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, attorneys are responsible for the interpretation of the taxation statutes, and accountants
ensure that these same statutes are applied consistently.
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.
,Page 1-2 SOLUTIONS MANUAL
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 planning is the process of arranging one‘s financial affairs to minimize any tax liability. Much
of modern tax practice centers around this process, and the resulting outcome is tax avoidance.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains
within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannot
be condoned. Activities of this sort clearly violate existing legal constraints and fall outside of the
domain of the professional tax practitioner.
Page 6
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax practitioner
maintains some degree of control over the potential tax liability, and the transaction may be modi-
fied to achieve a more favorable tax treatment. In a closed transaction however, all of the pertinent
actions have been completed, and tax planning activities may be limited to the presentation of the
situation to the government in the most legally advantageous manner possible.
,Federal Tax Research, 12th Edition Page 1-3
Page 6
1-7. Tax vlitigation vis vthe vprocess vof vsettling va vdispute vwith vthe vIRS vin va vcourt vof vlaw.
vTypically, va vtaxvattorney vhandles vtax vlitigation vthat vprogresses vbeyond vthe vfinal vIRS
vappeal.
Page v6
1-8. CPAs vserve vis va vsupport vcapacity vin vtax vlitigation.
Page v6
1-9. Tax vresearch vconsists vof vthe vresolution vof vunanswered vtaxation vquestions. v The vtax
vresearch vprocessvincludes vthe vfollowing:
1. Identification vof vpertinent vissues;
2. Specification vof vproper vauthorities;
3. Evaluation vof vthe vpropriety vof vauthorities; vand,
4. Application vof vauthorities vto va vspecific vsituation.
Page v6
1-10. Circular v230 vis vissued vby vthe vTreasury vDepartment vand vapplies vto vall vwho vpractice
vbefore vthe vIRS.vPage v7
1-11. In vaddition vto vCircular v230, vCPAs vmust vfollow vthe vAICPA‘s vCode vof vProfessional
vConduct vand vStatements von vStandards vfor vTax vServices. vCPAs vmust valso vabide vby
vthe vrules vof vthe vappropriatevstate vboard(s) vof vaccountancy.
Page v7
1-12. A vreturn vpreparer vmust vobtain v18 vhours vof vcontinuing veducation vfrom van vIRS-approved
vCE vProvider. vThe vhours vmust vinclude va v6 vcredit vhour vAnnual vFederal vTax vRefresher
vcourse v(AFTR) vthat vcovers vfiling vseason vissues vand vtax vlaw vupdates. vThe vAFTR
vcourse vmust vinclude va vknowledge-vbased vcomprehension vtest vadministered vat vthe
vconclusion v of vthe vcourse vby vthe vCE vProvider.
, Page 1-4 SOLUTIONS MANUAL
Limited vpractice vrights vallow vindividuals vto vrepresent vclients vwhose vreturns vthey
vprepared vandvsigned, vbut vonly vbefore vrevenue vagents, vcustomer vservice
vrepresentatives, vand vsimilar vIRS vemployees.
Page v10 vand vIRS.gov
1-13. False. vOnly vcommunication vwith vthe vIRS vconcerning va vtaxpayer‘s vrights, vprivileges, vor
vliability visvincluded. vPractice vbefore vthe vIRS vdoes vnot vinclude vrepresentation vbefore vthe
vTax vCourt.
Page v7
1-14. Section v10.2 vof vSubpart vA vof vCircular v230 vdefines vpractice vbefore vthe vIRS vas vincluding:
matters vconnected vwith vpresentation vto vthe vInternal vRevenue vService vor vany vof
vits vofficersvor vemployees vrelating vto va vclient‘s vrights, vprivileges, vor vliabilities
vunder vlaws vor vregulations vadministered vby vthe vInternal vRevenue vService. vSuch
vpresentations vinclude vthevpreparation vand vfiling vof vnecessary vdocuments,
vcorrespondence vwith, vand vcommunications vto vthe vInternal vRevenue vService, vand
vthe vrepresentation vof va vclient vat vconferences, vhearings, vand vmeetings.
Page v7
1-15. To vbecome van vEA van vindividual vcan v(1) vpass va vtest vgiven vby vthe vIRS vor v(2) vwork
vfor v the vIRS vforvfive vyears. v Circular v230, vSubpart vA, v§§ v10.4 vto v10.6.
Page v9
1-16. EAs vmust vcomplete v72 vhours vof vcontinuing veducation vevery vthree vyears v(an vaverage vof
v24 vper vyear,vwith va vminimum vof v16 vhours vduring vany vyear). vCircular v230, vSubpart vA.
v§ v10.6.
Page v9
1-17. True. vAs va vgeneral vrule, van vindividual vmust vbe van vEA, vattorney, vor vCPA vto vrepresent
va vclient vbeforevthe vIRS. vThere vare vlimited vsituations vwhere vothers vmay vrepresent va
vtaxpayer; vhowever, vthis vfact vpattern vis vnot vone vof vthem. vSince vLeigh vdid vnot vsign vthe
vreturn, vshe vcannot vrepresent vthe vtaxpayer, vonly vRose vcan.
