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
,Page 1-2 SOLUTIONS MANUAL
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, 12th Edition 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, 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 p IRS. p CPAs p and p attorneys p are p not p required p to p take p this p
examination p and p are p automatically p admitted p to p practice p before p
the p IRS p if p they p are p in p good p standing p with p the p appropriatep
professional p licensing p board.
Page p 5 p and p Circular p 230
1-5. Tax p planning p is p the p process p of p arranging p one‘s p financial p affairs
p to p minimize p any p tax p liability. p Muchpof p modern p tax p practice p
centers p around p this p process, p and p the p resulting p outcome p is p tax p
, Page 1-4 SOLUTIONS MANUAL
avoidance.
There p is p nothing p illegal p or p immoral p in p the p avoidance p of p
taxation p as p long p as p the p taxpayer p remains p within p legal p bounds. p
In p contrast, p tax p evasion p constitutes p the p illegal p nonpayment p of p a
p tax p and p cannotpbe p condoned. p Activities p of p this p sort p clearly p
violate p existing p legal p constraints p and p fall p outside p of p the p domain
p of p the p professional p tax p practitioner.
Page p 6
1-6. In p an p open p tax p planning p situation, p the p transaction p is p not p yet p
complete; p therefore, p the p tax p practitionerpmaintains p some p degree p
of p control p over p the p potential p tax p liability, p and p the p transaction p
may p be p modi- p fied p to p achieve p a p more p favorable p tax p treatment. p
In p a p closed p transaction p however, p all p of p the p pertinentpactions p
have p been p completed, p and p tax p planning p activities p may p be p
limited p to p the p presentation p of p the p situation p to p the p government p
in p the p most p legally p advantageous p manner p possible.
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
,Page 1-2 SOLUTIONS MANUAL
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, 12th Edition 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, 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 p IRS. p CPAs p and p attorneys p are p not p required p to p take p this p
examination p and p are p automatically p admitted p to p practice p before p
the p IRS p if p they p are p in p good p standing p with p the p appropriatep
professional p licensing p board.
Page p 5 p and p Circular p 230
1-5. Tax p planning p is p the p process p of p arranging p one‘s p financial p affairs
p to p minimize p any p tax p liability. p Muchpof p modern p tax p practice p
centers p around p this p process, p and p the p resulting p outcome p is p tax p
, Page 1-4 SOLUTIONS MANUAL
avoidance.
There p is p nothing p illegal p or p immoral p in p the p avoidance p of p
taxation p as p long p as p the p taxpayer p remains p within p legal p bounds. p
In p contrast, p tax p evasion p constitutes p the p illegal p nonpayment p of p a
p tax p and p cannotpbe p condoned. p Activities p of p this p sort p clearly p
violate p existing p legal p constraints p and p fall p outside p of p the p domain
p of p the p professional p tax p practitioner.
Page p 6
1-6. In p an p open p tax p planning p situation, p the p transaction p is p not p yet p
complete; p therefore, p the p tax p practitionerpmaintains p some p degree p
of p control p over p the p potential p tax p liability, p and p the p transaction p
may p be p modi- p fied p to p achieve p a p more p favorable p tax p treatment. p
In p a p closed p transaction p however, p all p of p the p pertinentpactions p
have p been p completed, p and p tax p planning p activities p may p be p
limited p to p the p presentation p of p the p situation p to p the p government p
in p the p most p legally p advantageous p manner p possible.
