Solutions
̦̣ Manual
̦̣ for Federal Tax Research 13th Edition by Roby
Sawyers and Steven Gill (Chapters 1-13 Complete)
,Federal Tax Research, 13th Edition Page 1-1
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
accounting̦̣ fields are responsible for the system's interpretation and application.
Each of these disciplines affects this country's ̦̣ tax system in a uniqu
̦̣ e̦̣ way. Economists address
such
̦̣ issu es
̦̣ 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 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 inclu des
̦̣ other functions
̦̣
necessary to satisfy governmental requirements,
̦̣ su ch
̦̣ 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 ̦̣ usu ̦̣ ally
̦̣ is
performed by enrolled agents, attorneys, and CPAs. The latter groups ̦̣ also provide tax planning
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 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
,Page 1-2 SOLUTIONS MANUAL
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 taxation, 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 modi-
fied 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 advantageouș̣ manner possible.
Page 6
1-7. Tax litigation is the process of settling a dispute
̦̣ with the IRS in a courț̣ 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
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 musț̣ also abide by the rules
̦̣ of the appropriate
state board(s) of accountancy.
̦̣
Page 7
1-12. A return
̦̣ preparer musț̣ obtain 18 hours ̦̣ of continuing ̦̣ education
̦̣ from an IRS-approved CE
Provider. The hours ̦̣ mu st
̦̣ inclu de
̦̣ a 6 credit hou r
̦̣ Annu al
̦̣ Federal Tax Refresher course ̦̣ (AFTR)
that covers filing season issueș̣ and tax law updates.
̦̣ The AFTR course ̦̣ must ̦̣ include
̦̣ a knowledge-
based comprehension test administered at the conclusion ̦̣ of the course̦̣ by the CE Provider.
Limited practice rights allow individualș̣ to represent clients whose returns
̦̣ they prepared and
signed, buț̣ only before revenue̦̣ agents, customer
̦̣ service representatives, and similar IRS
employees.
, Federal Tax Research, 13th Edition Page 1-3
Page 10 and IRS.gov
1-13. False. Only communication
̦̣ with the IRS concerning a taxpayer's rights, privileges, or liability is
included.
̦̣ Practice before the IRS does not include
̦̣ representation before the Tax Court. ̦̣
Page 7
1-14. Section 10.2 of Subpart
̦̣ A of Circular
̦̣ 230 defines practice before the IRS as including:
̦̣
matters connected with presentation to the Internal Revenue̦̣ Service or any of its officers
or employees relating to a client's rights, privileges, or liabilities under
̦̣ laws or
regulations
̦̣ administered by the Internal Revenue̦̣ Service. Such ̦̣ presentations include
̦̣ the
preparation and filing of necessary documents,
̦̣ correspondence with, and
communications
̦̣ to the Internal Revenue̦̣ Service, and the representation of a client at
conferences, hearings, and meetings.
Page 7
1-15. To become an Enrolled Agent an individual ̦̣ can (1) pass a test given by the IRS or (2) work for
the IRS for five years. Circular
̦̣ 230, Subpart
̦̣ A, Secs. 10.4 to 10.6.
Page 9
1-16. Enrolled Agents must ̦̣ complete 72 hours
̦̣ of Continuing
̦̣ Education
̦̣ every three years (an average of
24 per year, with a minimum ̦̣ of 16 hourș̣ during
̦̣ any year.). Circular
̦̣ 230, Subpart
̦̣ A. §10.6.
Page 9
1-17. True.
̦̣ As a general rule,
̦̣ an individual
̦̣ must
̦̣ be an enrolled agent, attorney, or CPA to represent a
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 did not sign the return,
̦̣ she cannot
represent the taxpayer, only Rose can.
Pages 10-11
1-18. The names of organizations that can be represented by regular ̦̣ full-time
̦̣ employees are found ̦̣ in
Circular̦̣ 230, §10.7(c). A regu lar
̦̣ fu ll-time
̦̣ employee can represent the employer (individu al
̦̣
employer). A regular ̦̣ full-time
̦̣ employee of a partnership may represent the partnership. Also, a
regular
̦̣ full-time
̦̣ employee of a trust, ̦̣ receivership, guardianship,
̦̣ or estate may represent the trust, ̦̣
receivership, guardianship,
̦̣ or estate. Furthermore,
̦̣ a regular
̦̣ full-time
̦̣ employee of a governmental
unit,
̦̣ agency, or authority
̦̣ may represent the governmental unit, ̦̣ agency, or authority
̦̣ in the course ̦̣
of his or her official duties.
̦̣
Page 10
1-19. Yes. Circular
̦̣ 230, Subpart
̦̣ A, Sec. 10.7.
Page 10
1-20. True.
̦̣ A practitioner may be suspended
̦̣ or disbarred from practice before the IRS if he or she
knowingly helps a suspended
̦̣ or disbarred person practice indirectly before the IRS.
Page 12
̦̣ Manual
̦̣ for Federal Tax Research 13th Edition by Roby
Sawyers and Steven Gill (Chapters 1-13 Complete)
,Federal Tax Research, 13th Edition Page 1-1
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
accounting̦̣ fields are responsible for the system's interpretation and application.
Each of these disciplines affects this country's ̦̣ tax system in a uniqu
̦̣ e̦̣ way. Economists address
such
̦̣ issu es
̦̣ 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 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 inclu des
̦̣ other functions
̦̣
necessary to satisfy governmental requirements,
̦̣ su ch
̦̣ 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 ̦̣ usu ̦̣ ally
̦̣ is
performed by enrolled agents, attorneys, and CPAs. The latter groups ̦̣ also provide tax planning
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 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
,Page 1-2 SOLUTIONS MANUAL
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 taxation, 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 modi-
fied 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 advantageouș̣ manner possible.
Page 6
1-7. Tax litigation is the process of settling a dispute
̦̣ with the IRS in a courț̣ 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
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 musț̣ also abide by the rules
̦̣ of the appropriate
state board(s) of accountancy.
̦̣
Page 7
1-12. A return
̦̣ preparer musț̣ obtain 18 hours ̦̣ of continuing ̦̣ education
̦̣ from an IRS-approved CE
Provider. The hours ̦̣ mu st
̦̣ inclu de
̦̣ a 6 credit hou r
̦̣ Annu al
̦̣ Federal Tax Refresher course ̦̣ (AFTR)
that covers filing season issueș̣ and tax law updates.
̦̣ The AFTR course ̦̣ must ̦̣ include
̦̣ a knowledge-
based comprehension test administered at the conclusion ̦̣ of the course̦̣ by the CE Provider.
Limited practice rights allow individualș̣ to represent clients whose returns
̦̣ they prepared and
signed, buț̣ only before revenue̦̣ agents, customer
̦̣ service representatives, and similar IRS
employees.
, Federal Tax Research, 13th Edition Page 1-3
Page 10 and IRS.gov
1-13. False. Only communication
̦̣ with the IRS concerning a taxpayer's rights, privileges, or liability is
included.
̦̣ Practice before the IRS does not include
̦̣ representation before the Tax Court. ̦̣
Page 7
1-14. Section 10.2 of Subpart
̦̣ A of Circular
̦̣ 230 defines practice before the IRS as including:
̦̣
matters connected with presentation to the Internal Revenue̦̣ Service or any of its officers
or employees relating to a client's rights, privileges, or liabilities under
̦̣ laws or
regulations
̦̣ administered by the Internal Revenue̦̣ Service. Such ̦̣ presentations include
̦̣ the
preparation and filing of necessary documents,
̦̣ correspondence with, and
communications
̦̣ to the Internal Revenue̦̣ Service, and the representation of a client at
conferences, hearings, and meetings.
Page 7
1-15. To become an Enrolled Agent an individual ̦̣ can (1) pass a test given by the IRS or (2) work for
the IRS for five years. Circular
̦̣ 230, Subpart
̦̣ A, Secs. 10.4 to 10.6.
Page 9
1-16. Enrolled Agents must ̦̣ complete 72 hours
̦̣ of Continuing
̦̣ Education
̦̣ every three years (an average of
24 per year, with a minimum ̦̣ of 16 hourș̣ during
̦̣ any year.). Circular
̦̣ 230, Subpart
̦̣ A. §10.6.
Page 9
1-17. True.
̦̣ As a general rule,
̦̣ an individual
̦̣ must
̦̣ be an enrolled agent, attorney, or CPA to represent a
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 did not sign the return,
̦̣ she cannot
represent the taxpayer, only Rose can.
Pages 10-11
1-18. The names of organizations that can be represented by regular ̦̣ full-time
̦̣ employees are found ̦̣ in
Circular̦̣ 230, §10.7(c). A regu lar
̦̣ fu ll-time
̦̣ employee can represent the employer (individu al
̦̣
employer). A regular ̦̣ full-time
̦̣ employee of a partnership may represent the partnership. Also, a
regular
̦̣ full-time
̦̣ employee of a trust, ̦̣ receivership, guardianship,
̦̣ or estate may represent the trust, ̦̣
receivership, guardianship,
̦̣ or estate. Furthermore,
̦̣ a regular
̦̣ full-time
̦̣ employee of a governmental
unit,
̦̣ agency, or authority
̦̣ may represent the governmental unit, ̦̣ agency, or authority
̦̣ in the course ̦̣
of his or her official duties.
̦̣
Page 10
1-19. Yes. Circular
̦̣ 230, Subpart
̦̣ A, Sec. 10.7.
Page 10
1-20. True.
̦̣ A practitioner may be suspended
̦̣ or disbarred from practice before the IRS if he or she
knowingly helps a suspended
̦̣ or disbarred person practice indirectly before the IRS.
Page 12
