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Exam 17: Tax Practice and Ethics

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Question 1

True/False

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A negligence penalty is 20% of the underpayment attributable to negligence.

A) True
B) False

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True

Question 2

Multiple Choice

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

A) The taxpayer (but not the IRS) can appeal a contrary judgment.
B) The IRS (but not the taxpayer) can appeal a contrary judgment.
C) Either the IRS or the taxpayer can appeal a contrary judgment.
D) Neither the IRS nor the taxpayer can appeal a contrary judgment.

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

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Question 3

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In preparing a tax return, a CPA should verify "to the penny" every item of information submitted by a client.

Bettie, a calendar year individual taxpayer, files her 2009 return on February 10, 2011. She had obtained a six-month extension for filing her return. There was additional income tax of $20,000 due with the return.

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. The return does not make any special disclosure that the deduction is being claimed. Whitehall paid Latrelle a fee of $3,000 for preparing the Form 1120. Latrelle will be assessed a preparer penalty of $1,000 for taking an unreasonable position on the Whitehall return.

The privilege of confidentiality applies to a CPA tax preparer concerning the client's information relative to:

Which of the following is subject to tax return preparer penalties?

Faye, a CPA, is preparing Judith's tax return. Before computing Judith's deduction for business supplies, Faye must examine Judith's records in support of the deducted amount.

When a "prompt assessment" of the tax liability is requested, the taxpayer essentially is volunteering for an IRS audit of the tax return.

Compute the undervaluation penalty for each of the following independent cases involving the executor's reporting of the value of a closely held business in the decedent's gross estate. In each case, assume a marginal estate tax rate of 45%.

Henrietta has hired Gracie, a CPA, to complete this year's Form 1040. Henrietta uses software to keep the books for her business. She tells Gracie that a $5,000 amount for business supplies is "close enough" to constitute the deduction. Gracie can use this estimate in completing the Form 1040.

Congress has set very high goals as to the number of Forms 1040 that should be filed electronically. Summarize the benefits of e-filing, from the perspective of both the taxpayer and the government.

When a practitioner discovers an error in a client's prior return, AICPA tax ethics rules require that an amended return immediately be filed.

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.

The basic Treasury document regulating tax preparers is the Regulation known as _________________________.

For purposes of tax penalties, A VITA volunteer is not classified as a tax ____________________.

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.

The chief executive of the IRS is the _________________________.

Megan prepared for compensation a Federal income tax return for Joan. Joan's return included an aggressive interpretation of the rules concerning overnight business travel. Megan is not liable for a preparer penalty for taking an unreasonable tax return position if: