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Exam 26: Tax Practice and Ethics

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Question 21

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Attorneys are allowed an "attorney­client privilege" of confidentiality with clients. Does a registered tax preparer enjoy the same privilege? On which types of tax and financial work?

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A limited confidentiality privilege is g...

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Question 22

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

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Question 23

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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.

A CPA, an attorney, and a(n) can represent taxpayers before the IRS in an Appeals conference.

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

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.

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:

The taxpayer or a tax advisor may be subject to penalties if there is a misstatement of the valuation of an item reported on the tax return. Describe how these penalties work.

The Four Square Services Corporation estimates that its 2015 taxable income will be $1,000,000. Thus, it is subject to a flat 34% income tax rate and incurs a $340,000 liability. For each of the following independent cases, compute Four Square's minimum quarterly estimated tax payments that will avoid an underpayment penalty. a. For 2014, taxable income was ($200,000), resulting in a zero income tax liability. Four Square carried back all of this loss to prior years. b. For 2014, taxable income was $800,000, and tax liability was $272,000. c. For 2013, taxable income was $2 million, and tax liability was $680,000. For 2014, taxable income was $100,000, and tax liability was $22,250.

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. -Failure to deposit withholding tax.

Specific factors that are used in selecting tax returns for audit, and the weights for such factors, are not released to the public. Summarize the public information about tax audit selection; how might a tax return's chances of audit increase above national norms?

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:

Circular 230 requires that the tax practitioner use the "best practices" of the tax profession in carrying out a tax engagement. Specify what some of these best practices entail.

A penalty can be assessed from an appraiser who knew that his/her improper appraisal would be used as part of a tax computation, in the amount of the lesser of % of the tax understatement or ____________________ % of the appraisal fee collected.

Michelle, a calendar year taxpayer subject to a 25% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $275,000 for a sculpture that the IRS later valued at $200,000. The applicable overvaluation penalty is:

Clarita underpaid her taxes by $50,000. Of this amount, $35,000 was due to negligence on her part, as her record- keeping system is highly inadequate. Determine the amount of any negligence penalty.

A taxpayer penalty may be waived if there is shown to be reasonable cause for the misstatement on the tax return. The courts have applied this standard strictly. List three or more assertions for a waiver of a taxpayer penalty that courts have found not to constitute reasonable cause. Example: Ignorance of the tax law.

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.

Ling has hired CPA Gracie to complete this year's Form 1040. Ling uses online accounting software to keep the books for her interior design sole proprietorship. Ling tells Gracie that a $5,000 amount for business supplies is "close enough" to report for this year's deduction. Gracie can use this estimate in completing the Form 1040.

Which statement is incorrect as to the conduct of IRS income tax audits?