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Exam 26: Tax Practice and Ethics

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Question 71

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Faye,a CPA,is preparing Judith's tax return.Before computing Judith's deduction for business supplies,Faye must examine Judith's records in support of the deducted amount.

A) True
B) False

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Question 72

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Because he undervalued property that he transferred by gift,Dan owes additional gift taxes of $8,000.The penalty for undervaluation does not apply in this situation,because the tax understatement was too small.

A) True
B) False

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Question 73

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The IRS targets high-income individuals for an audit rate that is about double that of the general populace.

Megan prepared for compensation a Federal income tax return for Joan.Joan's return included an aggressive interpretation of the rules concerning overnight business travel.Megan is not liable for a preparer penalty for taking an unreasonable tax return position if:

In the context of civil tax fraud,the burden of proof is on the IRS to show by a "preponderance of the evidence" that the taxpayer had a specific intent to evade a tax.

If the auditor comes to the taxpayer's office to review a tax return,the review is called a(n)____________________ audit.

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

The IRS can require that the taxpayer produce its financial accounting records,to determine if taxable income is computed correctly.

Carole,a CPA,feels that she cannot act as an aggressive advocate for tax clients in today's environment.What aspects of the ethical conduct of a tax practice might have influenced Carole's attitude?

Margaurite did not pay her Federal income tax on time.When she eventually filed the return,she reported a balance due.Compute Margaurite's failure to file penalty in each of the following cases.

The client has decided to dispute the Revenue Agent's Report.What is the tax advisor's next step?

A tax preparer cannot disclose to a mortgage banker the client's income level,or other information acquired by preparing the return,without the client's permission.

Vera is audited by the IRS for several tax years.Her returns were prepared by the following parties. Which of the following statements is correct?

Recently,the overall Federal income tax audit rate for individual returns has been about 3%.

A C corporation is not subject to an underpayment penalty until more than $____________________ is due and unpaid through estimated taxes. or

About ____________________% of all Forms 1040 are audited each year.The rate is about ____________________% if income exceeds $1 million. or

After the completion of an audit,the taxpayer has ____________________ days to petition the Tax Court to modify the proposed tax due. or

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

Roger prepared for compensation a Federal income tax return for Mona.Mona's return included an aggressive interpretation of the rules concerning overnight business travel.Roger is not liable for a preparer penalty for taking an unreasonable tax return position if:

To file for a tax refund,an individual generally uses Form ____________________.