1. On April 15, 1985, the IRS received Jenny’s Form 1040, U.S. Individual Income Tax Return, for the 1984 taxable year. This Form 1040 was false and fraudulent. Among other things, Jenny failed to report $300,000 that she stole from her employer, Jenny began to feel guilty about stealing the $300,000. She sold all her assets and repaid her ex-employer $300,000 she stole plus interest.

   On May 6, 1998, Jenny filed a Form 1040X, Amended U.S. Individual Income Tax Return, for the 1984 taxable year with the IRS. On this Form 1040X, Jenny correctly reported as income the $300,000 that she stole from her employer. However, she did not pay any portion of the tax attributable to the additional $300,000 in gross income that she reported. As a result of several processing problems, the IRS never assessed the additional tax that Jenny reported on her Form 1040X for the 1984 taxable year. The Form 1040X filed by Jenny was honest and correct. In 2021, another IRS employee found the Form 1040X that Jenny filed for the 1984 taxable year and has proposed that the IRS to assess the additional tax that Jenny reported. An IRS Assessment Officer intends on assessing the additional tax reported on Jenny's Form 1040X on May 5, 2021. Assume the IRS is permitted to make the any assessment without issuing a SND. Question: on May 5, 2021 will the statute of limitations bar the assessment of Jenny's 1984 income tax liability?

   	a.	No, the filling of a Form 1040X suspends the running of the statute of limitations on assessment until the time the IRS properly processes the Form 1040X.
   	b.	Yes.
   	c.	Yes, the statute of limitations on assessment of Jenny’s 1984 tax liability expired on May 6, 2001; three years after Jenny filed the Form 1040X.
   	d.	No.
   	e.	Yes, the statute of limitations on assessment of Jenny’s 1984 tax liability expired on April 15, 1988.

3.4 points

QUESTION 30

1. During the audit of Corp, the audit team received a Technical Advice Memorandum (“TAM”) from the Office of Chief Counsel, Financial Products and Institutions (“FIP”). The TAM provided FIP’s opinion on the deductibility of expenses claimed on Corp's Form 1120, U.S. Corporation Income Tax Return, for the 20XX taxable year.

   Under the TAM’s analysis, Corp can deduct approximately 50 percent of the expenses it claimed on its 20XX Form 1120. This result made both Corp and the IRS audit team unhappy. Neither party wants to follow the TAM. The audit team ignores the TAM and disallows all the claimed deductions at issue in the TAM. The case goes to the Independent Office of Appeals. Question: which statement below most accurately describes who must follow the TAM issued by FIP?

   	a.	Only the audit team is required to follow the TAM.
   	b.	The Taxpayer is not required to follow the TAM; however, the Independent Office of Appeals and the audit team must follow the TAM.
   	c.	No-one is required to follow the TAM, as a TAM is simply advice of one party’s attorney.
   	d.	Only the Independent Office of Appeals is required to follow the TAM.
   	e.	The Independent Office of Appeals, the audit team and Corp are all required to follow the TAM.

3.4 points

QUESTION 31

1. John is a Certified Public Accountant licensed in New York. Although John is not an attorney, his status as a Certified Public Accountant allows him to represent clients before the IRS. The IRS commenced an audit of the Form 1040, U.S. Individual Income Tax Return, filed by Jane for the 2019 taxable year. Jane hired John to represent her before the IRS. During the audit, the IRS and John agreed on all issues, except whether Jane’s horse breeding activities were entered into with a bona-fide profit objective. If they were not entered into with such an objective, the IRS will disallow most of the deductions that Jane claimed from her horse breeding activities. John believes that unless Jane is willing to concede a substantial portion of the deductions from her horse breeding activities, the IRS will likely issue a statutory notice of deficiency disallowing all Jane’s claimed deductions and proposing penalties. Jane does not seem interested in conceding much, and John anticipates the issue will go to trial in Tax Court. To help preserve evidence, John conducted interviews with three individuals connected with Jane’s horse breeding activities:

   As John predicted, Jane’s 2019 taxable year went to Tax Court. The only issue in the case is whether Jane entered the horse breeding business with a bona-fide profit objective. The attorney for the IRS requests that Jane produce all notes that John took during his interviews of three individuals connected with Jane’s horse breeding activities. Jane has possession of these notes but claims she need not turn them over because they are privileged. You are the Tax Court judge hearing Jane’s case. Question: how do you rule on Jane's privilege claim?

   	a.	Since John was not functioning as a CPA when he was conducting the interviews, the federal accounting privilege does not apply.
   	b.	Since John is a CPA, the notes are subject to federal accounting privilege.
   	c.	The notes are not privileged.
   	d.	There are not enough facts to answer the question.
   	e.	Since John is a Certified Public Accountant, the notes are subject to the federal authorized tax practitioner privilege contained in I.R.C. section 7525.

Answer rating: 100% (QA)

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