FederalgTaxgResearch,g13thgEditio Pageg1-1
n
Solution Manual Federal Tax Research
13th Edition by Roby Sawyers, Steven Gill
Chapters 1 -13
,Pageg1-2 SOLUTIONSgMANUAL
CHAPTERg1
INTRODUCTIONgTOgTAXgPRACTICEgANDgETHICS
DISCUSSIONgQUESTIONS
1-1.
IngthegUnitedgStates,gthegtaxgsystemgisgangoutgrowthgofgthegfollowinggfivegdisciplines:
glaw,gaccounting,geconomics,gpoliticalgscience,gandgsociology.gThegenvironmentgforgthegtaxgsy
stemgisgprovidedgbygthegprinciplesgofgeconomics,gsociology,gandgpoliticalgscience,gwhilegthegle
galgandgaccountinggfieldsgaregresponsiblegforg thegsystem‘sginterpretationg andgapplication.
Eachgofgthesegdisciplinesgaffectsgthisgcountry‘sgtaxgsystemgingaguniquegway.gEconomistsgaddre
ssgsuchgissuesgasghowgproposedgtaxglegislationgwillgaffectgthegrategofginflationgorgeconomicggro
wth.gMeasurementgofgthegsocialgequitygofgagtaxgandgdetermininggwhethergagtaxgsystemgdiscrimi
natesgagainstgcertaingtaxpayersgaregissuesgthatgaregexaminedgbygsociologistsgandgpoliticalgscien
tists.
Finally,gattorneysgaregresponsiblegforgtheginterpretationgofgthegtaxationgstatutes,gandgaccountant
sgensuregthatgthesegsamegstatutesgaregappliedgconsistently.****8880()
Pageg4
1-2. Thegothergmajorgcategoriesgofgtaxgpracticegingadditiongtogtaxgresearchgaregasgfollows:
• Taxgcompliance
• Taxgplanning
• Taxglitigatio
ngPageg5
1-3.
Taxgcompliancegconsistsgofggatheringgpertinentginformation,gevaluatinggandgclassifying
gthatginformation,gandgfilingganygnecessarygtaxgreturns.gCompliancegalsogincludesgothergfuncti
onsgnecessarygtogsatisfyggovernmentalgrequirements,gsuchgasgrepresentinggagclientgduringgangIn
ternalgRevenuegServiceg(IRS)gaudit.
,FederalgTaxgResearch,g13thgEditio Pageg1-3
n
Pageg5
1-4.
Mostgofgthegtaxgcompliancegworkgisgperformedgbygcommercialgtaxgpreparers,genrolledg
agentsg(EAs),gattorneys,gandgcertifiedgpublicgaccountantsg(CPAs).gNoncomplexgindividual,gpar
tnership,gandgcorporategtaxgreturnsgoftengaregcompletedgbygcommercialgtaxgpreparers.gThegprep
arationgofgmoregcomplexgreturnsgusuallygisgperformedgbygEAs,gattorneys,gandgCPAs.gTheglatter
ggroupsgalsogprovidegtaxgplanninggservicesgandgrepresentgtheirgclientsgbeforegthegIRS.
AngEAgisgonegwhogisgadmittedgtogpracticegbeforegthegIRSgbygpassinggagspecialgIRS-
administeredgexamination,gorgwhoghasgworkedgforgthegIRSgforgfivegyearsgandgisgissuedgagpermitgt
ogrepresentgclientsgbeforegthegIRS.gCPAsgandgattorneysgaregnotgrequiredgtogtakegthisgexaminationg
andgaregautomaticallygadmittedgtogpracticegbeforegthegIRSgifgtheygareginggoodgstandinggwithgthega
ppropriategprofessionalglicensinggboard.
Pageg5gandgCircularg230
1-5.
Taxgplanninggisgthegprocessgofgarranginggone‘sgfinancialgaffairsgtogminimizeganygtaxgliabil
ity.gMuchgofgmoderngtaxgpracticegcentersgaroundgthisgprocess,gandgthegresultinggoutcomegisgtaxgav
oidance.
Theregisgnothinggillegalgorgimmoralgingthegavoidancegofgtaxationgasglonggasgthegtaxpayergremainsg
withinglegalgbounds.gIngcontrast,gtaxgevasiongconstitutesgthegillegalgnonpaymentgofgagtaxgandgcann
otgbegcondoned.gActivitiesgofgthisgsortgclearlygviolategexistingglegalgconstraintsgandgfallgoutsidegofg
thegdomaingofgthegprofessionalgtaxgpractitioner.
Pageg6
1-6.
