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Exam 26: Tax Practice and Ethics

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Question 31

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Lisa,a calendar year taxpayer subject to a 33% marginal Federal income tax rate,claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $160,000.The applicable overvaluation penalty is:

A) $0.
B) $6,000.
C) $10,000 (maximum penalty) .
D) $12,000.

E) A) and B)
F) A) and C)

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Question 32

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The taxpayer can avoid a valuation penalty for overstating the value of the charitable contribution of an artwork by showing that the deduction claimed was based on a qualified ____________________.

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Question 33

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Jake,an individual calendar year taxpayer,incurred the following transactions. Gross receipts $800,000 Less: Cost of sales (300,000) Net business income $500,000 Capital gain $30,000 Capital loss (90,000) (60,000) Total income $440,000 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?

Which statement is correct as to the conduct of IRS income tax audits?

What are the chief responsibilities of the IRS Commissioner,and of the Chief Counsel of the IRS?

Because he undervalued property that he transferred by gift,Dan owes additional gift taxes of $4,000.The penalty for undervaluation does not apply in this situation,because the tax understatement was too small.

After the completion of an audit,the taxpayer has 90 days to petition the ____________________ Court to modify the proposed tax due.

The IRS can pay an informant's fee of up to ____________________% of the recovered tax,interest,and penalty amounts.The reward can be as high as ____________________% for information provided by a "whistle blower."

The taxpayer or a tax advisor may be subject to penalties if there is a misstatement of the valuation of an item reported on the tax return.Describe how these penalties work.

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.

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.

When a tax dispute is resolved,interest is paid by or to the government.How are IRS interest amounts determined? To which tax amounts do they apply?

The IRS is one of the largest Federal agencies,employing about ____________________ people throughout the year.

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

The IRS employs about 90,000 personnel,making it one of the largest Federal agencies.

The government can appeal a decision of the Tax Court Small Cases Division,but the taxpayer cannot.

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. a.Ignorance of the tax law b.Reasonable basis c.Reasonable cause d.Complexity of the tax law e.Substantial authority f.Disclosure on return -Failure to deposit withholding tax.

Maria did not pay her Federal income tax on time.When she eventually filed the return,she reported a balance due.Compute Maria's failure to file penalty in each of the following cases.Disregard any failure to pay penalty. a.Three months late,$500 additional tax due. b.Four months late,$2,000 additional tax due. c.Ten months late,$10,000 additional tax due. d.Four months late due to fraud by Maria,$10,000 additional tax due. e.Fifteen months late due to fraud by Maria,$10,000 additional tax due.

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.

A penalty can be assessed from an appraiser who knew that his/her 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.