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Exam 26: Tax Practice and Ethics

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Question 71

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For each of the indicated tax penalties, indicate the appropriate taxpayer defense. A letter may be used more than once. Not all of the letters need be used. a.Ignorance of the tax law b.Reasonable basis c.Reasonable cause d.Complexity of the tax law e.Substantial authority f.Disclosure on return -Preparer penalty for reckless conduct.

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Question 72

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Georgio,a calendar year taxpayer subject to a 33% marginal Federal income tax rate,claimed a Form 1040 charitable contribution deduction of $300,000 for a sculpture that the IRS later valued at $120,000.The applicable overvaluation penalty is:

A) $10,000 (maximum penalty) .
B) $12,000.
C) $24,000.
D) $60,000.

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

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Question 73

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Clarita underpaid her taxes by $50,000.Of this amount,$35,000 was due to negligence on her part,as her record-keeping system is highly inadequate.Determine the amount of any negligence penalty.

Juarez (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity) .The painting cost Juarez $2,000 ten years ago and,according to one of Juarez's friends (an amateur artist) ,now is worth $40,000.On his income tax return,Juarez deducts $40,000 as a Form 1040 charitable contribution.Upon later audit by the IRS,it is determined that the true value of the painting was $30,000.Assuming that Juarez is subject to a 25% marginal Federal income tax rate,his penalty for overvaluation is:

Maria did not pay her Federal income tax on time.When she eventually filed the return,she reported a balance due.Compute Maria's failure to file penalty in each of the following cases.Disregard any failure to pay penalty. a.Three months late, $500 additional tax due. b.Four months late, $2,000 additional tax due. c.Ten months late, $10,000 additional tax due. d.Four months late due to fraud by Maria, $10,000 additional tax due. e.Fifteen months late due to fraud by Maria, $10,000 additional tax due.

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

Michelle,a calendar year taxpayer subject to a 25% 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:

Lisa,a calendar year taxpayer subject to a 33% marginal Federal income tax rate,claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $160,000.The applicable overvaluation penalty is:

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. a.Taxpayer penalty b.Tax preparer penalty c.Appraiser's penalty -Failure to sign the return.

​An individual might be incarcerated upon a conviction for:

The taxpayer must pay a significant fee to have a letter ruling issued by the IRS.

If the taxpayer shows ____________________ for an underpayment of tax,the failure to pay penalty can be reduced or eliminated.

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

The Four Square Services Corporation estimates that its 2017 taxable income will be $1,000,000.Thus,it is subject to a flat 34% income tax rate and incurs a $340,000 liability.For each of the following independent cases,compute Four Square's minimum quarterly estimated tax payments that will avoid an underpayment penalty. a.For 2018, taxable income was ($200,000), resulting in a zero income tax liability. Four Square carried back all of this loss to prior years. b.For 2016, taxable income was $800,000, and tax liability was $272,000. c.For 2015, taxable income was $2 million, and tax liability was $680,000. For 2016, taxable income was $100,000, and tax liability was $22,250.

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. a.Taxpayer penalty b.Tax preparer penalty c.Appraiser's penalty -Aiding in preparing an improper tax return.

Circular 230 requires that the tax practitioner use the "best practices" of the tax profession in carrying out a tax engagement.Specify what some of these best practices entail.

Keepert uses "two sets of books." She only reports one-half of her cash sales on the records that she uses to complete her Federal income tax return.The statute of limitations for Keepert's return is six years.

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.

LaCharles made a charitable contribution of property that he valued at $80,000.He deducted this amount as an itemized deduction on his tax return.The IRS can show that the actual value of the property is $50,000.LaCharles is in the 33% Federal income tax bracket.Determine LaCharles's amount due for both tax and any penalty.

Evaluate this statement: a taxpayer is liable not only for tax penalties as described in the tax Code and Regulations.Sanctions elsewhere in Federal law,such as in the criminal code,also apply in a tax dispute.