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Exam 26: Tax Practice and Ethics

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Question 51

Multiple Choice

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Which statement does not correctly describe the IRS letter ruling process?

A) Letter rulings can benefit both taxpayers and the IRS.
B) Letter rulings are issued by the Secretary of the Treasury Department.
C) Letter rulings can be seen only by the taxpayer who requested the ruling? they are also known as "private letter rulings."
D) Some letter rulings are of such importance and general interest that they are later published (in anonymous form) as Revenue Rulings.

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

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Question 52

Multiple Choice

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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:

A) $0.
B) $3,600.
C) $7,200.
D) $18,000.

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

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Question 53

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

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.

Malik, Inc., a calendar year C corporation subject to a 21% marginal income tax rate, claimed a Form 1120 charitable contribution deduction of $30,000 for a sculpture that the IRS later valued at $10,000. The applicable overvaluation penalty is:

Jaime's negligence penalty will be waived, under the reasonable cause exception. He told the court, "My taxes were wrong because I couldn't understand the tax law."

In connection with the taxpayer penalty for substantial understatement of tax liability, what defenses (if any) are available?

This official does not report directly to the IRS Commissioner.

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

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

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 -Substantial understatement of a tax.

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.

Juanita, who is subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Bianca, valuing the property at $150,000. The IRS later valued the gift at $300,000. The applicable undervaluation penalty is:

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

Attorneys are allowed an "attorney-client privilege" of confidentiality with clients. Does a CPA tax preparer enjoy the same privilege? On which types of tax and financial work?

The IRS targets high-income individuals for an audit rate that is much higher than that of the general populace.

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

In preparing a tax return, a CPA should verify "to the penny" every item of information submitted by a client about its deduction for repairs and maintenance.

The ________________ , a presidential appointee, is the "IRS's attorney."

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