Exam 2: The Tax Practice Environment

Explain what is meant by changing the character of income? Provide an example.

The Golsen rule requires the Tax Court to follow all other Federal District Court decisions in the same Circuit.

Kitty's tax return, which she filed on April 15, showed a balance due of $8,500. She did not have the money to pay this amount. On September 20, she was finally able to borrow sufficient money to pay the debt. What is Kitty's late payment penalty?

A proposed regulation can be relied on when planning a transaction.

A transaction for which there is no legitimate business purpose is automatically assessed a 50% penalty.

The Golsen Rule

Explain the Golsen rule.

CK Corporation can invest $100,000 in a project. After taxes, the project is expected to generate $40,000 of net income the first year and $75,000 of net income the second year. If the company uses a 10 percent discount rate to evaluate projects, what is the project's net cash flow?

How much tax can be saved if John shifts $2,000 of income to his 18 year old dependent son? John is in the 22 percent tax bracket and his son has no other income that is taxable in 2018.

Carol wants to invest in a project that requires a $20,000 investment. She expects a before-tax return of $16,000 in years 1 through 3 from this investment. She uses a 6 percent discount rate for evaluation but is not sure if her marginal tax rate will be 12 percent or 24 percent. What difference does the marginal tax rate make in the after-tax net present value of this investment?

Jury trials are only available in

The Internal Revenue Service is part of:

The number appearing immediately to the right of the decimal in a regulation citation indicates

Carl is unsure of which rate he should use as a discount rate for project evaluations, 7 percent or 10 percent. If he can invest $30,000 in a project that will return $40,000 after-tax in four years, what is the result?

William purchased 10,000 shares of stock for $10 per share late last month. Due to a proposed hostile takeover of the company, the stock has jumped in price to $16 per share. If he holds the stock for at least a full year, he believes the price will decline to $14 per share but he will be eligible for the 15 percent long-term capital gains rate for his gain. If he sells now, his gain will be subject to his 32 percent marginal tax rate. Should William sell now or wait one year? Use a one-year present value factor of .909 in your evaluation.

Which of the following does not deal with a CPA's standard of conduct

Which penalty can equal 75 percent of the tax underpayment?

Charley Careless had not read much about the preparer penalties that could be assessed for failure to have substantial authority for certain tax positions taken on his client's returns. He prepared a return for one of his clients with an issue that was clearly a problem. If he was paid $4,000 for the tax return preparation, how much would his potential fine be under the following circumstances:

Explain the difference between tax avoidance and tax evasion.

The Internal Revenue Service is part of the Justice Department.