Exam 26: Tax Practice and Ethics

CPA Liam discovers that last year's Form 1120 for his client PollCo claimed a $100,000 advertising deduction for a gift to candidates of the Green Party. AICPA tax ethics rules require that an amended return immediately be filed because political expenditures are not deductible.

A privilege of exists between certain types of tax preparers and the client as to tax advice rendered.

Maria did not pay her Federal income tax on time. When she eventually filed the return, she reported a balance due. Compute Maria's failure to file penalty in each of the following cases. Disregard any failure to pay penalty. a. Three months late, $500 additional tax due. b. Four months late, $2,000 additional tax due. c. Ten months late, $10,000 additional tax due. d. Four months late due to fraud by Maria, $10,000 additional tax due. e. Fifteen months late due to fraud by Maria, $10,000 additional tax due.

Circular 230 requires that the tax practitioner use the best practices of the tax profession in carrying out a tax engagement. Specify what some of these best practices entail.

An individual might be incarcerated upon a conviction for:

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.

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. -Fraudulent failure to file a tax return.

AICPA SSTS #1 requires that a client's tax return position:

About % of all Forms 1040 are audited each year. The rate is about ____________________% for large corporations.

The IRS national office is organized into operating divisions, broadly on the basis of the tax returns that are the responsibility of each division. List the four IRS operating divisions.

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

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

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

Maria and Miguel Blanco are in the midst of negotiating a divorce. Because both parties are unwilling to share any current financial information, their joint Form 1040 for 2018 is not filed until October 31, 2019, when the respective divorce attorneys forced them to cooperate. The Blancos should not be subject to any Federal late-filing penalties, because the reasonable cause exception applies to their family discord.

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.

The taxpayer can avoid a valuation penalty for overstating the value of the charitable contribution of an artwork by showing that the deduction claimed was based on a qualified .

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

A negligence penalty is assessed when the taxpayer is found not to have made a reasonable attempt to comply with the tax law.

Compute the failure to pay and failure to file penalties for John, who filed his 2018 income tax return on December 14, 2019, paying the $10,000 amount due. On April 1, 2019, 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, 2019. John's failure to comply with the tax laws was not fraudulent.

Freddie has been assessed a preparer penalty for willful and reckless conduct. When he completed Peggy's Federal income tax return, he purposely omitted $100,000 of cash receipts that should have been reported as gross income. Freddie charged Peggy $4,000 to prepare the return. What is Freddie's preparer penalty?