FederalTaxResearch (
b b b
th
12 Edition)
b
RobySawyers, Steven
b b b
Gill
Study Guide b
2021
,FederalbTaxbResearch,b11thbEdition Pageb1-1
CHAPTER 1 b
AN INTRODUCTION TO TAX PRACTICE AND ETHICS
b b b b b b
DISCUSSIONbQUESTIONS
1-1.
InbthebUnitedbStates,bthebtaxbsystembisbanboutgrowthbofbthebfollowingbfivebdisciplines:bla
w,baccounting,beconomics,bpoliticalbscience,bandbsociology.bThebenvironmentbforbthebtaxbsyste
mbisbprovidedbbybthebprinciplesbofbeconomics,bsociology,bandbpoliticalbscience,bwhilebtheblegalb
andbaccountingbfieldsbarebresponsiblebforbthebsystem'sbinterpretationbandbapplication.
Eachbofbthesebdisciplinesbaffectsbthisbcountry'sbtaxbsystembinbabuniquebway.bEconomistsbaddressbsu
chbissuesbasbhowbproposedbtaxblegislationbwillbaffectbthebratebofbinflationborbeconomicbgrowth.bMea
surementbofbthebsocialbequitybofbabtax,bandbdeterminingbwhetherbabtaxbsystembdiscriminatesbagainst
bcertainbtaxpayers,barebissuesbthatbarebexaminedbbybsociologistsbandbpoliticalbscientists.bFinally, batt
orneysbarebresponsiblebforbthebinterpretationbofbthebtaxationbstatutes,bandbaccountantsbensurebthatbt
hesebsamebstatutesbarebappliedbconsistently.
Pageb4
1-2. Thebotherbmajorbcategoriesbofbtaxbpracticebinbadditionbtobtaxbresearchbare:
• taxbcompliance
• taxbplanning
• taxblitigation
bPageb5
1-3.
Taxbcompliancebconsistsbofbgatheringbpertinentbinformation,bevaluatingbandbclassifyingbtha
tbinformation,bandbfilingbanybnecessarybtaxbreturns.bCompliancebalsobincludesbotherbfunctionsbnece
ssarybtobsatisfybgovernmentalbrequirements,bsuchbasbrepresentingbabclientbduringbanbIRSbaudit.
Pageb5
1-4.
Mostbofbthebtaxbcompliancebworkbisbperformedbbybcommercialbtaxbpreparers,benrolledbag
ents,battorneys,bandbCPAs.bNoncomplexbindividual,bpartnership,bandbcorporatebtaxbreturnsboften
barebcompletedbbybcommercial btaxbpreparers.bThebpreparationbofbmore bcomplexbreturnsbusuallyb
isbperformedbbybenrolledbagents,battorneys,bandbCPAs.bTheblatterbgroupsbalsobprovidebtaxbplanni
ngbservicesbandbrepresentbtheirbclientsbbeforebthebIRS.
AnbenrolledbagentbisbonebwhobisbadmittedbtobpracticebbeforebthebIRSbbybpassingbabspecialbIRS-
badministeredbexamination,bor bwhobhasbworked bfor bthebIRSbforbfive byears, band bisbissued babpermitbto
brepresentbclientsbbeforebthebIRS.bCPAsband battorneysbarebnotbrequiredbto btakebthisbexaminationban
dbarebautomaticallybadmittedbtobpracticebbeforebthebIRSbifbtheybarebinbgoodbstandingbwithbthebappr
opriatebprofessionalblicensingbboard.
Pageb5bandbCircularb230
,Pageb1-2 SOLUTIONSbMANUAL
1-5.
Taxbplanningbisbthebprocessbofbarrangingbone'sbfinancialbaffairsbtobminimizebanybtaxbliability
.bMuchbofbmodernbtaxbpracticebcentersbaroundbthisbprocess,bandbthebresultingboutcomebisbtaxbavoid
ance.
Therebisbnothingbillegalborbimmoralbinbthebavoidancebofbtaxation,basblongbasbthebtaxpayerbremainsbw
ithinblegalbbounds.bInbcontrast,btaxbevasionbconstitutesbthebillegalbnonpaymentbofbabtaxbandbcannotbb
ebcondoned.bActivitiesbofbthisbsortbclearlybviolatebexistingblegalbconstraintsbandbfallboutsidebofbthebd
omainbofbthebprofessionalbtaxbpractitioner.
Pageb6
1-6.
Inbanbopenbtaxbplanningbsituation,bthebtransactionbisbnotbyetbcomplete,btherefore,bthebtaxbprac
titionerbmaintainsbsomebdegreebofbcontrolboverbthebpotentialbtaxbliability,bandbthebtransactionbmaybb
ebmodi-
bfiedbto bachieve babmore bfavorablebtaxbtreatment.bInbabclosed btransactionbhowever,ballbofbthebpertinent
bactionsbhave bbeenbcompleted,bandbtaxbplanningbactivitiesbmaybbeblimitedbto bthe bpresentationbofbtheb
situationbtobthebgovernmentbinbthebmostblegallybadvantageousbmannerbpossible.
Pageb6
1-7.
TaxblitigationbisbthebprocessbofbsettlingbabdisputebwithbthebIRSbinbabcourtbofblaw.bTypicall
y,babtaxbattorneybhandlesbtaxblitigationbthatbprogressesbbeyondbthebfinalbIRSbappeal.
Pageb6
1-8. CPAsbservebisbabsupportbcapacitybinbtaxblitigation.
Pageb6
1-9.
Taxbresearchbconsistsbofbthebresolutionbofbunansweredbtaxationbquestions.bThebtaxbresearchb
processbincludesbthebfollowing:
1. Identificationbofbpertinentbissues;
2. Specificationbofbproperbauthorities;
3. Evaluationbofbthebproprietybofbauthorities;band,
4. Applicationbofbauthoritiesbtobabspecificbsituation.
Pageb6
1-10.
Circularb230bisbissuedbbybthebTreasurybDepartmentbandbappliesbtoballbwhobpracticebbeforebt
hebIRS.bPageb7
1-11.
InbadditionbtobCircularb230,bCPAsbmustbfollowbthebAICPA'sbCodebofbProfessionalbCondu
ctbandbStatementsbonbStandardsbforbTaxbServices.bCPAsbmustbalsobabidebbybthebrulesbofbthebappr
opriatebstatebboard(s)bofbaccountancy.
Pageb7
1-12. Abreturnbpreparerbmustbobtainb18bhoursbofbcontinuingbeducationbfrombanbIRS-
approvedbCEbProvider.bThebhoursbmustbincludebab6bcreditbhourbAnnualbFederalbTaxbRefresherbcou
rseb(AFTR)bthatbcoversbfilingbseasonbissuesbandbtaxblawbupdates.bThebAFTRbcoursebmustbincludebab
knowledge-
, FederalbTaxbResearch,b11thbEdition Pageb1-3
bbasedbcomprehensionbtestbadministeredbatbthebconclusionbofbthebcoursebbybthebCEbProvider.
Limitedbpracticebrightsballowbindividualsbtobrepresentbclientsbwhosebreturnsbtheybpreparedbandbs
igned,bbutbonlybbeforebrevenuebagents,bcustomerbservicebrepresentatives,bandbsimilarbIRSbempl
oyees.
b b b
th
12 Edition)
b
RobySawyers, Steven
b b b
Gill
Study Guide b
2021
,FederalbTaxbResearch,b11thbEdition Pageb1-1
CHAPTER 1 b
AN INTRODUCTION TO TAX PRACTICE AND ETHICS
b b b b b b
DISCUSSIONbQUESTIONS
1-1.
InbthebUnitedbStates,bthebtaxbsystembisbanboutgrowthbofbthebfollowingbfivebdisciplines:bla
w,baccounting,beconomics,bpoliticalbscience,bandbsociology.bThebenvironmentbforbthebtaxbsyste
mbisbprovidedbbybthebprinciplesbofbeconomics,bsociology,bandbpoliticalbscience,bwhilebtheblegalb
andbaccountingbfieldsbarebresponsiblebforbthebsystem'sbinterpretationbandbapplication.
Eachbofbthesebdisciplinesbaffectsbthisbcountry'sbtaxbsystembinbabuniquebway.bEconomistsbaddressbsu
chbissuesbasbhowbproposedbtaxblegislationbwillbaffectbthebratebofbinflationborbeconomicbgrowth.bMea
surementbofbthebsocialbequitybofbabtax,bandbdeterminingbwhetherbabtaxbsystembdiscriminatesbagainst
bcertainbtaxpayers,barebissuesbthatbarebexaminedbbybsociologistsbandbpoliticalbscientists.bFinally, batt
orneysbarebresponsiblebforbthebinterpretationbofbthebtaxationbstatutes,bandbaccountantsbensurebthatbt
hesebsamebstatutesbarebappliedbconsistently.
Pageb4
1-2. Thebotherbmajorbcategoriesbofbtaxbpracticebinbadditionbtobtaxbresearchbare:
• taxbcompliance
• taxbplanning
• taxblitigation
bPageb5
1-3.
Taxbcompliancebconsistsbofbgatheringbpertinentbinformation,bevaluatingbandbclassifyingbtha
tbinformation,bandbfilingbanybnecessarybtaxbreturns.bCompliancebalsobincludesbotherbfunctionsbnece
ssarybtobsatisfybgovernmentalbrequirements,bsuchbasbrepresentingbabclientbduringbanbIRSbaudit.
Pageb5
1-4.
