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Exam 26: Tax Practice and Ethics

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Question 41

True/False

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Recently, the overall Federal income tax audit rate for the Form 1040 has been under 1%.

A) True
B) False

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Question 42

Multiple Choice

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

A) No return at all is filed.
B) An investment in a marketable security is worthless.
C) Taxpayer discovers an inadvertent overstatement of deductions equal to 30% of gross income.
D) Taxpayer inadvertently omits an amount of gross income equal to 30% of the gross income stated on the return.

E) None of the above
F) All of the above

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Question 43

Multiple Choice

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Minnie, a calendar year taxpayer, filed a return correctly showing a zero Federal income tax liability for last year, because her Form 1040 showed various deductions and credits. For this tax year, Minnie's AGI is $120,000 and her tax liability is $20,000. To avoid a penalty for the current year, Minnie must make aggregate estimated tax payments of at least:

The IRS can require that the taxpayer produce its financial accounting records, to determine if taxable income is computed correctly.

An individual is not subject to an underpayment penalty until more than ________________$ is due and unpaid through estimated taxes.

The Commissioner of the IRS is appointed by the:

Currently, the IRS charges a ________________ % interest rate on taxes that the taxpayer underpays.

Specific factors that are used in selecting tax returns for audit, and the weights for such factors, are not released to the public. Summarize the public information about tax audit selection? how might a tax return's chances of audit increase above national norms?

Vera is audited by the IRS for three tax years. Her returns were prepared by the following parties, to each of whom Vera paid a professional fee. Vera wants help in appearing before the IRS Revenue Agent for the audit. Which of the following statements is correct?

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

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.

In a criminal tax fraud case, the burden is on the taxpayer to show that he or she was innocent "beyond the shadow of any reasonable doubt."

CPA Norma and her client Colin hold a privilege of confidentiality from the IRS, as to their tax planning discussions about completing Colin's tax returns. The IRS cannot successfully subpoena records concerning these discussions.

Georgio, a calendar year taxpayer subject to a 32% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $300,000 for a sculpture that the IRS later valued at $120,000. The applicable overvaluation penalty is:

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. 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 -Failure to deposit withholding tax.

Freddie has been assessed a preparer penalty for willful and reckless conduct. When he completed Peggy's Federal income tax return, Freddie purposely omitted $100,000 of cash receipts that should have been reported as gross income. Freddie charged Peggy $4,000 to prepare the return. What is Freddie's preparer penalty?

Singh has agreed with the IRS that she owes $70,000 in delinquent tax, penalties, and interest. As to Singh's application for an installment agreement by which to pay the amounts due:

The accuracy-related penalties typically relate to ________________ on the part of the taxpayer, or other understatements of tax.

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 -Willful and reckless conduct.

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. a. Three months late, $5,000 additional tax due. b. Nine months late, $5,000 additional tax due. c. Five years late, $5,000 additional tax due.