Federal Tax Research, 13th Edition Page 1-1
SOLUTION MANUAL FEDERAL TAX RESEARCH
13TH EDITION BY ROBY SAWYERS, STEVEN GILL
CHAPTERS1 - 13
, Page 1-2 SOLUTIONS MANUAL
TABLE OF CONTENTS
CHAPTER 1 ..................................................................................................................................................................... 3
INTRODUCTION TO TAX PRACTICE AND ETHICS ............................................................................................... 3
CHAPTER 2 ................................................................................................................................................................... 36
TAX RESEARCH METHODOLOGY ............................................................................................................................ 36
CHAPTER 3 CONSTITUTIONAL AND LEGISLATIVE SOURCES ......................................................................... 70
CHAPTER 4 ................................................................................................................................................................. 100
ADMINISTRATIVE REGULATIONS AND RULINGS............................................................................................ 100
CHAPTER 5 JUDICIAL INTERPRETATIONS ............................................................................................................ 90
CHAPTER 6 ................................................................................................................................................................. 131
DISCUSSION QUESTIONS ........................................................................................................................................ 131
EXERCISES ............................................................................................................................................................. 143
CHAPTER 7 ................................................................................................................................................................. 154
DISCUSSION QUESTIONS ........................................................................................................................................ 154
CHAPTER 8 ................................................................................................................................................................. 169
DISCUSSION QUESTIONS ........................................................................................................................................ 169
CHAPTER 9 MULTIJURISDICTIONAL TAXES ...................................................................................................... 183
DISCUSSION QUESTIONS ........................................................................................................................................ 183
CHAPTER 10 COMMUNICATING RESEARCH RESULTS .................................................................................... 212
CHAPTER 11 TAX PLANNING .................................................................................................................................. 221
CHAPTER 12 WORKING WITH THE IRS ................................................................................................................ 239
CHAPTER 13 ............................................................................................................................................................... 260
TAX PRACTICE AND ADMINISTRATION .............................................................................................................. 261
, Federal Tax Research, 13th Edition Page 1-3
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
Discussion Questions
1-1. In The United States, The Tax System Is An Outgrowth Of The Following Five Disciplines:
Law, Accounting, Economics, Political Science, And Sociology. The Environment For The
Tax System Is Provided By The Principles Of Economics, Sociology, And Political Science,
While The Legal And Accounting Fields Are Responsible For The System‘S Interpretation
And Application.
Each Of These Disciplines Affects This Country‘S Tax System In A Unique Way. Economists
Address Such Issues As How Proposed Tax Legislation Will Affect The Rate Of Inflation Or
Economic Growth. Measurement Of The Social Equity Of A Tax And Determining Whether
A Tax System Discriminates Against Certain Taxpayers Are Issues That Are Examined By
Sociologists And Political Scientists.
Finally, Attorneys Are Responsible For The Interpretation Of The Taxation Statutes, And
Accountants Ensure That These Same Statutes Are Applied Consistently.****8880()
Page 4
1-2. The Other Major Categories Of Tax Practice In Addition To Tax Research Are As Follows:
• Tax Compliance
• Tax Planning
• Tax
Litigation Page 5
1-3. Tax Compliance Consists Of Gathering Pertinent Information, Evaluating And Classifying
That Information, And Filing Any Necessary Tax Returns. Compliance Also Includes Other
Functions Necessary To Satisfy Governmental Requirements, Such As Representing A Client
During An Internal Revenue Service (Irs) Audit.
, Page 1-4 SOLUTIONS MANUAL
Page 5
1-4. Most Of The Tax Compliance Work Is Performed By Commercial Tax Preparers, Enrolled Agents
(Eas), Attorneys, And Certified Public Accountants (Cpas). Noncomplex Individual,
Partnership,And Corporate Tax Returns Often Are Completed By Commercial Tax Preparers.
The Preparation Of More Complex Returns Usually Is Performed By Eas, Attorneys, And Cpas.
The Latter Groups Alsoprovide Tax Planning Services And Represent Their Clients Before The
Irs.
An Ea Is One Who Is Admitted To Practice Before The Irs By Passing A Special Irs-Administered
Examination, Or Who Has Worked For The Irs For Five Years And Is Issued A Permit To
Represent Clients Before The Irs. Cpas And Attorneys Are Not Required To Take This
Examination And Are Automatically Admitted To Practice Before The Irs If They Are In Good
Standing With The Appropriateprofessional Licensing Board.
Page 5 And Circular 230
1-5. Tax Planning Is The Process Of Arranging One‘S Financial Affairs To Minimize Any Tax Liability.
Muchof Modern Tax Practice Centers Around This Process, And The Resulting Outcome Is Tax
Avoidance.
There Is Nothing Illegal Or Immoral In The Avoidance Of Taxation As Long As The Taxpayer
Remains Within Legal Bounds. In Contrast, Tax Evasion Constitutes The Illegal Nonpayment Of A
Tax And Cannotbe Condoned. Activities Of This Sort Clearly Violate Existing Legal Constraints
And Fall Outside Of The Domain Of The Professional Tax Practitioner.
Page 6
1-6. In An Open Tax Planning Situation, The Transaction Is Not Yet Complete; Therefore, The Tax
Practitioner Maintains Some Degree Of Control Over The Potential Tax Liability, And The
Transaction May Be Modi- Fied To Achieve A More Favorable Tax Treatment. In A Closed
Transaction However, All Of The Pertinent Actions Have Been Completed, And Tax Planning
Activities May Be Limited To The Presentation Of The Situation To The Government In The
Most Legally Advantageous Manner Possible.
