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Exam 26: Tax Practice and Ethics

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Question 61

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

A) True
B) False

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Question 62

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Cheng filed an amended return this year, claiming a refund relative to her tax computation on a prior-year's return. When the IRS approves the amended return and issues the refund, it also pays Cheng interest with respect to the overpayment.

A) True
B) False

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Question 63

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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.

Fiona, a VITA volunteer for her college's tax clinic, is not a tax preparer as defined by the Code. Thus, Fiona is exempted from the Code's tax preparer penalties.

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

In preparing a tax return, a CPA should verify "to the penny" every item of information submitted by a client about its deduction for repairs and maintenance.

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. -Improper refund claim.

The IRS pays interest on a refund to the taxpayer, unless the IRS's payment is made within days of the date that a return is filed.

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

Faye, a CPA, is preparing Judith's tax return. Last year, Judith's return included dividend income from the P&G Company. This year, Judith reports no such income. Faye should inquire as to whether Judith sold the P&G stock during the year.

Latrelle prepares the tax return for Whitehall Corporation. Latrelle includes a $5,000 deduction on the return. This type of deduction previously has been disallowed by the Tax Court, although there is a 15% chance that the holding will be reversed on an appeal by Whitehall. The return does not make any special disclosure that the deduction is being claimed. Whitehall paid Latrelle a fee of $8,000 for preparing the Form 1120. Latrelle will be assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

A(n) must obtain a Preparer Tax Identification Number (PTIN).

The IRS can require that the taxpayer produce its financial accounting records, to determine if taxable income is computed correctly.

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.

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

Quon filed an amended return, claiming a $100,000 refund. The IRS disallowed the refund, and it can assess a penalty if there was no reasonable basis of support for the refund claim, in the amount of % of the disallowed amount.

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. -Preparer penalty for taking an unreasonable tax return position.

The , a presidential appointee, is the "IRS's attorney."

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

The IRS is a subsidiary agency of the Department of the .