Answer the questionsQuestion 5When is a tax return position with a reasonable basis level of confidence unlikely to result in a penalty?A)There was a valid business purpose for the transaction related to the position.b)The position was disclosed on either Form 8275 or Form 8275-R.c)The taxpayer performed inadequate due diligence before taking the position.d)Since there was a reasonable basis, no penalty could have been asserted.Question 2A position with a reasonable basis has which one of the following characteristics?a)It will never result in taxpayer penalty.b)It is genuine, more than merely arguable and is not merely a colorable claim.c)Authorities supporting the position are substantial in relation to the weight of the authoritiessupporting contrary treatment.d)It is approximately a one-in-three likelihood of being sustained.Question 3Of the following options, which authority is the most persuasive when determining a tax position’s level of confidence?a)Treasury Regulationsb)Revenue Rulingsc)Legislative Historyd)Private Letter Rulings for another taxpayerQuestion 6Assuming an understatement did not relate to a reportable transaction, which of the following would prevent the imposition of the substantial understatement penalty?a)There was substantial weight from the authorities supporting the tax treatment.b)The taxpayer believed with greater than 33% certainty that the tax treatment was correct.c)The taxpayer adequately disclosed the position on Form 8275-R.d)The position is reasonable and well-informed.Question 7A taxpayer was assessed a penalty by the IRS, but is able to show that it made every attempt to get to the correct answer and was prudent in his/her calculations. For which penalty would that be a complete defense?a)The economic substance penalty – § 6662(b)6)b)The negligence penalty – § 6662(b)(1)c)The reportable transaction understatement penalty – § 6662Ad)The substantial understatement penalty – § 6662(b)(2)Question 8Which of the following is a true statement about both the IRC $ 6662A and § 6662(b) understatement penalties?a)The § 6662 (b) substantial understatement penalty is a greater penalty.b)It is easier to establish a reasonable cause defense to the § 6662A penalty.c)The two sections cannot be used to penalize the same position twice.d)Both were created by Congress in 2004 to fight tax abuse.Question 9A client wants to take a very large deduction for artwork that she donated to charity. The deduction offsets significant income generated by a new business venture. This client has not made a charitable deduction in the past five years. What should you do?a)Nothing. You are not obligated to audit the client’s records.b)Confirm the client that this is true because this is sufficient investigation.c)Request and review the required documentation supporting the valuation of the artwork and receipt by the charity.d)Reduce the amount claimed to avoid IRS scrutiny.Question 10Your client has a very successful local business that does not require any overnight travel. One of the keys to your client’s success has been to maintain relationships by regularly taking his clients out to lunch, even his smaller clients. As permitted by current law, he would like to deduct 50% of these meal expenses on this year’s tax return. He saved every receipt and even documented on each receipt which client(s) attended the lunch. The amounts in question are reasonable and consistent with prior year. What should you do?a)Visit some of the restaurants to make sure the receipts are real.b)Scan the receipts for reasonableness and recalculate the amount of the deduction.c)Call the lunch attendees to make sure they really attended the lunch.d)Check the names on the receipts against the sales register to make sure the lunch attendees are legitimate clients.Question 11You are assisting a client with a transaction that produces a most favorable tax result. The client told you the outcome is dependent on one court case. What should you do?a)Nothing. Your due diligence obligations allow you to rely in good faith on information furnished to you by the client; you are permitted to rely on the client’s judgment.b)Check with the client’s auditor to ensure the numbers are valid; then you can recalculate intended tax benefits.c)Help the client by getting a head start on the tax return presentation of the transaction; the better the presentation, the less likely it will be audited by the IRS.d)Analyze the case to make sure the holding has not been reversed, the client’s facts are similar to those described in the case, and the law cited in the case is still valid.Question 12Which of the following best describes the IRC $ 165 reportable loss transaction thresholds applicable to corporations?a)Single year loss of $50,000b)Single year loss of $2 million and a cumulative loss of $4 million.c)Single year loss of $4 million and a cumulative loss of $20 million.d)Single year loss of $10 million and a cumulative loss of $20 million.Question 13Which of the following best describes the IRC $165 reportable loss transaction thresholds applicable to individuals?a)Single year loss of $50,000.b)Single year loss of $2 million and a cumulative loss of $4 million.c)Single year loss of $4 million and a cumulative loss of $20 million.d)Single year loss of $10 million and a cumulative loss of $20 million.Question 14If the IRS makes a material advisor list maintenance request, how long does the material advisor have to respond?a)20 calendar daysb)20 business daysc)30 business daysd)30 calendar daysQuestion 15What is the penalty for not responding timely to an IRS list maintenance request?a)$10,000 per calendar day late penaltyb)$10,000 per business day late penaltyc)$50.000d)$250.000Question 4Which of the following penalties is most likely going to apply to a taxpayer with a nondisclosed position with only a reasonable basis?a)The economic substance penalty – § 6662(b)(6)b)The negligence penalty – § 6662(b)(1)c)The failure to file penalty – § 6707Ad)The substantial understatement penalty – § 6662(b)(2)Comments from CustomerDiscipline: Audit
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