Solution Manual For Federal Tax Research 12th Edition by Roby Sawye... file:///C:/Users/HP/Downloads/Solution%20Manual%20For%20Fed
Solution Manual for Federal Tax Research
12th Edition by Roby Sawyers, Steven Gill
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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.
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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.
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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 modified 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
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the government in the most legally advantageous manner possible.
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1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a tax attorney
handles tax litigation that progresses beyond the final IRS appeal.
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1-8. CPAs serve is a support capacity in tax litigation.
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1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research process
includes the following:
1. Identification of pertinent issues;
2. Specification of proper authorities;
3. Evaluation of the propriety of authorities; and,
4. Application of authorities to a specific situation.
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1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the IRS.
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1-11. In addition to Circular 230, CPAs must follow the AICPA’s Code of Professional Conduct and Statements
on Standards for Tax Services. CPAs must also abide by the rules of the appropriate state board(s) of
accountancy.
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1-12. A return preparer must obtain 18 hours of continuing education from an IRS-approved CE Provider.
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