FederalTaxResearch (
g g g
th
12 Edition)
g
RobySawyers, Steven
g g g
Gill
Study Guide g
2021
,FederalgTaxgResearch,g11thgEdition Pageg1-1
CHAPTER 1 g
AN INTRODUCTION TO TAX PRACTICE AND ETHICS
g g g g g g
DISCUSSIONgQUESTIONS
1-1.
IngthegUnitedgStates,gthegtaxgsystemgisgangoutgrowthgofgthegfollowinggfivegdisciplines:gla
w,gaccounting,geconomics,gpoliticalgscience,gandgsociology.gThegenvironmentgforgthegtaxgsyste
mgisgprovidedgbygthegprinciplesgofgeconomics,gsociology,gandgpoliticalgscience,gwhilegtheglegalg
andgaccountinggfieldsgaregresponsiblegforgthegsystem'sginterpretationgandgapplication.
Eachgofgthesegdisciplinesgaffectsgthisgcountry'sgtaxgsystemgingaguniquegway.gEconomistsgaddressgsu
chgissuesgasghowgproposedgtaxglegislationgwillgaffectgthegrategofginflationgorgeconomicggrowth.gMea
surementgofgthegsocialgequitygofgagtax,gandgdetermininggwhethergagtaxgsystemgdiscriminatesgagainst
gcertaingtaxpayers,garegissuesgthatgaregexaminedgbygsociologistsgandgpoliticalgscientists.gFinally,gatt
orneysgaregresponsiblegforgtheginterpretationgofgthegtaxationgstatutes,gandgaccountantsgensuregthatgt
hesegsamegstatutesgaregappliedgconsistently.
Pageg4
1-2. Thegothergmajorgcategoriesgofgtaxgpracticegingadditiongtogtaxgresearchgare:
• taxgcompliance
• taxgplanning
• taxglitigation
gPageg5
1-3.
Taxgcompliancegconsistsgofggatheringgpertinentginformation,gevaluatinggandgclassifyinggtha
tginformation,gandgfilingganygnecessarygtaxgreturns.gCompliancegalsogincludesgothergfunctionsgnece
ssarygtogsatisfyggovernmentalgrequirements,gsuchgasgrepresentinggagclientgduringgangIRSgaudit.
Pageg5
1-4.
Mostgofgthegtaxgcompliancegworkgisgperformedgbygcommercialgtaxgpreparers,genrolledgag
ents,gattorneys,gandgCPAs.gNoncomplexgindividual,gpartnership,gandgcorporategtaxgreturnsgoften
garegcompletedgbygcommercial gtaxgpreparers.gThegpreparationgofgmoregcomplexgreturnsgusuallyg
isgperformedgbygenrolledgagents,gattorneys,gandgCPAs.gTheglatterggroupsgalsogprovidegtaxgplanni
nggservicesgandgrepresentgtheirgclientsgbeforegthegIRS.
AngenrolledgagentgisgonegwhogisgadmittedgtogpracticegbeforegthegIRSgbygpassinggagspecialgIRS-
gadministeredgexamination,gorgwhoghasgworkedgforgthegIRSgforgfivegyears,gandgisgissuedgagpermitgto
grepresentgclientsgbeforegthegIRS.gCPAsgandgattorneysgaregnotgrequiredgtogtakegthisgexaminationgan
dgaregautomaticallygadmittedgtogpracticegbeforegthegIRSgifgtheygareginggoodgstandinggwithgthegappr
opriategprofessionalglicensinggboard.
Pageg5gandgCircularg230
,Pageg1-2 SOLUTIONSgMANUAL
1-5.
Taxgplanninggisgthegprocessgofgarranginggone'sgfinancialgaffairsgtogminimizeganygtaxgliability
.gMuchgofgmoderngtaxgpracticegcentersgaroundgthisgprocess,gandgthegresultinggoutcomegisgtaxgavoid
ance.
Theregisgnothinggillegalgorgimmoralgingthegavoidancegofgtaxation,gasglonggasgthegtaxpayergremainsgw
ithinglegalgbounds.gIngcontrast,gtaxgevasiongconstitutesgthegillegalgnonpaymentgofgagtaxgandgcannotgb
egcondoned.gActivitiesgofgthisgsortgclearlygviolategexistingglegalgconstraintsgandgfallgoutsidegofgthegd
omaingofgthegprofessionalgtaxgpractitioner.
Pageg6
1-6.
Ingangopengtaxgplanninggsituation,gthegtransactiongisgnotgyetgcomplete,gtherefore,gthegtaxgprac
titionergmaintainsgsomegdegreegofgcontrolgovergthegpotentialgtaxgliability,gandgthegtransactiongmaygb
egmodi-
gfiedgtogachieve gagmoregfavorablegtaxgtreatment.gIngagclosedgtransactionghowever,gallgofgthegpertinent
gactionsghavegbeengcompleted,gandgtaxgplanninggactivitiesgmaygbeglimitedgtogthegpresentationgofgtheg
situationgtogtheggovernmentgingthegmostglegallygadvantageousgmannergpossible.
