Federal jjTax jjResearch, jj13th Page jj1-1
Edition
SolutionManual Federal Tax Research
j j j jj
13th Edition by Roby Sawyers, Steven Gill
jj jj jj jj jj jj jj jj
Chapters 1 -13
jj jj jj
,Page jj1-2 SOLUTIONS jjMANUAL
CHAPTER 1 jj
INTRODUCTION TO TAX PRACTICE AND ETHICS jj jj jj jj jj
DISCUSSION QUESTIONS
jj
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj accounting, economics, political science, and sociology. The environment for the tax system
jj jj jj jj jj jj jj jj jj jj jj
is provided by the principles of economics, sociology, and political science, while the legal
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj and accounting fields are responsible for the system‘s interpretation and application.
jj jj jj jj jj jj jj jj jj jj
Each of these disciplines affects this country‘s tax system in a unique way. Economists
jj jj jj jj jj jj jj jj jj jj jj jj jj
address such issues as how proposed tax legislation will affect the rate of inflation or
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj economic growth. Measurement of the social equity of a tax and determining whether a tax
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj system discriminates against certain taxpayers are issues that are examined by sociologists
jj jj jj jj jj jj jj jj jj jj jj
jj and political scientists.
jj jj
Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants
jj jj jj jj jj jj jj jj jj jj jj jj
jj ensure that these same statutes are applied consistently.****8880()
jj jj jj jj jj jj jj
Page 4 jj
1-2. The other major categories of tax practice in addition to tax research are as follows:
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
Tax compliance jj
Tax planning jj
Tax litigation jj
jj Page 5 jj
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
jj jj jj jj jj jj jj jj jj jj
jj information, and filing any necessary tax returns. Compliance also includes other functions
jj jj jj jj jj jj jj jj jj jj jj
jj necessary to satisfy governmental requirements, such as representing a client during an
jj jj jj jj jj jj jj jj jj jj jj
Internal Revenue Service (IRS) audit.
jj jj jj jj jj
,Federal jjTax jjResearch, jj13th Page jj1-3
Edition
Page 5 jj
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents
jj jj jj jj jj jj jj jj jj jj jj jj jj
jj (EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual,
jj jj jj jj jj jj jj jj
partnership, and corporate tax returns often are completed by commercial tax preparers. The
jj jj jj jj jj jj jj jj jj jj jj jj jj
jj preparation of more complex returns usually is performed by EAs, attorneys, and CPAs. The
jj jj jj jj jj jj jj jj jj jj jj jj jj
latter groups also provide tax planning services and represent their clients before the IRS.
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj examination, or who has worked for the IRS for five years and is issued a permit to represent
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj clients before the IRS. CPAs and attorneys are not required to take this examination and are
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj automatically admitted to practice before the IRS if they are in good standing with the
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj appropriate professional licensing board. jj jj jj
Page 5 and Circular 230
jj jj jj jj
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability.
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj Much of modern tax practice centers around this process, and the resulting outcome is tax
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj cannot be condoned. Activities of this sort clearly violate existing legal constraints and fall
jj jj jj jj jj jj jj jj jj jj jj jj jj
jj outside of the domain of the professional tax practitioner.
jj jj jj jj jj jj jj jj
Page 6 jj
1-6. In can copen ctax cplanning csituation, cthe ctransaction cis cnot cyet ccomplete; ctherefore, cthe ctax
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj cpractitionercmaintains jjcsome jjcdegree jjcof jjccontrol jjcover jjcthe jjcpotential jjctax jjcliability, jjcand jjcthe
jj ctransaction jjcmay jjcbe jjcmodi- jjcfied jjcto jjcachieve jjca jjcmore jjcfavorable jjctax jjctreatment. jjcIn jjca
jj cclosed jjctransaction jjchowever, jjcall jjcof jjcthe jjcpertinentcactions jjchave jjcbeen jjccompleted, jjcand jjctax
cplanning jjcactivities jjcmay jjcbe jjclimited jjcto jjcthe jjcpresentation jjcof jjcthe jjcsituation jjcto jjcthe
jj
cgovernment jjcin jjcthe jjcmost jjclegally jjcadvantageous jjcmanner jjcpossible.
jj
, Page jj1-4 SOLUTIONS jjMANUAL
Page c6 jj
1-7. Tax clitigation cis cthe cprocess cof csettling ca cdispute cwith cthe cIRS cin ca ccourt cof claw.
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj cTypically, jjca jjctaxcattorneyjchandles jjctax jjclitigation jjcthat jjcprogresses jjcbeyond jjcthe jjcfinal
jj cIRS jjcappeal.
Page c6 jj
1-8. CPAs cserve cis ca csupport ccapacity cin ctax clitigation.
jj jj jj jj jj j jj jj
Page c6 jj
1-9. Tax cresearch cconsists cof cthe cresolution cof cunanswered ctaxation cquestions. cThe ctax
jj jj jj jj jj jj jj jj jj jj jj
jj cresearch jjcprocesscincludes jjcthe jjcfollowing:
1. Identification cof cpertinent cissues; jj jj jj
2. Specification cof cproper cauthorities; jj jj jj
3. Evaluation cof cthe cpropriety cof cauthorities; cand,
jj jj jj j jj jj
4. Application cof cauthorities cto ca cspecific csituation.
jj jj jj jj jj jj
Page c6 jj
1-10. Circular c230 cis cissued cby cthe cTreasury cDepartment cand capplies cto call cwho cpractice
jj jj jj jj j jj j jj jj jj jj jj jj
jj cbefore jjcthe jjcIRS.cPage jjc7
1-11. In caddition cto cCircular c230, cCPAs cmust cfollow cthe cAICPA‘s cCode cof cProfessional
jj jj jj jj jj jj jj jj jj jj jj jj
jj cConduct jjcand jjcStatements jjcon jjcStandards jjcfor jjcTax jjcServices. jjcCPAs jjcmust jjcalso jjcabide jjcby
jj cthe jjcrules jjcof jjcthe jjcappropriatecstate jjcboard(s) jjcof jjcaccountancy.
Page c7 jj
1-12. A creturn cpreparer cmust cobtain c18 chours cof ccontinuing ceducation cfrom can cIRS-approved
jj jj jj jj jj jj jj jj jj jj jj jj
jj cCE jjcProvider. jjcThe jjchours jjcmust jjcinclude jjca jjc6 jjccredit jjchour jjcAnnual jjcFederal jjcTax
jj cRefresher jjccourse jjc(AFTR) jjcthat jjccovers jjcfiling jjcseason jjcissues jjcand jjctax jjclawjjcupdates. jjcThe
cAFTR jjccourse jjcmust jjcinclude jjca jjcknowledge-cbased jjccomprehension jjctest jjcadministered jjcat jjcthe
jj
cconclusion jjcof jjcthe jjccourse jjcby jjcthe jjcCE jjcProvider.
jj
Edition
SolutionManual Federal Tax Research
j j j jj
13th Edition by Roby Sawyers, Steven Gill
jj jj jj jj jj jj jj jj
Chapters 1 -13
jj jj jj
,Page jj1-2 SOLUTIONS jjMANUAL
CHAPTER 1 jj
INTRODUCTION TO TAX PRACTICE AND ETHICS jj jj jj jj jj
DISCUSSION QUESTIONS
jj
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj accounting, economics, political science, and sociology. The environment for the tax system
jj jj jj jj jj jj jj jj jj jj jj
is provided by the principles of economics, sociology, and political science, while the legal
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj and accounting fields are responsible for the system‘s interpretation and application.
jj jj jj jj jj jj jj jj jj jj
Each of these disciplines affects this country‘s tax system in a unique way. Economists
jj jj jj jj jj jj jj jj jj jj jj jj jj
address such issues as how proposed tax legislation will affect the rate of inflation or
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj economic growth. Measurement of the social equity of a tax and determining whether a tax
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj system discriminates against certain taxpayers are issues that are examined by sociologists
jj jj jj jj jj jj jj jj jj jj jj
jj and political scientists.
jj jj
Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants
jj jj jj jj jj jj jj jj jj jj jj jj
jj ensure that these same statutes are applied consistently.****8880()
jj jj jj jj jj jj jj
Page 4 jj
1-2. The other major categories of tax practice in addition to tax research are as follows:
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
Tax compliance jj
Tax planning jj
Tax litigation jj
jj Page 5 jj
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
jj jj jj jj jj jj jj jj jj jj
jj information, and filing any necessary tax returns. Compliance also includes other functions
jj jj jj jj jj jj jj jj jj jj jj
jj necessary to satisfy governmental requirements, such as representing a client during an
jj jj jj jj jj jj jj jj jj jj jj
Internal Revenue Service (IRS) audit.
jj jj jj jj jj
,Federal jjTax jjResearch, jj13th Page jj1-3
Edition
Page 5 jj
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents
jj jj jj jj jj jj jj jj jj jj jj jj jj
jj (EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual,
jj jj jj jj jj jj jj jj
partnership, and corporate tax returns often are completed by commercial tax preparers. The
jj jj jj jj jj jj jj jj jj jj jj jj jj
jj preparation of more complex returns usually is performed by EAs, attorneys, and CPAs. The
jj jj jj jj jj jj jj jj jj jj jj jj jj
latter groups also provide tax planning services and represent their clients before the IRS.
