Federal Tax Research, 12th Edition Page 1-1
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
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 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 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 by sociologists and political scientists.
Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants
ensure that these same statutes are applied consistently.
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.
,Page 1-2 SOLUTIONS MANUAL
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,
and 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 also
provide 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 appropriate
professional 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. 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 bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannot
be 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 practitioner
maintains 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 pertinent
actions 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.
,Federal Tax Research, 12th Edition Page 1-3
Page 6
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a tax
attorney 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 process
includes 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.
Page 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 appropriate
state 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-
based comprehension test administered at the conclusion of the course by the CE Provider.
,Page 1-4 SOLUTIONS MANUAL
Limited practice rights allow individuals to represent clients whose returns they prepared and
signed, but only before revenue agents, customer service representatives, and similar IRS
employees.
Page 10 and IRS.gov
1-13. False. Only communication with the IRS concerning a taxpayer‘s rights, privileges, or liability is
included. Practice before the IRS does not include representation before the Tax Court.
Page 7
1-14. Section 10.2 of Subpart A of Circular 230 defines practice before the IRS as including:
matters connected with presentation to the Internal Revenue Service or any of its officers
or employees relating to a client‘s rights, privileges, or liabilities under laws or
regulations administered by the Internal Revenue Service. Such presentations include the
preparation and filing of necessary documents, correspondence with, and
communications to the Internal Revenue Service, and the representation of a client at
conferences, hearings, and meetings.
Page 7
1-15. To become an EA an individual can (1) pass a test given by the IRS or (2) work for the IRS for
five years. Circular 230, Subpart A, §§ 10.4 to 10.6.
Page 9
1-16. EAs must complete 72 hours of continuing education every three years (an average of 24 per year,
with a minimum of 16 hours during any year). Circular 230, Subpart A. § 10.6.
Page 9
1-17. True. As a general rule, an individual must be an EA, attorney, or CPA to represent a client before
the IRS. There are limited situations where others may represent a taxpayer; however, this fact
pattern is not one of them. Since Leigh did not sign the return, she cannot represent the taxpayer,
only Rose can.
,Federal Tax Research, 12th Edition Page 1-5
Pages 10–11
1-18. The names of organizations that can be represented by regular full-time employees are found in
Circular 230, § 10.7(c). A regular full-time employee can represent the employer (individual
employer). A regular full-time employee of a partnership may represent the partnership. Also, a
regular full-time employee of a trust, receivership, guardianship, or estate may represent the trust,
receivership, guardianship, or estate. Furthermore, a regular full-time employee of a governmental
unit, agency, or authority may represent the governmental unit, agency, or authority in the course
of his or her official duties.
Page 10
1-19. Yes. Circular 230, Subpart A, § 10.7.
Page 10
1-20. True. A practitioner may be suspended or disbarred from practice before the IRS if he or she
knowingly helps a suspended or disbarred person practice indirectly before the IRS.
Page 12
1-21. A practitioner may not advise a client to take a position on a document, affidavit, or other paper
submitted to the IRS unless the position is not frivolous. Circular 230 § 10.34(b).
Page 14
1-22. Under Circular 230, an attorney, a CPA, or an EA may use mass media (e.g., T.V. and the
Internet) for advertising purposes. Such media may not contain false, fraudulent, unduly
influencing, coercive, or unfair statements or claims. Attorneys, CPAs, and EAs must also observe
any applicable standards of ethical conduct adopted by the American Bar Association (ABA), the
American Institute of Certified Public Accountants (AICPA), and the National Association of
Enrolled Agents (NAEA). Additional standards and listing of items that may be included in mass
media advertising are defined under § 10.30 of Subpart B in Circular 230.
Page 19
,Page 1-6 SOLUTIONS MANUAL
1-23. Under § 10.25 of Circular 230, partners of government employees cannot represent anyone for
which the government employee-partner has (or has had) official responsibility. For instance, a
CPA firm with an IRS agent could not represent any taxpayer who is (or was in the past) assigned
to the IRS agent-partner.
Page 12
1-24. Under § 10.21 of Circular 230, each attorney, CPA, EA, or enrolled actuary who knows that the
client has not complied with the revenue laws of the United States or has made an error in or
omission from any return, document, affidavit, or other paper which the client is required by the
revenue laws of the United States to execute shall advise the client promptly of the fact of such
noncompliance, error, or omission.
Page 11
1-25. According to Circular 230, the best practices rules are aspirational. Thus, a practitioner who fails
to comply with best practices will not be subject to discipline by the IRS.
Page 14
1-26. Best practices include the following:
a. Communicating clearly with the client regarding the terms of the engagement. For example,
the advisor should determine the client‘s expected purpose for and use of the advice and
should have a clear understanding with the client regarding the form and scope of the advice
or assistance to be rendered.
b. Establishing the facts, determining which facts are relevant, evaluating the reasonableness of
any assumptions or representations, relating the applicable law (including potentially
applicable judicial doctrines) to the relevant facts, and arriving at a conclusion supported by
the law and the facts.
c. Advising the client regarding the importance of the conclusions reached, including, for
example, whether a taxpayer may avoid accuracy-related penalties under the Internal Revenue
Code if a taxpayer acts in reliance on the advice.
d. Acting fairly and with integrity in practice before the IRS.
Pages 13–14
,Federal Tax Research, 12th Edition Page 1-7
1-27. A practitioner must not give written advice if the practitioner:
1. bases the written advice on unreasonable factual or legal assumptions (including assumptions
as to future events),
2. unreasonably relies upon representations, statements, findings, or agreements of the taxpayer
or any other person,
3. does not consider all relevant facts that the practitioner knows or should know, or
4. in evaluating a Federal tax issue, takes into account the possibility that a tax return will not be
audited, that an issue will not be raised on audit, or that an issue will be resolved through
settlement if raised.
Page 15
1-28 This would be considered a conflict of interest and is generally prohibited under the AICPA Code
of Professional Conduct. While you can accept the engagement if you disclose to both parties the
nature of the relationship and obtain the consent of both parties, before accepting the engagement,
you should consider your ability to act with objectivity and independence in discharging your
responsibilities.
Pages 16-22
1-29 A preparer tax identification number (PTIN) is required of a compensated individual who prepares
or assists with the preparation of all or substantially all of a tax return or claim for refund must
have a PTIN. Normally, the individual must be an attorney, CPA, EA, or tax return preparer must
obtain a PTIN in order to file tax returns for clients
Page 10
1-30. Individuals who prepared tax returns for compensation must follow the rules under Circular 230
Subpart B —Duties and Restrictions Relating to Practice Before the Internal Revenue Service and
Subpart C—Sanctions for Violation of the Regulations. Thus, they are generally held to the same
standards of practice as persons who are eligible to practice before the IRS (Attorneys, CPAs, and
EAs).
,Page 1-8 SOLUTIONS MANUAL
Pages 6 and 11
1-31. The AICPA‘s Code of Professional Conduct provides a philosophical foundation upon which the
Rules of Conduct are based. The Principles of the Code of Professional Conduct suggest that a
CPA should strive for behavior that is above the minimal level of acceptable conduct set forth by
the rules. The code was designed to provide the following:
1. A comprehensive code of ethics and professional conduct;
2. A guide for practitioners in answering complex questions; and
3. Assurance to the public concerning the obligations and responsibilities of the accounting
profession.
Pages 16-17
1-32. Threats to complying with the Independence Rule include the following:
Members not acting with objectivity due to an adverse interest
Advocacy threats
Familiarity threats due to a long or close relationship with a client
Management participation threats
Self-interest threats
Self-review threats
Undue influence threats
Page 18
1-33. In a tax practice the CPA may be requested to blindly follow the guidelines of a government
agency or the demands of an audit client. This rule prohibits such blind obedience. The code
specifically recognizes that conflicts of interest may arise in tax contexts, including providing tax
or personal financial planning services for several members of a family whom the member knows
to have opposing interests or when referring a personal financial planning or tax client to an
insurance broker or other service provider who refers clients to the member under an exclusive
arrangement.
Page 20
,Federal Tax Research, 12th Edition Page 1-9
1-34. The General Standards Rule includes the following:
1. The CPA must be able to complete all professional services with professional competence.
2. The CPA must exercise due professional care in the performance of all professional services.
3. The CPA shall adequately plan and supervise the performance of all professional services.
4. The CPA must obtain sufficient relevant data to afford a reasonable basis for any conclusion or
recommendation in connection with the performance of any professional services.
Competence encompasses not only technical subject matter but also knowledge of the profession‘s
standards and the ability to exercise sound judgment in applying the technical knowledge. At the
same time, the code is clear that the member does not assume a responsibility for infallibility of
knowledge or judgment
Page 21
1-35.
a. No violation
b. 1.520.001: Commissions and Referral Fees
c. No violation
d. 1.600.001: Advertising and Other Forms of Solicitation
e. 1.800.001: Form of Organization and Name Rule
f. 2.400.090 or 3.400.090: Acts Discreditable Rule
Pages 19-21
1-36.
