Exam 26: Tax Practice and Ethics

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.

Lisa, a calendar year taxpayer subject to a 32% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $160,000. The applicable overvaluation penalty is:

Silvio, a cash basis, calendar year taxpayer, filed his income tax return 75 days after the due date. Silvio never extended his return, and with the return he paid the full amount of taxes that were due. What penalties will Silvio incur, and how much is the penalty if his additional tax is $5,000? Disregard any additional interest he must pay.

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

The Statements on Standards for Tax Services (SSTS) apply to members of the AICPA, a state bar association, and all Enrolled Agents.

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.

The Treasury document regulating the professional conduct of tax return preparers is the Regulation known as_________________________.

The tax professional can reduce the chances that staff personnel will incur IRS preparer penalties by adopting a "tone at the top" that stresses integrity, diligence, and other elements of an ethical tax practice.

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. a. Taxpayer penalty b. Tax preparer penalty c. Appraiser's penalty -Failure to sign the return.

The tax penalty imposed on appraisers:

The IRS can waive the penalty for a substantial understatement of a tax liability if the taxpayer shows ________________for the position taken on the tax return.

Circular 230 compliance implies that a tax preparer provide training for the tax staff as to the latest changes in the tax law.

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

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

The chief executive of the IRS is the _________________________.

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

Quon filed an amended return, claiming a $100,000 refund. The IRS disallowed the refund, and it can assess a penalty if there was no reasonable basis of support for the refund claim, in the amount of ________________% of the disallowed amount.

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. a. Taxpayer penalty b. Tax preparer penalty c. Appraiser's penalty -Improper refund claim.

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 will be assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

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