Federal10Tax10Research,1012th10E Page101-1
dition
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
CHAPTER101
INTRODUCTION10TO10TAX10PRACTICE10AND10ETHICS
DISCUSSION10QUESTIONS
1-1.
In10the10United10States,10the10tax10system10is10an10outgrowth10of10the10following1
0five10disciplines:10law,10accounting,10economics,10political10science,10and10sociology.10Th
e10environment10for10the10tax10system10is10provided10by10the10principles10of10economics,10
sociology,10and10political10science,10while10the10legal10and10accounting10fields10are10respo
nsible10for10the10system‘s10interpretation10and10application.
Each10of10these10disciplines10affects10this10country‘s10tax10system10in10a10unique10way.10Ec
onomists10address10such10issues10as10how10proposed10tax10legislation10will10affect10the10rate
10of10inflation10or10economic10growth.10Measurement10of10the10social10equity10of10a10tax10
and10determining10whether10a10tax10system10discriminates10against10certain10taxpayers10are
10issues10that10are10examined10by10sociologists10and10political10scientists.
Finally,10attorneys10are10responsible10for10the10interpretation10of10the10taxation10statutes,10an
d10accountants10ensure10that10these10same10statutes10are10applied10consistently.
Page104
1-2. The10other10major10categories10of10tax10practice10in10addition10to10tax10research10are10as10follows:
Tax10compliance
Tax10planning
Tax10litigatio
n10Page105
1-3.
Tax10compliance10consists10of10gathering10pertinent10information,10evaluating10and
10classifying10that10information,10and10filing10any10necessary10tax10returns.10Compliance10a
lso10includes10other10functions10necessary10to10satisfy10governmental10requirements,10such10
,Page101-2 SOLUTIONS10MANUA
L audit.
as10representing10a10client10during10an10Internal10Revenue10Service10(IRS)10
,Federal10Tax10Research,1012th10E Page101-3
dition
Page105
1-4.
Most10of10the10tax10compliance10work10is10performed10by10commercial10tax10prep
arers,10enrolled10agents10(EAs),10attorneys,10and10certified10public10accountants10(CPAs).10N
oncomplex10individual,10partnership,10and10corporate10tax10returns10often10are10completed10
by10commercial10tax10preparers.10The10preparation10of10more10complex10returns10usually10is
10performed10by10EAs,10attorneys,10and10CPAs.10The10latter10groups10also10provide10tax10pl
anning10services10and10represent10their10clients10before10the10IRS.
An10EA10is10one10who10is10admitted10to10practice10before10the10IRS10by10passing10a10special1
0IRS-
administered10examination,10or10who10has10worked10for10the10IRS10for10five10years10and10is10
issued10a10permit10to10represent10clients10before10the10IRS.10CPAs10and10attorneys10are10not10
required10to10take10this10examination10and10are10automatically10admitted10to10practice10before1
0the10IRS10if10they10are10in10good10standing10with10the10appropriate10professional10licensing10
board.
Page10510and10Circular10230
1-5.
Tax10planning10is10the10process10of10arranging10one‘s10financial10affairs10to10minimize
10any10tax10liability.10Much10of10modern10tax10practice10centers10around10this10process,10and10
the10resulting10outcome10is10tax10avoidance.
There10is10nothing10illegal10or10immoral10in10the10avoidance10of10taxation10as10long10as10the1
0taxpayer10remains10within10legal10bounds.10In10contrast,10tax10evasion10constitutes10the10illega
l10nonpayment10of10a10tax10and10cannot10be10condoned.10Activities10of10this10sort10clearly10vi
olate10existing10legal10constraints10and10fall10outside10of10the10domain10of10the10professional10
tax10practitioner.
Page106
1-6.
In10an10open10tax10planning10situation,10the10transaction10is10not10yet10complete;10ther
efore,10the10tax10practitioner10maintains10some10degree10of10control10over10the10potential10tax1
, Page101-4 SOLUTIONS10MANUA
0liability,10and10the10transaction10may10be10modi- L
10fied10to10achieve10a10more10favorable10tax10treatment.10In10a10closed10transaction10however,1
0all10of10the10pertinent10actions10have10been10completed,10and10tax10planning10activities10may1
0be10limited10to10the10presentation10of10the10situation10to10the10government10in10the10most10le
gally10advantageous10manner10possible.
dition
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
CHAPTER101
INTRODUCTION10TO10TAX10PRACTICE10AND10ETHICS
DISCUSSION10QUESTIONS
1-1.
