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Exam 17: Tax Practice and Ethics

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Question 81

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Currently, the IRS charges a ____________________% interest rate on taxes that the taxpayer underpays.

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Question 82

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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. -Negligence in filing a return.

A) Taxpayer penalty
B) Tax preparer penalty
C) Appraiser's penalty

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

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Question 83

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CPA Norma and her client Colin hold a privilege of confidentiality from the IRS, as to their tax planning discussions about completing Colin's tax returns. The IRS cannot successfully subpoena records concerning these discussions.

The tax professional can do more than just tax compliance work. He or she can work with the client in consultation over the strategy and tactics of dealing with a Federal tax audit.

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.

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.

A penalty can be assessed from an appraiser who knew that his/her improper appraisal would be used as part of a tax computation, in the amount of the lesser of ____________________% of the tax understatement or ____________________ % of the appraisal fee collected.

The tax professional can reduce the chances that staff personnel will incur IRS preparer penalties by adopting a "tone at the top" that stresses integrity, diligence, and other elements of an ethical tax practice.

Freddie has been assessed a preparer penalty for willful and reckless conduct. When he completed Peggy's Federal income tax return (she is in the 33% 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?

Minnie, your tax client, has decided to dispute the Revenue Agent's Report. List and discuss at least four of your "next steps" as you prepare to represent Minnie concerning her tax issue within the IRS and in the courts.

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 ____________________.

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

After a tax audit, the taxpayer receives the Revenue Agent's Report as part of the "30-day letter."

Under Circular 230, tax preparer Winston cannot disclose to a mortgage banker the income level of her client Pickett, or other information acquired by preparing the return, without Pickett's permission.

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

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

Which of the following statements correctly reflects the rules governing interest to be paid on an individual's Federal tax deficiency or claim for refund?

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

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 will be assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

Malik, Inc., a calendar year C corporation subject to a 35% 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: