Solution Manual For Federal Tax Research, 13th Edition
by Roby Sawyers, Steven Gill
Comprehensive 200-Question Exam with Detailed Answers and
Rationales
CHAPTER 1: INTRODUCTION TO TAX PRACTICE AND ETHICS
1. In the United States, the tax system is an outgrowth of how many disciplines?
a) Three
b) Four
c) Five
d) Six
Answer: c) Five
Rationale: The U.S. tax system is derived from 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.
2. Which discipline addresses how proposed tax legislation will affect the rate of inflation or
economic growth?
a) Law
b) Accounting
c) Economics
d) Sociology
Answer: c) Economics
Rationale: Economists address issues such as how proposed tax legislation will affect the rate of
inflation or economic growth. This is a unique contribution of the economics discipline to the
tax system.
3. Which disciplines examine issues of social equity and whether a tax system discriminates
against certain taxpayers?
,a) Law and Accounting
b) Economics and Political Science
c) Sociology and Political Science
d) Law and Economics
Answer: c) Sociology and Political Science
Rationale: Measurement of the social equity of a tax and determining whether a tax system
discriminates against certain taxpayers are issues examined by sociologists and political
scientists.
4. Who is responsible for the interpretation of taxation statutes?
a) Accountants
b) Economists
c) Attorneys
d) Political Scientists
Answer: c) Attorneys
Rationale: Attorneys are responsible for the interpretation of the taxation statutes, while
accountants ensure that these same statutes are applied consistently.
5. Who ensures that taxation statutes are applied consistently?
a) Attorneys
b) Accountants
c) Economists
d) Political Scientists
Answer: b) Accountants
Rationale: Accountants ensure that taxation statutes are applied consistently, complementing
the attorneys' role in interpreting the statutes.
6. Which of the following is NOT an element of tax practice?
a) Tax compliance
b) Tax planning
c) Tax evasion
d) Tax research
Answer: c) Tax evasion
,Rationale: The major categories of tax practice include tax compliance, tax planning, tax
litigation, and tax research. Tax evasion is the illegal nonpayment of taxes and falls outside the
domain of professional tax practice.
7. Tax compliance is the process of:
a) Filing necessary tax returns
b) Gathering the financial information necessary to report taxable income
c) Representing a taxpayer at an IRS audit
d) All of these are correct
Answer: d) All of these are correct
Rationale: Tax compliance consists of gathering pertinent information, evaluating and
classifying that information, filing any necessary tax returns, and representing a client during an
IRS audit.
8. What is tax evasion?
a) A fraudulent act involving illegal nonpayment of taxes
b) One of the objectives of tax planning
c) An act of deferring tax payments to future periods
d) The same as tax avoidance
Answer: a) A fraudulent act involving illegal nonpayment of taxes
Rationale: Tax evasion constitutes the illegal nonpayment of a tax and cannot be condoned. It is
a fraudulent act that violates existing legal constraints.
9. Tax planning is the process of:
a) Filing tax returns
b) Arranging one's financial affairs to minimize tax liability
c) Litigating tax disputes
d) Auditing tax returns
Answer: b) Arranging one's financial affairs to minimize tax liability
Rationale: 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.
10. What is the difference between tax avoidance and tax evasion?
a) Tax avoidance is legal; tax evasion is illegal
b) Tax avoidance is illegal; tax evasion is legal
, c) Both are legal
d) Both are illegal
Answer: a) Tax avoidance is legal; tax evasion is illegal
Rationale: Tax avoidance is the legal minimization of tax liability, and 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.
11. In an open tax planning situation:
a) All pertinent actions have been completed
b) The transaction is not yet complete
c) The taxpayer has already filed a return
d) The IRS has already audited the taxpayer
Answer: b) The transaction is not yet complete
Rationale: 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.
12. In a closed tax planning situation:
a) The transaction is not yet complete
b) The practitioner can modify the transaction
c) All pertinent actions have been completed
d) The taxpayer can avoid all tax liability
Answer: c) All pertinent actions have been completed
Rationale: In a closed transaction, 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.
13. Who is automatically admitted to practice before the IRS without taking a special
examination?
a) Enrolled Agents only
b) CPAs and attorneys in good standing
c) Commercial tax preparers
d) All tax practitioners
Answer: b) CPAs and attorneys in good standing
by Roby Sawyers, Steven Gill
Comprehensive 200-Question Exam with Detailed Answers and
Rationales
CHAPTER 1: INTRODUCTION TO TAX PRACTICE AND ETHICS
1. In the United States, the tax system is an outgrowth of how many disciplines?
a) Three
b) Four
c) Five
d) Six
Answer: c) Five
Rationale: The U.S. tax system is derived from 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.
2. Which discipline addresses how proposed tax legislation will affect the rate of inflation or
economic growth?
a) Law
b) Accounting
c) Economics
d) Sociology
Answer: c) Economics
Rationale: Economists address issues such as how proposed tax legislation will affect the rate of
inflation or economic growth. This is a unique contribution of the economics discipline to the
tax system.
3. Which disciplines examine issues of social equity and whether a tax system discriminates
against certain taxpayers?
,a) Law and Accounting
b) Economics and Political Science
c) Sociology and Political Science
d) Law and Economics
Answer: c) Sociology and Political Science
Rationale: Measurement of the social equity of a tax and determining whether a tax system
discriminates against certain taxpayers are issues examined by sociologists and political
scientists.
4. Who is responsible for the interpretation of taxation statutes?
a) Accountants
b) Economists
c) Attorneys
d) Political Scientists
Answer: c) Attorneys
Rationale: Attorneys are responsible for the interpretation of the taxation statutes, while
accountants ensure that these same statutes are applied consistently.
5. Who ensures that taxation statutes are applied consistently?
a) Attorneys
b) Accountants
c) Economists
d) Political Scientists
Answer: b) Accountants
Rationale: Accountants ensure that taxation statutes are applied consistently, complementing
the attorneys' role in interpreting the statutes.
6. Which of the following is NOT an element of tax practice?
a) Tax compliance
b) Tax planning
c) Tax evasion
d) Tax research
Answer: c) Tax evasion
,Rationale: The major categories of tax practice include tax compliance, tax planning, tax
litigation, and tax research. Tax evasion is the illegal nonpayment of taxes and falls outside the
domain of professional tax practice.
7. Tax compliance is the process of:
a) Filing necessary tax returns
b) Gathering the financial information necessary to report taxable income
c) Representing a taxpayer at an IRS audit
d) All of these are correct
Answer: d) All of these are correct
Rationale: Tax compliance consists of gathering pertinent information, evaluating and
classifying that information, filing any necessary tax returns, and representing a client during an
IRS audit.
8. What is tax evasion?
a) A fraudulent act involving illegal nonpayment of taxes
b) One of the objectives of tax planning
c) An act of deferring tax payments to future periods
d) The same as tax avoidance
Answer: a) A fraudulent act involving illegal nonpayment of taxes
Rationale: Tax evasion constitutes the illegal nonpayment of a tax and cannot be condoned. It is
a fraudulent act that violates existing legal constraints.
9. Tax planning is the process of:
a) Filing tax returns
b) Arranging one's financial affairs to minimize tax liability
c) Litigating tax disputes
d) Auditing tax returns
Answer: b) Arranging one's financial affairs to minimize tax liability
Rationale: 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.
10. What is the difference between tax avoidance and tax evasion?
a) Tax avoidance is legal; tax evasion is illegal
b) Tax avoidance is illegal; tax evasion is legal
, c) Both are legal
d) Both are illegal
Answer: a) Tax avoidance is legal; tax evasion is illegal
Rationale: Tax avoidance is the legal minimization of tax liability, and 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.
11. In an open tax planning situation:
a) All pertinent actions have been completed
b) The transaction is not yet complete
c) The taxpayer has already filed a return
d) The IRS has already audited the taxpayer
Answer: b) The transaction is not yet complete
Rationale: 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.
12. In a closed tax planning situation:
a) The transaction is not yet complete
b) The practitioner can modify the transaction
c) All pertinent actions have been completed
d) The taxpayer can avoid all tax liability
Answer: c) All pertinent actions have been completed
Rationale: In a closed transaction, 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.
13. Who is automatically admitted to practice before the IRS without taking a special
examination?
a) Enrolled Agents only
b) CPAs and attorneys in good standing
c) Commercial tax preparers
d) All tax practitioners
Answer: b) CPAs and attorneys in good standing
