Exam 15: Administrative Procedures

Jayne and Jon jointly file a tax return this year. Jayne fraudulently reports two expenses on Schedule C: $2,000 and $2,500. The IRS audits the return, assesses a $1,050 deficiency, and begins collection efforts two years after the timely filing by Jayne and Jon. What must Jon do to be relieved of the $1,050 tax liability?

One of your corporate clients comes to you asking for advice regarding a proposed merger with XYZ Company. You (a) issue an opinion concerning the FMV of XYZ, (b) prepare pro forma financials for the merged entity to be, (c) draft shareholder resolutions for your client approving the proposed merger, (d) file a shareholder proxy statement with the U.S. Securities and Exchange Commission, and (e) advise your client's board of directors concerning the advantages of a Type A versus a Type B reorganization. Which of these activities, if any, constitutes the unauthorized practice of law?

The IRS audited the tax returns of Dan Jackson, a gifted painter. It contended that, between 2003 and 2005, Jackson received $500,000 for his paintings, but reported only $75,000. Jackson attributed the shortfall to his receipt of cash at art fairs and street fairs. He allegedly concealed the cash payments in separate bank accounts unbeknownst to his CPA. What tax compliance issues regarding the alleged underreporting are pertinent to the CPA?

A taxpayer who fails to file and fails to pay taxes is subject to a combined 5% monthly penalty on the underpayment.

Identify which of the following statements is true.

Identify which of the following statements is false.

Explain one of the two exceptions to imposing interest from the original due date of the tax return until the date the tax deficiency is paid.

Treasury Department Circular 230 regulates the practice of attorneys, CPAs, enrolled agents, and enrolled actuaries before the IRS.

On July 25 of the following year, Joy files her current calendar- year tax return without having requested an extension. On October 8, she pays the amount due. The tax shown on her return is $25,000. Her current- year withholding tax is $20,000. Joy pays no estimated taxes and does not claim any tax credits on her current year return. Calculate the penalties that the IRS is likely to assess. Ignore the penalty for underpayment of estimated taxes. Assume she did not commit fraud.

A taxpayer can automatically escape the penalty for underpayment of taxes by

The IRS will issue a 90- day letter (a Statutory Notice of Deficiency) if the taxpayer does not file a protest letter within 30 days of the date of the 30- day letter.

A calendar- year individual taxpayer files last year's income tax return on July 1 of the current year. No extension was requested, and there is not a reasonable cause for the late filing. The return shows a balance due of $800 of tax. The late filing penalty is

Which of the following communications between an accountant and client are not privileged? a) An accountant orally communicates to his client that he should set up a foreign subsidiary to shift taxable in a lower tax jurisdiction. b) An accountant privately submits to the client a plan for shifting taxable income to a lower tax jurisdiction. c) During a meeting in which a client is asking for advice relating to criminal fraud, the client tells his accounta he lied to the IRS.

Which, if any, of the following could result in penalties against an income tax return preparer? I. Knowing or reckless disclosure or use of tax information obtained in preparing a return. II) A willful attempt to understate any client's tax liability on a return or claim for a refund.

Identify which of the following statements is true.

In order to appeal to the Appeals Division, a taxpayer must submit a protest letter to the IRS

The statute of limitations is unlimited for a tax return that is never filed.

Identify which of the following statements is false.

Identify which of the following statements is true.

On August 13 of the following year, Joy files her current calendar- year tax return and pays the amount due without having requested an extension. The tax shown on her return is $25,000. Her current- year withholding tax is $15,000. Joy pays no estimated taxes and does not claim any tax credits on her current- year return. Will Joy owe interest, and if so, on what amount and for how many days?