Exam 17: Tax Practice and Ethics

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:

Vera is audited by the IRS for three tax years.Her returns were prepared by the following parties,to each of whom Vera paid a professional fee. Vera wants help in appearing before the IRS Revenue Agent for the audit.Which of the following statements is correct?

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.

Compute the failure to pay and failure to file penalties for John,who filed his 2011 income tax return on December 14,2012,paying the $10,000 amount due.On April 1,2012,John submitted a six-month extension of time in which to file his return;he paid no tax with the extension request.He has no reasonable cause for failing to file his return by October 15 or for failing to pay the tax that was due on April 15,2012.John's failure to comply with the tax laws was not fraudulent.

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

Jenny prepared Steve's income tax returns for no compensation for 2009 and 2010.Jenny is Steve's mother.In 2012,the IRS notifies Steve that it will audit his returns for 2008-2010.Jenny cannot represent Steve during the audit of the returns,as she is not a "registered tax return preparer."

Latrelle prepares the tax return for Whitehall Corporation.Latrelle includes a $5,000 deduction on the return.This type of deduction previously has been disallowed by the Tax Court,although there is a 15% chance that the holding will be reversed on an appeal by Whitehall.The return does not make any special disclosure that the deduction is being claimed.Whitehall paid Latrelle a fee of $8,000 for preparing the Form 1120.Latrelle is assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

A tax professional needs to know how the IRS is structured and how it works to carry out its mission.Evaluate this statement.

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.

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

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:

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

With respect to the Small Cases Division of the Tax Court,

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

The IRS can require that the taxpayer produce its financial accounting records,to determine if taxable income is computed correctly.

Jaime's negligence penalty will be waived,under the reasonable cause exception.He told the court,"My taxes were wrong because I couldn't understand the tax law."

Which of the following statements does not reflect the rules governing the accuracy-related penalty for negligence?

Roger prepared for compensation a Federal income tax return for Mona.Mona's return included an aggressive interpretation of the rules concerning overnight business travel.Roger is not liable for a preparer penalty for taking an unreasonable tax return position if:

A CPA,an attorney,and a(n)____________________ can represent taxpayers before the IRS in an Appeals conference.

Which of the following statements correctly reflects the rules governing interest to be paid on an individual's Federal tax deficiency or claim for refund?