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. -Negligence.

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.

A taxpayer can take a dispute to the________ Division of the Tax Court when the disputed amounts do not exceed $50,000.

CPA Norma and her client Colin hold a privilege of confidentiality from the IRS as to their tax planning discussions about completing Colin's tax returns. The IRS cannot successfully subpoena records concerning these discussions.

Malik, Inc., a calendar year C corporation subject to a 21% marginal income tax rate, claimed a Form 1120 charitable contribution deduction of $30,000 for a sculpture that the IRS later valued at $10,000. The applicable overvaluation penalty is:

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 (90,000) (60,000) Total income \4 40,000 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?

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.

An IRS letter ruling might determine that an employee's compensation is unreasonable in amount.

A CPA, an attorney, or an) ____________can represent taxpayers before the IRS in an Appeals conference.

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

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.

An individual who claims a deduction for qualified business income under § 199A:

Silvio, a cash basis calendar year taxpayer, filed his income tax return 75 days after the due date. He never extended his return, and with the return, he paid the full amount of taxes that were due. What penalties will Silvio incur, and how much is the penalty if his additional tax is $5,000? Disregard any additional interest he must pay.

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

After the completion of an audit, the taxpayer has 90 days to petition the________ Court to modify the proposed tax due.

The IRS is organized according to the industry classification of the taxpayer. One of the operating divisions of the IRS deals exclusively with manufacturing and exporting businesses.

A________% penalty may result when the value of an asset contributed to a charity is reported at an amount that exceeds 150% of the correct valuation.

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. -Aiding in preparing an improper tax return.

Ling has hired CPA Gracie to complete this year's Form 1040. Ling uses online accounting software to keep the books for her interior design sole proprietorship. Ling tells Gracie that a $5,000 amount for business supplies is "close enough" to report for this year's deduction. Gracie can use this estimate in completing the Form 1040.

Minnie, your tax client, has decided to dispute the Revenue Agent's Report. List and discuss at least four of your next steps as you prepare to represent Minnie concerning her tax issue within the IRS and in the courts.