CHAPTER 26 TAX PRACTICE AND ETHICS

1. Lori, a calendar year individual taxpayer, files her 2013 return on February 10, 2015. She had obtained a six-month extension for filing her return. There was additional income tax of $30,000 due with the return.

a. What are Lori’s penalties for failure to file and to pay?

b. Would your answer to a. change if Lori, before the due date of the return, had retained a CPA

to prepare the return and it was the CPA’s negligence that caused the delay?

2. Compute the overvaluation penalty for each of the following independent cases involving the taxpayer’s reporting of the fair market value of charitable contribution property. In each case, assume a marginal Federal income tax rate of 35%.

	Taxpayer	Corrected IRS Value	Reported Value
a.	Individual	$ 10,000	$ 20,000
b.	C corporation	10,000	30,000
c.	S corporation	10,000	30,000
d.	Individual	100,000	175,000
e.	Individual	100,000	250,000
f.	C corporation	100,000	500,000

3. Compute the undervaluation penalty for each of the following independent cases involving the executor’s reporting of the value of a closely held business in the decedent’s gross estate. In each case, assume a marginal Federal estate tax rate of 40%.

	Reported Value	Corrected IRS Value
a.	$10,000	$20,000
b.	60,000	100,000
c.	80,000	150,000
d.	50,000	300,000

4. LaCharles made a charitable contribution of property that he valued at $80,000. He deducted this amount as an itemized deduction on his tax return. The IRS can show that the actual value of the property is $50,000. LaCharles is in the 33% Federal income tax bracket. Determine LaCharles’s amount due for both tax and any penalty.

5. Chung’s AGI last year was $180,000. Her Federal income tax came to $45,000, which she paid through a combination of withholding and estimated payments. This year, her AGI will be $250,000, with a projected tax liability of $60,000, all to be paid through estimates. Ignore the annualized income method. Compute Chung’s quarterly estimated payment schedule for this year.

6. The Four Square Services Corporation estimates that its 2015 taxable income will be $1,000,000. Thus, it is subject to a flat 34% income tax rate and incurs a $340,000 liability. For each of the following independent cases, compute Four Square’s minimum quarterly estimated tax payments that will avoid an underpayment penalty.

a. For 2014, taxable income was ($200,000), resulting in a zero income tax liability. Four Square carried back all of this loss to prior years.

b. For 2014, taxable income was $800,000, and tax liability was $272,000.

c. For 2013, taxable income was $2 million, and tax liability was $680,000. For 2014, taxable income was $100,000, and tax liability was $22,250.