Exam 17: Tax Practice and Ethics

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?

A ____________________% penalty may result when a taxpayer overstates by _____________________ percent or more the value of an asset contributed to a charity. or

As part of a tax return engagement for XYZ Partnership, Enrolled Agent Wang can draft an amendment to the XYZ partnership agreement.

Maureen, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $200,000. The applicable overvaluation penalty is:

If the taxpayer shows ____________________ for an underpayment of tax, the failure to pay penalty can be reduced or eliminated.

Ron, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $150,000. The applicable overvaluation penalty is:

A taxpayer penalty may be waived if there is shown to be reasonable cause for the misstatement on the tax return. The courts have applied this standard strictly. List three or more assertions for a waiver of a taxpayer penalty that courts have found not to constitute reasonable cause. Example: Ignorance of the tax law.

The penalty for substantial understatement of tax liability does not apply if:

Clara underpaid her taxes by $50,000. Of this amount, $15,000 was due to negligence on her part, as her record-keeping system is highly inadequate. Determine the amount of any negligence penalty

Freddie has been assessed a preparer penalty for willful and reckless conduct. When he completed Peggy's Federal income tax return (who is in the 35% tax bracket), Freddie purposely omitted $100,000 of cash receipts that should have been reported as gross income. Freddie charged Peggy $6,000 to prepare the return. What is Freddie's preparer penalty?

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. or

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

According to AICPA rules, the CPA cannot take an aggressive tax return position on the basis of the "audit ____________________."

George, a calendar year taxpayer subject to a 45% marginal gift tax rate, made a gift of a sculpture to Redd, valuing the property at $100,000. The IRS later valued the gift at $140,000. The applicable undervaluation penalty is:

A CPA can take a tax return position for a client that is contrary to current IRS interpretations of the law.

Harold, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a Form 1040 charitable contribution deduction of $20,000 for a sculpture that the IRS later valued at $10,000. The applicable overvaluation penalty is:

The Statements on Standards for Tax Services are issued by the:

About ____________________% of all Forms 1040 are audited each year. The rate is about ____________________% if income exceeds $1 million. or

A letter ruling is issued by the IRS at no charge.

The Treasury issues "private letter rulings" and other determinations, usually in response to a taxpayer request. What is the purpose of the rulings program? Answer from both the taxpayer and the government points of view.