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

IRC §274(d) imposes strict substantiation for listed property including vehicles: amount, time, place, and business purpose must be documented contemporaneously.

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

IRC §6694(a) imposes a penalty of $1,000 (or 50% of income derived if greater) for understatements due to unreasonable positions; the $500 figure applies to the older statutory text but current law is $1,000.

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

Schedule K-1 (Form 1065) is the required information document that passes through each partner's distributive share, including property distributions, for individual reporting.

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

FinCEN requires financial institutions to file a Currency Transaction Report (CTR) for cash transactions exceeding $10,000 in a single business day.

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

Under IRC §6501(e), the IRS has 6 years to assess additional tax when a taxpayer omits more than 25% of gross income from the return.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC Documentation & Legal Requirements 4