Question 1

Compute the overvaluation penalty for each of the following independent cases involving the taxpayer's reporting of the fair market value of charitable contribution property.In each case,assume a marginal income tax rate of 35%.

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Question 2

If a taxpayer is audited by the IRS and is unwilling to accept the findings of the agent,how does the taxpayer's audit strategy change when the dispute is taken to the IRS Appeals Division? Hint: What are the "hazards of litigation?"

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Question 3

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 estate tax rate of 45%.

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Question 4

When a tax dispute is resolved,interest is paid by or to the government.List three or more features of the interest computations that arise when a tax return is audited.

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Question 5

Clara underpaid her taxes by $50,000.Of this amount,$15,000 was due to negligence on her part,as her record-keeping system is highly inadequate.Determine the amount of any negligence penalty

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Question 6

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.

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Question 7

Loren Ltd.,a calendar year taxpayer,had the following transactions,all of which were properly reported on a timely filed return.Presuming the absence of fraud,how much of an omission from gross income must occur for Loren before the six-year statute of limitations applies? Show your computations.

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Question 8

Congress has set very high goals as to the number of Forms 1040 that should be filed electronically.Summarize the benefits of e-filing,from the perspective of both the taxpayer and the government.

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Question 9

The IRS periodically updates its list of "audit initiatives," the areas of tax enforcement that will receive special attention during the current tax year.List five or more of the current IRS audit initiatives.

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Question 10

A tax professional needs to know how the IRS is structured and how it works to carry out its mission.Evaluate this statement.

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Question 11

The Treasury issues "private letter rulings" and other determinations,usually in response to a taxpayer request.What is the purpose of the rulings program? Answer from both the taxpayer and the government points of view.

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Question 12

Leo underpaid his taxes by $250,000.Portions of the underpayment were attributable to negligence ($90,000)and to civil fraud ($160,000).Compute the total penalties incurred.

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Question 13

Troy Center Ltd.withheld from its employees' paychecks $200,000 in Federal income and Social Security taxes for the Monday,June 30 payroll.It then spent the $200,000 on equipment upgrades,missing altogether the August 2 due date for the tax remittances.How much does Troy now owe the government in taxes and penalties? Ignore interest accruals,and assume that the Treasury can prove that Troy's redirecting of the tax withholdings was willful.

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Question 14

Certain individuals are more likely than others to have the Form 1040 audited by the IRS.List at least five factors that may increase above the national norms one's chances of audit.

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Question 15

Describe the following written determinations that are issued by the IRS.

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Question 16

Carrie's AGI last year was $180,000.Her Federal income tax came to $60,000,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 $80,000,all to be paid through estimates.Ignore the annualized income method.Compute Carrie's quarterly estimated payment schedule for this year.
Current-Year Method

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Question 17

Yin-Li is the preparer of the Form 1120 for Cloves Corporation.On the return,Cloves claimed a deduction that the IRS later disallowed on audit.Compute the tax preparer penalty that could be assessed against Yin-Li in each of the following independent situations.

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Question 18

In connection with the taxpayer penalty for substantial understatement of tax liability,what defenses (if any)are available?

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Question 19

Arnold made a charitable contribution of property that he valued at $70,000.He deducted this amount as an itemized deduction on his tax return.The IRS can show that the actual value of the property is $50,000.Arnold is in the 35% income tax bracket.Determine Arnold's amount due for both tax and any penalty.

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Question 20

Bettie,a calendar year individual taxpayer,files her 2009 return on February 10,2011.She had obtained a six-month extension for filing her return.There was additional income tax of $20,000 due with the return.

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Quiz 26: Tax Practice and Ethics