Federal Tax Research, 13th Edition Page 1-1
Solution Manual Federal Tax Research
13th Edition by Roby Sawyers, Steven Gill
Chapters 1 -13
,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.
,Federal Tax Research, 13th Edition Page 1-3
Page 5
1-4. Most /iof /ithe /itax /icompliance /iwork /iis /iperformed /iby /icommercial /itax /ipreparers, /ienrolled
/i agents /i(EAs), /iattorneys, /iand /icertified /ipublic /iaccountants /i(CPAs). /iNoncomplex /iindividual,
/i partnership,a/i nd /icorporate /itax /ireturns /ioften /iare /icompleted /iby /icommercial /itax /ipreparers.
/i The /ipreparation /iof /imore /icomplex /ireturns /iusually /iis /iperformed /iby /iEAs, /iattorneys, /iand
/i CPAs. /iThe /ilatter /igroups /ialsop
/i rovide /itax /iplanning /iservices /iand /irepresent /itheir /iclients
before /ithe /iIRS.
/i
An /iEA /iis /ione /iwho /iis /iadmitted /ito /ipractice /ibefore /ithe /iIRS /iby /ipassing /ia /ispecial /iIRS-
administered /iexamination, /ior /iwho /ihas /iworked /ifor /ithe /iIRS /ifor /ifive /iyears /iand /iis /iissued /ia
/i permit /ito /irepresent /iclients /ibefore /ithe /iIRS. /iCPAs /iand /iattorneys /iare /inot /irequired /ito /itake /ithis
/i examination /iand /iare /iautomatically /iadmitted /ito /ipractice /ibefore /ithe /iIRS /iif /ithey /iare /iin /igood
/i standing /iwith /ithe /iappropriatep
/i rofessional /ilicensing /iboard.
Page /i5 /iand /iCircular /i230
1-5. Tax /iplanning /iis /ithe /iprocess /iof /iarranging /ione‘s /ifinancial /iaffairs /ito /iminimize /iany /itax /iliability.
/i Mucho/i f /imodern /itax /ipractice /icenters /iaround /ithis /iprocess, /iand /ithe /iresulting /ioutcome /iis /itax
/i avoidance.
There /iis /inothing /iillegal /ior /iimmoral /iin /ithe /iavoidance /iof /itaxation /ias /ilong /ias /ithe /itaxpayer
/i remains /iwithin /ilegal /ibounds. /iIn /icontrast, /itax /ievasion /iconstitutes /ithe /iillegal /inonpayment /iof /ia
/i tax /iand /icannotb/i e /icondoned. /iActivities /iof /ithis /isort /iclearly /iviolate /iexisting /ilegal /iconstraints
/i and /ifall /ioutside /iof /ithe /idomain /iof /ithe /iprofessional /itax /ipractitioner.
Page /i6
1-6. In /ian /iopen /itax /iplanning /isituation, /ithe /itransaction /iis /inot /iyet /icomplete; /itherefore, /ithe /itax
/i practitionerm
/i aintains /isome /idegree /iof /icontrol /iover /ithe /ipotential /itax /iliability, /iand /ithe
/i transaction /imay /ibe /imodi- /ified /ito /iachieve /ia /imore /ifavorable /itax /itreatment. /iIn /ia /iclosed
/i transaction /ihowever, /iall /iof /ithe /ipertinenta/i ctions /ihave /ibeen /icompleted, /iand /itax /iplanning
/i activities /imay /ibe /ilimited /ito /ithe /ipresentation /iof /ithe /isituation /ito /ithe /igovernment /iin /ithe /imost
/i legally /iadvantageous /imanner /ipossible.
, Page 1-4 SOLUTIONS MANUAL
Page /i6
1-7. Tax /ilitigation /iis /ithe /iprocess /iof /isettling /ia /idispute /iwith /ithe /iIRS /iin /ia /icourt /iof /ilaw. /iTypically,
/i a /itaxa/i ttorney /ihandles /itax /ilitigation /ithat /iprogresses /ibeyond /ithe /ifinal /iIRS /iappeal.
Page /i6
1-8. CPAs /iserve /iis /ia /isupport /icapacity /iin /itax /ilitigation.
Page /i6
1-9. Tax /iresearch /iconsists /iof /ithe /iresolution /iof /iunanswered /itaxation /iquestions. /iThe /itax /iresearch
/i processi/i ncludes /ithe /ifollowing:
1. Identification /iof /ipertinent /iissues;
2. Specification /iof /iproper /iauthorities;
3. Evaluation /iof /ithe /ipropriety /iof /iauthorities; /iand,
4. Application /iof /iauthorities /ito /ia /ispecific /isituation.
Page /i6
1-10. Circular /i230 /iis /iissued /iby /ithe /iTreasury /iDepartment /iand /iapplies /ito /iall /iwho /ipractice /ibefore /ithe
/i IRS.P
/i age /i7
1-11. In /iaddition /ito /iCircular /i230, /iCPAs /imust /ifollow /ithe /iAICPA‘s /iCode /iof /iProfessional /iConduct
/i and /iStatements /ion /iStandards /ifor /iTax /iServices. /iCPAs /imust /ialso /iabide /iby /ithe /irules /iof /ithe
/i appropriates/i tate /iboard(s) /iof /iaccountancy.
Page /i7
1-12. A /ireturn /ipreparer /imust /iobtain /i18 /ihours /iof /icontinuing /ieducation /ifrom /ian /iIRS-approved /iCE
/i Provider. /iThe /ihours /imust /iinclude /ia /i6 /icredit /ihour /iAnnual /iFederal /iTax /iRefresher /icourse
/i (AFTR) /ithat /icovers /ifiling /iseason /iissues /iand /itax /ilaw /iupdates. /iThe /iAFTR /icourse /imust /iinclude
a /iknowledge-b/i ased /icomprehension /itest /iadministered /iat /ithe /iconclusion /iof /ithe /icourse /iby /ithe
/i
/i CE /iProvider.
Solution Manual Federal Tax Research
13th Edition by Roby Sawyers, Steven Gill
Chapters 1 -13
,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.
,Federal Tax Research, 13th Edition Page 1-3
Page 5
1-4. Most /iof /ithe /itax /icompliance /iwork /iis /iperformed /iby /icommercial /itax /ipreparers, /ienrolled
/i agents /i(EAs), /iattorneys, /iand /icertified /ipublic /iaccountants /i(CPAs). /iNoncomplex /iindividual,
/i partnership,a/i nd /icorporate /itax /ireturns /ioften /iare /icompleted /iby /icommercial /itax /ipreparers.
/i The /ipreparation /iof /imore /icomplex /ireturns /iusually /iis /iperformed /iby /iEAs, /iattorneys, /iand
/i CPAs. /iThe /ilatter /igroups /ialsop
/i rovide /itax /iplanning /iservices /iand /irepresent /itheir /iclients
before /ithe /iIRS.
/i
An /iEA /iis /ione /iwho /iis /iadmitted /ito /ipractice /ibefore /ithe /iIRS /iby /ipassing /ia /ispecial /iIRS-
administered /iexamination, /ior /iwho /ihas /iworked /ifor /ithe /iIRS /ifor /ifive /iyears /iand /iis /iissued /ia
/i permit /ito /irepresent /iclients /ibefore /ithe /iIRS. /iCPAs /iand /iattorneys /iare /inot /irequired /ito /itake /ithis
/i examination /iand /iare /iautomatically /iadmitted /ito /ipractice /ibefore /ithe /iIRS /iif /ithey /iare /iin /igood
/i standing /iwith /ithe /iappropriatep
/i rofessional /ilicensing /iboard.
Page /i5 /iand /iCircular /i230
1-5. Tax /iplanning /iis /ithe /iprocess /iof /iarranging /ione‘s /ifinancial /iaffairs /ito /iminimize /iany /itax /iliability.
