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Exam 17: Tax Practice and Ethics

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Question 61

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Clara underpaid her taxes by $50,000.Of this amount,$15,000 was due to negligence on her part,as her record-keeping system is highly inadequate.Determine the amount of any negligence penalty

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$3,000 (20...

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Question 62

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

A) Financial accounting tax accrual workpapers.
B) A tax research memo used to determine an amount reported on the tax return.
C) Building a defense against a penalty assessed for the use of a tax shelter.
D) Building a defense against a charge brought by the SEC.

E) A) and D)
F) B) and D)

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Question 63

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Because he undervalued property that he transferred by gift,Dan owes additional gift taxes of $4,000.The penalty for undervaluation does not apply in this situation,because the tax understatement was too small.

Evaluate this statement: a taxpayer is liable not only for tax penalties as described in the tax Code and Regulations.Sanctions elsewhere in Federal law,such as in the criminal code,also apply in a tax dispute.

A negligence penalty can be waived if the taxpayer discloses a tax return position that is contrary to a judicial precedent and there is a ____________________ for the taxpayer's position.

What are the chief responsibilities of the IRS Commissioner,and of the Chief Counsel of the IRS?

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

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

When a tax issue is taken to court,the burden of proof is on the taxpayer to show that the items reported on the return are correct.

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

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 $4,000 to prepare the return.What is Freddie's preparer penalty?

A taxpayer penalty may be waived if there is shown to be reasonable cause for the misstatement on the tax return.The courts have applied this standard strictly.List three or more assertions for a waiver of a taxpayer penalty that courts have found not to constitute reasonable cause.Example: Ignorance of the tax law.

Concerning a taxpayer's requirement to make quarterly estimated tax payments:

Which statement appearing below does not correctly describe the IRS letter ruling process?

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.

Loren Ltd. ,a calendar year taxpayer,had the following transactions,all of which were properly reported on a timely filed return.Presuming the absence of fraud,how much of an omission from gross income must occur for Loren before the six-year statute of limitations applies? Show your computations.

A taxpayer can take a dispute to the Small Cases Division of the Tax Court when the disputed amounts do not exceed $____________________. or

During an audit,IRS personnel might request a(n)____________________ from the IRS National Office,to clarify the application of tax law concerning a tax deduction.

Under Circular 230,tax preparer Winston cannot disclose to a mortgage banker the income level of her client Pickett,or other information acquired by preparing the return,without Pickett's permission.

In a letter ruling,the IRS responds to a taxpayer request concerning the tax treatment of a proposed transaction.