Ƒederal Tax Research, 12th Edition Page 1-1
Solution Manual For
Federal Tax Research 12th Edition by Roby B. Sawyers, Steven Gill
All Chapters 1-13
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the United States, the tax system is an outgrowth oƒ the ƒollowing ƒive
disciplines: law, accounting, economics, political science, and sociology.
The environment ƒor the tax system is provided by the principles oƒ
economics, sociology, and political science, while the legal and
accounting ƒields are responsible ƒor the system‘s interpretation and
application.
Each oƒ these disciplines aƒƒects this country‘s tax system in a unique way.
Economists address such issues as how proposed tax legislation will
aƒƒect the rate oƒ inƒlation or economic growth. Measurement oƒ the social
equity oƒ a tax and determining whether a tax system discriminates
against certain taxpayers are issues that are examined by sociologists and
political scientists.
Ƒinally, attorneys are responsible ƒor the interpretation oƒ the taxation
statutes, and accountants ensure that these same statutes are applied
consistently.
,Page 1-2 SOLUTIONS MANUAL
Page 4
1-2. The other major categories oƒ tax practice in addition to tax research are as
ƒollows:
• Tax compliance
• Tax planning
• Tax
litigation Page 5
1-3. Tax compliance consists oƒ gathering pertinent inƒormation, evaluating
and classiƒying that inƒormation, and ƒiling any necessary tax returns.
Compliance also includes other ƒunctions necessary to satisƒy
governmental requirements, such as representing a client during an
Internal Revenue Service (IRS) audit.
,Ƒederal Tax Research, 12th Edition Page 1-3
Page 5
1-4. Most oƒ the tax compliance work is perƒormed by commercial tax
preparers, enrolled agents (EAs), attorneys, and certiƒied public
accountants (CPAs). Noncomplex individual, partnership, and corporate
tax returns oƒten are completed by commercial tax preparers. The
preparation oƒ more complex returns usually is perƒormed by EAs,
attorneys, and CPAs. The latter groups also provide tax planning services
and represent their clients beƒore the IRS.
An EA is one who is admitted to practice beƒore the IRS by passing a special
IRS-administered examination, or who has worked ƒor the IRS ƒor ƒive years
and is issued a permit to represent clients beƒore the IRS. CPAs and
attorneys are not required to take this examination and are automatically
admitted to practice beƒore the IRS iƒ they are in good standing with the
appropriate proƒessional licensing board.
Page 5 and Circular 230
1-5. Tax planning is the process oƒ arranging one‘s ƒinancial aƒƒairs to minimize
any tax liability. Much oƒ modern tax practice centers around this process,
and the resulting outcome is tax avoidance.
There is nothing illegal or immoral in the avoidance oƒ taxation as long as the
taxpayer remains within legal bounds. In contrast, tax evasion constitutes
the illegal nonpayment oƒ a tax and cannot be condoned. Activities oƒ this
sort clearly violate existing legal constraints and ƒall outside oƒ the domain oƒ
, Page 1-4 SOLUTIONS MANUAL
the proƒessional tax practitioner.
Page 6
1-6. In an open tax planning situation, the transaction is not yet complete;
thereƒore, the tax practitioner maintains some degree oƒ control over the
potential tax liability, and the transaction may be modi- ƒied to achieve a
more ƒavorable tax treatment. In a closed transaction however, all oƒ the
pertinent actions have been completed, and tax planning activities may be
limited to the presentation oƒ the situation to the government in the most
legally advantageous manner possible.
Solution Manual For
Federal Tax Research 12th Edition by Roby B. Sawyers, Steven Gill
All Chapters 1-13
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the United States, the tax system is an outgrowth oƒ the ƒollowing ƒive
disciplines: law, accounting, economics, political science, and sociology.
The environment ƒor the tax system is provided by the principles oƒ
economics, sociology, and political science, while the legal and
accounting ƒields are responsible ƒor the system‘s interpretation and
application.
Each oƒ these disciplines aƒƒects this country‘s tax system in a unique way.
Economists address such issues as how proposed tax legislation will
aƒƒect the rate oƒ inƒlation or economic growth. Measurement oƒ the social
equity oƒ a tax and determining whether a tax system discriminates
against certain taxpayers are issues that are examined by sociologists and
political scientists.
Ƒinally, attorneys are responsible ƒor the interpretation oƒ the taxation
statutes, and accountants ensure that these same statutes are applied
consistently.
,Page 1-2 SOLUTIONS MANUAL
Page 4
1-2. The other major categories oƒ tax practice in addition to tax research are as
ƒollows:
• Tax compliance
• Tax planning
• Tax
litigation Page 5
1-3. Tax compliance consists oƒ gathering pertinent inƒormation, evaluating
and classiƒying that inƒormation, and ƒiling any necessary tax returns.
Compliance also includes other ƒunctions necessary to satisƒy
governmental requirements, such as representing a client during an
Internal Revenue Service (IRS) audit.
,Ƒederal Tax Research, 12th Edition Page 1-3
Page 5
1-4. Most oƒ the tax compliance work is perƒormed by commercial tax
preparers, enrolled agents (EAs), attorneys, and certiƒied public
accountants (CPAs). Noncomplex individual, partnership, and corporate
tax returns oƒten are completed by commercial tax preparers. The
preparation oƒ more complex returns usually is perƒormed by EAs,
attorneys, and CPAs. The latter groups also provide tax planning services
and represent their clients beƒore the IRS.
An EA is one who is admitted to practice beƒore the IRS by passing a special
IRS-administered examination, or who has worked ƒor the IRS ƒor ƒive years
and is issued a permit to represent clients beƒore the IRS. CPAs and
attorneys are not required to take this examination and are automatically
admitted to practice beƒore the IRS iƒ they are in good standing with the
appropriate proƒessional licensing board.
Page 5 and Circular 230
1-5. Tax planning is the process oƒ arranging one‘s ƒinancial aƒƒairs to minimize
any tax liability. Much oƒ modern tax practice centers around this process,
and the resulting outcome is tax avoidance.
There is nothing illegal or immoral in the avoidance oƒ taxation as long as the
taxpayer remains within legal bounds. In contrast, tax evasion constitutes
the illegal nonpayment oƒ a tax and cannot be condoned. Activities oƒ this
sort clearly violate existing legal constraints and ƒall outside oƒ the domain oƒ
, Page 1-4 SOLUTIONS MANUAL
the proƒessional tax practitioner.
Page 6
1-6. In an open tax planning situation, the transaction is not yet complete;
thereƒore, the tax practitioner maintains some degree oƒ control over the
potential tax liability, and the transaction may be modi- ƒied to achieve a
more ƒavorable tax treatment. In a closed transaction however, all oƒ the
pertinent actions have been completed, and tax planning activities may be
limited to the presentation oƒ the situation to the government in the most
legally advantageous manner possible.