1.700.001 (Confidential Client Information Rule) does not apply in the following situations:
1. There is a conflict with the Compliance with Standards Rule [1.310.001] or the Accounting
Principles Rule [1.320.001].
2. The CPA is served with an enforceable subpoena or summons or must comply with applicable
laws and government regulations.
3. There is a review of a CPA‘s practice under AICPA or state society authorization.
4. The CPA is responding to an inquiry of an investigative or disciplinary body of a recognized
society, or the CPA is initiating a complaint with a disciplinary body.
, Page 1-10 SOLUTIONS MANUAL
Pages 19-20
1-37. The Statements on Standards for Tax Services, or SSTS, are a series of statements, issued by the
AICPA, as to what constitutes appropriate standards for tax practice. The statements also delineate
a member‘s responsibility to clients, the public, and the profession.
The stated objectives of the statements are as follows:
SSTS No. 1: Tax Return Positions. This statement sets forth the applicable standards for members
when recommending tax return positions, or preparing or signing tax returns. This statement also
addresses a member‘s obligation to advise a taxpayer of relevant tax return disclosure
responsibilities and potential penalties.
SSTS No. 2: Answers to Questions on Returns. This statement sets forth the applicable standards
for members when signing the preparer‘s declaration on a tax return if one or more questions on
the return have not been answered.
SSTS No. 3: Certain Procedural Aspects of Preparing Returns. This statement sets forth the
applicable standards for members concerning the obligation to examine or verify certain
supporting data or to consider information related to another taxpayer when preparing a taxpayer‘s
tax return.
SSTS No. 4: Use of Estimates. This statement sets forth the applicable standards for members
when using the taxpayer‘s estimates in the preparation of a tax return. A member may advise on
estimates used in the preparation of a tax return, but the taxpayer has the responsibility to provide
the estimated data. Appraisals or valuations are not considered estimates for purposes of this
statement.
SSTS No. 5: Departure from a Position Previously Concluded in an Administrative Proceeding or
Court Decision. This statement sets forth the applicable standards for members in recommending a
tax return position that departs from the position determined in an administrative proceeding or in
a court decision with respect to the taxpayer‘s prior return.
SSTS No. 6: Knowledge of Error: Return Preparation and Administrative Proceedings. This
statement sets forth the applicable standards for a member who becomes aware of (a) an error in a
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
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 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 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 by sociologists and political scientists.
Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants
ensure that these same statutes are applied consistently.
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.
,Page 1-2 SOLUTIONS MANUAL
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,
and 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 also
provide 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 appropriate
professional 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. 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 bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannot
be 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 practitioner
maintains 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 pertinent
actions 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.
,Federal Tax Research, 12th Edition Page 1-3
Page 6
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a tax
attorney 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 process
includes 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.
Page 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 appropriate
state 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-
based comprehension test administered at the conclusion of the course by the CE Provider.
,Page 1-4 SOLUTIONS MANUAL
Limited practice rights allow individuals to represent clients whose returns they prepared and
signed, but only before revenue agents, customer service representatives, and similar IRS
employees.
Page 10 and IRS.gov
1-13. False. Only communication with the IRS concerning a taxpayer‘s rights, privileges, or liability is
included. Practice before the IRS does not include representation before the Tax Court.
Page 7
1-14. Section 10.2 of Subpart A of Circular 230 defines practice before the IRS as including:
matters connected with presentation to the Internal Revenue Service or any of its officers
or employees relating to a client‘s rights, privileges, or liabilities under laws or
regulations administered by the Internal Revenue Service. Such presentations include the
preparation and filing of necessary documents, correspondence with, and
communications to the Internal Revenue Service, and the representation of a client at
conferences, hearings, and meetings.
Page 7
1-15. To become an EA an individual can (1) pass a test given by the IRS or (2) work for the IRS for
five years. Circular 230, Subpart A, §§ 10.4 to 10.6.
Page 9
1-16. EAs must complete 72 hours of continuing education every three years (an average of 24 per year,
with a minimum of 16 hours during any year). Circular 230, Subpart A. § 10.6.
Page 9
1-17. True. As a general rule, an individual must be an EA, attorney, or CPA to represent a client before
the IRS. There are limited situations where others may represent a taxpayer; however, this fact
pattern is not one of them. Since Leigh did not sign the return, she cannot represent the taxpayer,
only Rose can.
,Federal Tax Research, 12th Edition Page 1-5
Pages 10–11
1-18. The names of organizations that can be represented by regular full-time employees are found in
Circular 230, § 10.7(c). A regular full-time employee can represent the employer (individual
employer). A regular full-time employee of a partnership may represent the partnership. Also, a
regular full-time employee of a trust, receivership, guardianship, or estate may represent the trust,
receivership, guardianship, or estate. Furthermore, a regular full-time employee of a governmental
unit, agency, or authority may represent the governmental unit, agency, or authority in the course
of his or her official duties.
Page 10
1-19. Yes. Circular 230, Subpart A, § 10.7.
Page 10
1-20. True. A practitioner may be suspended or disbarred from practice before the IRS if he or she
knowingly helps a suspended or disbarred person practice indirectly before the IRS.
Page 12
1-21. A practitioner may not advise a client to take a position on a document, affidavit, or other paper
submitted to the IRS unless the position is not frivolous. Circular 230 § 10.34(b).
Page 14
1-22. Under Circular 230, an attorney, a CPA, or an EA may use mass media (e.g., T.V. and the
Internet) for advertising purposes. Such media may not contain false, fraudulent, unduly
influencing, coercive, or unfair statements or claims. Attorneys, CPAs, and EAs must also observe
any applicable standards of ethical conduct adopted by the American Bar Association (ABA), the
American Institute of Certified Public Accountants (AICPA), and the National Association of
Enrolled Agents (NAEA). Additional standards and listing of items that may be included in mass
media advertising are defined under § 10.30 of Subpart B in Circular 230.
Page 19
,Page 1-6 SOLUTIONS MANUAL
1-23. Under § 10.25 of Circular 230, partners of government employees cannot represent anyone for
which the government employee-partner has (or has had) official responsibility. For instance, a
CPA firm with an IRS agent could not represent any taxpayer who is (or was in the past) assigned
to the IRS agent-partner.
Page 12
1-24. Under § 10.21 of Circular 230, each attorney, CPA, EA, or enrolled actuary who knows that the
client has not complied with the revenue laws of the United States or has made an error in or
omission from any return, document, affidavit, or other paper which the client is required by the
revenue laws of the United States to execute shall advise the client promptly of the fact of such
noncompliance, error, or omission.
Page 11
1-25. According to Circular 230, the best practices rules are aspirational. Thus, a practitioner who fails
to comply with best practices will not be subject to discipline by the IRS.
Page 14
1-26. Best practices include the following:
a. Communicating clearly with the client regarding the terms of the engagement. For example,
the advisor should determine the client‘s expected purpose for and use of the advice and
should have a clear understanding with the client regarding the form and scope of the advice
or assistance to be rendered.
b. Establishing the facts, determining which facts are relevant, evaluating the reasonableness of
any assumptions or representations, relating the applicable law (including potentially
applicable judicial doctrines) to the relevant facts, and arriving at a conclusion supported by
the law and the facts.
c. Advising the client regarding the importance of the conclusions reached, including, for
example, whether a taxpayer may avoid accuracy-related penalties under the Internal Revenue
Code if a taxpayer acts in reliance on the advice.
d. Acting fairly and with integrity in practice before the IRS.
Pages 13–14
,Federal Tax Research, 12th Edition Page 1-7
1-27. A practitioner must not give written advice if the practitioner:
1. bases the written advice on unreasonable factual or legal assumptions (including assumptions
as to future events),
2. unreasonably relies upon representations, statements, findings, or agreements of the taxpayer
or any other person,
3. does not consider all relevant facts that the practitioner knows or should know, or
4. in evaluating a Federal tax issue, takes into account the possibility that a tax return will not be
audited, that an issue will not be raised on audit, or that an issue will be resolved through
settlement if raised.
Page 15
1-28 This would be considered a conflict of interest and is generally prohibited under the AICPA Code
of Professional Conduct. While you can accept the engagement if you disclose to both parties the
nature of the relationship and obtain the consent of both parties, before accepting the engagement,
you should consider your ability to act with objectivity and independence in discharging your
responsibilities.
Pages 16-22
1-29 A preparer tax identification number (PTIN) is required of a compensated individual who prepares
or assists with the preparation of all or substantially all of a tax return or claim for refund must
have a PTIN. Normally, the individual must be an attorney, CPA, EA, or tax return preparer must
obtain a PTIN in order to file tax returns for clients
Page 10
1-30. Individuals who prepared tax returns for compensation must follow the rules under Circular 230
Subpart B —Duties and Restrictions Relating to Practice Before the Internal Revenue Service and
Subpart C—Sanctions for Violation of the Regulations. Thus, they are generally held to the same
standards of practice as persons who are eligible to practice before the IRS (Attorneys, CPAs, and
EAs).
,Page 1-8 SOLUTIONS MANUAL
Pages 6 and 11
1-31. The AICPA‘s Code of Professional Conduct provides a philosophical foundation upon which the
Rules of Conduct are based. The Principles of the Code of Professional Conduct suggest that a
CPA should strive for behavior that is above the minimal level of acceptable conduct set forth by
the rules. The code was designed to provide the following:
1. A comprehensive code of ethics and professional conduct;
2. A guide for practitioners in answering complex questions; and
3. Assurance to the public concerning the obligations and responsibilities of the accounting
profession.
Pages 16-17
1-32. Threats to complying with the Independence Rule include the following:
Members not acting with objectivity due to an adverse interest
Advocacy threats
Familiarity threats due to a long or close relationship with a client
Management participation threats
Self-interest threats
Self-review threats
Undue influence threats
Page 18
1-33. In a tax practice the CPA may be requested to blindly follow the guidelines of a government
agency or the demands of an audit client. This rule prohibits such blind obedience. The code
specifically recognizes that conflicts of interest may arise in tax contexts, including providing tax
or personal financial planning services for several members of a family whom the member knows
to have opposing interests or when referring a personal financial planning or tax client to an
insurance broker or other service provider who refers clients to the member under an exclusive
arrangement.
Page 20
,Federal Tax Research, 12th Edition Page 1-9
1-34. The General Standards Rule includes the following:
1. The CPA must be able to complete all professional services with professional competence.
2. The CPA must exercise due professional care in the performance of all professional services.
3. The CPA shall adequately plan and supervise the performance of all professional services.
4. The CPA must obtain sufficient relevant data to afford a reasonable basis for any conclusion or
recommendation in connection with the performance of any professional services.
Competence encompasses not only technical subject matter but also knowledge of the profession‘s
standards and the ability to exercise sound judgment in applying the technical knowledge. At the
same time, the code is clear that the member does not assume a responsibility for infallibility of
knowledge or judgment
Page 21
1-35.
a. No violation
b. 1.520.001: Commissions and Referral Fees
c. No violation
d. 1.600.001: Advertising and Other Forms of Solicitation
e. 1.800.001: Form of Organization and Name Rule
f. 2.400.090 or 3.400.090: Acts Discreditable Rule
Pages 19-21
1-36.
1.700.001 (Confidential Client Information Rule) does not apply in the following situations:
1. There is a conflict with the Compliance with Standards Rule [1.310.001] or the Accounting
Principles Rule [1.320.001].
2. The CPA is served with an enforceable subpoena or summons or must comply with applicable
laws and government regulations.
3. There is a review of a CPA‘s practice under AICPA or state society authorization.
4. The CPA is responding to an inquiry of an investigative or disciplinary body of a recognized
society, or the CPA is initiating a complaint with a disciplinary body.
, Page 1-10 SOLUTIONS MANUAL
Pages 19-20
1-37. The Statements on Standards for Tax Services, or SSTS, are a series of statements, issued by the
AICPA, as to what constitutes appropriate standards for tax practice. The statements also delineate
a member‘s responsibility to clients, the public, and the profession.
The stated objectives of the statements are as follows:
SSTS No. 1: Tax Return Positions. This statement sets forth the applicable standards for members
when recommending tax return positions, or preparing or signing tax returns. This statement also
addresses a member‘s obligation to advise a taxpayer of relevant tax return disclosure
responsibilities and potential penalties.
SSTS No. 2: Answers to Questions on Returns. This statement sets forth the applicable standards
for members when signing the preparer‘s declaration on a tax return if one or more questions on
the return have not been answered.
SSTS No. 3: Certain Procedural Aspects of Preparing Returns. This statement sets forth the
applicable standards for members concerning the obligation to examine or verify certain
supporting data or to consider information related to another taxpayer when preparing a taxpayer‘s
tax return.
SSTS No. 4: Use of Estimates. This statement sets forth the applicable standards for members
when using the taxpayer‘s estimates in the preparation of a tax return. A member may advise on
estimates used in the preparation of a tax return, but the taxpayer has the responsibility to provide
the estimated data. Appraisals or valuations are not considered estimates for purposes of this
statement.
SSTS No. 5: Departure from a Position Previously Concluded in an Administrative Proceeding or
Court Decision. This statement sets forth the applicable standards for members in recommending a
tax return position that departs from the position determined in an administrative proceeding or in
a court decision with respect to the taxpayer‘s prior return.
SSTS No. 6: Knowledge of Error: Return Preparation and Administrative Proceedings. This
statement sets forth the applicable standards for a member who becomes aware of (a) an error in a
