Question

Explain the difference between closed-fact and open-fact situations.

A. In a closed-fact situation, the facts have occurred, and the tax advisor's task is to analyze them to determine the appropriate tax treatment. In an open-fact situation, the facts have not yet occurred, and the tax advisor's task is to plan them or shape them into a favorable tax result.
B. In a closed-fact situation, the facts have occurred, and the tax advisor's task is to plan or shape the facts into a favorable tax result. In an open-fact situation, the facts have not yet occurred, and the tax advisor's task is to analyze them to determine the appropriate tax treatment.
C. In a closed-fact situation, the facts have not yet occurred, and the tax advisor's task is to plan them or shape them into a favorable tax result. In an open-fact situation, the facts have occurred, and the tax advisor's task is to analyze them to determine the appropriate tax treatment.
D. None of the above.

Answer 1

In a closed-fact situation, the tax advisor analyzes facts that have occurred, while in an open-fact situation, the tax advisor plans or shapes facts that have not yet occurred.

Step-by-step explanation:

In a closed-fact situation, the facts have occurred, and the tax advisor's task is to analyze them to determine the appropriate tax treatment. For example, if a client has already sold a piece of property, the tax advisor will review the transaction details to calculate the capital gains tax owed.

In contrast, an open-fact situation refers to facts that have not yet occurred. In this case, the tax advisor's task is to plan or shape the facts into a favorable tax result. For instance, if a client is considering selling a piece of property, the tax advisor may provide guidance on potential tax-saving strategies or timing the sale to optimize tax benefits.

It is important for a tax advisor to distinguish between closed-fact and open-fact situations to provide accurate and effective advice to clients. By understanding whether the facts have occurred or are still to be determined, the tax advisor can tailor their approach and provide the most appropriate recommendations.