1. The government is precluded from stacking penalties (applying the penalty to the same underpayment/understatement amount). Which of the following penalties may be applied in the same tax year where there is an item of unreported income being adjusted?

A. estimated tax penalty, failure to pay penalty and civil fraud penalty

B. estimated tax penalty, substantial understatement penalty and civil fraud penalty

C. failure to file penalty, substantial understatement penalty and civil fraud penalty D. estimated tax penalty, negligence penalty and civil fraud penalty

QUESTION 2

. In year 3 your client's year 1 return is being examined. Unfortunately, he doesn't maintain adequate books and records prompting the Revenue Agent to conduct an indirect method examination, bank deposit analysis. Note that the inadequate records provided reasonable indication that he may have underreported income. The Revenue Agent has determined the cash on hand at the beginning and ending of the tax year. As it turns out she has identified 5 sizable deposits to your client's checking account totaling in excess of $40,000 which your client is unable to prove the source of the funds. Is this evidence sufficient to prevail on the unreported income issue and the civil fraud penalty?

A. Yes, unreported deposits from an income producing source is sufficient not only to establish unreported income but also to prove fraud by clear and convincing evidence.

B. No, while the government may have determined unreported income, it has yet to establish by clear and convincing evidence that your client's underreporting is attributable to fraud. C. Yes, the unreported deposits will automatically result in the assertion of the civil fraud penalty and criminal indictment as well.

D. No, the government will lose the unreported income since it cannot prove that the deposits were not from a non-taxable source. As such, the government will not prevail on the unreported income or the penalty.

QUESTION 3

Which of the following types of authorities provide substantial authority for purposes of overcoming the substantial understatement penalty:

A. Tax opinion prepared by the taxpayer's attorney

B. Tax treatises

C. Legislative history sources

D. legal periodicals