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Exam 26: Tax Practice and Ethics

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Question 41

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Compute the overvaluation penalty for each of the following independent cases involving the taxpayer's reporting of the fair market value of charitable contribution property.In each case,assume a marginal income tax rate of 35%.

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Question 42

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Leroy,who is subject to a 45% marginal gift tax rate,made a gift of a sculpture to Marvin,valuing the property at $150,000.The IRS later valued the gift at $400,000.The applicable undervaluation penalty is:

A) $0.
B) $22,500.
C) $25,000 (maximum penalty) .
D) $45,000.

E) C) and D)
F) A) and D)

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Question 43

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Rhoda,a calendar year individual taxpayer,files her 2008 return on February 20,2010.She had obtained a six-month extension for filing her return.There was additional income tax of $20,000 due with the return.

The taxpayer can be assessed a penalty when the IRS disallows a refund claim for which there is no reasonable basis of support for the refund claim,in the amount of ____________________% of the disallowed amount.

Purple Ltd. ,a calendar year taxpayer,had the following transactions,all of which were properly reported on a timely filed return.Presuming the absence of fraud,how much of an omission from gross income must occur for Purple before the six-year statute of limitations applies? Show your computations.

No overvaluation penalty is incurred by an individual until the misstatement would cause a tax underpayment of at least $10,000.

Dana underpaid his taxes by $150,000.Portions of the underpayment were attributable to negligence ($70,000)and to civil fraud ($80,000).Compute the total penalties incurred.

The taxpayer can avoid a valuation penalty for overstating the value of a charitable contribution by showing that the deduction claimed was based on a qualified ____________________.

Describe how the IRS applies interest rules in the context of a tax controversy.

Why is it advantageous for both the taxpayer and the IRS to have tax returns filed electronically?

About ____________________% of all Forms 1040 are audited each year.The rate is about ____________________% if income exceeds $100,000.

Circular 230 requires that a tax preparer be aware of changes in the tax law.Furthermore,office practices of the preparer must be up to industry standards.

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 2010 is not filed until October 31,2011,when the respective divorce attorneys forced them to cooperate.The Blancos should not be subject to any Federal late-filing penalties,because of the reasonable cause exception.

Isaiah filed his Federal income tax return on time,but he did not remit the full balance due.Compute Isaiah's failure to pay penalty in each of the following cases.The IRS has not yet issued a deficiency notice.

Harold,a calendar year taxpayer subject to a 35% marginal tax rate,claimed a charitable contribution deduction of $18,000 for a sculpture that the IRS later valued at $10,000.The applicable overvaluation penalty is:

Concerning the penalty for civil fraud applicable to taxpayers:

In taking a dispute to the Appeals Division,a written protest is required of the taxpayer when the proposed deficiency exceeds $____________________.

The accuracy-related penalties of ____________________% or more typically relate to ____________________ on the part of the taxpayer,or other understatements of tax.

The IRS responds to a taxpayer request concerning the tax treatment of a proposed transaction in a Tax Interpretation.

In the case of bad debts and worthless securities,the statute of limitations on claims for refund is seven years.