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Exam 26: Tax Practice and Ethics

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Question 71

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Gadsden,who is subject to a 40% marginal Federal gift tax rate,made a gift of a sculpture to Marvin,valuing the property at $150,000.The IRS later valued the gift at $400,000.The applicable undervaluation penalty is:

A) $0.
B) $20,000.
C) $25,000 (maximum penalty) .
D) $40,000.

E) A) and B)
F) C) and D)

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Question 72

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The "IRS's attorney" is known as the Chief Counsel.

A) True
B) False

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Question 73

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

When a tax issue is taken to court,the burden of proof is on the IRS to show that its audit adjustments are 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 -Preparer penalty for reckless conduct.

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 -Fraudulent failure to file a tax 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.

When the IRS issues a notice of tax due,the taxpayer has 90 days to either pay the tax or file a petition with the Tax Court.This is conveyed in the "ninety-day letter."

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.

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

The privilege of confidentiality applies to a CPA tax preparer concerning the client's information relative to:

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

The penalty for substantial understatement of tax liability does not apply if:

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?

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

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

With respect to tax misconduct,a ____________________ penalty usually involves only a fine,and a ____________________ penalty also can include jail time.

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 -Preparer penalty for taking an unreasonable tax return position.

In the case of bad debts and worthless securities,the statute of limitations on claims for refund is three years.

Quon filed his Federal income tax return on time,but he did not remit the full balance due.Compute Quon's failure to pay penalty in each of the following cases.The IRS has not yet issued a deficiency notice. a.Three months late,$5,000 additional tax due. b.Nine months late,$5,000 additional tax due. c.Five years late,$5,000 additional tax due.