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 splanning sis sthe sprocess sof sarranging sone‘s sfinancial saffairs sto sminimize sany stax
sliability. sMuchsof smodern stax spractice scenters saround sthis sprocess, sand sthe sresulting
soutcome sis stax savoidance.
There sis snothing sillegal sor simmoral sin sthe savoidance sof staxation sas slong sas sthe staxpayer
sremains swithin slegal sbounds. sIn scontrast, stax sevasion sconstitutes sthe sillegal snonpayment sof
sa stax sand scannotsbe scondoned. sActivities sof sthis ssort sclearly sviolate sexisting slegal
sconstraints sand sfall soutside sof sthe sdomain sof sthe sprofessional stax spractitioner.
Page s6
1-6. In san sopen stax splanning ssituation, sthe stransaction sis snot syet scomplete; stherefore, sthe stax
spractitionersmaintains ssome sdegree sof scontrol sover sthe spotential stax sliability, sand sthe
stransaction smay sbe smodi- sfied sto sachieve sa smore sfavorable stax streatment. sIn sa sclosed
stransaction showever, sall sof sthe spertinentsactions shave sbeen scompleted, sand stax splanning
sactivities smay sbe slimited sto sthe spresentation sof sthe ssituation sto sthe sgovernment sin sthe
smost slegally sadvantageous smanner s possible.
, Page 1-4 SOLUTIONS MANUAL
Page s6
1-7. Tax slitigation sis sthe sprocess sof ssettling sa sdispute swith sthe sIRS sin sa scourt sof slaw.
sTypically, sa staxsattorney shandles stax slitigation sthat sprogresses sbeyond sthe sfinal sIRS
sappeal.
Page s6
1-8. CPAs sserve sis sa ssupport scapacity sin stax slitigation.
Page s6
1-9. Tax sresearch sconsists sof sthe sresolution sof sunanswered staxation squestions. sThe stax sresearch
sprocesssincludes sthe sfollowing:
1. Identification sof spertinent sissues;
2. Specification sof sproper sauthorities;
3. Evaluation sof sthe spropriety sof sauthorities; sand,
4. Application sof sauthorities sto sa sspecific ssituation.
Page s6
1-10. Circular s230 sis sissued sby sthe sTreasury sDepartment sand sapplies sto sall swho spractice sbefore
sthe sIRS.sPage s7
1-11. In saddition sto sCircular s230, sCPAs smust sfollow sthe sAICPA‘s sCode sof sProfessional
sConduct sand sStatements son sStandards sfor sTax sServices. sCPAs smust salso sabide sby sthe
srules sof sthe sappropriatesstate sboard(s) sof saccountancy.
Page s7
1-12. A sreturn spreparer smust sobtain s18 shours sof scontinuing seducation sfrom san sIRS-approved
sCE sProvider. sThe shours smust sinclude sa s6 scredit shour sAnnual sFederal sTax sRefresher
scourse s(AFTR) sthat scovers sfiling sseason sissues sand stax slaw supdates. sThe sAFTR scourse
smust sinclude sa sknowledge-sbased scomprehension stest sadministered sat sthe sconclusion s of sthe
scourse sby sthe sCE sProvider.
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 splanning sis sthe sprocess sof sarranging sone‘s sfinancial saffairs sto sminimize sany stax
sliability. sMuchsof smodern stax spractice scenters saround sthis sprocess, sand sthe sresulting
soutcome sis stax savoidance.
There sis snothing sillegal sor simmoral sin sthe savoidance sof staxation sas slong sas sthe staxpayer
sremains swithin slegal sbounds. sIn scontrast, stax sevasion sconstitutes sthe sillegal snonpayment sof
sa stax sand scannotsbe scondoned. sActivities sof sthis ssort sclearly sviolate sexisting slegal
sconstraints sand sfall soutside sof sthe sdomain sof sthe sprofessional stax spractitioner.
Page s6
1-6. In san sopen stax splanning ssituation, sthe stransaction sis snot syet scomplete; stherefore, sthe stax
spractitionersmaintains ssome sdegree sof scontrol sover sthe spotential stax sliability, sand sthe
stransaction smay sbe smodi- sfied sto sachieve sa smore sfavorable stax streatment. sIn sa sclosed
stransaction showever, sall sof sthe spertinentsactions shave sbeen scompleted, sand stax splanning
sactivities smay sbe slimited sto sthe spresentation sof sthe ssituation sto sthe sgovernment sin sthe
smost slegally sadvantageous smanner s possible.
, Page 1-4 SOLUTIONS MANUAL
Page s6
1-7. Tax slitigation sis sthe sprocess sof ssettling sa sdispute swith sthe sIRS sin sa scourt sof slaw.
sTypically, sa staxsattorney shandles stax slitigation sthat sprogresses sbeyond sthe sfinal sIRS
sappeal.
Page s6
1-8. CPAs sserve sis sa ssupport scapacity sin stax slitigation.
Page s6
1-9. Tax sresearch sconsists sof sthe sresolution sof sunanswered staxation squestions. sThe stax sresearch
sprocesssincludes sthe sfollowing:
1. Identification sof spertinent sissues;
2. Specification sof sproper sauthorities;
3. Evaluation sof sthe spropriety sof sauthorities; sand,
4. Application sof sauthorities sto sa sspecific ssituation.
Page s6
1-10. Circular s230 sis sissued sby sthe sTreasury sDepartment sand sapplies sto sall swho spractice sbefore
sthe sIRS.sPage s7
1-11. In saddition sto sCircular s230, sCPAs smust sfollow sthe sAICPA‘s sCode sof sProfessional
sConduct sand sStatements son sStandards sfor sTax sServices. sCPAs smust salso sabide sby sthe
srules sof sthe sappropriatesstate sboard(s) sof saccountancy.
Page s7
1-12. A sreturn spreparer smust sobtain s18 shours sof scontinuing seducation sfrom san sIRS-approved
sCE sProvider. sThe shours smust sinclude sa s6 scredit shour sAnnual sFederal sTax sRefresher
scourse s(AFTR) sthat scovers sfiling sseason sissues sand stax slaw supdates. sThe sAFTR scourse
smust sinclude sa sknowledge-sbased scomprehension stest sadministered sat sthe sconclusion s of sthe
scourse sby sthe sCE sProvider.
