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. -Failure to sign the return.

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:

When a tax dispute is resolved, interest is paid by or to the government. How are IRS interest amounts determined? To which tax amounts do they apply?

Yin-Li is the preparer of the Form 1120 for Cloves Corporation. On the return, Cloves claimed a deduction that the IRS later disallowed on audit. Compute the tax preparer penalty that could be assessed against Yin-Li in each of the following independent situations.

For purposes of tax penalties, a VITA volunteer is not classified as a tax return ____________________.

The general statute of limitations regarding Federal tax returns extends for ____________________ years. It is ____________________ years if a substantial understatement of income is found, and ____________________ years with respect to worthless securities.

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

Circular 230 allows a tax preparer to:

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:

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

The chief executive of the IRS is the _________________________.

Mikel prepared for compensation a Federal income tax return for Mona. Mona's return included an aggressive interpretation of the rules concerning the home office deduction. Mikel is not liable for a preparer penalty for taking an unreasonable tax return position if:

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?

With respect to tax misconduct, a ____________________ penalty usually involves only a fine, and a ____________________ penalty also can include jail time.

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.

What are the chief responsibilities of the IRS Commissioner, and of the Chief Counsel of the IRS?

Jaime's negligence penalty will be waived, under the reasonable cause exception. He told the court, "My taxes were wrong because I couldn't understand the tax law."

Jake, an individual calendar year taxpayer, incurred the following transactions. Gross receipts \ 800,000 Less: Cost of sales (300,000) Net business income \ 500,000 Capital gain \ 30,000 Capital loss Total income \ 440,000 Assuming that any error in timely reporting these amounts was inadvertent, how much omission from gross income would be required before the six-year statute of limitations would apply?

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

Minnie, a calendar year taxpayer, filed a return correctly showing a zero Federal income tax liability for last year, because her Form 1040 showed various deductions and credits. For this tax year, Minnie's AGI is $120,000 and her tax liability is $20,000. To avoid a penalty for the current year, Minnie must make aggregate estimated tax payments of at least: