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()
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1-2. The other major categories of tax practice in addition to tax research are as follows:
Tax compliance
Tax planning
Tax litigation
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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
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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.
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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.
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1-7. Tax olitigation ois othe oprocess oof osettling oa odispute owith othe oIRS oin oa ocourt oof olaw.
oTypically, oa otaxoattorney ohandles otax olitigation othat oprogresses obeyond othe ofinal oIRS
oappeal.
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1-8. CPAs oserve ois oa osupport ocapacity oin otax olitigation.
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1-9. Tax oresearch oconsists oof othe oresolution oof ounanswered otaxation oquestions. o The otax
oresearch oprocessoincludes othe ofollowing:
1. Identification oof opertinent oissues;
2. Specification oof oproper oauthorities;
3. Evaluation oof othe opropriety oof oauthorities; oand,
4. Application oof oauthorities oto oa ospecific osituation.
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1-10. Circular o230 ois oissued oby othe oTreasury oDepartment oand oapplies oto oall owho opractice
obefore othe oIRS.oPage o7
1-11. In oaddition oto oCircular o230, oCPAs omust ofollow othe oAICPA‘s oCode oof oProfessional
oConduct oand oStatements oon oStandards ofor oTax oServices. oCPAs omust oalso oabide oby
othe orules oof othe oappropriateostate oboard(s) oof oaccountancy.
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1-12. A oreturn opreparer omust oobtain o18 ohours oof ocontinuing oeducation ofrom oan oIRS-approved
oCE oProvider. oThe ohours omust oinclude oa o6 ocredit ohour oAnnual oFederal oTax oRefresher
ocourse o(AFTR) othat ocovers ofiling oseason oissues oand otax olaw oupdates. oThe oAFTR
ocourse omust oinclude oa oknowledge-obased ocomprehension otest oadministered oat othe
oconclusion o of othe ocourse oby othe oCE oProvider.
