Question 1

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?

Accepted Answer

A)  The IRS has full discretion in determining the rate that will apply. 
B)  The simple interest method for calculating interest is used. 
C)  IRS interest compounds daily. 
D)  Congress sets the IRS interest rate twice each year.

Question 2

An IRS "office audit" takes place at the headquarters office of the corporate taxpayer.

Accepted Answer

A) True 
 B)False

Question 3

Loren Ltd., a calendar year taxpayer, had the following transactions, all of which were properly reported on a timely filed return. Presuming the absence of fraud, how much of an omission from gross income must occur for Loren before the six-year statute of limitations applies? Show your computations.

Accepted Answer

The answer of Loren Ltd., a calendar year taxpayer, had...

Question 4

A negligence penalty is assessed when the taxpayer is found to have not made a reasonable attempt to comply with the tax law.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  The tax reduction attributable to the disputed deduction did not exceed $5,000. 
B)  There was a reasonable basis for Joan's interpretation of the travel deduction rules. 
C)  There was substantial authority for Joan's interpretation of the travel deduction rules. 
D)  The IRS found that the travel deduction was frivolous, but Joan disclosed the position in an attachment to the return.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Lisa, a calendar year taxpayer subject to a 33% 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:

Accepted Answer

A)  $0. 
B)  $6,000. 
C)  $10,000 (maximum penalty). 
D)  $12,000.

Question 8

The tax ____________________ workpapers prepared as part of an independent financial audit are not privileged communications that can be kept confidential from an IRS subpoena.

Accepted Answer

The answer of The tax ____________________ workpapers prepared as part...

Question 9

For each of the indicated tax penalties, indicate the appropriate taxpayer defense. A letter may be used more than once. Not all of the letters might be used.
-Filing an improper refund claim.

Accepted Answer

A) Taxpayer penalty 
B) Tax preparer penalty 
C) Appraiser's penalty

Question 10

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

Accepted Answer

The answer of A CPA, an attorney, and a(n) ____________________...

Question 11

In preparing a tax return, a CPA should verify "to the penny" every item of information submitted by a client about its deduction for repairs and maintenance.

Accepted Answer

A) True 
 B)False

Question 12

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."

Accepted Answer

A) True 
 B)False

Question 13

Freddie has been assessed a preparer penalty for willful and reckless conduct. When he completed Peggy's Federal income tax return (she is in the 33% tax bracket), Freddie purposely omitted $100,000 of cash receipts that should have been reported as gross income. Freddie charged Peggy $4,000 to prepare the return. What is Freddie's preparer penalty?

Accepted Answer

A)  $0, because Peggy incurred her own understatement penalty for the return. 
B)  $2,000 
C)  $4,000 
D)  $5,000

Question 14

A(n) ___________________ member is required to follow the Statements of Standards for Tax Services in conducting a tax practice.

Accepted Answer

The answer of A(n) ___________________ member is required to follow...

Question 15

Linwell underpaid his taxes by $250,000. Portions of the underpayment were attributable to negligence ($210,000) and to civil fraud ($40,000). Compute the total penalties incurred.

Accepted Answer

The answer of Linwell underpaid his taxes by $250,000. Portions...

Question 16

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."

Accepted Answer

A) True 
 B)False

Question 17

For each of the indicated tax penalties, indicate the appropriate taxpayer defense. A letter may be used more than once. Not all of the letters might be used.
-Negligence in filing a return.

Accepted Answer

A) Taxpayer penalty 
B) Tax preparer penalty 
C) Appraiser's penalty

Question 18

CPA Norma and her client Colin hold a privilege of confidentiality from the IRS, as to their tax planning discussions about completing Colin's tax returns. The IRS cannot successfully subpoena records concerning these discussions.

Accepted Answer

A) True 
 B)False

Question 19

Lola, a calendar year taxpayer subject to a 40% marginal Federal 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:

Accepted Answer

A)  $0. 
B)  $1,000 (minimum penalty). 
C)  $2,400. 
D)  $12,000.

Question 20

When a tax issue is taken to court, the burden of proof is on the IRS to show that its audit adjustments are correct.

Accepted Answer

A) True 
 B)False

Exam 17: Tax Practice and Ethics

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?

An IRS "office audit" takes place at the headquarters office of the corporate taxpayer.

A negligence penalty is assessed when the taxpayer is found to have not made a reasonable attempt to comply with the tax law.

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

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

Lisa, a calendar year taxpayer subject to a 33% 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:

The tax ____________________ workpapers prepared as part of an independent financial audit are not privileged communications that can be kept confidential from an IRS subpoena.

For each of the indicated tax penalties, indicate the appropriate taxpayer defense. A letter may be used more than once. Not all of the letters might be used. -Filing an improper refund claim.

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

In preparing a tax return, a CPA should verify "to the penny" every item of information submitted by a client about its deduction for repairs and maintenance.

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."

A(n) ___________________ member is required to follow the Statements of Standards for Tax Services in conducting a tax practice.

Linwell underpaid his taxes by $250,000. Portions of the underpayment were attributable to negligence ($210,000) and to civil fraud ($40,000). Compute the total penalties incurred.

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."

For each of the indicated tax penalties, indicate the appropriate taxpayer defense. A letter may be used more than once. Not all of the letters might be used. -Negligence in filing a return.

CPA Norma and her client Colin hold a privilege of confidentiality from the IRS, as to their tax planning discussions about completing Colin's tax returns. The IRS cannot successfully subpoena records concerning these discussions.

Lola, a calendar year taxpayer subject to a 40% marginal Federal 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:

When a tax issue is taken to court, the burden of proof is on the IRS to show that its audit adjustments are correct.