Federal Tax Research, 13th Page 1-
1
Solution Manual Federal Tax Research
tt tt tt tt
tt 13th Edition by Roby Sawyers, Steven Gill
tt tt tt tt tt tt
Chapters 1 -13
tt tt tt
,Page 1- SOLUTIONS
2
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 isprovided 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 addressttsuch 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
accountantsttensure 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
litigationttPage 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 InternalttRevenue Service (IRS) audit.
,Federal Tax Research, 13th 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,ttand 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 alsottprovide 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 appropriatettprofessional 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. Muchttof 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
practitionerttmaintains 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 pertinentactions 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.
, Page 1- SOLUTIONS
4
Page 6
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law.
Typically, a taxattorney handles tax litigation that progresses beyond the final IRS
appeal.
Page 6
1-8. CPAs serve is a support capacity in tax litigation.
Page 6
1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research
processttincludes the following:
1. Identification of pertinent issues;
2. Specification of proper authorities;
3. Evaluation of the propriety of authorities; and,
4. Application of authorities to a specific situation.
Page 6
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before
the IRS.ttPage 7
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional
Conduct and Statements on Standards for Tax Services. CPAs must also abide by the
rules of the appropriatettstate board(s) of accountancy.
Page 7
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved
CE Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher
course (AFTR) that covers filing season issues and tax law updates. The AFTR course
must include a knowledge-ttbased comprehension test administered at the conclusion of the
course by the CE Provider.
1
Solution Manual Federal Tax Research
tt tt tt tt
tt 13th Edition by Roby Sawyers, Steven Gill
tt tt tt tt tt tt
Chapters 1 -13
tt tt tt
,Page 1- SOLUTIONS
2
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 isprovided 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 addressttsuch 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
accountantsttensure 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
litigationttPage 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 InternalttRevenue Service (IRS) audit.
,Federal Tax Research, 13th 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,ttand 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 alsottprovide 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 appropriatettprofessional 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. Muchttof 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
practitionerttmaintains 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 pertinentactions 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.
, Page 1- SOLUTIONS
4
Page 6
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law.
Typically, a taxattorney handles tax litigation that progresses beyond the final IRS
appeal.
Page 6
1-8. CPAs serve is a support capacity in tax litigation.
Page 6
1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research
processttincludes the following:
1. Identification of pertinent issues;
2. Specification of proper authorities;
3. Evaluation of the propriety of authorities; and,
4. Application of authorities to a specific situation.
Page 6
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before
the IRS.ttPage 7
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional
Conduct and Statements on Standards for Tax Services. CPAs must also abide by the
rules of the appropriatettstate board(s) of accountancy.
Page 7
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved
CE Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher
course (AFTR) that covers filing season issues and tax law updates. The AFTR course
must include a knowledge-ttbased comprehension test administered at the conclusion of the
course by the CE Provider.
