SOLUTION MANUAL
Federal Tax Research
,Page 1-2 SOLUTIONS MANUAL
Chapter 1
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 Accounting Fields Are Responsible For The System‘S Interpretation
And Application.
Each Of These Disciplines Affects This Country‘S Tax System In A Unique Way. Economists
Address Such Issues 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.****8880()
Page 4
1-2. The Other Major Categories Of Tax Practice In Addition To Tax Research Are As Follows:
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 Includes Other
Functions Necessary To Satisfy Governmental Requirements, Such As Representing A Client
During An Internal Revenue Service (Irs) Audit.
, Page 5
1-4. Most Of The Tax Compliance Work Is Performed By Commercial Tax Preparers, Enrolled
Agents (Eas), Attorneys, And Certified Public Accountants (Cpas). Noncomplex Individual,
Partnership, And Corporate Tax Returns Often Are Completed By Commercial Tax Preparers.
The Preparation Of More Complex Returns Usually Is Performed By Eas, Attorneys, And Cpas.
The Latter Groups Also Provide Tax Planning Services And Represent Their Clients Before
The Irs.
An Ea 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
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 Can Copen Ctax Cplanning Csituation, Cthe Ctransaction Cis Cnot Cyet Ccomplete; Ctherefore,
Cthe Ctax Cpractitionercmaintains Csome Cdegree Cof Ccontrol Cover Cthe Cpotential Ctax
Cliability, Cand Cthe Ctransaction Cmay Cbe Cmodi- Cfied Cto Cachieve Ca Cmore Cfavorable Ctax
Ctreatment. Cin Ca Cclosed Ctransaction Chowever, Call Cof Cthe Cpertinentcactions Chave Cbeen
Ccompleted, Cand Ctax Cplanning Cactivities Cmay Cbe Climited Cto Cthe Cpresentation Cof Cthe
Csituation Cto Cthe Cgovernment Cin Cthe Cmost Clegally Cadvantageous Cmanner Cpossible.
,Page 1-4 SOLUTIONS MANUAL
Page C6
1-7. Tax Clitigation Cis Cthe Cprocess Cof Csettling Ca Cdispute Cwith Cthe Cirs Cin Ca Ccourt Cof
Claw. Ctypically, Ca Ctaxcattorney Chandles Ctax Clitigation Cthat Cprogresses Cbeyond Cthe
Cfinal Cirs Cappeal.
Page C6
1-8. Cpas Cserve Cis Ca Csupport Ccapacity Cin Ctax Clitigation.
Page C6
1-9. Tax Cresearch Cconsists Cof Cthe Cresolution Cof Cunanswered Ctaxation Cquestions. Cthe
Ctax Cresearch Cprocesscincludes Cthe Cfollowing:
1. Identification Cof Cpertinent Cissues;
2. Specification Cof Cproper Cauthorities;
3. Evaluation Cof Cthe Cpropriety Cof Cauthorities; Cand,
4. Application Cof Cauthorities Cto Ca Cspecific Csituation.
Page C6
1-10. Circular C230 Cis Cissued Cby Cthe Ctreasury Cdepartment Cand Capplies Cto Call Cwho
Cpractice Cbefore Cthe Cirs.Cpage C7
1-11. In Caddition Cto Ccircular C230, Ccpas Cmust Cfollow Cthe Caicpa‘S Ccode Cof Cprofessional
Cconduct Cand Cstatements Con Cstandards Cfor Ctax Cservices. Ccpas Cmust Calso Cabide Cby
Cthe Crules Cof Cthe Cappropriatecstate Cboard(S) Cof Caccountancy.
Page C7
1-12. A Creturn Cpreparer Cmust Cobtain C18 Chours Cof Ccontinuing Ceducation Cfrom Can Cirs-
Approved Cce Cprovider. Cthe Chours Cmust Cinclude Ca C6 Ccredit Chour Cannual Cfederal
Ctax Crefresher Ccourse C(Aftr) Cthat Ccovers Cfiling Cseason Cissues Cand Ctax Claw Cupdates.
Cthe Caftr Ccourse Cmust Cinclude Ca Cknowledge-Cbased Ccomprehension Ctest Cadministered
Cat Cthe Cconclusion Cof Cthe Ccourse Cby Cthe Cce Cprovider.
, Limited Cpractice Crights Callow Cindividuals Cto Crepresent Cclients Cwhose Creturns Cthey
Cprepared Candcsigned, Cbut Conly Cbefore Crevenue Cagents, Ccustomer Cservice
Crepresentatives, Cand Csimilar Cirs Cemployees.
Page C10 Cand Cirs.Gov
1-13. False. Conly Ccommunication Cwith Cthe Cirs Cconcerning Ca Ctaxpayer‘S Crights, Cprivileges,
Cor Cliability Ciscincluded. Cpractice Cbefore Cthe Cirs Cdoes Cnot Cinclude Crepresentation
Cbefore Cthe Ctax Ccourt.
