Exam 16: Tax Practice and Ethics

Maureen,a calendar year taxpayer subject to a 35% marginal tax rate,claimed a charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $200,000.The applicable overvaluation penalty is:

For each of the indicated penalties, indicate the appropriate taxpayer defense. a.Reasonable basis b.Reasonable cause c.Substantial authority d.Disclosure on return -Substantial understatement of tax

Circular 230 prohibits a tax preparer from charging a contingent fee for any professional tax services.

Jenny prepared Steve's income tax returns for no compensation for 2005 and 2006.Jenny is Steve's daughter.In 2008,the IRS notifies Steve that it will audit his returns for 2004-2006.If Steve so desires,Jenny may represent him during the audit of all three returns.

Who are the top two personnel within the IRS? What are their chief responsibilities?

Faye,a CPA,is preparing Judith's tax return.One item on the return requires a Yes or No answer.Faye can avoid checking either box if the effect is to increase Judith's tax liability.

Orange Ltd.withheld from its employees' paychecks $300,000 in Federal income and Social Security taxes for the May 30 payroll.It then spent the $300,000 on equipment upgrades,missing altogether the June 2 due date for the tax remittances.How much does Orange now owe the government in taxes and penalties? Ignore interest accruals,and assume that the Treasury can prove that Orange's redirecting of the tax withholdings was willful.

An "office audit" takes place at the headquarters of the corporate taxpayer.

When a tax issue is taken to court,the burden of proof is on the taxpayer to show that the items reported on the return are substantiated.

One of the four operating divisions of the IRS deals exclusively with the largest corporations and partnerships.

Vera is audited by the IRS for tax years 2006,2007,and 2008.Her returns were prepared by the following parties. Which of the following statements is correct?

Rhoda,a calendar year individual taxpayer,files her 2006 return on March 3,2008.She had obtained a six-month extension for filing her return.There was additional income tax of $20,000 due with the return. a.What are Rhoda's penalties for failure to file and to pay? a. change if Rhoda, before the due date of the return, had retained a CPA to prepare the return and it was the CPA's negligence that caused the delay? b.Would your answer to

If someone prepares the tax return of another and accepts a fee for that service,the preparer must sign the tax return,or the preparer will lose the "tax return preparer" status of Circular 230.

Describe how the IRS applies interest rules in the context of a tax controversy.

Circular 230 applies to all tax practitioners other than attorneys,CPAs,and enrolled agents,who are exempt because this group have their own codes of conduct..

Carol's AGI last year was $180,000.Her Federal income tax came to $60,000,which she paid through a combination of withholding and estimated payments.This year,her AGI will be $200,000,with a projected tax liability of $75,000,all to be paid through estimates.Ignore the annualized income method.Compute Carol's quarterly estimated payment schedule for this year.

Most practitioners encourage their clients to attend an IRS office audit.

An individual is not subject to penalty until more than $____________________ is due and unpaid through withholdings and estimated taxes.

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 pay a tax

The chief executive of the IRS is the _________________________.