Solution Manual For Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill

Federal Tax Research, 13th Editio
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SolutionManualFederalTaxResearch
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13thEditionbyRobySawyers,StevenGill
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n Chapters1-13 n n

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CHAPTER1 n




INTRODUCTIONTOTAXPRACTICEANDETHICS n n n n n




DISCUSSIONQUESTIONS
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1-1.
In the United States, the tax system is an outgrowth of the following five disciplines: law,
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naccounting, economics, political science, and sociology. The environment for the tax sy stem
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nisprovided by the principles of economics, sociology, and political science, while the le gal and
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naccounting fields are responsible for the system‘s interpretation and application.
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Each of these disciplines affects this country‘s tax system inga unique way. Economists addre sssuch
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nissues as how proposed tax legislation will affect the rate of inflation orgeconomic gro
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n wth.Measurement of the social equity of a tax and determining whether a tax system discrimi nates n n n n n n n n n n n n n n n




nagainst certain taxpayers are issues that are examined by sociologists and political scien tists.
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Finally, attorneys are responsible forgthe interpretation of the taxation statutes, and accountant
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nsensure that these same statutes are applied consistently.****8880()
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1-2. The other majorgcategories ofgtax practice in addition to tax research are as follows:
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 Tax compliance n




 Tax planning n




 Taxlitigatio n




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1-3.
Tax compliance consists of gathering pertinent information, evaluating and classifying that
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ninformation, and filing any necessary tax returns. Compliance also includes othergfuncti ons
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nnecessary to satisfy governmental requirements, such as representing a client during an In
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nternalRevenue Service (IRS) audit. n n n

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1-4.
Most of the tax compliance work is performed by commercial tax preparers, enrolled agents
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n(EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual, par tnership,and
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ncorporate tax returns often are completed by commercial tax preparers. The prep aration of more
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ncomplex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide tax
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nplanning services and represent their clients before the IRS.
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An EA is one who is admitted to practice before the IRS bygpassing a special IRS- administered
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nexamination, orgwho has worked forgthe IRS for five years and is issued a permit t o represent clients
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n before the IRS. CPAs and attorneys are not required to take this examination
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and are automatically admitted to practice before the IRS if they are in goodgstanding with the a
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nppropriateprofessional licensing board. n n




Page 5 and Circular 230
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1-5.
Tax planning is the process of arranging one‘s financial affairs to minimize any tax liabil ity.
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nMuchof modern tax practice centers around this process, and the resulting outcome is tax av oidance.
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There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within
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nlegal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cann otbe
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ncondoned. Activities of this sort clearly violate existing legal constraints andgfall outside of the
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ndomaingof the professional tax practitioner. n n n n




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1-6.
In an open tax planning situation, the transaction is not yet complete; therefore, the tax p
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nractitionergmaintains some degree of control over the potential tax liability, and the transaction m ay be n n n n n n n n n n n n n n n




n modi-
fied to achieve a more favorable tax treatment. In a closed transaction however, all of the pertin
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nentactions have been completed, and tax planning activities may be limited to the presentation of the
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nsituation to the government in the most legally advantageous manner possible.
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1-7.
Tax litigation is the process of settling a dispute with the IRS in a court of law. Typic ally, a
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ntaxattorney handles tax litigation that progresses beyond the final IRS appeal.
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1-8. CPAs serve is a support capacity in tax litigation.
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1-9.
Tax research consists of the resolution of unanswered taxation questions. The tax researc h
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nprocessincludes the following: n n




1. Identification of pertinent issues; n n n




2. Specification ofgpropergauthorities; n




3. Evaluation of the propriety of authorities; and,n n n n n n




4. Application of authorities to a specific situation. n n n n n n




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1-10.


Circular 230 is issuedgby the Treasury Department and applies to all who practice befor e the
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nIRS.Page 7 n




1-11.
Ingaddition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Co nduct
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n and Statements on Standards for Tax Services. CPAs must also abide bygthe rules of th
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n appropriatestate board(s) of accountancy. n n n




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1-12. A return preparer must obtain 18 hours of continuing education from an IRS-
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approved CE Provider. The hours must include ag6 credit hourgAnnual Federal Tax Refreshergco urse
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n(AFTR) that covers filing season issues and tax law updates. The AFTR course must includ
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nknowledge-