Question 1

Lisa,a calendar year taxpayer subject to a 33% marginal Federal income tax rate,claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $160,000.The applicable overvaluation penalty is:

Accepted Answer

The answer of Lisa,a calendar year taxpayer subject to a...

Question 2

Which statement is incorrect as to the conduct of IRS income tax audits?

Accepted Answer

The IRS does not publish the factors its computers use for audit selection purposes annually in the Commissioner's Report. While the IRS does use a computerized selection process to generate potential audit candidates, the specific factors used are not publicly disclosed.

Question 3

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?

Accepted Answer

The answer of Which of the following statements correctly reflects...

Question 4

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 5

In preparing a tax return,a CPA should verify "to the penny" every item of information submitted by a client about its deduction for repairs and maintenance.

Accepted Answer

While a CPA should verify the accuracy of information provided by a client, it is not necessary to verify every item "to the penny." The CPA should exercise professional judgment and use reasonable procedures to ensure the deductions are accurate and supported by documentation.

Question 6

The Commissioner of the IRS is appointed by the:

Accepted Answer

The Commissioner of the IRS is appointed by the U.S. President, reflecting the position's high level of responsibility within the federal government's executive branch.

Question 7

CPA Liam discovers that last year's Form 1120 for his client PollCo claimed a $100,000 advertising deduction for a gift to candidates of the Green Party.AICPA tax ethics rules require that an amended return immediately be filed,as political expenditures are not deductible.

Accepted Answer

The answer of CPA Liam discovers that last year's Form...

Question 8

Juarez (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity).The painting cost Juarez $2,000 ten years ago and,according to one of Juarez's friends (an amateur artist),now is worth $40,000.On his income tax return,Juarez 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 Juarez is subject to a 25% marginal Federal income tax rate,his penalty for overvaluation is:

Accepted Answer

The answer of Juarez (a calendar year taxpayer) donates a...

Question 9

The tax professional can reduce the chances that staff personnel will incur IRS preparer penalties by adopting a "tone at the top" that stresses integrity,diligence,and other elements of an ethical tax practice.

Accepted Answer

By setting a tone at the top that emphasizes ethical behavior and compliance with tax laws, the tax professional can reduce the likelihood that staff personnel will engage in actions that could result in IRS preparer penalties.

Question 10

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

Accepted Answer

Decisions made by the Small Cases Division of the Tax Court are final and cannot be appealed by either the IRS or the taxpayer. This is designed to provide a quicker, less formal resolution process for smaller tax disputes.

Question 11

Last year,Ned's property tax deduction on his residence was $22,500.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

The CPA cannot use an estimate provided by the client if it is significantly different from the previous year's deduction without further investigation or substantiation. In this case, the $15,000 decrease in property tax deduction would likely require further explanation or verification before being used in computing Ned's itemized deductions.

Question 12

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.

Accepted Answer

Gracie, as a CPA, is required to ensure that all information on tax forms is accurate and verifiable. Estimations like "close enough" do not meet the standards of due diligence required for tax reporting.

Question 13

Malik,Inc. ,a calendar year C corporation subject to a 35% marginal income tax rate,claimed a Form 1120 charitable contribution deduction of $30,000 for a sculpture that the IRS later valued at $10,000.The applicable overvaluation penalty is:

Accepted Answer

The answer of Malik,Inc. ,a calendar year C corporation subject...

Question 14

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

Accepted Answer

The answer of CPA Shearer is required by AICPA tax...

Question 15

Which of the following statements does not reflect the rules governing the accuracy-related penalty for negligence?

Accepted Answer

The statement that the penalty applies whenever the taxpayer takes a return position that is contrary to a court decision is incorrect. The accuracy-related penalty for negligence applies when the taxpayer fails to exercise reasonable care in the preparation of a tax return or when the taxpayer fails to keep adequate records.

Question 16

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

Accepted Answer

The answer of Which statement does not correctly describe the...

Question 17

It typically is advisable that an IRS audit be conducted at the office of the tax advisor,and not of the client.

Accepted Answer

Conducting the IRS audit at the tax advisor's office can help maintain the confidentiality of the client's information and also ensure that the tax advisor is present to provide any necessary support or clarification during the audit.

Question 18

Michelle,a calendar year taxpayer subject to a 25% marginal Federal income tax rate,claimed a Form 1040 charitable contribution deduction of $275,000 for a sculpture that the IRS later valued at $200,000.The applicable overvaluation penalty is:

Accepted Answer

The answer of Michelle,a calendar year taxpayer subject to a...

Question 19

Faye,a CPA,is preparing Judith's tax return.Last year,Judith's return included dividend income from the P&G Company.This year,Judith reports no such income.Faye should inquire as to whether Judith sold the P&G stock during the year.

Accepted Answer

If Judith sold the P&G stock during the year, she may have to report capital gain or loss on her tax return. This information is important for Faye to know in order to accurately prepare Judith's tax return.

Question 20

Which statement is correct as to the conduct of IRS income tax audits?

Accepted Answer

The answer of Which statement is correct as to the...

Quiz 26: Tax Practice and Ethics