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.
InAtheAUnitedAStates,AtheAtaxAsystemAisAanAoutgrowthAofAtheAfollowingAfiveAdiscipline
s:Alaw,Aaccounting,Aeconomics,ApoliticalAscience,AandAsociology.ATheAenvironmentAforAtheAta
xAsystemAisAprovidedAbyAtheAprinciplesAofAeconomics,Asociology,AandApoliticalAscience,Awhile
AtheAlegalAandAaccountingAfieldsAareAresponsibleAforA theAsystem‘sAinterpretationA andAapplicati
on.
EachAofAtheseAdisciplinesAaffectsAthisAcountry‘sAtaxAsystemAinAaAuniqueAway.AEconomistsAadd
ressAsuchAissuesAasAhowAproposedAtaxAlegislationAwillAaffectAtheArateAofAinflationAorAeconomic
Agrowth.AMeasurementAofAtheAsocialAequityAofAaAtaxAandAdeterminingAwhetherAaAtaxAsystemAdi
scriminatesAagainstAcertainAtaxpayersAareAissuesAthatAareAexaminedAbyAsociologistsAandApolitic
alAscientists.
Finally,AattorneysAareAresponsibleAforAtheAinterpretationAofAtheAtaxationAstatutes,AandAaccounta
ntsAensureAthatAtheseAsameAstatutesAareAappliedAconsistently.****8880()
PageA4
1-2. TheAotherAmajorAcategoriesAofAtaxApracticeAinAadditionAtoAtaxAresearchAareAasAfollows:
• TaxAcompliance
• TaxAplanning
• TaxAlitigatio
nAPageA5
1-3.
TaxAcomplianceAconsistsAofAgatheringApertinentAinformation,AevaluatingAandAclassifyi
ngAthatAinformation,AandAfilingAanyAnecessaryAtaxAreturns.AComplianceAalsoAincludesAotherAfu
nctionsAnecessaryAtoAsatisfyAgovernmentalArequirements,AsuchAasArepresentingAaAclientAduring
AanAInternalARevenueAServiceA(IRS)Aaudit.
,Federal Tax Research, 13th Edition Page 1-3
PageA5
1-4.
MostAofAtheAtaxAcomplianceAworkAisAperformedAbyAcommercialAtaxApreparers,Aenrolle
dAagentsA(EAs),Aattorneys,AandAcertifiedApublicAaccountantsA(CPAs).ANoncomplexAindividual,A
partnership,AandAcorporateAtaxAreturnsAoftenAareAcompletedAbyAcommercialAtaxApreparers.ATheA
preparationAofAmoreAcomplexAreturnsAusuallyAisAperformedAbyAEAs,Aattorneys,AandACPAs.ATh
eAlatterAgroupsAalsoAprovideAtaxAplanningAservicesAandArepresentAtheirAclientsAbeforeAtheAIRS.
AnAEAAisAoneAwhoAisAadmittedAtoApracticeAbeforeAtheAIRSAbyApassingAaAspecialAIRS-
administeredAexamination,AorAwhoAhasAworkedAforAtheAIRSAforAfiveAyearsAandAisAissuedAaApermi
tAtoArepresentAclientsAbeforeAtheAIRS.ACPAsAandAattorneysAareAnotArequiredAtoAtakeAthisAexamina
tionAandAareAautomaticallyAadmittedAtoApracticeAbeforeAtheAIRSAifAtheyAareAinAgoodAstandingAwit
hAtheAappropriateAprofessionalAlicensingAboard.
PageA5AandACircularA230
1-5.
TaxAplanningAisAtheAprocessAofAarrangingAone‘sAfinancialAaffairsAtoAminimizeAanyAtaxAlia
bility.AMuchAofAmodernAtaxApracticeAcentersAaroundAthisAprocess,AandAtheAresultingAoutcomeAisAta
xAavoidance.
ThereAisAnothingAillegalAorAimmoralAinAtheAavoidanceAofAtaxationAasAlongAasAtheAtaxpayerAremain
sAwithinAlegalAbounds.AInAcontrast,AtaxAevasionAconstitutesAtheAillegalAnonpaymentAofAaAtaxAandA
cannotAbeAcondoned.AActivitiesAofAthisAsortAclearlyAviolateAexistingAlegalAconstraintsAandAfallAouts
ideAofAtheAdomainAofAtheAprofessionalAtaxApractitioner.
PageA6
1-6.
