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Exam 26: Tax Practice and Ethics

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Question 1

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A ____________________% penalty may result when a taxpayer overstates by _____________________ percent or more the value of an asset contributed to a charity. or

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Question 2

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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 inadvertently omits an amount of gross income equal to 30% of the gross income stated on the return.
D) Taxpayer discovers an inadvertent overstatement of deductions equal to 30% of gross income.

E) B) and D)
F) B) and C)

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Question 3

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

A taxpayer's return might be selected for audit on the basis of the ____________________ score that the IRS computes.

The IRS can waive the penalty for understating a tax liability if the taxpayer shows ____________________ for the position taken on the tax return.

Circular 230 allows a tax preparer to:

Does the tax preparer enjoy an "attorney-client privilege" of confidentiality with his or her clients?

The general statute of limitations regarding Federal tax returns extends for ____________________ years.It is ____________________ years if a substantial understatement of income is found,and ____________________ years with respect to worthless securities. or

Juanita,who is subject to a 45% marginal 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:

The tax preparer penalty for taking an unreasonable tax return position is the greater of $1,000 or ____________________ of the tax professional's income from preparing the return.

Maria and Miguel Blanco are in the midst of negotiating a divorce.Because both parties are unwilling to share any current financial information,their joint Form 1040 for 2011 is not filed until October 31,2012,when the respective divorce attorneys forced them to cooperate.The Blancos should not be subject to any Federal late-filing penalties,because of the reasonable cause exception.

After a tax audit,the taxpayer receives the Revenue Agent's Report as part of the "90-day letter."

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?"

According to the IRS,the annual "Tax Gap" totals about $______________________ billion. or

Arnold made a charitable contribution of property that he valued at $70,000.He deducted this amount as an itemized deduction on his tax return.The IRS can show that the actual value of the property is $50,000.Arnold is in the 35% income tax bracket.Determine Arnold's amount due for both tax and any penalty.

The tax professional can do more than just tax compliance work.He or she can work with the client in consultation over the strategy and tactics of dealing with a Federal tax audit.

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

Gloria,a calendar year taxpayer subject to a 35% marginal income tax rate,claimed a Form 1040 charitable contribution deduction of $800,000 for a sculpture that the IRS later valued at $100,000.The applicable overvaluation penalty is:

Isaiah filed his Federal income tax return on time,but he did not remit the full balance due.Compute Isaiah's failure to pay penalty in each of the following cases.The IRS has not yet issued a deficiency notice.

Mickey,a calendar year taxpayer,filed a return correctly showing no Federal income tax liability for 2010.During 2011,his AGI is $120,000 and his tax liability is $20,000.To avoid a penalty for 2011,Mickey must make aggregate estimated tax payments of at least: