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1 Able Ann Reddy, CPA, prepared Smith's tax return last year and appropriately signed the preparer's declaration.

1 Able Ann Reddy, CPA, prepared Smith's tax return last year and appropriately signed
the preparer's declaration. Several months later, Able learned that Smith improperly
altered several figures before mailing the return to the IRS. Able should communicate
her disapproval of this action to Smith and
A. Take no further action with respect to the tax return, but consider the implications of
Smith's action on any further professional relationship with him and take steps to
assure the action is not repeated
B. Inform the IRS of the unauthorized tax return
C. File an amended tax return without the client's permission
D. Refund any fee that she collected from Smith, return all relevant documents, and
refuse any further professional association with Smith
2 The North American Free Trade Agreement (a treaty between the U.S., Canada and
New Mexico) describes in part the tax treatment of dividends received by citizens of the
three countries from corporations located in each of the three countries. This is
A. Primary authority
B. Secondary authority
3 In Adams v. Comm., 170 F.3d 173 (CA-3, 1999), the Third Circuit Court of Appeals
held that a devout Quaker who is opposed to war cannot withhold payment of income
taxes on the basis of religious conscience, and the government is not obligated to use
her taxes solely for non-military purposes or otherwise accommodate her religious
beliefs. This is
A. Primary authority
B. Secondary authority7
4 To encourage voluntary compliance, the tax law has created a number of penalties
referred to as "accuracy related" penalties. These penalties include those for
negligence, substantial understatement of tax and substantial misstatement of value.
Which of the following statements is true regarding these penalties?
A. The price for each of these penalties is 20% of the portion of the tax underpayment
attributable to the infraction.
B. If a position is erroneous, the substantial understatement penalty can be avoided
only if there is substantial authority for the position taken or if there is reasonable
C. The negligence penalty can be avoided as long as the position taken is not frivolous.
D. If a taxpayer misstates the value of an item on the tax return by as little as $100, the
substantial valuation misstatement penalty can apply.
5 Pete Hartman operates an accounting practice and Jim Anderson is one of his
longtime clients. Last year the IRS audited Jim’s tax return, disallowing some business
expenses and some personal deductions, and Jim ultimately had to pay additional taxes
as well as interest on that amount. Jim now wants to deduct part of the interest as a
business expense, reasoning that because business expenses are deductible and the
interest was directly attributable to back taxes on business income, an interest
deduction should be allowed. Jim has asked Pete about the downside risk of taking this
position on his return. After some research, Pete believes that the position is somewhat
risky. Pete estimates that taking the deduction for the interest will reduce Jim’s $30,000
tax liability by about $1,000. What is the maximum penalty that Jim might pay if the
deduction is considered erroneous but not fraudulent?
A. $6,000
B. $4,000
C. $500
D. $200
E. None of the above
6 Although taxes are an integral part of the U.S. economy, taxpayers who cheat on
their tax returns are subject only to monetary penalties.
7 Individual Taxation, 2012 Edition, William N. Kulsrud and James W. Pratt, Editors,
(Cengage Publishing, 2012) is
A. Primary Authority
B. Secondary Authority8
8 “The Final Regulations Under Section 403(b): Complicated and Comprehensive,” an
article appearing in a tax journal, The Journal of Taxation, by Stanley D. Baum, counsel
to the law firm of Dechert LLP, is
A. Primary Authority
B. Secondary Authority
9 Section 262 of the Internal Revenue Code is
A. Primary Authority
B. Secondary Authority
10 Rev. Proc. 2007-70, 2007-50 IRB 1162, provides that the business standard
mileage rate for 2008 is 50.5 cents per mile. The rate for charitable mileage remains at
14 cents per mile, and the rate for moving and medical expenses is 19 cents per mile.
This is
A. Primary Authority
B. Secondary Authorit

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