InAanAopenAtaxAplanningAsituation,AtheAtransactionAisAnotAyetAcomplete;Atherefore,AtheAtax
ApractitionerAmaintainsAsomeAdegreeAofAcontrolAoverAtheApotentialAtaxAliability,AandAtheAtransactio
nAmayAbeAmodi-
AfiedAtoAachieveAaAmoreAfavorableAtaxAtreatment.AInAaAclosedAtransactionAhowever,AallAofAtheAper
tinentAactionsAhaveAbeenAcompleted,AandAtaxAplanningAactivitiesAmayAbeAlimitedAtoAtheApresentati
onAofAtheAsituationAtoAtheAgovernmentAinAtheAmostAlegallyAadvantageousAmannerApossible.
, Page 1-4 SOLUTIONS MANUAL
PageA6
1-7.
TaxAlitigationAisAtheAprocessA ofAsettlingAaAdisputeAwithAtheAIRSAinAaAcourtAofAlaw.ATy
pically,AaAtaxAattorneyAhandlesAtaxAlitigationAthatAprogressesAbeyondAtheAfinalAIRSAappeal.
PageA6
1-8. CPAsAserveAisAaAsupportAcapacityAinAtaxAlitigation.
PageA6
1-9.
TaxAresearchAconsistsAofAtheAresolutionAofAunansweredAtaxationAquestions.A TheAtaxAresea
rchAprocessAincludesAtheAfollowing:
1. IdentificationAofApertinentAissues;
2. SpecificationAofAproperAauthorities;
3. EvaluationAofAtheAproprietyAofAauthorities;Aand,
4. ApplicationAofAauthoritiesAtoAaAspecificAsituation.
PageA6
1-10.
CircularA230AisAissuedAbyAtheATreasuryADepartmentAandAappliesAtoAallAwhoApracticeAbef
oreAtheAIRS.APageA7
1-11.
InAadditionAtoACircularA230,ACPAsAmustAfollowAtheAAICPA‘sACodeAofAProfessionalAC
onductAandAStatementsAonAStandardsAforATaxAServices.ACPAsAmustAalsoAabideAbyAtheArulesAo
fAtheAappropriateAstateAboard(s)AofAaccountancy.
PageA7
1-12. AAreturnApreparerAmustAobtainA18AhoursAofAcontinuingAeducationAfromAanAIRS-
approvedACEAProvider.ATheAhoursAmustAincludeAaA6AcreditAhourAAnnualAFederalATaxARefresherA
courseA(AFTR)AthatAcoversAfilingAseasonAissuesAandAtaxAlawAupdates.ATheAAFTRAcourseAmustAi
ncludeAaAknowledge-
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.
InAtheAUnitedAStates,AtheAtaxAsystemAisAanAoutgrowthAofAtheAfollowingAfiveAdiscipline
s:Alaw,Aaccounting,Aeconomics,ApoliticalAscience,AandAsociology.ATheAenvironmentAforAtheAta
xAsystemAisAprovidedAbyAtheAprinciplesAofAeconomics,Asociology,AandApoliticalAscience,Awhile
AtheAlegalAandAaccountingAfieldsAareAresponsibleAforA theAsystem‘sAinterpretationA andAapplicati
on.
EachAofAtheseAdisciplinesAaffectsAthisAcountry‘sAtaxAsystemAinAaAuniqueAway.AEconomistsAadd
ressAsuchAissuesAasAhowAproposedAtaxAlegislationAwillAaffectAtheArateAofAinflationAorAeconomic
Agrowth.AMeasurementAofAtheAsocialAequityAofAaAtaxAandAdeterminingAwhetherAaAtaxAsystemAdi
scriminatesAagainstAcertainAtaxpayersAareAissuesAthatAareAexaminedAbyAsociologistsAandApolitic
alAscientists.
Finally,AattorneysAareAresponsibleAforAtheAinterpretationAofAtheAtaxationAstatutes,AandAaccounta
ntsAensureAthatAtheseAsameAstatutesAareAappliedAconsistently.****8880()
PageA4
1-2. TheAotherAmajorAcategoriesAofAtaxApracticeAinAadditionAtoAtaxAresearchAareAasAfollows:
• TaxAcompliance
• TaxAplanning
• TaxAlitigatio
nAPageA5
1-3.
TaxAcomplianceAconsistsAofAgatheringApertinentAinformation,AevaluatingAandAclassifyi
ngAthatAinformation,AandAfilingAanyAnecessaryAtaxAreturns.AComplianceAalsoAincludesAotherAfu
nctionsAnecessaryAtoAsatisfyAgovernmentalArequirements,AsuchAasArepresentingAaAclientAduring
AanAInternalARevenueAServiceA(IRS)Aaudit.
,Federal Tax Research, 13th Edition Page 1-3
PageA5
1-4.