Ingangopengtaxgplanninggsituation,gthegtransactiongisgnotgyetgcomplete;gtherefore,gthegtaxgp
ractitionergmaintainsgsomegdegreegofgcontrolgovergthegpotentialgtaxgliability,gandgthegtransactiongm
aygbegmodi-
gfiedgtogachievegagmoregfavorablegtaxgtreatment.gIngagclosedgtransactionghowever,gallgofgthegpertin
entgactionsghavegbeengcompleted,gandgtaxgplanninggactivitiesgmaygbeglimitedgtogthegpresentationgof
gthegsituationgtogtheggovernmentgingthegmostglegallygadvantageousgmannergpossible.
, Pageg1-4 SOLUTIONSgMANUAL
Pageg6
1-7.
TaxglitigationgisgthegprocessgofgsettlinggagdisputegwithgthegIRSgingagcourtgofglaw.gTypic
ally,gagtaxgattorneyghandlesgtaxglitigationgthatgprogressesgbeyondgthegfinalgIRSgappeal.
Pageg6
1-8. CPAsgservegisgagsupportgcapacitygingtaxglitigation.
Pageg6
1-9.
Taxgresearchgconsistsgofgthegresolutiongofgunansweredgtaxationgquestions.g Thegtaxgresearc
hgprocessgincludesgthegfollowing:
1. Identificationgofgpertinentgissues;
2. Specificationgofgpropergauthorities;
3. Evaluationgofgthegproprietygofgauthorities;gand,
4. Applicationgofgauthoritiesgtogagspecificgsituation.
Pageg6
1-10.
Circularg230gisgissuedgbygthegTreasurygDepartmentgandgappliesgtogallgwhogpracticegbefor
egthegIRS.gPageg7
1-11.
IngadditiongtogCircularg230,gCPAsgmustgfollowgthegAICPA‘sgCodegofgProfessionalgCo
nductgandgStatementsgongStandardsgforgTaxgServices.gCPAsgmustgalsogabidegbygthegrulesgofgth
egappropriategstategboard(s)gofgaccountancy.
Pageg7
1-12. Agreturngpreparergmustgobtaing18ghoursgofgcontinuinggeducationgfromgangIRS-
approvedgCEgProvider.gTheghoursgmustgincludegag6gcreditghourgAnnualgFederalgTaxgRefreshergco
urseg(AFTR)gthatgcoversgfilinggseasongissuesgandgtaxglawgupdates.gThegAFTRgcoursegmustginclud
egagknowledge-
n
Solution Manual Federal Tax Research
13th Edition by Roby Sawyers, Steven Gill
Chapters 1 -13
,Pageg1-2 SOLUTIONSgMANUAL
CHAPTERg1
INTRODUCTIONgTOgTAXgPRACTICEgANDgETHICS
DISCUSSIONgQUESTIONS
1-1.
IngthegUnitedgStates,gthegtaxgsystemgisgangoutgrowthgofgthegfollowinggfivegdisciplines:
glaw,gaccounting,geconomics,gpoliticalgscience,gandgsociology.gThegenvironmentgforgthegtaxgsy
stemgisgprovidedgbygthegprinciplesgofgeconomics,gsociology,gandgpoliticalgscience,gwhilegthegle
galgandgaccountinggfieldsgaregresponsiblegforg thegsystem‘sginterpretationg andgapplication.
Eachgofgthesegdisciplinesgaffectsgthisgcountry‘sgtaxgsystemgingaguniquegway.gEconomistsgaddre
ssgsuchgissuesgasghowgproposedgtaxglegislationgwillgaffectgthegrategofginflationgorgeconomicggro
wth.gMeasurementgofgthegsocialgequitygofgagtaxgandgdetermininggwhethergagtaxgsystemgdiscrimi
natesgagainstgcertaingtaxpayersgaregissuesgthatgaregexaminedgbygsociologistsgandgpoliticalgscien
tists.
Finally,gattorneysgaregresponsiblegforgtheginterpretationgofgthegtaxationgstatutes,gandgaccountant
sgensuregthatgthesegsamegstatutesgaregappliedgconsistently.****8880()
Pageg4
1-2. Thegothergmajorgcategoriesgofgtaxgpracticegingadditiongtogtaxgresearchgaregasgfollows:
• Taxgcompliance
• Taxgplanning
• Taxglitigatio
ngPageg5
1-3.
Taxgcompliancegconsistsgofggatheringgpertinentginformation,gevaluatinggandgclassifying
gthatginformation,gandgfilingganygnecessarygtaxgreturns.gCompliancegalsogincludesgothergfuncti
onsgnecessarygtogsatisfyggovernmentalgrequirements,gsuchgasgrepresentinggagclientgduringgangIn
ternalgRevenuegServiceg(IRS)gaudit.
,FederalgTaxgResearch,g13thgEditio Pageg1-3
n
Pageg5
1-4.
Mostgofgthegtaxgcompliancegworkgisgperformedgbygcommercialgtaxgpreparers,genrolledg
agentsg(EAs),gattorneys,gandgcertifiedgpublicgaccountantsg(CPAs).gNoncomplexgindividual,gpar
tnership,gandgcorporategtaxgreturnsgoftengaregcompletedgbygcommercialgtaxgpreparers.gThegprep
arationgofgmoregcomplexgreturnsgusuallygisgperformedgbygEAs,gattorneys,gandgCPAs.gTheglatter
ggroupsgalsogprovidegtaxgplanninggservicesgandgrepresentgtheirgclientsgbeforegthegIRS.
AngEAgisgonegwhogisgadmittedgtogpracticegbeforegthegIRSgbygpassinggagspecialgIRS-
administeredgexamination,gorgwhoghasgworkedgforgthegIRSgforgfivegyearsgandgisgissuedgagpermitgt
ogrepresentgclientsgbeforegthegIRS.gCPAsgandgattorneysgaregnotgrequiredgtogtakegthisgexaminationg
andgaregautomaticallygadmittedgtogpracticegbeforegthegIRSgifgtheygareginggoodgstandinggwithgthega
ppropriategprofessionalglicensinggboard.
Pageg5gandgCircularg230
1-5.
Taxgplanninggisgthegprocessgofgarranginggone‘sgfinancialgaffairsgtogminimizeganygtaxgliabil
ity.gMuchgofgmoderngtaxgpracticegcentersgaroundgthisgprocess,gandgthegresultinggoutcomegisgtaxgav
oidance.
Theregisgnothinggillegalgorgimmoralgingthegavoidancegofgtaxationgasglonggasgthegtaxpayergremainsg
withinglegalgbounds.gIngcontrast,gtaxgevasiongconstitutesgthegillegalgnonpaymentgofgagtaxgandgcann
otgbegcondoned.gActivitiesgofgthisgsortgclearlygviolategexistingglegalgconstraintsgandgfallgoutsidegofg
thegdomaingofgthegprofessionalgtaxgpractitioner.
Pageg6
1-6.
Ingangopengtaxgplanninggsituation,gthegtransactiongisgnotgyetgcomplete;gtherefore,gthegtaxgp
ractitionergmaintainsgsomegdegreegofgcontrolgovergthegpotentialgtaxgliability,gandgthegtransactiongm
aygbegmodi-
gfiedgtogachievegagmoregfavorablegtaxgtreatment.gIngagclosedgtransactionghowever,gallgofgthegpertin
entgactionsghavegbeengcompleted,gandgtaxgplanninggactivitiesgmaygbeglimitedgtogthegpresentationgof
gthegsituationgtogtheggovernmentgingthegmostglegallygadvantageousgmannergpossible.
, Pageg1-4 SOLUTIONSgMANUAL
Pageg6
1-7.
TaxglitigationgisgthegprocessgofgsettlinggagdisputegwithgthegIRSgingagcourtgofglaw.gTypic
ally,gagtaxgattorneyghandlesgtaxglitigationgthatgprogressesgbeyondgthegfinalgIRSgappeal.
Pageg6
1-8. CPAsgservegisgagsupportgcapacitygingtaxglitigation.
Pageg6
1-9.
Taxgresearchgconsistsgofgthegresolutiongofgunansweredgtaxationgquestions.g Thegtaxgresearc
hgprocessgincludesgthegfollowing:
1. Identificationgofgpertinentgissues;
2. Specificationgofgpropergauthorities;
3. Evaluationgofgthegproprietygofgauthorities;gand,
4. Applicationgofgauthoritiesgtogagspecificgsituation.
Pageg6
1-10.
Circularg230gisgissuedgbygthegTreasurygDepartmentgandgappliesgtogallgwhogpracticegbefor
egthegIRS.gPageg7
1-11.
IngadditiongtogCircularg230,gCPAsgmustgfollowgthegAICPA‘sgCodegofgProfessionalgCo
nductgandgStatementsgongStandardsgforgTaxgServices.gCPAsgmustgalsogabidegbygthegrulesgofgth
egappropriategstategboard(s)gofgaccountancy.
Pageg7
1-12. Agreturngpreparergmustgobtaing18ghoursgofgcontinuinggeducationgfromgangIRS-
approvedgCEgProvider.gTheghoursgmustgincludegag6gcreditghourgAnnualgFederalgTaxgRefreshergco
urseg(AFTR)gthatgcoversgfilinggseasongissuesgandgtaxglawgupdates.gThegAFTRgcoursegmustginclud
egagknowledge-
