Federal Tax Research, 13th Edition
g g g g Page 1-1
g
Solution Manual Federal Tax Research
g g g g
13th Edition by Roby Sawyers, Steven Gill
g g g g g g g
Chapters 1 -13
g g g
,Page 1-2
g SOLUTIONS MANUAL g
CHAPTER 1 g
INTRODUCTION TO TAX PRACTICE AND ETHICS g g g g g
DISCUSSION QUESTIONS
g
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
g g g g g g g g g g g g g g g
accounting, economics, political science, and sociology. The environment for the tax system
g g g g g g g g g g g g
isprovided by the principles of economics, sociology, and political science, while the legal and
g g g g g g g g g g g g g g g
accounting fields are responsible for the system‘s interpretation and application.
g g g g g g g g g g
Each of these disciplines affects this country‘s tax system in a unique way. Economists
g g g g g g g g g g g g g
addresssuch issues as how proposed tax legislation will affect the rate of inflation or economic
g g g g g g g g g g g g g g g g
growth.Measurement of the social equity of a tax and determining whether a tax system
g g g g g g g g g g g g g g g
discriminates against certain taxpayers are issues that are examined by sociologists and political
g g g g g g g g g g g g g
g scientists.
Finally, attorneys are responsible for the interpretation of the taxation statutes, and
g g g g g g g g g g g
accountantsensure that these same statutes are applied consistently.****8880()
g g g g g g g g g
Page 4 g
1-2. The other major categories of tax practice in addition to tax research are as follows:
g g g g g g g g g g g g g g
Tax compliance g
Tax planning g
Tax
litigationPage 5
g g g
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
g g g g g g g g g g
information, and filing any necessary tax returns. Compliance also includes other functions
g g g g g g g g g g g g
necessary to satisfy governmental requirements, such as representing a client during an
g g g g g g g g g g g g
InternalRevenue Service (IRS) audit.
g g g g g
,Federal Tax Research, 13th Edition
g g g g Page 1-3 g
Page 5 g
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
g g g g g g g g g g g g g g
gattorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,and
g g g g g g g g g
gcorporate tax returns often are completed by commercial tax preparers. The preparation of more
g g g g g g g g g g g g g
gcomplex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide
g g g g g g g g g g g g g g
gtax planning services and represent their clients before the IRS.
g g g g g g g g g
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
g g g g g g g g g g g g g g g g
gexamination, or who has worked for the IRS for five years and is issued a permit to represent clients
g g g g g g g g g g g g g g g g g g
gbefore the IRS. CPAs and attorneys are not required to take this examination and are automatically
g g g g g g g g g g g g g g g
gadmitted to practice before the IRS if they are in good standing with the appropriateprofessional
g g g g g g g g g g g g g g g
glicensing board. g
Page 5 and Circular 230
g g g g
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Muchof
g g g g g g g g g g g g g g g g
gmodern tax practice centers around this process, and the resulting outcome is tax avoidance.
g g g g g g g g g g g g g
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within
g g g g g g g g g g g g g g g g g
glegal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe
g g g g g g g g g g g g g g g
gcondoned. Activities of this sort clearly violate existing legal constraints and fall outside of the
g g g g g g g g g g g g g g
gdomain of the professional tax practitioner.
g g g g g
Page 6 g
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax
g g g g g g g g g g g g g g
gpractitionermaintains some degree of control over the potential tax liability, and the transaction may
g g g g g g g g g g g g g g
gbe modi- fied to achieve a more favorable tax treatment. In a closed transaction however, all of the
g g g g g g g g g g g g g g g g g
gpertinentactions have been completed, and tax planning activities may be limited to the presentation
g g g g g g g g g g g g g g
gof the situation to the government in the most legally advantageous manner possible.
g g g g g g g g g g g g
, Page 1-4
g SOLUTIONS MANUAL g
Page 6 g
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a
g g g g g g g g g g g g g g g g g g
taxattorney handles tax litigation that progresses beyond the final IRS appeal.
g g g g g g g g g g g g
Page 6 g
1-8. CPAs serve is a support capacity in tax litigation.
g g g g g g g g
Page 6 g
1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research
g g g g g g g g g g g g
processincludes the following:
g g g g
1. Identification of pertinent issues; g g g
2. Specification of proper authorities; g g g
3. Evaluation of the propriety of authorities; and, g g g g g g
4. Application of authorities to a specific situation. g g g g g g
Page 6 g
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the
g g g g g g g g g g g g g g g
IRS.Page 7
g g g
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
g g g g g g g g g g g g g g
Statements on Standards for Tax Services. CPAs must also abide by the rules of the
g g g g g g g g g g g g g g g
appropriatestate board(s) of accountancy.
g g g g g
Page 7 g
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider.
g g g g g g g g g g g g g g
The hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers
g g g g g g g g g g g g g g g g
filing season issues and tax law updates. The AFTR course must include a knowledge-based
g g g g g g g g g g g g g g g
comprehension test administered at the conclusion of the course by the CE Provider.
