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Exam 2: Tax Compliance, the Irs, and Tax Authorities

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Question 41

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Houston has found conflicting authorities that address a research question for one of his clients. The majority of the authorities provide a favorable answer for his client. Nonetheless, there are several authorities that provide an unfavorable answer. Houston estimates that if the client takes the more favorable position on its tax return there is approximately a 60 percent chance that the position will be sustained upon audit or judicial proceeding. If the client takes this position on its tax return, will Houston be subject to penalty? Will the client potentially be subject to penalty?

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A tax preparer (Houston)may recommend an...

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Question 42

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Mel recently received a 30-day letter from the IRS. Although his tax return being audited has several potential large issues (potential tax consequences of $70,000 − $80,000), the IRS agent auditing his return only identified one item that will require a modest adjustment of $10,000. Mel feels strongly that the $10,000 adjustment would not hold up in court and was surprised that the IRS agent did not identify some of the other potential larger issues. What are Mel's choices with respect to the 30-day letter and what factors should influence his decisions?

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The "30-day letter" instructs the taxpay...

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Question 43

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Andy filed a fraudulent 2019 tax return on May 1, 2020. The statute of limitations for IRS assessment on Andy's 2019 tax return should end:

If April 15^th falls on a Saturday, the due date for individual tax returns will be on Monday, April 17^th (assuming it is not a holiday).

Which of the following is a false statement? A taxpayer filing a fraudulent tax return:

Under the tax law, taxpayers may be subject to both civil and criminal penalties for underpaying their tax liability (e.g., due to fraud).

If a taxpayer is due a refund, she does not have to file a tax return.

For the following taxpayers indicate whether the taxpayer should file a tax return and why. a. Robert earned $50,000 this year as a staff accountant. His estimated tax liability is $4,500, and he expects to receive a $500 tax refund. b. Amy earned $4,000 this year working part-time. She will have no federal tax liability and has not made any federal tax payments. c. Ty earned $2,500 this summer and had $200 of federal taxes withheld from his paycheck. He will have no federal tax liability this year. d. Startup Corporation had a $50,000 loss this year. e. The Walker Family Trust earned $500 of gross income this year.

Which of the following has the highest authoritative weight?

Ramon's tax return was randomly selected for audit. Which IRS program likely selected Ramon's return for audit?

According to Statements on Standards for Tax Services No. 1, a tax practitioner can recommend a tax return position:

Josephine is considering taking a six-month rotation in Paris for her job. Which type of authority may be especially helpful in determining the tax consequences of Josephine's job in Paris?

Dominic earned $1,500 this year, and his employer withheld $200 of federal income tax from his salary. Assuming that Dominic is single, 30 years old, and will have zero tax liability this year, he:

Campbell was researching a tax issue and found a favorable tax court opinion and an IRC Code Section that appear to answer the question. Is she finished with the research process? If so, why? If not, what must she do?

Jeremy has a new client. He has identified a research question that relates to a transaction that the client completed several months ago. This type of research question will primarily involve:

For the following taxpayers, please recommend the most advantageous trial - level court(s)to litigate a tax issue with the IRS. a. Joe is litigating a tax issue with the IRS that is considered a question of fact (i.e., the answers depend on the facts of the case). There is not a lot of authority on point for this case, but Joe has a very appealing story to justify his position that is likely to be viewed sympathetically by his peers. b. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is very favorable to the issue that Jesse plans to litigate with the IRS. c. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is not favorable to the issue that Hank plans to litigate with the IRS. d. The 7^th Circuit (where Elizabeth resides)recently issued an opinion that is very favorable to the issue that Elizabeth plans to litigate with the IRS.

Which of the following is not a common tool used in conducting tax research?

Caitlin is a tax manager for an accounting firm, and Duff is a first-year staff accountant. Describe the differences in the manner in which Caitlin and Duff may identify research issues and in general how one may identify research questions.

Office examinations are the most common type of IRS audit.

A taxpayer can avoid a substantial understatement of tax penalty: