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Exam 17: Tax Practice and Ethics

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Question 61

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The Four Square Services Corporation estimates that its 2015 taxable income will be $1,000,000. Thus, it is subject to a flat 34% income tax rate and incurs a $340,000 liability. For each of the following independent cases, compute Four Square's minimum quarterly estimated tax payments that will avoid an underpayment penalty. a. For 2014, taxable income was ($200,000), resulting in a zero income tax liability. Four Square carried back all of this loss to prior years. b. For 2014, taxable income was $800,000, and tax liability was $272,000. c. For 2013, taxable income was $2 million, and tax liability was $680,000. For 2014, taxable income was $100,000, and tax liability was $22,250.

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Question 62

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The accuracy-related penalties typically relate to on the part of the taxpayer, or other understatements of tax.

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Question 63

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Mickey, a calendar year taxpayer, was not required to file a Federal income tax return last year because his AGI was negative due to business losses. For this tax year, his AGI is $120,000 and his tax liability is $10,000. To avoid a penalty for tax underpayments for the current year, Mickey must make aggregate estimated tax payments of at least:

Circular 230 requires that the tax practitioner use the "best practices" of the tax profession in carrying out a tax engagement. Specify what some of these best practices entail.

Some taxpayers must make quarterly estimated payments of their income tax. Describe the structure of these requirements. In your answer, include both corporate and non-corporate taxpayers.

The Treasury document regulating the professional conduct of tax return preparers is the Regulation known as _________________________.

Comment on the AICPA's Statements on Standards for Tax Services. To whom do the standards apply? Are they binding or merely advisory?

In the case of bad debts and worthless securities, the statute of limitations on claims for refund is three years.

A(n) must obtain a Preparer Tax Identification Number (PTIN).

Which of the following is subject to tax return preparer penalties?

The tax preparer penalty for taking an unreasonable tax return position is the greater of $ or of the tax professional's income from preparing the return.

Jenny prepared Steve's income tax returns for no compensation for 2011 and 2012. Jenny is Steve's mother. In 2014, the IRS notifies Steve that it will audit his returns for 2010-2012. Jenny cannot represent Steve during the audit of the returns, as she is not a "registered tax return preparer."

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.

IRS computers use document matching programs for both individuals and business taxpayers to keep the audit rate low.

An IRS "office audit" takes place at the headquarters office of the corporate taxpayer.

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 Federal income tax rate of 35%.

The IRS is a subsidiary agency of the Department of the .

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. a. Taxpayer penalty b. Tax preparer penalty c. Appraiser's penalty -Aiding in preparing an improper tax return.

Freddie has been assessed a preparer penalty for willful and reckless conduct. When he completed Peggy's Federal income tax return (she is in the 33% tax bracket) , Freddie purposely omitted $100,000 of cash receipts that should have been reported as gross income. Freddie charged Peggy $4,000 to prepare the return. What is Freddie's preparer penalty?

About % of all Forms 1040 are audited each year. The rate is about ____________________% for large corporations.