Federal Tax Practice and Procedures
UPDATED Exam Questions and CORRECT
Answers
- CORRECT ANSWER -
What is considered substantial authority and reasonable basis? - CORRECT ANSWER -·
reasonable basis= is 20%.
· Substantial authority = 40%
Which of the following burdens of proof must be met when a disclosed position regarding a
particular individual deduction is evaluated to determine whether it was taken in good faith? -
CORRECT ANSWER - This "reasonable basis" standard applies to disclosed positions.
Provide examples of accuracy-related penalties may be imposed for underpayments caused by
negligence. - CORRECT ANSWER - · Failure to keep adequate books and records.
· In general, the law does not require any specific type of record; taxpayers may choose any
suitable system that clearly establishes the necessary facts.
What is reasonable basis? - CORRECT ANSWER - · Standard for disclosed positions (≥
20%)
Form on which tax positions are disclosed - CORRECT ANSWER - · Form 8275 or 8275-R
What is substantial authority? - CORRECT ANSWER - · Standard for undisclosed positions
(≥ 40%)
Two types of expenses that should be well documented - CORRECT ANSWER - · Charitable
contributions—The taxpayer must have a receipt for large donations to a charitable organization.
Donations ≥ $250 must be documented with a receipt. Donations > $5,000 generally require a
qualified appraisal.
, · Business use of an automobile—The taxpayer must track the miles driven for business use in a
timely kept log.
How long should old tax returns be kept? - CORRECT ANSWER - · Seven years
.What section of the IRC imposes penalties for late filing or failure to file as well as late payment
of tax. - CORRECT ANSWER - · (Section 6651)
Explain the Late Filing penalty - CORRECT ANSWER - · Late fee Penalty is 5% of the net
tax due per month (up to 25% of unpaid taxes).
Explain the failure to file penalty if fraudulent. - CORRECT ANSWER - · If the failure to file
is fraudulent, the penalty becomes 15% per month (up to 75% of unpaid taxes). The failure to file
penalty is 10 times the size of the failure to pay penalty in order to encourage taxpayers to file,
even if they are financially strapped.
True or False: Taxpayers who have requested an extension by the due date and paid at least 90%
of taxes owed will not face a failure-to-pay penalty. - CORRECT ANSWER - True
Explain the accuracy-related underpayment penalty. - CORRECT ANSWER - · 20% penalty
negligence or disregard of rules or regulations.
Provide me an example of Negligence? - CORRECT ANSWER - · may include, among many
other things: failure to keep adequate books and records and to otherwise substantiate items that
gave rise to the understatement.
For individuals, what is considered a substantial understatement? - CORRECT ANSWER - is
one that exceeds the greater of:
• 10% of the tax, or
• $5,000.
UPDATED Exam Questions and CORRECT
Answers
- CORRECT ANSWER -
What is considered substantial authority and reasonable basis? - CORRECT ANSWER -·
reasonable basis= is 20%.
· Substantial authority = 40%
Which of the following burdens of proof must be met when a disclosed position regarding a
particular individual deduction is evaluated to determine whether it was taken in good faith? -
CORRECT ANSWER - This "reasonable basis" standard applies to disclosed positions.
Provide examples of accuracy-related penalties may be imposed for underpayments caused by
negligence. - CORRECT ANSWER - · Failure to keep adequate books and records.
· In general, the law does not require any specific type of record; taxpayers may choose any
suitable system that clearly establishes the necessary facts.
What is reasonable basis? - CORRECT ANSWER - · Standard for disclosed positions (≥
20%)
Form on which tax positions are disclosed - CORRECT ANSWER - · Form 8275 or 8275-R
What is substantial authority? - CORRECT ANSWER - · Standard for undisclosed positions
(≥ 40%)
Two types of expenses that should be well documented - CORRECT ANSWER - · Charitable
contributions—The taxpayer must have a receipt for large donations to a charitable organization.
Donations ≥ $250 must be documented with a receipt. Donations > $5,000 generally require a
qualified appraisal.
, · Business use of an automobile—The taxpayer must track the miles driven for business use in a
timely kept log.
How long should old tax returns be kept? - CORRECT ANSWER - · Seven years
.What section of the IRC imposes penalties for late filing or failure to file as well as late payment
of tax. - CORRECT ANSWER - · (Section 6651)
Explain the Late Filing penalty - CORRECT ANSWER - · Late fee Penalty is 5% of the net
tax due per month (up to 25% of unpaid taxes).
Explain the failure to file penalty if fraudulent. - CORRECT ANSWER - · If the failure to file
is fraudulent, the penalty becomes 15% per month (up to 75% of unpaid taxes). The failure to file
penalty is 10 times the size of the failure to pay penalty in order to encourage taxpayers to file,
even if they are financially strapped.
True or False: Taxpayers who have requested an extension by the due date and paid at least 90%
of taxes owed will not face a failure-to-pay penalty. - CORRECT ANSWER - True
Explain the accuracy-related underpayment penalty. - CORRECT ANSWER - · 20% penalty
negligence or disregard of rules or regulations.
Provide me an example of Negligence? - CORRECT ANSWER - · may include, among many
other things: failure to keep adequate books and records and to otherwise substantiate items that
gave rise to the understatement.
For individuals, what is considered a substantial understatement? - CORRECT ANSWER - is
one that exceeds the greater of:
• 10% of the tax, or
• $5,000.
