Exam 16: Tax Practice and Ethics

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

Debbie,a calendar year taxpayer,did not file a tax return for 2003 because she honestly believed that no additional tax was due.In 2008,Debbie is audited by the IRS and the agent assesses a deficiency of $7,000 for tax year 2003.Debbie need not pay this deficiency,since the statute of limitations expired on April 15,2007.

The IRS need not pay the taxpayer interest on a refund if the payment is made within ____________________ days of the due date of a timely filed return.

In connection with the taxpayer penalty for substantial understatement of tax liability,what defenses (if any)are available?

If a taxpayer understates her cash sales by 30% of the adjusted gross income on the return,the statute of limitations on assessments is increased to six years.

The Statements on Standards for Tax Services apply to attorneys,as well as to CPAs.

If the IRS comes to the taxpayer's office to review a tax return,the process is called a(n)____________________ audit.

The IRS processes about ____________________ million individual tax returns every year.

Match each of the following penalties with the rate for that penalty as specified by the Code. a.$1,000 per violation b.$500 per violation c.$50 per violation d.1/2% per month e.5% per month f.15% per month g.5% of tax due h.15% of tax due i.20% of tax due j.75% of tax due -Failure to file a tax return

The IRS uses document matching programs to keep the audit rate low.

With respect to the audit process which,if any,of the following statements is incorrect?

In preparing a tax return,a CPA should verify "to the penny" every item of information submitted by a client.

Max (a calendar year taxpayer)donates a painting to a local art museum (a qualified charity).The painting cost Max $12,000 ten years ago and,according to one of Max's friends (an amateur artist),is worth $50,000.On his income tax return,Max deducts $50,000 as a charitable contribution.Upon later audit by the IRS,it is determined that the true value of the painting was $20,000.Assuming that Max is subject to a 35% marginal income tax rate,his penalty for overvaluation is:

A penalty for understating a tax liability can be waived if the taxpayer can show ____________________ ____________________ for the position taken on the tax return.

Failure to file and failure to pay penalties can be reduced if the taxpayer shows ____________________ ____________________ for the omission.

Match each of the following penalties with the rate for that penalty as specified by the Code. a.$1,000 per violation b.$500 per violation c.$50 per violation d.1/2% per month e.5% per month f.15% per month g.5% of tax due h.15% of tax due i.20% of tax due j.75% of tax due -Helping another party to understate a tax

When a taxpayer wants to know the IRS interpretation of how the tax law will be applied to a proposed transaction,he or she should secure a ____________________ ____________________.

The IRS is one of the largest Federal agencies,employing at least ____________________ people throughout the year.

The taxpayer can avoid a valuation penalty for overstating to a charitable contribution by showing that the deduction claimed was based on a qualified ____________________.

A negligence penalty can be waived if the taxpayer has used Form 8275 to ____________________ a tax return position that is contrary to a judicial precedent.