Question

Ron, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $150,000. The applicable overvaluation penalty is:

A. $0

B. $7,000

C. $10,000 (maximum penalty)

D. $14,000

Concerning a taxpayer’s requirement to make quarterly estimated tax payments:

	A.	An individual must make estimated payments if his or her balance due for the Federal income tax for the year will exceed $1,000.
	B.	The due dates of the payments for a calendar-year C corporation are March, June, September, and December 15.
	C.	A C corporation must make estimated payments if its Federal income tax liability for the year will exceed $250.
	D.	A trust is not required to make estimated payments.

Circular 230 allows a tax preparer to:

	A.	Take a position on a tax return that is contrary to a decision of the U.S. Supreme Court.
	B.	Operate the “Tax Nerd’s Blog” on the Internet.
	C.	Charge a $5,000 fee to prepare a Form 1040EZ.
	D.	Avoid signing a tax return that is likely to be audited.

Which transaction affects the Other Adjustments Account on an S corporation’s Schedule M-2?

		Charitable contributions
		Unreasonable compensation
		Payroll tax penalty assessed
		Domestic production activities deduction
		None of the above

Which of the following foreign taxes paid by a U.S. corporation is eligible for the foreign tax credit?

		Real property taxes
		Value added taxes
		Dividend withholding taxes
		Sales taxes

Answer 1

1. Answer is option B $7,000

The applicable overvaluation penalty is $7000

2. Answer is option A An individual must make estimated payments if his or her balance due for the Federal income tax for the year will exceed $1,000.

3. Answer is option B Operate the “Tax Nerd’s Blog” on the Internet.

Tax preparer has right to advertise on Internet

4. Answer is option D Domestic production activities deduction

Domestic production activities deduction affects the Other Adjustments Account on an S corporation’s Schedule M-2.

5. Answer is option C Dividend withholding taxes

Dividend withholding taxes paid by a U.S. corporation is eligible for the foreign tax credit.