Solution Manual For Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill

Federal Tax Research, 13thEdition
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SolutionManualFederalTaxResearch
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13thEditionbyRobySawyers,StevenGill
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Chapters1-13
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CHAPTER 1 l




INTRODUCTIONTOTAXPRACTICE ANDETHICS l l l l l




DISCUSSIONQUESTIONS
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1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law, accounting,
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economics, political science, and sociology. The environment for the tax system isprovided by the
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principles of economics, sociology, and political science, while the legal and accountingfields are
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responsible for the system‘s interpretation andapplication.
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Each of these disciplines affects this country‘s tax system in a unique way. Economists addresssuch
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issues ashowproposed taxlegislation willaffect therateofinflation or economicgrowth.
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Measurement of the social equity of a tax and determining whether a tax system discriminates against
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certain taxpayers areissues thatareexamined bysociologists andpolitical scientists.
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Finally, attorneysareresponsiblefor theinterpretation ofthetaxation statutes,andaccountantsensure
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that these samestatutes areapplied consistently.****8880()
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1-2. Theother major categories oftaxpracticein addition totaxresearch areas follows:
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• Taxcompliance l




• Tax planning l




• Tax litigation l




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1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
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information, and filing any necessary tax returns. Compliance also includes other functions
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necessary to satisfy governmental requirements, such as representing a client during an Internal
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RevenueService (IRS) audit.
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1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs),
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attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership,and
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corporate tax returns often are completed by commercial tax preparers. The preparation of more
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complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups alsoprovide tax
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planning services andrepresent their clientsbeforetheIRS.
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An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
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examination, or who has worked for the IRS for five years and is issued a permit to represent clients before
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the IRS. CPAs and attorneys are not required to take this examination and are automatically admitted to
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practice before the IRS if they are in good standing with the appropriateprofessional licensing board.
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1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability. Muchof
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modern taxpractice centersaroundthisprocess, and theresulting outcome istax avoidance.
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There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within
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legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannotbe condoned.
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Activities of this sort clearly violate existing legal constraints and fall outside of the domain ofthe
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professional taxpractitioner.
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1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax practitioner
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maintains some degree of control over the potential tax liability, and the transaction may be modi- fied to
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achieve a more favorable tax treatment. In a closed transaction however, all of the pertinentactions have
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been completed, and tax planning activities may be limited to the presentation of the situation tothe
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government in themost legallyadvantageous manner possible.
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1-7. Taxlitigation istheprocess ofsettlinga disputewith theIRS in acourtoflaw. Typically, a taxattorney
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handles tax litigation that progresses beyond thefinal IRS appeal.
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1-8. CPAs serve is a supportcapacityin tax litigation.
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1-9. Taxresearch consists oftheresolution ofunanswered taxation questions. Thetaxresearch process
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includes the following:
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1. Identification ofpertinentissues; l l l




2. Specification ofproper authorities; l l l




3. Evaluation oftheproprietyofauthorities;and, l l l l l l




4. Application ofauthorities toaspecificsituation. l l l l l l




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1-10. Circular 230 is issued bytheTreasuryDepartment and applies to allwho practice before theIRS.Page 7
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1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct and
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Statements on Standards for Tax Services. CPAs must also abide by the rules of the appropriate state
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board(s) ofaccountancy.
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1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider. The
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hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers filing season
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issues andtaxlawupdates. TheAFTRcoursemustincludeaknowledge-based comprehension test
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administered attheconclusion ofthecoursebytheCE Provider.
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