Deck 18: The Tax Compliance Process a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Question 1

Individuals are allowed to deduct interest paid on an income tax deficiency as a miscellaneous itemized deduction.

Answer 1

False

Question 2

Employees who deliberately have excess income tax withheld from their salaries in order to receive a tax refund are making an interest-free loan of the excess withholding to the government.

Answer 2

True

Question 3

An individual who did not graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate.

Answer 3

True

Question 4

Mrs. Claire underpaid her 2012 federal income tax by $11,017. If the entire underpayment was attributable to Mrs. Claire's failure to make a good faith effort to comply with the tax law, the IRS may impose a $2,754 negligence penalty.

Question 5

The fact that a taxpayer receives a refund check indicates that the IRS is satisfied with the accuracy of the taxpayer's return.

Question 6

Macy filed her 2012 tax return on its extended due date of October 15, 2013. The IRS has until December 31, 2015, to audit this return.

Question 7

Only attorneys and CPAs may prepare tax returns for compensation.

Question 8

Taxpayers who can't complete their tax return by the filing date can request an automatic extension of time to file the return and pay any balance of tax due.

Question 9

The IRS selects returns to audit that have the highest probability of generating additional revenue.

Question 10

An individual taxpayer is not required to give the IRS an explanation for extending the filing date for Form 1040.

Question 11

Gretchen's 2012 tax return, due April 15, 2013, was filed on July 15, 2013. Her tax due with the return was $1,200. Gretchen owes a late filing penalty of $180.

Question 12

If the IRS requests information during the course of an audit, the taxpayer has the right to know how the information will be used.

Question 13

The harshest administrative penalty that the IRS can impose is the civil fraud penalty.

Question 14

The statute of limitations for a tax return does not begin to run until the return is filed.

Question 15

The Taxpayer's Bill of Rights prevents the IRS from seizing a taxpayer's assets to satisfy a tax deficiency.

Question 16

A special agent is assigned to a tax investigation to determine if the government has enough evidence to indict the taxpayer for criminal fraud.

Question 17

Corporations are allowed to deduct interest paid on an income tax deficiency as a business expense.

Question 18

Both individual and corporate taxpayers must pay any balance due of their tax by the extended due date of the tax return for the year.

Question 19

The IRS can't impose a negligence penalty on an individual who relied on the advice of a CPA in preparing his tax return.

Question 20

Taxpayers should keep all supporting documentation (credit card statements, etc.) for a tax return for at least three years after the return is filed.

Question 21

A professional tax return preparer must attach his or her signature and identifying number to each return prepared.

Question 22

If a taxpayer has insufficient financial means to pay a deficiency, the IRS may make an offer in compromise to settle for a lesser amount.

Question 23

Only the government may appeal a tax case to the U.S. Supreme Court.

Question 24

Ms. Hepp filed her 2012 Form 1040 on February 19, 2013. The return showed a $2,730 overpayment of tax, and Ms. Hepp received her refund check from the IRS on April 30. Which of the following statements is true?

A)The government will not pay Ms.Hepp any interest on her refund.
B)The government must pay Ms.Hepp interest on her refund for the period from February 20 until April 30.
C)The government must pay Mrs.Hepp interest on her refund for the period from April 16 until April 30.
D)The government must pay Mrs.Hepp interest on her refund for the period from January 1 through April 30.

Question 25

Which of the following statements about taxpayer responsibility is false?

A)Taxpayers are responsible for paying the correct amount of federal tax.
B)Taxpayers are responsible for filing the proper federal income tax return.
C)Taxpayers are responsible for maintaining adequate tax records.
D)None of the above is false.

Question 26

Ms. Dela filed her unextended 2012 Form 1040 on November 2, 2013, and had no reasonable cause for the delinquency. The return showed a $22,840 balance of tax due. Compute Ms. Dela's late-filing and late-payment penalty.

A)$5,710
B)$7,994
C)$5,938
D)$4,568

Question 27

A person can't be relieved of liability for a tax deficiency under the innocent spouse rule unless that person was forced to sign the tax return under duress.

Question 28

Which of the following statements about federal tax return filing dates is false?

A)A corporation with a fiscal tax year ending on September 30 must file its unextended Form 1120 by December 15 following the close of the tax year.
B)A corporation may request an automatic extension of time to file Form 1120.
C)A corporation may request an extension of time to pay any balance due of its annual income tax if it has reasonable cause for the delay.
D)None of the above is false.

Question 29

The geographic location of the trial court in a tax dispute determines which of the appellate courts will hear an appeal.

Question 30

A person can't be relieved of liability for a tax deficiency under the innocent spouse rule if that person enjoyed significant financial benefit from taxable income omitted from the return.

Question 31

Mrs. Hepp completed her 2012 Form 1040 on April 13, 2013. The return showed a $923 balance due. Mrs. Hepp needed more time to double check all her computations. What can Mrs. Hepp do to give herself more time?

A)She can do nothing because the Form 1040 must be filed by April 15.
B)She can file a request by April 15 for an automatic extension of time to file her Form 1040 and to pay the balance due.
C)She can file a request by April 15 for an automatic extension of time to file her Form 1040 and pay the $923 estimated balance due with the extension request.
D)She can file a late Form 1040 without penalty as long as she mails the return before May 15, 2013.

Question 32

Taxpayers who win their case in court are automatically entitled to recover litigation expenses from the government.

Question 33

A taxpayer who is disputing a deficiency of $50,000 or less may request an informal hearing by the Small Tax Case Division of the Tax Court.

Question 34

If a taxpayer fails to pay a deficiency, the IRS can garnish the taxpayer's salary or wage to settle the liability.

Question 35

If the IRS assesses additional tax against a corporation after it has liquidated, the shareholders can't be held liable for the tax due.

Question 36

A taxpayer who wants a jury trial must pay the tax deficiency and then sue the government for a refund in U.S. District Court.

Question 37

Tony Curtis filed her 2012 income tax return on May 2, 2013. Which of the following statements is false?

A)If Tony's return shows a $719 refund due, she incurs no penalty for filing on May 2.
B)On April 14, Tony requested an automatic extension of time to file her return and paid her estimated tax due with the request.As a result, she incurs no penalty for filing on May 2.
C)If the reason that Tony filed a delinquent return was because of an unexpected death in her family, the IRS may waive any late filing penalty.
D)None of the above is false.

Question 38

Mr. Fiocchi filed his unextended 2012 Form 1040 on July 22, 2013, and had no reasonable cause for the delinquency. The return showed a $1,906 overpayment of tax (refund due). Compute Mr. Fiocchi's late-filing and late-payment penalty.

A)-0-
B)$191
C)$286
D)$381

Question 39

Only one spouse must sign a jointly filed Form 1040.

Question 40

Mr. and Mrs. Chung filed their unextended 2012 Form 1040 on May 30, 2013, and had no reasonable cause for the delinquency. The return showed a $10,479 balance of tax due. Compute the Chungs' late-filing and late-payment penalty.

A)$524
B)$1,048
C)$2,620
D)None of the above

Question 41

Which of the following should increase the likelihood that Ms. Piper's Form 1040 will be selected for audit by the IRS?

A)Ms.Piper files as head of household because she maintains a home for her 89-year old mother who has Alzheimer's disease.
B)Ms.Piper's AGI is $58,400, and she deducted $17,590 of charitable contribution on her Schedule
C)Ms.Piper reported $10,200 alimony income from her former spouse.
D)None of the above should increase the likelihood of audit.

Question 42

Every year, the IRS selects a certain number of Form 1040s for audit. What is the approximate average audit coverage rate (percentage of individual returns filed selected for audit)?

A)About 1%
B)About 5%
C)Between 10% and 12%
D)None of the above

Question 43

Which of the following should increase the likelihood that Mr. Clarke's Form 1040 will be selected for audit by the IRS?

A)Mr.Clarke is self-employed and reported $723,900 net profit on his Schedule C
B)Mr.Clarke has four dependent children under age 17.
C)Mr.Clarke is a resident of California.
D)None of the above should increase the likelihood of audit.

Question 44

Which type of audit takes place at an IRS district office?

A)Correspondence examination
B)Office examination
C)Field examination
D)All of the above

Question 45

Who of the following can't represent a taxpayer during an interview with the IRS?

A)An enrolled agent
B)A certified public accountant
C)An attorney
D)All of the above can represent the taxpayer.

Question 46

Mr. Hepp, a self-employed consultant, failed to include a $38,200 income item on his 2012 Form 1040, which he filed on March 9, 2013. The gross income reported on the return was $102,380. What is the latest date that the IRS can assess any additional 2012 tax?

A)March 9, 2016
B)April 15, 2016
C)March 9, 2019
D)April 15, 2019

Question 47

This year, the IRS audited Mr. and Mr. Simon's 2009 income tax return and determined that they underpaid their tax by $13,780. Which of the following statements is true?

A)If the revenue agent concludes that the Simons made a reasonable attempt to compute their tax, they will not pay anything as a result of the audit.
B)If the revenue agent concludes that the Simons made a reasonable attempt to compute their tax, they will pay a total of $13,780 as a result of the audit.
C)If the revenue agent concludes that the Simons made a reasonable attempt to compute their tax, they will pay $13,780 plus interest on the underpayment as a result of the audit.
D)If the revenue agent concludes that the Simons were negligent in preparing their return, the agent may assess a $10,335 penalty.

Question 48

Which type of audit can be handled entirely by telephone or through the mail?

A)Correspondence examination
B)Office examination
C)Field examination
D)All of the above

Question 49

Mrs. Jordan applied for an automatic six-month extension of time (until October 15, 2013) to file her 2012 income tax return. She actually filed an accurate return on July 9, 2013. The IRS may audit the return and assess Mrs. Jordan for additional 2012 tax at any time through:

A)April 15, 2016
B)July 9, 2016
C)August 15, 2016
D)December 31, 2016

Question 50

Linney Corporation, which uses a June 30 fiscal year end for tax purposes, requested an automatic six-month extension of time to file its return for FYE June 30, 2013. It filed the return on February 18, 2014. The revenue agent that examined the return suspects that Linney may have substantially underreported income for the year. Which of the following is false?

A)If the underreporting of income constitutes fraud, there is no statute of limitations, and the IRS can assess additional tax at any time.
B)If the amount of unreported income exceeds 25% of the gross income reported on the return, the IRS has until February 18, 2020, to assess additional tax.
C)If the amount of unreported income is less than 25% of the gross income reported on the return and the return is not fraudulent, the IRS has until September 15, 2016, to assess additional tax.
D)None of the above is false.

Question 51

Which of the following statements about the tax return filing process is false?

A)Every income tax return filed is checked for mathematical accuracy.
B)Every income tax return that was not prepared by a professional tax service is audited for errors in applying the tax law.
C)The information on a Form 1040 is cross-checked against information returns filed by the taxpayer's employer and other parties that paid income to the taxpayer during the year.
D)None of the above is false.

Question 52

Which type of audit is handled by a revenue agent?

A)Correspondence examination
B)Office examination
C)Field examination
D)All of the above

Question 53

Mr. and Mrs. Ibrah filed their 2012 Form 1040 on June 6, 2013. Assuming that the return does not contain any significant errors, what is the latest date that the IRS can assess any additional 2012 tax?

A)December 31, 2016
B)June 6, 2016
C)April 15, 2016
D)December 31, 2015

Question 54

For no particularly good reason, Ms. Totter has not yet filed her 2012 Form 1040. Which of the following statements is false?

A)If the government owes Ms.Totter a refund of 2012 tax, there is no penalty if she never files the return.
B)The statute of limitations on the return will not begin to run until Ms.Totter files the return.
C)If Ms.Totter owes additional 2012 tax, she also will owe a late-filing and late-payment penalty.
D)None of the above is false.

Question 55

Which of the following statements about the DIF score is true?

A)Details of the DIF score computation are available on the IRS website.
B)The lower the DIF score assigned to a tax return, the higher the probability that the return will be selected for audit.
C)The DIF score theoretically measures a tax return's potential for generating additional revenue on audit.
D)Taxpayers can contact the IRS to determine their DIF score before filing their annual tax return.

Question 56

Which of the following statements about the outcome of an IRS audit is false?

A)The most probable outcome of an audit is that the taxpayer will be assessed a deficiency.
B)An audit can't result in a refund of tax due to the taxpayer.
C)If a revenue agent finds no mistakes on a return during an audit, the agent files a report concluding "no change."
D)None of the above is false.

Question 57

Which of the following should increase the likelihood that Mr. and Mrs. McNut's Form 1040 will be selected for audit by the IRS?

A)Mrs.McNut is self-employed and reported a $112,000 loss on her Schedule A
B)The McNuts claim two additional standard deductions because they are both over age 65.
C)The McNuts reported a $12,600 nonbusiness bad debt for a loan to their grandchild as a capital loss on Schedule
D)Both A.and C.should increase the likelihood of audit.

Question 58

Which type of audit takes place at the taxpayer's place of business?

A)Correspondence examination
B)Office examination
C)Field examination
D)All of the above

Question 59

Mr. and Mrs. Dint filed their 2012 Form 1040 on January 28, 2013. Assuming that the return does not contain any significant errors, what is the latest date that the IRS can assess any additional 2012 tax?

A)December 31, 2015
B)January 28, 2016
C)April 15, 2016
D)December 31, 2016

Question 60

Which type of audit has the broadest scope and may involve a complete analysis of the taxpayer's accounting records?

A)Correspondence examination
B)Office examination
C)Field examination
D)All of the above

Question 61

Which of the following statements about tax fraud is true?

A)A revenue agent can assess a civil fraud penalty in the course of an audit.
B)A revenue agent can charge a taxpayer with criminal fraud in the course of an audit.
C)A taxpayer can be imprisoned for committing either civil fraud or criminal fraud.
D)The IRS's burden of proof in establishing fraud is identical for civil and criminal fraud.

Question 62

The revenue agent who audited Mr. Silver's 2009 Form 1040 concluded that Mr. Silver deliberately disregarded the tax rules about charitable contributions. Consequently, the agent disallowed $19,320 of Mr. Silver's contribution deduction. Mr. Silver also miscalculated his AMT in spite of his good faith effort to make the difficult calculation. Because of these two errors, the agent assessed a tax deficiency for 2009. Which of the following statements is false?

A)The agent has the authority to impose a negligence penalty in addition to the deficiency.
B)The agent could impose a negligence penalty on the entire deficiency.
C)The agent could impose a negligence penalty on the portion of the deficiency attributable to the disallowed contribution deduction.
D)If the agent imposes a negligence penalty, Mr.Silver has the right to appeal the penalty.

Question 63

Which of the following statements about the U.S. Tax Court is false?

A)Tax Court judges are experts who specialize in the tax law.
B)Individuals can request a jury trial in the Tax Court.
C)The Tax Court is one of three courts of original jurisdiction for tax cases.
D)Both individual and corporate taxpayers can take their case to the Tax Court.

Question 64

Mr. and Mrs. Pitt filed a joint tax return in 2011. The couple divorced in 2012. The IRS audited their 2011 return and determined that the Pitts had underpaid their tax by $38,200. Which of the following statements is true?

A)The IRS can assess either Mr.Pitt or Mrs.Pitt for the entire deficiency.
B)Because the couple is divorced, the IRS must assess Mr.Pitt with a $19,100 deficiency and Mrs.Pitt with a $19,100 deficiency.
C)Because the couple is divorced, the IRS must apportion the deficiency between Mr.and Mrs.Pitt based on their relative contribution to taxable income.
D)The IRS must assess whichever spouse actually prepared the return for the entire deficiency.

Question 65

Which of the following statements about the tax litigation process is false?

A)Taxpayers can begin the litigation process in the U.S.Tax Court, a U.S.District Court, or the U.S.Court of Federal Claims.
B)A taxpayer can receive a jury trial only in a U.S.District Court.
C)If the government loses a tax case at the trial level, it can appeal the case to the U.S.Supreme Court.
D)A decision in a tax case by the Supreme Court is final.

