Federal Tax Research, 12th Edition
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Solution Manual Federal Tax Research 12th Edition by Roby Sawyers, Steven Gill
CHAPTER 1
INTRODUCTION TO TAX PRACTICE AND ETHICS
DISCUSSION QUESTIONS
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1-1.
In the United States, the tax system is an outgrowth of the following five disciplines:
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law, accounting, economics, political science, and sociology. The environment for the tax sys
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tem isprovided by the principles of economics, sociology, and political science, while the leg
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al and 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 addre
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sssuch issues as how proposed tax legislation will affect the rate of inflation or economic grow
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th.Measurement of the social equity of a tax and determining whether a tax system discrimina
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tes against certain taxpayers are issues that are examined by sociologists and political scientist
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s.
Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants
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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:
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Tax compliance DY
Tax planning DY
Tax litigatio DY
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1-3.
Tax compliance consists of gathering pertinent information, evaluating and classifying
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DY that information, and filing any necessary tax returns. Compliance also includes other functio
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ns necessary to satisfy governmental requirements, such as representing a client during an Int
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ernalRevenue Service (IRS) audit.
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1-4.
Most of the tax compliance work is performed by commercial tax preparers, enrolled a
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gents (EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual, partn
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ership,and corporate tax returns often are completed by commercial tax preparers. The prepara
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tion of more complex returns usually is performed by EAs, attorneys, and CPAs. The latter gr
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oups 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-
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administered examination, or who has worked for the IRS for five years and is issued a permit t
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o represent clients before the IRS. CPAs and attorneys are not required to take this examination
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and are automatically admitted to practice before the IRS if they are in good standing with the a
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ppropriateprofessional licensing board. Y
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Page 5 and Circular 230 DY DY DY DY
1-5.
Tax planning is the process of arranging one‘s financial affairs to minimize any tax liabil
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ity. Muchof modern tax practice centers around this process, and the resulting outcome is tax avoi
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dance.
There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains
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within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cann
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otbe condoned. Activities of this sort clearly violate existing legal constraints and fall outside of t
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he 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 pr
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actitionermaintains some degree of control over the potential tax liability, and the transaction ma
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y be modi-
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entactions have been completed, and tax planning activities may be limited to the presentation of
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Y the situation to the government in the most legally advantageous manner possible.
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,Federal Tax Research, 12th Edition
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1-7.
Tax litigation is the process of settling a dispute with the IRS in a court of law. Typica
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lly, a taxattorney 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
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1. Identification of pertinent issues; DY DY DY
2. Specification of proper authorities; DY DY DY
3. Evaluation of the propriety of authorities; and, DY DY DY DY DY DY
4. Application of authorities to a specific situation. DY DY DY DY DY DY
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1-10.
Circular 230 is issued by the Treasury Department and applies to all who practice before
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Y the IRS.Page 7 DY Y
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1-11.
In addition to Circular 230, CPAs must follow the AICPA‘s Code of Professional Con
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duct and Statements on Standards for Tax Services. CPAs must also abide by the rules of the
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appropriatestate board(s) of accountancy. Y
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1-12. A return preparer must obtain 18 hours of continuing education from an IRS-
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approved CE Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher co
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urse (AFTR) that covers filing season issues and tax law updates. The AFTR course must includ
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e a knowledge-
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based comprehension test administered at the conclusion of the course by the CE Provider.
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