Federal Tax Research, 11th Edition Page 1-1
TEST BANK
All Chapters Included
FOR
FEDERAL TAX RESEARCH
11TH EDITION
BY ROBY B SAWYERS STEVEN GILL
,Federal Tax Research, 11th Edition Page 1-2
CHAPTER 1
AN INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the United States, the tax system is an outgrowth of the following
five disciplines: law, accounting, economics, political science, and
sociology. The environment for the tax system is provided by the
principles of economics, sociology, and political science, while the
legal and accounting fields are responsible for the system's
interpretation and application.
Each of these disciplines affects this country's tax system in a unique
way. Economists address such issues as how proposed tax legislation
will affect the rate of inflation or economic growth. Measurement of
the social equity of a tax, and determining whether a tax system
discriminates against certain taxpayers, are issues that are examined
by sociologists and political scientists. Finally, attorneys are
responsible for the inter- pretation of the taxation statutes, and
accountants ensure that these same statutes are applied consistently.
Page 4
1-2. The other major categories of tax practice in addition to tax research are:
tax compliance
tax planning
tax
litigation Page 5
1-3. Tax compliance consists of gathering pertinent information,
evaluating and classifying that information, and filing any
necessary tax returns. Compliance also includes other functions
necessary to satisfy governmental requirements, such as
representing a client during an IRS audit.
Page 5
1-4. Most of the tax compliance work is performed by commercial tax
preparers, enrolled agents, attorneys, and CPAs. Noncomplex
individual, partnership, and corporate tax returns often are
completed by commercial tax preparers. The preparation of more
complex returns usually is performed by enrolled agents, attorneys,
and CPAs. The latter groups also provide tax planning services and
represent their clients before the IRS.
,Federal Tax Research, 11th Edition Page 1-3
An enrolled agent is one who is admitted to practice before the IRS by
passing a special IRS-administered examination, or who has worked
for the IRS for five years, and is issued a permit to represent clients
before the IRS. CPAs and attorneys are not required to take this
examination and are automatically admitted to practice before the IRS
if they are in good standing with the appropriate professional
licensing board.
, Federal Tax Research, 11th Edition Page 1-4
Page 5 and Circular 230
1-5. Tax planning is the process of arranging one's financial affairs to
minimize any tax liability. Much of modern tax practice centers
around this process, and the resulting outcome is tax avoidance.
There is nothing illegal or immoral in the avoidance of taxa- tion, as
long as the taxpayer remains within legal bounds. In contrast, tax
evasion constitutes the illegal nonpayment of a tax and cannot be
condoned. Activities of this sort clearly violate existing legal
constraints and fall outside of the domain of the professional tax
practitioner.
Page 6
1-6. In an open tax planning situation, the transaction is not yet complete,
therefore, the tax practitioner maintains some degree of control over
the potential tax liability, and the transaction may be modified to
achieve a more favorable tax treatment. In a closed transaction
however, all of the pertinent actions have been completed, and tax
planning activities may be limited to the presentation of the situation
to the government in the most legally advantageous manner possible.
Page 6
1-7. Tax litigation is the process of settling a dispute with the IRS in a
court of law. Typically, a tax attorney handles tax litigation that
progresses beyond the final IRS appeal.
Page 6
1-8. CPAs serve is a support capacity in tax litigation.
Page 6
1-9. Tax research consists of the resolution of unanswered taxation
questions. The tax research process includes the following:
1. Identification of pertinent issues;
2. Specification of proper authorities;
3. Evaluation of the propriety of authorities; and,
4. Application of authorities to a specific situation.
Page 6
TEST BANK
All Chapters Included
FOR
FEDERAL TAX RESEARCH
11TH EDITION
BY ROBY B SAWYERS STEVEN GILL
,Federal Tax Research, 11th Edition Page 1-2
CHAPTER 1
AN INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the United States, the tax system is an outgrowth of the following
five disciplines: law, accounting, economics, political science, and
sociology. The environment for the tax system is provided by the
principles of economics, sociology, and political science, while the
legal and accounting fields are responsible for the system's
interpretation and application.
Each of these disciplines affects this country's tax system in a unique
way. Economists address such issues as how proposed tax legislation
will affect the rate of inflation or economic growth. Measurement of
the social equity of a tax, and determining whether a tax system
discriminates against certain taxpayers, are issues that are examined
by sociologists and political scientists. Finally, attorneys are
responsible for the inter- pretation of the taxation statutes, and
accountants ensure that these same statutes are applied consistently.
Page 4
1-2. The other major categories of tax practice in addition to tax research are:
tax compliance
tax planning
tax
litigation Page 5
1-3. Tax compliance consists of gathering pertinent information,
evaluating and classifying that information, and filing any
necessary tax returns. Compliance also includes other functions
necessary to satisfy governmental requirements, such as
representing a client during an IRS audit.
Page 5
1-4. Most of the tax compliance work is performed by commercial tax
preparers, enrolled agents, attorneys, and CPAs. Noncomplex
individual, partnership, and corporate tax returns often are
completed by commercial tax preparers. The preparation of more
complex returns usually is performed by enrolled agents, attorneys,
and CPAs. The latter groups also provide tax planning services and
represent their clients before the IRS.
,Federal Tax Research, 11th Edition Page 1-3
An enrolled agent is one who is admitted to practice before the IRS by
passing a special IRS-administered examination, or who has worked
for the IRS for five years, and is issued a permit to represent clients
before the IRS. CPAs and attorneys are not required to take this
examination and are automatically admitted to practice before the IRS
if they are in good standing with the appropriate professional
licensing board.
, Federal Tax Research, 11th Edition Page 1-4
Page 5 and Circular 230
1-5. Tax planning is the process of arranging one's financial affairs to
minimize any tax liability. Much of modern tax practice centers
around this process, and the resulting outcome is tax avoidance.
There is nothing illegal or immoral in the avoidance of taxa- tion, as
long as the taxpayer remains within legal bounds. In contrast, tax
evasion constitutes the illegal nonpayment of a tax and cannot be
condoned. Activities of this sort clearly violate existing legal
constraints and fall outside of the domain of the professional tax
practitioner.
Page 6
1-6. In an open tax planning situation, the transaction is not yet complete,
therefore, the tax practitioner maintains some degree of control over
the potential tax liability, and the transaction may be modified to
achieve a more favorable tax treatment. In a closed transaction
however, all of the pertinent actions have been completed, and tax
planning activities may be limited to the presentation of the situation
to the government in the most legally advantageous manner possible.
Page 6
1-7. Tax litigation is the process of settling a dispute with the IRS in a
court of law. Typically, a tax attorney handles tax litigation that
progresses beyond the final IRS appeal.
Page 6
1-8. CPAs serve is a support capacity in tax litigation.
Page 6
1-9. Tax research consists of the resolution of unanswered taxation
questions. The tax research process includes the following:
1. Identification of pertinent issues;
2. Specification of proper authorities;
3. Evaluation of the propriety of authorities; and,
4. Application of authorities to a specific situation.
Page 6
