Exam 17: Tax Practice and Ethics

Circular 230 requires that a paid tax preparer apply a thorough quality review system in preparing tax returns for her clients.

A taxpayer penalty may be waived if there is shown to be reasonable cause for the misstatement on the tax return. The courts have applied this standard strictly. List three or more assertions for a waiver of a taxpayer penalty that courts have found not to constitute reasonable cause. Example: Ignorance of the tax law.

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

Concerning a taxpayer's requirement to make quarterly estimated tax payments:

Mickey, a calendar year taxpayer, was not required to file a Federal income tax return last year because his AGI was negative due to business losses. For this tax year, his AGI is $120,000 and his tax liability is $10,000. To avoid a penalty for tax underpayments for the current year, Mickey must make aggregate estimated tax payments of at least:

Recently, the overall Federal income tax audit rate for the Form 1040 has been about 1%.

The privilege of confidentiality applies to a CPA tax preparer concerning the client's information relative to:

If the taxpayer shows ____________________ for an underpayment of tax, the failure to pay penalty can be reduced or eliminated.

Michelle, a calendar year taxpayer subject to a 25% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $275,000 for a sculpture that the IRS later valued at $200,000. The applicable overvaluation penalty is:

Carole, a CPA, feels that she cannot act as an aggressive advocate for tax clients in today's environment. What aspects of the ethical conduct of a tax practice might have influenced Carole's attitude?

The Treasury document regulating the professional conduct of tax return preparers is the Regulation known as _________________________.

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. -Failure to file a tax return.

Which statement is correct as to the conduct of IRS income tax audits?

It typically is advisable that an IRS audit be conducted at the office of the tax advisor, and not of the client.

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

The taxpayer must pay a significant fee to have a letter ruling issued by the IRS.

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. -Failure to deposit withholding tax.

A taxpayer's return might be selected for audit on the basis of the ____________________ score that the IRS computes.

Cheng filed an amended return this year, claiming a refund relative to her tax computation on a prior-year's return. When the IRS approves the amended return and issues the refund, it also pays Cheng interest with respect to the overpayment.

Which statement is incorrect as to the conduct of IRS income tax audits?