Exam 17: Tax Practice and Ethics

Compute the failure to pay and failure to file penalties for John, who filed his 2016 income tax return on December 14, 2017, paying the $10,000 amount due. On April 1, 2017, John submitted a six-month extension of time in which to file his return; he paid no tax with the extension request. He has no reasonable cause for failing to file his return by October 15, or for failing to pay the tax that was due on April 15, 2017. John's failure to comply with the tax laws was not fraudulent.

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Question 1

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$\text { Failure to Pay }$

$\begin{array}{lr}\text { Underp ayment } & \$ 10,000 \\\text { Penalty rate } & \times 0.005 \\ \text { Penalty per month outstanding } & \$ 50 \\\text { Months late } & \times \quad 8 \\\text { Penalty } & \$ \mathbf{4 0 0}\end{array}$

$\text { Failure to File }$

$\begin{array}{lr}\text { Underpayment } & \$ 10,000 \\\text { Penalty rate } & \times 0.05 \\\text { Penalty per month outstanding } & \$ 500 \\\text { Months late } & \times 2\\\text { Penalty before reduction } & \$1,000 \\\text { Less: Concomitant failure to pay penalty }(2 \text { months } \times \$ 50)& \underline{(100)}\\\text { Penalty } & \$ 900\end{array}$

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The failure to file penalty applies from the extended due date of the return, two months in this case. Lacking IRS approval, the automatic six-month extension of time to file does not extend the time to pay the tax. Thus, the failure to pay penalty applies for eight months.

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. -Preparer penalty for reckless conduct. A)Taxpayer penalty B)Tax preparer penalty C)Appraiser's penalty

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Question 2

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

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Question 3

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Juanita, who is subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Bianca, valuing the property at $150,000. The IRS later valued the gift at $300,000. The applicable undervaluation penalty is:

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Question 4

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. -Willful and reckless conduct.

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Question 5

LaCharles made a charitable contribution of property that he valued at $80,000. He deducted this amount as an itemized deduction on his tax return. The IRS can show that the actual value of the property is $50,000. LaCharles is in the 33% Federal income tax bracket. Determine LaCharles's amount due for both tax and any penalty.

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Question 6

A tax preparer is in violation of Circular 230 if he or she:

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Question 7

Attorneys are allowed an "attorney-client privilege" of confidentiality with clients. Does a CPA tax preparer enjoy the same privilege? On which types of tax and financial work?

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Question 8

In a criminal tax fraud case, the burden is on the taxpayer to show that he or she was innocent "beyond the shadow of any reasonable doubt."

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Question 9

Yang, a calendar year taxpayer, did not file a tax return for 2007 because she honestly believed that no additional tax was due. In 2016, Yang is audited by the IRS and the agent assesses a deficiency of $17,000 for 2007. Yang need not pay this deficiency, since the three-year statute of limitations expired on April 15, 2011, meaning that the IRS no longer can adjust Yang's tax for the 2007 tax year.

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Question 10

Maria's AGI last year was $95,000. To avoid a penalty, her estimated tax payments and withholdings for this year must equal the lesser of percent of last year's taxes or percent of this year's taxes.

(Short Answer)

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Question 11

The IRS employs over 80,000 personnel, making it one of the largest Federal agencies.

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Question 12

During an audit, the IRS might require that the taxpayer produce the ____________________ that underlie the tax return data.

(Short Answer)

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Question 13

Loren Ltd., a calendar year taxpayer, had the following transactions, all of which were properly reported on a timely filed return. Presuming the absence of fraud, how much of an omission from gross income must occur for Loren before the six-year statute of limitations applies? Show your computations. Gross receipts \3 ,500,000 Cost of sales (1,000,000) Gross profit \2 ,500,000 Capital gain \1 00,000 Capital loss (30,000) 70,000 Total income \2 ,570,000

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Question 14

Evaluate this statement: a taxpayer is liable not only for tax penalties as described in the tax Code and Regulations. Sanctions elsewhere in Federal law, such as in the criminal code, also apply in a tax dispute.

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Question 15

When the IRS issues a notice of tax due, the taxpayer has 90 days to either pay the tax or file a petition with the Tax Court. This is conveyed in the "ninety-day letter."

