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Exam 17: Tax Practice and Ethics

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Question 91

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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. 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 -Undervaluation of a reported item.

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Question 92

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A(n) member is required to follow the Statements of Standards for Tax Services in conducting a tax practice.

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Question 93

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The usual three-year statute of limitations on additional tax assessments applies in the following situation(s) .

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.

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

The taxpayer or a tax advisor may be subject to penalties if there is a misstatement of the valuation of an item reported on the tax return. Describe how these penalties work.

Ling has hired CPA Gracie to complete this year's Form 1040. Ling uses online accounting software to keep the books for her interior design sole proprietorship. Ling tells Gracie that a $5,000 amount for business supplies is "close enough" to report for this year's deduction. Gracie can use this estimate in completing the Form 1040.

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 -Misstatement of withholding allowances.

A letter ruling should be requested when the taxpayer wants to know the IRS interpretation of how the tax law will be applied to a (proposed, completed) transaction.

The IRS is one of the largest Federal agencies, employing about people throughout the year.

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

A CPA can take a tax return position for a client that is contrary to current IRS interpretations of the law.

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

Last year, Ned's property tax deduction on his residence was $22,500. Although he lives in the same house, he tells his CPA that this year's taxes will be only $7,500. The CPA can use this estimate in computing Ned's itemized deductions, under the Statements of Standards for Tax Services.