Federal vTax vResearch, v12th Page v1-1
vEdition
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
v v v v v v v v v v v
CHAPTER 1 v
INTRODUCTION TO TAX PRACTICE AND ETHICS
v v v v v
DISCUSSION vQUESTIONS
1-1. In vthe vUnited vStates, vthe vtax vsystem vis van voutgrowth vof vthe vfollowing vfive vdisciplines:
v law, vaccounting, veconomics, vpolitical vscience, vand vsociology. vThe venvironment vfor vthe
v tax vsystem visvprovided vby vthe vprinciples vof veconomics, vsociology, vand vpolitical vscience,
v while vthe vlegal vand vaccounting vfields vare vresponsible vfor v the vsystem‘s vinterpretation
v and vapplication.
Each vof vthese vdisciplines vaffects vthis vcountry‘s vtax vsystem vin va vunique vway. vEconomists
v addressvsuch vissues vas vhow vproposed vtax vlegislation vwill vaffect vthe vrate vof vinflation vor
v economic vgrowth.vMeasurement vof vthe vsocial vequity vof va vtax vand vdetermining vwhether va
v tax vsystem vdiscriminates vagainst vcertain vtaxpayers vare vissues vthat vare vexamined vby
vsociologists vand vpolitical vscientists.
Finally, vattorneys vare vresponsible vfor v the vinterpretation v of vthe vtaxation vstatutes, vand
vaccountantsvensure vthat vthese vsame vstatutes vare vapplied vconsistently.
Page v4
1-2. The vother vmajor v categories vof vtax vpractice vin vaddition vto vtax vresearch vare vas vfollows:
• Tax vcompliance
• Tax vplanning
• Tax
v litigationvPage v5
1-3. Tax vcompliance vconsists vof vgathering vpertinent vinformation, vevaluating vand vclassifying
v that vinformation, vand vfiling vany vnecessary vtax vreturns. vCompliance valso vincludes vother
v functions vnecessary vto vsatisfy vgovernmental vrequirements, vsuch vas vrepresenting va vclient
v during van vInternalvRevenue vService v(IRS) vaudit.
,Page v1-2 SOLUTIONS
vMANUAL
Page v5
1-4. Most vof vthe vtax vcompliance vwork vis vperformed vby vcommercial vtax vpreparers, venrolled
v agents v(EAs), vattorneys, vand vcertified vpublic vaccountants v(CPAs). vNoncomplex
v individual, vpartnership,vand vcorporate vtax vreturns voften vare vcompleted vby vcommercial vtax
v preparers. vThe vpreparation vof vmore vcomplex vreturns vusually vis vperformed vby vEAs,
v attorneys, vand vCPAs. vThe vlatter vgroups valsovprovide vtax vplanning vservices vand vrepresent
v their vclients vbefore vthe vIRS.
An vEA vis vone vwho vis vadmitted vto vpractice vbefore vthe vIRS vby vpassing va vspecial vIRS-
administered vexamination, vor vwho vhas vworked vfor vthe vIRS vfor vfive vyears vand vis vissued va
v permit vto vrepresent vclients vbefore vthe vIRS. vCPAs vand vattorneys vare vnot vrequired vto vtake
v this vexamination vand vare vautomatically vadmitted vto vpractice vbefore vthe vIRS vif vthey vare vin
v good vstanding vwith vthe vappropriatevprofessional vlicensing vboard.
Page v5 vand vCircular v230
1-5. Tax vplanning vis vthe vprocess vof varranging vone‘s vfinancial vaffairs vto vminimize vany vtax
v liability. vMuchvof vmodern vtax vpractice vcenters varound vthis vprocess, v and vthe vresulting
v outcome vis vtax vavoidance.
There vis vnothing villegal vor vimmoral vin vthe vavoidance vof vtaxation vas vlong vas vthe vtaxpayer
v remains vwithin vlegal vbounds. vIn vcontrast, vtax vevasion vconstitutes vthe villegal vnonpayment vof
v a vtax vand vcannotvbe vcondoned. vActivities vof vthis vsort vclearly vviolate vexisting vlegal
v constraints vand vfall voutside vof vthe vdomain vof vthe vprofessional vtax vpractitioner.
