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Exam 17: Tax Practice and Ethics

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Question 81

True/False

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During any month in which both the failure-to-file and failure-to-pay penalties apply, both penalties must be paid in full.

A) True
B) False

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Question 82

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Concerning a taxpayer's requirement to make quarterly estimated tax payments:

A) A C corporation must make estimated payments if its Federal income tax liability for the year will exceed $250.
B) The due dates of the payments for a calendar-year C corporation are March, June, September, and December 15.
C) A C corporation's estimates must total at least 90% of the current­year tax, to avoid the penalty.
D) An individual must make estimated payments if his or her balance due for the Federal income tax for the year will exceed $1,000.

E) All of the above
F) B) and C)

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Question 83

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The taxpayer must pay a significant fee to have a letter ruling issued by the IRS.

Carole, a CPA, feels that she cannot act as an aggressive advocate for tax clients in today's environment. What aspects of the ethical conduct of a tax practice might have influenced Carole's attitude?

Circular 230 allows a tax preparer to:

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.

After the completion of an audit, the taxpayer has 90 days to petition the Court to modify the proposed tax due.

The general statute of limitations regarding Federal tax returns extends for years. It is years if a substantial understatement of income is found, and years with respect to worthless securities.

The IRS processes about million individual tax returns every year, about percent of which are filed electronically.

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.

During an audit, the IRS might require that the taxpayer produce the that underlie the tax return data.

Recently, the overall Federal income tax audit rate for the Form 1040 has been about 1%.

Evaluate this statement: the audited taxpayer has more freedom to "trade issues" with the IRS when the dispute progresses to an Appeals conference. Hint: What are the "hazards of litigation?"

LaCharles made a charitable contribution of property that he valued at $80,000. 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 33% Federal income tax bracket. Determine LaCharles's amount due for both tax and any penalty.

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. Tax Year Preparer 1 Sally (Vera's niece, a dentist) 2 Wesley (an Enrolled Agent) 3 Alex (a CPA) Vera wants help in appearing before the IRS Revenue Agent for the audit. Which of the following statements is correct?

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. a. Ignorance of the tax law b. Reasonable basis c. Reasonable cause d. Complexity of the tax law e. Substantial authority f. Disclosure on return -Filing an improper refund claim.

Which statement does not correctly describe the IRS letter ruling process?

Cheng filed an amended return this year, claiming a refund relative to her tax computation on a prior-year's return. When the IRS approves the amended return and issues the refund, it also pays Cheng interest with respect to the overpayment.

Concerning the penalty for civil tax fraud:

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 file a tax return.