Federal Tax Research, 13th Edition Page 1-1
Solution Manual Federal Tax Research
13th Edition by Roby Sawyers, Steven Gill
Chapters 1 -13
,Page 1-2 SOLUTIONS MANUAL
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.
,Federal Tax Research, 13th Edition Page 1-3
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 also
provide 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 appropriate
professional licensing board.
Page 5 and Circular 230
1-5. Tax dplanning dis dthe dprocess dof darranging done‘s dfinancial daffairs dto dminimize dany dtax
dliability. dMuchdof dmodern dtax dpractice dcenters daround dthis dprocess, dand dthe dresulting
doutcome dis dtax davoidance.
There dis dnothing dillegal dor dimmoral din dthe davoidance dof dtaxation das dlong das dthe
dtaxpayer dremains dwithin dlegal dbounds. dIn dcontrast, dtax devasion dconstitutes dthe dillegal
dnonpayment dof da dtax dand dcannotdbe dcondoned. dActivities dof dthis dsort dclearly dviolate
dexisting dlegal dconstraints dand dfall doutside dof dthe ddomain dof dthe dprofessional dtax
dpractitioner.
Page d6
1-6. In dan dopen dtax dplanning dsituation, dthe dtransaction dis dnot dyet dcomplete; dtherefore, dthe
dtax dpractitionerdmaintains dsome ddegree dof dcontrol dover dthe dpotential dtax dliability, dand
dthe dtransaction dmay dbe dmodi- dfied dto dachieve da dmore dfavorable dtax dtreatment. dIn da
dclosed dtransaction dhowever, dall dof dthe dpertinentdactions dhave dbeen dcompleted, dand dtax
dplanning dactivities dmay dbe dlimited dto dthe dpresentation dof dthe dsituation dto dthe
dgovernment din dthe dmost dlegally dadvantageous d manner d possible.
, Page 1-4 SOLUTIONS MANUAL
Page d6
1-7. Tax dlitigation dis dthe dprocess dof dsettling da ddispute dwith dthe dIRS din da dcourt dof dlaw.
dTypically, da dtaxdattorney dhandles dtax dlitigation dthat dprogresses dbeyond dthe dfinal dIRS
dappeal.
Page d6
1-8. CPAs dserve dis da dsupport dcapacity din dtax dlitigation.
Page d6
1-9. Tax dresearch dconsists dof dthe dresolution dof dunanswered dtaxation dquestions. d The dtax
dresearch dprocessdincludes dthe dfollowing:
1. Identification dof dpertinent dissues;
2. Specification dof dproper dauthorities;
3. Evaluation d of dthe dpropriety dof dauthorities; dand,
4. Application dof dauthorities dto da dspecific dsituation.
Page d6
1-10. Circular d230 dis dissued dby dthe dTreasury dDepartment dand dapplies dto dall dwho dpractice
dbefore dthe dIRS.dPage d7
1-11. In daddition dto dCircular d230, dCPAs dmust dfollow dthe dAICPA‘s dCode dof dProfessional
dConduct dand dStatements don dStandards dfor dTax dServices. dCPAs dmust dalso dabide dby
dthe drules dof dthe dappropriatedstate dboard(s) dof daccountancy.
Page d7
1-12. A dreturn dpreparer dmust dobtain d18 dhours dof dcontinuing deducation dfrom dan dIRS-approved
dCE dProvider. dThe dhours dmust dinclude da d6 dcredit dhour dAnnual dFederal dTax dRefresher
dcourse d(AFTR) dthat dcovers dfiling dseason dissues dand dtax dlaw dupdates. dThe dAFTR
dcourse dmust dinclude da dknowledge-dbased dcomprehension dtest dadministered dat dthe
dconclusion d of dthe dcourse dby dthe dCE dProvider.
Solution Manual Federal Tax Research
13th Edition by Roby Sawyers, Steven Gill
Chapters 1 -13
,Page 1-2 SOLUTIONS MANUAL
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.
,Federal Tax Research, 13th Edition Page 1-3
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 also
provide 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 appropriate
professional licensing board.
Page 5 and Circular 230
1-5. Tax dplanning dis dthe dprocess dof darranging done‘s dfinancial daffairs dto dminimize dany dtax
dliability. dMuchdof dmodern dtax dpractice dcenters daround dthis dprocess, dand dthe dresulting
doutcome dis dtax davoidance.
There dis dnothing dillegal dor dimmoral din dthe davoidance dof dtaxation das dlong das dthe
dtaxpayer dremains dwithin dlegal dbounds. dIn dcontrast, dtax devasion dconstitutes dthe dillegal
dnonpayment dof da dtax dand dcannotdbe dcondoned. dActivities dof dthis dsort dclearly dviolate
dexisting dlegal dconstraints dand dfall doutside dof dthe ddomain dof dthe dprofessional dtax
dpractitioner.
Page d6
1-6. In dan dopen dtax dplanning dsituation, dthe dtransaction dis dnot dyet dcomplete; dtherefore, dthe
dtax dpractitionerdmaintains dsome ddegree dof dcontrol dover dthe dpotential dtax dliability, dand
dthe dtransaction dmay dbe dmodi- dfied dto dachieve da dmore dfavorable dtax dtreatment. dIn da
dclosed dtransaction dhowever, dall dof dthe dpertinentdactions dhave dbeen dcompleted, dand dtax
dplanning dactivities dmay dbe dlimited dto dthe dpresentation dof dthe dsituation dto dthe
dgovernment din dthe dmost dlegally dadvantageous d manner d possible.
, Page 1-4 SOLUTIONS MANUAL
Page d6
1-7. Tax dlitigation dis dthe dprocess dof dsettling da ddispute dwith dthe dIRS din da dcourt dof dlaw.
dTypically, da dtaxdattorney dhandles dtax dlitigation dthat dprogresses dbeyond dthe dfinal dIRS
dappeal.
Page d6
1-8. CPAs dserve dis da dsupport dcapacity din dtax dlitigation.
Page d6
1-9. Tax dresearch dconsists dof dthe dresolution dof dunanswered dtaxation dquestions. d The dtax
dresearch dprocessdincludes dthe dfollowing:
1. Identification dof dpertinent dissues;
2. Specification dof dproper dauthorities;
3. Evaluation d of dthe dpropriety dof dauthorities; dand,
4. Application dof dauthorities dto da dspecific dsituation.
Page d6
1-10. Circular d230 dis dissued dby dthe dTreasury dDepartment dand dapplies dto dall dwho dpractice
dbefore dthe dIRS.dPage d7
1-11. In daddition dto dCircular d230, dCPAs dmust dfollow dthe dAICPA‘s dCode dof dProfessional
dConduct dand dStatements don dStandards dfor dTax dServices. dCPAs dmust dalso dabide dby
dthe drules dof dthe dappropriatedstate dboard(s) dof daccountancy.
Page d7
1-12. A dreturn dpreparer dmust dobtain d18 dhours dof dcontinuing deducation dfrom dan dIRS-approved
dCE dProvider. dThe dhours dmust dinclude da d6 dcredit dhour dAnnual dFederal dTax dRefresher
dcourse d(AFTR) dthat dcovers dfiling dseason dissues dand dtax dlaw dupdates. dThe dAFTR
dcourse dmust dinclude da dknowledge-dbased dcomprehension dtest dadministered dat dthe
dconclusion d of dthe dcourse dby dthe dCE dProvider.
