Chapter 26 Tax Practice And Ethics

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Discussion Questions
1. LO.1 As a tax professional with a diverse group of clients and tax issues, why is it important that you understand how the IRS is organized and how its personnel are selected?
2. LO.1 Your tax client Chen asks whether it is likely that her Form 1040 will be audited this year. You suspect that Chen might modify the information she reports on her return based on your answer. Address Chen’s question, and provide her with a justification to comply fully with the tax law’s reporting requirements.
3. LO.1 Recently, a politician was interviewed about fiscal policy, and she mentioned reducing the “tax gap.” Explain what this term means. What are some of the pertinent political and economic issues relative to the tax gap?
4. LO.1 Review Exhibit 26.1, and identify the following.
a. The title of the IRS’s chief executive officer.
b. The title of the “IRS’s attorney.”
c. The names of the four major operating divisions of the IRS.
d. The placement in the IRS organization of the Appeals and Criminal Investigation functions.
5. LO.3 During an interview with an IRS official on Dateline, the interviewer asks, “So how do you decide which Forms 1040 get audited and which do not?” How should the IRS official respond, taking into account that only some of the audit selection process is public information?
6. LO.3 On June 10, Ming states, “I filed my Form 1040 on April 5 and haven’t heard from the IRS since then, so I know Iwill not be audited!” EvaluateMing’s assumption.
7. LO.3 You overhear Matheus say, “I am so glad to be divorced from my cheating wife Larissa. She keeps two sets of books in her design business, and I wish the IRS would find out about it.” Is Matheus a candidate for the informant award program that is operated by the IRS? Explain how the program works and how an award might be paid to Matheus.
8. LO.6 Which of the valuation penalties is likely to arise when an aggressive taxpayer reports:
a. A charitable contribution?
b. A business deduction?
c. A decedent’s taxable estate?
9. LO.4, 5 Indicate whether each of the following statements is true or false.
a. The government never pays a taxpayer interest on an overpayment of tax.
b. The IRS can compromise on the amount of tax liability if there is doubt as to the taxpayer’s ability to pay.
c. The IRS is required to accept Colin’s application for an installment plan that delays the payment of her $6,000 outstanding tax liability.
d. The offer in compromise program attempts to allow upper-income taxpayers additional time in which to pay delinquent tax amounts.
10. LO.4, 6 In each of the following cases, distinguish between the terms.
a. Offer in compromise and closing agreement.
b. Failure to file and failure to pay.
c. 90-day letter and 30-day letter.
d. Negligence and fraud.
e. Criminal and civil tax fraud.
11. LO.7 Discuss the concept of statutes of limitations in the context of the Federal income tax law.
a. Who benefits when the statute applies—the government, the taxpayer, both?
b. What happens when the statute is scheduled to expire within two weeks but the IRS audit will not be completed by then?
12. LO.8 Give the Circular 230 position concerning each of the following situations sometimes encountered in the tax profession.
a. Taking an aggressive pro-taxpayer position on a tax return.
b. Not having a quality review process for a return completed by a partner of the tax firm.
c. Purposely delaying compliance with a document request received from the IRS.
d. Not keeping up with changes in the tax law.
e. Charging $1,500 to complete a Form 1040–EZ.
f. When representing a taxpayer in a Federal income tax audit, charging a fee equal to one-third of the reduction of the tax proposed by the IRS agent.
g. Representing both the husband and wife when negotiating tax matters pertinent to their divorce.
h. Advertising on the Web for new tax clients and including Se habla espa~nol in the text of the ads.
13. LO.8 Indicate whether each of the following parties could be subject to the tax preparer penalties.
a. Tom prepared Sally’s return for $250.
b. Theresa prepared her grandmother’s return for no charge.
c. Georgia prepared her church’s return for $500 (she would have charged an unrelated party $3,000 for the same work).
d. Geoff prepared returns for low-income taxpayers under his college’s VITA program.
e. Hildy prepared the return of her corporate employer.
f. Heejeo, an administrative assistant for an accounting firm, processed a client’s return through TurboTax.
14. LO.8 Using PowerPoint slides, list at least three of the Statements on Standards for
Tax Services that apply to CPAs. For each standard you choose, provide a short explanation of its content.