Ch 1. Tax Research

May a tax practitioner who is a CPA form a CPA partnership with a former IRS agent who is also a CPA? What limits (if any) would be placed on such a partnership?

According to Circular 230 § 10.25, "no former Government employee may, subsequent to Government employment, represent anyone in any matter administered by the Internal Revenue Service if the representation would violate 18 U.S.C. 207 or any other laws of the United States." Therefore, a CPA partnership with a former IRS agent can not represent any client that is assigned to the former IRS agent. If that were to occur, the partnership would be violating Circular 230 § 10.25. There are certain limitations under this law that would have to be taken into consideration before forming a partnership with a forger IRS agent.

In tax litigation, what is usually the role of a certified public accountant?

Accountants are usually a support role. With that being said the CPA needs to be aware they are not considered practicing law when providing any support to the taxpayer. The CPA needs to remain in the practice of tax and not general law.

Regular full-time employees are allowed to represent certain organizations before the IRS without being a Circular 230 practitioner. Name the organizations that can be represented by full-time employees, and cite where you found that authority in Circular 230.

An Individual employer A partnership A corporation (including a parent, subsidiary, or other affiliated corporation), association, or organized group A trust, receivership, guardianship, or estate A regular employee or an officer of a government unit, agency, or authority, can represent this unit, agency, and/or authority during the employee's official duties.

Who issues Circular 230? Which Tax practitioners are regulated by it?

Circular 230 is issued by the Treasury Department of the Internal Revenue Service and below are the practitioners that are regulated by it: Attorneys - Any person who is a member of the bar and it's in good standing Certified Public Accountants - Any person who is qualified to practice as a Certified Public Accountant in any state. EA - Enrolled Agent - anyone who has passed a special IRS examination or worked for the IRS for five years. Enrolled actuaries - any individual enrolled in the Joint Board for the Enrollment of Actuaries Enrolled retirement plan agents - any individual enrolled as a retirement plan agent Registered tax return preparers - any individual withing the meaning of 7701-15

Define tax research. Briefly describe the tax research process.

In the textbook, tax research is defined as "An examination of pertinent sources of the state, local, and federal tax law in light of all relevant circumstances relative to a client s tax problem. Entails the use of professional judgment to draw appropriate conclusions and the communication of such conclusions or alternatives at a proper level to the client." The tax research process includes: Identify tax issues Choose suitable authorities Analyze the relevancy of authorities with tax issues Apply authority to tax issues.

Several groups of individuals do most of the tax compliance work in the United States. Identify these groups and briefly describe the kind of work that each group does. In this regard, be sure to define the term enrolled agent.

Individuals who do most of the tax compliance in the United States are: Non-credentialed tax preparers, enrolled agents (EAs), attorneys, and CPAs. Non- credentialed tax return preparers often work on simple individual, partnership and corporate tax returns. While EAs, attorneys, and CPAs are involved in the preparation of more complex tax returns; in addition, they provide tax planning services and represent their clients before the IRS at the appeals level. An EA is someone who has either passed a special IRS examination or worked for the IRS for five years. The procedures for becoming an EA are detailed in Circular 230, Subpart A, §§ 10.4, 10.5, and 10.6. EAs have the same rights as attorneys and CPAs to represent clients before the IRS. Under Circular 230, an EA must renew his or her enrollment card on a three-year cycle.

May Circular 230 practitioners advertise on television? On the Internet? If so, what standards are applied to the advertisements?

Pursuant to Section 10.30 of Title 31 CFR Subtitle A, Part 10 (Circular 230), a Circular 230 practitioner may advertise on television or on the Internet subject to the following: a. any form of public communication or private solicitation may not contain a false, fraudulent or coercive statement or claim or a misleading or deceptive statement or claim; b. enrolled agents, enrolled retirement plan agents, or registered tax return preparers, in describing their professional designation, may not utilize the term "certified" or imply an employer/employee relationship with the IRS; c. a practitioner may not make, directly or indirectly, an uninvited written or oral solicitation of employment in matters related to the IRS if the solicitation violates Federal or State law or other applicable rule; and d. any lawful solicitation made by a practitioner eligible to practice before the IRS must clearly identify the solicitation and identify the source of the information used in choose the recipient.

The elements of tax practice fall into what major categories in addition to tax research?

Tax Compliance - gathering of pertinent information, and the filing of necessary tax returns with the appropriate agency. It consists of two separate components tax return preparation and for corporate entities, it can be the preparation of the tax provision on a financial statement. Tax Planning - the process of arranging one's financial affairs to minimize tax liabilities. It also consists of tax avoidance and tax evasion. Tax avoidance is a legitimate objective of modern practice and tax evasion is the illegal nonpayment of a tax. Tax planning is divided into two different categories, open and closed transactions. Tax Litigation - process of settling disputes with the IRS in the courtroom. Usually, a tax attorney handles such litigation but accountants and other financial advisors can also be utilized.

CPAs must follow the rules of Circular 230. In addition, CPAs in tax practice are subject to two other sets of ethical rules. Give the name and issuer of both these sets of rules.

They must also follow the AICPA's Code of Professional Conduct and Statements on Standards for Tax Services as well as the rules by appropriate state boards of accountancy. (Technically you have to be a member of the AICPA to be held to those standards, it mentions in our reading that it is a "useful source of guidance for all members of the profession".)

Tax planning falls into two major categories, the "open" transaction and the "closed" transaction. Discuss each type of transaction and describe how each affects tax planning.

Two categories of tax planning process are the open transactions and closed transactions. An open transaction is not finalized. The tax practitioner has some level of control over the potential tax liability. Also, the practitioner can make modifications if needed in order to obtain a more satisfactory tax treatment. In a closed transaction the activities are completed. The tax planning process can be restricted to presenting the fact to the government in a legally acceptable and reasonable manner