Exam 26: Tax Practice and Ethics

Troy Center Ltd.withheld from its employees' paychecks $200,000 in Federal income and Social Security taxes for the Monday, June 30 payroll.It then spent the $200,000 on equipment upgrades, missing altogether the August 2 due date for the tax remittances.How much does Troy now owe the government in taxes and penalties? Ignore interest accruals, and assume that the Treasury can prove that Troy's redirecting of the tax withholdings was willful.

Keepert uses "two sets of books." She only reports one-half of her cash sales on the records that she uses to complete her Federal income tax return. The statute of limitations for Keepert's return is six years.

Lola, a calendar year taxpayer subject to a 35% marginal gift tax rate, made a gift of a sculpture to Redd, valuing the property at $70,000.The IRS later valued the gift at $100,000.The applicable undervaluation penalty is:

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

A taxpayer can be subject to both ____________________ and ____________________ penalties for tax misconduct. or

LaCharles made a charitable contribution of property that he valued at $90,000.He deducted this amount as an itemized deduction on his tax return.The IRS can show that the actual value of the property is $50,000.LaCharles is in the 30% Federal income tax bracket.Determine LaCharles's amount due for both tax and any penalty.

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

Which of the following statements is correct as to the conduct of IRS income tax audits?

Gadsden, who is subject to a 35% marginal gift tax rate, made a gift of a sculpture to Marvin, valuing the property at $150,000.The IRS later valued the gift at $400,000.The applicable undervaluation penalty is:

The tax preparer penalty for taking an unreasonable tax return position is the greater of $____________________ or ____________________ of the tax professional's income from preparing the return.

Ming (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity).The painting cost Ming $2,000 ten years ago and, according to one of Ming's friends (an amateur artist), is worth $40,000.On his income tax return, Ming deducts $40,000 as a Form 1040 charitable contribution.Upon later audit by the IRS, it is determined that the true value of the painting was $30,000.Assuming that Ming is subject to a 30% marginal Federal income tax rate, his penalty for overvaluation is:

Under Circular 230, Burke cannot complete a client's original Form 1040 and charge a fee equal to one-third of the resulting refund.

When a "prompt assessment" of the tax liability is requested, the taxpayer essentially is volunteering for an IRS audit of the tax return.

In the case of bad debts and worthless securities, the statute of limitations on claims for refund is three years.

Circular 230 requires that a tax preparer be aware of changes in the tax law.Furthermore, office practices of the preparer must be up to industry standards.

Describe the following written determinations that are issued by the IRS.

Mickey, a calendar year taxpayer, was not required to file a 2011 Federal income tax return because his AGI was negative due to business losses.During 2012, his AGI is $120,000 and his tax liability is $10,000.To avoid a penalty for tax underpayments for 2012, Mickey must make aggregate estimated tax payments of at least:

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

After the completion of an audit, the taxpayer has ____________________ days to petition the Tax Court to modify the proposed tax due. or

Bettie, a calendar year individual taxpayer, files her 2011 return on February 10, 2013.She had obtained a six-month extension for filing her return.There was additional income tax of $20,000 due with the return.