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

Federal TaxResearch, 12thEdition
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SolutionManualFederalTaxResearch12thEditionbyRobySawyers, StevenGill
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CHAPTER1 u




INTRODUCTIONTOTAXPRACTICEANDETHICS u u u u u




DISCUSSIONQUESTIONS u




1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
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uaccounting, economics,political science,andsociology. Theenvironmentfor thetax system is
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uprovided by the principles of economics, sociology, and political science, while the legal and
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uaccounting fields areresponsible for the system‘s interpretation and application.
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Each ofthesedisciplines affects thiscountry‘stax system ina uniqueway. Economistsaddress such
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issues ashowproposed taxlegislation willaffect therateofinflation or economicgrowth.
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uMeasurement of the social equity of a tax and determining whether a tax system discriminates against
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ucertain taxpayers areissues that are examined bysociologists and political scientists.
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Finally,attorneys areresponsiblefor theinterpretation ofthetaxation statutes,andaccountants
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uensure that these same statutes are applied consistently.
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1-2. Theothermajor categoriesoftaxpracticein addition totaxresearch areasfollows:
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• Taxcompliance u




• Tax planning u




• Taxlitigation u




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1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
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uinformation, and filing any necessary tax returns. Compliance also includes other functions
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unecessaryto satisfygovernmental requirements, such asrepresenting a client during an Internal
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uRevenue Service (IRS) audit. u u u

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1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
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attorneys, andcertified publicaccountants(CPAs). Noncomplex individual, partnership, and
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ucorporate tax returns often are completed bycommercial tax preparers. The preparation of more
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complexreturnsusuallyis performed byEAs, attorneys, and CPAs. Thelatter groupsalso provide tax
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uplanning services and represent their clients before the 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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uexamination, or who has worked for the IRS for five years and is issued a permit to represent clients
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ubefore the IRS. CPAs and attorneys are not required to take this examination and are automatically
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admitted to practice before theIRS if theyare in good standing with theappropriate professional licensing
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uboard.


Page5and Circular 230
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1-5. Tax planning isthe process ofarrangingone‘s financial affairs to minimize anytax liability. Much of
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umodern tax practice centers around this process, and the resulting outcome is tax 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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legal bounds. In contrast, tax evasion constitutestheillegalnonpayment ofa taxand cannot be condoned.
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uActivities of this sort clearly violate existing legal constraints and fall outsideof the domain of the
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uprofessional tax practitioner. u u




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1-6. In an open taxplanning situation,thetransaction isnotyet complete; therefore, thetaxpractitioner
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umaintains some degree of control over thepotential tax liability, and thetransaction maybe modi- fied to
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achieve a more favorable taxtreatment. Ina closed transaction however, all ofthe pertinent actionshave
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ubeen completed, and tax planning activities may be limited to the presentation of the situation to the
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ugovernment in themost legallyadvantageous manner possible. u u u u u u u

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1-7. Taxlitigation istheprocess ofsettlingadisputewith theIRSin acourt oflaw. Typically, atax attorney
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handles tax litigation that progresses beyond the final IRS appeal.
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1-8. CPAsserve isa supportcapacityin taxlitigation.
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1-9. Taxresearchconsists oftheresolution ofunanswered taxation questions. Thetaxresearch process
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uincludes the following: u u




1. Identificationofpertinentissues; u u u




2. Specificationofproperauthorities; u u u




3. Evaluation oftheproprietyofauthorities;and, u u u u u u




4. Applicationofauthoritiestoaspecificsituation. u u u u u u




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1-10. Circular 230isissued bytheTreasuryDepartment andapplies toall whopractice 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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uStatements on Standards for Tax Services. CPAs must also abide by the rules of the appropriate state
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uboard(s) of accountancy. u u




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1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider.
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uThe hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers filing
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useason issues andtaxlawupdates. TheAFTRcoursemustincludea knowledge- based comprehension
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utest administered at the conclusion of the course bythe CE Provider.
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Limited practicerightsallowindividuals torepresent clientswhose returnstheypreparedand signed,
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ubut only before revenue agents, customer service representatives, and similar IRS employees.
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Page 10and IRS.gov u u u




1-13. False. Onlycommunication with theIRS concerningataxpayer‘srights, privileges, or liabilityis
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uincluded. Practice before the IRS does not includerepresentation before the Tax Court.
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1-14. Section 10.2 ofSubpart AofCircular 230definespractice before theIRSasincluding:
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matters connected with presentation totheInternal RevenueServiceor anyofits officers or
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uemployees relating to a client‘s rights, privileges, or liabilities under laws or regulations
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administered bytheInternalRevenue Service. Such presentations include the preparation and
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ufiling of necessary documents, correspondence with, and communications to the Internal
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uRevenue Service, and the representation of a client at conferences, hearings, and meetings.
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1-15. Tobecomean EAan individual can (1)passatest given bytheIRS or (2)work for theIRS for five years.
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uCircular 230, Subpart A, §§ 10.4 to 10.6. u u u u u u u




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1-16. EAs must complete 72hours ofcontinuingeducation everythree years (an average of24 per year, with a
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uminimum of 16 hours during any year). Circular 230, Subpart A. § 10.6.
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1-17. True. As ageneralrule, an individual mustbe an EA, attorney, or CPA torepresenta client before the IRS.
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uThere are limited situations where others may represent a taxpayer; however, this fact pattern isnot one
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uof them. Since Leigh did not sign the return, she cannot represent the taxpayer, only Rose can.
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