Question 1

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 2

​The interest rate for tax underpayments of individuals is 4%.In addition:

Accepted Answer

The answer of ​The interest rate for tax underpayments of...

Question 3

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

The statement is true. By setting a culture of integrity and ethical practices, the tax professional can reduce the risk of staff personnel incurring penalties for improper conduct during tax preparation.

Question 4

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 Ned's estimate of $7,500 as the property tax deduction for this year without verification. The CPA must obtain supporting evidence, such as the tax bill or receipt, to substantiate the deduction. Simply relying on Ned's estimate would not be sufficient.

Question 5

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...

Question 6

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

Accepted Answer

It is generally recommended that an IRS audit be conducted at the office of the tax advisor rather than at the client's location. This helps the tax advisor to be better prepared and to control the flow of information during the audit. It also helps to maintain the confidentiality of the client's financial information.

Question 7

​Mehta's Form 1040 is under an IRS audit.The chances that the auditor will propose a change in Mehta's income tax liability is:

Accepted Answer

The IRS audit process often results in proposed changes to tax liability, with a high likelihood of more than 85 percent based on historical audit outcomes.

Question 8

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 9

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 10

​This official does not report directly to the IRS Commissioner.

Accepted Answer

The Treasury Secretary is the head of the Department of the Treasury, which the IRS is a part of. However, the other choices - National Taxpayer Advocate, Director of the Whistleblower Office, and Chief Appeals Officer - all report directly to the IRS Commissioner.

Question 11

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

Accepted Answer

The IRS does not publish the specific factors its computers use for audit selection purposes annually in the Commissioner's Report. The IRS does publish general audit selection guidelines, but they are not specific enough to be used as an exhaustive list of factors that would trigger an audit.

Question 12

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 review and verify the accuracy of the client's information, it may not always be possible to verify each item to the exact penny. The CPA should exercise professional judgement and use reasonable methods to ensure the accuracy of the return.

Question 13

The Commissioner of the IRS is appointed by the:

Accepted Answer

The Commissioner of the IRS is appointed by the U.S. President.

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

The accuracy-related penalty for negligence applies when the taxpayer fails to exercise reasonable care or prudence in determining the correct tax liability. Statements A, C, and D reflect the rules governing this penalty, but statement B is incorrect. The penalty does not apply simply because the taxpayer takes a position contrary to a court decision; it only applies if the position is not supported by substantial authority or adequate disclosure.

Question 16

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 17

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, she may have capital gains or losses that need to be reported on her tax return. Faye needs to know this information in order to accurately prepare Judith's return.

Question 18

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 19

​The National Taxpayer Advocate reports to:

Accepted Answer

The answer of ​The National Taxpayer Advocate reports to:
...

Question 20

​An individual might be incarcerated upon a conviction for:

Accepted Answer

Incarceration is a possible penalty for committing criminal tax fraud, which involves willfully and intentionally evading or underpaying taxes. Choices A and B may result in civil penalties and fines, but not imprisonment. Choice D may result in civil penalties and the seizure of assets, but not incarceration.

Quiz 26: Tax Practice and Ethics