TEST BANK FOR FEDERAL TAX RESEARCH 11th EDITION BY ROBY B. SAWYERS, STEVEN GILL COMPLETE CHAPTER 1-19 2024

TEST BANK FOR FEDERAL TAX RESEARCH 11th EDITION BY ROBY B. SAWYERS, STEVEN GILL COMPLETE CHAPTER 1-19 2024. The Statements on Standards for Tax Services, or SSTS, are a series of statements, issued by the AICPA, as to what constitutes appropriate standards for tax practice. The Statements also delineate a member's responsibility to clients, the public, and the profession. The stated objectives of the Statements are as follows: SSTS No. 1: Tax Return Positions. This statement sets forth the applicable standards for members when recommending tax return positions, or preparing or signing tax returns. This statement also addresses a member’s obligation to advise a taxpayer of relevant tax return disclosure responsibilities and potential penalties. SSTS No. 2: Answers to Questions on Returns. This statement sets forth the applicable standards for members when signing the preparer’s declaration on a tax return if one or more questions on the return have not been answered. Federal Tax Research, 11th Edition Page 1-8 SSTS No. 3: Certain Procedural Aspects of Preparing Returns. This statement sets forth the applicable standards for members concerning the obligation to examine or verify certain supporting data or to consider information related to another taxpayer when preparing a taxpayer’s tax return. SSTS No. 4: Use of Estimates. This statement sets forth the applicable standards for members when using the taxpayer’s estimates in the preparation of a tax return. A member may advise on estimates used in the preparation of a tax return, but the taxpayer has the responsibility to provide the estimated data. Appraisals or valuations are not considered estimates for purposes of this statement. SSTS No. 5: Departure from a Position Previously Concluded in an Administrative Proceeding or Court Decision. This statement sets forth the applicable standards for members in recommending a tax return position that departs from the position determined in an administrative proceeding or in a court decision with respect to the taxpayer’s prior return. SSTS No. 6: Knowledge of Error: Return Preparation and Administrative Proceedings. This statement sets forth the applicable standards for a member who becomes aware of (a) an error in a taxpayer’s previously filed tax return; (b) an error in a return that is the subject of an administrative proceeding, such as an examination by a taxing authority or an appeals conference; or (c) a taxpayer’s failure to file a required tax return. SSTS No. 7: Form and Content of Advice to Taxpayers. This statement sets forth the applicable standards for members concerning certain aspects of providing advice to a taxpayer and considers the circumstances in which a member has a responsibility to communicate with a taxpayer when subsequent developments affect advice previously provided. Pages 22 - 26 1-37. Under SSTS No. 1, a member should determine and comply with the standards, if any, which are imposed by the applicable taxing authority with respect to recommending a tax return position, or preparing or signing a tax return. If the applicable taxing authority has no written standards with respect to recommending a tax return position or preparing or signing a tax return, or if its standards are lower than the standards set forth in SSTS No. 1, then SSTS No. 1 must be followed. Page 22 1-38. SSTS No.1 provides that a member should have a good faith belief that a recommended position has a realistic possibility of being sustained if challenged. In addition, a member may recommend a tax return position if the member concludes that there is a reasonable basis for the position and advises the taxpayer to appropriately disclose that position. Thus, a member may prepare or sign a tax return that reflects a position if a member has a reasonable basis for the position and that position is appropriately disclosed. Page 22 1-39. Reasonable grounds for omitting an answer on a return include cases in which: Federal Tax Research, 11th Edition Page 1-9 1. The pertinent data are not readily available and are not significant to the determination of taxable income or loss or the resulting tax liability. 2. The taxpayer and the member are genuinely uncertain as to the meaning of the question on the return. 