Page C7
1-14. Section C10.2 Cof Csubpart Ca Cof Ccircular C230 Cdefines Cpractice Cbefore Cthe Cirs Cas Cincluding:
Matters Cconnected Cwith Cpresentation Cto Cthe Cinternal Crevenue Cservice Cor Cany
Cof Cits Cofficerscor Cemployees Crelating Cto Ca Cclient‘S Crights, Cprivileges, Cor
Cliabilities Cunder Claws Cor Cregulations Cadministered Cby Cthe Cinternal Crevenue
Cservice. Csuch Cpresentations Cinclude Cthecpreparation Cand Cfiling Cof Cnecessary
Cdocuments, Ccorrespondence Cwith, Cand Ccommunications Cto Cthe Cinternal Crevenue
Cservice, Cand Cthe Crepresentation Cof Ca Cclient Cat Cconferences, Chearings, Cand
Cmeetings.
Page C7
1-15. To Cbecome Can Cea Can Cindividual Ccan C(1) Cpass Ca Ctest Cgiven Cby Cthe Cirs Cor C(2)
Cwork Cfor Cthe Cirs Cforcfive Cyears. Ccircular C230, Csubpart Ca, C§§ C10.4 Cto C10.6.
Page C9
1-16. Eas Cmust Ccomplete C72 Chours Cof Ccontinuing Ceducation Cevery Cthree Cyears C(An
Caverage Cof C24 Cper Cyear,Cwith Ca Cminimum Cof C16 Chours Cduring Cany Cyear). Ccircular
C230, Csubpart Ca. C§ C10.6.
Page C9
1-17. True. Cas Ca Cgeneral Crule, Can Cindividual Cmust Cbe Can Cea, Cattorney, Cor Ccpa Cto
Crepresent Ca Cclient Cbeforecthe Cirs. Cthere Care Climited Csituations Cwhere Cothers Cmay
Crepresent Ca Ctaxpayer; Chowever, Cthis Cfact Cpattern Cis Cnot Cone Cof Cthem. Csince Cleigh
Cdid Cnot Csign Cthe Creturn, Cshe Ccannot Crepresent Cthe Ctaxpayer, Conly Crose Ccan.
,Page 1-6 SOLUTIONS MANUAL
Pages C10–11
1-18. The Cnames Cof Corganizations Cthat Ccan Cbe Crepresented Cby Cregular Cfull-Time
Cemployees Care Cfound Cin Ccircular C230, C§ C10.7(C). Ca Cregular Cfull-Time Cemployee
Ccan Crepresent Cthe Cemployer C(Individual Cemployer). Ca Cregular Cfull-Time Cemployee
Cof Ca Cpartnership Cmay Crepresent Cthe Cpartnership. Calso, Ca Cregular Cfull-Time
Cemployee Cof Ca Ctrust, Creceivership, Cguardianship, Cor Cestate Cmay Crepresent Cthe
Ctrust, Creceivership, Cguardianship, Cor Cestate. Cfurthermore, Ca Cregular Cfull-Time
Cemployee Cof Ca Cgovernmentalcunit, Cagency, Cor Cauthority Cmay Crepresent Cthe
Cgovernmental Cunit, Cagency, Cor Cauthority Cin Cthe Ccourse Cof Chis Cor Cher Cofficial
Cduties.
Page C10
1-19. Yes. Ccircular C230, Csubpart Ca, C§ C10.7.
Page C10
1-20. True. Ca Cpractitioner Cmay Cbe Csuspended Cor Cdisbarred Cfrom Cpractice Cbefore Cthe
Cirs Cif Che Cor Cshecknowingly Chelps Ca Csuspended Cor Cdisbarred Cperson Cpractice
Cindirectly Cbefore Cthe Cirs.
Page C12
1-21. A Cpractitioner Cmay Cnot Cadvise Ca Cclient Cto Ctake Ca Cposition Con Ca Cdocument,
Caffidavit, Cor Cother Cpapercsubmitted Cto Cthe Cirs Cunless Cthe Cposition Cis Cnot
Cfrivolous. Ccircular C230 C§ C10.34(B).
Page C14
1-22. Under Ccircular C230, Can Cattorney, Ca Ccpa, Cor Can Cea Cmay Cuse Cmass Cmedia C(E.G., Ct.V.
Cand Cthe Cinternet) Cfor Cadvertising Cpurposes. Csuch Cmedia Cmay Cnot Ccontain Cfalse,
Cfraudulent, Cunduly Cinfluencing, Ccoercive, Cor Cunfair Cstatements Cor Cclaims. Cattorneys,
Ccpas, Cand Ceas Cmust Calso Cobservecany Capplicable Cstandards Cof Cethical Cconduct
Cadopted Cby Cthe Camerican Cbar Cassociation C(Aba), Cthe Camerican Cinstitute Cof Ccertified
Cpublic Caccountants C(Aicpa), Cand Cthe Cnational Cassociation Cof Cenrolled Cagents C(Naea).
Cadditional Cstandards Cand Clisting Cof Citems Cthat Cmay Cbe Cincluded Cin Cmass Cmedia
Cadvertising Care Cdefined Cunder C§ C10.30 Cof Csubpart Cb Cin Ccircular C230.
, Page C19
1-23. Under C§ C10.25 Cof Ccircular C230, Cpartners Cof Cgovernment Cemployees Ccannot
Crepresent Canyone Cfor Cwhich Cthe Cgovernment Cemployee-Partner Chas C(Or Chas
Chad) Cofficial Cresponsibility. Cfor Cinstance, Ca Ccpa Cfirm Cwith Can Cirs Cagent Ccould
Cnot Crepresent Cany Ctaxpayer Cwho Cis C(Or Cwas Cin Cthe Cpast) Cassignedcto Cthe Cirs
Cagent-Partner.
Page C12
1-24. Under C§ C10.21 Cof Ccircular C230, Ceach Cattorney, Ccpa, Cea, Cor Cenrolled Cactuary Cwho
Cknows Cthat Cthecclient Chas Cnot Ccomplied Cwith Cthe Crevenue Claws Cof Cthe Cunited
Cstates Cor Chas Cmade Can Cerror Cin Cor Comission Cfrom Cany Creturn, Cdocument,
Caffidavit, Cor Cother Cpaper Cwhich Cthe Cclient Cis Crequired Cby Cthecrevenue Claws Cof
Cthe Cunited Cstates Cto Cexecute Cshall Cadvise Cthe Cclient Cpromptly Cof Cthe Cfact Cof
Csuch Cnoncompliance, Cerror, Cor Comission.
Page C11
1-25. According Cto Ccircular C230, Cthe Cbest Cpractices Crules Care Caspirational. Cthus, Ca
Cpractitioner Cwho Cfailscto Ccomply Cwith Cbest Cpractices Cwill Cnot Cbe Csubject Cto
Cdiscipline Cby Cthe Cirs.
Page C14
1-26. Best Cpractices Cinclude Cthe Cfollowing:
a. Communicating Cclearly Cwith Cthe Cclient Cregarding Cthe Cterms Cof Cthe Cengagement.
Cfor Cexample,Cthe Cadvisor Cshould Cdetermine Cthe Cclient‘S Cexpected Cpurpose Cfor
Cand Cuse Cof Cthe Cadvice Cand Cshould Chave Ca Cclear Cunderstanding Cwith Cthe
Cclient Cregarding Cthe Cform Cand Cscope Cof Cthe Cadvice Cor Cassistance Cto Cbe
Crendered.
b. Establishing Cthe Cfacts, Cdetermining Cwhich Cfacts Care Crelevant, Cevaluating Cthe
Creasonableness Cofcany Cassumptions Cor Crepresentations, Crelating Cthe Capplicable Claw
C(Including Cpotentially Capplicable Cjudicial Cdoctrines) Cto Cthe Crelevant Cfacts, Cand
Carriving Cat Ca Cconclusion Csupported Cby Cthe Claw Cand Cthe Cfacts.
c. Advising Cthe Cclient Cregarding Cthe Cimportance Cof Cthe Cconclusions Creached,
Cincluding, Cfor Cexample, Cwhether Ca Ctaxpayer Cmay Cavoid Caccuracy-Related
Cpenalties Cunder Cthe Cinternal Crevenueccode Cif Ca Ctaxpayer Cacts Cin Creliance Con
Cthe Cadvice.
,Page 1-8 SOLUTIONS MANUAL
d. Acting Cfairly Cand Cwith Cintegrity Cin Cpractice
Cbefore Cthe Cirs.Cpages C13–14
1-27. A Cpractitioner Cmust Cnot Cgive Cwritten Cadvice Cif Cthe Cpractitioner:
1. Bases Cthe Cwritten Cadvice Con Cunreasonable Cfactual Cor Clegal Cassumptions
C(Including Cassumptionscas Cto Cfuture Cevents),
2. Unreasonably Crelies Cupon Crepresentations, Cstatements, Cfindings, Cor Cagreements Cof
Cthe Ctaxpayercor Cany Cother Cperson,
3. Does Cnot Cconsider Call Crelevant Cfacts Cthat Cthe Cpractitioner Cknows Cor Cshould Cknow, Cor
4. In Cevaluating Ca Cfederal Ctax Cissue, Ctakes Cinto Caccount Cthe Cpossibility Cthat Ca Ctax
Creturn Cwill Cnot Cbe Caudited, Cthat Can Cissue Cwill Cnot Cbe Craised Con Caudit, Cor Cthat
Can Cissue Cwill Cbe Cresolved Cthrough Csettlement Cif Craised.
