Law question data bank

1994. Question
MC #1
The Chief Counsel of the IRS is appointed by the:

a.
Secretary of the Treasury Department.
b. U. S. Senate.
c. U. S. House of Representatives.
d. U. S. President.
e. American Bar Association President.

1995. Question
MC #2
Which statement appearing below does not
correctly describe the IRS letter ruling process?

a.
They are issued by the Secretary of the Treasury Department.
b. Some letter rulings are of such
importance and general interest that they are later published (in anonymous
form) as Revenue Rulings.
c. Letter rulings are private and can be
seen only by the taxpayer who requested the ruling.
d. Letter rulings can benefit both
taxpayers and the IRS.

1996. Question
MC #3
Which of the following statements is incorrect
as to the conduct of IRS income tax audits?

a.
Only the Appeals Division of the IRS has the authority to settle tax disputes
based on the hazards of litigation.
b. The IRS publishes the factors its
computers use for audit selection purposes annually in the Commissioner’s Report.
c. For a Form 1040 that is filed on
April 11, 2012, if the taxpayer has not received an audit notification from the
IRS by the end of 2012, the return may still be audited.
d. Most IRS examinations of Forms 1040
are conducted solely through the mail.

1997. Question
MC #4
Which of the following statements is correct
as to the conduct of IRS income tax audits?

a.
Office audits are conducted at the office of the IRS.
b. The most common type of Federal
income tax audit is the field audit.
c. An office audit typically is used for
a business taxpayer.
d. A correspondence audit usually is
concluded after a meeting with the taxpayer at the IRS auditor’s office.

1998. Question
MC #5
With respect to the Small Cases Division of the Tax Court,

a.
The taxpayer (but not the IRS) can appeal a contrary judgment.
b. The IRS (but not the taxpayer) can
appeal a contrary judgment.
c. Either the IRS or the taxpayer can
appeal a contrary judgment.
d. Neither the IRS nor the taxpayer can
appeal a contrary judgment.

1999. Question
MC #6
Which of the following statements correctly reflects the rules governing interest
to be paid on an individual’s Federal tax deficiency or claim for refund?

a.
The IRS has full discretion in determining the rate that will apply.
b. The simple interest method for
calculating interest is used.
c. The rate of interest for assessments
is one percentage point lower than the rate of interest for refunds.
d. The IRS adjusts the rate of interest
quarterly.

2000. Question
MC #7
Which of the following statements does
not reflect the rules governing the accuracy-related penalty for
negligence?

a.
The penalty rate is 20%.
b. The penalty is imposed only on the
part of the deficiency attributable to negligence.
c. The penalty applies only to
intentional tax understatements by the taxpayer.
d. The penalty is waived if the taxpayer
uses Form 8275 to disclose a return position that is reasonable though contrary
to the IRS position.

2001. Question
MC #8
The penalty for substantial understatement of tax liability does not apply if:

a.
The taxpayer has substantial authority for the treatment taken on the tax
return.
b. The relevant facts affecting the
treatment are adequately disclosed in the return or on Form 8275.
c. The IRS failed to meet its burden of
proof in showing the taxpayer’s error.
d. All of the above statements are
correct.
e. None of the above statements are
correct.

2002. Question
MC #9
Ming (a calendar year taxpayer) donates a painting to a local art museum (a
qualified charity). The painting cost Ming $2,000 ten years ago and, according
to one of Ming’s friends (an amateur artist), is worth $40,000. On his income
tax return, Ming deducts $40,000 as a Form 1040 charitable contribution. Upon
later audit by the IRS, it is determined that the true value of the painting
was $30,000. Assuming that Ming is subject to a 30% marginal Federal income tax
rate, his penalty for overvaluation is:

a.
$5,000.
b. $2,000.
c. $1,000.
d. $0.
e. $10,000 (minimum penalty).

2003. Question
MC #10
Harold, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a
Form 1040 charitable contribution deduction of $20,000 for a sculpture that the
IRS later valued at $10,000. The applicable overvaluation penalty is:

a.
$10,000.
b. $7,000.
c. $3,500.
d. $0.

2004. Question
MC #11
Maureen, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a
Form 1040 charitable contribution deduction of $250,000 for a sculpture that
the IRS later valued at $200,000. The applicable overvaluation penalty is:

a.
$17,500.
b. $14,000.
c. $3,500.
d. $0.

