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Exam 26: Tax Practice and Ethics

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Question 21

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During an audit,the IRS might require that the taxpayer produce the ____________________ that underlie the tax return data.

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Question 22

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Mickey,a calendar year taxpayer,was not required to file a Federal income tax return last year because his AGI was negative due to business losses.For this tax year,his AGI is $120,000 and his tax liability is $10,000.To avoid a penalty for tax underpayments for the current year,Mickey must make aggregate estimated tax payments of at least:

A) $10,000.
B) $9,000.
C) $1,000 (minimum amount) .
D) $0.

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

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Question 23

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

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

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

Evaluate this statement: the audited taxpayer has more freedom to "trade issues" with the IRS when the dispute progresses to an Appeals conference.Hint: What are the "hazards of litigation?"

During any month in which both the failure-to-file and failure-to-pay penalties apply,both penalties must be paid in full.

Georgio,a calendar year taxpayer subject to a 33% 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:

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

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

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. Gross receipts $3,500,000 Cost of sales (1,000,000) Gross profit $2,500,000 Capital gain $100,000 Capital loss (30,000) 70,000 Total income $2,570,000

About ____________________% of all Forms 1040 are audited each year.The rate is about ____________________% for large corporations.

Describe the potential outcomes to a party who provides information to the IRS under the informant or whistleblower program.

The IRS is organized according to the industry classification of the taxpayer.One of the operating divisions of the IRS deals exclusively with manufacturing and exporting businesses.

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 might 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 -Negligence in filing a return.

Maria's AGI last year was $95,000.To avoid a penalty,her estimated tax payments and withholdings for this year must equal the lesser of ____________________ percent of last year's taxes or ____________________ percent of this year's taxes.

Compute the failure to pay and failure to file penalties for John,who filed his 2014 income tax return on December 14,2015,paying the $10,000 amount due.On April 1,2015,John submitted a six-month extension of time in which to file his return;he paid no tax with the extension request.He has no reasonable cause for failing to file his return by October 15,or for failing to pay the tax that was due on April 15,2015.John's failure to comply with the tax laws was not fraudulent.

Attorneys are allowed an "attorney-client privilege" of confidentiality with clients.Does a registered tax preparer enjoy the same privilege? On which types of tax and financial work?

Michelle,a calendar year taxpayer subject to a 25% marginal Federal income tax rate,claimed a Form 1040 charitable contribution deduction of $275,000 for a sculpture that the IRS later valued at $200,000.The applicable overvaluation penalty is:

A(n) $____________________ penalty applies if the tax preparer does not sign the client's tax return.