Question 1

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

Accepted Answer

All of the statements listed are accurate and reflect the rules governing the accuracy-related penalty for negligence.

Question 2

George,a calendar year taxpayer subject to a 40% marginal gift tax rate,made a gift of a sculpture to Redd,valuing the property at $100,000.The IRS later valued the gift at $140,000.The applicable undervaluation penalty is:

Accepted Answer

Additional tax exceeds $5,000,but the reported valuation is not 65% or less than the correct valuation.

Question 3

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

Accepted Answer

The procedure for determining the rate of interest (option a.)is set forth in § 6621(b).The semiannual rule (option d.)was formerly the case,but quarterly changes and daily compounding are now used.

Question 4

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

Accepted Answer

$245,000 (additional tax)F1F1F1S1F1F1F10 40% (penalty rate for gross overvaluation)= $98,000 penalty.

Question 5

Which statement appearing below does not correctly describe the IRS letter ruling process?

Accepted Answer

Letter rulings are open to public inspection after identifying details and certain confidential information have been deleted.Such rulings are reprinted and published by the commerical tax services,available in full text by subscription.

Question 6

Ron,a calendar year taxpayer subject to a 35% marginal tax rate,claimed a charitable contribution deduction of $500,000 for a sculpture that the IRS later valued at $150,000.The applicable overvaluation penalty is:

Accepted Answer

$122,500 (additional tax)F1F1F1S1F1F1F10 40% (penalty rate for gross overvaluation)= $49,000.

Question 7

The Commissioner of the IRS is appointed by the:

Accepted Answer

The Commissioner of the IRS is appointed by the U.S. President, as stated in the Internal Revenue Code.

Question 8

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

Accepted Answer

The IRS does not disclose its audit selection techniques,p.16-7.As to option a.,p.16-9.As to option b.,Example 7.As to option c.,p.16-8.

Question 9

Last year,Ned's property tax deduction on his residence was $12,500.Although he lives in the same house,he tells his CPA that this year's taxes will be only $7,500.The CPA can use this estimate in computing Ned's itemized deductions,under the Statements of Standards for Tax Services.

Accepted Answer

Estimates are allowed under the Standards,but only if they are reasonable under the circumstances.

Question 10

Harold,a calendar year taxpayer subject to a 35% marginal tax rate,claimed a charitable contribution deduction of $18,000 for a sculpture that the IRS later valued at $10,000.The applicable overvaluation penalty is:

Accepted Answer

Additional tax ($2,800)is less than the $5,000 required to assess the penalty.

Question 11

Max (a calendar year taxpayer)donates a painting to a local art museum (a qualified charity).The painting cost Max $12,000 ten years ago and,according to one of Max's friends (an amateur artist),is worth $50,000.On his income tax return,Max deducts $50,000 as a charitable contribution.Upon later audit by the IRS,it is determined that the true value of the painting was $20,000.Assuming that Max is subject to a 35% marginal income tax rate,his penalty for overvaluation is:

Accepted Answer

Max's penalty for overvaluation is $4,200 [40% (penalty tax due to gross overvaluation)F1F1F1S1F1F1F10 $10,500 (the additional tax for using $50,000,not $20,000)].

Question 12

Leroy,who is subject to a 40% marginal gift tax rate,made a gift of a sculpture to Marvin,valuing the property at $150,000.The IRS later valued the gift at $400,000.The applicable undervaluation penalty is:

Accepted Answer

$100,000 additional tax F1F1F1S1F1F1F10 40% penalty rate for gross undervaluation.

Question 13

When a practitioner discovers an error in a client's prior return,AICPA tax ethics rules require that an amended return immediately be filed.

Accepted Answer

The CPA should advise the client (not the IRS)of the error.

Question 14

The penalty for substantial understatement of tax liability does not apply if:

Accepted Answer

The answer of The penalty for substantial understatement of tax...

Question 15

Maureen,a calendar year taxpayer subject to a 35% marginal tax rate,claimed a charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $200,000.The applicable overvaluation penalty is:

Accepted Answer

Reported valuation is not at least 150% of correct value.

Question 16

Most practitioners encourage their clients to attend an IRS office audit.

Accepted Answer

The possibility that the client will make unsolicited,damaging comments should deter most practitioners from making such an invitation.

Question 17

A taxpayer should conduct a cost-benefit analysis before taking a tax dispute to court.

Accepted Answer

Conducting a cost-benefit analysis helps the taxpayer determine if the potential legal costs and time spent in court outweigh the potential tax savings or benefits.

Question 18

With respect to the audit process,which statement is correct?

Accepted Answer

Factual issues should be settled with the Revenue Agent.

Question 19

With respect to the Small Cases Division of the Tax Court,

Accepted Answer

The Small Cases Division of the Tax Court is designed for cases involving smaller amounts of money, and its decisions are final and cannot be appealed by either the taxpayer or the IRS. This is to provide a more streamlined and cost-effective process for resolving such cases.

Question 20

Henrietta has hired Gracie,a CPA,to complete this year's Form 1040.Henrietta uses software to keep the books for her business.She tells Gracie that a $5,000 amount for business supplies is "close enough" to constitute the deduction.Gracie can use this estimate in completing the Form 1040.

Accepted Answer

Estimates are allowed under the Standards,but only if it is impracticable to obtain the precise data.Gracie should have Henrietta produce the information from the software.

Quiz 16: Tax Practice and Ethics