3. An answer is voluminous; however, assurance should be given on the return that the data can be supplied upon request. Page 23 1-40. In preparing a return, the member may ordinarily rely upon information that the taxpayer has provided. Although an examination of supporting documents is not required, the member should encourage the taxpayer to provide supporting documents, whenever appropriate. Page 23 1-41. A member may prepare tax returns that involve the use of the taxpayer's estimates, if, under the circumstances, it is impractical to obtain exact data and the estimated amounts appear reasonable to the member. Estimates may be appropriate where the keeping of precise records with respect to numerous items of small amounts is difficult to achieve, where data is not available as of the time for filing the return, or certain records are missing. Pages 23-24 1-42. The selection of the treatment of an item on a tax return should be based upon the facts and the law that is applicable at the time a return is prepared. Unless the taxpayer is bound by the IRS to the treatment of an item in later years, such as by a closing agreement, the disposition of an item in a prior year's audit does not govern the treatment of a similar item in a later year's return. Therefore, a member may sign a return that contains a departure from a treatment that was required by the IRS in a prior year return, provided the standards under SSTS No. 1 are adhered to. Pages 24 - 25 1-43. When a member learns of an error in a previously filed tax return, or member becomes aware of an error during an administrative proceeding, he or she must advise the taxpayer promptly. This advice should include a recommendation of the appropriate measures that the taxpayer should take. The member is not obligated to inform the IRS of the error and may not do so without the taxpayer's permission, except as required by law. Page 25 1-44. SSTS No. 7. It states that the member must use judgment that reflects professional competence and serves the taxpayer's needs. Page 25 Federal Tax Research, 11th Edition Page 1-10 1-45. No, tax compliance work for an audit client is allowed. It must be approved by the audit committee of the issuer. Page 27 1-46. Neither the ABA Code nor the Model Rules have the force of law. Each was designed to be adopted by the appropriate agencies that govern the practice of law in the various states. In many jurisdictions, the state Supreme Court is charged with policing the practice of law. In other states, the legislature assumes this responsibility. Pages 27-28 1-47. An ethical dilemma occurs when someone is faced with a situation in which there are no clearly defined answers such as by regulation or law. Page 28 1-48. The major types of ethical reasoning are: 1. End-based Ethical Reasoning is where the ethical decision is the one that produced the most good for the largest number of people. 2. Rule-based Ethical Reasoning was based on German philosopher Immanuel Kant’s idea that individual actions should be such that we would accept similar behavior from everyone else. 3. Care-based Ethical Reasoning advises one to make decisions that would result in the treatment you yourself would like to receive. Page 29 1-49. Professional ethical behavior is the result of the interaction of personal morality, social responsibility, business ethics, and other general ethical standards. When something is judged to be morally right or wrong (or good or bad), the underlying standards on which such judgments are based are called moral standards. The tax practitioner must be aware of social responsibility in areas such as environmental protection, equal opportunity, and occupational safety. Business ethics examines the moral and ethical problems that arise in a business environment. There is disagreement about whether a company has ethical responsibilities. Other ethical standards may include public policy, religious beliefs, and cultural values. Pages 29-31 1-50 Ethical issues involved in this case could include morality and business ethics. The moral issue involves the consideration of the “right thing to do” with respect to the plane ticket. The business ethics issues involve maintaining the integrity of the firm. 1-51 Unless the firm clearly allows staff to take home supplies (which likely would result in additional income to the staff members), this is clearly not ethical behavior. If Donna Federal Tax Research, 11th Edition Page 1-11 does work at home and the firm has clear policies allowing supplies to be taken home and used for work purposes, the behavior would be reasonable. 1-52. CPAs are in little danger of entering into the unauthorized practice of law as long as they avoid providing general legal services. The issue that arises is not whether CPAs are rendering legal services, but how much legal service is provided. Because of the lack of guidelines on this issue, the federal agencies seem to have taken a lead in attempting to solve this problem. Page 33 1-53. To avoid being charged with the unauthorized practice of law, the following activities should be avoided.  