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

Federal Tax Research, 13thEdition
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SolutionManualFederalTax Research
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b13th EditionbyRoby Sawyers,StevenGill
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bChapters1 -13 b b

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CHAPTER 1 b




INTRODUCTION TO TAX PRACTICE AND ETHICS b b b b b




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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baccounting, economics, political science, and sociology. The environment for the tax system is
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provided by the principles of economics, sociology, and political science, while the legal and
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baccounting fields areresponsible for the system‘s interpretation and application.
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Each of these disciplines affects this country‘s tax system in a unique way. Economists addresssuch
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bissues ashowproposed taxlegislation will affect therateofinflation or economic growth.
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Measurement of the social equity of a tax and determining whether a tax system discriminates against
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certain taxpayers areissues that are examined bysociologists and political scientists.
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Finally, attorneys areresponsible for theinterpretation ofthetaxation statutes, andaccountants
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ensure that these same statutes areapplied consistently.****8880()
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1-2. Theother major categories oftax practicein addition totax research are as follows:
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• Tax compliance b




• Tax planning b




• Tax litigation b




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1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
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binformation, and filing any necessary tax returns. Compliance also includes other functionsb b b b b b b b b b b




bnecessary to satisfy governmental requirements, such as representing a client during an Internal
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Revenue Service (IRS) audit.
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,Federal Tax Research, 13thEdition
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Page 5 b




1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
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battorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,and
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bcorporate tax returns often are completed by commercial tax preparers. The preparation of more
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bcomplex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide tax
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planning services andrepresent their clientsbeforethe IRS.
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An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
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bexamination, or who has worked for the IRS for five years and is issued a permit to represent clients b b b b b b b b b b b b b b b b b b




bbefore the IRS. CPAs and attorneys are not required to take this examination and are automatically
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badmitted to practice before the IRS if they are in good standing with the appropriateprofessional
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licensing board.
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Page 5 and Circular 230 b b b b




1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Muchof
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modern taxpractice centersaroundthis process, and theresulting outcome istax avoidance.
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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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blegal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe condoned.
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bActivities of this sort clearly violate existing legal constraints and fall outside of the domain of the
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bprofessional tax practitioner. b b




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1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax practitioner
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maintains some degree of control over the potential tax liability, and the transaction may be modi- fied to
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bachieve a more favorable tax treatment. In a closed transaction however, all of the pertinentactions have
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bbeen completed, and tax planning activities may be limited to the presentation of the situation to the
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government in themost legallyadvantageous manner possible.
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Page 6 b




1-7. Tax litigation istheprocess ofsettling a dispute with theIRS in a court oflaw. Typically, a taxattorney
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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 oftheresolution ofunanswered taxation questions. Thetaxresearch process
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includes the following:
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1. Identification ofpertinentissues; b b b




2. Specification ofproper authorities; b b b




3. Evaluation ofthe proprietyofauthorities; and, b b b b b b




4. Application ofauthorities to a specific situation. b b b b b b




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1-10. Circular 230 is issued bytheTreasuryDepartment and applies to all who practice before the IRS.Page 7
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1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
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bStatements on Standards for Tax Services. CPAs must also abide by the rules of the appropriate state
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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 Provider. The
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bhours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers filing
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bseason issues and tax lawupdates. The AFTRcourse must include a knowledge-based comprehension
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btest administered at the conclusion ofthe course bythe CE Provider.
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