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Exam 26: Tax Practice and Ethics

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Question 21

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According to the IRS, the annual tax gap totals over $ billion.

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Question 22

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In connection with the taxpayer penalty for substantial understatement of tax liability, what defenses (if any) are available?

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The defenses to the imposition of the pe...

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Question 23

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A penalty can be assessed on an appraiser who knew that her or his 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.

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. -Misstatement of withholding allowances.

Minnie, a calendar year taxpayer, filed a return correctly showing a zero Federal income tax liability for last year because her Form 1040 showed various deductions and credits. For this tax year, Minnie's AGI is $120,000, and her tax liability is $20,000. To avoid a penalty for the current year, Minnie must make aggregate estimated tax payments of at least:

Mickey, a calendar year taxpayer, was not required to file a Federal income tax return last year because his AGI was very low. For this tax year, his AGI is $120,000 and his tax liability is $10,000. To avoid a penalty for tax underpayments for the current year, Mickey must make aggregate estimated tax payments of at least:

The IRS can waive the penalty for a substantial understatement of a tax liability if the taxpayer shows for the position taken on the tax return.

CPA Shearer is required by AICPA tax ethics rules to inform her client Martinez of significant changes in the Federal income tax laws.

Compute the undervaluation penalty for each of the following independent cases involving the executor's reporting of the value of a closely held business in the decedent's gross estate. In each case, assume a marginal Federal estate tax rate of 40%. $\begin{array}{rr}&\text { Reported Value } & \text { Corrected IRS Value } \\a.&\$ 10,000 & \$ 20,000 \\b.&60,000 & 100,000 \\c.&80,000 & 150,000 \\d.&50,000 & 300,000\end{array}$

Lori, a calendar year individual taxpayer, files her 2018 return on February 10, 2020. She had obtained a six-month extension for filing her return. There was additional income tax of $30,000 due with the return. a. What are Lori's penalties for failure to file and to pay? a. change if Lori, before the due date of the return, had retained a CPA to prepare the return and it was the CPA's negligence that caused the delay? b. Would your answer to

Kevin uses two sets of books. He reports only one-half of his cash sales on the records that he uses to complete her Federal income tax return. The statute of limitations for Kevin's return is six years.

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. -Negligence.

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.

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 need be used. -Failure to deposit withholding tax.

If the taxpayer shows for an underpayment of tax, the failure to pay penalty can be reduced or eliminated.

The chief executive of the IRS is the _________________________.

The tax law requires that all paid tax preparers:

Chung's AGI last year was $180,000. Her Federal income tax came to $45,000, which she paid through a combination of withholding and estimated payments. This year, her AGI will be $250,000 with a projected tax liability of $60,000, all to be paid through estimates. Ignore the annualized income method. Compute Chung's quarterly estimated payment schedule for this year.

Concerning the penalty for civil tax fraud:

Attorneys are allowed an attorney-client privilege of confidentiality with clients. Does a CPA tax preparer enjoy the same privilege? If so, on which types of tax and financial work?