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, fattorneys fare fresponsible ffor fthe finterpretation fof fthe ftaxation fstatutes, fand
faccountantsfensure fthat fthese fsame fstatutes fare fapplied fconsistently.
Page f4
1-2. The fother fmajor fcategories fof ftax fpractice fin faddition fto ftax fresearch fare fas ffollows:
Tax fcompliance
Tax fplanning
Tax
flitigationfPage f5
1-3. Tax fcompliance fconsists fof fgathering fpertinent finformation, fevaluating fand fclassifying
fthat finformation, fand ffiling fany fnecessary ftax freturns. fCompliance falso fincludes fother
ffunctions fnecessary fto fsatisfy fgovernmental frequirements, fsuch fas frepresenting fa fclient
fduring fan fInternalfRevenue fService f(IRS) faudit.
,Page 1-2 SOLUTIONS MANUAL
Page f5
1-4. Most fof fthe ftax fcompliance fwork fis fperformed fby fcommercial ftax fpreparers, fenrolled
fagents f(EAs), fattorneys, fand fcertified fpublic faccountants f(CPAs). fNoncomplex findividual,
fpartnership,fand fcorporate ftax freturns foften fare fcompleted fby fcommercial ftax fpreparers.
fThe fpreparation fof fmore fcomplex freturns fusually fis fperformed fby fEAs, fattorneys, fand
fCPAs. fThe flatter fgroups falsofprovide ftax fplanning fservices fand frepresent ftheir fclients
fbefore fthe fIRS.
An fEA fis fone fwho fis fadmitted fto fpractice fbefore fthe fIRS fby fpassing fa fspecial fIRS-
administered fexamination, for fwho fhas fworked ffor fthe fIRS ffor ffive fyears fand fis fissued fa
fpermit fto frepresent fclients fbefore fthe fIRS. fCPAs fand fattorneys fare fnot frequired fto ftake
fthis fexamination fand fare fautomatically fadmitted fto fpractice fbefore fthe fIRS fif fthey fare fin
fgood fstanding fwith fthe fappropriatefprofessional flicensing fboard.
Page f5 fand fCircular f230
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.
,Federal Tax Research, 12th Edition Page 1-3
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.
, Page 1-4 SOLUTIONS MANUAL
Limited fpractice frights fallow findividuals fto frepresent fclients fwhose freturns fthey fprepared
fandfsigned, fbut fonly fbefore frevenue fagents, fcustomer fservice frepresentatives, fand fsimilar
fIRS femployees.
Page f10 fand fIRS.gov
1-13. False. fOnly fcommunication fwith fthe fIRS fconcerning fa ftaxpayer‘s frights, fprivileges, for
fliability fisfincluded. fPractice fbefore fthe fIRS fdoes fnot finclude frepresentation fbefore fthe fTax
fCourt.
Page f7
1-14. Section f10.2 fof fSubpart fA fof fCircular f230 fdefines fpractice fbefore fthe fIRS fas fincluding:
matters fconnected fwith fpresentation fto fthe fInternal fRevenue fService for fany fof fits
fofficersfor femployees frelating fto fa fclient‘s frights, fprivileges, for fliabilities funder
flaws for fregulations fadministered fby fthe fInternal fRevenue fService. fSuch
fpresentations finclude fthefpreparation fand ffiling fof fnecessary fdocuments,
fcorrespondence fwith, fand fcommunications fto fthe fInternal fRevenue fService, fand
fthe frepresentation fof fa fclient fat fconferences, fhearings, fand fmeetings.
Page f7
1-15. To fbecome fan fEA fan findividual fcan f(1) fpass fa ftest fgiven fby fthe fIRS for f(2) fwork ffor
f the fIRS fforffive fyears. fCircular f230, fSubpart fA, f§§ f10.4 fto f10.6.
Page f9
1-16. EAs fmust fcomplete f72 fhours fof fcontinuing feducation fevery fthree fyears f(an faverage fof f24
fper fyear,fwith fa fminimum fof f16 fhours fduring fany fyear). fCircular f230, fSubpart fA. f§ f10.6.
Page f9
1-17. True. fAs fa fgeneral frule, fan findividual fmust fbe fan fEA, fattorney, for fCPA fto frepresent fa
fclient fbeforefthe fIRS. fThere fare flimited fsituations fwhere fothers fmay frepresent fa ftaxpayer;
fhowever, fthis ffact fpattern fis fnot fone fof fthem. fSince fLeigh fdid fnot fsign fthe freturn, fshe
fcannot frepresent fthe ftaxpayer, fonly fRose fcan.
