Federal |Tax |Research, |12th |Edition Page |1-1
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
| | | | | | | | | | |
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.
|
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.
|
,Page |1-2 SOLUTIONS |MANUAL
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 |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 |taxpayer |remains
| within |legal |bounds. |In |contrast, |tax |evasion |constitutes |the |illegal |nonpayment |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 |yet |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 |planning |activities |may |be |limited |to |the |presentation |of |the
|
situation |to |the |government |in |the |most |legally |advantageous |manner | possible.
|
,Federal |Tax |Research, |12th |Edition Page |1-3
Page |6
1-7. Tax |litigation |is |the |process |of |settling |a |dispute |with |the |IRS |in |a |court |of |law. |Typically, |a |tax
attorney |handles |tax |litigation |that |progresses |beyond |the |final |IRS |appeal.
|
Page |6
1-8. CPAs |serve |is |a |support |capacity |in |tax |litigation.
Page |6
1-9. Tax |research |consists |of |the |resolution |of |unanswered |taxation |questions. | The |tax |research |process
includes |the |following:
|
1. Identification |of |pertinent |issues;
2. Specification |of |proper |authorities;
3. Evaluation |of |the |propriety |of |authorities; |and,
4. Application |of |authorities |to |a |specific |situation.
Page |6
1-10. Circular |230 |is |issued |by |the |Treasury |Department |and |applies |to |all |who |practice |before |the |IRS.
Page |7
|
1-11. In |addition |to |Circular |230, |CPAs |must |follow |the |AICPA‘s |Code |of |Professional |Conduct |and
Statements |on |Standards |for |Tax |Services. |CPAs |must |also |abide |by |the |rules |of |the |appropriate
|
state |board(s) |of |accountancy.
|
Page |7
1-12. A |return |preparer |must |obtain |18 |hours |of |continuing |education |from |an |IRS-approved |CE
Provider. |The |hours |must |include |a |6 |credit |hour |Annual |Federal |Tax |Refresher |course |(AFTR)
|
that |covers |filing |season |issues |and |tax |law |updates. |The |AFTR |course |must |include |a |knowledge-
|
based |comprehension |test |administered |at |the |conclusion | of |the |course |by |the |CE |Provider.
|
, Page |1-4 SOLUTIONS |MANUAL
Limited |practice |rights |allow |individuals |to |represent |clients |whose |returns |they |prepared |and
signed, |but |only |before |revenue |agents, |customer |service |representatives, |and |similar |IRS
|
employees.
|
Page |10 |and |IRS.gov
1-13. False. |Only |communication |with |the |IRS |concerning |a |taxpayer‘s |rights, |privileges, |or |liability |is
included. |Practice |before |the |IRS |does |not |include |representation |before |the |Tax |Court.
|
Page |7
1-14. Section |10.2 |of |Subpart |A |of |Circular |230 |defines |practice |before |the |IRS |as |including:
matters |connected |with |presentation |to |the |Internal |Revenue |Service |or |any |of |its |officers
or |employees |relating |to |a |client‘s |rights, |privileges, |or |liabilities |under |laws |or
|
regulations |administered |by |the |Internal |Revenue |Service. |Such |presentations |include |the
|
preparation |and |filing |of |necessary |documents, |correspondence |with, |and
|
communications |to |the |Internal |Revenue |Service, |and |the |representation |of |a |client |at
|
conferences, |hearings, |and |meetings.
|
Page |7
1-15. To |become |an |EA |an |individual |can |(1) |pass |a |test |given |by |the |IRS |or |(2) |work |for | the |IRS |for
five |years. |Circular |230, |Subpart |A, |§§ |10.4 |to |10.6.
|
Page |9
1-16. EAs |must |complete |72 |hours |of |continuing |education |every |three |years |(an |average |of |24 |per |year,
with |a |minimum |of |16 |hours |during |any |year). |Circular |230, |Subpart |A. |§ |10.6.
|
Page |9
1-17. True. |As |a |general |rule, |an |individual |must |be |an |EA, |attorney, |or |CPA |to |represent |a |client |before
the |IRS. |There |are |limited |situations |where |others |may |represent |a |taxpayer; |however, |this |fact
|
pattern |is |not |one |of |them. |Since |Leigh |did |not |sign |the |return, |she |cannot |represent |the |taxpayer,
|
only |Rose |can.
