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Exam 17: Tax Practice and Ethics

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Question 1

Multiple Choice

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Concerning the penalty for civil tax fraud:

A) The burden of proof is on the taxpayer to establish that no fraud was committed.
B) Fraudulent behavior is more than mere negligence on the part of the taxpayer.
C) The penalty is 100% of the underpayment.
D) Fraud is defined in Code §§ 6663b) and f) .

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

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Question 2

True/False

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CPA Liam discovers that last year's Form 1120 for his client PollCo claimed a $100,000 advertising deduction for a gift to candidates of the Green Party. AICPA tax ethics rules require that an amended return immediately be filed because political expenditures are not deductible.

A) True
B) False

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Question 3

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The chief executive of the IRS is the _________________________.

Mickey, a calendar year taxpayer, was not required to file a Federal income tax return last year because his AGI was very low. For this tax year, his AGI is $120,000 and his tax liability is $10,000. To avoid a penalty for tax underpayments for the current year, Mickey must make aggregate estimated tax payments of at least:

Which of the following statements does not reflect the rules governing the accuracy-related penalty for negligence?

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.

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.

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

With respect to the Small Cases Division of the Tax Court,

The IRS can pay an informant's fee of up to _______% of the recovered tax, interest, and penalty amounts. The reward can be as high as_________ % for information provided by a whistleblower.

A tax professional needs to know how the IRS is structured and how it works to carry out its mission. Evaluate this statement.

A letter ruling should be requested when the taxpayer wants to know how the IRS's interpretation of the tax law will be applied to a_________ proposed, completed) transaction.

This official does not report directly to the IRS Commissioner.

Compute the undervaluation penalty for each of the following independent cases involving the executor's reporting of the value of a closely held business in the decedent's gross estate. In each case, assume a marginal Federal estate tax rate of 40%. $\begin{array}{lrr} & \text { Reported Value } & \text { Corrected IRS Value } \\\text { a. } & \$ 10,000 & \$ 20,000 \\\text { b. } & 60,000 & 100,000 \\\text { c. } & 80,000 & 150,000 \\\text { d. } & 50,000 & 300,000\end{array}$

According to the IRS, the annual tax gap totals over $______ billion.

The IRS is one of the largest Federal agencies, employing almost ______people throughout the year.

Kevin uses two sets of books. He reports only one-half of his cash sales on the records that he uses to complete her Federal income tax return. The statute of limitations for Kevin's return is six years.

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

An individual's amended tax return that computes a refund or amount due generally uses Form ____________________.

Under Circular 230, tax preparer Winston cannot disclose to a mortgage banker the income level of her client Pickett or other information acquired by preparing the return without Pickett's permission.