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Exam 26: Tax Practice and Ethics

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Question 21

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

A) True
B) False

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Question 22

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Quon filed his Federal income tax return on time, but he did not remit the full balance due.Compute Quon's failure to pay penalty in each of the following cases.The IRS has not yet issued a deficiency notice.

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The failure to pay penalty is ...

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Question 23

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Leo underpaid his taxes by $250,000.Portions of the underpayment were attributable to negligence ($90,000) and to civil fraud ($160,000).Compute the total penalties incurred.

Circular 230 requires that the tax practitioner use the "best practices" of the tax profession in carrying out a tax engagement. Specify what some of these best practices entail.

LaCharles made a charitable contribution of property that he valued at $90,000.He deducted this amount as an itemized deduction on his tax return.The IRS can show that the actual value of the property is $50,000.LaCharles is in the 30% Federal income tax bracket.Determine LaCharles's amount due for both tax and any penalty.

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.

Keepert uses "two sets of books." She only reports one-half of her cash sales on the records that she uses to complete her Federal income tax return. The statute of limitations for Keepert's return is six years.

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

After the completion of an audit, the taxpayer has ____________________ days to petition the Tax Court to modify the proposed tax due. or

Bettie, a calendar year individual taxpayer, files her 2011 return on February 10, 2013.She had obtained a six-month extension for filing her return.There was additional income tax of $20,000 due with the return.

If the taxpayer shows ____________________ for an underpayment of tax, the failure to pay penalty can be reduced or eliminated.

Yang, a calendar year taxpayer, did not file a tax return for 2005 because she honestly believed that no additional tax was due.In 2012, Yang is audited by the IRS and the agent assesses a deficiency of $17,000 for 2005.Yang need not pay this deficiency, since the statute of limitations expired on April 15, 2009.

The tax ____________________ workpapers are not privileged communications that can be kept confidential from an IRS subpoena.

Which of the following statements is correct as to the conduct of IRS income tax audits?

Troy Center Ltd.withheld from its employees' paychecks $200,000 in Federal income and Social Security taxes for the Monday, June 30 payroll.It then spent the $200,000 on equipment upgrades, missing altogether the August 2 due date for the tax remittances.How much does Troy now owe the government in taxes and penalties? Ignore interest accruals, and assume that the Treasury can prove that Troy's redirecting of the tax withholdings was willful.

The IRS is a subsidiary agency of the Department of the ____________________.

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

Concerning the penalty for civil tax fraud:

A taxpayer's return might be selected for audit on the basis of the ____________________ score that the IRS computes.

Babs filed an amended return in 2013, claiming a refund relative to her 2011 tax computation.When the IRS approves the amended return, it will pay Babs interest with respect to the overpayment.