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:

Accepted Answer

A

Question 2

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

Accepted Answer

All of the statements provided are correct descriptions of the IRS letter ruling process.

Question 3

Which of the following statements properly characterizes letter rulings?

Accepted Answer

A) Letter rulings are different from determination letters as they provide guidance to a specific taxpayer on a proposed or completed transaction.
B) Letter rulings can be relied upon only by the taxpayer who requested them as they are specific to the facts and circumstances of that taxpayer's situation.
C) Letter rulings are issued by the National Office of the IRS, specifically the Office of the Associate Chief Counsel (Income Tax and Accounting) or its delegate.
D) Letter rulings can be issued in regard to proposed or completed transactions, as long as they involve a significant legal or factual issue.

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:

Accepted Answer

The overvaluation penalty is 20% of the underpayment of tax attributable to the overvaluation. The overvaluation amount is $400,000 ($600,000 - $200,000). The tax underpayment is $144,000 ($400,000 x 36%). The penalty is 20% of $144,000, which is $28,800.

Question 5

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

Accepted Answer

All the statements provided are correct regarding the audit process.

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:

Accepted Answer

The answer of Kate, who is subject to a 50%...

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:

Accepted Answer

Since Charles had no tax liability in the previous year (2008), he is not required to make estimated tax payments for 2009 to avoid a penalty, as long as he pays the full amount by the due date.

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?

Accepted Answer

For noncorporate taxpayers, the rate of interest for assessments (tax deficiency) is the same as the rate of interest for refunds. The rate is determined by the Secretary of the Treasury and is adjusted quarterly. The IRS must use the daily compounded interest method for calculating interest.

Question 9

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

Accepted Answer

The answer of Which of the following statements, if any,...

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:

Accepted Answer

The applicable undervaluation penalty is $18,000. The penalty is 20% of the difference between the value of the gift as determined by the IRS and the value of the gift as reported by the taxpayer. In this case, the difference is $350,000 - $150,000 = $200,000. The penalty is therefore 20% of $200,000 = $18,000.

Quiz 16: Tax Practice and Ethics