Exam 2: The Tax Practice Environment

Cynthia and John have dependent twins ages 18. Their joint income places them in the 32 percent marginal tax bracket. What are their total tax savings if they can transfer $2,000 of taxable income to each of the children? The children have no other income that is taxable.

Which of the following paid tax return preparers must have a preparer tax identification number?

Legal income shifting includes shifting income among relatives and between a business and its owner/employee.

Which of the following has the least weight of authority when deciding a tax issue?

Peanut Co. has 2 projects in which it can invest. Project X has a $300,000 initial cost and will return $600,000 before tax in year 2. Project Y has $600,000 initial cost and will return $1,000,000 before tax in year 4. The company uses an 8 percent discount rate for project evaluation and its marginal tax rate is expected to be 21 percent in all years. Which project(s) should Peanut Co. invest in?

If a project results in a loss, the tax effect causes a decrease in cash flow.

What is the difference between a letter ruling and a revenue ruling?

Walter did not file his 2017 tax return that was due April 17, 2018 until June 2, 2018.

All of the following are part of the tax research process except:

How long after receiving a Statutory Notice of Deficiency does the taxpayer have to file a petition with the Tax Court?

Ryan filed his tax return 40 days after the due date and included a check for the $1,800 balance due with the return. Ryan's failure-to-file penalty is

The business purpose doctrine:

Tax avoidance is the minimization of the tax burden by using acceptable, legal alternatives.

What are three factors that can affect the after-tax cash flow of a project? How does each affect this cash flow?

If the due date for a tax return is extended for a taxpayer who has a $2,000 balance due, the taxpayer

What is the first notice of a proposed deficiency that a taxpayer receives?

Explain how tax compliance differs from tax planning.

An offer in compromise is initiated by

Berman Corporation can accept only one of two projects. The revenue and expenses for each of the projects is shown below. Which project should Berman accept if the corporation has a 10 percent cost of capital and a 21 percent marginal tax rate?

If a tax preparer is convicted of criminal tax evasion, the preparer may be subject to a penalty of