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Exam 17: Tax Practice and Ethics

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Question 1

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During an audit, IRS personnel might request a(n) from the IRS National Office, to clarify the application of tax law concerning a tax deduction.

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technical advice memorandum

Question 2

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Circular 230 requires that a tax preparer provide training for the tax staff as to the latest changes in the tax law.

A) True
B) False

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Question 3

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In a letter ruling, the IRS responds to a taxpayer request concerning the tax treatment of a proposed transaction.

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

In the context of civil tax fraud litigation, the burden of proof is on the taxpayer to show the court by a "preponderance of the evidence" that he or she was not acting with an intent to evade a tax.

Juarez (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity) . The painting cost Juarez $2,000 ten years ago and, according to one of Juarez's friends (an amateur artist) , now is worth $40,000. On his income tax return, Juarez deducts $40,000 as a Form 1040 charitable contribution. Upon later audit by the IRS, it is determined that the true value of the painting was $30,000. Assuming that Juarez is subject to a 25% marginal Federal income tax rate, his penalty for overvaluation is:

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.

The tax professional can do more than just tax compliance work. He or she can work with the client in consultation over the strategy and tactics of dealing with a Federal tax audit.

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 IRS targets high-income individuals for an audit rate that is much higher than that of the general populace.

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, as political expenditures are not deductible.

A privilege of exists between a tax preparer and the client as to tax advice rendered.

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.

Lisa, a calendar year taxpayer subject to a 33% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $160,000. The applicable overvaluation penalty is:

Describe the following written determinations that are issued by the IRS. a. Determination letter. b. Technical advice memorandum. c. Letter ruling.

When a tax dispute is resolved, interest is paid by or to the government. How are IRS interest amounts determined? To which tax amounts do they apply?

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

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

Mikel prepared for compensation a Federal income tax return for Mona. Mona's return included an aggressive interpretation of the rules concerning the home office deduction. Mikel is not liable for a preparer penalty for taking an unreasonable tax return position if:

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