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