In10the10United10States,10the10tax10system10is10an10outgrowth10of10the10following1
0five10disciplines:10law,10accounting,10economics,10political10science,10and10sociology.10Th
e10environment10for10the10tax10system10is10provided10by10the10principles10of10economics,10
sociology,10and10political10science,10while10the10legal10and10accounting10fields10are10respo
nsible10for10the10system‘s10interpretation10and10application.
Each10of10these10disciplines10affects10this10country‘s10tax10system10in10a10unique10way.10Ec
onomists10address10such10issues10as10how10proposed10tax10legislation10will10affect10the10rate
10of10inflation10or10economic10growth.10Measurement10of10the10social10equity10of10a10tax10
and10determining10whether10a10tax10system10discriminates10against10certain10taxpayers10are
10issues10that10are10examined10by10sociologists10and10political10scientists.
Finally,10attorneys10are10responsible10for10the10interpretation10of10the10taxation10statutes,10an
d10accountants10ensure10that10these10same10statutes10are10applied10consistently.
Page104
1-2. The10other10major10categories10of10tax10practice10in10addition10to10tax10research10are10as10follows:
Tax10compliance
Tax10planning
Tax10litigatio
n10Page105
1-3.
Tax10compliance10consists10of10gathering10pertinent10information,10evaluating10and
10classifying10that10information,10and10filing10any10necessary10tax10returns.10Compliance10a
lso10includes10other10functions10necessary10to10satisfy10governmental10requirements,10such10
,Page101-2 SOLUTIONS10MANUA
L audit.
as10representing10a10client10during10an10Internal10Revenue10Service10(IRS)10
,Federal10Tax10Research,1012th10E Page101-3
dition
Page105
1-4.
Most10of10the10tax10compliance10work10is10performed10by10commercial10tax10prep
arers,10enrolled10agents10(EAs),10attorneys,10and10certified10public10accountants10(CPAs).10N
oncomplex10individual,10partnership,10and10corporate10tax10returns10often10are10completed10
by10commercial10tax10preparers.10The10preparation10of10more10complex10returns10usually10is
10performed10by10EAs,10attorneys,10and10CPAs.10The10latter10groups10also10provide10tax10pl
anning10services10and10represent10their10clients10before10the10IRS.
An10EA10is10one10who10is10admitted10to10practice10before10the10IRS10by10passing10a10special1
0IRS-
administered10examination,10or10who10has10worked10for10the10IRS10for10five10years10and10is10
issued10a10permit10to10represent10clients10before10the10IRS.10CPAs10and10attorneys10are10not10
required10to10take10this10examination10and10are10automatically10admitted10to10practice10before1
0the10IRS10if10they10are10in10good10standing10with10the10appropriate10professional10licensing10
board.
Page10510and10Circular10230
1-5.
Tax10planning10is10the10process10of10arranging10one‘s10financial10affairs10to10minimize
10any10tax10liability.10Much10of10modern10tax10practice10centers10around10this10process,10and10
the10resulting10outcome10is10tax10avoidance.
There10is10nothing10illegal10or10immoral10in10the10avoidance10of10taxation10as10long10as10the1
0taxpayer10remains10within10legal10bounds.10In10contrast,10tax10evasion10constitutes10the10illega
l10nonpayment10of10a10tax10and10cannot10be10condoned.10Activities10of10this10sort10clearly10vi
olate10existing10legal10constraints10and10fall10outside10of10the10domain10of10the10professional10
tax10practitioner.
Page106
1-6.
In10an10open10tax10planning10situation,10the10transaction10is10not10yet10complete;10ther
efore,10the10tax10practitioner10maintains10some10degree10of10control10over10the10potential10tax1
, Page101-4 SOLUTIONS10MANUA
0liability,10and10the10transaction10may10be10modi- L
10fied10to10achieve10a10more10favorable10tax10treatment.10In10a10closed10transaction10however,1
0all10of10the10pertinent10actions10have10been10completed,10and10tax10planning10activities10may1
0be10limited10to10the10presentation10of10the10situation10to10the10government10in10the10most10le
gally10advantageous10manner10possible.
