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Exam 17: Tax Practice and Ethics

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Question 31

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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) B) and C)
F) All of the above

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Question 32

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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. -Negligence.

A) Taxpayer penalty
B) Tax preparer penalty
C) Appraiser's penalty

D) B) and C)
E) None of the above

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Question 33

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The IRS can pay an informant's fee of up to ____________________% of the recovered tax, interest, and penalty amounts. The reward can be as high as ____________________% for information provided by a "whistle blower."

Circular 230 applies to all paid tax practitioners. But attorneys, CPAs, and enrolled agents are exempt from the Circular 230 rules, because each of the groups has its own code of professional conduct.

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

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. -Filing an improper refund claim.

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:

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

Ling has hired CPA Gracie to complete this year's Form 1040. Ling uses online accounting software to keep the books for her interior design sole proprietorship. Ling tells Gracie that a $5,000 amount for business supplies is "close enough" to report for this year's deduction. Gracie can use this estimate in completing the Form 1040.

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?"

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

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

The IRS pays interest on a refund to the taxpayer, unless the IRS's payment is made within ____________________ days of the date that a return is filed.

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

Some taxpayers must make quarterly estimated payments of their income tax. Describe the structure of these requirements. In your answer, include both corporate and non-corporate taxpayers.

Silvio, a cash basis, calendar year taxpayer, filed his income tax return 75 days after the due date. Silvio never extended his return, and with the return he paid the full amount of taxes that were due. What penalties will Silvio incur, and how much is the penalty if his additional tax is $5,000? Disregard any additional interest he must pay.

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. $\begin{array} { l l } \text { Tax Year } & \text { Preparer } \\1 & \text { Sally (Vera's niece, a dentist) } \\2 & \text { Wesley (an Enrolled Agent) } \\3 & \text { Alex (a CPA) }\end{array}$ Vera wants help in appearing before the IRS Revenue Agent for the audit. Which of the following statements is correct?

A taxpayer can take a dispute to the ____________________ Division of the Tax Court when the disputed amounts do not exceed $50,000.

A CPA, an attorney, and a(n) ____________________ can represent taxpayers before the IRS in an Appeals conference.

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.