Deck 9

Question 1

General statute of limitations

Answer 1

3 years

Question 2

25 percent understatement of gross income (statute of limitations)

Answer 2

6 years

Question 3

Statute of limitations on refunds:

Answer 3

The later of: (1) three years later from the date the return was filed or the original due date of the return; or (2) two years from the time tax was paid

Question 4

Statute of limitations on bad debts

Answer 4

Bad luck = 7 years

Question 5

Taxpayer is required to make estimated quarterly tax payments if both of the following conditions are met:

Answer 5

1) $1,000 or more in tax liability

2) Inadequate tax estimates (lessor of 90% of current year’s tax; or 100% of last year’s tax

Question 6

Exception for inadequate tax estimates

Answer 6

Taxpayer had AGI in excess of $150,000 in the prior year, 110 percent of the prior year’s tax liability is used to compute the safe harbor

Question 7

In determining whether to provide advice in writing, the tax preparer should consider, among other factors, the

Answer 7

Sophistication of the tax client

Question 8

When a CPA discovers an error in a previously filed return, the CPA must:

Answer 8

Promptly notify the client of the error (Cannot prepare amended return without the client’s permission)

Question 9

What happens when a tax return has a known frivolous position?

Answer 9

The CPA cannot sign or prepare a tax return

Question 10

Hierarchy of authority in the tax law

Answer 10

1) Internal revenue code, 2) IRS regulations (federal tax regulations), 3) Tax court decisions, and 4) IRS Agents’ Reports

Question 11

Statements on Standards for Tax Services (SSTS)

Answer 11

1) tax return positions, 2) answers to questions on returns, 3) aspects of preparing returns, 4) use of estimates, 5) departure from a position previously concluded in a court hearing, 6) knowledge of error, 7) form and content of advice to taxpayers

Question 12

Tax return positions (SSTS)

Answer 12

Realistic and reasonable, more-likely-than-not-standard is the highest level of support

Question 13

Aspects of preparing returns (SSTS)

Answer 13

Generally, not responsible to verify information provided by a taxpayer

Question 14

Use of estimates (SSTS)

Answer 14

Is allowed; disclosure of estimates is not required

Question 15

Knowledge of error (SSTS)

Answer 15

Notify taxpayer; cannot notify taxing authority

Question 16

What kind of income is subject to self-employment tax?

Answer 16

Earned compensation; Guaranteed payments are subject to self-employment tax but ordinary income from an S corporation is not

Question 17

What percentage of self employment income is defined as net earnings from self employment?

Answer 17

92.35% (7.65%)

Question 18

Where are proceeds from a line of credit reported?

Answer 18

Not included or deducted on a joint return

Question 19

Where is interest income reported?

Answer 19

Schedule B of Form 1040

Question 20

Where is interest expense reported?

Answer 20

Schedule C; schedule F for farmers

Question 21

Where are state estimated taxes and property taxes shown?

Answer 21

shown elsewhere on the joint return