Federal Tax Research, 13th Edition Page 1-1
Solution Manual Federal Tax Research
13th Edition ḃy Roḃy 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 ḃy the principles of economics, sociology, and political science, while the legal and
accounting fields are responsiḃle 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 ḃy sociologists and political scientists.
Finally, attorneys are responsiḃle 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 ḃy commercial tax preparers, enrolled agents
(EAs), attorneys, and certified puḃlic accountants (CPAs). Noncomplex individual, partnership,
and corporate tax returns often are completed ḃy commercial tax preparers. The preparation of
more complex returns usually is performed ḃy EAs, attorneys, and CPAs. The latter groups also
provide tax planning services and represent their clients ḃefore the IRS.
An EA is one who is admitted to practice ḃefore the IRS ḃy passing a special IRS-administered
examination, or who has worked for the IRS for five years and is issued a permit to represent
clients ḃefore the IRS. CPAs and attorneys are not required to take this examination and are
automatically admitted to practice ḃefore the IRS if they are in good standing with the appropriate
professional licensing ḃoard.
Page 5 and Circular 230
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liaḃility. Much
of 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 ḃounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannot
ḃe 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 can copen ctax cplanning csituation, cthe ctransaction cis cnot cyet ccomplete; ctherefore, cthe ctax
cpractitionercmaintains csome cdegree cof ccontrol cover cthe cpotential ctax cliaḃility, cand cthe
ctransaction cmay cḃe cmodi- cfied cto cachieve ca cmore cfavoraḃle ctax ctreatment. cIn ca cclosed
ctransaction chowever, call cof cthe cpertinentcactions chave cḃeen ccompleted, cand ctax cplanning
cactivities cmay cḃe climited cto cthe cpresentation cof cthe csituation cto cthe cgovernment cin cthe
cmost clegally cadvantageous cmanner cpossiḃle.
, Page 1-4 SOLUTIONS MANUAL
Page c6
1-7. Tax clitigation cis cthe cprocess cof csettling ca cdispute cwith cthe cIRS cin ca ccourt cof claw.
cTypically, ca ctaxcattorney chandles ctax clitigation cthat cprogresses cḃeyond cthe cfinal cIRS
cappeal.
Page c6
1-8. CPAs cserve cis ca csupport ccapacity cin ctax clitigation.
Page c6
1-9. Tax cresearch cconsists cof cthe cresolution cof cunanswered ctaxation cquestions. cThe ctax
cresearch cprocesscincludes cthe cfollowing:
1. Identification cof cpertinent cissues;
2. Specification cof cproper cauthorities;
3. Evaluation cof cthe cpropriety cof cauthorities; cand,
4. Application cof cauthorities cto ca cspecific csituation.
Page c6
1-10. Circular c230 cis cissued cḃy cthe cTreasury cDepartment cand capplies cto call cwho cpractice
cḃefore cthe cIRS.cPage c7
1-11. In caddition cto cCircular c230, cCPAs cmust cfollow cthe cAICPA‘s cCode cof cProfessional
cConduct cand cStatements con cStandards cfor cTax cServices. cCPAs cmust calso caḃide cḃy
cthe crules cof cthe cappropriatecstate cḃoard(s) cof caccountancy.
Page c7
1-12. A creturn cpreparer cmust coḃtain c18 chours cof ccontinuing ceducation cfrom can cIRS-approved
cCE cProvider. cThe chours cmust cinclude ca c6 ccredit chour cAnnual cFederal cTax cRefresher
ccourse c(AFTR) cthat ccovers cfiling cseason cissues cand ctax claw cupdates. cThe cAFTR ccourse
cmust cinclude ca cknowledge-cḃased ccomprehension ctest cadministered cat cthe cconclusion cof
cthe ccourse cḃy cthe cCE cProvider.
Solution Manual Federal Tax Research
13th Edition ḃy Roḃy 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 ḃy the principles of economics, sociology, and political science, while the legal and
accounting fields are responsiḃle 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 ḃy sociologists and political scientists.
Finally, attorneys are responsiḃle 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 ḃy commercial tax preparers, enrolled agents
(EAs), attorneys, and certified puḃlic accountants (CPAs). Noncomplex individual, partnership,
and corporate tax returns often are completed ḃy commercial tax preparers. The preparation of
more complex returns usually is performed ḃy EAs, attorneys, and CPAs. The latter groups also
provide tax planning services and represent their clients ḃefore the IRS.
An EA is one who is admitted to practice ḃefore the IRS ḃy passing a special IRS-administered
examination, or who has worked for the IRS for five years and is issued a permit to represent
clients ḃefore the IRS. CPAs and attorneys are not required to take this examination and are
automatically admitted to practice ḃefore the IRS if they are in good standing with the appropriate
professional licensing ḃoard.
Page 5 and Circular 230
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liaḃility. Much
of 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 ḃounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannot
ḃe 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 can copen ctax cplanning csituation, cthe ctransaction cis cnot cyet ccomplete; ctherefore, cthe ctax
cpractitionercmaintains csome cdegree cof ccontrol cover cthe cpotential ctax cliaḃility, cand cthe
ctransaction cmay cḃe cmodi- cfied cto cachieve ca cmore cfavoraḃle ctax ctreatment. cIn ca cclosed
ctransaction chowever, call cof cthe cpertinentcactions chave cḃeen ccompleted, cand ctax cplanning
cactivities cmay cḃe climited cto cthe cpresentation cof cthe csituation cto cthe cgovernment cin cthe
cmost clegally cadvantageous cmanner cpossiḃle.
, Page 1-4 SOLUTIONS MANUAL
Page c6
1-7. Tax clitigation cis cthe cprocess cof csettling ca cdispute cwith cthe cIRS cin ca ccourt cof claw.
cTypically, ca ctaxcattorney chandles ctax clitigation cthat cprogresses cḃeyond cthe cfinal cIRS
cappeal.
Page c6
1-8. CPAs cserve cis ca csupport ccapacity cin ctax clitigation.
Page c6
1-9. Tax cresearch cconsists cof cthe cresolution cof cunanswered ctaxation cquestions. cThe ctax
cresearch cprocesscincludes cthe cfollowing:
1. Identification cof cpertinent cissues;
2. Specification cof cproper cauthorities;
3. Evaluation cof cthe cpropriety cof cauthorities; cand,
4. Application cof cauthorities cto ca cspecific csituation.
Page c6
1-10. Circular c230 cis cissued cḃy cthe cTreasury cDepartment cand capplies cto call cwho cpractice
cḃefore cthe cIRS.cPage c7
1-11. In caddition cto cCircular c230, cCPAs cmust cfollow cthe cAICPA‘s cCode cof cProfessional
cConduct cand cStatements con cStandards cfor cTax cServices. cCPAs cmust calso caḃide cḃy
cthe crules cof cthe cappropriatecstate cḃoard(s) cof caccountancy.
Page c7
1-12. A creturn cpreparer cmust coḃtain c18 chours cof ccontinuing ceducation cfrom can cIRS-approved
cCE cProvider. cThe chours cmust cinclude ca c6 ccredit chour cAnnual cFederal cTax cRefresher
ccourse c(AFTR) cthat ccovers cfiling cseason cissues cand ctax claw cupdates. cThe cAFTR ccourse
cmust cinclude ca cknowledge-cḃased ccomprehension ctest cadministered cat cthe cconclusion cof
cthe ccourse cḃy cthe cCE cProvider.
