Federal nTax nResearch, n12th Page n1-1
nEdition
Solution Manual Federal Tax Research 12th Edition
n n n n n n
by Roby Sawyers, Steven Gill
n n n n n
CHAPTER 1 n
INTRODUCTION TO TAX PRACTICE AND ETHICS
n n n n n
DISCUSSION nQUESTIONS
1-1. In nthe nUnited nStates, nthe ntax nsystem nis nan noutgrowth nof nthe nfollowing nfive
ndisciplines: nlaw, naccounting, neconomics, npolitical nscience, nand nsociology. nThe
nenvironment nfor nthe ntax nsystem nisnprovided nby nthe nprinciples nof neconomics,
nsociology, nand npolitical nscience, nwhile nthe nlegal nand naccounting nfields nare
nresponsible nfor nthe nsystem‘s ninterpretation nand napplication.
Each nof nthese ndisciplines naffects nthis ncountry‘s ntax nsystem nin na nunique nway.
nEconomists naddressnsuch nissues nas nhow nproposed ntax nlegislation nwill naffect nthe
nrate nof ninflation nor neconomic ngrowth.nMeasurement nof nthe nsocial nequity nof na ntax
nand ndetermining nwhether na ntax nsystem ndiscriminates nagainst ncertain ntaxpayers
n are nissues nthat nare nexamined nby nsociologists nand npolitical nscientists.
Finally, nattorneys nare nresponsible nfor nthe ninterpretation nof nthe ntaxation nstatutes,
nand naccountantsnensure nthat nthese nsame nstatutes nare napplied nconsistently.
Page n4
1-2. The nother nmajor ncategories nof ntax npractice nin naddition nto ntax nresearch nare nas nfollows:
• Tax ncompliance
• Tax nplanning
• Tax
nlitigationnPage n5
1-3. Tax ncompliance nconsists nof ngathering npertinent ninformation, nevaluating nand
,Page n1-2 SOLUTIONS
classifying nthat ninformation, nand nfiling nany nnecessary ntax nreturns.nMANUAL
n nCompliance
also nincludes nother nfunctions nnecessary nto nsatisfy ngovernmental nrequirements,
n
such nas nrepresenting na nclient nduring nan nInternalnRevenue nService n(IRS) naudit.
n
,Federal nTax nResearch, n12th Page n1-3
nEdition
Page n5
1-4. Most nof nthe ntax ncompliance nwork nis nperformed nby ncommercial ntax npreparers,
nenrolled nagents n(EAs), nattorneys, nand ncertified npublic naccountants n(CPAs).
nNoncomplex nindividual, npartnership,nand ncorporate ntax nreturns noften nare
ncompleted nby ncommercial ntax npreparers. nThe npreparation nof nmore ncomplex
nreturns nusually nis nperformed nby nEAs, nattorneys, nand nCPAs. nThe nlatter ngroups
nalsonprovide ntax nplanning nservices nand nrepresent ntheir nclients nbefore nthe nIRS.
An nEA nis none nwho nis nadmitted nto npractice nbefore nthe nIRS nby npassing na nspecial
nIRS-administered nexamination, nor nwho nhas nworked nfor nthe nIRS nfor nfive nyears nand
nis nissued na npermit nto nrepresent nclients nbefore nthe nIRS. nCPAs nand nattorneys nare
nnot nrequired nto ntake nthis nexamination nand nare nautomatically nadmitted nto npractice
nbefore nthe nIRS nif nthey nare nin ngood nstanding nwith nthe nappropriatenprofessional
nlicensing nboard.
Page n5 nand nCircular n230
1-5. Tax nplanning nis nthe nprocess nof narranging none‘s nfinancial naffairs nto nminimize nany
ntax nliability. nMuchnof nmodern ntax npractice ncenters naround nthis nprocess, nand nthe
nresulting noutcome nis ntax navoidance.
There nis nnothing nillegal nor nimmoral nin nthe navoidance nof ntaxation nas nlong nas nthe
ntaxpayer nremains nwithin nlegal nbounds. nIn ncontrast, ntax nevasion nconstitutes nthe
nillegal nnonpayment nof na ntax nand ncannotnbe ncondoned. nActivities nof nthis nsort
nclearly nviolate nexisting nlegal nconstraints nand nfall noutside nof nthe ndomain nof nthe
nprofessional ntax npractitioner.
Page n6
1-6. In nan nopen ntax nplanning nsituation, nthe ntransaction nis nnot nyet ncomplete; ntherefore,
nthe ntax npractitionernmaintains nsome ndegree nof ncontrol nover nthe npotential ntax
nliability, nand nthe ntransaction nmay nbe nmodi- nfied nto nachieve na nmore nfavorable ntax
, Page n1-4 SOLUTIONS
treatment. nIn na nclosed ntransaction nhowever, nall nof nthe npertinentnactions
n nMANUALnhave nbeen
completed, nand ntax nplanning nactivities nmay nbe nlimited nto nthe npresentation nof nthe
n
situation nto nthe ngovernment nin nthe nmost nlegally nadvantageous nmanner npossible.
n
nEdition
Solution Manual Federal Tax Research 12th Edition
n n n n n n
by Roby Sawyers, Steven Gill
n n n n n
CHAPTER 1 n
INTRODUCTION TO TAX PRACTICE AND ETHICS
n n n n n
DISCUSSION nQUESTIONS
1-1. In nthe nUnited nStates, nthe ntax nsystem nis nan noutgrowth nof nthe nfollowing nfive
ndisciplines: nlaw, naccounting, neconomics, npolitical nscience, nand nsociology. nThe
nenvironment nfor nthe ntax nsystem nisnprovided nby nthe nprinciples nof neconomics,
nsociology, nand npolitical nscience, nwhile nthe nlegal nand naccounting nfields nare
nresponsible nfor nthe nsystem‘s ninterpretation nand napplication.
Each nof nthese ndisciplines naffects nthis ncountry‘s ntax nsystem nin na nunique nway.
nEconomists naddressnsuch nissues nas nhow nproposed ntax nlegislation nwill naffect nthe
nrate nof ninflation nor neconomic ngrowth.nMeasurement nof nthe nsocial nequity nof na ntax
nand ndetermining nwhether na ntax nsystem ndiscriminates nagainst ncertain ntaxpayers
n are nissues nthat nare nexamined nby nsociologists nand npolitical nscientists.
Finally, nattorneys nare nresponsible nfor nthe ninterpretation nof nthe ntaxation nstatutes,
nand naccountantsnensure nthat nthese nsame nstatutes nare napplied nconsistently.
Page n4
1-2. The nother nmajor ncategories nof ntax npractice nin naddition nto ntax nresearch nare nas nfollows:
• Tax ncompliance
• Tax nplanning
• Tax
nlitigationnPage n5
1-3. Tax ncompliance nconsists nof ngathering npertinent ninformation, nevaluating nand
,Page n1-2 SOLUTIONS
classifying nthat ninformation, nand nfiling nany nnecessary ntax nreturns.nMANUAL
n nCompliance
also nincludes nother nfunctions nnecessary nto nsatisfy ngovernmental nrequirements,
n
such nas nrepresenting na nclient nduring nan nInternalnRevenue nService n(IRS) naudit.
n
,Federal nTax nResearch, n12th Page n1-3
nEdition
Page n5
1-4. Most nof nthe ntax ncompliance nwork nis nperformed nby ncommercial ntax npreparers,
nenrolled nagents n(EAs), nattorneys, nand ncertified npublic naccountants n(CPAs).
nNoncomplex nindividual, npartnership,nand ncorporate ntax nreturns noften nare
ncompleted nby ncommercial ntax npreparers. nThe npreparation nof nmore ncomplex
nreturns nusually nis nperformed nby nEAs, nattorneys, nand nCPAs. nThe nlatter ngroups
nalsonprovide ntax nplanning nservices nand nrepresent ntheir nclients nbefore nthe nIRS.
An nEA nis none nwho nis nadmitted nto npractice nbefore nthe nIRS nby npassing na nspecial
nIRS-administered nexamination, nor nwho nhas nworked nfor nthe nIRS nfor nfive nyears nand
nis nissued na npermit nto nrepresent nclients nbefore nthe nIRS. nCPAs nand nattorneys nare
nnot nrequired nto ntake nthis nexamination nand nare nautomatically nadmitted nto npractice
nbefore nthe nIRS nif nthey nare nin ngood nstanding nwith nthe nappropriatenprofessional
nlicensing nboard.
Page n5 nand nCircular n230
1-5. Tax nplanning nis nthe nprocess nof narranging none‘s nfinancial naffairs nto nminimize nany
ntax nliability. nMuchnof nmodern ntax npractice ncenters naround nthis nprocess, nand nthe
nresulting noutcome nis ntax navoidance.
There nis nnothing nillegal nor nimmoral nin nthe navoidance nof ntaxation nas nlong nas nthe
ntaxpayer nremains nwithin nlegal nbounds. nIn ncontrast, ntax nevasion nconstitutes nthe
nillegal nnonpayment nof na ntax nand ncannotnbe ncondoned. nActivities nof nthis nsort
nclearly nviolate nexisting nlegal nconstraints nand nfall noutside nof nthe ndomain nof nthe
nprofessional ntax npractitioner.
Page n6
1-6. In nan nopen ntax nplanning nsituation, nthe ntransaction nis nnot nyet ncomplete; ntherefore,
nthe ntax npractitionernmaintains nsome ndegree nof ncontrol nover nthe npotential ntax
nliability, nand nthe ntransaction nmay nbe nmodi- nfied nto nachieve na nmore nfavorable ntax
, Page n1-4 SOLUTIONS
treatment. nIn na nclosed ntransaction nhowever, nall nof nthe npertinentnactions
n nMANUALnhave nbeen
completed, nand ntax nplanning nactivities nmay nbe nlimited nto nthe npresentation nof nthe
n
situation nto nthe ngovernment nin nthe nmost nlegally nadvantageous nmanner npossible.
n