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, fattorneys fare fresponsible ffor fthe finterpretation fof fthe ftaxation fstatutes, fand
faccountantsfensure fthat fthese fsame fstatutes fare fapplied fconsistently.
Page f4
1-2. The fother fmajor fcategories fof ftax fpractice fin faddition fto ftax fresearch fare fas ffollows:
Tax fcompliance
Tax fplanning
Tax
flitigationfPage f5
1-3. Tax fcompliance fconsists fof fgathering fpertinent finformation, fevaluating fand fclassifying
fthat finformation, fand ffiling fany fnecessary ftax freturns. fCompliance falso fincludes fother
ffunctions fnecessary fto fsatisfy fgovernmental frequirements, fsuch fas frepresenting fa fclient
fduring fan fInternalfRevenue fService f(IRS) faudit.
,Page 1-2 SOLUTIONS MANUAL
Page f5
1-4. Most fof fthe ftax fcompliance fwork fis fperformed fby fcommercial ftax fpreparers, fenrolled
fagents f(EAs), fattorneys, fand fcertified fpublic faccountants f(CPAs). fNoncomplex findividual,
fpartnership,fand fcorporate ftax freturns foften fare fcompleted fby fcommercial ftax fpreparers.
fThe fpreparation fof fmore fcomplex freturns fusually fis fperformed fby fEAs, fattorneys, fand
fCPAs. fThe flatter fgroups falsofprovide ftax fplanning fservices fand frepresent ftheir fclients
fbefore fthe fIRS.
An fEA fis fone fwho fis fadmitted fto fpractice fbefore fthe fIRS fby fpassing fa fspecial fIRS-
administered fexamination, for fwho fhas fworked ffor fthe fIRS ffor ffive fyears fand fis fissued fa
fpermit fto frepresent fclients fbefore fthe fIRS. fCPAs fand fattorneys fare fnot frequired fto ftake
fthis fexamination fand fare fautomatically fadmitted fto fpractice fbefore fthe fIRS fif fthey fare fin
fgood fstanding fwith fthe fappropriatefprofessional flicensing fboard.
Page f5 fand fCircular f230
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.
,Federal Tax Research, 12th Edition Page 1-3
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.
, Page 1-4 SOLUTIONS MANUAL
Limited fpractice frights fallow findividuals fto frepresent fclients fwhose freturns fthey fprepared
fandfsigned, fbut fonly fbefore frevenue fagents, fcustomer fservice frepresentatives, fand fsimilar
fIRS femployees.
Page f10 fand fIRS.gov
1-13. False. fOnly fcommunication fwith fthe fIRS fconcerning fa ftaxpayer‘s frights, fprivileges, for
fliability fisfincluded. fPractice fbefore fthe fIRS fdoes fnot finclude frepresentation fbefore fthe fTax
fCourt.
Page f7
1-14. Section f10.2 fof fSubpart fA fof fCircular f230 fdefines fpractice fbefore fthe fIRS fas fincluding:
matters fconnected fwith fpresentation fto fthe fInternal fRevenue fService for fany fof fits
fofficersfor femployees frelating fto fa fclient‘s frights, fprivileges, for fliabilities funder
flaws for fregulations fadministered fby fthe fInternal fRevenue fService. fSuch
fpresentations finclude fthefpreparation fand ffiling fof fnecessary fdocuments,
fcorrespondence fwith, fand fcommunications fto fthe fInternal fRevenue fService, fand
fthe frepresentation fof fa fclient fat fconferences, fhearings, fand fmeetings.
Page f7
1-15. To fbecome fan fEA fan findividual fcan f(1) fpass fa ftest fgiven fby fthe fIRS for f(2) fwork ffor
f the fIRS fforffive fyears. fCircular f230, fSubpart fA, f§§ f10.4 fto f10.6.
Page f9
1-16. EAs fmust fcomplete f72 fhours fof fcontinuing feducation fevery fthree fyears f(an faverage fof f24
fper fyear,fwith fa fminimum fof f16 fhours fduring fany fyear). fCircular f230, fSubpart fA. f§ f10.6.
Page f9
1-17. True. fAs fa fgeneral frule, fan findividual fmust fbe fan fEA, fattorney, for fCPA fto frepresent fa
fclient fbeforefthe fIRS. fThere fare flimited fsituations fwhere fothers fmay frepresent fa ftaxpayer;
fhowever, fthis ffact fpattern fis fnot fone fof fthem. fSince fLeigh fdid fnot fsign fthe freturn, fshe
fcannot frepresent fthe ftaxpayer, fonly fRose fcan.
