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Exam 26: Tax Practice and Ethics

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Question 31

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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.

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C corporations must make estimates when ...

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Question 32

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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) A) and B)
F) A) and C)

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Question 33

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Latrelle prepares the tax return for Whitehall Corporation.Latrelle includes a $5,000 deduction on the return.This type of deduction previously has been disallowed by the Tax Court,although there is a 15% chance that the holding will be reversed on an appeal by Whitehall.The return does not make any special disclosure that the deduction is being claimed.Whitehall paid Latrelle a fee of $8,000 for preparing the Form 1120.Latrelle will be assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

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. a.Taxpayer penalty b.Tax preparer penalty c.Appraiser's penalty -Failure to pay a tax.

The IRS processes about ____________________ million individual tax returns every year,about ____________________ percent of which are filed electronically.

Concerning the penalty for civil tax fraud:

Lola,a calendar year taxpayer subject to a 40% marginal Federal gift tax rate,made a gift of a sculpture to Redd,valuing the property at $70,000.The IRS later valued the gift at $100,000.The applicable undervaluation penalty is:

A CPA can take a tax return position for a client that is contrary to current IRS interpretations of the law.

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

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 "whistleblower."

​The National Taxpayer Advocate reports to:

The IRS targets high-income individuals for an audit rate that is much higher than that of the general populace.

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. a.Taxpayer penalty b.Tax preparer penalty c.Appraiser's penalty -Fraudulent failure to file a tax return.

In preparing a tax return,a CPA should verify "to the penny" every item of information submitted by a client about its deduction for repairs and maintenance.

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. 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 -Failure to deposit withholding tax.

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. a.Taxpayer penalty b.Tax preparer penalty c.Appraiser's penalty -Improper refund claim.

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.

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. 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 -Undervaluation of a reported item.

Fiona,a VITA volunteer for her college's tax clinic,is not a tax preparer as defined by the Code.Thus,Fiona is exempted from the Code's tax preparer penalties.

Comment on the AICPA's Statements on Standards for Tax Services.To whom do the standards apply? Are they binding or merely advisory?