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Exam 17: Tax Practice and Ethics

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Question 41

Multiple Choice

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The tax law requires that all paid tax preparers:

A) Have a current Preparer Tax Identification Number PTIN) .
B) Hold a bachelor's degree.
C) Hold a bachelor's degree in business or economics.
D) Complete at least 20 hours or continuing education courses every year.

E) A) and D)
F) None of the above

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Question 42

True/False

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Cheng filed an amended return this year, claiming a refund relative to her tax computation on a prior-years return. When the IRS approves the amended return and issues the refund, it also pays Cheng interest with respect to the overpayment.

A) True
B) False

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Question 43

Multiple Choice

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Juanita, who is subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Bianca, valuing the property at $150,000. The IRS later valued the gift at $300,000. The applicable undervaluation penalty is:

Mikel prepared a Federal income tax return for Mona for compensation . Her return included an aggressive interpretation of the rules concerning the home office deduction of a sole proprietor. Mikel is not liable for a preparer penalty for taking an unreasonable tax return position if:

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

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

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. -Substantial understatement of tax liability.

Under Circular 230, Burke cannot complete a client's original Form 1040 and charge a fee equal to one-third of the resulting refund.

Clarita underpaid her taxes by $50,000. Of this amount, $35,000 was due to negligence on her part, because her record-keeping system is highly inadequate. Determine the amount of any negligence penalty.

The Statements on Standards for Tax Services SSTS) apply to members of the AICPA, a state bar association, and all enrolled agents.

Carole, a CPA, feels that she cannot act as an aggressive advocate for tax clients in today's environment. What aspects of the ethical conduct of a tax practice might have influenced Carole's attitude?

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. -Undervaluation of a reported item.

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

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. -Filing an improper refund claim.

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

When the IRS issues a notice of tax due, the taxpayer has 90 days to either pay the tax or file a petition with the Tax Court. This is conveyed in the "90-day letter."

Quon filed his Federal income tax return on time, but he did not remit the full balance due. Compute the amount of his 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.

Chung's AGI last year was $180,000. Her Federal income tax came to $45,000, which she paid through a combination of withholding and estimated payments. This year, her AGI will be $250,000 with a projected tax liability of $60,000, all to be paid through estimates. Ignore the annualized income method. Compute Chung's quarterly estimated payment schedule for this year.

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. -Misstatement of withholding allowances.