Federal Tax Research, 12th Edition
SD SD SD SD Page 1-1
SD
Solution manual for federal tax research 12th
edition by roby sawyers steven gill
CHAPTER 1 SD
INTRODUCTION TO TAX PRACTICE AND ETHICS SD SD SD SD SD
DISCUSSION QUESTIONS
SD
1-1.
In the United States, the tax system is an outgrowth of the following five disciplines: l
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
aw, accounting, economics, political science, and sociology. The environment for the tax syst
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em isprovided by the principles of economics, sociology, and political science, while the legal
SD S
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and accounting fields are responsible for the system‘s interpretation and application.
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Each of these disciplines affects this country‘s tax system in a unique way. Economists address
SD SD SD SD SD SD SD SD SD SD SD SD SD SD S
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such issues as how proposed tax legislation will affect the rate of inflation or economic growth.
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD S
D
Measurement of the social equity of a tax and determining whether a tax system discriminates
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
against certain taxpayers are issues that are examined by sociologists and political scientists.
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Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountantse
SD SD SD SD SD SD SD SD SD SD SD SD S
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nsure that these same statutes are applied consistently.
SD SD SD SD SD SD SD
Page 4 SD
1-2. The other major categories of tax practice in addition to tax research are as follows:
SD SD SD SD SD SD SD SD SD SD SD SD SD SD
• Tax compliance SD
• Tax planning SD
• Tax litigation SD S
D
Page 5 SD
1-3.
Tax compliance consists of gathering pertinent information, evaluating and classifying
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that information, and filing any necessary tax returns. Compliance also includes other function
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s necessary to satisfy governmental requirements, such as representing a client during an Intern
SD SD SD SD SD SD SD SD SD SD SD SD SD
alRevenue Service (IRS) audit.
S
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,Page 1-2
SD SOLUTIONS MANUAL SD
Page 5 SD
1-4.
Most of the tax compliance work is performed by commercial tax preparers, enrolled ag
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ents (EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual, partner
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ship,and corporate tax returns often are completed by commercial tax preparers. The preparatio
S
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n of more complex returns usually is performed by EAs, attorneys, and CPAs. The latter group
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
s alsoprovide tax planning services and represent their clients before the IRS.
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An EA is one who is admitted to practice before the IRS by passing a special IRS-
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
administered examination, or who has worked for the IRS for five years and is issued a permit to
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
represent clients before the IRS. CPAs and attorneys are not required to take this examination and
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
SD are automatically admitted to practice before the IRS if they are in good standing with the approp
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riateprofessional licensing board.
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Page 5 and Circular 230 SD SD SD SD
1-5.
Tax planning is the process of arranging one‘s financial affairs to minimize any tax liabilit
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y. Muchof modern tax practice centers around this process, and the resulting outcome is tax avoida
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nce.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains wi
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thin legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe
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D
SD condoned. Activities of this sort clearly violate existing legal constraints and fall outside of the do
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main of the professional tax practitioner.
SD SD SD SD SD
Page 6 SD
1-6.
In an open tax planning situation, the transaction is not yet complete; therefore, the tax pra
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
ctitionermaintains some degree of control over the potential tax liability, and the transaction may
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be modi- SD
SD fied to achieve a more favorable tax treatment. In a closed transaction however, all of the pertinen
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tactions have been completed, and tax planning activities may be limited to the presentation of the
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Dsituation to the government in the most legally advantageous manner possible.
SD SD SD SD SD SD SD SD SD SD
,Federal Tax Research, 12th Edition
SD SD SD SD Page 1-3 SD
Page 6 SD
1-7.
Tax litigation is the process of settling a dispute with the IRS in a court of law. Typicall
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
y, a taxattorney handles tax litigation that progresses beyond the final IRS appeal.
SD SD S
D SD SD SD SD SD SD SD SD SD SD
Page 6 SD
1-8. CPAs serve is a support capacity in tax litigation.
SD SD SD SD SD SD SD SD
Page 6 SD
1-9.
Tax research consists of the resolution of unanswered taxation questions. The tax research
SD SD SD SD SD SD SD SD SD SD SD SD SD
processincludes the following: S
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1. Identification of pertinent issues; SD SD SD
2. Specification of proper authorities; SD SD SD
3. Evaluation of the propriety of authorities; and, SD SD SD SD SD SD
4. Application of authorities to a specific situation. SD SD SD SD SD SD
Page 6 SD
1-10.
Circular 230 is issued by the Treasury Department and applies to all who practice before t
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
he IRS.Page 7
SD S
D SD
1-11.
In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Cond
SD SD SD SD SD SD SD SD SD SD SD SD SD
uct and Statements on Standards for Tax Services. CPAs must also abide by the rules of the ap
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
propriatestate board(s) of accountancy. S
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Page 7 SD
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-
SD SD SD SD SD SD SD SD SD SD SD SD
approved CE Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher cou
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
rse (AFTR) that covers filing season issues and tax law updates. The AFTR course must include a
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
knowledge-
, Page 1-4
SD SOLUTIONS MANUAL
SD
based comprehension test administered at the conclusion of the course by the CE Provider.
S
D SD SD SD SD SD SD SD SD SD SD SD SD SD
SD SD SD SD Page 1-1
SD
Solution manual for federal tax research 12th
edition by roby sawyers steven gill
CHAPTER 1 SD
INTRODUCTION TO TAX PRACTICE AND ETHICS SD SD SD SD SD
DISCUSSION QUESTIONS
SD
1-1.
In the United States, the tax system is an outgrowth of the following five disciplines: l
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
aw, accounting, economics, political science, and sociology. The environment for the tax syst
SD SD SD SD SD SD SD SD SD SD SD SD
em isprovided by the principles of economics, sociology, and political science, while the legal
SD S
D SD SD SD SD SD SD SD SD SD SD SD SD S
and accounting fields are responsible for the system‘s interpretation and application.
D SD SD SD SD SD SD SD SD SD SD
Each of these disciplines affects this country‘s tax system in a unique way. Economists address
SD SD SD SD SD SD SD SD SD SD SD SD SD SD S
D
such issues as how proposed tax legislation will affect the rate of inflation or economic growth.
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD S
D
Measurement of the social equity of a tax and determining whether a tax system discriminates
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
against certain taxpayers are issues that are examined by sociologists and political scientists.
SD SD SD SD SD SD SD SD SD SD SD SD
Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountantse
SD SD SD SD SD SD SD SD SD SD SD SD S
D
nsure that these same statutes are applied consistently.
SD SD SD SD SD SD SD
Page 4 SD
1-2. The other major categories of tax practice in addition to tax research are as follows:
SD SD SD SD SD SD SD SD SD SD SD SD SD SD
• Tax compliance SD
• Tax planning SD
• Tax litigation SD S
D
Page 5 SD
1-3.
Tax compliance consists of gathering pertinent information, evaluating and classifying
SD SD SD SD SD SD SD SD SD SD
that information, and filing any necessary tax returns. Compliance also includes other function
SD SD SD SD SD SD SD SD SD SD SD SD
s necessary to satisfy governmental requirements, such as representing a client during an Intern
SD SD SD SD SD SD SD SD SD SD SD SD SD
alRevenue Service (IRS) audit.
S
D SD SD SD
,Page 1-2
SD SOLUTIONS MANUAL SD
Page 5 SD
1-4.
Most of the tax compliance work is performed by commercial tax preparers, enrolled ag
SD SD SD SD SD SD SD SD SD SD SD SD SD
ents (EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual, partner
SD SD SD SD SD SD SD SD SD SD
ship,and corporate tax returns often are completed by commercial tax preparers. The preparatio
S
D SD SD SD SD SD SD SD SD SD SD SD SD
n of more complex returns usually is performed by EAs, attorneys, and CPAs. The latter group
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
s alsoprovide tax planning services and represent their clients before the IRS.
SD S
D SD SD SD SD SD SD SD SD SD SD
An EA is one who is admitted to practice before the IRS by passing a special IRS-
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
administered examination, or who has worked for the IRS for five years and is issued a permit to
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
represent clients before the IRS. CPAs and attorneys are not required to take this examination and
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
SD are automatically admitted to practice before the IRS if they are in good standing with the approp
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
riateprofessional licensing board.
S
D SD SD
Page 5 and Circular 230 SD SD SD SD
1-5.
Tax planning is the process of arranging one‘s financial affairs to minimize any tax liabilit
SD SD SD SD SD SD SD SD SD SD SD SD SD SD
y. Muchof modern tax practice centers around this process, and the resulting outcome is tax avoida
SD S
D SD SD SD SD SD SD SD SD SD SD SD SD SD SD
nce.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains wi
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
thin legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD S
D
SD condoned. Activities of this sort clearly violate existing legal constraints and fall outside of the do
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
main of the professional tax practitioner.
SD SD SD SD SD
Page 6 SD
1-6.
In an open tax planning situation, the transaction is not yet complete; therefore, the tax pra
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
ctitionermaintains some degree of control over the potential tax liability, and the transaction may
S
D SD SD SD SD SD SD SD SD SD SD SD SD SD SD
be modi- SD
SD fied to achieve a more favorable tax treatment. In a closed transaction however, all of the pertinen
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
tactions have been completed, and tax planning activities may be limited to the presentation of the
S
D SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD S
Dsituation to the government in the most legally advantageous manner possible.
SD SD SD SD SD SD SD SD SD SD
,Federal Tax Research, 12th Edition
SD SD SD SD Page 1-3 SD
Page 6 SD
1-7.
Tax litigation is the process of settling a dispute with the IRS in a court of law. Typicall
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
y, a taxattorney handles tax litigation that progresses beyond the final IRS appeal.
SD SD S
D SD SD SD SD SD SD SD SD SD SD
Page 6 SD
1-8. CPAs serve is a support capacity in tax litigation.
SD SD SD SD SD SD SD SD
Page 6 SD
1-9.
Tax research consists of the resolution of unanswered taxation questions. The tax research
SD SD SD SD SD SD SD SD SD SD SD SD SD
processincludes the following: S
D SD SD
1. Identification of pertinent issues; SD SD SD
2. Specification of proper authorities; SD SD SD
3. Evaluation of the propriety of authorities; and, SD SD SD SD SD SD
4. Application of authorities to a specific situation. SD SD SD SD SD SD
Page 6 SD
1-10.
Circular 230 is issued by the Treasury Department and applies to all who practice before t
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
he IRS.Page 7
SD S
D SD
1-11.
In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Cond
SD SD SD SD SD SD SD SD SD SD SD SD SD
uct and Statements on Standards for Tax Services. CPAs must also abide by the rules of the ap
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
propriatestate board(s) of accountancy. S
D SD SD SD
Page 7 SD
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-
SD SD SD SD SD SD SD SD SD SD SD SD
approved CE Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher cou
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
rse (AFTR) that covers filing season issues and tax law updates. The AFTR course must include a
SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD SD
knowledge-
, Page 1-4
SD SOLUTIONS MANUAL
SD
based comprehension test administered at the conclusion of the course by the CE Provider.
S
D SD SD SD SD SD SD SD SD SD SD SD SD SD
