Instructor’s Manual For Federal Tax Research 12th Edition by. Roby.
Sawy.ers, Steven Gill Chapter 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 sy.stem is an outgrowth of the following five
disciplines: law, accounting, economics, political science, and sociology.. The
environment for the tax sy.stem is provided by. the principles of economics,
sociology., and political science, while the legal and accounting fields are
responsible for the sy.stem‘s interpretation and application.
Each of these disciplines affects this country.‘s tax sy.stem 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 sy.stem discriminates against certain taxpay.ers are
issues that are examined by. sociologists and political scientists.
Finally., attorney.s are responsible for the interpretation of the taxation statutes,
and accountants ensure that these same statutes are applied consistently..
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
classify.ing 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.
, Page 1-4 SOLUTIONS MANUAL
Page 5
1-4. Most of the tax compliance work is performed by. commercial tax preparers,
enrolled agents (EAs), attorney.s, 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, attorney.s, 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 y.ears and is
issued a permit to represent clients before the IRS. CPAs and attorney.s 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 planning is the process of arranging one‘s financial affairs to minimize any. tax
liability.. Much of modern tax practice centers around this process, and the resulting
outcome is tax avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the
taxpay.er remains within legal bounds. In contrast, tax evasion constitutes the illegal
nonpay.ment of a tax and cannot be condoned. Activities of this sort clearly. violate
existing legal constraints and fall outside of the domain of the professional tax
practitioner.
Page 6
1-6. In an open tax planning situation, the transaction is not y.et complete; therefore, the
tax practitioner maintains some degree of control over the potential tax liability., and
the transaction may. be modi- fied to achieve a more favorable tax treatment. In a
closed transaction however, all of the pertinent actions have been completed, and tax
Sawy.ers, Steven Gill Chapter 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 sy.stem is an outgrowth of the following five
disciplines: law, accounting, economics, political science, and sociology.. The
environment for the tax sy.stem is provided by. the principles of economics,
sociology., and political science, while the legal and accounting fields are
responsible for the sy.stem‘s interpretation and application.
Each of these disciplines affects this country.‘s tax sy.stem 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 sy.stem discriminates against certain taxpay.ers are
issues that are examined by. sociologists and political scientists.
Finally., attorney.s are responsible for the interpretation of the taxation statutes,
and accountants ensure that these same statutes are applied consistently..
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
classify.ing 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.
, Page 1-4 SOLUTIONS MANUAL
Page 5
1-4. Most of the tax compliance work is performed by. commercial tax preparers,
enrolled agents (EAs), attorney.s, 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, attorney.s, 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 y.ears and is
issued a permit to represent clients before the IRS. CPAs and attorney.s 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 planning is the process of arranging one‘s financial affairs to minimize any. tax
liability.. Much of modern tax practice centers around this process, and the resulting
outcome is tax avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the
taxpay.er remains within legal bounds. In contrast, tax evasion constitutes the illegal
nonpay.ment of a tax and cannot be condoned. Activities of this sort clearly. violate
existing legal constraints and fall outside of the domain of the professional tax
practitioner.
Page 6
1-6. In an open tax planning situation, the transaction is not y.et complete; therefore, the
tax practitioner maintains some degree of control over the potential tax liability., and
the transaction may. be modi- fied to achieve a more favorable tax treatment. In a
closed transaction however, all of the pertinent actions have been completed, and tax
