Deck 16: Tax Practice and Ethics

Question 1

Terrell, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a charitable contribution deduction in 2009 of $15,000 for a sculpture that the IRS later valued at $8,000.The applicable overvaluation penalty is:

A)$0.
B)$100 (minimum penalty).
C)$420.
D)$2,100.
E)None of the above.

Answer 1

A

Question 2

Which statement appearing below correctly describes the IRS letter ruling process?

A)In certain situations, the IRS will not issue a ruling.
B)Some letter rulings are of such importance and general interest that they are later published (in anonymous form) as Revenue Rulings.
C)Letter rulings benefit both taxpayers and the IRS.
D)Letter rulings are open to public inspection after removing identifying information.
E)All of the above are correct.

Answer 2

E

Question 3

Which of the following statements properly characterizes letter rulings?

A)They are different from determination letters.
B)They can be relied upon only by the taxpayer who requested it.
C)They are issued by the National Office of the IRS.
D)They are issued in regard to proposed transactions.
E)All of the above.

Answer 3

E

Question 4

Brandon, a calendar year taxpayer subject to a 36% marginal tax rate, claimed a charitable contribution deduction in 2009 of $600,000 for a sculpture that the IRS later valued at $200,000.The applicable overvaluation penalty is:

A)$144,000.
B)$57,600.
C)$28,800.
D)$5,000 (maximum penalty).
E)None of the above.

Question 5

With respect to the audit process which, if any, of the following statements is incorrect?

A)Upon advance request, a taxpayer must be allowed to make an audio recording during the audit conference.
B)Only the Appeals Division of the IRS has the authority to settle tax disputes based on the hazards of litigation.
C)The issuance of a Revenue Agents Report (RAR) is usually not necessary when mathematical errors on a tax return understate a taxpayer's tax liability.
D)The IRS does not publish the factors it uses for audit selection purposes annually in the Commissioner's Report.
E)None of the above is incorrect.

Question 6

Kate, who is subject to a 50% marginal gift tax rate in 2009, made a gift of a sculpture to Jillian, valuing the property at $150,000.The IRS later valued the gift at $900,000.The applicable undervaluation penalty is:

A)$10,000 (maximum penalty).
B)$75,000.
C)$150,000.
D)$375,000.
E)None of the above.

Question 7

Charles, a calendar year taxpayer, filed a return correctly showing no income tax liability for 2008.During 2009, his AGI is $120,000 and his income tax liability was $30,000.To avoid a penalty for 2009, Charles must make aggregate estimated tax payments of at least:

A)$30,000.
B)$27,000.
C)$1,000 (minimum estimate).
D)$0.
E)None of the above.

Question 8

Which of the following statements correctly reflects the rules governing interest on an individual's Federal tax deficiency and a claim for refund?

A)The IRS has full discretion in determining the rate that will apply.
B)The simple interest method for calculating interest is used.
C)For noncorporate taxpayers, the rate of interest for assessments is the same as the rate of interest for refunds.
D)The IRS must adjust the rate of interest annually.
E)None of the above is correct.

Question 9

Which of the following statements, if any, do not reflect the rules governing the negligence accuracy-related penalty?

A)The penalty rate is 20%.
B)The penalty is imposed only on the part of the deficiency attributable to negligence.
C)The penalty applies to all Federal taxes, except when fraud is involved.
D)The penalty is waived if the taxpayer uses Form 8275 to disclose a return position that is reasonable though contrary to the IRS position.
E)None of the above is incorrect.

Question 10

Gwyneth, who is subject to a 45% marginal gift tax rate, made a gift in 2009 of a sculpture to Jonathon, valuing the property at $150,000.The IRS later valued the gift at $350,000.The applicable undervaluation penalty is:

A)$0.
B)$5,000 (maximum penalty).
C)$18,000.
D)$36,000.
E)None of the above.