Page v6
1-6. In van vopen vtax vplanning vsituation, vthe vtransaction vis vnot vyet vcomplete; vtherefore, vthe vtax
v practitionervmaintains vsome vdegree vof vcontrol vover vthe vpotential vtax vliability, vand vthe
v transaction vmay vbe vmodi- vfied vto vachieve va vmore vfavorable vtax vtreatment. vIn va vclosed
v transaction vhowever, vall vof vthe vpertinentvactions vhave vbeen vcompleted, vand vtax vplanning
v activities vmay vbe vlimited vto vthe vpresentation vof vthe vsituation vto vthe vgovernment vin vthe
most vlegally vadvantageous vmanner v possible.
v
,Federal vTax vResearch, v12th Page v1-3
vEdition
Page v6
1-7. Tax vlitigation vis vthe vprocess v of vsettling va vdispute vwith vthe vIRS vin va vcourt vof vlaw.
v Typically, va vtaxvattorney vhandles vtax vlitigation vthat vprogresses vbeyond vthe vfinal vIRS
v appeal.
Page v6
1-8. CPAs vserve vis va vsupport vcapacity vin vtax vlitigation.
Page v6
1-9. Tax vresearch vconsists vof vthe vresolution vof vunanswered vtaxation vquestions. v The vtax vresearch
v processvincludes vthe vfollowing:
1. Identification vof vpertinent vissues;
2. Specification vof vproper vauthorities;
3. Evaluation v of vthe vpropriety vof vauthorities; vand,
4. Application vof vauthorities vto va vspecific vsituation.
Page v6
1-10. Circular v230 vis vissued vby vthe vTreasury vDepartment vand vapplies vto vall vwho vpractice vbefore
v the vIRS.vPage v7
1-11. In vaddition vto vCircular v230, vCPAs vmust vfollow vthe vAICPA‘s vCode vof vProfessional
v Conduct vand vStatements von vStandards vfor vTax vServices. vCPAs vmust valso vabide vby vthe
v rules vof vthe vappropriatevstate vboard(s) vof vaccountancy.
Page v7
1-12. A vreturn vpreparer vmust vobtain v18 vhours vof vcontinuing veducation vfrom van vIRS-approved
v CE vProvider. vThe vhours vmust vinclude va v6 vcredit vhour vAnnual vFederal vTax vRefresher
v course v(AFTR) vthat vcovers vfiling vseason vissues vand vtax vlaw vupdates. vThe vAFTR vcourse
vmust vinclude va vknowledge-vbased vcomprehension vtest vadministered vat vthe vconclusion v of vthe
vcourse vby vthe vCE vProvider.
, Page v1-4 SOLUTIONS
vMANUAL
Limited vpractice vrights vallow vindividuals vto vrepresent vclients vwhose vreturns vthey vprepared
andvsigned, vbut vonly vbefore vrevenue vagents, vcustomer vservice vrepresentatives, vand
v
v similar vIRS vemployees.
Page v10 vand vIRS.gov
1-13. False. vOnly vcommunication vwith vthe vIRS vconcerning va vtaxpayer‘s vrights, vprivileges, vor
v liability visvincluded. vPractice vbefore vthe vIRS vdoes vnot vinclude vrepresentation vbefore vthe
v Tax vCourt.
Page v7
1-14. Section v 10.2 vof vSubpart v A vof vCircular v 230 vdefines vpractice vbefore vthe vIRS vas vincluding:
matters vconnected vwith vpresentation vto vthe vInternal vRevenue vService vor vany vof vits
v officersvor vemployees vrelating vto va vclient‘s vrights, vprivileges, vor vliabilities vunder
v laws vor vregulations vadministered vby vthe vInternal vRevenue vService. vSuch
v presentations vinclude vthevpreparation vand vfiling vof vnecessary vdocuments,
v correspondence vwith, vand vcommunications vto vthe vInternal vRevenue vService, vand
v the vrepresentation vof va vclient vat vconferences, vhearings, vand vmeetings.
Page v7
1-15. To vbecome van vEA van vindividual vcan v (1) vpass va vtest vgiven v by vthe vIRS vor v(2) vwork vfor
v the vIRS vforvfive v years. vCircular v230, vSubpart vA, v§§ v10.4 vto v10.6.
Page v9
1-16. EAs vmust vcomplete v72 vhours vof vcontinuing veducation vevery vthree vyears v(an vaverage vof v24
v per vyear,vwith va vminimum v of v16 vhours vduring vany vyear). vCircular v230, vSubpart vA. v§ v10.6.
Page v9
1-17. True. vAs va vgeneral vrule, van vindividual vmust vbe van vEA, vattorney, vor vCPA vto vrepresent va
v client vbeforevthe vIRS. vThere vare vlimited vsituations vwhere vothers vmay vrepresent va vtaxpayer;
v however, vthis vfact vpattern vis vnot vone vof vthem. vSince vLeigh vdid vnot vsign vthe vreturn, vshe
v cannot vrepresent vthe vtaxpayer, vonly vRose vcan.
vEdition
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
v v v v v v v v v v v
CHAPTER 1 v
INTRODUCTION TO TAX PRACTICE AND ETHICS
v v v v v
DISCUSSION vQUESTIONS
1-1. In vthe vUnited vStates, vthe vtax vsystem vis van voutgrowth vof vthe vfollowing vfive vdisciplines:
v law, vaccounting, veconomics, vpolitical vscience, vand vsociology. vThe venvironment vfor vthe
v tax vsystem visvprovided vby vthe vprinciples vof veconomics, vsociology, vand vpolitical vscience,
v while vthe vlegal vand vaccounting vfields vare vresponsible vfor v the vsystem‘s vinterpretation
v and vapplication.
Each vof vthese vdisciplines vaffects vthis vcountry‘s vtax vsystem vin va vunique vway. vEconomists
v addressvsuch vissues vas vhow vproposed vtax vlegislation vwill vaffect vthe vrate vof vinflation vor
v economic vgrowth.vMeasurement vof vthe vsocial vequity vof va vtax vand vdetermining vwhether va
v tax vsystem vdiscriminates vagainst vcertain vtaxpayers vare vissues vthat vare vexamined vby
vsociologists vand vpolitical vscientists.
Finally, vattorneys vare vresponsible vfor v the vinterpretation v of vthe vtaxation vstatutes, vand
vaccountantsvensure vthat vthese vsame vstatutes vare vapplied vconsistently.
Page v4
1-2. The vother vmajor v categories vof vtax vpractice vin vaddition vto vtax vresearch vare vas vfollows:
• Tax vcompliance
• Tax vplanning
• Tax
v litigationvPage v5
1-3. Tax vcompliance vconsists vof vgathering vpertinent vinformation, vevaluating vand vclassifying
v that vinformation, vand vfiling vany vnecessary vtax vreturns. vCompliance valso vincludes vother
v functions vnecessary vto vsatisfy vgovernmental vrequirements, vsuch vas vrepresenting va vclient
v during van vInternalvRevenue vService v(IRS) vaudit.
,Page v1-2 SOLUTIONS
vMANUAL
Page v5
1-4. Most vof vthe vtax vcompliance vwork vis vperformed vby vcommercial vtax vpreparers, venrolled
v agents v(EAs), vattorneys, vand vcertified vpublic vaccountants v(CPAs). vNoncomplex
v individual, vpartnership,vand vcorporate vtax vreturns voften vare vcompleted vby vcommercial vtax
v preparers. vThe vpreparation vof vmore vcomplex vreturns vusually vis vperformed vby vEAs,
v attorneys, vand vCPAs. vThe vlatter vgroups valsovprovide vtax vplanning vservices vand vrepresent
v their vclients vbefore vthe vIRS.
An vEA vis vone vwho vis vadmitted vto vpractice vbefore vthe vIRS vby vpassing va vspecial vIRS-
administered vexamination, vor vwho vhas vworked vfor vthe vIRS vfor vfive vyears vand vis vissued va
v permit vto vrepresent vclients vbefore vthe vIRS. vCPAs vand vattorneys vare vnot vrequired vto vtake
v this vexamination vand vare vautomatically vadmitted vto vpractice vbefore vthe vIRS vif vthey vare vin
v good vstanding vwith vthe vappropriatevprofessional vlicensing vboard.
Page v5 vand vCircular v230
1-5. Tax vplanning vis vthe vprocess vof varranging vone‘s vfinancial vaffairs vto vminimize vany vtax
v liability. vMuchvof vmodern vtax vpractice vcenters varound vthis vprocess, v and vthe vresulting
v outcome vis vtax vavoidance.
There vis vnothing villegal vor vimmoral vin vthe vavoidance vof vtaxation vas vlong vas vthe vtaxpayer
v remains vwithin vlegal vbounds. vIn vcontrast, vtax vevasion vconstitutes vthe villegal vnonpayment vof
v a vtax vand vcannotvbe vcondoned. vActivities vof vthis vsort vclearly vviolate vexisting vlegal
v constraints vand vfall voutside vof vthe vdomain vof vthe vprofessional vtax vpractitioner.
Page v6
1-6. In van vopen vtax vplanning vsituation, vthe vtransaction vis vnot vyet vcomplete; vtherefore, vthe vtax
v practitionervmaintains vsome vdegree vof vcontrol vover vthe vpotential vtax vliability, vand vthe
v transaction vmay vbe vmodi- vfied vto vachieve va vmore vfavorable vtax vtreatment. vIn va vclosed
v transaction vhowever, vall vof vthe vpertinentvactions vhave vbeen vcompleted, vand vtax vplanning
v activities vmay vbe vlimited vto vthe vpresentation vof vthe vsituation vto vthe vgovernment vin vthe
most vlegally vadvantageous vmanner v possible.
v
,Federal vTax vResearch, v12th Page v1-3
vEdition
Page v6
1-7. Tax vlitigation vis vthe vprocess v of vsettling va vdispute vwith vthe vIRS vin va vcourt vof vlaw.
v Typically, va vtaxvattorney vhandles vtax vlitigation vthat vprogresses vbeyond vthe vfinal vIRS
v appeal.
Page v6
1-8. CPAs vserve vis va vsupport vcapacity vin vtax vlitigation.
Page v6
1-9. Tax vresearch vconsists vof vthe vresolution vof vunanswered vtaxation vquestions. v The vtax vresearch
v processvincludes vthe vfollowing:
1. Identification vof vpertinent vissues;
2. Specification vof vproper vauthorities;
3. Evaluation v of vthe vpropriety vof vauthorities; vand,
4. Application vof vauthorities vto va vspecific vsituation.
Page v6
1-10. Circular v230 vis vissued vby vthe vTreasury vDepartment vand vapplies vto vall vwho vpractice vbefore
v the vIRS.vPage v7
1-11. In vaddition vto vCircular v230, vCPAs vmust vfollow vthe vAICPA‘s vCode vof vProfessional
v Conduct vand vStatements von vStandards vfor vTax vServices. vCPAs vmust valso vabide vby vthe
v rules vof vthe vappropriatevstate vboard(s) vof vaccountancy.
Page v7
1-12. A vreturn vpreparer vmust vobtain v18 vhours vof vcontinuing veducation vfrom van vIRS-approved
v CE vProvider. vThe vhours vmust vinclude va v6 vcredit vhour vAnnual vFederal vTax vRefresher
v course v(AFTR) vthat vcovers vfiling vseason vissues vand vtax vlaw vupdates. vThe vAFTR vcourse
vmust vinclude va vknowledge-vbased vcomprehension vtest vadministered vat vthe vconclusion v of vthe
vcourse vby vthe vCE vProvider.
, Page v1-4 SOLUTIONS
vMANUAL
Limited vpractice vrights vallow vindividuals vto vrepresent vclients vwhose vreturns vthey vprepared
andvsigned, vbut vonly vbefore vrevenue vagents, vcustomer vservice vrepresentatives, vand
v
v similar vIRS vemployees.
Page v10 vand vIRS.gov
1-13. False. vOnly vcommunication vwith vthe vIRS vconcerning va vtaxpayer‘s vrights, vprivileges, vor
v liability visvincluded. vPractice vbefore vthe vIRS vdoes vnot vinclude vrepresentation vbefore vthe
v Tax vCourt.
Page v7
1-14. Section v 10.2 vof vSubpart v A vof vCircular v 230 vdefines vpractice vbefore vthe vIRS vas vincluding:
matters vconnected vwith vpresentation vto vthe vInternal vRevenue vService vor vany vof vits
v officersvor vemployees vrelating vto va vclient‘s vrights, vprivileges, vor vliabilities vunder
v laws vor vregulations vadministered vby vthe vInternal vRevenue vService. vSuch
v presentations vinclude vthevpreparation vand vfiling vof vnecessary vdocuments,
v correspondence vwith, vand vcommunications vto vthe vInternal vRevenue vService, vand
v the vrepresentation vof va vclient vat vconferences, vhearings, vand vmeetings.
Page v7
1-15. To vbecome van vEA van vindividual vcan v (1) vpass va vtest vgiven v by vthe vIRS vor v(2) vwork vfor
v the vIRS vforvfive v years. vCircular v230, vSubpart vA, v§§ v10.4 vto v10.6.
Page v9
1-16. EAs vmust vcomplete v72 vhours vof vcontinuing veducation vevery vthree vyears v(an vaverage vof v24
v per vyear,vwith va vminimum v of v16 vhours vduring vany vyear). vCircular v230, vSubpart vA. v§ v10.6.
Page v9
1-17. True. vAs va vgeneral vrule, van vindividual vmust vbe van vEA, vattorney, vor vCPA vto vrepresent va
v client vbeforevthe vIRS. vThere vare vlimited vsituations vwhere vothers vmay vrepresent va vtaxpayer;
v however, vthis vfact vpattern vis vnot vone vof vthem. vSince vLeigh vdid vnot vsign vthe vreturn, vshe
v cannot vrepresent vthe vtaxpayer, vonly vRose vcan.
