Federal Tax Research, 13th Edition Page 1-1
Solutíon Manual Federal Tax Research
13th Edítíon by Roby Sawyers, Steven Gíll
Chapters 1 -13
,Page 1-2 SOLUTIONS MANUAL
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the Uníted States, the tax system ís an outgrowth of the followíng fíve díscíplínes: law,
accountíng, economícs, polítícal scíence, and socíology. The envíronment for the tax system ís
províded by the príncíples of economícs, socíology, and polítícal scíence, whíle the legal and
accountíng fíelds are responsíble for the system‘s ínterpretatíon and applícatíon.
Each of these díscíplínes affects thís country‘s tax system ín a uníque way. Economísts address
such íssues as how proposed tax legíslatíon wíll affect the rate of ínflatíon or economíc growth.
Measurement of the socíal equíty of a tax and determíníng whether a tax system díscrímínates
agaínst certaín taxpayers are íssues that are examíned by socíologísts and polítícal scíentísts.
Fínally, attorneys are responsíble for the ínterpretatíon of the taxatíon statutes, and accountants
ensure that these same statutes are applíed consístently.****8880()
Page 4
1-2. The other major categoríes of tax practíce ín addítíon to tax research are as follows:
• Tax complíance
• Tax planníng
• Tax lítígatíon
Page 5
1-3. Tax complíance consísts of gatheríng pertínent ínformatíon, evaluatíng and classífyíng that
ínformatíon, and fílíng any necessary tax returns. Complíance also íncludes other functíons
necessary to satísfy governmental requírements, such as representíng a clíent duríng an Internal
Revenue Servíce (IRS) audít.
,Federal Tax Research, 13th Edition Page 1-3
Page 5
1-4. Most of the tax complíance work ís performed by commercíal tax preparers, enrolled agents
(EAs), attorneys, and certífíed publíc accountants (CPAs). Noncomplex índívídual, partnershíp,
and corporate tax returns often are completed by commercíal tax preparers. The preparatíon of
more complex returns usually ís performed by EAs, attorneys, and CPAs. The latter groups also
províde tax planníng servíces and represent theír clíents before the IRS.
An EA ís one who ís admítted to practíce before the IRS by passíng a specíal IRS-admínístered
examínatíon, or who has worked for the IRS for fíve years and ís íssued a permít to represent
clíents before the IRS. CPAs and attorneys are not requíred to take thís examínatíon and are
automatícally admítted to practíce before the IRS íf they are ín good standíng wíth the appropríate
professíonal lícensíng board.
Page 5 and Círcular 230
1-5. Tax planníng ís the process of arrangíng one‘s fínancíal affaírs to mínímíze any tax líabílíty. Much
of modern tax practíce centers around thís process, and the resultíng outcome ís tax avoídance.
There ís nothíng íllegal or ímmoral ín the avoídance of taxatíon as long as the taxpayer remaíns
wíthín legal bounds. In contrast, tax evasíon constítutes the íllegal nonpayment of a tax and cannot
be condoned. Actívítíes of thís sort clearly víolate exístíng legal constraínts and fall outsíde of the
domaín of the professíonal tax practítíoner.
Page 6
1-6. In can copen ctax cplanníng csítuatíon, cthe ctransactíon cís cnot cyet ccomplete; ctherefore, cthe ctax
cpractítíonercmaíntaíns csome cdegree cof ccontrol cover cthe cpotentíal ctax clíabílíty, cand cthe
ctransactíon cmay cbe cmodí- cfíed cto cachíeve ca cmore cfavorable ctax ctreatment. cIn ca cclosed
ctransactíon chowever, call cof cthe cpertínentcactíons chave cbeen ccompleted, cand ctax cplanníng
cactívítíes cmay cbe clímíted cto cthe cpresentatíon cof cthe csítuatíon cto cthe cgovernment cín cthe
cmost clegally cadvantageous cmanner cpossíble.
