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Exam 17: Tax Practice and Ethics

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Question 21

Multiple Choice

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Circular 230 allows a tax preparer to:

A) Take a position on a tax return that is contrary to a decision of the U.S. Supreme Court.
B) Avoid signing a tax return that is likely to be audited.
C) Charge a $5,000 fee to prepare a Form 1040EZ.
D) Operate the "Tax Nerd's Blog" on the Internet.

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

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Question 22

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The IRS is organized according to the industry classification of the taxpayer. One of the operating divisions of the IRS deals exclusively with manufacturing and exporting businesses.

A) True
B) False

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Question 23

Multiple Choice

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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 might be used. -Preparer penalty for taking an unreasonable tax return position.

A(n) ___________________ must obtain a Preparer Tax Identification Number (PTIN).

The government can appeal a decision of the Tax Court Small Cases Division, but the taxpayer cannot.

Under Circular 230, Burke cannot complete a client's original Form 1040 and charge a fee equal to one-third of the resulting refund.

The Statements on Standards for Tax Services apply to members of the AICPA, a state bar association, and all Enrolled Agents.

When the IRS issues a notice of tax due, the taxpayer has 90 days to either pay the tax or file a petition with the Tax Court. This is conveyed in the "ninety-day letter."

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.

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.

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 might be used. -Failure to sign the return.

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

An IRS letter ruling might determine that an employee's compensation is unreasonable in amount.

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 might be used. -Preparer penalty for reckless conduct.

Concerning the penalty for civil tax fraud:

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

Fiona, a VITA volunteer for her college's tax clinic, is not a tax preparer as defined by the Code. Thus, Fiona is exempted from the Code's tax preparer penalties.

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