Page C15
1-28 This Cwould Cbe Cconsidered Ca Cconflict Cof Cinterest Cand Cis Cgenerally Cprohibited
Cunder Cthe Caicpa Ccodecof Cprofessional Cconduct. Cwhile Cyou Ccan Caccept Cthe
Cengagement Cif Cyou Cdisclose Cto Cboth Cparties Cthe Cnature Cof Cthe Crelationship Cand
Cobtain Cthe Cconsent Cof Cboth Cparties, Cbefore Caccepting Cthe Cengagement,Cyou Cshould
Cconsider Cyour Cability Cto Cact Cwith Cobjectivity Cand Cindependence Cin Cdischarging
Cyour Cresponsibilities.
Pages C16-22
1-29 A Cpreparer Ctax Cidentification Cnumber C(Ptin) Cis Crequired Cof Ca Ccompensated Cindividual
Cwho Cpreparescor Cassists Cwith Cthe Cpreparation Cof Call Cor Csubstantially Call Cof Ca Ctax
Creturn Cor Cclaim Cfor Crefund Cmust Chave Ca Cptin. Cnormally, Cthe Cindividual Cmust Cbe
Can Cattorney, Ccpa, Cea, Cor Ctax Creturn Cpreparer Cmust Cobtain Ca Cptin Cin Corder Cto Cfile
Ctax Creturns Cfor Cclients
Page C10
1-30. Individuals Cwho Cprepared Ctax Creturns Cfor Ccompensation Cmust Cfollow Cthe Crules
Cunder Ccircular C230 Csubpart Cb C—Duties Cand Crestrictions Crelating Cto Cpractice
Cbefore Cthe Cinternal Crevenue Cservice Candcsubpart Cc—Sanctions Cfor Cviolation Cof
,Cthe Cregulations. Cthus, Cthey Care Cgenerally Cheld Cto Cthe Csame Cstandards Cof Cpractice
Cas Cpersons Cwho Care Celigible Cto Cpractice Cbefore Cthe Cirs C(Attorneys, Ccpas,
Candceas).
, Page 1-10 SOLUTIONS MANUAL
Pages C6 Cand C11
1-31. The Caicpa‘S Ccode Cof Cprofessional Cconduct Cprovides Ca Cphilosophical Cfoundation
Cupon Cwhich Cthecrules Cof Cconduct Care Cbased. Cthe Cprinciples Cof Cthe Ccode Cof
Cprofessional Cconduct Csuggest Cthat Ca Ccpa Cshould Cstrive Cfor Cbehavior Cthat Cis
Cabove Cthe Cminimal Clevel Cof Cacceptable Cconduct Cset Cforth Cbycthe Crules. Cthe Ccode
Cwas Cdesigned Cto Cprovide Cthe Cfollowing:
1. A Ccomprehensive Ccode Cof Cethics Cand Cprofessional Cconduct;
2. A Cguide Cfor Cpractitioners Cin Canswering Ccomplex Cquestions; Cand
3. Assurance Cto Cthe Cpublic Cconcerning Cthe Cobligations Cand Cresponsibilities Cof
Cthe Caccountingcprofession.
Pages C16-17
1-32. Threats Cto Ccomplying Cwith Cthe Cindependence Crule Cinclude Cthe Cfollowing:
Members Cnot Cacting Cwith Cobjectivity Cdue Cto Can Cadverse Cinterest
Advocacy Cthreats
Familiarity Cthreats Cdue Cto Ca Clong Cor Cclose Crelationship Cwith Ca Cclient
Management Cparticipation Cthreats
Self-Interest Cthreats
Self-Review Cthreats
Undue
Cinfluence Cthreatscpage
C18
1-33. In Ca Ctax Cpractice Cthe Ccpa Cmay Cbe Crequested Cto Cblindly Cfollow Cthe Cguidelines Cof
Ca Cgovernment Cagency Cor Cthe Cdemands Cof Can Caudit Cclient. Cthis Crule Cprohibits
Csuch Cblind Cobedience. Cthe Ccode Cspecifically Crecognizes Cthat Cconflicts Cof Cinterest
Cmay Carise Cin Ctax Ccontexts, Cincluding Cproviding Ctaxcor Cpersonal Cfinancial Cplanning
Cservices Cfor Cseveral Cmembers Cof Ca Cfamily Cwhom Cthe Cmember Cknowscto Chave
Copposing Cinterests Cor Cwhen Creferring Ca Cpersonal Cfinancial Cplanning Cor Ctax Cclient
Cto Can Cinsurance Cbroker Cor Cother Cservice Cprovider Cwho Crefers Cclients Cto Cthe
Cmember Cunder Can Cexclusive Carrangement.
