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Exam 17: Tax Practice and Ethics

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Question 31

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If the taxpayer shows for an underpayment of tax, the failure to pay penalty can be reduced or eliminated.

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Question 32

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CPA Shearer is required by AICPA tax ethics rules to inform her client Martinez of significant changes in the Federal income tax laws.

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Question 33

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Describe the potential outcomes to a party who provides information to the IRS under the informant or whistleblower program.

Minnie, a calendar year taxpayer, filed a return correctly showing a zero Federal income tax liability for last year, because her Form 1040 showed various deductions and credits. For this tax year, Minnie's AGI is $120,000 and her tax liability is $20,000. To avoid a penalty for the current year, Minnie must make aggregate estimated tax payments of at least:

Troy Center Ltd. withheld from its employees' paychecks $200,000 in Federal income and Social Security taxes for the Monday, June 30 payroll. It then spent the $200,000 on equipment upgrades, missing altogether the August 2 due date for the tax remittances. How much does Troy now owe the government in taxes and penalties? Ignore interest accruals, and assume that the Treasury can prove that Troy's redirecting of the tax withholdings was willful.

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

Under Circular 230, Burke cannot complete a client's original Form 1040 and charge a fee equal to one­third of the resulting refund.

A taxpayer's return might be selected for audit on the basis of the score that the IRS computes.

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 -Negligence.

Lori, a calendar year individual taxpayer, files her 2013 return on February 10, 2015. She had obtained a six-month extension for filing her return. There was additional income tax of $30,000 due with the return. a. What are Lori's penalties for failure to file and to pay? a. change if Lori, before the due date of the return, had retained a CPA to prepare the return and it was the CPA's negligence that caused the delay? b. Would your answer to

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 -Substantial understatement of a tax.

Circular 230 requires that a paid tax preparer apply a thorough quality review system in preparing tax returns for her clients.

What are the chief responsibilities of the IRS Commissioner, and of the Chief Counsel of the IRS?

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%.

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. a. Taxpayer penalty b. Tax preparer penalty c. Appraiser's penalty -Improper refund claim.

A registered tax return preparer who is not also a CPA, attorney, or Enrolled Agent:

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.

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

It typically is advisable that an IRS audit be conducted at the office of the tax advisor, and not of the client.