Expressing a legal opinion on a nontax matter.  Drafting wills or trust instruments.  Drafting contracts.  Drafting incorporation papers.  Drafting partnership agreements. Page 35 EXERCISES 1-54. a. Subpart A, § 10.4(c)8 Eligibility for enrollment as an enrolled agent or enrolled retirement plan agent. Discussion of the criteria for enrollment before the IRS b. Subpart B, § 10.21 Knowledge of client’s omission.. Each attorney, CPA, enrolled agent, or enrolled actuary who knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper, shall advise the client promptly of the fact of such noncompliance, error, or omission. c. Subpart B, § 10.26 Notaries.. A practitioner may not perform any official act as a notary public with respect to any matter administered by the IRS for which employed as counsel, attorney, or agent. d. Subpart B, § 10.29 Conflicting interests.. No tax practitioner can represent conflicting interests before the IRS unless he or she has the express consent of the directly interested parties Circular 230 1-55. a. Subpart C, § 10.51(a)(12) Contemptuous conduct in connection with practice before the Internal Revenue Service, including the use of abusive language, making false accusations or statements, knowing them to be false, or circulating or publishing malicious or libelous matter b. Subpart A, § 10.6(e). Conditions for renewal. In order to qualify for renewal of enrollment, an individual, to practice before the IRS, must certify that he or she has satisfied the continuing professional education requirements. c. Subpart A, § 10.3(f) Registered tax return preparers Federal Tax Research, 11th Edition Page 1-12 d. Subpart B, § 10.27. Fees.. Discussion of provision that a practitioner may not charge an unconscionable fee for representing a client in a matter before the IRS. Also, a practitioner may not charge a contingent fee for preparing an original return. Circular 230 1-56. a. Subpart B, § 10.22(b) Reliance on others. Except as modified by §§10.34 and 10.37, a practitioner will be presumed to have exercised due diligence for purposes of this section if the practitioner relies on the work product of another person and the practitioner used reasonable care in engaging, supervising, training, and evaluating the person, taking proper account of the nature of the relationship between the practitioner and the person. b. Subpart A, § 10.7(c)(1)(vi). An individual may represent any individual or entity, who is outside the United States, before personnel of the Internal Revenue Service when such representation takes place outside the United States. c. Subpart B, § 10.24. Prohibits assistance from disbarred or suspended persons. d. Subpart B, § 10.34. Defines standards for advising and signing returns. Circular 230 1-57. a. Subpart B, § 10.33. Discussion of adhering to the best practices in providing advice. b. Subpart B, § 10.35. Provides standards on “covered opinions.” c. Subpart B, § 10.36. Requires that a firm take reasonable steps to adhere to the “covered opinions” section. d. Subpart B, § 10.37. Describes situations in which a tax practitioner should not give written advice. Circular 230 1-58. a. Solicitation is discussed in Subpart B, §10.30. b. Negotiation of a taxpayer's refund checks is discussed in Subpart B, § 10.31. c. Who may practice before the IRS? Subpart A §10.3 d. Authority to disbar or suspend from practice before the Internal Revenue Service is discussed in Subpart C, §10.50. Circular 230 1-59. a. Conflicting interests are discussed in Subpart B, § 10.39. b. Disreputable conduct is discussed in Subpart C, § 10.51. c. Assistance from disbarred or suspended persons is discussed in Subpart B, § 10.24. d. Representing oneself before the IRS is discussed in Subpart A, § 10.7. Circular 230 1-60. a. Practice of law is in Subpart B, § 0.32. b. Information to be furnished is in Subpart B, § 10.20. c. Fees are in Subpart B, § 10.27. Federal Tax Research, 11th Edition Page 1-13 d. Responsibility for correcting errors? Subpart, § 10.21 Circular 230 1-61. a. Best Practices are discussed in Subpart B, § 10.33. b. The return of client’s records is discussed in Subpart B, § 10.28. c. Tax Return Positions are discussed in Subpart B, § 10.34. d. Due Diligence is discussed in Subpart B, § 10.22. Circular 230 1-62. a. SSTS No. 1. In preparing a tax return, a member should have a good-faith belief that a recommended position has a realistic possibility of being sustained if challenged; otherwise such a position should not be recommended by the member. b. SSTS No. 4. A member may prepare tax returns that involve the use of the taxpayer's estimates if it is impractical to obtain exact data and if the estimated amounts appear reasonable to the member. c. SSTS No. 6. The member must advise the taxpayer promptly, whether or not the member prepared or signed the return in question, when he or she learns of an error in a previously filed tax return, an error in a return that is the subject of an administrative proceeding, or a taxpayer’s failure to file a required return. However, the member is neither obligated to inform the IRS of the situation, nor may he or she do so without the taxpayer's permission, except as provided by law. Pages 22-25 1-63. a. Lowell Bar Association v. Loeb. The preparation of "simple" tax returns did not constitute the unauthorized practice of Massachusetts law because tax return preparation could not be identified as strictly within the legal discipline. b. Bercu. The court held that Bercu could have provided tax advice if it had been incidental to the tax return work he regularly performed for his clients. c. Sperry v. Florida. The U.S. Supreme Court held that a Federal statute that admitted nonattorneys to practice before Federal agencies (in this case, the Patent Office) took precedence over state regulation, thus CPAs and Enrolled Agents were not engaged in the unauthorized practice of law when they were giving tax advice. Pages 33-34 1-64. False. See Circular 230, §10.29. 1-65. True. See Circular 230, §10.7. 1-66. These fees would all be contingent fees if the IRS challenges a tax position. Under Circular 230 § 10.27 A Contingent fee is any fee that is based, in whole or in part, on whether or not a position taken on a tax return or other filing avoids challenge by the Internal Revenue Service or is sustained either by the Internal Revenue Service or in litigation. A contingent fee includes a fee that is based on a percentage of the refund Federal Tax Research, 11th Edition Page 1-14 reported on a return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific result attained. Circular 230 1-67. Circular 230, § 10.32 (Practice of law) states that, “Nothing in the regulations in this part may be construed as authorizing persons not members of the bar to practice law.” Circular 230 1-68. d. Under Rule 1.100.001 of the AICPA Code of Conduct, CPAs cannot make selflaudatory statements not based on verifiable facts. Page 21 1-69. c. See Circular 230, §10.30 1-70. c. Under Rule 1.800.001 of the AICPA Code of Conduct, CPAs cannot practice public accounting under a firm name that is misleading. A sole practitioner is not a company. The only exception is when a sole practitioner survives the death or withdrawal of all other partners or shareholders, he or she can continue to practice under a firm name for up to two years after becoming a sole practitioner. Page 20 1-71. b. SSTS No. 4 allows a member to use reasonable estimates in the preparation of a tax return. Pages 23-24 1-72. d. Under Rule 1.510.001of the AICPA Code of Conduct, CPAs are allowed to take contingent fees in tax matters if they are based on judicial proceedings or the findings of governmental agencies. Page 18 1-73. c. Under Rule 1.700.001 of the AICPA Code of Conduct, CPAs cannot reveal confidential client information without the consent of the client unless it is to an investigative body, trial board, quality review body, or court of law. Pages 19-20 1-74. a. SSTS No. 4 requires members to disclose to the IRS the use of estimates when fire or computer failure has destroyed the relevant records. Pages 23-24 1-75. d. Under Subpart A, §10.7(c)(2)(i) of Circular 230, persons who are disbarred or suspended are not allowed to practice before the IRS. Federal Tax Research, 11th Edition Page 1-15 Circular 230 1-76. b. Under Subpart B, §10.21 of Circular 230, practitioners must notify clients of any noncompliance with the tax law. A similar rule is found in SSTS No. 6. Page 11 1-77. a. Circular 230, Subpart A, §10.7(a) states that a taxpayer can appear on their own behalf before the IRS. b. 1.520.001 Commissions and Referral Fees Rule c. SSTS No. 3 Certain Procedural Aspects of Preparing Returns d. Under Statement on Standards for Tax Service (SSTS) No. 1, a member must have a good-faith belief that a recommended position has a realistic possibility of being sustained if challenged. Circular 230, Pages 20, 22, 24 1-78. a. Circular 230, Subpart C, §10.51 states that a practitioner can be disbarred or suspended from practice before the IRS for disreputable conduct. b. The knowledge of client omissions rule is found in Circular 230, Subpart B, §10.21. c. 1.400.200 Records Requests. Members must comply with the rules and regulations of authoritative regulatory bodies, such as the member’s state board(s) of accountancy, when the member performs services for a client and is subject to the rules and regulations of such regulatory body. d. SSTS No. 5 Departure from a Position Previously Concluded in an Administrative Proceeding or Court Decision e. Under Statement on Standards for Tax Services (SSTS) No. 7, a member must use judgment that reflects professional competence and serves the taxpayer’s needs. Circular 230, Pages 22-26 1-79. The parts of the enrolled agent exam are: Part 1 - Individual Income Taxes Part 2 - Businesses Part 3 - Representation, Practices, Procedures See for more information on the enrolled agent exam. 1-80. The Application for Enrollment to Practice Before the IRS is Form 23. 