R6

Question 1

IRC Section 501(c)(3)

Answer 1

Provides for corporations, community chests, funds and foundations to be organizations eligible for exemption from federal income taxes

Example: religious organizations

Question 2

Cemetery companies, Supplemental unemployment benefit trusts and Chambers of commerce are

Answer 2

tax-exempt, nonprofit organizations, but they are not 501(c)(3) public charities for purposes of the charitable contribution deduction

Question 3

Unrelated business income is

Answer 3

Derived from an activity that constitutes a trade or business
Is regularly carried on and
Is not substantially related to the organization’s tax-exempt purpose

Note: an unrelated business does NOT include any activity where all the work is performed for the organization by unpaid volunteers. Thus using unpaid volunteers makes that business or activity “related”

Question 4

Items that are excluded from unrelated business income

Answer 4

Income from research activities by a college, university, or hospital

Interest, dividends and other investment income

Gains from the sale of property that is not held for sale to customers in the ordinary course of business

Question 5

Estimated Tax Payments

Answer 5

A taxpayer must pay taxes throughout the year through withholdings and or quarterly estimated tax payments of the lesser of 90% of PY tax, 100% of CY tax (110% of CY tax of AGI is above 150,000)

Question 6

The penalty for failure to file a tax return by the due date is

Answer 6

5% per month or fraction of month (up to a maximum 25%) on the amount of tax shown as due on the return.

Question 7

The pantry for failure to pay by the due date is

Answer 7

1/2% per month based on the amount due on the return

Question 8

Accuracy related penalties applies to

Answer 8

the portion of tax underpayment attributable to:

negligence or a disregard of the tax rules or regulations

any substantial understatement of income tax

Question 9

The negligence penalty defines “disregard” as

Answer 9

any careless, reckless or intentional disregard of tax rules or regulations

Question 10

The negligence penalty with respect to understatement of tax is calculated as

Answer 10

20% of the understatement of tax

Question 11

Imposition of the civil fraud penalty

Answer 11

requires conduct that transcends negligence or stupidity. There needs to be a willful and deliberate attempt to evade taxes

Question 12

What is the penalty for a substantial understatement of tax

Answer 12

20% of the understatement

Question 13

The more likely than not standard involves a position that

Answer 13

has a more than 50% chance of succeeding

Question 14

The reasonable basis standard involves a position that

Answer 14

has at least a 20% chance of succeeding

Question 15

Which reports issued constitute substantial authority?

Answer 15

Reports issued by the US Congress, IRS Regulations, rules and releases, and US court case decisions

Question 16

The substantial authority standard involves a position that

Answer 16

has a more than 40% but less than 50% chance of succeeding

Question 17

The taxpayer can generally avoid penalties if

Answer 17

he/she acted in good faith, if there was a reasonable basis to support the tax return position AND if the taxpayer did not have willful neglect

Question 18

What is a private letter ruling?

Answer 18

A response to a taxpayers request for guidance on the treatment of a proposed transaction , typically one with significant tax consequences

Question 19

Who can rely on a private letter ruling?

Answer 19

The taxpayer to whom it is issued

Note: It canNOT be relied on as precedent by other taxpayers

Question 20

What is a revenue ruling?

Answer 20

an official pronouncement by the IRS on how the tax law applies to a specific transaction or fact pattern. It is published by the IRS and can be relied upon as precedent by taxpayers.

Question 21

What is a technical advice memorandum (TAM)?

Answer 21

Guidance on the tax treatment of a particular taxpayers situation. It cannot be relied on as precedent by other taxpayers.

Note: A TAM is requested by an IRS agent during an audit and involves a completed transaction

Question 22

What is a general counsel memorandum (GCM)?

Answer 22

Internal advice i issued by the IRS chief counsel to provide guidance to IRS attorneys and agents. It cannot be relied on as precedent by other taxpayers

Question 23

Regulations are

Answer 23

The Treasury Departments official interpretation of the internal revenue code and have the highest authoritative weight of the administrative sources of tax law.

Note: a temporary regulation has the same authoritative weight as a final regulation

Question 24

What source of tax law holds the most authoritative value?

Answer 24

The Internal Revenue Code

Question 25

When does interest on a tax deficiency begin to accrue?

Answer 25

On the date the original tax was due even if an extension of time to file was filed