Solution Manual For Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill

Federal Tax Research, 13th Edition
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Solution Manual Federal Tax Research
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13th Edition by Roby Sawyers, Steven Gill
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Chapters 1 -13
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CHAPTER 1 m




INTRODUCTION TO TAX PRACTICE AND ETHICS m m m m m




DISCUSSION QUESTIONS
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1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
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accounting, economics, political science, and sociology. The environment for the tax system is
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provided by the principles of economics, sociology, and political science, while the legal and
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accounting fields are responsible for the system‘s interpretation and application.
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Each of these disciplines affects this country‘s tax system in a unique way. Economists address
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such issues as how proposed tax legislation will affect the rate of inflation or economic growth.
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Measurement of the social equity of a tax and determining whether a tax system discriminates
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against certain taxpayers are issues that are examined by sociologists and political scientists.
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Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants
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ensure that these same statutes are applied consistently.****8880()
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1-2. The other major categories of tax practice in addition to tax research are as follows:
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• Tax compliance m




• Tax planning m




• Tax litigation m




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1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
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information, and filing any necessary tax returns. Compliance also includes other functions
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necessary to satisfy governmental requirements, such as representing a client during an Internal
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Revenue Service (IRS) audit.
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,Federal Tax Research, 13th Edition
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1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents
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(EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,
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and corporate tax returns often are completed by commercial tax preparers. The preparation of
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more complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups also
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provide tax planning services and represent their clients before the IRS.
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An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
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examination, or who has worked for the IRS for five years and is issued a permit to represent
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clients before the IRS. CPAs and attorneys are not required to take this examination and are
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automatically admitted to practice before the IRS if they are in good standing with the appropriate
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professional licensing board.
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Page 5 and Circular 230
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1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Much
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of modern tax practice centers around this process, and the resulting outcome is tax avoidance.
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There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains
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within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannot
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be condoned. Activities of this sort clearly violate existing legal constraints and fall outside of the
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domain of the professional tax practitioner.
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1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax practitioner
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maintains some degree of control over the potential tax liability, and the transaction may be modi-
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fied to achieve a more favorable tax treatment. In a closed transaction however, all of the pertinent
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actions have been completed, and tax planning activities may be limited to the presentation of the
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situation to the government in the most legally advantageous manner possible.
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1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a tax
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attorney handles tax litigation that progresses beyond the final IRS appeal.
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1-8. CPAs serve is a support capacity in tax litigation.
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1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research process
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includes the following:
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1. Identification of pertinent issues; m m m




2. Specification of proper authorities; m m m




3. Evaluation of the propriety of authorities; and,
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4. Application of authorities to a specific situation.
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1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the IRS.
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1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
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Statements on Standards for Tax Services. CPAs must also abide by the rules of the appropriate
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state board(s) of accountancy.
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1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
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Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR)
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that covers filing season issues and tax law updates. The AFTR course must include a knowledge-
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based comprehension test administered at the conclusion of the course by the CE Provider.
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