chapter 2

The Tax Practice Environment

CHAPTER OUTLINE

Setting the Stage—An Introductory Case

An Introduction to Tax Practice

Taxes and Cash Flow

Tax Planning Strategies

Sources of Authority

Tax Research

Tax Compliance

Revisiting the Introductory Case

Summary

Key Terms

Test Yourself

Problem Assignments

Answers to Test Yourself

Appendix 2A Tax Research

Tax practice involves tax compliance and tax research and planning. A practitioner involved in compliance must understand all the laws regulating how and when to file a client's tax return, as well as all the laws that govern how and what items are reported on the return. Practitioners who do not meet acceptable levels of competence and fail in their responsibilities to their clients and to the tax system may be subject to severe penalties.

Tax researchers function in two areas. First, they must defend the actions of clients who have completed certain transactions so that the client receives the best possible tax outcome. Second, they assist clients who are contemplating one or more potential tax transactions. Researchers must determine all the relevant facts and with their knowledge and experience present their clients with the best alternative based on a complete analysis of relevant issues and outcomes, including present value determinations of net cash flows. The suggested alternatives must be communicated to the client in an acceptable form that includes the practitioner's reasoning and conclusions.

Tax professionals must be ...

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