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Exam 17: Tax Practice and Ethics

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Question 31

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A CPA cannot take a tax return position for a client that is contrary to current IRS interpretations of the law.

A) True
B) False

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Question 32

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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?

A) The IRS has full discretion in determining the rate that will apply.
B) The simple interest method for calculating interest is used.
C) For noncorporate taxpayers,the rate of interest for assessments is the same as the rate of interest for refunds.
D) The IRS semiannually adjusts the rate of interest.

E) B) and C)
F) A) and B)

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Question 33

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IRS letter rulings seldom are revised or revoked.

Kim underpaid her taxes by $30,000.Of this amount,$10,000 was due to negligence on her part,as her record-keeping system is highly inadequate.Determine the amount of any negligence penalty.

If a taxpayer is audited by the IRS and is unwilling to accept the findings of the agent,how does the taxpayer's audit strategy change when the dispute is taken to the IRS Appeals Division? Hint: What are the "hazards of litigation?"

Jenny prepared Steve's income tax returns for no compensation for 2007 and 2008.Jenny is Steve's cousin.In 2010,the IRS notifies Steve that it will audit his returns for 2006-2008.If Steve so desires,Jenny may represent him during the audit of all three returns.

The Statements on Standards for Tax Services apply to members of the AICPA.

Describe how the IRS applies interest rules in the context of a tax controversy.

Circular 230 requires that a tax preparer be aware of changes in the tax law.Furthermore,office practices of the preparer must be up to industry standards.

Which of the following statements,if any,do not reflect the rules governing the accuracy-related penalty for negligence?

Who are the top two personnel within the IRS? What are their chief responsibilities?

When the IRS issues a notice of tax due,the taxpayer has 30 days to either pay the tax or file a petition with the Tax Court.This is conveyed in the "thirty-day letter."

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

Only the government can appeal a decision of the Tax Court Small Cases Division.

Circular 230 prohibits a tax preparer from charging an unconscionable fee for his/her services.

Orville,a cash basis,calendar year taxpayer,filed his income tax return 100 days after the due date.Orville never extended his return,and with the return he paid the taxes that were due.What penalties will Orville incur,and how much is the penalty if his additional tax is $5,000? Disregard any additional interest he must pay.

Freddie has been assessed a preparer penalty for willful and reckless conduct.When he completed Peggy's Federal income tax return (who is in the 35% tax bracket) ,Freddie purposely omitted $100,000 of cash receipts that should have been reported as gross income.Freddie charged Peggy $6,000 to prepare the return.What is Freddie's preparer penalty?

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

Leroy,who is subject to a 45% marginal gift tax rate,made a gift of a sculpture to Marvin,valuing the property at $150,000.The IRS later valued the gift at $400,000.The applicable undervaluation penalty is:

Recently,the overall Federal income tax audit rate for individual returns has been about 3%.