g g g g g g g g g g g g g
g g g g Page 1-1
g
Solution Manual Federal Tax Research
g g g g
13th Edition by Roby Sawyers, Steven Gill
g g g g g g g
Chapters 1 -13
g g g
,Page 1-2
g SOLUTIONS MANUAL g
CHAPTER 1 g
INTRODUCTION TO TAX PRACTICE AND ETHICS g g g g g
DISCUSSION QUESTIONS
g
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
g g g g g g g g g g g g g g g
accounting, economics, political science, and sociology. The environment for the tax system
g g g g g g g g g g g g
isprovided by the principles of economics, sociology, and political science, while the legal and
g g g g g g g g g g g g g g g
accounting fields are responsible for the system‘s interpretation and application.
g g g g g g g g g g
Each of these disciplines affects this country‘s tax system in a unique way. Economists
g g g g g g g g g g g g g
addresssuch issues as how proposed tax legislation will affect the rate of inflation or economic
g g g g g g g g g g g g g g g g
growth.Measurement of the social equity of a tax and determining whether a tax system
g g g g g g g g g g g g g g g
discriminates against certain taxpayers are issues that are examined by sociologists and political
g g g g g g g g g g g g g
g scientists.
Finally, attorneys are responsible for the interpretation of the taxation statutes, and
g g g g g g g g g g g
accountantsensure that these same statutes are applied consistently.****8880()
g g g g g g g g g
Page 4 g
1-2. The other major categories of tax practice in addition to tax research are as follows:
g g g g g g g g g g g g g g
Tax compliance g
Tax planning g
Tax
litigationPage 5
g g g
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
g g g g g g g g g g
information, and filing any necessary tax returns. Compliance also includes other functions
g g g g g g g g g g g g
necessary to satisfy governmental requirements, such as representing a client during an
g g g g g g g g g g g g
InternalRevenue Service (IRS) audit.
g g g g g
,Federal Tax Research, 13th Edition
g g g g Page 1-3 g
Page 5 g
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
g g g g g g g g g g g g g g
gattorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,and
g g g g g g g g g
gcorporate tax returns often are completed by commercial tax preparers. The preparation of more
g g g g g g g g g g g g g
gcomplex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide
g g g g g g g g g g g g g g
gtax planning services and represent their clients before the IRS.
g g g g g g g g g
An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
g g g g g g g g g g g g g g g g
gexamination, or who has worked for the IRS for five years and is issued a permit to represent clients
g g g g g g g g g g g g g g g g g g
gbefore the IRS. CPAs and attorneys are not required to take this examination and are automatically
g g g g g g g g g g g g g g g
gadmitted to practice before the IRS if they are in good standing with the appropriateprofessional
g g g g g g g g g g g g g g g
glicensing board. g
Page 5 and Circular 230
g g g g
1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Muchof
g g g g g g g g g g g g g g g g
gmodern tax practice centers around this process, and the resulting outcome is tax avoidance.
g g g g g g g g g g g g g
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within
g g g g g g g g g g g g g g g g g
glegal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe
g g g g g g g g g g g g g g g
gcondoned. Activities of this sort clearly violate existing legal constraints and fall outside of the
g g g g g g g g g g g g g g
gdomain of the professional tax practitioner.
g g g g g
Page 6 g
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax
g g g g g g g g g g g g g g
gpractitionermaintains some degree of control over the potential tax liability, and the transaction may
g g g g g g g g g g g g g g
gbe modi- fied to achieve a more favorable tax treatment. In a closed transaction however, all of the
g g g g g g g g g g g g g g g g g
gpertinentactions have been completed, and tax planning activities may be limited to the presentation
g g g g g g g g g g g g g g
gof the situation to the government in the most legally advantageous manner possible.
g g g g g g g g g g g g
, Page 1-4
g SOLUTIONS MANUAL g
Page 6 g
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a
g g g g g g g g g g g g g g g g g g
taxattorney handles tax litigation that progresses beyond the final IRS appeal.
g g g g g g g g g g g g
Page 6 g
1-8. CPAs serve is a support capacity in tax litigation.
g g g g g g g g
Page 6 g
1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research
g g g g g g g g g g g g
processincludes the following:
g g g g
1. Identification of pertinent issues; g g g
2. Specification of proper authorities; g g g
3. Evaluation of the propriety of authorities; and, g g g g g g
4. Application of authorities to a specific situation. g g g g g g
Page 6 g
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the
g g g g g g g g g g g g g g g
IRS.Page 7
g g g
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
g g g g g g g g g g g g g g
Statements on Standards for Tax Services. CPAs must also abide by the rules of the
g g g g g g g g g g g g g g g
appropriatestate board(s) of accountancy.
g g g g g
Page 7 g
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider.
g g g g g g g g g g g g g g
The hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers
g g g g g g g g g g g g g g g g
filing season issues and tax law updates. The AFTR course must include a knowledge-based
g g g g g g g g g g g g g g g
comprehension test administered at the conclusion of the course by the CE Provider.
g g g g g g g g g g g g g
