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Exam 17: Tax Practice and Ethics

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Question 61

True/False

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When a tax issue is taken to court, the burden of proof is on the taxpayer to show that the items reported on the return are correct.

A) True
B) False

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Question 62

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Gloria, a calendar year taxpayer subject to a 35% marginal income tax rate, claimed a Form 1040 charitable contribution deduction of $800,000 for a sculpture that the IRS later valued at $100,000. The applicable overvaluation penalty is:

A) $245,000.
B) $98,000.
C) $49,000.
D) $10,000 (maximum penalty) .

E) A) and B)
F) None of the above

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Question 63

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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.

The "IRS' attorney" is known as the Chief Counsel.

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.

Ming (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity) . The painting cost Ming $2,000 ten years ago and, according to one of Ming's friends (an amateur artist) , is worth $40,000. On his income tax return, Ming deducts $40,000 as a Form 1040 charitable contribution. Upon later audit by the IRS, it is determined that the true value of the painting was $30,000. Assuming that Ming is subject to a 30% marginal Federal income tax rate, his penalty for overvaluation is:

The rules of Circular 230 need not be followed by which of the following paid tax preparers?

CPA Jennifer has heard about the AICPA's Statements on Standards for Tax Services. Although Jennifer is a licensed CPA in her state, she is not a member of the AICPA. How do the Statements affect Jennifer's tax practice?

A CPA, an attorney, and a(n) ____________________ can represent taxpayers before the IRS.

If the auditor comes to the taxpayer's office to review a tax return, the review is called a(n) ____________________ audit.

In the context of civil tax fraud, the burden of proof is on the IRS to show by a "preponderance of the evidence" that the taxpayer had a specific intent to evade a tax.

Compute the failure to pay and failure to file penalties for John, who filed his 2010 income tax return on December 14, 2011, paying the $10,000 amount due. On April 1, 2011, John submitted a six-month extension of time in which to file his return; he paid no tax with the extension request. He has no reasonable cause for failing to file his return by October 15 or for failing to pay the tax that was due on April 15, 2011. John's failure to comply with the tax laws was not fraudulent.

One of the four operating divisions of the IRS deals exclusively with manufacturing and exporting businesses.

Concerning the penalty for civil tax fraud:

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

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?

Compute the overvaluation penalty for each of the following independent cases involving the taxpayer's reporting of the fair market value of charitable contribution property. In each case, assume a marginal income tax rate of 35%.

Isaiah filed his Federal income tax return on time, but he did not remit the full balance due. Compute Isaiah's failure to pay penalty in each of the following cases. The IRS has not yet issued a deficiency notice.

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

When the IRS issues a notice of tax due, the taxpayer has 30 days to either pay the tax or file a petition with the Tax Court. This is conveyed in the "thirty-day letter."