Federal Tax Research, 13th Editio Page 1-1
Solution Manual Federal Tax Research
13th Edition by Roby 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 sy
stem isprovided by the principles of economics, sociology, and political science, while the le
gal and accounting fields are responsible for the system‘s interpretation and application.
Each of these disciplines affects this country‘s tax system inga unique way. Economists addre
sssuch issues as how proposed tax legislation will affect the rate of inflation orgeconomic gro
wth.Measurement of the social equity of a tax and determining whether a tax system discrimi
nates against certain taxpayers are issues that are examined by sociologists and political scien
tists.
Finally, attorneys are responsible forgthe interpretation of the taxation statutes, and accountant
sensure that these same statutes are applied consistently.****8880()
Page 4
1-2. The other majorgcategories ofgtax practice in addition to tax research are as follows:
Tax compliance
Tax planning
Tax litigatio
nPage 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 gfuncti
ons necessary to satisfy governmental requirements, such as representing a client during an In
ternalRevenue Service (IRS) audit.
,Federal Tax Research, 13th Editio 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, par
tnership,and corporate tax returns often are completed by commercial tax preparers. The prep
aration of more complex returns usually is performed by EAs, attorneys, and CPAs. The latter
groups alsoprovide tax planning services and represent their clients before the IRS.
An EA is one who is admitted to practice before the IRS bygpassing a special IRS-
administered examination, orgwho has worked forgthe IRS for five years and is issued a permit t
o 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 gstanding with the a
ppropriateprofessional licensing board.
Page 5 and Circular 230
1-5.
Tax planning is the process of arranging one‘s financial affairs to minimize any tax liabil
ity. Muchof modern tax practice centers around this process, and the resulting outcome is tax av
oidance.
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 cann
otbe condoned. Activities of this sort clearly violate existing legal constraints andgfall outside of
the domaingof the professional tax practitioner.
Page 6
1-6.
In an open tax planning situation, the transaction is not yet complete; therefore, the tax p
ractitionergmaintains some degree of control over the potential tax liability, and the transaction m
ay be modi-
fied to achieve a more favorable tax treatment. In a closed transaction however, all of the pertin
entactions 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.
, Page 1-4 SOLUTIONS MANUAL
Page 6
1-7.
Tax litigation is the process of settling a dispute with the IRS in a court of law. Typic
ally, a taxattorney 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 researc
h processincludes the following:
1. Identification of pertinent issues;
2. Specification ofgpropergauthorities;
3. Evaluation of the propriety of authorities; and,
4. Application of authorities to a specific situation.
Page 6
1-10.
Circular 230 is issuedgby the Treasury Department and applies to all who practice befor
e the IRS.Page 7
1-11.
Ingaddition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Co
nduct and Statements on Standards for Tax Services. CPAs must also abide bygthe rules of th
e appropriatestate 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 g6 credit hourgAnnual Federal Tax Refreshergco
urse (AFTR) that covers filing season issues and tax law updates. The AFTR course must includ
e a knowledge-
Solution Manual Federal Tax Research
13th Edition by Roby 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 sy
stem isprovided by the principles of economics, sociology, and political science, while the le
gal and accounting fields are responsible for the system‘s interpretation and application.
Each of these disciplines affects this country‘s tax system inga unique way. Economists addre
sssuch issues as how proposed tax legislation will affect the rate of inflation orgeconomic gro
wth.Measurement of the social equity of a tax and determining whether a tax system discrimi
nates against certain taxpayers are issues that are examined by sociologists and political scien
tists.
Finally, attorneys are responsible forgthe interpretation of the taxation statutes, and accountant
sensure that these same statutes are applied consistently.****8880()
Page 4
1-2. The other majorgcategories ofgtax practice in addition to tax research are as follows:
Tax compliance
Tax planning
Tax litigatio
nPage 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 gfuncti
ons necessary to satisfy governmental requirements, such as representing a client during an In
ternalRevenue Service (IRS) audit.
,Federal Tax Research, 13th Editio 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, par
tnership,and corporate tax returns often are completed by commercial tax preparers. The prep
aration of more complex returns usually is performed by EAs, attorneys, and CPAs. The latter
groups alsoprovide tax planning services and represent their clients before the IRS.
An EA is one who is admitted to practice before the IRS bygpassing a special IRS-
administered examination, orgwho has worked forgthe IRS for five years and is issued a permit t
o 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 gstanding with the a
ppropriateprofessional licensing board.
Page 5 and Circular 230
1-5.
Tax planning is the process of arranging one‘s financial affairs to minimize any tax liabil
ity. Muchof modern tax practice centers around this process, and the resulting outcome is tax av
oidance.
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 cann
otbe condoned. Activities of this sort clearly violate existing legal constraints andgfall outside of
the domaingof the professional tax practitioner.
Page 6
1-6.
In an open tax planning situation, the transaction is not yet complete; therefore, the tax p
ractitionergmaintains some degree of control over the potential tax liability, and the transaction m
ay be modi-
fied to achieve a more favorable tax treatment. In a closed transaction however, all of the pertin
entactions 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.
, Page 1-4 SOLUTIONS MANUAL
Page 6
1-7.
Tax litigation is the process of settling a dispute with the IRS in a court of law. Typic
ally, a taxattorney 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 researc
h processincludes the following:
1. Identification of pertinent issues;
2. Specification ofgpropergauthorities;
3. Evaluation of the propriety of authorities; and,
4. Application of authorities to a specific situation.
Page 6
1-10.
Circular 230 is issuedgby the Treasury Department and applies to all who practice befor
e the IRS.Page 7
1-11.
Ingaddition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Co
nduct and Statements on Standards for Tax Services. CPAs must also abide bygthe rules of th
e appropriatestate 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 g6 credit hourgAnnual Federal Tax Refreshergco
urse (AFTR) that covers filing season issues and tax law updates. The AFTR course must includ
e a knowledge-
