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Exam 17: Tax Practice and Ethics

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Question 21

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Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. -Preparer penalty for taking an unreasonable tax return position.

A) Taxpayer penalty
B) Tax preparer penalty
C) Appraiser's penalty

D) All of the above
E) B) and C)

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Question 22

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A tax professional needs to know how the IRS is structured and how it works to carry out its mission. Evaluate this statement.

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The tax practitioner needs to study the ...

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Question 23

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Compute the undervaluation penalty for each of the following independent cases involving the executor's reporting of the value of a closely held business in the decedent's gross estate. In each case, assume a marginal Federal estate tax rate of 40%. $\begin{array}{rr}&\text { Reported Value } & \text { Corrected IRS Value } \\a.&\$ 10,000 & \$ 20,000 \\b.&60,000 & 100,000 \\c.&80,000 & 150,000 \\d.&50,000 & 300,000\end{array}$

Which of the following statements does not reflect the rules governing the accuracy-related penalty for negligence?

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. -Improper refund claim.

IRS computers use document matching programs for both individuals and business taxpayers to keep the audit rate low.

A taxpayer's return might be selected for audit on the basis of the ____________________ score that the IRS computes.

According to the IRS, the annual "Tax Gap" totals about $______________________ billion.

Concerning a taxpayer's requirement to make quarterly estimated tax payments:

CPA Liam discovers that last year's Form 1120 for his client PollCo claimed a $100,000 advertising deduction for a gift to candidates of the Green Party. AICPA tax ethics rules require that an amended return immediately be filed, as political expenditures are not deductible.

The taxpayer or a tax advisor may be subject to penalties if there is a misstatement of the valuation of an item reported on the tax return. Describe how these penalties work.

As part of a tax return engagement for XYZ Partnership, Enrolled Agent Wang can draft an amendment to the XYZ partnership agreement.

An individual is not subject to an underpayment penalty until more than $____________________ is due and unpaid through estimated taxes.

The IRS national office is organized into operating divisions, broadly on the basis of the tax returns that are each division's responsibilities. List the four IRS operating divisions.

The Treasury issues "private letter rulings" and other determinations, usually in response to a taxpayer request. What is the purpose of the rulings program? Answer from both the taxpayer and the government points of view.

With respect to the Small Cases Division of the Tax Court,

Maria and Miguel Blanco are in the midst of negotiating a divorce. Because both parties are unwilling to share any current financial information, their joint Form 1040 for 2016 is not filed until October 31, 2017, when the respective divorce attorneys forced them to cooperate. The Blancos should not be subject to any Federal late-filing penalties, because the reasonable cause exception applies to their family discord.

Under Circular 230, Burke cannot complete a client's original Form 1040 and charge a fee equal to one-third of the resulting refund.

Comment on the AICPA's Statements on Standards for Tax Services. To whom do the standards apply? Are they binding or merely advisory?

Because he undervalued property that he transferred by gift, Dan owes additional gift taxes of $4,000. The penalty for undervaluation does not apply in this situation, because the tax understatement was too small.