Exam 26: Tax Practice and Ethics

Compute the failure to pay and failure to file penalties for John,who filed his 2009 income tax return on December 17,2010,paying the $10,000 amount due.On April 1,2010,the IRS approved John's 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 15,2010.John's failure to comply with the tax laws was not fraudulent.

After the completion of an audit,the taxpayer has ____________________ days to petition the Tax Court to rule in its favor.

Over the last two decades,the Treasury has enforced numerous means by which to identify those taxpayers who use tax shelter devices,and to eliminate any resulting losses and deductions.Special reporting requirements apply to transactions that the IRS has labeled "tax shelters." Describe those requirements.

Recently,the overall Federal income tax audit rate for individual returns has been about 3%.

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.

The usual three-year statute of limitations on additional tax assessments applies in the following situation(s).

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.

Yin-Li is the preparer of the Form 1120 for Cloves Corporation.On the return,Cloves claimed a deduction that the IRS later disallowed on audit.Compute the tax preparer penalty that could be assessed against Yin-Li in each of the following independent situations.

Roger prepared for compensation a Federal income tax return for Joan.Joan'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:

When the IRS issues a notice of tax due,the taxpayer has 30 days to either pay the tax or file a petition with the Tax Court.This is conveyed in the "thirty-day letter."

The IRS is one of the largest of all Federal agencies.

Vera is audited by the IRS for several tax years.Her returns were prepared by the following parties. Which of the following statements is correct?

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

Identify a profile for a taxpayer who is more likely than the national average to be audited by the IRS.

The AICPA's Statements on Standards for Tax Services are advisory,not mandatory,on its members.

In a criminal fraud case,the burden is on the taxpayer to show that he or she was innocent "beyond the shadow of any reasonable doubt."

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.

A "field audit" takes place at the headquarters of the corporate taxpayer.

Last year,Ned's property tax deduction on his residence was $22,500.Although he lives in the same house,he tells his CPA that this year's taxes will be only $7,500.The CPA can use this estimate in computing Ned's itemized deductions,under the Statements of Standards for Tax Services.

Babs filed an amended return in 2010,claiming a refund relative to her 2008 tax computation.When the IRS approves the amended return,it will pay Babs interest with respect to the overpayment.