Federal Tax Research, 13th
mj mj mj Page 1-1
mj
Edition
mj
Solution Manual Federal Tax Research
mj mj mj mj
mj 13th Edition by Roby Sawyers, Steven Gill
mj mj mj mj mj mj
mj Chapters 1 -13 mj mj
,Page 1-2
mj SOLUTIONS MANUAL mj
CHAPTER 1 mj
INTRODUCTION TO TAX PRACTICE AND ETHICS mj mj mj mj mj
DISCUSSION QUESTIONS
mj
1-1. In the United States, the tax system is an outgrowth of the following five disciplines:
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj law, accounting, economics, political science, and sociology. The environment for the tax
mj mj mj mj mj mj mj mj mj mj mj
mj system isprovided by the principles of economics, sociology, and political science, while
mj m
j mj mj mj mj mj mj mj mj mj mj
mj the legal and accounting fields are responsible for the system‘s interpretation and
mj mj mj mj mj mj mj mj mj mj mj
mj application.
Each of these disciplines affects this country‘s tax system in a unique way. Economists
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj addresssuch issues as how proposed tax legislation will affect the rate of inflation or
m
j mj mj mj mj mj mj mj mj mj mj mj mj mj
mj economic growth.Measurement of the social equity of a tax and determining whether a
mj m
j mj mj mj mj mj mj mj mj mj mj mj
mj tax system discriminates against certain taxpayers are issues that are examined by
mj mj mj mj mj mj mj mj mj mj mj
sociologists and political scientists.
mj mj mj mj
Finally, attorneys are responsible for the interpretation of the taxation statutes, and
mj mj mj mj mj mj mj mj mj mj mj
accountantsensure that these same statutes are applied consistently.****8880()
mj m
j mj mj mj mj mj mj mj
Page 4 mj
1-2. The other major categories of tax practice in addition to tax research are as follows:
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
Tax compliance mj
Tax planning mj
Tax
mj litigationPage 5 m
j mj
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
mj mj mj mj mj mj mj mj mj mj
mj information, and filing any necessary tax returns. Compliance also includes other
mj mj mj mj mj mj mj mj mj mj
mj functions necessary to satisfy governmental requirements, such as representing a client
mj mj mj mj mj mj mj mj mj mj
mj during an InternalRevenue Service (IRS) audit.
mj mj m
j mj mj mj
,Federal Tax Research, 13th
mj mj mj Page 1-3 mj
Edition
mj
Page 5 mj
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled
mj mj mj mj mj mj mj mj mj mj mj mj
mj agents (EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual,
mj mj mj mj mj mj mj mj mj
mj partnership,and corporate tax returns often are completed by commercial tax preparers.
m
j mj mj mj mj mj mj mj mj mj mj
mj The preparation of more complex returns usually is performed by EAs, attorneys, and
mj mj mj mj mj mj mj mj mj mj mj mj
mj CPAs. The latter groups alsoprovide tax planning services and represent their clients
mj mj mj mj m
j mj mj mj mj mj mj mj
before the IRS.
mj mj mj
An EA is one who is admitted to practice before the IRS by passing a special IRS-
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
administered examination, or who has worked for the IRS for five years and is issued a
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj permit to represent clients before the IRS. CPAs and attorneys are not required to take this
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj examination and are automatically admitted to practice before the IRS if they are in good
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj standing with the appropriateprofessional licensing board.
mj mj mj m
j mj mj
Page 5 and Circular 230
mj mj mj mj
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability.
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj Muchof modern tax practice centers around this process, and the resulting outcome is tax
m
j mj mj mj mj mj mj mj mj mj mj mj mj mj
mj avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj remains within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj tax and cannotbe condoned. Activities of this sort clearly violate existing legal constraints
mj mj m
j mj mj mj mj mj mj mj mj mj mj
mj and fall outside of the domain of the professional tax practitioner.
mj mj mj mj mj mj mj mj mj mj
Page 6 mj
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj practitionermaintains some degree of control over the potential tax liability, and the
m
j mj mj mj mj mj mj mj mj mj mj mj
mj transaction may be modi- fied to achieve a more favorable tax treatment. In a closed
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj transaction however, all of the pertinentactions have been completed, and tax planning
mj mj mj mj mj m
j mj mj mj mj mj mj
mj activities may be limited to the presentation of the situation to the government in the most
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj legally advantageous manner possible.
mj mj mj
, Page 1-4
mj SOLUTIONS MANUAL mj
Page 6 mj
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically,
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj a taxattorney handles tax litigation that progresses beyond the final IRS appeal.
mj m
j mj mj mj mj mj mj mj mj mj mj
Page 6 mj
1-8. CPAs serve is a support capacity in tax litigation.
mj mj mj mj mj mj mj mj
Page 6 mj
1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research
mj mj mj mj mj mj mj mj mj mj mj mj
mj processincludes the following:
m
j mj mj
1. Identification of pertinent issues; mj mj mj
2. Specification of proper authorities; mj mj mj
3. Evaluation of the propriety of authorities; and,
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4. Application of authorities to a specific situation.
mj mj mj mj mj mj
Page 6 mj
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
IRS.Page 7
mj m
j mj
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj and Statements on Standards for Tax Services. CPAs must also abide by the rules of the
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj appropriatestate board(s) of accountancy.
m
j mj mj mj
Page 7 mj
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher course
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj (AFTR) that covers filing season issues and tax law updates. The AFTR course must include
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
a knowledge-based comprehension test administered at the conclusion of the course by the
mj mj m
j mj mj mj mj mj mj mj mj mj mj mj
CE Provider.
mj mj
mj mj mj Page 1-1
mj
Edition
mj
Solution Manual Federal Tax Research
mj mj mj mj
mj 13th Edition by Roby Sawyers, Steven Gill
mj mj mj mj mj mj
mj Chapters 1 -13 mj mj
,Page 1-2
mj SOLUTIONS MANUAL mj
CHAPTER 1 mj
INTRODUCTION TO TAX PRACTICE AND ETHICS mj mj mj mj mj
DISCUSSION QUESTIONS
mj
1-1. In the United States, the tax system is an outgrowth of the following five disciplines:
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj law, accounting, economics, political science, and sociology. The environment for the tax
mj mj mj mj mj mj mj mj mj mj mj
mj system isprovided by the principles of economics, sociology, and political science, while
mj m
j mj mj mj mj mj mj mj mj mj mj
mj the legal and accounting fields are responsible for the system‘s interpretation and
mj mj mj mj mj mj mj mj mj mj mj
mj application.
