Federal Tax Research, 12th Edition Page 1-1
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
CHAPTER 1
INTRODUCTION TO uTAX uPRACTICE uAND uETHICS
DISCUSSION uQUESTIONS
1-1. In uthe uUnited uStates, uthe utax usystem uis uan uoutgrowth uof uthe ufollowing ufive
udisciplines: ulaw, uaccounting, ueconomics, upolitical uscience, uand usociology. uThe
uenvironment ufor uthe utax usystem uisuprovided uby uthe uprinciples uof ueconomics,
usociology, uand upolitical uscience, uwhile uthe ulegal uand uaccounting ufields uare
uresponsible ufor u the usystem‘s uinterpretation u and uapplication.
Each uof uthese udisciplines uaffects uthis ucountry‘s utax usystem uin ua uunique uway.
uEconomists uaddressusuch uissues uas uhow uproposed utax ulegislation uwill uaffect uthe urate
uof uinflation u or u economic ugrowth.uMeasurement uof uthe usocial uequity uof ua utax uand
udetermining uwhether ua utax usystem udiscriminates uagainst ucertain utaxpayers uare uissues
uthat uare uexamined uby usociologists uand upolitical uscientists.
Finally, uattorneys uare uresponsible ufor u the uinterpretation u of uthe utaxation ustatutes, uand
uaccountantsuensure uthat uthese usame ustatutes uare uapplied uconsistently.
Page u4
1-2. The uother umajor u categories uof utax upractice uin uaddition uto utax uresearch uare uas ufollows:
Tax ucompliance
Tax uplanning
Tax
ulitigationuPage u5
1-3. Tax ucompliance uconsists uof ugathering upertinent uinformation, uevaluating uand uclassifying
uthat uinformation, uand ufiling uany unecessary utax ureturns. uCompliance ualso uincludes
uother ufunctions unecessary uto usatisfy ugovernmental urequirements, usuch uas urepresenting
ua uclient uduring uan uInternaluRevenue uService u(IRS) uaudit.
,Page 1-2 SOLUTIONS MANUAL
Page u5
1-4. Most uof uthe utax ucompliance uwork uis uperformed uby ucommercial utax upreparers, uenrolled
uagents u(EAs), uattorneys, uand ucertified upublic uaccountants u(CPAs). uNoncomplex
uindividual, upartnership,uand ucorporate utax ureturns uoften uare ucompleted uby ucommercial
utax upreparers. uThe upreparation uof umore ucomplex ureturns uusually uis uperformed uby
uEAs, uattorneys, uand uCPAs. uThe ulatter ugroups ualsouprovide utax uplanning uservices uand
urepresent utheir uclients ubefore uthe uIRS.
An uEA uis uone uwho uis uadmitted uto upractice ubefore uthe uIRS uby upassing ua uspecial uIRS-
administered uexamination, uor uwho uhas uworked ufor uthe uIRS ufor ufive uyears uand uis uissued
ua upermit uto urepresent uclients ubefore uthe uIRS. uCPAs uand uattorneys uare unot urequired uto
utake uthis uexamination uand uare uautomatically uadmitted uto upractice ubefore uthe uIRS uif
uthey uare uin ugood ustanding uwith uthe uappropriateuprofessional ulicensing uboard.
Page u5 uand uCircular u230
1-5. Tax uplanning uis uthe uprocess uof uarranging uone‘s ufinancial uaffairs uto uminimize uany utax
uliability. uMuchuof umodern utax upractice ucenters uaround uthis uprocess, uand uthe uresulting
uoutcome uis utax uavoidance.
There uis unothing uillegal uor uimmoral uin uthe uavoidance uof utaxation uas ulong uas uthe
utaxpayer uremains uwithin ulegal ubounds. uIn ucontrast, utax uevasion uconstitutes uthe uillegal
unonpayment uof ua utax uand ucannotube ucondoned. uActivities uof uthis usort uclearly uviolate
uexisting ulegal uconstraints uand ufall uoutside uof uthe udomain uof uthe uprofessional utax
upractitioner.
Page u6
1-6. In uan uopen utax uplanning usituation, uthe utransaction uis unot uyet ucomplete; utherefore, uthe
utax upractitionerumaintains usome udegree uof ucontrol uover uthe upotential utax uliability, uand
uthe utransaction umay ube umodi- ufied uto uachieve ua umore ufavorable utax utreatment. uIn ua
uclosed utransaction uhowever, uall uof uthe upertinentuactions uhave ubeen ucompleted, uand utax
uplanning uactivities umay ube ulimited uto uthe upresentation uof uthe usituation uto uthe
ugovernment uin uthe umost ulegally uadvantageous u manner u possible.
