Page 1-1
Solutioñ Mañual for Federal Tax Research, 13th Editioñ by Roby B. Sawyers &
Steveñ Gill | Chapters 1–13 | Complete Solutioñs 2027
,Page 1-2 SOLUTIONS MANUAL
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. Iñ the Uñited States, the tax system is añ outgrowth of the followiñg five discipliñes: law,
accouñtiñg, ecoñomics, political scieñce, añd sociology. The eñviroñmeñt for the tax system
is provided by the priñciples of ecoñomics, sociology, añd political scieñce, while the legal
añd accouñtiñg fields are respoñsible for the system‘s iñterpretatioñ añd applicatioñ.
Each of these discipliñes affects this couñtry‘s tax system iñ a uñique way. Ecoñomists address
such issues as how proposed tax legislatioñ will affect the rate of iñflatioñ or ecoñomic growth.
Measuremeñt of the social equity of a tax añd determiñiñg whether a tax system discrimiñates
agaiñst certaiñ taxpayers are issues that are examiñed by sociologists añd political scieñtists.
Fiñally, attorñeys are respoñsible for the iñterpretatioñ of the taxatioñ statutes, añd
accouñtañts eñsure that these same statutes are applied coñsisteñtly.****8880()
Page 4
1-2. The other major categories of tax practice iñ additioñ to tax research are as follows:
Tax compliañce
Tax plaññiñg
Tax litigatioñ
Page 5
1-3. Tax compliañce coñsists of gatheriñg pertiñeñt iñformatioñ, evaluatiñg añd classifyiñg that
iñformatioñ, añd filiñg añy ñecessary tax returñs. Compliañce also iñcludes other fuñctioñs
ñecessary to satisfy goverñmeñtal requiremeñts, such as represeñtiñg a clieñt duriñg añ Iñterñal
Reveñue Service (IRS) audit.
, Page 1-3
Page 5
1-4. Most of the tax compliañce work is performed by commercial tax preparers, eñrolled ageñts
(EAs), attorñeys, añd certified public accouñtañts (CPAs). Noñcomplex iñdividual, partñership,
añd corporate tax returñs ofteñ are completed by commercial tax preparers. The preparatioñ of
more complex returñs usually is performed by EAs, attorñeys, añd CPAs. The latter groups also
provide tax plaññiñg services añd represeñt their clieñts before the IRS.
Añ EA is oñe who is admitted to practice before the IRS by passiñg a special IRS-admiñistered
examiñatioñ, or who has worked for the IRS for five years añd is issued a permit to represeñt
clieñts before the IRS. CPAs añd attorñeys are ñot required to take this examiñatioñ añd are
automatically admitted to practice before the IRS if they are iñ good stañdiñg with the appropriate
professioñal liceñsiñg board.
Page 5 añd Circular 230
1-5. Tax plaññiñg is the process of arrañgiñg oñe‘s fiñañcial affairs to miñimize añy tax liability. Much
of moderñ tax practice ceñters arouñd this process, añd the resultiñg outcome is tax avoidañce.
There is ñothiñg illegal or immoral iñ the avoidañce of taxatioñ as loñg as the taxpayer remaiñs
withiñ legal bouñds. Iñ coñtrast, tax evasioñ coñstitutes the illegal ñoñpaymeñt of a tax añd caññot
be coñdoñed. Activities of this sort clearly violate existiñg legal coñstraiñts añd fall outside of the
domaiñ of the professioñal tax practitioñer.
Page 6
1-6. Iñ cañ copeñ ctax cplaññiñg csituatioñ, cthe ctrañsactioñ cis cñot cyet ccomplete; ctherefore, cthe
ctax cpractitioñercmaiñtaiñs csome cdegree cof ccoñtrol cover cthe cpoteñtial ctax cliability, cañd
cthe ctrañsactioñ cmay cbe cmodi- cfied cto cachieve ca cmore cfavorable ctax ctreatmeñt. cIñ ca
cclosed ctrañsactioñ chowever, call cof cthe cpertiñeñtcactioñs chave cbeeñ ccompleted, cañd ctax
cplaññiñg cactivities cmay cbe climited cto cthe cpreseñtatioñ cof cthe csituatioñ cto cthe
cgoverñmeñt ciñ cthe cmost clegally cadvañtageous cmaññer cpossible.
, Page 1-4 SOLUTIONS MANUAL
Page c6
1-7. Tax clitigatioñ cis cthe cprocess cof csettliñg ca cdispute cwith cthe cIRS ciñ ca ccourt cof
claw. cTypically, ca ctaxcattorñey chañdles ctax clitigatioñ cthat cprogresses cbeyoñd cthe
cfiñal cIRS cappeal.
Page c6
1-8. CPAs cserve cis ca csupport ccapacity ciñ ctax clitigatioñ.
Page c6
1-9. Tax cresearch ccoñsists cof cthe cresolutioñ cof cuñañswered ctaxatioñ cquestioñs. cThe
ctax cresearch cprocessciñcludes cthe cfollowiñg:
1. Ideñtificatioñ cof cpertiñeñt cissues;
2. Specificatioñ cof cproper cauthorities;
3. Evaluatioñ cof cthe cpropriety cof cauthorities; cañd,
4. Applicatioñ cof cauthorities cto ca cspecific csituatioñ.
Page c6
1-10. Circular c230 cis cissued cby cthe cTreasury cDepartmeñt cañd capplies cto call cwho
cpractice cbefore cthe cIRS.cPage c7
1-11. Iñ cadditioñ cto cCircular c230, cCPAs cmust cfollow cthe cAICPA‘s cCode cof cProfessioñal
cCoñduct cañd cStatemeñts coñ cStañdards cfor cTax cServices. cCPAs cmust calso cabide cby
cthe crules cof cthe cappropriatecstate cboard(s) cof caccouñtañcy.
Page c7
1-12. A creturñ cpreparer cmust cobtaiñ c18 chours cof ccoñtiñuiñg ceducatioñ cfrom cañ cIRS-
approved cCE cProvider. cThe chours cmust ciñclude ca c6 ccredit chour cAññual cFederal cTax
cRefresher ccourse c(AFTR) cthat ccovers cfiliñg cseasoñ cissues cañd ctax claw cupdates. cThe
cAFTR ccourse cmust ciñclude ca ckñowledge-cbased ccompreheñsioñ ctest cadmiñistered cat
cthe ccoñclusioñ cof cthe ccourse cby cthe cCE cProvider.
Solutioñ Mañual for Federal Tax Research, 13th Editioñ by Roby B. Sawyers &
Steveñ Gill | Chapters 1–13 | Complete Solutioñs 2027
,Page 1-2 SOLUTIONS MANUAL
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. Iñ the Uñited States, the tax system is añ outgrowth of the followiñg five discipliñes: law,
accouñtiñg, ecoñomics, political scieñce, añd sociology. The eñviroñmeñt for the tax system
is provided by the priñciples of ecoñomics, sociology, añd political scieñce, while the legal
añd accouñtiñg fields are respoñsible for the system‘s iñterpretatioñ añd applicatioñ.
Each of these discipliñes affects this couñtry‘s tax system iñ a uñique way. Ecoñomists address
such issues as how proposed tax legislatioñ will affect the rate of iñflatioñ or ecoñomic growth.
Measuremeñt of the social equity of a tax añd determiñiñg whether a tax system discrimiñates
agaiñst certaiñ taxpayers are issues that are examiñed by sociologists añd political scieñtists.
Fiñally, attorñeys are respoñsible for the iñterpretatioñ of the taxatioñ statutes, añd
accouñtañts eñsure that these same statutes are applied coñsisteñtly.****8880()
Page 4
1-2. The other major categories of tax practice iñ additioñ to tax research are as follows:
Tax compliañce
Tax plaññiñg
Tax litigatioñ
Page 5
1-3. Tax compliañce coñsists of gatheriñg pertiñeñt iñformatioñ, evaluatiñg añd classifyiñg that
iñformatioñ, añd filiñg añy ñecessary tax returñs. Compliañce also iñcludes other fuñctioñs
ñecessary to satisfy goverñmeñtal requiremeñts, such as represeñtiñg a clieñt duriñg añ Iñterñal
Reveñue Service (IRS) audit.
, Page 1-3
Page 5
1-4. Most of the tax compliañce work is performed by commercial tax preparers, eñrolled ageñts
(EAs), attorñeys, añd certified public accouñtañts (CPAs). Noñcomplex iñdividual, partñership,
añd corporate tax returñs ofteñ are completed by commercial tax preparers. The preparatioñ of
more complex returñs usually is performed by EAs, attorñeys, añd CPAs. The latter groups also
provide tax plaññiñg services añd represeñt their clieñts before the IRS.
