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Exam 26: Tax Practice and Ethics

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Question 41

Multiple Choice

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The National Taxpayer Advocate reports to the:

A) Treasury Secretary.
B) IRS Commissioner.
C) IRS Director of Compliance Analytics.
D) IRS Director of Professional Responsibility.

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

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Question 42

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 need be used. -Failure to pay a tax that is due.

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

G) C) and E)
H) C) and F)

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Question 43

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Yin-Li is the preparer of the Form 1120 for Cloves Corporation. On the return, Cloves claimed a deduction that the IRS later disallowed on audit. Compute the tax preparer penalty that could be assessed against Yin-Li in each of the following independent situations.

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. -Substantial understatement of tax liability.

The AICPA's Statements on Standards for Tax Services (SSTS) provide principles-based guidelines as to how a tax professional should conduct business.

Four Square Services Corporation estimates that its 2019 taxable income will be $1,000,000. Thus, it incurs a $210,000 liability. For 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 $800,000, and tax liability was $168,000. b. For 2017, taxable income was $2 million, and tax liability was $680,000. For 2018, taxable income was $100,000, and tax liability was $21,000.

An IRS office audit takes place at the headquarters office of the corporate taxpayer.

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. -Aiding in preparing an improper tax return.

When a tax issue is taken to court, the burden of proof is on the IRS to show that its audit adjustments are correct.

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

Circular 230 compliance implies that a tax preparer provide training for the tax staff as to the latest changes in the tax law.

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

Taxpayer's must pay a significant fee to have a letter ruling issued by the IRS.

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 "90-day letter."

What are the chief responsibilities of the IRS Commissioner and of the Chief Counsel of the IRS?

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.

Jenny prepared Steve's income tax returns for no compensation for 2017 and 2018. She is Steve's mother. In 2020, the IRS notifies Steve that it will audit his returns for 2017 and 2018. Jenny cannot represent Steve during the audit of the returns, because she is not a registered tax return preparer.

Circular 230 applies to all paid tax practitioners. But attorneys, CPAs, and enrolled agents are exempt from the Circular 230 rules, because each of the groups has its own code of professional conduct.

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

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. -Preparer penalty for taking an unreasonable tax return position.