Comp SM_Ch26 - CHAPTER 26 TAX ADMINISTRATION AND PRACTICE...

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CHAPTER 26 TAX ADMINISTRATION AND PRACTICE SOLUTIONS TO PROBLEM MATERIALS Status: Q/P Question/ Present in Prior Problem Topic Edition Edition 1 Rates of audit Unchanged 1 2 Issue ID Unchanged 3 3 IRS initiatives New 4 Precedential value of letter ruling Unchanged 4 5 Burden of proof Unchanged 5 6 Assessment, lien, seizure New 7 Audit cycles Unchanged 6 8 Types of audit New 9 Audit strategy Unchanged 7 10 Closing agreement New 11 IRS payment of interest Unchanged 8 12 Taxpayer penalties and interest Unchanged 9 13 Tax administration and practice: terminology Unchanged 10 14 Penalty for false information with respect to Unchanged 11 withholding 15 Statutes of limitations Unchanged 12 16 Practice before the IRS Unchanged 13 17 Circular 230 New 18 Preparer penalties New 19 Ethical restrictions on tax practitioners Unchanged 14 20 Computation of penalties Unchanged 15 21 Failure to file and pay penalties; overall limitation; Unchanged 16 reasonable cause due to reliance on CPA 22 Fraud and negligence penalties imposed Unchanged 18 23 Failure to file and pay penalties Unchanged 19 24 Overvaluation penalty Unchanged 20 26-1
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26-2 2005 Comprehensive Volume/Solutions Manual
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Tax Administration and Practice 26-3 Status: Q/P Question/ Present in Prior Problem Topic Edition Edition 25 Undervaluation penalty Unchanged 21 26 Civil fraud Unchanged 24 27 Determining estimated payments: individual Unchanged 25 28 Determining estimated payments: corporation Unchanged 26 29 Penalty for failure to remit withholding deposits Unchanged 27 30 Statutes of limitations Unchanged 28 31 Statute of limitations; gross income omission Unchanged 29 32 Refund claim compliance Unchanged 30 33 Statute of limitations; refund claim Unchanged 31 34 Circular 230; representation before the IRS Unchanged 32 35 Preparer penalties Unchanged 33 36 Preparer penalties Unchanged 34 37 AICPA Statements on Standards for Tax Services Unchanged 35 Research Problem 1 Jeopardy assessment Unchanged 2 Taxpayer privacy New 3 Internet activity Unchanged
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26-4 2005 Comprehensive Volume/Solutions Manual CHECK FIGURES 20. 21.a. 22. 23.b. 24.d. 24.e. 24.f. 25.b. 25.c. 25.d. 26. 27. Failure to file penalty $1,080. $280 failure to pay penalty. $18,000 penalty for negligence. $1,785. $0 penalty due. $24,500. $105,000. $0 penalty due. $17,000. $90,000. $7,500 fraud, $18,000 negligence. $13,750 each. 28.a. 28.b. 30.a. 30.b. 30.c. 31.a. 31.c. 32.a. 35.d. 35.e. 36.c. $42,500 each. $25,500 each. None. Seven years. Six years. $258,000. No statute of limitations. $12,000. $250 penalty for no realistic possibility. Probably none. $30,000.
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Tax Administration and Practice 26-5 DISCUSSION QUESTIONS 1. Less than 0.5% of all individual tax returns are audited in a given tax year. However, certain types of both taxpayers and income—including, for instance, high-income individuals (about 3%), cash-oriented businesses, real estate transactions, and estate- and gift-taxable transfers (15 to 30%)—are subject to much higher probabilities of audit.
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