Exam 17: Tax Practice and Ethics

Troy Center Ltd. withheld from its employees' paychecks $200,000 in Federal income and Social Security taxes for the Monday, June 30 payroll. It then spent the $200,000 on equipment upgrades, missing altogether the July 2 due date for the tax remittances. How much does Troy now owe the government in taxes and penalties? Ignore interest accruals, and assume that the Treasury can prove that Troy's redirecting of the tax withholdings was willful.

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. -Misstatement of withholding allowances.

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. -Failure to file a tax return.

A(n) ___________________ must obtain a Preparer Tax Identification Number (PTIN).

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. -Failure to pay a tax.

Juarez (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity). The painting cost Juarez $2,000 ten years ago and, according to one of Juarez's friends (an amateur artist), now is worth $40,000. On his income tax return, Juarez deducts $40,000 as a Form 1040 charitable contribution. Upon later audit by the IRS, it is determined that the true value of the painting was $30,000. Assuming that Juarez is subject to a 25% marginal Federal income tax rate, his penalty for overvaluation is:

The government can appeal a decision of the Tax Court Small Cases Division, but the taxpayer cannot.

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:

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

During an audit, IRS personnel might request a(n) ____________________ from the IRS National Office, to clarify the application of tax law concerning a tax deduction.

A(n) ___________________ member is required to follow the Statements of Standards for Tax Services in conducting a tax practice.

In the context of civil tax fraud litigation, the burden of proof is on the taxpayer to show the court by a "preponderance of the evidence" that he or she was not acting with an intent to evade a tax.

The "IRS's attorney" is known as the Chief Counsel.

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

Circular 230 requires that a tax preparer provide training for the tax staff as to the latest changes in the tax law.

CPA Shearer is required by AICPA tax ethics rules to inform her client Martinez of significant changes in the Federal income tax laws.

Linwell underpaid his taxes by $250,000. Portions of the underpayment were attributable to negligence ($210,000) and to civil fraud ($40,000). Compute the total penalties incurred.

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. -Failure to pay a tax that is due.

A registered tax return preparer who is not also a CPA, attorney, or Enrolled Agent:

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