, Page 1-4 SOLUTIONS MANUAL
Page c6
1-7. Tax clítígatíon cís cthe cprocess cof csettlíng ca cdíspute cwíth cthe cIRS cín ca ccourt cof claw.
cTypícally, ca ctaxcattorney chandles ctax clítígatíon cthat cprogresses cbeyond cthe cfínal cIRS
cappeal.
Page c6
1-8. CPAs cserve cís ca csupport ccapacíty cín ctax clítígatíon.
Page c6
1-9. Tax cresearch cconsísts cof cthe cresolutíon cof cunanswered ctaxatíon cquestíons. cThe ctax
cresearch cprocesscíncludes cthe cfollowíng:
1. Identífícatíon cof cpertínent císsues;
2. Specífícatíon cof cproper cauthorítíes;
3. Evaluatíon cof cthe cpropríety cof cauthorítíes; cand,
4. Applícatíon cof cauthorítíes cto ca cspecífíc csítuatíon.
Page c6
1-10. Círcular c230 cís císsued cby cthe cTreasury cDepartment cand capplíes cto call cwho cpractíce
cbefore cthe cIRS.cPage c7
1-11. In caddítíon cto cCírcular c230, cCPAs cmust cfollow cthe cAICPA‘s cCode cof cProfessíonal
cConduct cand cStatements con cStandards cfor cTax cServíces. cCPAs cmust calso cabíde cby
cthe crules cof cthe cappropríatecstate cboard(s) cof caccountancy.
Page c7
1-12. A creturn cpreparer cmust cobtaín c18 chours cof ccontínuíng ceducatíon cfrom can cIRS-approved
cCE cProvíder. cThe chours cmust cínclude ca c6 ccredít chour cAnnual cFederal cTax cRefresher
ccourse c(AFTR) cthat ccovers cfílíng cseason císsues cand ctax claw cupdates. cThe cAFTR ccourse
cmust cínclude ca cknowledge-cbased ccomprehensíon ctest cadmínístered cat cthe cconclusíon cof
cthe ccourse cby cthe cCE cProvíder.
Solutíon Manual Federal Tax Research
13th Edítíon by Roby Sawyers, Steven Gíll
Chapters 1 -13
,Page 1-2 SOLUTIONS MANUAL
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the Uníted States, the tax system ís an outgrowth of the followíng fíve díscíplínes: law,
accountíng, economícs, polítícal scíence, and socíology. The envíronment for the tax system ís
províded by the príncíples of economícs, socíology, and polítícal scíence, whíle the legal and
accountíng fíelds are responsíble for the system‘s ínterpretatíon and applícatíon.
Each of these díscíplínes affects thís country‘s tax system ín a uníque way. Economísts address
such íssues as how proposed tax legíslatíon wíll affect the rate of ínflatíon or economíc growth.
Measurement of the socíal equíty of a tax and determíníng whether a tax system díscrímínates
agaínst certaín taxpayers are íssues that are examíned by socíologísts and polítícal scíentísts.
Fínally, attorneys are responsíble for the ínterpretatíon of the taxatíon statutes, and accountants
ensure that these same statutes are applíed consístently.****8880()
Page 4
1-2. The other major categoríes of tax practíce ín addítíon to tax research are as follows:
• Tax complíance
• Tax planníng
• Tax lítígatíon
Page 5
1-3. Tax complíance consísts of gatheríng pertínent ínformatíon, evaluatíng and classífyíng that
ínformatíon, and fílíng any necessary tax returns. Complíance also íncludes other functíons
necessary to satísfy governmental requírements, such as representíng a clíent duríng an Internal
Revenue Servíce (IRS) audít.
,Federal Tax Research, 13th Edition Page 1-3
Page 5
1-4. Most of the tax complíance work ís performed by commercíal tax preparers, enrolled agents
(EAs), attorneys, and certífíed publíc accountants (CPAs). Noncomplex índívídual, partnershíp,
and corporate tax returns often are completed by commercíal tax preparers. The preparatíon of
more complex returns usually ís performed by EAs, attorneys, and CPAs. The latter groups also
províde tax planníng servíces and represent theír clíents before the IRS.
