Question1947. TF #1 The tax professional can do more than just tax compliance work. He

1947. TF #1
The tax professional can do more than just tax compliance work. He or she can work with the client in consultation over the strategy and tactics of dealing with a Federal tax audit.

a. True
b. False

1948. TF #2
The IRS employs almost 90,000 personnel, making it one of the largest Federal agencies.

a. True
b. False

1949. TF #3
Recently, the overall Federal income tax audit rate for individual returns has been about 3%.

a. True
b. False

1950. TF #4
The IRS targets high-income individuals for an audit rate that is about double that of the general populace.

a. True
b. False

1951. TF #5
IRS computers use document matching programs for both individuals and business taxpayers to keep the audit rate low.

a. True
b. False

1952. TF #6
The “IRS’ attorney” is known as the Chief Counsel.

a. True
b. False

1953. TF #7
One of the four operating divisions of the IRS deals exclusively with manufacturing and exporting businesses.

a. True
b. False

1954. TF #8
In a letter ruling, the IRS responds to a taxpayer request concerning the tax treatment of a proposed transaction.

a. True
b. False

1955. TF #9
An IRS letter ruling might determine that an employee’s compensation is unreasonable in amount.

a. True
b. False

1956. TF #10
A letter ruling is issued by the IRS at no charge.

a. True
b. False

1957. TF #11
The IRS can require that the taxpayer produce its financial accounting records, to determine if taxable income is computed correctly.

a. True
b. False

1958. TF #12
When a tax issue is taken to court, the burden of proof is on the taxpayer to show that the items reported on the return are correct.

a. True
b. False

1959. TF #13
When the IRS issues a notice of tax due, the taxpayer has 30 days to either pay the tax or file a petition with the Tax Court. This is conveyed in the “thirty-day letter.”

a. True
b. False

1960. TF #14
An “office audit” takes place at the headquarters office of the corporate taxpayer.

a. True
b. False

1961. TF #15
After a tax audit, the taxpayer receives the Revenue Agent’s Report as part of the “90-day letter.”

a. True
b. False

1962. TF #16
Neither the taxpayer nor the government can appeal a decision of the Tax Court Small Cases Division.

a. True
b. False

1963. TF #17
Babs filed an amended return in 2011, claiming a refund relative to her 2009 tax computation. When the IRS approves the amended return, it will pay Babs interest with respect to the overpayment.

a. True
b. False

1964. TF #18
During any month in which both the failure-to-file and failure-to-pay penalties apply, both penalties must be paid in full.

a. True
b. False

1965. TF #19
Maria and Miguel Blanco are in the midst of negotiating a divorce. Because both parties are unwilling to share any current financial information, their joint Form 1040 for 2011 is not filed until October 31, 2012, when the respective divorce attorneys forced them to cooperate. The Blancos should not be subject to any Federal late-filing penalties, because of the reasonable cause exception.

a. True
b. False

1966. TF #20
A negligence penalty is 20% of the underpayment attributable to negligence.

a. True
b. False

1967. TF #21
Jaime’s negligence penalty will be waived, under the reasonable cause exception. He told the court, “My taxes were wrong because I couldn’t understand the tax law.”

a. True
b. False

1968. TF #22
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

1969. TF #23
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.

a. True
b. False

1970. TF #24
In a criminal fraud case, the burden is on the taxpayer to show that he or she was innocent “beyond the shadow of any reasonable doubt.”

a. True
b. False

1971. TF #25
Yang, a calendar year taxpayer, did not file a tax return for 2005 because she honestly believed that no additional tax was due. In 2011, Yang is audited by the IRS and the agent assesses a deficiency of $17,000 for tax year 2005. Yang need not pay this deficiency, since the statute of limitations expired on April 15, 2009.

a. True
b. False

1972. TF #26
Keepert uses “two sets of books.” She only reports one-half of her cash sales on the records that she uses to complete her Federal income tax return. The statute of limitations for Keepert’s return is six years.

a. True
b. False

1973. TF #27
In the case of bad debts and worthless securities, the statute of limitations on claims for refund is seven years.

a. True
b. False

1974. TF #28
Jenny prepared Steve’s income tax returns for no compensation for 2008 and 2009. Jenny is Steve’s mother. In 2011, the IRS notifies Steve that it will audit his returns for 2007-2009. If Steve so desires, Jenny may represent him during the audit of all three returns.

a. True
b. False

1975. TF #29
Circular 230 applies to all tax practitioners. This includes attorneys, CPAs, and enrolled agents, even though each of the groups has its own code of conduct.

a. True
b. False

1976. TF #30
Circular 230 requires that a tax preparer be aware of changes in the tax law. Furthermore, office practices of the preparer must be up to industry standards.

a. True
b. False

1977. TF #31
Under Circular 230, Burke cannot complete a client’s original Form 1040 and charge a fee equal to one-third of the resulting refund.

a. True
b. False

1978. TF #32
As part of a tax return engagement for XYZ Partnership, Enrolled Agent Wang can draft an amendment to the XYZ partnership agreement.

a. True
b. False

1979. TF #33
Circular 230 prohibits a tax preparer from charging an unconscionable fee for his/her services.

a. True
b. False

1980. TF #34
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.

a. True
b. False

1981. TF #35
A VITA volunteer is exempted from the Code’s tax preparer penalties.

a. True
b. False

1982. TF #36
Latrelle prepares the tax return for Whitehall Corporation. Latrelle includes a $5,000 deduction on the return. This type of deduction previously has been disallowed by the Tax Court, although there is a 15% chance that the holding will be reversed on an appeal. The return does not make any special disclosure that the deduction is being claimed. Whitehall paid Latrelle a fee of $3,000 for preparing the Form 1120. Latrelle will be assessed a preparer penalty of $1,000 for taking an unreasonable position on the Whitehall return.

a. True
b. False

1983. TF #37
A CPA and his/her client hold a privilege of confidentiality from the IRS, as to their discussions about completing a tax return.

a. True
b. False

1984. TF #38
The Statements on Standards for Tax Services apply to members of the AICPA.

a. True
b. False

1985. TF #39
The AICPA’s Statements on Standards for Tax Services must be followed its members; they are more than merely advisory.

a. True
b. False

1986. TF #40
A CPA can take a tax return position for a client that is contrary to current IRS interpretations of the law.

a. True
b. False

1987. TF #41
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

1988. TF #42
In preparing a tax return, a CPA should verify “to the penny” every item of information submitted by a client.

a. True
b. False

1989. TF #43
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.

a. True
b. False

1990. TF #44
Henrietta has hired Gracie, a CPA, to complete this year’s Form 1040. Henrietta uses software to keep the books for her business. She tells Gracie that a $5,000 amount for business supplies is “close enough” to constitute the deduction. Gracie can use this estimate in completing the Form 1040.

a. True
b. False

1991. TF #45
When a practitioner discovers an error in a client’s prior return, AICPA tax ethics rules require that an amended return immediately be filed.

a. True
b. False

1992. TF #46
It is advisable that an IRS audit be conducted at the office of the tax advisor, and not of the client.

a. True
b. False

1993. TF #47
When a “prompt assessment” of the tax liability is requested, the taxpayer essentially is volunteering fo

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