Solution Manual For Federal Tax Research, 13th Edition by Roby Sawyers, Steven Gill| 9780357988411| All Chapters| LATEST

,Federal Tax Research, 11th Edition Page 1-1

CHAPTER 1 nm



AN INTRODUCTION TO TAX PRACTICE AND ETHICS
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DISCUSSION QUESTIONS nm




1-1. In the United States, the tax system is an outgrowth of the following five
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nmdisciplines: law, accounting, economics, political science, and sociology. The
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environment for the tax system is provided by the principles of economics,
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nmsociology, and political science, while the legal and accounting fields are
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nmresponsible for the system's interpretation and application.
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Each of these disciplines affects this country's tax system in a unique way. Economists
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address such issues as how proposed tax legislation will affect the rate of inflation or
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economic growth. Measurement of the social equity of a tax, and determining
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whether a tax system discriminates against certain taxpayers, are issues that are
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examined by sociologists and political scientists. Finally, attorneys are responsible for
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the interpretation of the taxation statutes, and accountants ensure that these same
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statutes are applied consistently.
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1-2. The other major categories of tax practice in addition to tax research are:
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 tax compliance
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 tax planning
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 tax

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1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying
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that information, and filing any necessary tax returns. Compliance also includes other
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functions necessary to satisfy governmental requirements, such as representing a client
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during an IRS audit.
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1-4. Most of the tax compliance work is performed by commercial tax preparers,
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enrolled agents, attorneys, and CPAs. Noncomplex individual, partnership, and
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corporate tax returns often are completed by commercial tax preparers. The
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preparation of more complex returns usually is performed by enrolled agents,
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attorneys, and CPAs. The latter groups also provide tax planning services and
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represent their clients before the IRS.
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An enrolled agent is one who is admitted to practice before the IRS by passing a
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special IRS- administered examination, or who has worked for the IRS for five
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years, and is issued a permit to represent clients before the IRS. CPAs and attorneys
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are not required to take this examination and are automatically admitted to practice
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before the IRS if they are in good standing with the appropriate professional
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licensing board.
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Page 5 and Circular 230
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,Page 1-2 SOLUTIONS MANUAL

1-5. Tax planning is the process of arranging one's financial affairs to minimize any tax
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liability. Much of modern tax practice centers around this process, and the resulting
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outcome is tax avoidance.
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There is nothing illegal or immoral in the avoidance of taxation, as long as the
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taxpayer remains within legal bounds. In contrast, tax evasion constitutes the illegal
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nonpayment of a tax and cannot be condoned. Activities of this sort clearly violate
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existing legal constraints and fall outside of the domain of the professional tax
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practitioner.
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1-6. In an open tax planning situation, the transaction is not yet complete, therefore, the tax
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nmpractitioner maintains some degree of control over the potential tax liability, and the
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transaction may be modi- fied to achieve a more favorable tax treatment. In a closed
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nmtransaction however, all of the pertinent actions have been completed, and tax planning
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nmactivities may be limited to the presentation of the situation to the government in the
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nmmost legally advantageous manner possible.
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1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law.
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Typically, a tax attorney handles tax litigation that progresses beyond the final IRS
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appeal.
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1-8. CPAs serve is a support capacity in tax litigation.
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1-9. Tax research consists of the resolution of unanswered taxation questions. The tax
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research process includes the following:
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1. Identification of pertinent issues; nm nm nm

2. Specification of proper authorities; nm nm nm

3. Evaluation of the propriety of authorities; and,
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4. Application of authorities to a specific situation.
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1-10. Circular 230 is issued by the Treasury Department and applies to all who practice
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nm before the IRS. Page 7
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1-11. In addition to Circular 230, CPAs must follow the AICPA's Code of Professional
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nmConduct and Statements on Standards for Tax Services. CPAs must also abide by
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the rules of the appropriate state board(s) of accountancy.
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1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved
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CE Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher
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course (AFTR) that covers filing season issues and tax law updates. The AFTR course
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must include a knowledge- based comprehension test administered at the conclusion of
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the course by the CE Provider.
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Limited practice rights allow individuals to represent clients whose returns they
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prepared and signed, but only before revenue agents, customer service
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representatives, and similar IRS employees.
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, Federal Tax Research, 11th Edition Page 1-3

Page 10 and IRS.gov
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1-13. False. Only communication with the IRS concerning a taxpayer's rights, privileges, or
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liability is included. Practice before the IRS does not include representation before
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the Tax Court.
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Page 7 nm




1-14. Section 10.2 of Subpart A of Circular 230 defines practice before the IRS as including:
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matters connected with presentation to the Internal Revenue Service or any of
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its officers or employees relating to a client's rights, privileges, or liabilities
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under laws or regulations administered by the Internal Revenue Service. Such
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presentations include the preparation and filing of necessary documents,
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correspondence with, and communications to the Internal Revenue Service, and
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the representation of a client at conferences, hearings, and meetings.
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1-15. To become an Enrolled Agent an individual can (1) pass a test given by the IRS or
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(2) work for the IRS for five years. Circular 230, Subpart A, Secs. 10.4 to 10.6.
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1-16. Enrolled Agents must complete 72 hours of Continuing Education every three years (an
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average of 24 per year, with a minimum of 16 hours during any year.). Circular
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230, Subpart A. §10.6.
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1-17. True. As a general rule, an individual must be an enrolled agent, attorney, or CPA
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to represent a client before the IRS. There are limited situations where others may
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represent a taxpayer; however, this fact pattern is not one of them. Since Leigh
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did not sign the return, she cannot represent the taxpayer, only Rose can.
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Pages 10-11 nm




1-18. The names of organizations that can be represented by regular full-time employees are
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found in Circular 230, §10.7(c). A regular full-time employee can represent the
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employer (individual employer). A regular full-time employee of a partnership may
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represent the partnership. Also, a regular full-time employee of a trust, receivership,
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guardianship, or estate may represent the trust, receivership, guardianship, or estate.
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Furthermore, a regular full-time employee of a governmental unit, agency, or authority
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may represent the governmental unit, agency, or authority in the course of his or her
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official duties.
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1-19. Yes. Circular 230, Subpart A, Sec. 10.7.
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