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj examination, or who has worked for the IRS for five years and is issued a permit to represent
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj clients before the IRS. CPAs and attorneys are not required to take this examination and are
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj automatically admitted to practice before the IRS if they are in good standing with the
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj appropriate professional licensing board. jj jj jj
Page 5 and Circular 230
jj jj jj jj
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability.
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj Much of modern tax practice centers around this process, and the resulting outcome is tax
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj cannot be condoned. Activities of this sort clearly violate existing legal constraints and fall
jj jj jj jj jj jj jj jj jj jj jj jj jj
jj outside of the domain of the professional tax practitioner.
jj jj jj jj jj jj jj jj
Page 6 jj
1-6. In can copen ctax cplanning csituation, cthe ctransaction cis cnot cyet ccomplete; ctherefore, cthe ctax
jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj cpractitionercmaintains jjcsome jjcdegree jjcof jjccontrol jjcover jjcthe jjcpotential jjctax jjcliability, jjcand jjcthe
jj ctransaction jjcmay jjcbe jjcmodi- jjcfied jjcto jjcachieve jjca jjcmore jjcfavorable jjctax jjctreatment. jjcIn jjca
jj cclosed jjctransaction jjchowever, jjcall jjcof jjcthe jjcpertinentcactions jjchave jjcbeen jjccompleted, jjcand jjctax
cplanning jjcactivities jjcmay jjcbe jjclimited jjcto jjcthe jjcpresentation jjcof jjcthe jjcsituation jjcto jjcthe
jj
cgovernment jjcin jjcthe jjcmost jjclegally jjcadvantageous jjcmanner jjcpossible.
jj
, Page jj1-4 SOLUTIONS jjMANUAL
Page c6 jj
1-7. Tax clitigation cis cthe cprocess cof csettling ca cdispute cwith cthe cIRS cin ca ccourt cof claw.
jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj jj
jj cTypically, jjca jjctaxcattorneyjchandles jjctax jjclitigation jjcthat jjcprogresses jjcbeyond jjcthe jjcfinal
jj cIRS jjcappeal.
Page c6 jj
1-8. CPAs cserve cis ca csupport ccapacity cin ctax clitigation.
jj jj jj jj jj j jj jj
Page c6 jj
1-9. Tax cresearch cconsists cof cthe cresolution cof cunanswered ctaxation cquestions. cThe ctax
jj jj jj jj jj jj jj jj jj jj jj
jj cresearch jjcprocesscincludes jjcthe jjcfollowing:
1. Identification cof cpertinent cissues; jj jj jj
2. Specification cof cproper cauthorities; jj jj jj
3. Evaluation cof cthe cpropriety cof cauthorities; cand,
jj jj jj j jj jj
4. Application cof cauthorities cto ca cspecific csituation.
jj jj jj jj jj jj
Page c6 jj
1-10. Circular c230 cis cissued cby cthe cTreasury cDepartment cand capplies cto call cwho cpractice
jj jj jj jj j jj j jj jj jj jj jj jj
jj cbefore jjcthe jjcIRS.cPage jjc7
1-11. In caddition cto cCircular c230, cCPAs cmust cfollow cthe cAICPA‘s cCode cof cProfessional
jj jj jj jj jj jj jj jj jj jj jj jj
jj cConduct jjcand jjcStatements jjcon jjcStandards jjcfor jjcTax jjcServices. jjcCPAs jjcmust jjcalso jjcabide jjcby
jj cthe jjcrules jjcof jjcthe jjcappropriatecstate jjcboard(s) jjcof jjcaccountancy.
Page c7 jj
1-12. A creturn cpreparer cmust cobtain c18 chours cof ccontinuing ceducation cfrom can cIRS-approved
jj jj jj jj jj jj jj jj jj jj jj jj
jj cCE jjcProvider. jjcThe jjchours jjcmust jjcinclude jjca jjc6 jjccredit jjchour jjcAnnual jjcFederal jjcTax
jj cRefresher jjccourse jjc(AFTR) jjcthat jjccovers jjcfiling jjcseason jjcissues jjcand jjctax jjclawjjcupdates. jjcThe
cAFTR jjccourse jjcmust jjcinclude jjca jjcknowledge-cbased jjccomprehension jjctest jjcadministered jjcat jjcthe
jj
cconclusion jjcof jjcthe jjccourse jjcby jjcthe jjcCE jjcProvider.
jj
