Exam 17: Tax Practice and Ethics

A negligence penalty can be waived if the taxpayer discloses a tax return position that is contrary to a judicial precedent and there is a ____________________ for the taxpayer's position.

During any month in which both the failure-to-file and failure-to-pay penalties apply, both penalties must be paid in full.

The tax professional can reduce the chances that staff personnel will incur IRS preparer penalties by adopting a "tone at the top" that stresses integrity, diligence, and other elements of an ethical tax practice.

After a tax audit, the taxpayer receives the Revenue Agent's Report as part of the "30-day letter."

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.

Chung's AGI last year was $180,000. Her Federal income tax came to $45,000, which she paid through a combination of withholding and estimated payments. This year, her AGI will be $250,000, with a projected tax liability of $60,000, all to be paid through estimates. Ignore the annualized income method. Compute Chung's quarterly estimated payment schedule for this year.

A letter ruling should be requested when the taxpayer wants to know the IRS interpretation of how the tax law will be applied to a ____________________ (proposed, completed) transaction.

Malik, Inc., a calendar year C corporation subject to a 35% marginal income tax rate, claimed a Form 1120 charitable contribution deduction of $30,000 for a sculpture that the IRS later valued at $10,000. The applicable overvaluation penalty is:

The ____________________, a presidential appointee, is the "IRS's attorney."

The IRS can require that the taxpayer produce its financial accounting records, to determine if taxable income is computed correctly.

IRS computers use document matching programs for both individuals and business taxpayers to keep the audit rate low.

The AICPA's Statements on Standards for Tax Services provide principles-based guidelines as to how a tax professional should conduct business.

Which statement does not correctly describe the IRS letter ruling process?

Because he undervalued property that he transferred by gift, Dan owes additional gift taxes of $4,000. The penalty for undervaluation does not apply in this situation, because the tax understatement was too small.

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

Gadsden, who is subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Marvin, valuing the property at $150,000. The IRS later valued the gift at $400,000. The applicable undervaluation penalty is:

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 might be used. -Substantial understatement of a tax.

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

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.

The Statements on Standards for Tax Services are issued by the: