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 fplanning fis fthe fprocess fof farranging fone‘s ffinancial faffairs fto fminimize fany ftax
fliability. fMuchfof fmodern ftax fpractice fcenters faround fthis fprocess, fand fthe fresulting
foutcome fis ftax favoidance.
There fis fnothing fillegal for fimmoral fin fthe favoidance fof ftaxation fas flong fas fthe ftaxpayer
fremains fwithin flegal fbounds. fIn fcontrast, ftax fevasion fconstitutes fthe fillegal fnonpayment fof
fa ftax fand fcannotfbe fcondoned. fActivities fof fthis fsort fclearly fviolate fexisting flegal
fconstraints fand ffall foutside fof fthe fdomain fof fthe fprofessional ftax fpractitioner.
Page f6
1-6. In fan fopen ftax fplanning fsituation, fthe ftransaction fis fnot fyet fcomplete; ftherefore, fthe ftax
fpractitionerfmaintains fsome fdegree fof fcontrol fover fthe fpotential ftax fliability, fand fthe
ftransaction fmay fbe fmodi- ffied fto fachieve fa fmore ffavorable ftax ftreatment. fIn fa fclosed
ftransaction fhowever, fall fof fthe fpertinentfactions fhave fbeen fcompleted, fand ftax fplanning
factivities fmay fbe flimited fto fthe fpresentation fof fthe fsituation fto fthe fgovernment fin fthe fmost
flegally fadvantageous f manner fpossible.
, Page 1-4 SOLUTIONS MANUAL
Page f6
1-7. Tax flitigation fis fthe fprocess fof fsettling fa fdispute fwith fthe fIRS fin fa fcourt fof flaw.
fTypically, fa ftaxfattorney fhandles ftax flitigation fthat fprogresses fbeyond fthe ffinal fIRS
fappeal.
Page f6
1-8. CPAs fserve fis fa fsupport fcapacity fin ftax flitigation.
Page f6
1-9. Tax fresearch fconsists fof fthe fresolution fof funanswered ftaxation fquestions. f The ftax fresearch
fprocessfincludes fthe ffollowing:
1. Identification fof fpertinent fissues;
2. Specification fof fproper fauthorities;
3. Evaluation fof fthe fpropriety fof fauthorities; fand,
4. Application fof fauthorities fto fa fspecific fsituation.
Page f6
1-10. Circular f230 fis fissued fby fthe fTreasury fDepartment fand fapplies fto fall fwho fpractice fbefore
fthe fIRS.fPage f7
1-11. In faddition fto fCircular f230, fCPAs fmust ffollow fthe fAICPA‘s fCode fof fProfessional
fConduct fand fStatements fon fStandards ffor fTax fServices. fCPAs fmust falso fabide fby fthe
frules fof fthe fappropriatefstate fboard(s) fof faccountancy.
Page f7
1-12. A freturn fpreparer fmust fobtain f18 fhours fof fcontinuing feducation ffrom fan fIRS-approved fCE
fProvider. fThe fhours fmust finclude fa f6 fcredit fhour fAnnual fFederal fTax fRefresher fcourse
f(AFTR) fthat fcovers ffiling fseason fissues fand ftax flaw fupdates. fThe fAFTR fcourse fmust
finclude fa fknowledge-fbased fcomprehension ftest fadministered fat fthe fconclusion f of fthe
fcourse fby fthe fCE fProvider.
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 fplanning fis fthe fprocess fof farranging fone‘s ffinancial faffairs fto fminimize fany ftax
fliability. fMuchfof fmodern ftax fpractice fcenters faround fthis fprocess, fand fthe fresulting
foutcome fis ftax favoidance.
There fis fnothing fillegal for fimmoral fin fthe favoidance fof ftaxation fas flong fas fthe ftaxpayer
fremains fwithin flegal fbounds. fIn fcontrast, ftax fevasion fconstitutes fthe fillegal fnonpayment fof
fa ftax fand fcannotfbe fcondoned. fActivities fof fthis fsort fclearly fviolate fexisting flegal
fconstraints fand ffall foutside fof fthe fdomain fof fthe fprofessional ftax fpractitioner.
Page f6
1-6. In fan fopen ftax fplanning fsituation, fthe ftransaction fis fnot fyet fcomplete; ftherefore, fthe ftax
fpractitionerfmaintains fsome fdegree fof fcontrol fover fthe fpotential ftax fliability, fand fthe
ftransaction fmay fbe fmodi- ffied fto fachieve fa fmore ffavorable ftax ftreatment. fIn fa fclosed
ftransaction fhowever, fall fof fthe fpertinentfactions fhave fbeen fcompleted, fand ftax fplanning
factivities fmay fbe flimited fto fthe fpresentation fof fthe fsituation fto fthe fgovernment fin fthe fmost
flegally fadvantageous f manner fpossible.
, Page 1-4 SOLUTIONS MANUAL
Page f6
1-7. Tax flitigation fis fthe fprocess fof fsettling fa fdispute fwith fthe fIRS fin fa fcourt fof flaw.
fTypically, fa ftaxfattorney fhandles ftax flitigation fthat fprogresses fbeyond fthe ffinal fIRS
fappeal.
Page f6
1-8. CPAs fserve fis fa fsupport fcapacity fin ftax flitigation.
Page f6
1-9. Tax fresearch fconsists fof fthe fresolution fof funanswered ftaxation fquestions. f The ftax fresearch
fprocessfincludes fthe ffollowing:
1. Identification fof fpertinent fissues;
2. Specification fof fproper fauthorities;
3. Evaluation fof fthe fpropriety fof fauthorities; fand,
4. Application fof fauthorities fto fa fspecific fsituation.
Page f6
1-10. Circular f230 fis fissued fby fthe fTreasury fDepartment fand fapplies fto fall fwho fpractice fbefore
fthe fIRS.fPage f7
1-11. In faddition fto fCircular f230, fCPAs fmust ffollow fthe fAICPA‘s fCode fof fProfessional
fConduct fand fStatements fon fStandards ffor fTax fServices. fCPAs fmust falso fabide fby fthe
frules fof fthe fappropriatefstate fboard(s) fof faccountancy.
Page f7
1-12. A freturn fpreparer fmust fobtain f18 fhours fof fcontinuing feducation ffrom fan fIRS-approved fCE
fProvider. fThe fhours fmust finclude fa f6 fcredit fhour fAnnual fFederal fTax fRefresher fcourse
f(AFTR) fthat fcovers ffiling fseason fissues fand ftax flaw fupdates. fThe fAFTR fcourse fmust
finclude fa fknowledge-fbased fcomprehension ftest fadministered fat fthe fconclusion f of fthe
fcourse fby fthe fCE fProvider.
