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Exam 17: Tax Practice and Ethics

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Question 41

True/False

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No overvaluation penalty is incurred by an individual until the misstatement would cause a tax underpayment of at least $10,000.

A) True
B) False

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Question 42

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A tax preparer and his/her client hold a privilege of confidentiality from the IRS,as to their discussions about completing a tax return.

A) True
B) False

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Question 43

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Babs filed an amended return in 2010,claiming a refund relative to her 2008 tax computation.When the IRS approves the amended return,it will pay Babs interest with respect to the overpayment.

How is the tax law affected by Federal criminal statutes?

Faye,a CPA,is preparing Judith's tax return.One item on the return requires a Yes or No answer.Faye can avoid checking either box if the effect is to increase Judith's tax liability.

As part of a tax return engagement for XYZ Partnership,Enrolled Agent Wang can draft an amendment to the XYZ partnership agreement.

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

The tax professional can render valuable services to the client in consultation over the strategy and tactics of dealing with a Federal tax audit.

A taxpayer should conduct a cost-benefit analysis before taking a tax dispute to court.

Why is it advantageous for both the taxpayer and the IRS to have tax returns filed electronically?

If a taxpayer understates her cash sales by 30% of the adjusted gross income on the return,the statute of limitations on assessments is increased to six years.

A "field audit" takes place at the headquarters of the corporate taxpayer.

Margaurite did not pay her Federal income tax on time.When she eventually filed the return,she reported a balance due.Compute Margaurite's failure to file penalty in each of the following cases.

With respect to the Small Cases Division of the Tax Court,

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

Roger prepared for compensation a Federal income tax return for Joan.Joan's return included an aggressive interpretation of the rules concerning overnight business travel.Roger is not liable for a preparer penalty for taking an unreasonable tax return position if:

Henrietta has hired Gracie,a CPA,to complete this year's Form 1040.Henrietta uses software to keep the books for her business.She tells Gracie that a $5,000 amount for business supplies is "close enough" to constitute the deduction.Gracie can use this estimate in completing the Form 1040.

A letter ruling is issued by the IRS at no charge.

Rhoda,a calendar year individual taxpayer,files her 2008 return on February 20,2010.She had obtained a six-month extension for filing her return.There was additional income tax of $20,000 due with the return.

Describe the following written determinations that are issued by the IRS.