Solution Manual for Federal Tax Research13th Edition by Sawyers, Gill, Consists of 13 Complete Chapters, ISBN: 978-0357988411

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CHAPTER 1 wq




AN INTRODUCTION TO TAX PRACTICE AND ETHICS
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DISCUSSIONQUESTIONS

1-1. In the United States, the tax system is an outgrowth of the following five disciplines:
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law, accounting, economics, political science, and sociology. The environment for the tax
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system is provided by the principles of economics, sociology, and political science,
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while the legal and accounting fields areresponsible for the system's interpretation
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and application.
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Each of these disciplines affects this country's tax system in a unique way. Economists
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address such issues as how proposed tax legislation will affect the rate of inflation or
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wqeconomic growth. Measurement of the social equity of a tax, and determining whether a
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tax system discriminates against certain taxpayers, are issues that are examined by
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sociologists and political scientists. Finally, attorneys are responsible for the interpretation
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of the taxation statutes, and accountants ensure that these same statutes are applied
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consistently.
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1-2. The other major categories of tax practice in addition to tax research are:
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 tax compliance
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 tax planningwq



 tax litigation
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1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
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information, and filing any necessary tax returns. Compliance also includes other
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functions necessaryto satisfy governmental requirements, such as representing a client during
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an IRS audit.
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1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled
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agents, attorneys, and CPAs. Noncomplex individual, partnership, and corporate tax
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returns often are completed by commercial tax preparers. The preparation of more
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complex returns usually is performed by enrolled agents, attorneys, and CPAs. The latter
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groups also provide tax planning services and represent their clients before the IRS.
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An enrolled agent is one who is admitted to practice before the IRS by passing a special
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IRS- administered examination, or who has worked for the IRS for five years, and is issued
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a permit to represent clients before the IRS. CPAs and attorneys are not required to take this
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examination and are automatically admitted to practice before the IRS if they are in good
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standing with the appropriate professional licensing board.
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Page 5 and Circular 230
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1-5. Tax planning is the process of arranging one's financial affairs to minimize anytax liability.
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wqMuch of modern tax practice centers around this process, and the resulting outcome is
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tax avoidance.
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There is nothing illegal or immoral in the avoidance of taxation, as long as the taxpayer
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remains within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a
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tax and cannot be condoned. Activities of this sort clearly violate existing legal constraints
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and fall outside of the domain of the professional tax practitioner.
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1-6. In an open tax planning situation, the transaction is not yet complete, therefore, the tax
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practitioner maintains some degree of control over the potential tax liability, and the
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transaction may be modi- fied to achieve a more favorable tax treatment. In a closed
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transaction however, all of the pertinent actions have been completed, and tax planning
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activities may be limited to the presentation of the situation to the government in the most
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legallyadvantageous 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. Typically,
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a tax attorney handles tax litigation that progresses beyond the final IRS appeal.
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1-8. CPAs serve is a support capacityin tax litigation.
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1-9. Taxresearch consists of the resolution of unanswered taxation questions. The taxresearch
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process includes the following:
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1. Identification ofpertinent issues; wq wq


2. Specification of proper authorities; wq wq wq


3. Evaluation of the proprietyof authorities; and, wq wq wq wq wq


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




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1-10. Circular 230 is issued bythe Treasury Department and applies to all who practice before the
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IRS. Page 7
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1-11. In addition to Circular 230, CPAs must follow the AICPA's Code of Professional
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wqConduct and Statements on Standards for Tax Services. CPAs must also abide bythe
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rules of the appropriate state board(s) of accountancy.
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1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
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Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher course
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(AFTR) that covers filing season issues and tax law updates. The AFTR course must include
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a knowledge- based comprehension test administered at the conclusion of the course
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bythe CE Provider.
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Limited practice rights allow individuals to represent clientswhose returns they prepared and
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signed, but only before revenue agents, customer service representatives, and similar
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IRS employees.
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, Federal Tax Research, 11th
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Edition
Page 10 and IRS.gov
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1-13. False. Only communication with the IRS concerning a taxpayer's rights, privileges, or
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liability is included. Practice before the IRS does not include representation before the
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Tax Court.
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1-14. Section 10.2 of Subpart A of Circular 230 defines practice before the IRS as including:
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matters connected with presentation to the Internal Revenue Service or any of its
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officers or employees relating to a client's rights, privileges, or liabilities under
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laws or regulations administered by the Internal Revenue Service. Such
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presentations include the preparation and filing of necessary documents,
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correspondence with, and communications to the Internal Revenue Service, and the
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representation of a client at conferences, hearings, and meetings.
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1-15. To become an Enrolled Agent an individual can (1) pass a test given bythe IRS or (2)
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work for the IRS for five years. Circular 230, Subpart A, Secs. 10.4 to 10.6.
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1-16. Enrolled Agents must complete 72 hours of Continuing Education everythree years (an
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average of 24 per year, with a minimum of 16 hours during any year.). Circular 230,
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Subpart A. §10.6.
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1-17. True. As a general rule, an individual must be an enrolled agent, attorney, or CPA to
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represent a client before the IRS. There are limited situations where others may
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represent a taxpayer; however, this fact pattern is not one of them. Since Leigh did not
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sign the return, she cannot represent the taxpayer, only Rose can.
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1-18. The names of organizations that can be represented by regular full-time employees are
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found in Circular 230, §10.7(c). A regular full-time employee can represent the employer
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(individual employer). A regular full-time employee of a partnership may represent the
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partnership. Also, a regular full-time employee of a trust, receivership, guardianship, or
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estate may represent the trust, receivership, guardianship, or estate. Furthermore, a regular
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full-time employee of a governmental unit, agency, or authority may represent the
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governmental unit, agency, or authority in the course of his or her official duties.
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1-19. Yes. Circular 230, Subpart A, Sec. 10.7.
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1-20. True. A practitioner may be suspended or disbarred from practice before the IRS if he
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