FederaleTaxeResearch,e12theEditio Pagee1-1
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Solution Manual
Federal Tax Research 12th Edition
by Roby Sawyers, Steven Gill
CHAPTERe1
INTRODUCTIONeTOeTAXePRACTICEeANDeETHICS
DISCUSSIONeQUESTIONS
1-1.
InetheeUnitedeStates,etheetaxesystemeiseaneoutgrowtheofetheefollowingefiveedisciplines:el
aw,eaccounting,eeconomics,epoliticalescience,eandesociology.eTheeenvironmenteforetheetaxesyst
emeiseprovidedebyetheeprincipleseofeeconomics,esociology,eandepoliticalescience,ewhileetheelegal
andeaccountingefieldseareeresponsibleeforetheesystem‘seinterpretationeandeapplication.
e
Eacheofetheseedisciplineseaffectsethisecountry‘setaxesystemeineaeuniqueeway.eEconomistseaddres
sesucheissueseasehoweproposedetaxelegislationewilleaffectetheerateeofeinflationeoreeconomicegrowt
h.eMeasurementeofetheesocialeequityeofeaetaxeandedeterminingewhethereaetaxesystemediscriminat
eseagainstecertainetaxpayerseareeissuesethateareeexaminedebyesociologistseandepoliticalescientists.
Finally,eattorneyseareeresponsibleeforetheeinterpretationeofetheetaxationestatutes,eandeaccountantse
ensureethatetheseesameestatuteseareeappliedeconsistently.
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1-2. Theeotheremajorecategorieseofetaxepracticeeineadditionetoetaxeresearcheareeasefollows:
• Taxecompliance
• Taxeplanning
• Taxelitigation
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e
1-3.
Taxecomplianceeconsistseofegatheringepertinenteinformation,eevaluatingeandeclassifyinge
,Pagee1-2 SOLUTIONSeMANUAL
thateinformation,eandefilingeanyenecessaryetaxereturns.eComplianceealsoeincludeseotherefunction
senecessaryetoesatisfyegovernmentalerequirements,esucheaserepresentingeaeclienteduringeaneInter
naleRevenueeServicee(IRS)eaudit.
,FederaleTaxeResearch,e12theEditio Pagee1-3
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Pagee5
1-4.
Mosteofetheetaxecomplianceeworkeiseperformedebyecommercialetaxepreparers,eenrolledea
gentse(EAs),eattorneys,eandecertifiedepubliceaccountantse(CPAs).eNoncomplexeindividual,epartn
ership,eandecorporateetaxereturnseofteneareecompletedebyecommercialetaxepreparers.eTheepreparat
ioneofemoreecomplexereturnseusuallyeiseperformedebyeEAs,eattorneys,eandeCPAs.eTheelatteregro
upsealsoeprovideetaxeplanningeserviceseanderepresentetheireclientsebeforeetheeIRS.
AneEAeiseoneewhoeiseadmittedetoepracticeebeforeetheeIRSebyepassingeaespecialeIRS-
administeredeexamination,eorewhoehaseworkedeforetheeIRSeforefiveeyearseandeiseissuedeaepermitetoe
representeclientsebeforeetheeIRS.eCPAseandeattorneyseareenoterequiredetoetakeethiseexaminationean
deareeautomaticallyeadmittedetoepracticeebeforeetheeIRSeifetheyeareeinegoodestandingewithetheeappr
opriateeprofessionalelicensingeboard.
Pagee5eandeCirculare230
1-5.
Taxeplanningeisetheeprocesseofearrangingeone‘sefinancialeaffairsetoeminimizeeanyetaxeliabilit
y.eMucheofemodernetaxepracticeecentersearoundethiseprocess,eandetheeresultingeoutcomeeisetaxeavoid
ance.
Thereeisenothingeillegaleoreimmoraleinetheeavoidanceeofetaxationeaselongeasetheetaxpayereremainsew
ithinelegalebounds.eInecontrast,etaxeevasioneconstitutesetheeillegalenonpaymenteofeaetaxeandecannoteb
eecondoned.eActivitieseofethisesorteclearlyeviolateeexistingelegaleconstraintseandefalleoutsideeofethee
domaineofetheeprofessionaletaxepractitioner.
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1-6.
Ineaneopenetaxeplanningesituation,etheetransactioneisenoteyetecomplete;etherefore,etheetaxepra
ctitioneremaintainsesomeedegreeeofecontroleoveretheepotentialetaxeliability,eandetheetransactionemaye
beemodi-
fiedetoeachieveeaemoreefavorableetaxetreatment.eIneaeclosedetransactionehowever,ealleofetheepertine
e
nteactionsehaveebeenecompleted,eandetaxeplanningeactivitiesemayebeelimitedetoetheepresentationeofet
heesituationetoetheegovernmenteinetheemostelegallyeadvantageousemannerepossible.
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Pagee6
1-7.
TaxelitigationeisetheeprocesseofesettlingeaedisputeewithetheeIRSeineaecourteofelaw.eTypical
ly,eaetaxeattorneyehandlesetaxelitigationethateprogressesebeyondetheefinaleIRSeappeal.
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1-8. CPAseserveeiseaesupportecapacityeinetaxelitigation.
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1-9.
Taxeresearcheconsistseofetheeresolutioneofeunansweredetaxationequestions.eTheetaxeresearch
processeincludesetheefollowing:
e
1. Identificationeofepertinenteissues;
2. Specificationeofepropereauthorities;
3. Evaluationeofetheeproprietyeofeauthorities;eand,
4. Applicationeofeauthoritiesetoeaespecificesituation.
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1-10.
Circulare230eiseissuedebyetheeTreasuryeDepartmenteandeappliesetoeallewhoepracticeebeforee
theeIRS.ePagee7
1-11.
IneadditionetoeCirculare230,eCPAsemustefollowetheeAICPA‘seCodeeofeProfessionaleCon
ducteandeStatementseoneStandardseforeTaxeServices.eCPAsemustealsoeabideebyetheeruleseofetheea
ppropriateestateeboard(s)eofeaccountancy.
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1-12. Aereturneprepareremusteobtaine18ehourseofecontinuingeeducationefromeaneIRS-
approvedeCEeProvider.eTheehoursemusteincludeeae6ecreditehoureAnnualeFederaleTaxeRefresherecou
rsee(AFTR)ethatecoversefilingeseasoneissueseandetaxelaweupdates.eTheeAFTRecourseemusteincludee
aeknowledge-
