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