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Exam 26: Tax Practice and Ethics

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Question 81

Multiple Choice

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Young-Eagle files her 2018 Form 1040 on March 1, 2019. The Federal tax statute of limitations for this return expires on:

A) March 1, 2022.
B) April 15, 2022.
C) April 15, 2025.
D) April 15, 2026.

E) A) and D)
F) None of the above

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Question 82

Multiple Choice

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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. -Failure to file a tax return.

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

D) A) and C)
E) All of the above

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Question 83

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Currently, the IRS charges a % interest rate on taxes that the taxpayer underpays.

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. -Failure to sign the return.

Mikel prepared a Federal income tax return for Mona for compensation . Her return included an aggressive interpretation of the rules concerning the home office deduction of a sole proprietor. Mikel 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.

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. -Failure to pay a tax.

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

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

Megan prepared a Federal income tax return for Joan for compensation. 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:

Yang, a calendar year taxpayer, did not file a tax return for 2010 because she honestly believed that no additional tax was due. In 2018, Yang is audited by the IRS and the agent assesses a deficiency of $17,000 for 2010. Yang need not pay this deficiency, since the three-year statute of limitations expired on April 15, 2014, meaning that the IRS no longer can adjust Yang's tax for the 2010 tax year.

Because he undervalued property that he transferred by gift, Dan owes additional gift taxes of $4,000. The penalty for undervaluation does not apply in this situation, because the tax understatement was too small.

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. $\begin{array} { l l } \text { Tax Year } & \text { Preparer } \\1 & \text { Sally (Vera's niece, a dentist) } \\2 & \text { Wesley (an enrolled agent) } \\3 & \text { Alex (a CPA) }\end{array}$ Vera wants help in appearing before the IRS Revenue Agent for the audit. Which of the following statements is Correct?

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. $\begin{array} { l } \text { Gross receipts}&&\$3,500,000\\ \text {Cost of sales }&&(1,000,000)\\ \text {Gross profit }&&\$2,500,000\\ \text { Capital gain}&\$100,000\\ \text {Capital loss }&(30,000)&70,000\\ \text {Total income }&&\$2,570,0000\\\end{array}$

Faye, a CPA, is preparing Judith's tax return. Last year, Judith's return included dividend income from the P&G Company. This year, Judith reports no such income. Faye should inquire as to whether Judith sold the P&G stock during the year.

Circular 230 allows a tax preparer to:

The IRS pays interest on a refund to the taxpayer unless the IRS's payment is made within days of the date that a return is filed.

A taxpayer can take a dispute to the Division of the Tax Court when the disputed amounts do not exceed $50,000.

The , a presidential appointee, is the "IRS's attorney."

A tax preparer is in violation of Circular 230 if he or she: