmas or Happy New-Year." The
snow, which then spread a veil over all things, has long since melted
away. The spring flowers which succeeded it have withered. The
summer and autumn fruits have been gathered. Again winter has
stripped even the leaves from the trees, and we awake each
morning expecting to find that again he has clothed them in robes of
spotless white. And now that the season for holidays and merriment
has returned,—now that your friends greet you not only with smiling
faces and pleasant words, but with presents, as marks of their
affection and approbation, Aunt Kitty, too, comes with her token of
remembrance.
Before she presents it, will you permit her to ask how you have
received those which she has already sent you. Have you learned
from "Blind Alice" and her young friend Harriet, that to do right is
the only way to be happy, and from "Jessie Graham," that it is true
wisdom to speak the simple truth always, and from "Florence
Arnott," that selfishness is a great evil, and will, if you indulge it,
bring great sufferings on yourselves and others? If you have learned
these lessons and practise them, then am I sure that your Christmas
will be merry and your New-Year happy,—that the good-humored
tones and ringing laughter of your young companions will never be
changed into wrangling and fretful cries, or the smiles of your older
friends into grave and disapproving looks. That I think of you, this
little book will prove, and though I may not see you, I shall probably
hear of your improvement and enjoyment, and my holidays will be
the pleasanter for them.

These holidays I shall pass in the country at the house of my friend
Mrs. Wilmot, to whom I have already made a very long visit. There
are residing here six young girls, the eldest little over twelve, and
the youngest under ten years of age. Already they have learned to
regard a walk with Aunt Kitty, as a reward for a well-recited lesson,
and to cluster around her by the evening fire, with wishful eyes and
earnest voices asking for one story more. At any hint of my going
home, their remonstrances and entreaties are so vehement, that, I
think, when it becomes absolutely necessary to leave them, I shall
have to steal away.
I am about to introduce these little girls to you by name, to tell you
how their time is generally employed, how their holidays are passed,
and thus to make you quite well acquainted with them.

CHAPTER II.
HAZEL GROVE.
Mrs. Wilmot was left a widow when her two daughters, Grace and
Lucy, were very young—so young that Lucy, who is now ten years
old, does not remember her father at all, and Grace, who is twelve,
has only a very faint recollection of a gentleman, who, when he was
lying on a couch in the parlor, used to have her brought to him, and
kiss her, and give her some of the candies which he always seemed
to have near him. Mrs. Wilmot found herself not very rich on the
death of her husband, and as she was a very highly educated and
accomplished woman, she was advised to keep a school for young
ladies. She did not remove into a city to do this, for her own
pleasant house is near enough to a large town to admit of her
having day scholars from it; and she took no boarders, but four girls,
the children of friends who had known her long, and who were glad
to have their daughters under her care, on any terms. These four
girls are about the age of her own children, and have been educated
with them as sisters. Indeed, as they call her "Mamma Wilmot," but
for their being so much of the same age, a stranger might suppose
them all her own children. Their names are Clara Devaux, Martha
Williams, and Kate and Emma Ormesby. These two last-named girls
are twin sisters, and so much alike that it was formerly frequent
sport with them to perplex their young companions by answering to
each other's names. This they can no longer do, as Kate has grown
tall and thin, while Emma is still a fat, chubby little girl. Mrs. Wilmot,
about two years ago, had some property left her, which would have
supported herself and her daughters very comfortably without the
profits of her school, but she had become so much interested in her
young boarders, that she was not willing to part with them. She
gave up, however, all her day scholars, and then wrote to me

requesting that I would visit her, as she would now, she said, have
only her six little girls to teach, and would therefore have leisure
enough to admit of her enjoying a friend's society. As soon as
possible after I received this letter, I went to Hazel Grove, the name
of Mrs. Wilmot's place, taking Harriet with me.
We arrived at noon of a bright day in October. We had already begun
to enjoy the glow of a fire in the chill mornings and evenings, but, at
that hour, the sun was so warm that it might almost have cheated
us, as well as the little birds and insects, into believing that summer
was not quite gone.
Hazel Grove is a very pretty place. It fronts a fine, bold river, to
whose very edge the lawn, on which the house stands, slopes gently
down. On the opposite side of the river, the banks are steep and
thickly wooded. On the left of the house, as we approached, lay a
large orchard, which still looked inviting, with its yellow pears and its
red or speckled apples. On the right, was a fine old wood of oak and
maple and beach trees, intermingled with the smaller hazels, from
which the place takes its name. Have you ever, in Autumn, when the
nights became cold, watched the trees, as their green first grew
deeper and more vivid, and then was changed from day to day into
every varying shade of color, from russet brown to pale yellow—from
deep rich crimson, to bright scarlet and flaunting orange? If you
have, you may know how gayly this wood was looking when first we
saw it.
But pleasant as all this was, there was something in the old stone
cottage, with its yard bordered with flowers and shaded with large
black-walnut trees, which pleased me yet better; and best of all was
the view which I caught of the parlor through the open windows.
There sat Mrs. Wilmot in a rocking-chair, with six little girls around
her, to whom she was reading. These girls were all busily at work,
except one bright-eyed, curly-headed little thing, seated on a low
stool at Mrs. Wilmot's feet, whom I afterwards found to be her
youngest daughter, Lucy. She, too, had some work in her hand, but
she was so much interested in what she was hearing, that her

needle stood still, while she looked up into her mother's eyes, as if
she would read the story in them. I had only a single minute to see
all this, for the noise of letting down the carriage steps caused Mrs.
Wilmot to look out, and in an instant the book was laid aside, the
work thrown down, and she hastened to meet us, followed by her
children.
The rest of this day was a holiday to the children, and while Mrs.
Wilmot and I sat talking over old friends and old times, they led
Harriet to their gardens and their baby-houses, their swing, and the
playground where they were accustomed to trundle their hoops and
jump the rope,—showed her the calf, Martha's pet lamb, Kate's and
Emma's English rabbits, Clara's dove, Lucy's kitten, and Grace's
puppy, which were each the most beautiful of their kind that had
ever been seen. The next morning I was introduced to all these
beauties, and quite won the hearts of their owners by my evident
admiration of them. When my visits were over, Mrs. Wilmot called
her little girls to their lessons, in which Harriet, at her own request,
joined them. Mrs. Wilmot had a good library, and while she and the
girls were engaged with their studies in the morning, I was generally
there, reading or writing. At dinner we met again, and the afternoon
was passed together in some entertaining and pleasant way at
home, or in driving, walking, or visiting some of the agreeable
people with whom Mrs. Wilmot was acquainted in the town.

CHAPTER III.
THE FRIENDS.
Amongst the children at Hazel Grove, there were, as you may
suppose, varieties of disposition and character, and though they
seemed all to feel kindly and affectionately to each other, each of
them had some chosen companion, to whom their plans were
confided, and with whom all their pleasures were shared. Kate and
Emma, the twins, were almost inseparable; Lucy Wilmot and Martha
Williams walked together, assisted each other in their gardens, and
nursed each other's pets; while Clara Devaux and Grace Wilmot read
from the same book, pursued the same studies, and sought the
same amusements. Yet there could scarce have been two persons
less alike than Clara Devaux and Grace Wilmot. Clara was gay and
spirited, generous and thoughtless. A quick temper often made her
say unkind words, which an affectionate heart made her feel, in a
short time, far more painfully than the person to whom they were
addressed. Grace was, on the contrary, of a grave, serious nature,
and seemed always to take time to think before she acted. She, too,
possessed a very affectionate heart, and the least appearance of
coldness or anger from one she loved, would distress her much, but
she had scarcely ever been known to speak or even to look angrily.
In one thing, however, these girls were alike,—they were both
remarkable for their truth. I do not mean only that they would not
tell a story, for this I hope few little girls would do, but they would
not in any way deceive another, and if they had done wrong, they
did not wait to be questioned, but would frankly tell of themselves.
Mrs. Wilmot, in speaking to me of their attachment, said she was
pleased at it, for she thought they had been of use to each other;
that Clara had sometimes stimulated Grace to do right things which,
without her persuasions, she would have been too timid to attempt,

and that Grace had often prevented Clara from doing wrong things
into which her heedlessness would have led her but for her friend's
prudent advice.
Not far from Mrs. Wilmot's lived a man who was feeble in health and
somewhat indolent in his habits. He had three little daughters, the
eldest of whom was little more than four years old when their
mother died. She was an active, industrious woman, and had always
taken good care of them, but as their father was far from rich, they
fared hardly after her death, and were often sadly neglected. They
could not go to any school except Sunday-school, because their
father could not afford to pay any thing for their education, and at
Sunday-school they were seldom seen, because there was no one to
take care that their clothes were mended and washed in time.
"Poor children," said Grace one day, when she and Clara had passed
them in walking, "how sorry I am for them! They have no kind
mother to take care of them and teach them as I have."
"No, but they might go to Sunday-school, if they would," said Clara;
"and they could learn a great deal there."
"Yes, Clara, but are you sure that we should ever have gone to
Sunday-school, if we had had no one to see that we were ready, and
send us there?"
"No," said Clara, "I do not think we should."
The girls walked silently on for a few minutes, when Clara said,
"Grace, suppose we teach these poor little children."
"We teach them, Clara—what an idea!" exclaimed Grace.
"And why not? I am sure we can teach them to read and to say
hymns and verses from the Bible, and we shall be learning
something more and more every day to teach them, as they grow
older. Come, let us turn back and ask them if they will come to
school to us."

Clara was already retracing her steps, but Grace put her hand on her
arm and stopped her. "Stay, Clara,—it seems very good, and I am
sure I should like to teach them if I can,—but let us ask mamma
about it first, and if she thinks it right, she will show us the best way
to do it."
Clara readily agreed to this proposal. When they returned home,
Mrs. Wilmot was consulted. She highly approved the plan, and
promised to aid them in its execution, provided the time which they
gave to their little pupils was taken, not from their studies or work,
but from their amusements. For many months before my visit, Clara
and Grace had commenced their school, devoting one hour each day
to these motherless children. There was something very touching to
me in seeing these young teachers' patient and persevering efforts
to instruct their charge. Especially did it please me to see the gay,
pleasure-loving Clara, lay aside her bonnet, when ready for a walk or
ride, put up her battledoor, or jump from the just-entered swing,
when she saw the little girls approaching. I said something of this
kind one day to Mrs. Wilmot, and Clara, who was nearer than I
thought, overheard me. She colored, looked quickly at me, as if she
would speak, and then, her courage failing, looked down again.
"What would you say, Clara?" asked Mrs. Wilmot.
"That if it had not been for Grace, ma'am, I should have often put
off teaching them, and maybe, should have given it up altogether
before this."
"And how has Grace prevented you, my dear?"
"Why, the first time I wanted to put off the lesson was once that Mr.
Gilbert called to give me a drive in his new carriage, just as the
children came. But when I said 'let us put them off,' Grace looked
very sorry, and said, I must remember how much trouble we had
had in getting them to come to us; and now, if we put them off for a
drive, they would think we did not care much for the lessons, and
would perhaps not come again. Grace seemed so serious and

earnest, that I was ashamed of having even thought of putting them
off; and so I have never said any thing about it since, though I have
been very tired sometimes."
Grace had entered while Clara was speaking, and now said, "Ah,
Clara! but we would never have begun to teach them if it had not
been for you."
My young readers may understand from this sketch what Mrs.
Wilmot meant by saying that Clara stimulated Grace to do right
things, and Grace prevented Clara from doing wrong ones.

CHAPTER IV.
THE YOUNG TEACHER.
The first Saturday after my arrival at Hazel Grove, I found, after
breakfast, that Clara, instead of getting her books, as usual,
produced some colored silks and a frame for embroidery, in which
was an apron with a border of beautifully shaded white, pink, and
crimson rose-buds, just commenced. At the same time, Grace
brought out her paints and brushes and an unfinished flower-piece,
which showed both great taste in its design and great care in its
execution. These things were laid on the table, and then these two
girls seemed to have nothing to do but to watch for the arrival of
some one whom they evidently expected with impatience. At length
Clara cried out, "I see her, Grace—there she is."
I looked and saw, still at a distance from the house, the figure of a
girl apparently not older than those who were so anxiously expecting
her. She carried a portfolio under her arm, and walked with a quick,
buoyant step, which showed that she was both well and cheerful.
"Who is that?" said I to Grace.
"Cecille L'Estrange, ma'am," she replied.
"And is she coming to take lessons with you?"
"No, ma'am," she said, smiling, "she is coming to teach us."
"To teach you!" I exclaimed, with surprise, "why, she is a child, like
yourselves. What can she teach you?"
"Oh! a great deal more than we have time to learn," said Clara,
while Grace added,

"She is two years older than Clara and I,—she is thirteen."
I had no time to ask farther questions, for Cecille was at the door.
She entered smiling, and said, "Ah! you wait for me—but I am
punctual, it is just the time," pointing to a clock on the mantelpiece,
which said exactly nine o'clock. As she spoke, her eye turning
towards that part of the room where I was sitting, she colored, and
looked down. Grace, who always seemed thoughtful of the comfort
of others, saw this little embarrassment, and introduced her to me.
Either this introduction, or something in my manner to her, set her
quite at her ease; and when I asked if I should be in their way, it
was with a very sweet, engaging smile that she replied, "Oh no,
indeed! I should very much like to have you stay, if you please."
Before I say any thing more of Cecille L'Estrange, it will, perhaps, be
best to tell my young readers, that she was a French girl, and
therefore, though she understood English perfectly well, and spoke it
better than most foreigners do, she sometimes expressed herself in
a different manner from what an English person or an American
would have done: and when she was very much excited from any
cause, either pleasant or painful, she would bring in a French word
here and there, without seeming to notice, or even to know it
herself. These words, however, I will always translate into English for
you.
I had nothing to do for some time but to watch my companions as
they sat busily engaged, and their silence only broken now and then
by a direction from their young instructress. Seldom have I seen any
one who interested me more than this young instructress. Now that
I saw her more nearly, I still thought that she did not look older than
Clara or Grace; indeed, she was smaller than either of them. Her
features, too, were small; and though, when quite still, there was an
earnest, grave expression in her face, when she spoke or smiled, it
was lighted up with such animation and gayety that she seemed like
a playful child. I watched her very earnestly, for there was
something about her which made me think, that young as she was,

and cheerful as she now appeared, she had felt sorrow and trial. At
one time, in moving some things which stood on the table out of
Clara's way, she took up a small bronze figure of Napoleon
Bonaparte. She did not put this down immediately, but continued to
hold it and look at it, till her countenance grew very sad, and she
sighed heavily. Just then, Grace, having put the finishing touch to a
splendid rose, placed the piece before her eyes without speaking. In
an instant all sadness was gone from her face, and, clapping her
hands together, she exclaimed, in French, "What a beautiful flower!"
then, laughing at her own forgetfulness, added, in English, "It is
beautiful! is it not, madam?" showing it to me as she spoke.
It was beautiful, and I praised it as it deserved.
A few minutes after this, Cecille, glancing at the clock, started up,
exclaiming, "I must go, it is after eleven!"
"Wait five minutes," said Clara, "and just show me how to put in that
last shade, and I will soon finish this corner."
Cecille looked distressed, turned her eyes from the work to the
clock, took the needle from Clara's fingers, and then dropping it,
said, "I will come back this afternoon, and show you; but you must
let me go now. I told my grandmamma that I would come back to
her at half-past eleven. I shall just have the time now to get home
before that; and if I stay longer she will be frightened for me."
She took up her portfolio, courtesied to me, bade the girls good-by,
again assuring Clara that she would come back, and in less than two
minutes was out of sight.
"I am sorry," said Clara, as she was putting up her work, "that I
asked her to show me any more to-day, for now she will take that
long, tiresome walk back again."
"Besides, Clara," said Grace, "you know she is always at work when
she is at home, and she will lose so much time coming twice to-day."

"Well, I am sure, Grace," said Clara, reddening at what seemed to
her a reproach, "I did not ask her to come again, and I can do no
more than be sorry for it now."
"Yes, we can do something more," said Grace, "we can walk over
after dinner and tell her not to come."
"So we can and so we will," said Clara, relieved at once by seeing
that she could do something to remedy the evil.

Taxation of Individuals and Business Entities 2017 8th Edition Spilker Test Bank

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