Pageg6
1-7.
TaxglitigationgisgthegprocessgofgsettlinggagdisputegwithgthegIRSgingagcourtgofglaw.gTypicall
y,gagtaxgattorneyghandlesgtaxglitigationgthatgprogressesgbeyondgthegfinalgIRSgappeal.
Pageg6
1-8. CPAsgservegisgagsupportgcapacitygingtaxglitigation.
Pageg6
1-9.
Taxgresearchgconsistsgofgthegresolutiongofgunansweredgtaxationgquestions.gThegtaxgresearchg
processgincludesgthegfollowing:
1. Identificationgofgpertinentgissues;
2. Specificationgofgpropergauthorities;
3. Evaluationgofgthegproprietygofgauthorities;gand,
4. Applicationgofgauthoritiesgtogagspecificgsituation.
Pageg6
1-10.
Circularg230gisgissuedgbygthegTreasurygDepartmentgandgappliesgtogallgwhogpracticegbeforegt
hegIRS.gPageg7
1-11.
IngadditiongtogCircularg230,gCPAsgmustgfollowgthegAICPA'sgCodegofgProfessionalgCondu
ctgandgStatementsgongStandardsgforgTaxgServices.gCPAsgmustgalsogabidegbygthegrulesgofgthegappr
opriategstategboard(s)gofgaccountancy.
Pageg7
1-12. Agreturngpreparergmustgobtaing18ghoursgofgcontinuinggeducationgfromgangIRS-
approvedgCEgProvider.gTheghoursgmustgincludegag6gcreditghourgAnnualgFederalgTaxgRefreshergcou
rseg(AFTR)gthatgcoversgfilinggseasongissuesgandgtaxglawgupdates.gThegAFTRgcoursegmustgincludegag
knowledge-
, FederalgTaxgResearch,g11thgEdition Pageg1-3
gbasedgcomprehensiongtestgadministeredgatgthegconclusiongofgthegcoursegbygthegCEgProvider.
Limitedgpracticegrightsgallowgindividualsgtogrepresentgclientsgwhosegreturnsgtheygpreparedgandgs
igned,gbutgonlygbeforegrevenuegagents,gcustomergservicegrepresentatives,gandgsimilargIRSgempl
oyees.
g g g
th
12 Edition)
g
RobySawyers, Steven
g g g
Gill
Study Guide g
2021
,FederalgTaxgResearch,g11thgEdition Pageg1-1
CHAPTER 1 g
AN INTRODUCTION TO TAX PRACTICE AND ETHICS
g g g g g g
DISCUSSIONgQUESTIONS
1-1.
IngthegUnitedgStates,gthegtaxgsystemgisgangoutgrowthgofgthegfollowinggfivegdisciplines:gla
w,gaccounting,geconomics,gpoliticalgscience,gandgsociology.gThegenvironmentgforgthegtaxgsyste
mgisgprovidedgbygthegprinciplesgofgeconomics,gsociology,gandgpoliticalgscience,gwhilegtheglegalg
andgaccountinggfieldsgaregresponsiblegforgthegsystem'sginterpretationgandgapplication.
Eachgofgthesegdisciplinesgaffectsgthisgcountry'sgtaxgsystemgingaguniquegway.gEconomistsgaddressgsu
chgissuesgasghowgproposedgtaxglegislationgwillgaffectgthegrategofginflationgorgeconomicggrowth.gMea
surementgofgthegsocialgequitygofgagtax,gandgdetermininggwhethergagtaxgsystemgdiscriminatesgagainst
gcertaingtaxpayers,garegissuesgthatgaregexaminedgbygsociologistsgandgpoliticalgscientists.gFinally,gatt
orneysgaregresponsiblegforgtheginterpretationgofgthegtaxationgstatutes,gandgaccountantsgensuregthatgt
hesegsamegstatutesgaregappliedgconsistently.
Pageg4
1-2. Thegothergmajorgcategoriesgofgtaxgpracticegingadditiongtogtaxgresearchgare:
• taxgcompliance
• taxgplanning
• taxglitigation
gPageg5
1-3.
Taxgcompliancegconsistsgofggatheringgpertinentginformation,gevaluatinggandgclassifyinggtha
tginformation,gandgfilingganygnecessarygtaxgreturns.gCompliancegalsogincludesgothergfunctionsgnece
ssarygtogsatisfyggovernmentalgrequirements,gsuchgasgrepresentinggagclientgduringgangIRSgaudit.
Pageg5
1-4.
Mostgofgthegtaxgcompliancegworkgisgperformedgbygcommercialgtaxgpreparers,genrolledgag
ents,gattorneys,gandgCPAs.gNoncomplexgindividual,gpartnership,gandgcorporategtaxgreturnsgoften
garegcompletedgbygcommercial gtaxgpreparers.gThegpreparationgofgmoregcomplexgreturnsgusuallyg
isgperformedgbygenrolledgagents,gattorneys,gandgCPAs.gTheglatterggroupsgalsogprovidegtaxgplanni
nggservicesgandgrepresentgtheirgclientsgbeforegthegIRS.
AngenrolledgagentgisgonegwhogisgadmittedgtogpracticegbeforegthegIRSgbygpassinggagspecialgIRS-
gadministeredgexamination,gorgwhoghasgworkedgforgthegIRSgforgfivegyears,gandgisgissuedgagpermitgto
grepresentgclientsgbeforegthegIRS.gCPAsgandgattorneysgaregnotgrequiredgtogtakegthisgexaminationgan
dgaregautomaticallygadmittedgtogpracticegbeforegthegIRSgifgtheygareginggoodgstandinggwithgthegappr
opriategprofessionalglicensinggboard.
Pageg5gandgCircularg230
,Pageg1-2 SOLUTIONSgMANUAL
1-5.
Taxgplanninggisgthegprocessgofgarranginggone'sgfinancialgaffairsgtogminimizeganygtaxgliability
.gMuchgofgmoderngtaxgpracticegcentersgaroundgthisgprocess,gandgthegresultinggoutcomegisgtaxgavoid
ance.
Theregisgnothinggillegalgorgimmoralgingthegavoidancegofgtaxation,gasglonggasgthegtaxpayergremainsgw
ithinglegalgbounds.gIngcontrast,gtaxgevasiongconstitutesgthegillegalgnonpaymentgofgagtaxgandgcannotgb
egcondoned.gActivitiesgofgthisgsortgclearlygviolategexistingglegalgconstraintsgandgfallgoutsidegofgthegd
omaingofgthegprofessionalgtaxgpractitioner.
Pageg6
1-6.
Ingangopengtaxgplanninggsituation,gthegtransactiongisgnotgyetgcomplete,gtherefore,gthegtaxgprac
titionergmaintainsgsomegdegreegofgcontrolgovergthegpotentialgtaxgliability,gandgthegtransactiongmaygb
egmodi-
gfiedgtogachieve gagmoregfavorablegtaxgtreatment.gIngagclosedgtransactionghowever,gallgofgthegpertinent
gactionsghavegbeengcompleted,gandgtaxgplanninggactivitiesgmaygbeglimitedgtogthegpresentationgofgtheg
situationgtogtheggovernmentgingthegmostglegallygadvantageousgmannergpossible.
Pageg6
1-7.
TaxglitigationgisgthegprocessgofgsettlinggagdisputegwithgthegIRSgingagcourtgofglaw.gTypicall
y,gagtaxgattorneyghandlesgtaxglitigationgthatgprogressesgbeyondgthegfinalgIRSgappeal.
Pageg6
1-8. CPAsgservegisgagsupportgcapacitygingtaxglitigation.
Pageg6
1-9.
Taxgresearchgconsistsgofgthegresolutiongofgunansweredgtaxationgquestions.gThegtaxgresearchg
processgincludesgthegfollowing:
1. Identificationgofgpertinentgissues;
2. Specificationgofgpropergauthorities;
3. Evaluationgofgthegproprietygofgauthorities;gand,
4. Applicationgofgauthoritiesgtogagspecificgsituation.
Pageg6
1-10.
Circularg230gisgissuedgbygthegTreasurygDepartmentgandgappliesgtogallgwhogpracticegbeforegt
hegIRS.gPageg7
1-11.
IngadditiongtogCircularg230,gCPAsgmustgfollowgthegAICPA'sgCodegofgProfessionalgCondu
ctgandgStatementsgongStandardsgforgTaxgServices.gCPAsgmustgalsogabidegbygthegrulesgofgthegappr
opriategstategboard(s)gofgaccountancy.
Pageg7
1-12. Agreturngpreparergmustgobtaing18ghoursgofgcontinuinggeducationgfromgangIRS-
approvedgCEgProvider.gTheghoursgmustgincludegag6gcreditghourgAnnualgFederalgTaxgRefreshergcou
rseg(AFTR)gthatgcoversgfilinggseasongissuesgandgtaxglawgupdates.gThegAFTRgcoursegmustgincludegag
knowledge-
, FederalgTaxgResearch,g11thgEdition Pageg1-3
gbasedgcomprehensiongtestgadministeredgatgthegconclusiongofgthegcoursegbygthegCEgProvider.
Limitedgpracticegrightsgallowgindividualsgtogrepresentgclientsgwhosegreturnsgtheygpreparedgandgs
igned,gbutgonlygbeforegrevenuegagents,gcustomergservicegrepresentatives,gandgsimilargIRSgempl
oyees.