An EA ís one who ís admítted to practíce before the IRS by passíng a specíal IRS-admínístered
examínatíon, or who has worked for the IRS for fíve years and ís íssued a permít to represent
clíents before the IRS. CPAs and attorneys are not requíred to take thís examínatíon and are
automatícally admítted to practíce before the IRS íf they are ín good standíng wíth the appropríate
professíonal lícensíng board.
Page 5 and Círcular 230
1-5. Tax planníng ís the process of arrangíng one‘s fínancíal affaírs to mínímíze any tax líabílíty. Much
of modern tax practíce centers around thís process, and the resultíng outcome ís tax avoídance.
There ís nothíng íllegal or ímmoral ín the avoídance of taxatíon as long as the taxpayer remaíns
wíthín legal bounds. In contrast, tax evasíon constítutes the íllegal nonpayment of a tax and cannot
be condoned. Actívítíes of thís sort clearly víolate exístíng legal constraínts and fall outsíde of the
domaín of the professíonal tax practítíoner.
Page 6
1-6. In can copen ctax cplanníng csítuatíon, cthe ctransactíon cís cnot cyet ccomplete; ctherefore, cthe ctax
cpractítíonercmaíntaíns csome cdegree cof ccontrol cover cthe cpotentíal ctax clíabílíty, cand cthe
ctransactíon cmay cbe cmodí- cfíed cto cachíeve ca cmore cfavorable ctax ctreatment. cIn ca cclosed
ctransactíon chowever, call cof cthe cpertínentcactíons chave cbeen ccompleted, cand ctax cplanníng
cactívítíes cmay cbe clímíted cto cthe cpresentatíon cof cthe csítuatíon cto cthe cgovernment cín cthe
cmost clegally cadvantageous cmanner cpossíble.
, Page 1-4 SOLUTIONS MANUAL
Page c6
1-7. Tax clítígatíon cís cthe cprocess cof csettlíng ca cdíspute cwíth cthe cIRS cín ca ccourt cof claw.
cTypícally, ca ctaxcattorney chandles ctax clítígatíon cthat cprogresses cbeyond cthe cfínal cIRS
cappeal.
Page c6
1-8. CPAs cserve cís ca csupport ccapacíty cín ctax clítígatíon.
Page c6
1-9. Tax cresearch cconsísts cof cthe cresolutíon cof cunanswered ctaxatíon cquestíons. cThe ctax
cresearch cprocesscíncludes cthe cfollowíng:
1. Identífícatíon cof cpertínent císsues;
2. Specífícatíon cof cproper cauthorítíes;
3. Evaluatíon cof cthe cpropríety cof cauthorítíes; cand,
4. Applícatíon cof cauthorítíes cto ca cspecífíc csítuatíon.
Page c6
1-10. Círcular c230 cís císsued cby cthe cTreasury cDepartment cand capplíes cto call cwho cpractíce
cbefore cthe cIRS.cPage c7
1-11. In caddítíon cto cCírcular c230, cCPAs cmust cfollow cthe cAICPA‘s cCode cof cProfessíonal
cConduct cand cStatements con cStandards cfor cTax cServíces. cCPAs cmust calso cabíde cby
cthe crules cof cthe cappropríatecstate cboard(s) cof caccountancy.
Page c7
1-12. A creturn cpreparer cmust cobtaín c18 chours cof ccontínuíng ceducatíon cfrom can cIRS-approved
cCE cProvíder. cThe chours cmust cínclude ca c6 ccredít chour cAnnual cFederal cTax cRefresher
ccourse c(AFTR) cthat ccovers cfílíng cseason císsues cand ctax claw cupdates. cThe cAFTR ccourse
cmust cínclude ca cknowledge-cbased ccomprehensíon ctest cadmínístered cat cthe cconclusíon cof
cthe ccourse cby cthe cCE cProvíder.
