Solution Manual For Federal Tax Research, 13th Edition
by Roby Sawyers, Steven Gill
effective tax planning requires consideration for - ANSWER:both tax and non-tax
factors
effective tax planning maximizes - ANSWER:the taxpayer's after-tax wealth while
achieving the taxpayer's non-tax goals
tax planning includes - ANSWER:education planning, estate planning, retirement
planning, income tax planning, investment planning, cash planning, risk planning
3 parties to every transaction - ANSWER:taxpayer, other party, and the government
3 basic planning strategies - ANSWER:timing, income shifting, conversion
Tax Planning - change character of income - ANSWER:ordinary income is fully
taxable, investment income may be tax-exempt or tax-deferred, passive income (tax
shelters) can be netted with passive losses, LTCG are subject to lower rates than
ordinary income
Tax Planning - avoid recognition of taxable income - ANSWER:avoid accumulation of
gross income that must be recognized, use debt, use nontaxable fringe benefits in
place of compensation
Tax Planning - timing - ANSWER:change the timing of recognition of income, gains,
deductions, losses, and credits. Postpone income recognition; accelerate losses and
deductions (must consider present value of tax paid in later years)
Tax Planning - Shifting - ANSWER:change tax jurisdictions to achieve tax reduction,
tax planning among related taxpayers -- spread income among several separate
businesses owned by individual and family members, payment of employee fringe
benefits from solely-owned corporation - benefits deductible and not taxed to
shareholder
planning goal - ANSWER:reduce the net present value of the tax liability
after-tax cost of tax planning may be expressed as: ATC = - ANSWER:BTC x (1-MTR)
ATC = After tax cost
BTC = Before tax cost
MTR = marginal tax rate
fundamentals of tax planning - ANSWER:consider tax effects before transactions are
finalized, pay attention to structural and transactional categories est. by Congress
and the courts
, avoiding tax traps - ANSWER:Statutory "tax traps": provisions in place intended to
prevent certain planning opportunities
Judicial tax traps: examine judicial decisions to find limits of code provisions -
business purpose, substance over form, step-transaction doctrine, constructive
receipt, assignment of income
organization of IRS - ANSWER:- IRS is a bureau w.i Dept of Treasury
- Deputy Commissioner is CEO of IRS (appointed by President of US, renewable 5-yr
term, responsible for planning + directing IRS policies + programs)
IRS mission statement - ANSWER:provide America's taxpayers top quality service by
helping them understand and meet their tax responsibilities and by applying the tax
law with integrity and fairness to all
organizational details of IRS National Office - ANSWER:deputy commissioner, wages
+ investment division (W+I), small business & self-employed (SB/SE) division, tax
exempt + gov't entities (TEGE) division, large business + international division (LB+I)
Taxpayer Advocate Service (TAS) - ANSWER:independent organization reporting
directly to Commissioner through National Taxpayer Advocate for taxpayer
intervention assistance (used to resolve billing, procedural, and other problems that
taxpayers cannot correct after 1 or more contacts w/ IRS)
Taxpayer Assistance Orders (TOA) - ANSWER:National Taxpayer Advocate may issue
a TOA to suspend, delay, or stop actions by the IRS that would cause undue hardship
on the taxpayer
local taxpayer advocates - ANSWER:responsible only to the National Taxpayer
Advocate, resolve taxpayer problems and complaints
taxpayer bill of rights guarantees - ANSWER:representation before the IRS, a
recording of any proceeding, an IRS explanation of its tax position
taxpayer has right to know - ANSWER:why IRS is requesting information, how IRS will
use the information, repercussions of not providing info, and pertinent aspects of
audit procedures
audit process - ANSWER:1. preliminary review of returns
2. selection of returns for examination
3. correspondence examinations, office examinations, field examinations
4. conclusion of examination
preliminary review of returns - ANSWER:- reviewed for simple/obvious errors
- Automatic Data Processing (information document matching program,
mathematical/clerical error program -- check returns for math errors and
recomputes tax due)
by Roby Sawyers, Steven Gill
effective tax planning requires consideration for - ANSWER:both tax and non-tax
factors
effective tax planning maximizes - ANSWER:the taxpayer's after-tax wealth while
achieving the taxpayer's non-tax goals
tax planning includes - ANSWER:education planning, estate planning, retirement
planning, income tax planning, investment planning, cash planning, risk planning
3 parties to every transaction - ANSWER:taxpayer, other party, and the government
3 basic planning strategies - ANSWER:timing, income shifting, conversion
Tax Planning - change character of income - ANSWER:ordinary income is fully
taxable, investment income may be tax-exempt or tax-deferred, passive income (tax
shelters) can be netted with passive losses, LTCG are subject to lower rates than
ordinary income
Tax Planning - avoid recognition of taxable income - ANSWER:avoid accumulation of
gross income that must be recognized, use debt, use nontaxable fringe benefits in
place of compensation
Tax Planning - timing - ANSWER:change the timing of recognition of income, gains,
deductions, losses, and credits. Postpone income recognition; accelerate losses and
deductions (must consider present value of tax paid in later years)
Tax Planning - Shifting - ANSWER:change tax jurisdictions to achieve tax reduction,
tax planning among related taxpayers -- spread income among several separate
businesses owned by individual and family members, payment of employee fringe
benefits from solely-owned corporation - benefits deductible and not taxed to
shareholder
planning goal - ANSWER:reduce the net present value of the tax liability
after-tax cost of tax planning may be expressed as: ATC = - ANSWER:BTC x (1-MTR)
ATC = After tax cost
BTC = Before tax cost
MTR = marginal tax rate
fundamentals of tax planning - ANSWER:consider tax effects before transactions are
finalized, pay attention to structural and transactional categories est. by Congress
and the courts
, avoiding tax traps - ANSWER:Statutory "tax traps": provisions in place intended to
prevent certain planning opportunities
Judicial tax traps: examine judicial decisions to find limits of code provisions -
business purpose, substance over form, step-transaction doctrine, constructive
receipt, assignment of income
organization of IRS - ANSWER:- IRS is a bureau w.i Dept of Treasury
- Deputy Commissioner is CEO of IRS (appointed by President of US, renewable 5-yr
term, responsible for planning + directing IRS policies + programs)
IRS mission statement - ANSWER:provide America's taxpayers top quality service by
helping them understand and meet their tax responsibilities and by applying the tax
law with integrity and fairness to all
organizational details of IRS National Office - ANSWER:deputy commissioner, wages
+ investment division (W+I), small business & self-employed (SB/SE) division, tax
exempt + gov't entities (TEGE) division, large business + international division (LB+I)
Taxpayer Advocate Service (TAS) - ANSWER:independent organization reporting
directly to Commissioner through National Taxpayer Advocate for taxpayer
intervention assistance (used to resolve billing, procedural, and other problems that
taxpayers cannot correct after 1 or more contacts w/ IRS)
Taxpayer Assistance Orders (TOA) - ANSWER:National Taxpayer Advocate may issue
a TOA to suspend, delay, or stop actions by the IRS that would cause undue hardship
on the taxpayer
local taxpayer advocates - ANSWER:responsible only to the National Taxpayer
Advocate, resolve taxpayer problems and complaints
taxpayer bill of rights guarantees - ANSWER:representation before the IRS, a
recording of any proceeding, an IRS explanation of its tax position
taxpayer has right to know - ANSWER:why IRS is requesting information, how IRS will
use the information, repercussions of not providing info, and pertinent aspects of
audit procedures
audit process - ANSWER:1. preliminary review of returns
2. selection of returns for examination
3. correspondence examinations, office examinations, field examinations
4. conclusion of examination
preliminary review of returns - ANSWER:- reviewed for simple/obvious errors
- Automatic Data Processing (information document matching program,
mathematical/clerical error program -- check returns for math errors and
recomputes tax due)