SOLUTION MANUAL FEDERAL TAX RESEARCH
13TH EDITION BY ROBY SAWYERS, STEVEN GILL
CHAPTERS1 - 13
, Page 1-2 SOLUTIONS MANUAL
TABLE OF CONTENTS
CHAPTER 1 ..................................................................................................................................................................... 3
INTRODUCTION TO TAX PRACTICE AND ETHICS ............................................................................................... 3
CHAPTER 2 ................................................................................................................................................................... 36
TAX RESEARCH METHODOLOGY ............................................................................................................................ 36
CHAPTER 3 CONSTITUTIONAL AND LEGISLATIVE SOURCES ......................................................................... 70
CHAPTER 4 ................................................................................................................................................................. 100
ADMINISTRATIVE REGULATIONS AND RULINGS............................................................................................ 100
CHAPTER 5 JUDICIAL INTERPRETATIONS ............................................................................................................ 90
CHAPTER 6 ................................................................................................................................................................. 131
DISCUSSION QUESTIONS ........................................................................................................................................ 131
EXERCISES ............................................................................................................................................................. 143
CHAPTER 7 ................................................................................................................................................................. 154
DISCUSSION QUESTIONS ........................................................................................................................................ 154
CHAPTER 8 ................................................................................................................................................................. 169
DISCUSSION QUESTIONS ........................................................................................................................................ 169
CHAPTER 9 MULTIJURISDICTIONAL TAXES ...................................................................................................... 183
DISCUSSION QUESTIONS ........................................................................................................................................ 183
CHAPTER 10 COMMUNICATING RESEARCH RESULTS .................................................................................... 212
CHAPTER 11 TAX PLANNING .................................................................................................................................. 221
CHAPTER 12 WORKING WITH THE IRS ................................................................................................................ 239
CHAPTER 13 ............................................................................................................................................................... 260
TAX PRACTICE AND ADMINISTRATION .............................................................................................................. 261
, Federal Tax Research, 13th Edition Page 1-3
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
Discussion Questions
1-1. In The United States, The Tax System Is An Outgrowth Of The Following Five Disciplines:
Law, Accounting, Economics, Political Science, And Sociology. The Environment For The
Tax System Is Provided By The Principles Of Economics, Sociology, And Political Science,
While The Legal And Accounting Fields Are Responsible For The System‘S Interpretation
And Application.
Each Of These Disciplines Affects This Country‘S Tax System In A Unique Way. Economists
Address Such Issues As How Proposed Tax Legislation Will Affect The Rate Of Inflation Or
Economic Growth. Measurement Of The Social Equity Of A Tax And Determining Whether
A Tax System Discriminates Against Certain Taxpayers Are Issues That Are Examined By
Sociologists And Political Scientists.
Finally, Attorneys Are Responsible For The Interpretation Of The Taxation Statutes, And
Accountants Ensure That These Same Statutes Are Applied Consistently.****8880()
Page 4
1-2. The Other Major Categories Of Tax Practice In Addition To Tax Research Are As Follows:
• Tax Compliance
• Tax Planning
• Tax
Litigation Page 5
1-3. Tax Compliance Consists Of Gathering Pertinent Information, Evaluating And Classifying
That Information, And Filing Any Necessary Tax Returns. Compliance Also Includes Other
Functions Necessary To Satisfy Governmental Requirements, Such As Representing A Client
During An Internal Revenue Service (Irs) Audit.
, Page 1-4 SOLUTIONS MANUAL
Page 5
1-4. Most Of The Tax Compliance Work Is Performed By Commercial Tax Preparers, Enrolled Agents
(Eas), Attorneys, And Certified Public Accountants (Cpas). Noncomplex Individual,
Partnership,And Corporate Tax Returns Often Are Completed By Commercial Tax Preparers.
The Preparation Of More Complex Returns Usually Is Performed By Eas, Attorneys, And Cpas.
The Latter Groups Alsoprovide Tax Planning Services And Represent Their Clients Before The
Irs.
An Ea Is One Who Is Admitted To Practice Before The Irs By Passing A Special Irs-Administered
Examination, Or Who Has Worked For The Irs For Five Years And Is Issued A Permit To
Represent Clients Before The Irs. Cpas And Attorneys Are Not Required To Take This
Examination And Are Automatically Admitted To Practice Before The Irs If They Are In Good
Standing With The Appropriateprofessional Licensing Board.
Page 5 And Circular 230
1-5. Tax Planning Is The Process Of Arranging One‘S Financial Affairs To Minimize Any Tax Liability.
Muchof Modern Tax Practice Centers Around This Process, And The Resulting Outcome Is Tax
Avoidance.
There Is Nothing Illegal Or Immoral In The Avoidance Of Taxation As Long As The Taxpayer
Remains Within Legal Bounds. In Contrast, Tax Evasion Constitutes The Illegal Nonpayment Of A
Tax And Cannotbe Condoned. Activities Of This Sort Clearly Violate Existing Legal Constraints
And Fall Outside Of The Domain Of The Professional Tax Practitioner.
Page 6
1-6. In An Open Tax Planning Situation, The Transaction Is Not Yet Complete; Therefore, The Tax
Practitioner Maintains Some Degree Of Control Over The Potential Tax Liability, And The
Transaction May Be Modi- Fied To Achieve A More Favorable Tax Treatment. In A Closed
Transaction However, All Of The Pertinent Actions Have Been Completed, And Tax Planning
Activities May Be Limited To The Presentation Of The Situation To The Government In The
Most Legally Advantageous Manner Possible.