/i Mucho/i f /imodern /itax /ipractice /icenters /iaround /ithis /iprocess, /iand /ithe /iresulting /ioutcome /iis /itax
/i avoidance.
There /iis /inothing /iillegal /ior /iimmoral /iin /ithe /iavoidance /iof /itaxation /ias /ilong /ias /ithe /itaxpayer
/i remains /iwithin /ilegal /ibounds. /iIn /icontrast, /itax /ievasion /iconstitutes /ithe /iillegal /inonpayment /iof /ia
/i tax /iand /icannotb/i e /icondoned. /iActivities /iof /ithis /isort /iclearly /iviolate /iexisting /ilegal /iconstraints
/i and /ifall /ioutside /iof /ithe /idomain /iof /ithe /iprofessional /itax /ipractitioner.
Page /i6
1-6. In /ian /iopen /itax /iplanning /isituation, /ithe /itransaction /iis /inot /iyet /icomplete; /itherefore, /ithe /itax
/i practitionerm
/i aintains /isome /idegree /iof /icontrol /iover /ithe /ipotential /itax /iliability, /iand /ithe
/i transaction /imay /ibe /imodi- /ified /ito /iachieve /ia /imore /ifavorable /itax /itreatment. /iIn /ia /iclosed
/i transaction /ihowever, /iall /iof /ithe /ipertinenta/i ctions /ihave /ibeen /icompleted, /iand /itax /iplanning
/i activities /imay /ibe /ilimited /ito /ithe /ipresentation /iof /ithe /isituation /ito /ithe /igovernment /iin /ithe /imost
/i legally /iadvantageous /imanner /ipossible.
, Page 1-4 SOLUTIONS MANUAL
Page /i6
1-7. Tax /ilitigation /iis /ithe /iprocess /iof /isettling /ia /idispute /iwith /ithe /iIRS /iin /ia /icourt /iof /ilaw. /iTypically,
/i a /itaxa/i ttorney /ihandles /itax /ilitigation /ithat /iprogresses /ibeyond /ithe /ifinal /iIRS /iappeal.
Page /i6
1-8. CPAs /iserve /iis /ia /isupport /icapacity /iin /itax /ilitigation.
Page /i6
1-9. Tax /iresearch /iconsists /iof /ithe /iresolution /iof /iunanswered /itaxation /iquestions. /iThe /itax /iresearch
/i processi/i ncludes /ithe /ifollowing:
1. Identification /iof /ipertinent /iissues;
2. Specification /iof /iproper /iauthorities;
3. Evaluation /iof /ithe /ipropriety /iof /iauthorities; /iand,
4. Application /iof /iauthorities /ito /ia /ispecific /isituation.
Page /i6
1-10. Circular /i230 /iis /iissued /iby /ithe /iTreasury /iDepartment /iand /iapplies /ito /iall /iwho /ipractice /ibefore /ithe
/i IRS.P
/i age /i7
1-11. In /iaddition /ito /iCircular /i230, /iCPAs /imust /ifollow /ithe /iAICPA‘s /iCode /iof /iProfessional /iConduct
/i and /iStatements /ion /iStandards /ifor /iTax /iServices. /iCPAs /imust /ialso /iabide /iby /ithe /irules /iof /ithe
/i appropriates/i tate /iboard(s) /iof /iaccountancy.
Page /i7
1-12. A /ireturn /ipreparer /imust /iobtain /i18 /ihours /iof /icontinuing /ieducation /ifrom /ian /iIRS-approved /iCE
/i Provider. /iThe /ihours /imust /iinclude /ia /i6 /icredit /ihour /iAnnual /iFederal /iTax /iRefresher /icourse
/i (AFTR) /ithat /icovers /ifiling /iseason /iissues /iand /itax /ilaw /iupdates. /iThe /iAFTR /icourse /imust /iinclude
a /iknowledge-b/i ased /icomprehension /itest /iadministered /iat /ithe /iconclusion /iof /ithe /icourse /iby /ithe
/i
/i CE /iProvider.