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Question 16

The tax preparer penalty for taking an unreasonable tax return position is the greater of $ or of the tax professional's income from preparing the return.

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Question 17

An individual's amended tax return, computing a refund or amount due, generally uses Form ____________________.

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Question 18

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.

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Question 19

Which of the following is subject to tax return preparer penalties?

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Question 20

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. -Preparer penalty for reckless conduct. A)Taxpayer penalty B)Tax preparer penalty C)Appraiser's penalty

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

Juanita, who is subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Bianca, valuing the property at $150,000. The IRS later valued the gift at $300,000. The applicable undervaluation penalty is:

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. -Willful and reckless conduct.

A tax preparer is in violation of Circular 230 if he or she:

Attorneys are allowed an "attorney-client privilege" of confidentiality with clients. Does a CPA tax preparer enjoy the same privilege? On which types of tax and financial work?

In a criminal tax fraud case, the burden is on the taxpayer to show that he or she was innocent "beyond the shadow of any reasonable doubt."

Maria's AGI last year was $95,000. To avoid a penalty, her estimated tax payments and withholdings for this year must equal the lesser of percent of last year's taxes or percent of this year's taxes.

The IRS employs over 80,000 personnel, making it one of the largest Federal agencies.

During an audit, the IRS might require that the taxpayer produce the ____________________ that underlie the tax return data.

Evaluate this statement: a taxpayer is liable not only for tax penalties as described in the tax Code and Regulations. Sanctions elsewhere in Federal law, such as in the criminal code, also apply in a tax dispute.

When the IRS issues a notice of tax due, the taxpayer has 90 days to either pay the tax or file a petition with the Tax Court. This is conveyed in the "ninety-day letter."

The tax preparer penalty for taking an unreasonable tax return position is the greater of $ or of the tax professional's income from preparing the return.

An individual's amended tax return, computing a refund or amount due, generally uses Form ____________________.

Which of the following is subject to tax return preparer penalties?

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Special Situations

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Corporations Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships Formation Operation and Basis

Partnerships Distributions Transfer of Interests and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 17: Tax Practice and Ethics

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. -Preparer penalty for reckless conduct. A)Taxpayer penalty B)Tax preparer penalty C)Appraiser's penalty

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

Juanita, who is subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Bianca, valuing the property at $150,000. The IRS later valued the gift at $300,000. The applicable undervaluation penalty is:

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. -Willful and reckless conduct.

A tax preparer is in violation of Circular 230 if he or she:

Attorneys are allowed an "attorney-client privilege" of confidentiality with clients. Does a CPA tax preparer enjoy the same privilege? On which types of tax and financial work?

In a criminal tax fraud case, the burden is on the taxpayer to show that he or she was innocent "beyond the shadow of any reasonable doubt."

Maria's AGI last year was $95,000. To avoid a penalty, her estimated tax payments and withholdings for this year must equal the lesser of ____________________ percent of last year's taxes or ____________________ percent of this year's taxes.

The IRS employs over 80,000 personnel, making it one of the largest Federal agencies.

During an audit, the IRS might require that the taxpayer produce the ____________________ that underlie the tax return data.

Evaluate this statement: a taxpayer is liable not only for tax penalties as described in the tax Code and Regulations. Sanctions elsewhere in Federal law, such as in the criminal code, also apply in a tax dispute.

When the IRS issues a notice of tax due, the taxpayer has 90 days to either pay the tax or file a petition with the Tax Court. This is conveyed in the "ninety-day letter."

The tax preparer penalty for taking an unreasonable tax return position is the greater of $____________________ or ____________________ of the tax professional's income from preparing the return.

An individual's amended tax return, computing a refund or amount due, generally uses Form ____________________.

Which of the following is subject to tax return preparer penalties?

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Special Situations

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Corporations Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships Formation Operation and Basis

Partnerships Distributions Transfer of Interests and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Maria's AGI last year was $95,000. To avoid a penalty, her estimated tax payments and withholdings for this year must equal the lesser of percent of last year's taxes or percent of this year's taxes.

The tax preparer penalty for taking an unreasonable tax return position is the greater of $ or of the tax professional's income from preparing the return.