FederalTaxResearch(
th
12 Edition)
RobySawyers,
Steven Gill
StudyGuide
,FederalTaxResearch,11thEdition Page1-1
CHAPTER1
ANINTRODUCTIONTOTAXPRACTICE ANDETHICS
DISCUSSIONQUESTIONS
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
accounting, economics,political science,andsociology. Theenvironmentfor thetaxsystem is
provided bythe principles of economics, sociology, and political science, while the legal and
accounting fields are responsible for the system's interpretation and application.
Each ofthesedisciplines affects thiscountry's taxsystem ina uniqueway. Economistsaddress
suchissuesashowproposedtaxlegislationwillaffect therateofinflation or economicgrowth.
Measurement ofthe social equityofa tax, anddeterminingwhether a tax system discriminates
against certain taxpayers, are issues that are examined by sociologists and political scientists.
Finally, attorneys areresponsiblefor theinterpretation ofthetaxation statutes,andaccountants ensure
that these same statutes are applied consistently.
Page4
1-2. Theothermajor categoriesoftaxpracticeinadditiontotaxresearchare:
• taxcompliance
• taxplanning
• taxlitigation
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
necessarytosatisfygovernmentalrequirements,such asrepresentingaclientduringan IRSaudit.
Page5
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 byenrolledagents,attorneys, andCPAs.Thelatter groupsalsoprovidetaxplanning
services and represent their clients before the IRS.
An enrolled agent is one who is admitted to practice before the IRS by passing a special IRS-
administered examination,or whohas wor𝑘ed for theIRS for five years,andis issuedapermitto
representclientsbeforetheIRS. CPAsandattorneys arenotrequiredtota𝑘ethisexamination and are
automatically admitted to practice before the IRS if they are in good standing with the
appropriate professional licensing board.
Page5andCircular230
,Page1-2 SOLUTIONSMANUAL
1-5. Taxplanningistheprocess ofarrangingone's financialaffairs tominimizeanytaxliability. 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 taxation, as long as the taxpayer remains
withinlegalbounds.In contrast,taxevasionconstitutestheillegalnonpayment ofataxandcannot be
condoned. Activities of this sort clearlyviolate existing legal constraintsand fall outsideof the
domain of the professional tax practitioner.
Page6
1-6. Inanopentaxplanningsituation,thetransactionisnotyet complete, therefore, thetaxpractitioner
maintainssome degree ofcontrol over the potential taxliability, andthetransaction maybe modi-
fiedtoachievea morefavorabletaxtreatment. Ina closed transactionhowever,all ofthepertinent
actionshave been completed, and tax planningactivities maybe limited to the presentation of the
situation to the government in the most legally advantageous manner possible.
Page6
1-7. Taxlitigation istheprocess ofsettlingadisputewith theIRSin acourtoflaw. Typically, atax
attorney handles tax litigation that progresses beyond the final IRS appeal.
Page6
1-8. CPAsserveisasupportcapacityintaxlitigation.
Page6
1-9. Taxresearchconsistsoftheresolutionofunansweredtaxationquestions. Thetaxresearchprocess
includes the following:
1. Identificationofpertinentissues;
2. Specificationofproperauthorities;
3. Evaluationoftheproprietyofauthorities;and,
4. Applicationofauthoritiestoaspecificsituation.
Page6
1-10. Circular 230is issued bytheTreasuryDepartmentandapplies toallwhopracticebeforetheIRS.Page 7
1-11. In addition to Circular 230, CPAs must follow the AICPA's Code of Professional Conduct and
Statementson Standardsfor TaxServices. CPAsmustalsoabidebytherulesoftheappropriate state
board(s) of accountancy.
Page7
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
Provider. Thehours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR)
that coversfilingseasonissuesandtaxlawupdates.TheAFTRcoursemustincludea𝑘nowledge- based
comprehension test administered at the conclusion of the course bythe CE Provider.
Limitedpracticerightsallowindividualstorepresentclientswhosereturnstheypreparedand signed,
but only before revenue agents, customer service representatives, and similar IRSemployees.
, FederalTaxResearch,11thEdition Page1-3
Page10andIRS.gov
1-13. False. OnlycommunicationwiththeIRSconcerningataxpayer'srights,privileges, orliabilityis
included. Practice before the IRS does not include representation before the Tax Court.
Page7
1-14. Section10.2ofSubpartAofCircular230definespracticebeforetheIRSasincluding:
mattersconnectedwith presentationtotheInternal RevenueServiceor anyofitsofficers or
employees relating to a client's rights, privileges, or liabilities under laws or
regulationsadministeredbytheInternalRevenueService. Such presentationsincludethe
preparation and filing of necessary documents, correspondence with, and
communications to the Internal Revenue Service, and the representation of a client at
conferences, hearings, and meetings.
Page7
1-15. TobecomeanEnrolledAgentanindividual can(1)passatest givenbytheIRSor (2)wor𝑘for the IRS
for five years. Circular 230, Subpart A, Secs. 10.4 to 10.6.
Page9
1-16. Enrolled Agentsmust complete72hoursofContinuingEducation everythreeyears(an averageof 24
per year, with a minimum of 16 hours during any year.). Circular 230, Subpart A. §10.6.
Page9
1-17. True.Asageneralrule,anindividualmustbean enrolledagent,attorney, or CPAtorepresenta client
before the IRS. There are limited situations where others may represent a taxpayer; however,
this fact pattern is not one of them. Since Leigh didnot sign thereturn, she cannot represent the
taxpayer, only Rose can.
Pages10-11
1-18. The names of organizations that can be represented by regular full-time employees are found in
Circular 230, §10.7(c). A regular full-time employee can represent the employer (individual
employer). A regular full-time employee of a partnership may represent the partnership. Also, a
regular full-time employee ofa trust, receivership, guardianship, or estatemayrepresent the trust,
receivership,guardianship,or estate.Furthermore,aregular full-timeemployeeofagovernmental unit,
agency, or authoritymayrepresent the governmental unit,agency, or authorityin the course of his
or her official duties.
Page10
1-19. Yes.Circular230,SubpartA,Sec.10.7.
Page10
1-20. True.Apractitioner maybesuspended or disbarred frompracticebeforetheIRSifheor she
𝑘nowingly helps a suspended or disbarred person practice indirectly before the IRS.
Page12
th
12 Edition)
RobySawyers,
Steven Gill
StudyGuide
,FederalTaxResearch,11thEdition Page1-1
CHAPTER1
ANINTRODUCTIONTOTAXPRACTICE ANDETHICS
DISCUSSIONQUESTIONS
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
accounting, economics,political science,andsociology. Theenvironmentfor thetaxsystem is
provided bythe principles of economics, sociology, and political science, while the legal and
accounting fields are responsible for the system's interpretation and application.
Each ofthesedisciplines affects thiscountry's taxsystem ina uniqueway. Economistsaddress
suchissuesashowproposedtaxlegislationwillaffect therateofinflation or economicgrowth.
Measurement ofthe social equityofa tax, anddeterminingwhether a tax system discriminates
against certain taxpayers, are issues that are examined by sociologists and political scientists.
Finally, attorneys areresponsiblefor theinterpretation ofthetaxation statutes,andaccountants ensure
that these same statutes are applied consistently.
Page4
1-2. Theothermajor categoriesoftaxpracticeinadditiontotaxresearchare:
• taxcompliance
• taxplanning
• taxlitigation
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
necessarytosatisfygovernmentalrequirements,such asrepresentingaclientduringan IRSaudit.
Page5
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 byenrolledagents,attorneys, andCPAs.Thelatter groupsalsoprovidetaxplanning
services and represent their clients before the IRS.
An enrolled agent is one who is admitted to practice before the IRS by passing a special IRS-
administered examination,or whohas wor𝑘ed for theIRS for five years,andis issuedapermitto
representclientsbeforetheIRS. CPAsandattorneys arenotrequiredtota𝑘ethisexamination and are
automatically admitted to practice before the IRS if they are in good standing with the
appropriate professional licensing board.
Page5andCircular230
,Page1-2 SOLUTIONSMANUAL
1-5. Taxplanningistheprocess ofarrangingone's financialaffairs tominimizeanytaxliability. 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 taxation, as long as the taxpayer remains
withinlegalbounds.In contrast,taxevasionconstitutestheillegalnonpayment ofataxandcannot be
condoned. Activities of this sort clearlyviolate existing legal constraintsand fall outsideof the
domain of the professional tax practitioner.
Page6
1-6. Inanopentaxplanningsituation,thetransactionisnotyet complete, therefore, thetaxpractitioner
maintainssome degree ofcontrol over the potential taxliability, andthetransaction maybe modi-
fiedtoachievea morefavorabletaxtreatment. Ina closed transactionhowever,all ofthepertinent
actionshave been completed, and tax planningactivities maybe limited to the presentation of the
situation to the government in the most legally advantageous manner possible.
Page6
1-7. Taxlitigation istheprocess ofsettlingadisputewith theIRSin acourtoflaw. Typically, atax
attorney handles tax litigation that progresses beyond the final IRS appeal.
Page6
1-8. CPAsserveisasupportcapacityintaxlitigation.
Page6
1-9. Taxresearchconsistsoftheresolutionofunansweredtaxationquestions. Thetaxresearchprocess
includes the following:
1. Identificationofpertinentissues;
2. Specificationofproperauthorities;
3. Evaluationoftheproprietyofauthorities;and,
4. Applicationofauthoritiestoaspecificsituation.
Page6
1-10. Circular 230is issued bytheTreasuryDepartmentandapplies toallwhopracticebeforetheIRS.Page 7
1-11. In addition to Circular 230, CPAs must follow the AICPA's Code of Professional Conduct and
Statementson Standardsfor TaxServices. CPAsmustalsoabidebytherulesoftheappropriate state
board(s) of accountancy.
Page7
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
Provider. Thehours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR)
that coversfilingseasonissuesandtaxlawupdates.TheAFTRcoursemustincludea𝑘nowledge- based
comprehension test administered at the conclusion of the course bythe CE Provider.
Limitedpracticerightsallowindividualstorepresentclientswhosereturnstheypreparedand signed,
but only before revenue agents, customer service representatives, and similar IRSemployees.
, FederalTaxResearch,11thEdition Page1-3
Page10andIRS.gov
1-13. False. OnlycommunicationwiththeIRSconcerningataxpayer'srights,privileges, orliabilityis
included. Practice before the IRS does not include representation before the Tax Court.
Page7
1-14. Section10.2ofSubpartAofCircular230definespracticebeforetheIRSasincluding:
mattersconnectedwith presentationtotheInternal RevenueServiceor anyofitsofficers or
employees relating to a client's rights, privileges, or liabilities under laws or
regulationsadministeredbytheInternalRevenueService. Such presentationsincludethe
preparation and filing of necessary documents, correspondence with, and
communications to the Internal Revenue Service, and the representation of a client at
conferences, hearings, and meetings.
Page7
1-15. TobecomeanEnrolledAgentanindividual can(1)passatest givenbytheIRSor (2)wor𝑘for the IRS
for five years. Circular 230, Subpart A, Secs. 10.4 to 10.6.
Page9
1-16. Enrolled Agentsmust complete72hoursofContinuingEducation everythreeyears(an averageof 24
per year, with a minimum of 16 hours during any year.). Circular 230, Subpart A. §10.6.
Page9
1-17. True.Asageneralrule,anindividualmustbean enrolledagent,attorney, or CPAtorepresenta client
before the IRS. There are limited situations where others may represent a taxpayer; however,
this fact pattern is not one of them. Since Leigh didnot sign thereturn, she cannot represent the
taxpayer, only Rose can.
Pages10-11
1-18. The names of organizations that can be represented by regular full-time employees are found in
Circular 230, §10.7(c). A regular full-time employee can represent the employer (individual
employer). A regular full-time employee of a partnership may represent the partnership. Also, a
regular full-time employee ofa trust, receivership, guardianship, or estatemayrepresent the trust,
receivership,guardianship,or estate.Furthermore,aregular full-timeemployeeofagovernmental unit,
agency, or authoritymayrepresent the governmental unit,agency, or authorityin the course of his
or her official duties.
Page10
1-19. Yes.Circular230,SubpartA,Sec.10.7.
Page10
1-20. True.Apractitioner maybesuspended or disbarred frompracticebeforetheIRSifheor she
𝑘nowingly helps a suspended or disbarred person practice indirectly before the IRS.
Page12