,Federal Tax Research, 12th Edition Page 1-3
Page u6
1-7. Tax ulitigation uis uthe uprocess uof usettling ua udispute uwith uthe uIRS uin ua ucourt uof ulaw.
uTypically, ua utaxuattorney uhandles utax ulitigation uthat uprogresses ubeyond uthe ufinal uIRS
uappeal.
Page u6
1-8. CPAs userve uis ua usupport ucapacity uin utax ulitigation.
Page u6
1-9. Tax uresearch uconsists uof uthe uresolution uof uunanswered utaxation uquestions. u The utax
uresearch uprocessuincludes uthe ufollowing:
1. Identification uof upertinent uissues;
2. Specification uof uproper uauthorities;
3. Evaluation u of uthe upropriety uof uauthorities; uand,
4. Application uof uauthorities uto ua uspecific usituation.
Page u6
1-10. Circular u230 uis uissued uby uthe uTreasury uDepartment uand uapplies uto uall uwho upractice
ubefore uthe uIRS.uPage u7
1-11. In uaddition uto uCircular u230, uCPAs umust ufollow uthe uAICPA‘s uCode uof uProfessional
uConduct uand uStatements uon uStandards ufor uTax uServices. uCPAs umust ualso uabide uby
uthe urules uof uthe uappropriateustate uboard(s) uof uaccountancy.
Page u7
1-12. A ureturn upreparer umust uobtain u18 uhours uof ucontinuing ueducation ufrom uan uIRS-approved
uCE uProvider. uThe uhours umust uinclude ua u6 ucredit uhour uAnnual uFederal uTax uRefresher
ucourse u(AFTR) uthat ucovers ufiling useason uissues uand utax ulaw uupdates. uThe uAFTR
ucourse umust uinclude ua uknowledge-ubased ucomprehension utest uadministered uat uthe
uconclusion u of uthe ucourse uby uthe uCE uProvider.
, Page 1-4 SOLUTIONS MANUAL
Limited upractice urights uallow uindividuals uto urepresent uclients uwhose ureturns uthey
uprepared uandusigned, ubut uonly ubefore urevenue uagents, ucustomer uservice
urepresentatives, uand usimilar uIRS uemployees.
Page u10 uand uIRS.gov
1-13. False. uOnly ucommunication uwith uthe uIRS uconcerning ua utaxpayer‘s urights, uprivileges, uor
uliability uisuincluded. uPractice ubefore uthe uIRS udoes unot uinclude urepresentation ubefore uthe
uTax uCourt.
Page u7
1-14. Section u 10.2 uof uSubpart uA uof uCircular u 230 udefines upractice ubefore uthe uIRS uas uincluding:
matters uconnected uwith upresentation uto uthe uInternal uRevenue uService uor uany uof
uits uofficersuor uemployees urelating uto ua uclient‘s urights, uprivileges, uor uliabilities
uunder ulaws uor uregulations uadministered uby uthe uInternal uRevenue uService. uSuch
upresentations uinclude utheupreparation uand ufiling uof unecessary udocuments,
ucorrespondence uwith, uand ucommunications uto uthe uInternal uRevenue uService, uand
uthe urepresentation uof ua uclient uat uconferences, uhearings, uand umeetings.
Page u7
1-15. To ubecome uan uEA uan uindividual ucan u (1) upass ua utest ugiven u by uthe uIRS uor u(2) uwork
ufor u the uIRS uforufive u years. u Circular u230, uSubpart uA, u§§ u10.4 uto u10.6.
Page u9
1-16. EAs umust ucomplete u72 uhours uof ucontinuing ueducation uevery uthree uyears u(an uaverage uof
u24 uper uyear,uwith ua uminimum u of u16 uhours uduring uany uyear). uCircular u230, uSubpart uA.
u§ u10.6.
Page u9
1-17. True. uAs ua ugeneral urule, uan uindividual umust ube uan uEA, uattorney, uor uCPA uto urepresent
ua uclient ubeforeuthe uIRS. uThere uare ulimited usituations uwhere uothers umay urepresent ua
utaxpayer; uhowever, uthis ufact upattern uis unot uone uof uthem. uSince uLeigh udid unot usign uthe
ureturn, ushe ucannot urepresent uthe utaxpayer, uonly uRose ucan.
