Federal Tax Research, 13th Edition
f f f f Page 1-1
f
Solution Manual Federal Tax Research
f f f f
f 13th Edition by Roby Sawyers, Steven Gill
f f f f f f
f Chapters 1 -13
f f
,Page 1-2
f SOLUTIONS MANUAL f
CHAPTER 1 f
INTRODUCTION TO TAX PRACTICE AND ETHICS f f f f f
DISCUSSION QUESTIONS
f
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
f f f f f f f f f f f f f f f
f accounting, economics, political science, and sociology. The environment for the tax system
f f f f f f f f f f f
f isprovided by the principles of economics, sociology, and political science, while the legal and
f f f f f f f f f f f f f f
f accounting fields areresponsible for the system‘s interpretation and application.
f f f f f f f f f
Each of these disciplines affects this country‘s tax system in a unique way. Economists addresssuch
f f f f f f f f f f f f f f f
f issues as how proposed tax legislation will affect the rate of inflation or economic
f f f f f f f f f f f f f
growth.Measurement of the social equity of a tax and determining whether a tax system
f f f f f f f f f f f f f f f
f discriminates against certain taxpayers are issues that are examined bysociologists and political
f f f f f f f f f f f f
f scientists.
Finally, attorneys are responsible for theinterpretation of the taxation statutes, and
f f f f f f f f f f f
accountantsensure that these same statutes are applied consistently.****8880()
f f f f f f f f f
Page 4 f
1-2. The other major categories of tax practice in addition to tax research are as follows:
f f f f f f f f f f f f f f
Tax compliance f
Tax planning f
Tax
f litigationPage 5 f f
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
f f f f f f f f f f
f information, and filing any necessary tax returns. Compliance also includes other functions
f f f f f f f f f f f
f necessary to satisfy governmental requirements, such as representing a client during an
f f f f f f f f f f f
f InternalRevenue Service (IRS) audit.
f f f f
,Federal Tax Research, 13th Edition
f f f f Page 1-3 f
Page 5 f
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
f f f f f f f f f f f f f f
f attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,and
f f f f f f f f f
f corporate tax returns often are completed by commercial tax preparers. The preparation of more
f f f f f f f f f f f f f
f complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide
f f f f f f f f f f f f f f
tax planning services and represent their clients before the IRS.
f f f f f f f f f f
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
f f f f f f f f f f f f f f f f
f examination, or who has worked for the IRS for five years and is issued a permit to represent clients f f f f f f f f f f f f f f f f f f
f before the IRS. CPAs and attorneys are not required to take this examination and are automatically
f f f f f f f f f f f f f f f
f admitted to practice before the IRS if they are in good standing with the appropriateprofessional
f f f f f f f f f f f f f f f
licensing board.
f f
Page 5 and Circular 230 f f f f
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Muchof
f f f f f f f f f f f f f f f f
modern tax practice centers around this process, and the resulting outcome is tax avoidance.
f f f f f f f f f f f f f f
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within
f f f f f f f f f f f f f f f f f
f legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe
f f f f f f f f f f f f f f f
f condoned. Activities of this sort clearly violate existing legal constraints and fall outside of the domain
f f f f f f f f f f f f f f f
f of the professional tax practitioner.
f f f f
Page 6 f
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax
f f f f f f f f f f f f f f
f practitionermaintains some degree of control over the potential tax liability, and the transaction may be
f f f f f f f f f f f f f f f
f modi- fied to achieve a more favorable tax treatment. In a closed transaction however, all of the
f f f f f f f f f f f f f f f f
f pertinentactions have been completed, and tax planning activities may be limited to the presentation of
f f f f f f f f f f f f f f f
f the situation to the government in the most legally advantageous manner possible.
f f f f f f f f f f f
, Page 1-4
f SOLUTIONS MANUAL f
Page 6 f
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a
f f f f f f f f f f f f f f f f f f
taxattorneyhandles tax litigation that progresses beyond the final IRS appeal.
f f f f f f f f f f f f
Page 6 f
1-8. CPAs serve is a support capacity in tax litigation.
f f f f f f f f
Page 6 f
1-9. Taxresearch consists of the resolution of unanswered taxation questions. The tax research
f f f f f f f f f f f f
f processincludes the following: f f f
1. Identification of pertinent issues; f f f
2. Specification of proper authorities; f f f
3. Evaluation of the proprietyof authorities; and, f f f f f f
4. Application of authorities to a specific situation. f f f f f f
Page 6 f
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the IRS.Page
f f f f f f f f f f f f f f f f f
f 7
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
f f f f f f f f f f f f f f
f Statements on Standards for Tax Services. CPAs must also abide by the rules of the appropriatestate
f f f f f f f f f f f f f f f f
board(s) of accountancy.
f f f
Page 7 f
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider.
f f f f f f f f f f f f f f
The hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers filing
f f f f f f f f f f f f f f f f f
f season issues and tax law updates. The AFTR course must include a knowledge-based comprehension
f f f f f f f f f f f f f f
f test administered at the conclusion of the course bythe CE Provider.
f f f f f f f f f f f
f f f f Page 1-1
f
Solution Manual Federal Tax Research
f f f f
f 13th Edition by Roby Sawyers, Steven Gill
f f f f f f
f Chapters 1 -13
f f
,Page 1-2
f SOLUTIONS MANUAL f
CHAPTER 1 f
INTRODUCTION TO TAX PRACTICE AND ETHICS f f f f f
DISCUSSION QUESTIONS
f
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
f f f f f f f f f f f f f f f
f accounting, economics, political science, and sociology. The environment for the tax system
f f f f f f f f f f f
f isprovided by the principles of economics, sociology, and political science, while the legal and
f f f f f f f f f f f f f f
f accounting fields areresponsible for the system‘s interpretation and application.
f f f f f f f f f
Each of these disciplines affects this country‘s tax system in a unique way. Economists addresssuch
f f f f f f f f f f f f f f f
f issues as how proposed tax legislation will affect the rate of inflation or economic
f f f f f f f f f f f f f
growth.Measurement of the social equity of a tax and determining whether a tax system
f f f f f f f f f f f f f f f
f discriminates against certain taxpayers are issues that are examined bysociologists and political
f f f f f f f f f f f f
f scientists.
Finally, attorneys are responsible for theinterpretation of the taxation statutes, and
f f f f f f f f f f f
accountantsensure that these same statutes are applied consistently.****8880()
f f f f f f f f f
Page 4 f
1-2. The other major categories of tax practice in addition to tax research are as follows:
f f f f f f f f f f f f f f
Tax compliance f
Tax planning f
Tax
f litigationPage 5 f f
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
f f f f f f f f f f
f information, and filing any necessary tax returns. Compliance also includes other functions
f f f f f f f f f f f
f necessary to satisfy governmental requirements, such as representing a client during an
f f f f f f f f f f f
f InternalRevenue Service (IRS) audit.
f f f f
,Federal Tax Research, 13th Edition
f f f f Page 1-3 f
Page 5 f
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
f f f f f f f f f f f f f f
f attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,and
f f f f f f f f f
f corporate tax returns often are completed by commercial tax preparers. The preparation of more
f f f f f f f f f f f f f
f complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide
f f f f f f f f f f f f f f
tax planning services and represent their clients before the IRS.
f f f f f f f f f f
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
f f f f f f f f f f f f f f f f
f examination, or who has worked for the IRS for five years and is issued a permit to represent clients f f f f f f f f f f f f f f f f f f
f before the IRS. CPAs and attorneys are not required to take this examination and are automatically
f f f f f f f f f f f f f f f
f admitted to practice before the IRS if they are in good standing with the appropriateprofessional
f f f f f f f f f f f f f f f
licensing board.
f f
Page 5 and Circular 230 f f f f
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Muchof
f f f f f f f f f f f f f f f f
modern tax practice centers around this process, and the resulting outcome is tax avoidance.
f f f f f f f f f f f f f f
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within
f f f f f f f f f f f f f f f f f
f legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe
f f f f f f f f f f f f f f f
f condoned. Activities of this sort clearly violate existing legal constraints and fall outside of the domain
f f f f f f f f f f f f f f f
f of the professional tax practitioner.
f f f f
Page 6 f
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax
f f f f f f f f f f f f f f
f practitionermaintains some degree of control over the potential tax liability, and the transaction may be
f f f f f f f f f f f f f f f
f modi- fied to achieve a more favorable tax treatment. In a closed transaction however, all of the
f f f f f f f f f f f f f f f f
f pertinentactions have been completed, and tax planning activities may be limited to the presentation of
f f f f f f f f f f f f f f f
f the situation to the government in the most legally advantageous manner possible.
f f f f f f f f f f f
, Page 1-4
f SOLUTIONS MANUAL f
Page 6 f
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a
f f f f f f f f f f f f f f f f f f
taxattorneyhandles tax litigation that progresses beyond the final IRS appeal.
f f f f f f f f f f f f
Page 6 f
1-8. CPAs serve is a support capacity in tax litigation.
f f f f f f f f
Page 6 f
1-9. Taxresearch consists of the resolution of unanswered taxation questions. The tax research
f f f f f f f f f f f f
f processincludes the following: f f f
1. Identification of pertinent issues; f f f
2. Specification of proper authorities; f f f
3. Evaluation of the proprietyof authorities; and, f f f f f f
4. Application of authorities to a specific situation. f f f f f f
Page 6 f
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the IRS.Page
f f f f f f f f f f f f f f f f f
f 7
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
f f f f f f f f f f f f f f
f Statements on Standards for Tax Services. CPAs must also abide by the rules of the appropriatestate
f f f f f f f f f f f f f f f f
board(s) of accountancy.
f f f
Page 7 f
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider.
f f f f f f f f f f f f f f
The hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers filing
f f f f f f f f f f f f f f f f f
f season issues and tax law updates. The AFTR course must include a knowledge-based comprehension
f f f f f f f f f f f f f f
f test administered at the conclusion of the course bythe CE Provider.
f f f f f f f f f f f
