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Exam 26: Tax Practice and Ethics

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Question 31

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Compute the overvaluation penalty for each of the following independent cases involving the taxpayer's reporting of the fair market value of charitable contribution property.In each case,assume a marginal income tax rate of 35%.

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Question 32

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

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B) False

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Question 33

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Which of the following statements correctly reflects the rules governing interest to be paid on an individual's Federal tax deficiency or claim for refund?

Maria's AGI last year was $195,000.To avoid a penalty,her estimated tax payments and withholdings for this year must equal the lesser of ____________________ percent of last year's taxes or ____________________ percent of this year's taxes. or

The Treasury issues "private letter rulings" and other determinations,usually in response to a taxpayer request.What is the purpose of the rulings program? Answer from both the taxpayer and the government points of view.

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

Maureen,a calendar year taxpayer subject to a 35% marginal tax rate,claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $200,000.The applicable overvaluation penalty is:

Yang,a calendar year taxpayer,did not file a tax return for 2005 because she honestly believed that no additional tax was due.In 2011,Yang is audited by the IRS and the agent assesses a deficiency of $17,000 for tax year 2005.Yang need not pay this deficiency,since the statute of limitations expired on April 15,2009.

A VITA volunteer is exempted from the Code's tax preparer penalties.

An IRS letter ruling might determine that an employee's compensation is unreasonable in amount.

Loren Ltd.,a calendar year taxpayer,had the following transactions,all of which were properly reported on a timely filed return.Presuming the absence of fraud,how much of an omission from gross income must occur for Loren before the six-year statute of limitations applies? Show your computations.

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

Marco,a cash basis,calendar year taxpayer,filed his income tax return 50 days after the due date.Marco never extended his return,and with the return he paid the taxes that were due.What penalties will Marco incur,and how much is the penalty if his additional tax is $5,000? Disregard any additional interest he must pay.

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

Jake,an individual calendar year taxpayer,incurred the following transactions. Assuming that any error in timely reporting these amounts was inadvertent,how much omission from gross income would be required before the six-year statute of limitations would apply?

An "office audit" takes place at the headquarters office of the corporate taxpayer.

If the taxpayer refuses to pay an assessed tax,the IRS can seize taxpayer property under the ____________________ process.

A tax preparer can incur a penalty if the client's return includes an unreasonable or ___________________ tax return position that understates the tax liability.

Ming (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity) .The painting cost Ming $2,000 ten years ago and,according to one of Ming's friends (an amateur artist) ,is worth $40,000.On his income tax return,Ming 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 Ming is subject to a 30% marginal Federal income tax rate,his penalty for overvaluation is:

Leroy,who is subject to a 45% marginal 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: