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Exam 26: Tax Practice and Ethics

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Question 21

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Evaluate this statement: the audited taxpayer has more freedom to "trade issues" with the IRS when the dispute progresses to an Appeals conference. Hint: What are the "hazards of litigation?"

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The taxpayer may attempt to negotiate an...

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Question 22

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Which of the following statements is incorrect as to the conduct of IRS income tax audits?

A) Only the Appeals Division of the IRS has the authority to settle tax disputes based on the hazards of litigation.
B) The IRS publishes the factors its computers use for audit selection purposes annually in the Commissioner's Report.
C) For a Form 1040 that is filed on April 11, 2012, if the taxpayer has not received an audit notification from the IRS by the end of 2012, the return may still be audited.
D) Most IRS examinations of Forms 1040 are conducted solely through the mail.

E) None of the above
F) A) and B)

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Question 23

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The privilege of confidentiality applies to a CPA tax preparer concerning the client's information relative to:

Compute the failure to pay and failure to file penalties for John, who filed his 2011 income tax return on December 14, 2012, paying the $10,000 amount due.On April 1, 2012, John submitted a six-month extension of time in which to file his return; he paid no tax with the extension request.He has no reasonable cause for failing to file his return by October 15 or for failing to pay the tax that was due on April 15, 2012.John's failure to comply with the tax laws was not fraudulent.

Latrelle prepares the tax return for Whitehall Corporation. Latrelle 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 is assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

A CPA and his/her client hold a privilege of confidentiality from the IRS, as to their discussions about completing a tax return.

A registered tax return preparer who is not also a CPA, attorney, or Enrolled Agent:

The IRS is one of the largest Federal agencies, employing about ____________________ people throughout the year.

Freddie has been assessed a preparer penalty for willful and reckless conduct.When he completed Peggy's Federal income tax return (who is in the 35% tax bracket) , Freddie purposely omitted $100,000 of cash receipts that should have been reported as gross income.Freddie charged Peggy $4,000 to prepare the return.What is Freddie's preparer penalty?

Recently, the overall Federal income tax audit rate for the Form 1040 has been about 1%.

It is advisable that an IRS audit be conducted at the office of the tax advisor, and not of the client.

In a letter ruling, the IRS responds to a taxpayer request concerning the tax treatment of a proposed transaction.

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

The Treasury document regulating the professional conduct of tax return preparers is the Regulation known as _________________________.

Which of the following is subject to tax return preparer penalties?

During any month in which both the failure-to-file and failure-to-pay penalties apply, both penalties must be paid in full.

Babs filed an amended return in 2013, claiming a refund relative to her 2011 tax computation.When the IRS approves the amended return, it will pay Babs interest with respect to the overpayment.

A tax preparer can incur a penalty if the client's return includes an unreasonable or ___________________ tax return position that understates the tax liability.

Georgio, a calendar year taxpayer subject to a 35% marginal income tax rate, claimed a Form 1040 charitable contribution deduction of $300,000 for a sculpture that the IRS later valued at $100,000.The applicable overvaluation penalty is:

Last year, Ned's property tax deduction on his residence was $22,500.Although he lives in the same house, he tells his CPA that this year's taxes will be only $7,500.The CPA can use this estimate in computing Ned's itemized deductions, under the Statements of Standards for Tax Services.