Federal Tax Research, 13thEdition
c c c c Page 1-1
c
SolutionManualFederalTaxResearch
c c c c
c 13thEditionbyRobySawyers,Steven Gill
c c c c c c
c Chapters1-13 c c
,Page 1-2
c SOLUTIONS MANUAL c
CHAPTER 1 c
INTRODUCTION TO TAX PRACTICE AND ETHICS c c c c c
DISCUSSIONQUESTIONS
c
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law, accounting,
c c c c c c c c c c c c c c c c
c economics, political science, and sociology. The environment for the tax system isprovided by the
c c c c c c c c c c c c c c
c principles of economics, sociology, and political science, while the legal and accountingfields are
c c c c c c c c c c c c c
responsible for the system‘s interpretation andapplication.
c c c c c c c
Each of these disciplines affects this country‘s tax system in a unique way. Economists addresssuch
c c c c c c c c c c c c c c c
c issues ashowproposed taxlegislation will affect therateofinflation or economic growth.
c c c c c c c c c c c c c c
Measurement of the social equity of a tax and determining whether a tax system discriminates against
c c c c c c c c c c c c c c c c
certain taxpayers areissues that are examined bysociologists andpolitical scientists.
c c c c c c c c c c c c
Finally, attorneys areresponsible for theinterpretation ofthetaxation statutes, andaccountantsensure
c c c c c c c c c c c c c
that these same statutes areapplied consistently.****8880()
c c c c c c c
Page 4 c
1-2. Theother major categories oftaxpracticein addition totax research are as follows:
c c c c c c c c c c c c c c
• Tax compliance c
• Tax planning c
• Tax litigation c
Page 5
c c
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
c c c c c c c c c c
c information, and filing any necessary tax returns. Compliance also includes other functions
c c c c c c c c c c c
c necessary to satisfy governmental requirements, such as representing a client during an Internal
c c c c c c c c c c c c
Revenue Service (IRS) audit.
c c c c
,Federal Tax Research, 13thEdition
c c c c Page 1-3 c
Page 5 c
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
c c c c c c c c c c c c c c
c attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,and
c c c c c c c c c
c corporate tax returns often are completed by commercial tax preparers. The preparation of more
c c c c c c c c c c c c c
c complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide tax
c c c c c c c c c c c c c c c
planning services andrepresent their clientsbeforethe IRS.
c c c c c c c c c
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
c c c c c c c c c c c c c c c c
c examination, or who has worked for the IRS for five years and is issued a permit to represent clients c c c c c c c c c c c c c c c c c c
c before the IRS. CPAs and attorneys are not required to take this examination and are automatically
c c c c c c c c c c c c c c c
c admitted to practice before the IRS if they are in good standing with the appropriateprofessional
c c c c c c c c c c c c c c c
licensing board.
c c
Page 5 and Circular 230 c c c c
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Muchof
c c c c c c c c c c c c c c c c
modern taxpractice centersaround thisprocess, and theresulting outcome istax avoidance.
c c c c c c c c c c c c c c
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within
c c c c c c c c c c c c c c c c c
c legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe condoned.
c c c c c c c c c c c c c c c c
c Activities of this sort clearly violate existing legal constraints and fall outside of the domain of the
c c c c c c c c c c c c c c c c
c professional tax practitioner. c c
Page 6 c
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax practitioner
c c c c c c c c c c c c c c c
maintains some degree of control over the potential tax liability, and the transaction may be modi- fied to
c c c c c c c c c c c c c c c c c c
c achieve a more favorable tax treatment. In a closed transaction however, all of the pertinentactions have
c c c c c c c c c c c c c c c c
c been completed, and tax planning activities may be limited to the presentation of the situation to the
c c c c c c c c c c c c c c c c
government in themost legallyadvantageous manner possible.
c c c c c c c c
, Page 1-4
c SOLUTIONS MANUAL c
Page 6 c
1-7. Tax litigation istheprocess ofsettling a dispute with theIRS in a court oflaw. Typically, a taxattorney
c c c c c c c c c c c c c c c c c c c c
handles tax litigation that progresses beyond the final IRS appeal.
c c c c c c c c c c
Page 6 c
1-8. CPAs serve is a support capacityin tax litigation.
c c c c c c c c
Page 6 c
1-9. Taxresearch consists oftheresolution ofunanswered taxation questions. Thetaxresearch process
c c c c c c c c c c c c c
includes the following:
c c c
1. Identification ofpertinentissues; c c c
2. Specification ofproper authorities; c c c
3. Evaluation ofthe proprietyofauthorities; and, c c c c c c
4. Application ofauthorities toa specific situation. c c c c c c
Page 6 c
1-10. Circular 230 is issued bytheTreasuryDepartment and applies to all who practice before the IRS.Page 7
c c c c c c c c c c c c c c c c c c
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
c c c c c c c c c c c c c c
c Statements on Standards for Tax Services. CPAs must also abide by the rules of the appropriate state
c c c c c c c c c c c c c c c c
board(s) of accountancy.
c c c
Page 7 c
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider. The
c c c c c c c c c c c c c c c
c hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers filing
c c c c c c c c c c c c c c c
c season issues and tax lawupdates. The AFTRcourse must include a knowledge-based comprehension
c c c c c c c c c c c c c c
c test administered at the conclusion ofthe course bythe CE Provider.