2005. Question
MC #12
Ron, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a
Form 1040 charitable contribution deduction of $250,000 for a sculpture that
the IRS later valued at $150,000. The applicable overvaluation penalty is:

a.
$0.
b. $7,000.
c. $10,000 (maximum penalty).
d. $14,000.

2006. Question
MC #13
Gloria, a calendar year taxpayer subject to a 35% marginal income tax rate,
claimed a Form 1040 charitable contribution deduction of $800,000 for a
sculpture that the IRS later valued at $100,000. The applicable overvaluation
penalty is:

a.
$245,000.
b. $98,000.
c. $49,000.
d. $10,000 (maximum penalty).

2007. Question
MC #14
George, a calendar year taxpayer subject to a 45% marginal gift tax rate, made
a gift of a sculpture to Redd, valuing the property at $100,000. The IRS later
valued the gift at $140,000. The applicable undervaluation penalty is:

a.
$7,200.
b. $3,600.
c. $1,000 (minimum penalty).
d. $0.

2008. Question
MC #15
Leroy, who is subject to a 45% marginal gift tax rate, made a gift of a
sculpture to Marvin, valuing the property at $150,000. The IRS later valued the
gift at $400,000. The applicable undervaluation penalty is:

a.
$0.
b. $22,500.
c. $25,000 (maximum penalty).
d. $45,000.

2009. Question
MC #16
Juanita, who is subject to a 45% marginal gift tax rate, made a gift of a
sculpture to Bianca, valuing the property at $150,000. The IRS later valued the
gift at $300,000. The applicable undervaluation penalty is:

a.
$27,000.
b. $13,500.
c. $10,000 (maximum penalty).
d. $0.

2010. Question
MC #17
The special tax penalty imposed on appraisers:

a.
Is waived if the taxpayer also was charged with his/her own valuation penalty.
b. Applies if the appraiser knew that
the appraisal would be used in preparing a Federal income tax return.
c. Equals 10% of the appraised value of
the property, with a $5,000 minimum penalty.
d. Can be as much as 200% of the appraisal
fee that was charged.

2011. Question
MC #18
Concerning the penalty for civil tax fraud:

a.
Fraudulent behavior is more than mere negligence on the part of the taxpayer.
b. The burden of proof to establish the
penalty is on the government.
c. The penalty is 100% of the
underpayment.
d. Fraud is defined in Code §§ 6663(b)
and (f).

2012. Question
MC #19
Concerning a taxpayer’s requirement to make quarterly estimated tax payments:

a.
An individual must make estimated payments if his or her balance due for the
Federal income tax for the year will exceed $1,000.
b. The due dates of the payments for a
calendar-year C corporation are March, June, September, and December 15.
c. A C corporation must make estimated
payments if its Federal income tax liability for the year will exceed $250.
d. A trust is not required to make
estimated payments.

2013. Question
MC #20
Mickey, a calendar year taxpayer, was not required to file a 2010 Federal
income tax return. During 2011, his AGI is $120,000 and his tax liability is
$20,000. To avoid a penalty for tax underpayments for 2011, Mickey must make
aggregate estimated tax payments of at least:

a.
$0.
b. $1,000 (minimum amount).
c. $18,000.
d. $20,000.

2014. Question
MC #21
Mickey, a calendar year taxpayer, filed a return correctly showing no Federal
income tax liability for 2010. During 2011, his AGI is $120,000 and his tax
liability is $20,000. To avoid a penalty for 2011, Mickey must make aggregate
estimated tax payments of at least:

a.
$0.
b. $1,000 (minimum amount).
c. $18,000.
d. $20,000.

2015. Question
MC #22
The usual three-year statute of limitations on additional tax assessments
applies in the following situation(s).

a.
No return at all is filed.
b. An investment in a marketable
security is worthless.
c. Taxpayer inadvertently omits an
amount of gross income equal to 30% of the gross income stated on the return.
d. Taxpayer discovers an inadvertent
overstatement of deductions equal to 30% of gross income.

2016. Question
MC #23
Jake, an individual calendar year taxpayer, incurred the following
transactions.

Gross receipts

$800,000

Less: Cost of sales

(300,000)

Net business income

$500,000

Capital gain

$30,000

Capital loss

(90,000)

(60,000)

Total income

$440,000

Assuming that any error in timely reporting these amounts was inadvertent, how
much omission from gross income would be required before the six-year statute
of limitations would apply?

a.
More than $110,000.
b. More than $132,500.
c. More than $207,500.
d. The six-year rule does not apply
here.

2017. Question
MC #24
Vera is audited by the IRS for several tax years. Her returns were prepared by
the following parties.

Tax
Year

Preparer

1

Sally (Vera’s niece, a dentist)

2

Wesley (pastor of Vera’s church)

3

Alex (a CPA)

Which of the following statements is correct?

a.
Sally may represent Vera for tax year 1. Such representation may extend through
the Appeals Division of the IRS.
b. Wesley may represent Vera for all tax
years under audit.
c. Alex can only represent Vera for tax
year 3.
d. Vera may represent herself for all
tax years involved.

2018. Question
MC #25
The rules of Circular 230 need not be
followed by which of the following paid tax preparers?

a.
A CPA.
b. A Wal-Mart cashier who e-files 15 tax
returns for her paying clients per filing season.
c. An enrolled agent.
d. All of the above are subject to the
Circular 230 rules.

2019. Question
MC #26
Circular 230 allows a tax preparer to:

a.
Take a position on a tax return that is contrary to a decision of the U.S.
Supreme Court.
b. Operate the “Tax Nerd’s Blog” on the
Internet.
c. Charge a $5,000 fee to prepare a Form
1040EZ.
d. Avoid signing a tax return that is
likely to be audited.

2020. Question
MC #27
A tax preparer is in violation of Circular 230 if he or she:

a.
Files a tax return that includes a math error.
b. Charges a fee to prepare an original
Form 1120 equal to one-third of the taxpayer’s refund due.
c. Fails to inform the IRS of an error
on the client’s prior-year return.
d. All of the above are Circular 230
violations.

2021. Question
MC #28
Which of the following is subject to tax return preparer penalties?

a.
Lizzie, the firm’s administrative assistant, makes copies of returns and
assembles the mailings that the client must make to the taxing agencies.
b. Meredith is the director of Federal
taxes for a C corporation.
c. Sammy is a volunteer who prepares
returns at the retirement home under the IRS Tax Counseling for the Elderly
program.
d. Abbie prepares her mother’s tax
returns for $50 a year. A CPA, Abbie would charge a client $750 for completing
a similar return.

2022. Question
MC #29
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:

a.
The tax reduction attributable to the disputed deduction did not exceed $5,000.
b. There was a reasonable basis for
Joan’s interpretation of the travel deduction rules.
c. There was substantial authority for
Joan’s interpretation of the travel deduction rules.
d. The IRS found that the travel
deduction was frivolous, but Joan disclosed the position in an attachment to
the return.

2023. Question
MC #30
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:

a.
The tax reduction attributable to the disputed deduction did not exceed $5,000.
b. Mona is assessed her own penalty for
an understatement of tax due to disregard of IRS rules.
c. There was a reasonable basis for
Mona’s interpretation of the travel deduction rules, and Mona disclosed the
position in an attachment to the return.
d. The IRS found that the travel
deduction was frivolous, but Mona disclosed the position in an attachment to
the return.

2024. Question
MC #31
Freddie has been assessed a preparer penalty for willful and reckless conduct.
When he completed Peggy’s Federal income tax return (who is in the 35% tax
bracket), Freddie purposely omitted $100,000 of cash receipts that should have
been reported as gross income. Freddie charged Peggy $6,000 to prepare the
return. What is Freddie’s preparer penalty?

a.
$0, because Peggy incurred her own understatement penalty for the return.
b. $3,000.
c. $5,000.
d. $17,500.

2025. Question
MC #32
The privilege of confidentiality applies to a CPA tax preparer concerning the
client’s information relative to:

a.
Financial accounting tax accrual workpapers.
b. A tax research memo used to determine
an amount reported on the tax return.
c. Building a defense against a penalty
assessed for the use of a tax shelter.
d. Building a defense against a charge
brought by the SEC.

2026. Question
MC #33
The Statements on Standards for Tax Services are issued by the:

a.
IRS.
b. AICPA.
c. ABA.
d. SEC.