Mostbofbthebtaxbcompliancebworkbisbperformedbbybcommercialbtaxbpreparers,benrolledbag
ents,battorneys,bandbCPAs.bNoncomplexbindividual,bpartnership,bandbcorporatebtaxbreturnsboften
barebcompletedbbybcommercial btaxbpreparers.bThebpreparationbofbmore bcomplexbreturnsbusuallyb
isbperformedbbybenrolledbagents,battorneys,bandbCPAs.bTheblatterbgroupsbalsobprovidebtaxbplanni
ngbservicesbandbrepresentbtheirbclientsbbeforebthebIRS.
AnbenrolledbagentbisbonebwhobisbadmittedbtobpracticebbeforebthebIRSbbybpassingbabspecialbIRS-
badministeredbexamination,bor bwhobhasbworked bfor bthebIRSbforbfive byears, band bisbissued babpermitbto
brepresentbclientsbbeforebthebIRS.bCPAsband battorneysbarebnotbrequiredbto btakebthisbexaminationban
dbarebautomaticallybadmittedbtobpracticebbeforebthebIRSbifbtheybarebinbgoodbstandingbwithbthebappr
opriatebprofessionalblicensingbboard.
Pageb5bandbCircularb230
,Pageb1-2 SOLUTIONSbMANUAL
1-5.
Taxbplanningbisbthebprocessbofbarrangingbone'sbfinancialbaffairsbtobminimizebanybtaxbliability
.bMuchbofbmodernbtaxbpracticebcentersbaroundbthisbprocess,bandbthebresultingboutcomebisbtaxbavoid
ance.
Therebisbnothingbillegalborbimmoralbinbthebavoidancebofbtaxation,basblongbasbthebtaxpayerbremainsbw
ithinblegalbbounds.bInbcontrast,btaxbevasionbconstitutesbthebillegalbnonpaymentbofbabtaxbandbcannotbb
ebcondoned.bActivitiesbofbthisbsortbclearlybviolatebexistingblegalbconstraintsbandbfallboutsidebofbthebd
omainbofbthebprofessionalbtaxbpractitioner.
Pageb6
1-6.
Inbanbopenbtaxbplanningbsituation,bthebtransactionbisbnotbyetbcomplete,btherefore,bthebtaxbprac
titionerbmaintainsbsomebdegreebofbcontrolboverbthebpotentialbtaxbliability,bandbthebtransactionbmaybb
ebmodi-
bfiedbto bachieve babmore bfavorablebtaxbtreatment.bInbabclosed btransactionbhowever,ballbofbthebpertinent
bactionsbhave bbeenbcompleted,bandbtaxbplanningbactivitiesbmaybbeblimitedbto bthe bpresentationbofbtheb
situationbtobthebgovernmentbinbthebmostblegallybadvantageousbmannerbpossible.
Pageb6
1-7.
TaxblitigationbisbthebprocessbofbsettlingbabdisputebwithbthebIRSbinbabcourtbofblaw.bTypicall
y,babtaxbattorneybhandlesbtaxblitigationbthatbprogressesbbeyondbthebfinalbIRSbappeal.
Pageb6
1-8. CPAsbservebisbabsupportbcapacitybinbtaxblitigation.
Pageb6
1-9.
Taxbresearchbconsistsbofbthebresolutionbofbunansweredbtaxationbquestions.bThebtaxbresearchb
processbincludesbthebfollowing:
1. Identificationbofbpertinentbissues;
2. Specificationbofbproperbauthorities;
3. Evaluationbofbthebproprietybofbauthorities;band,
4. Applicationbofbauthoritiesbtobabspecificbsituation.
Pageb6
1-10.
Circularb230bisbissuedbbybthebTreasurybDepartmentbandbappliesbtoballbwhobpracticebbeforebt
hebIRS.bPageb7
1-11.
InbadditionbtobCircularb230,bCPAsbmustbfollowbthebAICPA'sbCodebofbProfessionalbCondu
ctbandbStatementsbonbStandardsbforbTaxbServices.bCPAsbmustbalsobabidebbybthebrulesbofbthebappr
opriatebstatebboard(s)bofbaccountancy.
Pageb7
1-12. Abreturnbpreparerbmustbobtainb18bhoursbofbcontinuingbeducationbfrombanbIRS-
approvedbCEbProvider.bThebhoursbmustbincludebab6bcreditbhourbAnnualbFederalbTaxbRefresherbcou
rseb(AFTR)bthatbcoversbfilingbseasonbissuesbandbtaxblawbupdates.bThebAFTRbcoursebmustbincludebab
knowledge-
, FederalbTaxbResearch,b11thbEdition Pageb1-3
bbasedbcomprehensionbtestbadministeredbatbthebconclusionbofbthebcoursebbybthebCEbProvider.
Limitedbpracticebrightsballowbindividualsbtobrepresentbclientsbwhosebreturnsbtheybpreparedbandbs
igned,bbutbonlybbeforebrevenuebagents,bcustomerbservicebrepresentatives,bandbsimilarbIRSbempl
oyees.