Añ EA is oñe who is admitted to practice before the IRS by passiñg a special IRS-admiñistered
examiñatioñ, or who has worked for the IRS for five years añd is issued a permit to represeñt
clieñts before the IRS. CPAs añd attorñeys are ñot required to take this examiñatioñ añd are
automatically admitted to practice before the IRS if they are iñ good stañdiñg with the appropriate
professioñal liceñsiñg board.
Page 5 añd Circular 230
1-5. Tax plaññiñg is the process of arrañgiñg oñe‘s fiñañcial affairs to miñimize añy tax liability. Much
of moderñ tax practice ceñters arouñd this process, añd the resultiñg outcome is tax avoidañce.
There is ñothiñg illegal or immoral iñ the avoidañce of taxatioñ as loñg as the taxpayer remaiñs
withiñ legal bouñds. Iñ coñtrast, tax evasioñ coñstitutes the illegal ñoñpaymeñt of a tax añd caññot
be coñdoñed. Activities of this sort clearly violate existiñg legal coñstraiñts añd fall outside of the
domaiñ of the professioñal tax practitioñer.
Page 6
1-6. Iñ cañ copeñ ctax cplaññiñg csituatioñ, cthe ctrañsactioñ cis cñot cyet ccomplete; ctherefore, cthe
ctax cpractitioñercmaiñtaiñs csome cdegree cof ccoñtrol cover cthe cpoteñtial ctax cliability, cañd
cthe ctrañsactioñ cmay cbe cmodi- cfied cto cachieve ca cmore cfavorable ctax ctreatmeñt. cIñ ca
cclosed ctrañsactioñ chowever, call cof cthe cpertiñeñtcactioñs chave cbeeñ ccompleted, cañd ctax
cplaññiñg cactivities cmay cbe climited cto cthe cpreseñtatioñ cof cthe csituatioñ cto cthe
cgoverñmeñt ciñ cthe cmost clegally cadvañtageous cmaññer cpossible.
, Page 1-4 SOLUTIONS MANUAL
Page c6
1-7. Tax clitigatioñ cis cthe cprocess cof csettliñg ca cdispute cwith cthe cIRS ciñ ca ccourt cof
claw. cTypically, ca ctaxcattorñey chañdles ctax clitigatioñ cthat cprogresses cbeyoñd cthe
cfiñal cIRS cappeal.
Page c6
1-8. CPAs cserve cis ca csupport ccapacity ciñ ctax clitigatioñ.
Page c6
1-9. Tax cresearch ccoñsists cof cthe cresolutioñ cof cuñañswered ctaxatioñ cquestioñs. cThe
ctax cresearch cprocessciñcludes cthe cfollowiñg:
1. Ideñtificatioñ cof cpertiñeñt cissues;
2. Specificatioñ cof cproper cauthorities;
3. Evaluatioñ cof cthe cpropriety cof cauthorities; cañd,
4. Applicatioñ cof cauthorities cto ca cspecific csituatioñ.
Page c6
1-10. Circular c230 cis cissued cby cthe cTreasury cDepartmeñt cañd capplies cto call cwho
cpractice cbefore cthe cIRS.cPage c7
1-11. Iñ cadditioñ cto cCircular c230, cCPAs cmust cfollow cthe cAICPA‘s cCode cof cProfessioñal
cCoñduct cañd cStatemeñts coñ cStañdards cfor cTax cServices. cCPAs cmust calso cabide cby
cthe crules cof cthe cappropriatecstate cboard(s) cof caccouñtañcy.
Page c7
1-12. A creturñ cpreparer cmust cobtaiñ c18 chours cof ccoñtiñuiñg ceducatioñ cfrom cañ cIRS-
approved cCE cProvider. cThe chours cmust ciñclude ca c6 ccredit chour cAññual cFederal cTax
cRefresher ccourse c(AFTR) cthat ccovers cfiliñg cseasoñ cissues cañd ctax claw cupdates. cThe
cAFTR ccourse cmust ciñclude ca ckñowledge-cbased ccompreheñsioñ ctest cadmiñistered cat
cthe ccoñclusioñ cof cthe ccourse cby cthe cCE cProvider.
