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Exam 26: Tax Practice and Ethics

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Question 91

Multiple Choice

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The privilege of confidentiality applies to a CPA tax preparer concerning the client's information relative to:

A) Financial accounting tax accrual workpapers.
B) A tax research memo used to support a tax planning idea.
C) Building a defense against a penalty assessed for the use of a tax shelter.
D) Building a defense against a charge brought by the SEC.

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

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Question 92

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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.

A) True
B) False

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Question 93

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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. a. Taxpayer penalty b. Tax preparer penalty c. Appraiser's penalty -Failure to pay a tax.

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

With respect to tax misconduct, a ________________ penalty usually involves only a fine, and a________________ penalty also can include jail time.

Carole, a CPA, feels that she cannot act as an aggressive advocate for tax clients in today's environment. What aspects of the ethical conduct of a tax practice might have influenced Carole's attitude?

A taxpayer penalty may be waived if there is shown to be reasonable cause for the misstatement on the tax return. The courts have applied this standard strictly. List three or more assertions for a waiver of a taxpayer penalty that courts have found not to constitute reasonable cause. Example: Ignorance of the tax law.

Maria and Miguel Blanco are in the midst of negotiating a divorce. Because both parties are unwilling to share any current financial information, their joint Form 1040 for 2018 is not filed until October 31, 2019, when the respective divorce attorneys forced them to cooperate. The Blancos should not be subject to any Federal late-filing penalties, because the reasonable cause exception applies to their family discord.

The Four Square Services Corporation estimates that its 2019 taxable income will be $1,000,000. Thus, it incurs a $210,000 liability. For the following independent cases, compute Four Square's minimum quarterly estimated tax payments that will avoid an underpayment penalty. a. For 2018, taxable income was $800,000, and tax liability was $168,000. b. For 2017, taxable income was $2 million, and tax liability was $680,000. For 2018, taxableincome was $100,000, and tax liability was $21,000.

The taxpayer must pay a significant fee to have a letter ruling issued by the IRS.

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. 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 -Substantial understatement of tax liability.

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%.

For purposes of tax penalties, a VITA volunteer is not classified as a tax return ________________ .

A(n) ________________$ penalty applies if the tax preparer does not sign the client's tax return.

Yang, a calendar year taxpayer, did not file a tax return for 2010 because she honestly believed that no additional tax was due. In 2018, Yang is audited by the IRS and the agent assesses a deficiency of $17,000 for 2010. Yang need not pay this deficiency, since the three-year statute of limitations expired on April 15, 2014, meaning that the IRS no longer can adjust Yang's tax for the 2010 tax year.

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

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

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.

The Statements on Standards for Tax Services are issued by the:

Ling has hired CPA Gracie to complete this year's Form 1040. Ling uses online accounting software to keep the books for her interior design sole proprietorship. Ling tells Gracie that a $5,000 amount for business supplies is "close enough" to report for this year's deduction. Gracie can use this estimate in completing the Form 1040.