c c c c c c c c c c c
c c c c Page 1-1
c
SolutionManualFederalTaxResearch
c c c c
c 13thEditionbyRobySawyers,Steven Gill
c c c c c c
c Chapters1-13 c c
,Page 1-2
c SOLUTIONS MANUAL c
CHAPTER 1 c
INTRODUCTION TO TAX PRACTICE AND ETHICS c c c c c
DISCUSSIONQUESTIONS
c
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law, accounting,
c c c c c c c c c c c c c c c c
c economics, political science, and sociology. The environment for the tax system isprovided by the
c c c c c c c c c c c c c c
c principles of economics, sociology, and political science, while the legal and accountingfields are
c c c c c c c c c c c c c
responsible for the system‘s interpretation andapplication.
c c c c c c c
Each of these disciplines affects this country‘s tax system in a unique way. Economists addresssuch
c c c c c c c c c c c c c c c
c issues ashowproposed taxlegislation will affect therateofinflation or economic growth.
c c c c c c c c c c c c c c
Measurement of the social equity of a tax and determining whether a tax system discriminates against
c c c c c c c c c c c c c c c c
certain taxpayers areissues that are examined bysociologists andpolitical scientists.
c c c c c c c c c c c c
Finally, attorneys areresponsible for theinterpretation ofthetaxation statutes, andaccountantsensure
c c c c c c c c c c c c c
that these same statutes areapplied consistently.****8880()
c c c c c c c
Page 4 c
1-2. Theother major categories oftaxpracticein addition totax research are as follows:
c c c c c c c c c c c c c c
• Tax compliance c
• Tax planning c
• Tax litigation c
Page 5
c c
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
c c c c c c c c c c
c information, and filing any necessary tax returns. Compliance also includes other functions
c c c c c c c c c c c
c necessary to satisfy governmental requirements, such as representing a client during an Internal
c c c c c c c c c c c c
Revenue Service (IRS) audit.
c c c c
,Federal Tax Research, 13thEdition
c c c c Page 1-3 c
Page 5 c
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
c c c c c c c c c c c c c c
c attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,and
c c c c c c c c c
c corporate tax returns often are completed by commercial tax preparers. The preparation of more
c c c c c c c c c c c c c
c complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide tax
c c c c c c c c c c c c c c c
planning services andrepresent their clientsbeforethe IRS.
c c c c c c c c c
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
c c c c c c c c c c c c c c c c
c examination, or who has worked for the IRS for five years and is issued a permit to represent clients c c c c c c c c c c c c c c c c c c
c before the IRS. CPAs and attorneys are not required to take this examination and are automatically
c c c c c c c c c c c c c c c
c admitted to practice before the IRS if they are in good standing with the appropriateprofessional
c c c c c c c c c c c c c c c
licensing board.
c c
Page 5 and Circular 230 c c c c
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Muchof
c c c c c c c c c c c c c c c c
modern taxpractice centersaround thisprocess, and theresulting outcome istax avoidance.
c c c c c c c c c c c c c c
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within
c c c c c c c c c c c c c c c c c
c legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe condoned.
c c c c c c c c c c c c c c c c
c Activities of this sort clearly violate existing legal constraints and fall outside of the domain of the
c c c c c c c c c c c c c c c c
c professional tax practitioner. c c
Page 6 c
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax practitioner
c c c c c c c c c c c c c c c
maintains some degree of control over the potential tax liability, and the transaction may be modi- fied to
c c c c c c c c c c c c c c c c c c
c achieve a more favorable tax treatment. In a closed transaction however, all of the pertinentactions have
c c c c c c c c c c c c c c c c
c been completed, and tax planning activities may be limited to the presentation of the situation to the
c c c c c c c c c c c c c c c c
government in themost legallyadvantageous manner possible.
c c c c c c c c
, Page 1-4
c SOLUTIONS MANUAL c
Page 6 c
1-7. Tax litigation istheprocess ofsettling a dispute with theIRS in a court oflaw. Typically, a taxattorney
c c c c c c c c c c c c c c c c c c c c
handles tax litigation that progresses beyond the final IRS appeal.
c c c c c c c c c c
Page 6 c
1-8. CPAs serve is a support capacityin tax litigation.
c c c c c c c c
Page 6 c
1-9. Taxresearch consists oftheresolution ofunanswered taxation questions. Thetaxresearch process
c c c c c c c c c c c c c
includes the following:
c c c
1. Identification ofpertinentissues; c c c
2. Specification ofproper authorities; c c c
3. Evaluation ofthe proprietyofauthorities; and, c c c c c c
4. Application ofauthorities toa specific situation. c c c c c c
Page 6 c
1-10. Circular 230 is issued bytheTreasuryDepartment and applies to all who practice before the IRS.Page 7
c c c c c c c c c c c c c c c c c c
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
c c c c c c c c c c c c c c
c Statements on Standards for Tax Services. CPAs must also abide by the rules of the appropriate state
c c c c c c c c c c c c c c c c
board(s) of accountancy.
c c c
Page 7 c
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider. The
c c c c c c c c c c c c c c c
c hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers filing
c c c c c c c c c c c c c c c
c season issues and tax lawupdates. The AFTRcourse must include a knowledge-based comprehension
c c c c c c c c c c c c c c
c test administered at the conclusion ofthe course bythe CE Provider.
c c c c c c c c c c c
