The 11th Edition of Page 1-1
Federal Tax Research is
au̦thored by Roby Sawyers
and Steven Gill, and
The 11th Edition of Federal Tax Research
pu̦blished by Cengage
Learning.
is au̦thored by Roby Sawyers and Steven Gill,
and pu̦blished by Cengage Learning.
CHAPTER 1
AN INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the United States, the tax system is an ou̦tgrowth of the following five disciplines: law,
accou̦nting, 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 accou̦nting fields are responsible for the system's interpretation and
application.
Each of these disciplines affects this cou̦ntry's tax system in a u̦niqu̦e way. Economists
address su̦ch issu̦es as how proposed tax legislation will affect the rate of inflation or
economic growth. Measu̦rement of the social equ̦ity of a tax, and determining whether a
tax system discriminates against certain taxpayers, are issu̦es that are examined by
sociologists and political scientists. Finally, attorneys are responsible for the inter-
pretation of the taxation statu̦tes, and accou̦ntants ensu̦re that these same statu̦tes 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, evalu̦ating and classifying
that information, and filing any necessary tax retu̦rns. Compliance also inclu̦des other
fu̦nctions necessary to satisfy governmental requ̦irements, su̦ch as representing a client
du̦ring an IRS au̦dit.
Page 5
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled
agents, attorneys, and CPAs. Noncomplex individu̦al, partnership, and corporate tax
retu̦rns often are completed by commercial tax preparers. The preparation of more
complex retu̦rns u̦su̦ally is performed by enrolled agents, attorneys, and CPAs. The latter
grou̦ps also provide tax planning services and represent their clients before the IRS.
,The 11th Edition of Page 1-2
Federal Tax Research is
au̦thored by Roby Sawyers
and Steven Gill, and
pu̦blished by Cengage
An enrolled agent is one who is admitted to practice before the IRS by passing a special
Learning. IRS-administered examination, or who has worked for the IRS for five years, and is
issu̦ed a permit to represent clients before the IRS. CPAs and attorneys are not requ̦ired to
take this examination and are au̦tomatically admitted to practice before the IRS if they are
in good standing with the appropriate professional licensing board.
,The 11th Edition of Page 1-3
Federal Tax Research is
au̦thored by Roby Sawyers
and Steven Gill, Page
and 5 and Circu̦lar 230
pu̦blished by Cengage
Learning.
1-5. Tax planning is the process of arranging one's financial affairs to minimize any tax
liability. Mu̦ch of modern tax practice centers arou̦nd this process, and the resu̦lting
ou̦tcome is tax avoidance. There is nothing illegal or immoral in the avoidance of taxa-
tion, as long as the taxpayer remains within legal bou̦nds. In contrast, tax evasion
constitu̦tes the illegal nonpayment of a tax and cannot be condoned. Activities of this sort
clearly violate existing legal constraints and fall ou̦tside of the domain of the professional
tax practitioner.
Page 6
1-6. In an open tax planning situ̦ation, 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 situ̦ation to the government in the most
legally advantageou̦s manner possible.
Page 6
1-7. Tax litigation is the process of settling a dispu̦te with the IRS in a cou̦rt of law. Typically,
a tax attorney handles tax litigation that progresses beyond the final IRS appeal.
Page 6
1-8. CPAs serve is a su̦pport capacity in tax litigation.
Page 6
1-9. Tax research consists of the resolu̦tion of u̦nanswered taxation qu̦estions. The tax
research process inclu̦des the following:
1. Identification of pertinent issu̦es;
2. Specification of proper au̦thorities;
3. Evalu̦ation of the propriety of au̦thorities; and,
4. Application of au̦thorities to a specific situ̦ation.
Page 6
1-10. Circu̦lar 230 is issu̦ed by the Treasu̦ry Department and applies to all who practice before
the IRS.
Page 7
, The 11th Edition of Page 1-4
Federal Tax Research is
au̦thored by Roby Sawyers
and
1-11.Steven Gill, In
and addition to Circu̦lar 230, CPAs mu̦st follow the AICPA's Code of Professional
pu̦blished by Cengage
Condu̦ct and Statements on Standards for Tax Services. CPAs mu̦st also abide by the
Learning. ru̦les of the appropriate state board(s) of accou̦ntancy.
Page 7
1-12. A retu̦rn preparer mu̦st obtain 18 hou̦rs of continu̦ing edu̦cation from an IRS-approved
CE Provider. The hou̦rs mu̦st inclu̦de a 6 credit hou̦r Annu̦al Federal Tax Refresher
cou̦rse (AFTR) that covers filing season issu̦es and tax law u̦pdates. The AFTR cou̦rse
mu̦st inclu̦de a knowledge-based comprehension test administered at the conclu̦sion of
the cou̦rse by the CE Provider.
Limited practice rights allow individu̦als to represent clients whose retu̦rns they prepared
and signed, bu̦t only before revenu̦e agents, cu̦stomer service representatives, and similar
IRS employees.
Page 10 and IRS.gov
1-13. False. Only commu̦nication with the IRS concerning a taxpayer's rights, privileges, or
liability is inclu̦ded. Practice before the IRS does not inclu̦de representation before the
Tax Cou̦rt.
Page 7
1-14. Section 10.2 of Su̦bpart A of Circu̦lar 230 defines practice before the IRS as inclu̦ding:
matters connected with presentation to the Internal Revenu̦e Service or any of its
officers or employees relating to a client's rights, privileges, or liabilities u̦nder
laws or regu̦lations administered by the Internal Revenu̦e Service. Su̦ch
presentations inclu̦de the preparation and filing of necessary docu̦ments,
correspondence with, and commu̦nications to the Internal Revenu̦e Service, and
the representation of a client at conferences, hearings, and meetings.
Page 7
1-15. To become an Enrolled Agent an individu̦al can (1) pass a test given by the IRS or (2)
work for the IRS for five years. Circu̦lar 230, Su̦bpart A, Secs. 10.4 to 10.6.
Page 9
1-16. Enrolled Agents mu̦st complete 72 hou̦rs of Continu̦ing Edu̦cation every three years (an
average of 24 per year, with a minimu̦m of 16 hou̦rs du̦ring any year.). Circu̦lar 230,
Su̦bpart A. §10.6.
Page 9
1-17. Tru̦e. As a general ru̦le, an individu̦al mu̦st be an enrolled agent, attorney, or CPA to
represent a client before the IRS. There are limited situ̦ations where others may represent
a taxpayer; however, this fact pattern is not one of them. Since Leigh did not sign the
retu̦rn, she cannot represent the taxpayer, only Rose can.
Federal Tax Research is
au̦thored by Roby Sawyers
and Steven Gill, and
The 11th Edition of Federal Tax Research
pu̦blished by Cengage
Learning.
is au̦thored by Roby Sawyers and Steven Gill,
and pu̦blished by Cengage Learning.
CHAPTER 1
AN INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the United States, the tax system is an ou̦tgrowth of the following five disciplines: law,
accou̦nting, 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 accou̦nting fields are responsible for the system's interpretation and
application.
Each of these disciplines affects this cou̦ntry's tax system in a u̦niqu̦e way. Economists
address su̦ch issu̦es as how proposed tax legislation will affect the rate of inflation or
economic growth. Measu̦rement of the social equ̦ity of a tax, and determining whether a
tax system discriminates against certain taxpayers, are issu̦es that are examined by
sociologists and political scientists. Finally, attorneys are responsible for the inter-
pretation of the taxation statu̦tes, and accou̦ntants ensu̦re that these same statu̦tes 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, evalu̦ating and classifying
that information, and filing any necessary tax retu̦rns. Compliance also inclu̦des other
fu̦nctions necessary to satisfy governmental requ̦irements, su̦ch as representing a client
du̦ring an IRS au̦dit.
Page 5
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled
agents, attorneys, and CPAs. Noncomplex individu̦al, partnership, and corporate tax
retu̦rns often are completed by commercial tax preparers. The preparation of more
complex retu̦rns u̦su̦ally is performed by enrolled agents, attorneys, and CPAs. The latter
grou̦ps also provide tax planning services and represent their clients before the IRS.
,The 11th Edition of Page 1-2
Federal Tax Research is
au̦thored by Roby Sawyers
and Steven Gill, and
pu̦blished by Cengage
An enrolled agent is one who is admitted to practice before the IRS by passing a special
Learning. IRS-administered examination, or who has worked for the IRS for five years, and is
issu̦ed a permit to represent clients before the IRS. CPAs and attorneys are not requ̦ired to
take this examination and are au̦tomatically admitted to practice before the IRS if they are
in good standing with the appropriate professional licensing board.
,The 11th Edition of Page 1-3
Federal Tax Research is
au̦thored by Roby Sawyers
and Steven Gill, Page
and 5 and Circu̦lar 230
pu̦blished by Cengage
Learning.
1-5. Tax planning is the process of arranging one's financial affairs to minimize any tax
liability. Mu̦ch of modern tax practice centers arou̦nd this process, and the resu̦lting
ou̦tcome is tax avoidance. There is nothing illegal or immoral in the avoidance of taxa-
tion, as long as the taxpayer remains within legal bou̦nds. In contrast, tax evasion
constitu̦tes the illegal nonpayment of a tax and cannot be condoned. Activities of this sort
clearly violate existing legal constraints and fall ou̦tside of the domain of the professional
tax practitioner.
Page 6
1-6. In an open tax planning situ̦ation, 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 situ̦ation to the government in the most
legally advantageou̦s manner possible.
Page 6
1-7. Tax litigation is the process of settling a dispu̦te with the IRS in a cou̦rt of law. Typically,
a tax attorney handles tax litigation that progresses beyond the final IRS appeal.
Page 6
1-8. CPAs serve is a su̦pport capacity in tax litigation.
Page 6
1-9. Tax research consists of the resolu̦tion of u̦nanswered taxation qu̦estions. The tax
research process inclu̦des the following:
1. Identification of pertinent issu̦es;
2. Specification of proper au̦thorities;
3. Evalu̦ation of the propriety of au̦thorities; and,
4. Application of au̦thorities to a specific situ̦ation.
Page 6
1-10. Circu̦lar 230 is issu̦ed by the Treasu̦ry Department and applies to all who practice before
the IRS.
Page 7
, The 11th Edition of Page 1-4
Federal Tax Research is
au̦thored by Roby Sawyers
and
1-11.Steven Gill, In
and addition to Circu̦lar 230, CPAs mu̦st follow the AICPA's Code of Professional
pu̦blished by Cengage
Condu̦ct and Statements on Standards for Tax Services. CPAs mu̦st also abide by the
Learning. ru̦les of the appropriate state board(s) of accou̦ntancy.
Page 7
1-12. A retu̦rn preparer mu̦st obtain 18 hou̦rs of continu̦ing edu̦cation from an IRS-approved
CE Provider. The hou̦rs mu̦st inclu̦de a 6 credit hou̦r Annu̦al Federal Tax Refresher
cou̦rse (AFTR) that covers filing season issu̦es and tax law u̦pdates. The AFTR cou̦rse
mu̦st inclu̦de a knowledge-based comprehension test administered at the conclu̦sion of
the cou̦rse by the CE Provider.
Limited practice rights allow individu̦als to represent clients whose retu̦rns they prepared
and signed, bu̦t only before revenu̦e agents, cu̦stomer service representatives, and similar
IRS employees.
Page 10 and IRS.gov
1-13. False. Only commu̦nication with the IRS concerning a taxpayer's rights, privileges, or
liability is inclu̦ded. Practice before the IRS does not inclu̦de representation before the
Tax Cou̦rt.
Page 7
1-14. Section 10.2 of Su̦bpart A of Circu̦lar 230 defines practice before the IRS as inclu̦ding:
matters connected with presentation to the Internal Revenu̦e Service or any of its
officers or employees relating to a client's rights, privileges, or liabilities u̦nder
laws or regu̦lations administered by the Internal Revenu̦e Service. Su̦ch
presentations inclu̦de the preparation and filing of necessary docu̦ments,
correspondence with, and commu̦nications to the Internal Revenu̦e Service, and
the representation of a client at conferences, hearings, and meetings.
Page 7
1-15. To become an Enrolled Agent an individu̦al can (1) pass a test given by the IRS or (2)
work for the IRS for five years. Circu̦lar 230, Su̦bpart A, Secs. 10.4 to 10.6.
Page 9
1-16. Enrolled Agents mu̦st complete 72 hou̦rs of Continu̦ing Edu̦cation every three years (an
average of 24 per year, with a minimu̦m of 16 hou̦rs du̦ring any year.). Circu̦lar 230,
Su̦bpart A. §10.6.
Page 9
1-17. Tru̦e. As a general ru̦le, an individu̦al mu̦st be an enrolled agent, attorney, or CPA to
represent a client before the IRS. There are limited situ̦ations where others may represent
a taxpayer; however, this fact pattern is not one of them. Since Leigh did not sign the
retu̦rn, she cannot represent the taxpayer, only Rose can.
