Federal Tax Research, 13th Edition Page 1-1
Solution Manual Federal Tax Research
13th Edition by Roby Sawyers, Steven Gill
Chapters 1 -13
,Page 1-2 SOLUTIONS MANUAL
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
accounting, economics, political science, and sociology. The environment for the tax system is
provided by the principles of economics, sociology, and political science, while the legal and
accounting fields are responsible for the system‘s interpretation and application.
Each of these disciplines affects this country‘s tax system in a unique way. Economists address
such issues as how proposed tax legislation will affect the rate of inflation or economic growth.
Measurement of the social equity of a tax and determining whether a tax system discriminates
against certain taxpayers are issues that are examined by sociologists and political scientists.
Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants
ensure that these same statutes are applied consistently.****8880()
Page 4
1-2. The other major categories of tax practice in addition to tax research are as follows:
• Tax compliance
• Tax planning
• Tax litigation
Page 5
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
information, and filing any necessary tax returns. Compliance also includes other functions
necessary to satisfy governmental requirements, such as representing a client during an Internal
Revenue Service (IRS) audit.
,Federal Tax Research, 13th Edition Page 1-3
Page 5
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents
(EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,
and corporate tax returns often are completed by commercial tax preparers. The preparation of
more complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups also
provide tax planning services and represent their clients before the IRS.
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
examination, or who has worked for the IRS for five years and is issued a permit to represent
clients before the IRS. CPAs and attorneys are not required to take this examination and are
automatically admitted to practice before the IRS if they are in good standing with the appropriate
professional licensing board.
Page 5 and Circular 230
1-5. Tax aplanning ais athe aprocess aof aarranging aone‘s afinancial aaffairs ato aminimize aany atax
aliability. aMuchaof amodern atax apractice acenters aaround athis aprocess, aand athe aresulting
aoutcome ais atax aavoidance.
There ais anothing aillegal aor aimmoral ain athe aavoidance aof ataxation aas along aas athe ataxpayer
aremains awithin alegal abounds. aIn acontrast, atax aevasion aconstitutes athe aillegal anonpayment
aof aa atax aand acannotabe acondoned. aActivities aof athis asort aclearly aviolate aexisting alegal
aconstraints aand afall aoutside aof athe adomain aof athe aprofessional atax apractitioner.
Page a6
1-6. In aan aopen atax aplanning asituation, athe atransaction ais anot ayet acomplete; atherefore, athe atax
apractitioneramaintains asome adegree aof acontrol aover athe apotential atax aliability, aand athe
atransaction amay abe amodi- afied ato aachieve aa amore afavorable atax atreatment. aIn aa aclosed
atransaction ahowever, aall aof athe apertinentaactions ahave abeen acompleted, aand atax aplanning
aactivities amay abe alimited ato athe apresentation aof athe asituation ato athe agovernment ain athe
amost alegally aadvantageous a manner a possible.
, Page 1-4 SOLUTIONS MANUAL
Page a6
1-7. Tax alitigation ais athe aprocess aof asettling aa adispute awith athe aIRS ain aa acourt aof alaw.
aTypically, aa ataxaattorney ahandles atax alitigation athat aprogresses abeyond athe afinal aIRS
aappeal.
Page a6
1-8. CPAs aserve ais aa asupport acapacity ain atax alitigation.
Page a6
1-9. Tax aresearch aconsists aof athe aresolution aof aunanswered ataxation aquestions. aThe atax
aresearch aprocessaincludes athe afollowing:
1. Identification aof apertinent aissues;
2. Specification aof aproper aauthorities;
3. Evaluation aof athe apropriety aof aauthorities; aand,
4. Application aof aauthorities ato aa aspecific asituation.
Page a6
1-10. Circular a230 ais aissued aby athe aTreasury aDepartment aand aapplies ato aall awho apractice
abefore athe aIRS.aPage a7
1-11. In aaddition ato aCircular a230, aCPAs amust afollow athe aAICPA‘s aCode aof aProfessional
aConduct aand aStatements aon aStandards afor aTax aServices. aCPAs amust aalso aabide aby
athe arules aof athe aappropriateastate aboard(s) aof aaccountancy.
Page a7
1-12. A areturn apreparer amust aobtain a18 ahours aof acontinuing aeducation afrom aan aIRS-approved
aCE aProvider. aThe ahours amust ainclude aa a6 acredit ahour aAnnual aFederal aTax aRefresher
acourse a(AFTR) athat acovers afiling aseason aissues aand atax alaw aupdates. aThe aAFTR acourse
amust ainclude aa aknowledge-abased acomprehension atest aadministered aat athe aconclusion a of
athe acourse aby athe aCE aProvider.
Solution Manual Federal Tax Research
13th Edition by Roby Sawyers, Steven Gill
Chapters 1 -13
,Page 1-2 SOLUTIONS MANUAL
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
accounting, economics, political science, and sociology. The environment for the tax system is
provided by the principles of economics, sociology, and political science, while the legal and
accounting fields are responsible for the system‘s interpretation and application.
Each of these disciplines affects this country‘s tax system in a unique way. Economists address
such issues as how proposed tax legislation will affect the rate of inflation or economic growth.
Measurement of the social equity of a tax and determining whether a tax system discriminates
against certain taxpayers are issues that are examined by sociologists and political scientists.
Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants
ensure that these same statutes are applied consistently.****8880()
Page 4
1-2. The other major categories of tax practice in addition to tax research are as follows:
• Tax compliance
• Tax planning
• Tax litigation
Page 5
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
information, and filing any necessary tax returns. Compliance also includes other functions
necessary to satisfy governmental requirements, such as representing a client during an Internal
Revenue Service (IRS) audit.
,Federal Tax Research, 13th Edition Page 1-3
Page 5
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents
(EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,
and corporate tax returns often are completed by commercial tax preparers. The preparation of
more complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups also
provide tax planning services and represent their clients before the IRS.
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
examination, or who has worked for the IRS for five years and is issued a permit to represent
clients before the IRS. CPAs and attorneys are not required to take this examination and are
automatically admitted to practice before the IRS if they are in good standing with the appropriate
professional licensing board.
Page 5 and Circular 230
1-5. Tax aplanning ais athe aprocess aof aarranging aone‘s afinancial aaffairs ato aminimize aany atax
aliability. aMuchaof amodern atax apractice acenters aaround athis aprocess, aand athe aresulting
aoutcome ais atax aavoidance.
There ais anothing aillegal aor aimmoral ain athe aavoidance aof ataxation aas along aas athe ataxpayer
aremains awithin alegal abounds. aIn acontrast, atax aevasion aconstitutes athe aillegal anonpayment
aof aa atax aand acannotabe acondoned. aActivities aof athis asort aclearly aviolate aexisting alegal
aconstraints aand afall aoutside aof athe adomain aof athe aprofessional atax apractitioner.
Page a6
1-6. In aan aopen atax aplanning asituation, athe atransaction ais anot ayet acomplete; atherefore, athe atax
apractitioneramaintains asome adegree aof acontrol aover athe apotential atax aliability, aand athe
atransaction amay abe amodi- afied ato aachieve aa amore afavorable atax atreatment. aIn aa aclosed
atransaction ahowever, aall aof athe apertinentaactions ahave abeen acompleted, aand atax aplanning
aactivities amay abe alimited ato athe apresentation aof athe asituation ato athe agovernment ain athe
amost alegally aadvantageous a manner a possible.
, Page 1-4 SOLUTIONS MANUAL
Page a6
1-7. Tax alitigation ais athe aprocess aof asettling aa adispute awith athe aIRS ain aa acourt aof alaw.
aTypically, aa ataxaattorney ahandles atax alitigation athat aprogresses abeyond athe afinal aIRS
aappeal.
Page a6
1-8. CPAs aserve ais aa asupport acapacity ain atax alitigation.
Page a6
1-9. Tax aresearch aconsists aof athe aresolution aof aunanswered ataxation aquestions. aThe atax
aresearch aprocessaincludes athe afollowing:
1. Identification aof apertinent aissues;
2. Specification aof aproper aauthorities;
3. Evaluation aof athe apropriety aof aauthorities; aand,
4. Application aof aauthorities ato aa aspecific asituation.
Page a6
1-10. Circular a230 ais aissued aby athe aTreasury aDepartment aand aapplies ato aall awho apractice
abefore athe aIRS.aPage a7
1-11. In aaddition ato aCircular a230, aCPAs amust afollow athe aAICPA‘s aCode aof aProfessional
aConduct aand aStatements aon aStandards afor aTax aServices. aCPAs amust aalso aabide aby
athe arules aof athe aappropriateastate aboard(s) aof aaccountancy.
Page a7
1-12. A areturn apreparer amust aobtain a18 ahours aof acontinuing aeducation afrom aan aIRS-approved
aCE aProvider. aThe ahours amust ainclude aa a6 acredit ahour aAnnual aFederal aTax aRefresher
acourse a(AFTR) athat acovers afiling aseason aissues aand atax alaw aupdates. aThe aAFTR acourse
amust ainclude aa aknowledge-abased acomprehension atest aadministered aat athe aconclusion a of
athe acourse aby athe aCE aProvider.