Page C20
Federal Tax Research
,Page 1-2 SOLUTIONS MANUAL
Chapter 1
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 Accounting Fields Are Responsible For The System‘S Interpretation
And Application.
Each Of These Disciplines Affects This Country‘S Tax System In A Unique Way. Economists
Address Such Issues 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.****8880()
Page 4
1-2. The Other Major Categories Of Tax Practice In Addition To Tax Research Are As Follows:
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 Includes Other
Functions Necessary To Satisfy Governmental Requirements, Such As Representing A Client
During An Internal Revenue Service (Irs) Audit.
, Page 5
1-4. Most Of The Tax Compliance Work Is Performed By Commercial Tax Preparers, Enrolled
Agents (Eas), Attorneys, And Certified Public Accountants (Cpas). Noncomplex Individual,
Partnership, And Corporate Tax Returns Often Are Completed By Commercial Tax Preparers.
The Preparation Of More Complex Returns Usually Is Performed By Eas, Attorneys, And Cpas.
The Latter Groups Also Provide Tax Planning Services And Represent Their Clients Before
The Irs.
An Ea 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
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 Can Copen Ctax Cplanning Csituation, Cthe Ctransaction Cis Cnot Cyet Ccomplete; Ctherefore,
Cthe Ctax Cpractitionercmaintains Csome Cdegree Cof Ccontrol Cover Cthe Cpotential Ctax
Cliability, Cand Cthe Ctransaction Cmay Cbe Cmodi- Cfied Cto Cachieve Ca Cmore Cfavorable Ctax
Ctreatment. Cin Ca Cclosed Ctransaction Chowever, Call Cof Cthe Cpertinentcactions Chave Cbeen
Ccompleted, Cand Ctax Cplanning Cactivities Cmay Cbe Climited Cto Cthe Cpresentation Cof Cthe
Csituation Cto Cthe Cgovernment Cin Cthe Cmost Clegally Cadvantageous Cmanner Cpossible.
,Page 1-4 SOLUTIONS MANUAL
Page C6
1-7. Tax Clitigation Cis Cthe Cprocess Cof Csettling Ca Cdispute Cwith Cthe Cirs Cin Ca Ccourt Cof
Claw. Ctypically, Ca Ctaxcattorney Chandles Ctax Clitigation Cthat Cprogresses Cbeyond Cthe
Cfinal Cirs Cappeal.
Page C6
1-8. Cpas Cserve Cis Ca Csupport Ccapacity Cin Ctax Clitigation.
Page C6
1-9. Tax Cresearch Cconsists Cof Cthe Cresolution Cof Cunanswered Ctaxation Cquestions. Cthe
Ctax Cresearch Cprocesscincludes Cthe Cfollowing:
1. Identification Cof Cpertinent Cissues;
2. Specification Cof Cproper Cauthorities;
3. Evaluation Cof Cthe Cpropriety Cof Cauthorities; Cand,
4. Application Cof Cauthorities Cto Ca Cspecific Csituation.
Page C6
1-10. Circular C230 Cis Cissued Cby Cthe Ctreasury Cdepartment Cand Capplies Cto Call Cwho
Cpractice Cbefore Cthe Cirs.Cpage C7
1-11. In Caddition Cto Ccircular C230, Ccpas Cmust Cfollow Cthe Caicpa‘S Ccode Cof Cprofessional
Cconduct Cand Cstatements Con Cstandards Cfor Ctax Cservices. Ccpas Cmust Calso Cabide Cby
Cthe Crules Cof Cthe Cappropriatecstate Cboard(S) Cof Caccountancy.
Page C7
1-12. A Creturn Cpreparer Cmust Cobtain C18 Chours Cof Ccontinuing Ceducation Cfrom Can Cirs-
Approved Cce Cprovider. Cthe Chours Cmust Cinclude Ca C6 Ccredit Chour Cannual Cfederal
Ctax Crefresher Ccourse C(Aftr) Cthat Ccovers Cfiling Cseason Cissues Cand Ctax Claw Cupdates.
Cthe Caftr Ccourse Cmust Cinclude Ca Cknowledge-Cbased Ccomprehension Ctest Cadministered
Cat Cthe Cconclusion Cof Cthe Ccourse Cby Cthe Cce Cprovider.
, Limited Cpractice Crights Callow Cindividuals Cto Crepresent Cclients Cwhose Creturns Cthey
Cprepared Candcsigned, Cbut Conly Cbefore Crevenue Cagents, Ccustomer Cservice
Crepresentatives, Cand Csimilar Cirs Cemployees.
Page C10 Cand Cirs.Gov
1-13. False. Conly Ccommunication Cwith Cthe Cirs Cconcerning Ca Ctaxpayer‘S Crights, Cprivileges,
Cor Cliability Ciscincluded. Cpractice Cbefore Cthe Cirs Cdoes Cnot Cinclude Crepresentation
Cbefore Cthe Ctax Ccourt.
Page C7
1-14. Section C10.2 Cof Csubpart Ca Cof Ccircular C230 Cdefines Cpractice Cbefore Cthe Cirs Cas Cincluding:
Matters Cconnected Cwith Cpresentation Cto Cthe Cinternal Crevenue Cservice Cor Cany
Cof Cits Cofficerscor Cemployees Crelating Cto Ca Cclient‘S Crights, Cprivileges, Cor
Cliabilities Cunder Claws Cor Cregulations Cadministered Cby Cthe Cinternal Crevenue
Cservice. Csuch Cpresentations Cinclude Cthecpreparation Cand Cfiling Cof Cnecessary
Cdocuments, Ccorrespondence Cwith, Cand Ccommunications Cto Cthe Cinternal Crevenue
Cservice, Cand Cthe Crepresentation Cof Ca Cclient Cat Cconferences, Chearings, Cand
Cmeetings.
Page C7
1-15. To Cbecome Can Cea Can Cindividual Ccan C(1) Cpass Ca Ctest Cgiven Cby Cthe Cirs Cor C(2)
Cwork Cfor Cthe Cirs Cforcfive Cyears. Ccircular C230, Csubpart Ca, C§§ C10.4 Cto C10.6.
Page C9
1-16. Eas Cmust Ccomplete C72 Chours Cof Ccontinuing Ceducation Cevery Cthree Cyears C(An
Caverage Cof C24 Cper Cyear,Cwith Ca Cminimum Cof C16 Chours Cduring Cany Cyear). Ccircular
C230, Csubpart Ca. C§ C10.6.
Page C9
1-17. True. Cas Ca Cgeneral Crule, Can Cindividual Cmust Cbe Can Cea, Cattorney, Cor Ccpa Cto
Crepresent Ca Cclient Cbeforecthe Cirs. Cthere Care Climited Csituations Cwhere Cothers Cmay
Crepresent Ca Ctaxpayer; Chowever, Cthis Cfact Cpattern Cis Cnot Cone Cof Cthem. Csince Cleigh
Cdid Cnot Csign Cthe Creturn, Cshe Ccannot Crepresent Cthe Ctaxpayer, Conly Crose Ccan.
,Page 1-6 SOLUTIONS MANUAL
Pages C10–11
1-18. The Cnames Cof Corganizations Cthat Ccan Cbe Crepresented Cby Cregular Cfull-Time
Cemployees Care Cfound Cin Ccircular C230, C§ C10.7(C). Ca Cregular Cfull-Time Cemployee
Ccan Crepresent Cthe Cemployer C(Individual Cemployer). Ca Cregular Cfull-Time Cemployee
Cof Ca Cpartnership Cmay Crepresent Cthe Cpartnership. Calso, Ca Cregular Cfull-Time
Cemployee Cof Ca Ctrust, Creceivership, Cguardianship, Cor Cestate Cmay Crepresent Cthe
Ctrust, Creceivership, Cguardianship, Cor Cestate. Cfurthermore, Ca Cregular Cfull-Time
Cemployee Cof Ca Cgovernmentalcunit, Cagency, Cor Cauthority Cmay Crepresent Cthe
Cgovernmental Cunit, Cagency, Cor Cauthority Cin Cthe Ccourse Cof Chis Cor Cher Cofficial
Cduties.
Page C10
1-19. Yes. Ccircular C230, Csubpart Ca, C§ C10.7.
Page C10
1-20. True. Ca Cpractitioner Cmay Cbe Csuspended Cor Cdisbarred Cfrom Cpractice Cbefore Cthe
Cirs Cif Che Cor Cshecknowingly Chelps Ca Csuspended Cor Cdisbarred Cperson Cpractice
Cindirectly Cbefore Cthe Cirs.
Page C12
1-21. A Cpractitioner Cmay Cnot Cadvise Ca Cclient Cto Ctake Ca Cposition Con Ca Cdocument,
Caffidavit, Cor Cother Cpapercsubmitted Cto Cthe Cirs Cunless Cthe Cposition Cis Cnot
Cfrivolous. Ccircular C230 C§ C10.34(B).
Page C14
1-22. Under Ccircular C230, Can Cattorney, Ca Ccpa, Cor Can Cea Cmay Cuse Cmass Cmedia C(E.G., Ct.V.
Cand Cthe Cinternet) Cfor Cadvertising Cpurposes. Csuch Cmedia Cmay Cnot Ccontain Cfalse,
Cfraudulent, Cunduly Cinfluencing, Ccoercive, Cor Cunfair Cstatements Cor Cclaims. Cattorneys,
Ccpas, Cand Ceas Cmust Calso Cobservecany Capplicable Cstandards Cof Cethical Cconduct
Cadopted Cby Cthe Camerican Cbar Cassociation C(Aba), Cthe Camerican Cinstitute Cof Ccertified
Cpublic Caccountants C(Aicpa), Cand Cthe Cnational Cassociation Cof Cenrolled Cagents C(Naea).
Cadditional Cstandards Cand Clisting Cof Citems Cthat Cmay Cbe Cincluded Cin Cmass Cmedia
Cadvertising Care Cdefined Cunder C§ C10.30 Cof Csubpart Cb Cin Ccircular C230.
, Page C19
1-23. Under C§ C10.25 Cof Ccircular C230, Cpartners Cof Cgovernment Cemployees Ccannot
Crepresent Canyone Cfor Cwhich Cthe Cgovernment Cemployee-Partner Chas C(Or Chas
Chad) Cofficial Cresponsibility. Cfor Cinstance, Ca Ccpa Cfirm Cwith Can Cirs Cagent Ccould
Cnot Crepresent Cany Ctaxpayer Cwho Cis C(Or Cwas Cin Cthe Cpast) Cassignedcto Cthe Cirs
Cagent-Partner.
Page C12
1-24. Under C§ C10.21 Cof Ccircular C230, Ceach Cattorney, Ccpa, Cea, Cor Cenrolled Cactuary Cwho
Cknows Cthat Cthecclient Chas Cnot Ccomplied Cwith Cthe Crevenue Claws Cof Cthe Cunited
Cstates Cor Chas Cmade Can Cerror Cin Cor Comission Cfrom Cany Creturn, Cdocument,
Caffidavit, Cor Cother Cpaper Cwhich Cthe Cclient Cis Crequired Cby Cthecrevenue Claws Cof
Cthe Cunited Cstates Cto Cexecute Cshall Cadvise Cthe Cclient Cpromptly Cof Cthe Cfact Cof
Csuch Cnoncompliance, Cerror, Cor Comission.
Page C11
1-25. According Cto Ccircular C230, Cthe Cbest Cpractices Crules Care Caspirational. Cthus, Ca
Cpractitioner Cwho Cfailscto Ccomply Cwith Cbest Cpractices Cwill Cnot Cbe Csubject Cto
Cdiscipline Cby Cthe Cirs.
Page C14
1-26. Best Cpractices Cinclude Cthe Cfollowing:
a. Communicating Cclearly Cwith Cthe Cclient Cregarding Cthe Cterms Cof Cthe Cengagement.
Cfor Cexample,Cthe Cadvisor Cshould Cdetermine Cthe Cclient‘S Cexpected Cpurpose Cfor
Cand Cuse Cof Cthe Cadvice Cand Cshould Chave Ca Cclear Cunderstanding Cwith Cthe
Cclient Cregarding Cthe Cform Cand Cscope Cof Cthe Cadvice Cor Cassistance Cto Cbe
Crendered.
b. Establishing Cthe Cfacts, Cdetermining Cwhich Cfacts Care Crelevant, Cevaluating Cthe
Creasonableness Cofcany Cassumptions Cor Crepresentations, Crelating Cthe Capplicable Claw
C(Including Cpotentially Capplicable Cjudicial Cdoctrines) Cto Cthe Crelevant Cfacts, Cand
Carriving Cat Ca Cconclusion Csupported Cby Cthe Claw Cand Cthe Cfacts.
c. Advising Cthe Cclient Cregarding Cthe Cimportance Cof Cthe Cconclusions Creached,
Cincluding, Cfor Cexample, Cwhether Ca Ctaxpayer Cmay Cavoid Caccuracy-Related
Cpenalties Cunder Cthe Cinternal Crevenueccode Cif Ca Ctaxpayer Cacts Cin Creliance Con
Cthe Cadvice.
,Page 1-8 SOLUTIONS MANUAL
d. Acting Cfairly Cand Cwith Cintegrity Cin Cpractice
Cbefore Cthe Cirs.Cpages C13–14
1-27. A Cpractitioner Cmust Cnot Cgive Cwritten Cadvice Cif Cthe Cpractitioner:
1. Bases Cthe Cwritten Cadvice Con Cunreasonable Cfactual Cor Clegal Cassumptions
C(Including Cassumptionscas Cto Cfuture Cevents),
2. Unreasonably Crelies Cupon Crepresentations, Cstatements, Cfindings, Cor Cagreements Cof
Cthe Ctaxpayercor Cany Cother Cperson,
3. Does Cnot Cconsider Call Crelevant Cfacts Cthat Cthe Cpractitioner Cknows Cor Cshould Cknow, Cor
4. In Cevaluating Ca Cfederal Ctax Cissue, Ctakes Cinto Caccount Cthe Cpossibility Cthat Ca Ctax
Creturn Cwill Cnot Cbe Caudited, Cthat Can Cissue Cwill Cnot Cbe Craised Con Caudit, Cor Cthat
Can Cissue Cwill Cbe Cresolved Cthrough Csettlement Cif Craised.
Page C15
1-28 This Cwould Cbe Cconsidered Ca Cconflict Cof Cinterest Cand Cis Cgenerally Cprohibited
Cunder Cthe Caicpa Ccodecof Cprofessional Cconduct. Cwhile Cyou Ccan Caccept Cthe
Cengagement Cif Cyou Cdisclose Cto Cboth Cparties Cthe Cnature Cof Cthe Crelationship Cand
Cobtain Cthe Cconsent Cof Cboth Cparties, Cbefore Caccepting Cthe Cengagement,Cyou Cshould
Cconsider Cyour Cability Cto Cact Cwith Cobjectivity Cand Cindependence Cin Cdischarging
Cyour Cresponsibilities.
Pages C16-22
1-29 A Cpreparer Ctax Cidentification Cnumber C(Ptin) Cis Crequired Cof Ca Ccompensated Cindividual
Cwho Cpreparescor Cassists Cwith Cthe Cpreparation Cof Call Cor Csubstantially Call Cof Ca Ctax
Creturn Cor Cclaim Cfor Crefund Cmust Chave Ca Cptin. Cnormally, Cthe Cindividual Cmust Cbe
Can Cattorney, Ccpa, Cea, Cor Ctax Creturn Cpreparer Cmust Cobtain Ca Cptin Cin Corder Cto Cfile
Ctax Creturns Cfor Cclients
Page C10
1-30. Individuals Cwho Cprepared Ctax Creturns Cfor Ccompensation Cmust Cfollow Cthe Crules
Cunder Ccircular C230 Csubpart Cb C—Duties Cand Crestrictions Crelating Cto Cpractice
Cbefore Cthe Cinternal Crevenue Cservice Candcsubpart Cc—Sanctions Cfor Cviolation Cof
,Cthe Cregulations. Cthus, Cthey Care Cgenerally Cheld Cto Cthe Csame Cstandards Cof Cpractice
Cas Cpersons Cwho Care Celigible Cto Cpractice Cbefore Cthe Cirs C(Attorneys, Ccpas,
Candceas).
, Page 1-10 SOLUTIONS MANUAL
Pages C6 Cand C11
1-31. The Caicpa‘S Ccode Cof Cprofessional Cconduct Cprovides Ca Cphilosophical Cfoundation
Cupon Cwhich Cthecrules Cof Cconduct Care Cbased. Cthe Cprinciples Cof Cthe Ccode Cof
Cprofessional Cconduct Csuggest Cthat Ca Ccpa Cshould Cstrive Cfor Cbehavior Cthat Cis
Cabove Cthe Cminimal Clevel Cof Cacceptable Cconduct Cset Cforth Cbycthe Crules. Cthe Ccode
Cwas Cdesigned Cto Cprovide Cthe Cfollowing:
1. A Ccomprehensive Ccode Cof Cethics Cand Cprofessional Cconduct;
2. A Cguide Cfor Cpractitioners Cin Canswering Ccomplex Cquestions; Cand
3. Assurance Cto Cthe Cpublic Cconcerning Cthe Cobligations Cand Cresponsibilities Cof
Cthe Caccountingcprofession.
Pages C16-17
1-32. Threats Cto Ccomplying Cwith Cthe Cindependence Crule Cinclude Cthe Cfollowing:
Members Cnot Cacting Cwith Cobjectivity Cdue Cto Can Cadverse Cinterest
Advocacy Cthreats
Familiarity Cthreats Cdue Cto Ca Clong Cor Cclose Crelationship Cwith Ca Cclient
Management Cparticipation Cthreats
Self-Interest Cthreats
Self-Review Cthreats
Undue
Cinfluence Cthreatscpage
C18
1-33. In Ca Ctax Cpractice Cthe Ccpa Cmay Cbe Crequested Cto Cblindly Cfollow Cthe Cguidelines Cof
Ca Cgovernment Cagency Cor Cthe Cdemands Cof Can Caudit Cclient. Cthis Crule Cprohibits
Csuch Cblind Cobedience. Cthe Ccode Cspecifically Crecognizes Cthat Cconflicts Cof Cinterest
Cmay Carise Cin Ctax Ccontexts, Cincluding Cproviding Ctaxcor Cpersonal Cfinancial Cplanning
Cservices Cfor Cseveral Cmembers Cof Ca Cfamily Cwhom Cthe Cmember Cknowscto Chave
Copposing Cinterests Cor Cwhen Creferring Ca Cpersonal Cfinancial Cplanning Cor Ctax Cclient
Cto Can Cinsurance Cbroker Cor Cother Cservice Cprovider Cwho Crefers Cclients Cto Cthe
Cmember Cunder Can Cexclusive Carrangement.
Page C20
