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Solution Manual For Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
Solution Manual For Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
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Federal nTax nResearch, n12th Page n1-1nEdition
Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
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CHAPTER 1 n
INTRODUCTION TO TAX PRACTICE AND ETHICS n n n n n
DISCUSSION QUESTIONS n
1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law,
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naccounting, economics, political science, and sociology. The environment for the tax system
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nisprovided by the principles of economics, sociology, and political science, while the legal
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nand accounting fields are responsible for the system‘s interpretation and application.
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Each of these disciplines affects this country‘s tax system in a unique way. Economists
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naddresssuch issues as how proposed tax legislation will affect the rate of inflation or
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n economic growth.Measurement of the social equity of a tax and determining whether a tax
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nsystem discriminates against certain taxpayers are issues that are examined by sociologists
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nand political scientists.
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Finally, attorneys are responsible for the interpretation of the taxation statutes, and
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naccountantsensure that these same statutes are applied consistently.
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Page 4 n
1-2. The other major categories of tax practice in addition to tax research are as follows:
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Tax compliance n
Tax planning n
Tax
nlitigationPage 5 n n
1-3. Tax compliance consists of gathering pertinent information, evaluating and classifying that
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ninformation, and filing any necessary tax returns. Compliance also includes other functions
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n necessary to satisfy governmental requirements, such as representing a client during an
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nInternalRevenue Service (IRS) audit.
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,Page n1-2 SOLUTIONS nMANUAL
Page 5 n
1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolled agents
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(EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual,
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partnership,and corporate tax returns often are completed by commercial tax preparers. The
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preparation of more complex returns usually is performed by EAs, attorneys, and CPAs. The
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latter groups alsoprovide tax planning services and represent their clients before the IRS.
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An EA is one who is admitted to practice before the IRS by passing a special IRS-administered
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examination, or who has worked for the IRS for five years and is issued a permit to represent
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clients before the IRS. CPAs and attorneys are not required to take this examination and are
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automatically admitted to practice before the IRS if they are in good standing with the
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appropriateprofessional licensing board.
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Page 5 and Circular 230
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1-5. Tax planning is the process of arranging one‘s financial affairs to minimize any tax liability.
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Muchof modern tax practice centers around this process, and the resulting outcome is tax
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avoidance.
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There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains
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n within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and
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cannotbe condoned. Activities of this sort clearly violate existing legal constraints and fall
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outside of the domain of the professional tax practitioner.
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Page 6 n
1-6. In an open tax planning situation, the transaction is not yet complete; therefore, the tax
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practitionermaintains some degree of control over the potential tax liability, and the transaction
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n may be modi- fied to achieve a more favorable tax treatment. In a closed transaction however,
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all of the pertinentactions have been completed, and tax planning activities may be limited to
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the presentation of the situation to the government in the most legally advantageous manner
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n possible.
,Federal nTax nResearch, n12th Page n1-3
nEdition
Page 6 n
1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a
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ntaxattorney handles tax litigation that progresses beyond the final IRS appeal.
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Page 6 n
1-8. CPAs serve is a support capacity in tax litigation.
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Page 6 n
1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research
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nprocessincludes the following: n n n
1. Identification of pertinent issues; n n n
2. Specification of proper authorities; n n n
3. Evaluation of the propriety of authorities; and,
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4. Application of authorities to a specific situation.
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Page 6 n
1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the
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nIRS.Page 7 n n
1-11. In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Conduct
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nand Statements on Standards for Tax Services. CPAs must also abide by the rules of the
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nappropriatestate board(s) of accountancy. n n n n
Page 7 n
1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE
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nProvider. The hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR)
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nthat covers filing season issues and tax law updates. The AFTR course must include a
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nknowledge-based comprehension test administered at the conclusion of the course by the CE
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n Provider.
, Page n1-4 SOLUTIONS nMANUAL
Limited practice rights allow individuals to represent clients whose returns they prepared
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andsigned, but only before revenue agents, customer service representatives, and similar IRS
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employees.
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Page 10 and IRS.gov n n n
1-13. False. Only communication with the IRS concerning a taxpayer‘s rights, privileges, or liability
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isincluded. Practice before the IRS does not include representation before the Tax Court.
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Page 7 n
1-14. Section 10.2 of Subpart A of Circular 230 defines practice before the IRS as including:
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matters connected with presentation to the Internal Revenue Service or any of its
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n officersor employees relating to a client‘s rights, privileges, or liabilities under laws or
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n regulations administered by the Internal Revenue Service. Such presentations include
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n thepreparation and filing of necessary documents, correspondence with, and
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n communications to the Internal Revenue Service, and the representation of a client at
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n conferences, hearings, and meetings. n n n
Page 7 n
1-15. To become an EA an individual can (1) pass a test given by the IRS or (2) work for the IRS
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forfive years. Circular 230, Subpart A, §§ 10.4 to 10.6.
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Page 9 n
1-16. EAs must complete 72 hours of continuing education every three years (an average of 24 per
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n year,with a minimum of 16 hours during any year). Circular 230, Subpart A. § 10.6.
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Page 9 n
1-17. True. As a general rule, an individual must be an EA, attorney, or CPA to represent a client
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beforethe IRS. There are limited situations where others may represent a taxpayer; however,
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this fact pattern is not one of them. Since Leigh did not sign the return, she cannot represent the
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taxpayer, only Rose can.
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