Each of these disciplines affects this country‘s tax system in a unique way. Economists
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj addresssuch issues as how proposed tax legislation will affect the rate of inflation or
m
j mj mj mj mj mj mj mj mj mj mj mj mj mj
mj economic growth.Measurement of the social equity of a tax and determining whether a
mj m
j mj mj mj mj mj mj mj mj mj mj mj
mj tax system discriminates against certain taxpayers are issues that are examined by
mj mj mj mj mj mj mj mj mj mj mj
sociologists and political scientists.
mj mj mj mj
Finally, attorneys are responsible for the interpretation of the taxation statutes, and
mj mj mj mj mj mj mj mj mj mj mj
accountantsensure that these same statutes are applied consistently.****8880()
mj m
j mj mj mj mj mj mj mj
Page 4 mj
1-2. The other major categories of tax practice in addition to tax research are as follows:
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
Tax compliance mj
Tax planning mj
Tax
mj litigationPage 5 m
j mj
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
mj mj mj mj mj mj mj mj mj mj
mj information, and filing any necessary tax returns. Compliance also includes other
mj mj mj mj mj mj mj mj mj mj
mj functions necessary to satisfy governmental requirements, such as representing a client
mj mj mj mj mj mj mj mj mj mj
mj during an InternalRevenue Service (IRS) audit.
mj mj m
j mj mj mj
,Federal Tax Research, 13th
mj mj mj Page 1-3 mj
Edition
mj
Page 5 mj
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled
mj mj mj mj mj mj mj mj mj mj mj mj
mj agents (EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual,
mj mj mj mj mj mj mj mj mj
mj partnership,and corporate tax returns often are completed by commercial tax preparers.
m
j mj mj mj mj mj mj mj mj mj mj
mj The preparation of more complex returns usually is performed by EAs, attorneys, and
mj mj mj mj mj mj mj mj mj mj mj mj
mj CPAs. The latter groups alsoprovide tax planning services and represent their clients
mj mj mj mj m
j mj mj mj mj mj mj mj
before the IRS.
mj mj mj
An EA is one who is admitted to practice before the IRS by passing a special IRS-
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
administered examination, or who has worked for the IRS for five years and is issued a
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj permit to represent clients before the IRS. CPAs and attorneys are not required to take this
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj examination and are automatically admitted to practice before the IRS if they are in good
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj standing with the appropriateprofessional licensing board.
mj mj mj m
j mj mj
Page 5 and Circular 230
mj mj mj mj
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability.
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj Muchof modern tax practice centers around this process, and the resulting outcome is tax
m
j mj mj mj mj mj mj mj mj mj mj mj mj mj
mj avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj remains within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj tax and cannotbe condoned. Activities of this sort clearly violate existing legal constraints
mj mj m
j mj mj mj mj mj mj mj mj mj mj
mj and fall outside of the domain of the professional tax practitioner.
mj mj mj mj mj mj mj mj mj mj
Page 6 mj
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj practitionermaintains some degree of control over the potential tax liability, and the
m
j mj mj mj mj mj mj mj mj mj mj mj
mj transaction may be modi- fied to achieve a more favorable tax treatment. In a closed
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj transaction however, all of the pertinentactions have been completed, and tax planning
mj mj mj mj mj m
j mj mj mj mj mj mj
mj activities may be limited to the presentation of the situation to the government in the most
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj legally advantageous manner possible.
mj mj mj
, Page 1-4
mj SOLUTIONS MANUAL mj
Page 6 mj
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically,
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj a taxattorney handles tax litigation that progresses beyond the final IRS appeal.
mj m
j mj mj mj mj mj mj mj mj mj mj
Page 6 mj
1-8. CPAs serve is a support capacity in tax litigation.
mj mj mj mj mj mj mj mj
Page 6 mj
1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research
mj mj mj mj mj mj mj mj mj mj mj mj
mj processincludes the following:
m
j mj mj
1. Identification of pertinent issues; mj mj mj
2. Specification of proper authorities; mj mj mj
3. Evaluation of the propriety of authorities; and,
mj mj mj mj mj mj
4. Application of authorities to a specific situation.
mj mj mj mj mj mj
Page 6 mj
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
IRS.Page 7
mj m
j mj
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj and Statements on Standards for Tax Services. CPAs must also abide by the rules of the
mj mj mj mj mj mj mj mj mj mj mj mj mj mj mj
mj appropriatestate board(s) of accountancy.
m
j mj mj mj
Page 7 mj
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher course
mj mj mj mj mj mj mj mj mj mj mj mj mj
mj (AFTR) that covers filing season issues and tax law updates. The AFTR course must include
mj mj mj mj mj mj mj mj mj mj mj mj mj mj
a knowledge-based comprehension test administered at the conclusion of the course by the
mj mj m
j mj mj mj mj mj mj mj mj mj mj mj
CE Provider.
mj mj
