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Exam 26: Tax Practice and Ethics

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Question 31

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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:

A) The tax reduction attributable to the disputed deduction did not exceed $5,000.
B) There was a reasonable basis for Joan's interpretation of the travel deduction rules.
C) There was substantial authority for Joan's interpretation of the travel deduction rules.
D) The IRS found that the travel deduction was frivolous, but Joan disclosed the position in an attachment to the return.

E) All of the above
F) A) and B)

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Question 32

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A CPA can take a tax return position for a client that is contrary to current IRS interpretations of the law.

A) True
B) False

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Question 33

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Circular 230 allows a tax preparer to:

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

The IRS can waive the penalty for understating a tax liability if the taxpayer shows ____________________ for the position taken on the tax return.

Evaluate this statement: a taxpayer is liable not only for tax penalties as described in the tax Code and Regulations. Sanctions elsewhere in Federal law, such as in the criminal code, also apply in a tax dispute.

A tax professional needs to know how the IRS is structured and how it works to carry out its mission. Evaluate this statement.

Minnie, a calendar year taxpayer, filed a return correctly showing a zero Federal income tax liability for 2011, because her Form 1040 showed various deductions and credits.During 2012, Minnie's AGI is $120,000 and her tax liability is $20,000.To avoid a penalty for 2012, Minnie must make aggregate estimated tax payments of at least:

The AICPA's Statements on Standards for Tax Services must be followed by its members; they are more than merely advisory.

Yin-Li is the preparer of the Form 1120 for Cloves Corporation.On the return, Cloves claimed a deduction that the IRS later disallowed on audit.Compute the tax preparer penalty that could be assessed against Yin-Li in each of the following independent situations.

A negligence penalty is assessed when the taxpayer is found to have not made a reasonable attempt to apply with the tax law.

Vera is audited by the IRS for three tax years.Her returns were prepared by the following parties, to each of whom Vera paid a professional fee. Vera wants help in appearing before the IRS Revenue Agent for the audit. Which of the following statements is correct?

Circular 230 prohibits a tax preparer from charging an unconscionable fee for his/her services.

Minnie, your tax client, has decided to dispute the Revenue Agent's Report.List and discuss at least four of your "next steps" as you prepare to represent Minnie concerning her tax issue within the IRS and in the courts.

Roger prepared for compensation a Federal income tax return for Mona.Mona'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:

During an audit, IRS personnel might request a(n) ____________________ from the IRS National Office, to clarify the application of tax law concerning a tax deduction.

Leo underpaid his taxes by $250,000.Portions of the underpayment were attributable to negligence ($90,000) and to civil fraud ($160,000).Compute the total penalties incurred.

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?

According to AICPA rules, the CPA cannot take an aggressive tax return position on the basis of the "audit ____________________."

A ____________________% penalty may result when a taxpayer overstates by 150% or more the value of an asset contributed to a charity. or