1-81. a. California- Minimum 3 semester or 4 quarter units in accounting ethics or accountants’ professional responsibilities b. Texas- The board requires that 3 passing semester hours be earned as a result of taking a course in ethics. c. North Carolina- The 150 semester hours required include a concentration in accounting, as defined by 21 NCAC 08A .0309, and 24 semester hours of coursework which include one (1) three (3) semester hour course from at least eight (8) of the following 10 fields of study: communications; computer technology; economics; ethics; Federal Tax Research, 11th Edition Page 1-16 finance; humanities/social science; international environment; law; management; or statistics CHAPTER 2 TAX RESEARCH METHODOLOGY DISCUSSION QUESTIONS 2-1. The primary purpose of tax research is to aid in finding solutions to tax problems. Page 46 2-2. The basic steps in conducting tax research include the following: Establish the Facts. This step involves the gathering of facts, including tax and nontax considerations. Identify the Issues. The tax researcher must identify both issues of fact and issues of law. In so doing, the researcher must rely on a combination of education, training, and experience. Locate the Appropriate Authority. The researcher must locate authority relevant to the client's situation. Authority may include both primary and secondary authority. Evaluate the Authority. This step in the tax research process requires the researcher to analyze the authority, including the current status of the authority and the precedential value of the authority. Develop Conclusions and Recommendations. The researcher must arrive at his or her conclusions based on the first four steps of the tax research process. Communicate the Recommendations. The final step in the research process is to communicate to the client the facts, assumptions, issues, sources of authority, and conclusions and recommendations. Pages 47-56 2-3. First, the researcher must understand the mechanical techniques that are used to identify and locate the tax authorities that relate to solving a problem. Second, the researcher must be creative and explore all of the relevant relationships among the facts and the problems at hand. Page 50 2-4. Significant tax facts that a tax practitioner might want to obtain could include any of the following: The client’s tax entity(ies). The client's family status and stability. The client's past, present, and projected marginal tax rates. The client's legal domicile and citizenship. The client's motivation for the transaction. Relationships among the client and other parties involved in the transaction. Whether special tax rules apply. Federal Tax Research, 11th Edition Page 1-17 Whether the transaction is proposed or completed. Pages 47-48 2-5. The researcher should be aware of the following pitfalls: 1. The researcher may attempt to research a problem before fully understanding the facts and circumstances relevant to the client's situation. 2. Often the researcher may have a tendency to ignore new questions that arise as the research task progresses. 3. The client may fail to provide all of the information that is vital to an accurate solution. 4. The tax researcher may approach a tax problem without considering other constraints on the solution to the problem, such as economic factors or personal preferences of the client. Page 50 2-6. a. T (lower tax liability). b. NT (economic constraints). c. NT (personal preference). d. NT (personal preference). e. NT (personal preference). 2-7. a. NT (personal preference). Might also be classified as T, since the taxpayer's motivation for a potential transaction is known. b. NT (personal preference) c. NT (family preference) d. T (lower tax liability) e. T (lower tax liability) Page 50 2-8. Research issues can be divided into two major categories, namely, fact issues and law issues. Fact issues are concerned with problems such as the dates of the transactions, the amounts involved in an exchange, reasonableness, intent, and purpose. Law issues arise when the facts are well established, but it is not clear which portion of the tax law applies.