Federal Tax Research, 12th Edition Page 1-1
Solution Manual Federal Tax Research 12th
Edition by Roby Sawyers, Steven Gill
CHAPTER 1
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 isprovided 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
addresssuch 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 interpretation of the taxation statutes, and
accountantsensure that these same statutes are applied consistently.
Page 4
1-2. The other major categories of tax practice in addition to tax research are as follows:
• Tax compliance
• Tax planning
• Tax
litigationPage 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
,Page 1-2 SOLUTIONS MANUAL
functions necessary to satisfy governmental requirements, such as representing a client
during an Internal Revenue Service (IRS) audit.
,Federal Tax Research, 12th Edition Page 1-3
Page 5
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled
agents (EAs), attorneys, and certified public accountants (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 EAs, attorneys, and
CPAs. The latter groups alsoprovide tax planning services and represent their clients
before the IRS.
An EA 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.
Page 5 and Circular 230
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability.
Muchof modern tax practice centers around this process, and the resulting outcome is tax
avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer
remains within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a
tax and cannotbe 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
practitionermaintains some degree of control over the potential tax liability, and the
transaction may be modi- fied to achieve a more favorable tax treatment. In a closed
transaction however, all of the pertinentactions 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 1-4 SOLUTIONS MANUAL
Page 6
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically,
a taxattorney 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
processincludes 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
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before
the IRS.Page 7
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional
Conduct and Statements on Standards for Tax Services. CPAs must also abide by the
rules of the appropriate state board(s) of accountancy.
Page 7
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher course
(AFTR) that covers filing season issues and tax law updates. The AFTR course must include
a knowledge-based comprehension test administered at the conclusion of the course by the
CE Provider.
Solution Manual Federal Tax Research 12th
Edition by Roby Sawyers, Steven Gill
CHAPTER 1
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 isprovided 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
addresssuch 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 interpretation of the taxation statutes, and
accountantsensure that these same statutes are applied consistently.
Page 4
1-2. The other major categories of tax practice in addition to tax research are as follows:
• Tax compliance
• Tax planning
• Tax
litigationPage 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
,Page 1-2 SOLUTIONS MANUAL
functions necessary to satisfy governmental requirements, such as representing a client
during an Internal Revenue Service (IRS) audit.
,Federal Tax Research, 12th Edition Page 1-3
Page 5
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled
agents (EAs), attorneys, and certified public accountants (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 EAs, attorneys, and
CPAs. The latter groups alsoprovide tax planning services and represent their clients
before the IRS.
An EA 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.
Page 5 and Circular 230
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability.
Muchof modern tax practice centers around this process, and the resulting outcome is tax
avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer
remains within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a
tax and cannotbe 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
practitionermaintains some degree of control over the potential tax liability, and the
transaction may be modi- fied to achieve a more favorable tax treatment. In a closed
transaction however, all of the pertinentactions 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 1-4 SOLUTIONS MANUAL
Page 6
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically,
a taxattorney 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
processincludes 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
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before
the IRS.Page 7
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional
Conduct and Statements on Standards for Tax Services. CPAs must also abide by the
rules of the appropriate state board(s) of accountancy.
Page 7
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher course
(AFTR) that covers filing season issues and tax law updates. The AFTR course must include
a knowledge-based comprehension test administered at the conclusion of the course by the
CE Provider.
