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Exam 26: Tax Practice and Ethics

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Question 31

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

A) The penalty rate is 20%.
B) The penalty applies whenever the taxpayer takes a return position that is contrary to a court decision.
C) The penalty applies when the taxpayer does not keep records adequate to compute the tax correctly.
D) The penalty is waived if the taxpayer uses Form 8275 to disclose a return position that is reasonable but contrary to the IRS position.

E) A) and B)
F) A) and C)

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Question 32

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

A) The taxpayer (but not the IRS) can appeal a contrary judgment.
B) The IRS (but not the taxpayer) can appeal a contrary judgment.
C) Either the IRS or the taxpayer can appeal a contrary judgment.
D) Neither the IRS nor the taxpayer can appeal a contrary judgment.

E) A) and B)
F) A) and D)

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Question 33

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With respect to tax misconduct, a penalty usually involves only a fine, but a penalty also can include jail time.

For purposes of tax penalties, a VITA volunteer is not classified as a tax return ____________________.

Quon filed his Federal income tax return on time, but he did not remit the full balance due. Compute the amount of his failure to pay penalty in each of the following cases. The IRS has not yet issued a deficiency notice. a. Three months late, $5,000 additional tax due. b. Nine months late, $5,000 additional tax due. c. Five years late, $5,000 additional tax due.

Michelle, a calendar year taxpayer subject to a 24% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $275,000 for a sculpture that the IRS later valued at $200,000. The applicable overvaluation penalty is:

Latrelle, who prepares the tax return for Whitehall Corporation includes a $5,000 deduction on the return. This type of deduction previously has been disallowed by the Tax Court, although there is a 15% chance that the holding will be reversed on an appeal by Whitehall. The return does not make any special disclosure that the deduction is being claimed. Whitehall paid Latrelle a fee of $8,000 for preparing the Form 1120. Latrelle will be assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

The Statements on Standards for Tax Services are issued by the:

Cheng filed an amended return this year, claiming a refund relative to her tax computation on a prior-years return. When the IRS approves the amended return and issues the refund, it also pays Cheng interest with respect to the overpayment.

This official does not report directly to the IRS Commissioner.

The tax workpapers prepared as part of an independent financial audit are not privileged communications that can be kept confidential from an IRS subpoena.

The IRS's attorney is known as the Chief Counsel.

Carole, a CPA, feels that she cannot act as an aggressive advocate for tax clients in today's environment. What aspects of the ethical conduct of a tax practice might have influenced Carole's attitude?

Lola, a calendar year taxpayer subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Redd, valuing the property at $70,000. The IRS later valued the gift at $100,000. The applicable undervaluation penalty is:

During an audit, the IRS might require that the taxpayer produce the that underlie the tax return data.

The tax preparer penalty for taking an unreasonable tax return position is the greater of $ or of the tax professional's income from preparing the return.

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

Linwell underpaid his taxes by $250,000. Portions of the underpayment were attributable to negligence ($210,000) and to civil fraud ($40,000). Compute the total penalties incurred.

Maria's AGI last year was $95,000. To avoid a penalty, her estimated tax payments and withholdings for the current- year must equal the lesser of ____________________ % of prior-year taxes or ____________________ % of the current-year's taxes.

A letter ruling should be requested when the taxpayer wants to know how the IRS's interpretation of the tax law will be applied to a (proposed, completed) transaction.