MostAofAtheAtaxAcomplianceAworkAisAperformedAbyAcommercialAtaxApreparers,Aenrolle
dAagentsA(EAs),Aattorneys,AandAcertifiedApublicAaccountantsA(CPAs).ANoncomplexAindividual,A
partnership,AandAcorporateAtaxAreturnsAoftenAareAcompletedAbyAcommercialAtaxApreparers.ATheA
preparationAofAmoreAcomplexAreturnsAusuallyAisAperformedAbyAEAs,Aattorneys,AandACPAs.ATh
eAlatterAgroupsAalsoAprovideAtaxAplanningAservicesAandArepresentAtheirAclientsAbeforeAtheAIRS.
AnAEAAisAoneAwhoAisAadmittedAtoApracticeAbeforeAtheAIRSAbyApassingAaAspecialAIRS-
administeredAexamination,AorAwhoAhasAworkedAforAtheAIRSAforAfiveAyearsAandAisAissuedAaApermi
tAtoArepresentAclientsAbeforeAtheAIRS.ACPAsAandAattorneysAareAnotArequiredAtoAtakeAthisAexamina
tionAandAareAautomaticallyAadmittedAtoApracticeAbeforeAtheAIRSAifAtheyAareAinAgoodAstandingAwit
hAtheAappropriateAprofessionalAlicensingAboard.
PageA5AandACircularA230
1-5.
TaxAplanningAisAtheAprocessAofAarrangingAone‘sAfinancialAaffairsAtoAminimizeAanyAtaxAlia
bility.AMuchAofAmodernAtaxApracticeAcentersAaroundAthisAprocess,AandAtheAresultingAoutcomeAisAta
xAavoidance.
ThereAisAnothingAillegalAorAimmoralAinAtheAavoidanceAofAtaxationAasAlongAasAtheAtaxpayerAremain
sAwithinAlegalAbounds.AInAcontrast,AtaxAevasionAconstitutesAtheAillegalAnonpaymentAofAaAtaxAandA
cannotAbeAcondoned.AActivitiesAofAthisAsortAclearlyAviolateAexistingAlegalAconstraintsAandAfallAouts
ideAofAtheAdomainAofAtheAprofessionalAtaxApractitioner.
PageA6
1-6.
InAanAopenAtaxAplanningAsituation,AtheAtransactionAisAnotAyetAcomplete;Atherefore,AtheAtax
ApractitionerAmaintainsAsomeAdegreeAofAcontrolAoverAtheApotentialAtaxAliability,AandAtheAtransactio
nAmayAbeAmodi-
AfiedAtoAachieveAaAmoreAfavorableAtaxAtreatment.AInAaAclosedAtransactionAhowever,AallAofAtheAper
tinentAactionsAhaveAbeenAcompleted,AandAtaxAplanningAactivitiesAmayAbeAlimitedAtoAtheApresentati
onAofAtheAsituationAtoAtheAgovernmentAinAtheAmostAlegallyAadvantageousAmannerApossible.
, Page 1-4 SOLUTIONS MANUAL
PageA6
1-7.
TaxAlitigationAisAtheAprocessA ofAsettlingAaAdisputeAwithAtheAIRSAinAaAcourtAofAlaw.ATy
pically,AaAtaxAattorneyAhandlesAtaxAlitigationAthatAprogressesAbeyondAtheAfinalAIRSAappeal.
PageA6
1-8. CPAsAserveAisAaAsupportAcapacityAinAtaxAlitigation.
PageA6
1-9.
TaxAresearchAconsistsAofAtheAresolutionAofAunansweredAtaxationAquestions.A TheAtaxAresea
rchAprocessAincludesAtheAfollowing:
1. IdentificationAofApertinentAissues;
2. SpecificationAofAproperAauthorities;
3. EvaluationAofAtheAproprietyAofAauthorities;Aand,
4. ApplicationAofAauthoritiesAtoAaAspecificAsituation.
PageA6
1-10.
CircularA230AisAissuedAbyAtheATreasuryADepartmentAandAappliesAtoAallAwhoApracticeAbef
oreAtheAIRS.APageA7
1-11.
InAadditionAtoACircularA230,ACPAsAmustAfollowAtheAAICPA‘sACodeAofAProfessionalAC
onductAandAStatementsAonAStandardsAforATaxAServices.ACPAsAmustAalsoAabideAbyAtheArulesAo
fAtheAappropriateAstateAboard(s)AofAaccountancy.
PageA7
1-12. AAreturnApreparerAmustAobtainA18AhoursAofAcontinuingAeducationAfromAanAIRS-
approvedACEAProvider.ATheAhoursAmustAincludeAaA6AcreditAhourAAnnualAFederalATaxARefresherA
courseA(AFTR)AthatAcoversAfilingAseasonAissuesAandAtaxAlawAupdates.ATheAAFTRAcourseAmustAi
ncludeAaAknowledge-