|
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
| | | | | | | | | | |
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.
|
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.
|
,Page |1-2 SOLUTIONS |MANUAL
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 |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 |taxpayer |remains
| within |legal |bounds. |In |contrast, |tax |evasion |constitutes |the |illegal |nonpayment |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 |yet |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 |planning |activities |may |be |limited |to |the |presentation |of |the
|
situation |to |the |government |in |the |most |legally |advantageous |manner | possible.
|
,Federal |Tax |Research, |12th |Edition Page |1-3
Page |6
1-7. Tax |litigation |is |the |process |of |settling |a |dispute |with |the |IRS |in |a |court |of |law. |Typically, |a |tax
attorney |handles |tax |litigation |that |progresses |beyond |the |final |IRS |appeal.
|
Page |6
1-8. CPAs |serve |is |a |support |capacity |in |tax |litigation.
Page |6
1-9. Tax |research |consists |of |the |resolution |of |unanswered |taxation |questions. | The |tax |research |process
includes |the |following:
|
1. Identification |of |pertinent |issues;
2. Specification |of |proper |authorities;
3. Evaluation |of |the |propriety |of |authorities; |and,
4. Application |of |authorities |to |a |specific |situation.
Page |6
1-10. Circular |230 |is |issued |by |the |Treasury |Department |and |applies |to |all |who |practice |before |the |IRS.
Page |7
|
1-11. In |addition |to |Circular |230, |CPAs |must |follow |the |AICPA‘s |Code |of |Professional |Conduct |and
Statements |on |Standards |for |Tax |Services. |CPAs |must |also |abide |by |the |rules |of |the |appropriate
|
state |board(s) |of |accountancy.
|
Page |7
1-12. A |return |preparer |must |obtain |18 |hours |of |continuing |education |from |an |IRS-approved |CE
Provider. |The |hours |must |include |a |6 |credit |hour |Annual |Federal |Tax |Refresher |course |(AFTR)
|
that |covers |filing |season |issues |and |tax |law |updates. |The |AFTR |course |must |include |a |knowledge-
|
based |comprehension |test |administered |at |the |conclusion | of |the |course |by |the |CE |Provider.
|
, Page |1-4 SOLUTIONS |MANUAL
Limited |practice |rights |allow |individuals |to |represent |clients |whose |returns |they |prepared |and
signed, |but |only |before |revenue |agents, |customer |service |representatives, |and |similar |IRS
|
employees.
|
Page |10 |and |IRS.gov
1-13. False. |Only |communication |with |the |IRS |concerning |a |taxpayer‘s |rights, |privileges, |or |liability |is
included. |Practice |before |the |IRS |does |not |include |representation |before |the |Tax |Court.
|
Page |7
1-14. Section |10.2 |of |Subpart |A |of |Circular |230 |defines |practice |before |the |IRS |as |including:
matters |connected |with |presentation |to |the |Internal |Revenue |Service |or |any |of |its |officers
or |employees |relating |to |a |client‘s |rights, |privileges, |or |liabilities |under |laws |or
|
regulations |administered |by |the |Internal |Revenue |Service. |Such |presentations |include |the
|
preparation |and |filing |of |necessary |documents, |correspondence |with, |and
|
communications |to |the |Internal |Revenue |Service, |and |the |representation |of |a |client |at
|
conferences, |hearings, |and |meetings.
|
Page |7
1-15. To |become |an |EA |an |individual |can |(1) |pass |a |test |given |by |the |IRS |or |(2) |work |for | the |IRS |for
five |years. |Circular |230, |Subpart |A, |§§ |10.4 |to |10.6.
|
Page |9
1-16. EAs |must |complete |72 |hours |of |continuing |education |every |three |years |(an |average |of |24 |per |year,
with |a |minimum |of |16 |hours |during |any |year). |Circular |230, |Subpart |A. |§ |10.6.
|
Page |9
1-17. True. |As |a |general |rule, |an |individual |must |be |an |EA, |attorney, |or |CPA |to |represent |a |client |before
the |IRS. |There |are |limited |situations |where |others |may |represent |a |taxpayer; |however, |this |fact
|
pattern |is |not |one |of |them. |Since |Leigh |did |not |sign |the |return, |she |cannot |represent |the |taxpayer,
|
only |Rose |can.
|
