CTC Documentation & Legal Requirements 4

Question 1

A self-employed taxpayer deducts vehicle expenses using the actual cost method. Which records are required under IRC §274(d)?

Accepted Answer

Amount of each expense, business purpose, date, and business miles vs. total miles

Answer

Only the total annual mileage driven

Answer

Receipts for fuel only, since other costs are estimated

Answer

A signed statement from the taxpayer's accountant estimating business use

Question 2

What is the civil penalty for a return preparer who negligently disregards IRS rules when preparing a return under IRC §6694(a)?

Accepted Answer

$500 or 50% of the income derived from the return, whichever is greater

Answer

The greater of $1,000 or 15% of the income derived from the return

Answer

A flat $250 per return with no maximum

Answer

$5,000 for each intentional violation

Question 3

A partnership distributes property to a partner. What document must be provided to the partner to allow proper tax reporting of the distribution?

Accepted Answer

Schedule K-1 (Form 1065) reflecting the partner's share of income, deductions, and the distribution

Answer

A copy of the partnership's Form 1065

Answer

A written bill of sale for the distributed property

Answer

Form 8283 if the property is non-cash

Question 4

Under the Bank Secrecy Act, a cash transaction report (CTR) must be filed when a financial institution handles cash transactions exceeding what threshold in a single day?

Accepted Answer

$10,000

Answer

$5,000

Answer

$25,000

Answer

$50,000

Question 5

A taxpayer files a return with a substantial understatement of income tax. What is the extended statute of limitations period the IRS may assess additional tax?

Accepted Answer

6 years from the filing date if the understatement exceeds 25% of gross income

Answer

3 years from the filing date

Answer

10 years for all civil tax assessments

Answer

There is no statute of limitations for understatements

Question 6

Which IRS form is used by a corporation to report its income, deductions, and tax liability, and must be retained by a CTC as part of the client file?

Accepted Answer

Form 1120

Answer

Form 1065

Answer

Form 1041

Answer

Form 990

Question 7

When a taxpayer receives an IRS notice of deficiency (90-day letter), what is the legally significant deadline associated with this document?

Accepted Answer

The taxpayer has 90 days to petition the U.S. Tax Court without prepaying the tax

Answer

The taxpayer must pay the deficiency within 30 days

Answer

The taxpayer must file an amended return within 60 days

Answer

The IRS must receive an appeal within 45 days or the assessment becomes final