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
CHAPTER 1
INTRODUCTION TO uTAX uPRACTICE uAND uETHICS
DISCUSSION uQUESTIONS
1-1. In uthe uUnited uStates, uthe utax usystem uis uan uoutgrowth uof uthe ufollowing ufive
udisciplines: ulaw, uaccounting, ueconomics, upolitical uscience, uand usociology. uThe
uenvironment ufor uthe utax usystem uisuprovided uby uthe uprinciples uof ueconomics,
usociology, uand upolitical uscience, uwhile uthe ulegal uand uaccounting ufields uare
uresponsible ufor u the usystem‘s uinterpretation u and uapplication.
Each uof uthese udisciplines uaffects uthis ucountry‘s utax usystem uin ua uunique uway.
uEconomists uaddressusuch uissues uas uhow uproposed utax ulegislation uwill uaffect uthe urate
uof uinflation u or u economic ugrowth.uMeasurement uof uthe usocial uequity uof ua utax uand
udetermining uwhether ua utax usystem udiscriminates uagainst ucertain utaxpayers uare uissues
uthat uare uexamined uby usociologists uand upolitical uscientists.
Finally, uattorneys uare uresponsible ufor u the uinterpretation u of uthe utaxation ustatutes, uand
uaccountantsuensure uthat uthese usame ustatutes uare uapplied uconsistently.
Page u4
1-2. The uother umajor u categories uof utax upractice uin uaddition uto utax uresearch uare uas ufollows:
Tax ucompliance
Tax uplanning
Tax
ulitigationuPage u5
1-3. Tax ucompliance uconsists uof ugathering upertinent uinformation, uevaluating uand uclassifying
uthat uinformation, uand ufiling uany unecessary utax ureturns. uCompliance ualso uincludes
uother ufunctions unecessary uto usatisfy ugovernmental urequirements, usuch uas urepresenting
ua uclient uduring uan uInternaluRevenue uService u(IRS) uaudit.
,Page 1-2 SOLUTIONS MANUAL
Page u5
1-4. Most uof uthe utax ucompliance uwork uis uperformed uby ucommercial utax upreparers, uenrolled
uagents u(EAs), uattorneys, uand ucertified upublic uaccountants u(CPAs). uNoncomplex
uindividual, upartnership,uand ucorporate utax ureturns uoften uare ucompleted uby ucommercial
utax upreparers. uThe upreparation uof umore ucomplex ureturns uusually uis uperformed uby
uEAs, uattorneys, uand uCPAs. uThe ulatter ugroups ualsouprovide utax uplanning uservices uand
urepresent utheir uclients ubefore uthe uIRS.
An uEA uis uone uwho uis uadmitted uto upractice ubefore uthe uIRS uby upassing ua uspecial uIRS-
administered uexamination, uor uwho uhas uworked ufor uthe uIRS ufor ufive uyears uand uis uissued
ua upermit uto urepresent uclients ubefore uthe uIRS. uCPAs uand uattorneys uare unot urequired uto
utake uthis uexamination uand uare uautomatically uadmitted uto upractice ubefore uthe uIRS uif
uthey uare uin ugood ustanding uwith uthe uappropriateuprofessional ulicensing uboard.
Page u5 uand uCircular u230
1-5. Tax uplanning uis uthe uprocess uof uarranging uone‘s ufinancial uaffairs uto uminimize uany utax
uliability. uMuchuof umodern utax upractice ucenters uaround uthis uprocess, uand uthe uresulting
uoutcome uis utax uavoidance.
There uis unothing uillegal uor uimmoral uin uthe uavoidance uof utaxation uas ulong uas uthe
utaxpayer uremains uwithin ulegal ubounds. uIn ucontrast, utax uevasion uconstitutes uthe uillegal
unonpayment uof ua utax uand ucannotube ucondoned. uActivities uof uthis usort uclearly uviolate
uexisting ulegal uconstraints uand ufall uoutside uof uthe udomain uof uthe uprofessional utax
upractitioner.
Page u6
1-6. In uan uopen utax uplanning usituation, uthe utransaction uis unot uyet ucomplete; utherefore, uthe
utax upractitionerumaintains usome udegree uof ucontrol uover uthe upotential utax uliability, uand
uthe utransaction umay ube umodi- ufied uto uachieve ua umore ufavorable utax utreatment. uIn ua
uclosed utransaction uhowever, uall uof uthe upertinentuactions uhave ubeen ucompleted, uand utax
uplanning uactivities umay ube ulimited uto uthe upresentation uof uthe usituation uto uthe
ugovernment uin uthe umost ulegally uadvantageous u manner u possible.
,Federal Tax Research, 12th Edition Page 1-3
Page u6
1-7. Tax ulitigation uis uthe uprocess uof usettling ua udispute uwith uthe uIRS uin ua ucourt uof ulaw.
uTypically, ua utaxuattorney uhandles utax ulitigation uthat uprogresses ubeyond uthe ufinal uIRS
uappeal.
Page u6
1-8. CPAs userve uis ua usupport ucapacity uin utax ulitigation.
Page u6
1-9. Tax uresearch uconsists uof uthe uresolution uof uunanswered utaxation uquestions. u The utax
uresearch uprocessuincludes uthe ufollowing:
1. Identification uof upertinent uissues;
2. Specification uof uproper uauthorities;
3. Evaluation u of uthe upropriety uof uauthorities; uand,
4. Application uof uauthorities uto ua uspecific usituation.
Page u6
1-10. Circular u230 uis uissued uby uthe uTreasury uDepartment uand uapplies uto uall uwho upractice
ubefore uthe uIRS.uPage u7
1-11. In uaddition uto uCircular u230, uCPAs umust ufollow uthe uAICPA‘s uCode uof uProfessional
uConduct uand uStatements uon uStandards ufor uTax uServices. uCPAs umust ualso uabide uby
uthe urules uof uthe uappropriateustate uboard(s) uof uaccountancy.
Page u7
1-12. A ureturn upreparer umust uobtain u18 uhours uof ucontinuing ueducation ufrom uan uIRS-approved
uCE uProvider. uThe uhours umust uinclude ua u6 ucredit uhour uAnnual uFederal uTax uRefresher
ucourse u(AFTR) uthat ucovers ufiling useason uissues uand utax ulaw uupdates. uThe uAFTR
ucourse umust uinclude ua uknowledge-ubased ucomprehension utest uadministered uat uthe
uconclusion u of uthe ucourse uby uthe uCE uProvider.
, Page 1-4 SOLUTIONS MANUAL
Limited upractice urights uallow uindividuals uto urepresent uclients uwhose ureturns uthey
uprepared uandusigned, ubut uonly ubefore urevenue uagents, ucustomer uservice
urepresentatives, uand usimilar uIRS uemployees.
Page u10 uand uIRS.gov
1-13. False. uOnly ucommunication uwith uthe uIRS uconcerning ua utaxpayer‘s urights, uprivileges, uor
uliability uisuincluded. uPractice ubefore uthe uIRS udoes unot uinclude urepresentation ubefore uthe
uTax uCourt.
Page u7
1-14. Section u 10.2 uof uSubpart uA uof uCircular u 230 udefines upractice ubefore uthe uIRS uas uincluding:
matters uconnected uwith upresentation uto uthe uInternal uRevenue uService uor uany uof
uits uofficersuor uemployees urelating uto ua uclient‘s urights, uprivileges, uor uliabilities
uunder ulaws uor uregulations uadministered uby uthe uInternal uRevenue uService. uSuch
upresentations uinclude utheupreparation uand ufiling uof unecessary udocuments,
ucorrespondence uwith, uand ucommunications uto uthe uInternal uRevenue uService, uand
uthe urepresentation uof ua uclient uat uconferences, uhearings, uand umeetings.
Page u7
1-15. To ubecome uan uEA uan uindividual ucan u (1) upass ua utest ugiven u by uthe uIRS uor u(2) uwork
ufor u the uIRS uforufive u years. u Circular u230, uSubpart uA, u§§ u10.4 uto u10.6.
Page u9
1-16. EAs umust ucomplete u72 uhours uof ucontinuing ueducation uevery uthree uyears u(an uaverage uof
u24 uper uyear,uwith ua uminimum u of u16 uhours uduring uany uyear). uCircular u230, uSubpart uA.
u§ u10.6.
Page u9
1-17. True. uAs ua ugeneral urule, uan uindividual umust ube uan uEA, uattorney, uor uCPA uto urepresent
ua uclient ubeforeuthe uIRS. uThere uare ulimited usituations uwhere uothers umay urepresent ua
utaxpayer; uhowever, uthis ufact upattern uis unot uone uof uthem. uSince uLeigh udid unot usign uthe
ureturn, ushe ucannot urepresent uthe utaxpayer, uonly uRose ucan.