Question 66

The IRS who audited Mr. Kodak's 2009 Form 1040 assessed an $87,400 deficiency. If the agent believes that the entire deficiency was caused by Mr. Kodak's willful attempt to cheat the government, compute the resulting civil fraud penalty.

A)$17,480
B)$21,850
C)$65,550
D)None of the above

Question 67

The revenue agent who audited Mr. and Mrs. Wilke's 2009 Form 1040 assessed a $40,200 deficiency and concluded that $13,900 of the deficiency resulted from Mr. Wilke's deliberate disregard of the tax rules concerning business entertainment expense. The remaining deficiency resulted from various errors caused by confusing instructions on the tax forms. Compute the negligence penalty that the agent can impose.

A)$8,040
B)$3,475
C)$2,780
D)Only a federal court can impose a negligence penalty.

Question 68

Which of the following statements about the tax deficiency appeals process is false?

A)All litigation of tax cases must begin in the U.S.Tax Court.
B)The Tax Court Small Cases division allows taxpayers to plead their case without an attorney.
C)After all appeals are exhausted, the IRS may collect the deficiency by whatever means necessary.
D)The government's goal is to collect the most feasible amount at the earliest possible time at the least cost to the government.

Question 69

The revenue agent who audited Mr. and Mrs. Vento's Form 1040 assessed a $49,200 tax deficiency. The Ventos strongly disagree with the result of the audit. What is their first step in contesting the result?

A)They may request that a different revenue agent conduct a second audit.
B)They must appeal the result of the audit to the regional Appeals Office of the IRS.
C)They must pay the deficiency and sue the federal government for a refund.
D)They must file a petition with the U.S.Tax Court.

Question 70

Which of the following statements about a tax deficiency is true?

A)If a taxpayer is assessed a deficiency, the government will charge interest on the deficiency regardless of the reason for the deficiency.
B)Individuals who pay interest on a tax deficiency can deduct it as an itemized deduction.
C)Individuals who pay interest on a tax deficiency can deduct it as a business expense.
D)Statements A.and B.are both true.

Question 71

Which of the following statements about criminal tax fraud is false?

A)Criminal tax fraud is a felony offense.
B)A taxpayer must be convicted of criminal tax fraud in federal court.
C)Individuals who are convicted of criminal tax fraud may be fined or imprisoned or both.
D)None of the above is false.

Question 72

Mr. Braco is an enrolled agent who prepares tax returns for a living. In preparing Mr. and Mrs. Colter's Form 1040, Mr. Braco claimed a deduction based on an unreasonable legal position. Mr. Braco's compensation for the return was $3,800. What is the consequence to Mr. Braco if the IRS disallows the deduction?

A)The IRS can terminate Mr.Braco's status as an enrolled agent.
B)The IRS can impose a $1,900 penalty on Mr.Braco.
C)The IRS can impose a negligence penalty on the Colters but can't penalize Mr.Braco.
D)The IRS can impose a civil fraud penalty on Mr.Braco.

Question 73

F&D Inc. ceased operations and dissolved under state law in 2012. Mrs. Herron, a 20% shareholder, received a $490,300 liquidating distribution from F&D. This year, the IRS determined that F&D underpaid its 2011 and 2012 income tax by $967,100. How much of this deficiency can the IRS assess against Mrs. Herron?

A)-0-
B)$193,420
C)$490,300
D)$967,100

Question 74

Mr. Boyd is a bookkeeper for a local auto repair company. Several years ago, he began to prepare federal income tax returns for his friends and relatives and has developed this sideline into a profitable business. Which of the following statements is true?

A)Mr.Boyd is considered an income tax return preparer subject to federal penalties because he is compensated for preparing returns.
B)Mr.Boyd is not considered an income tax return preparer because he is not an attorney, CPA, or enrolled agent.
C)Mr.Boyd must sign the tax returns prepared for his clients.
D)Statements A.and C.are true.

Question 75

Which of the following is not a legal obligation of an income tax return preparer?

A)A preparer must endorse clients' refund checks.
B)A preparer must furnish clients with copies of their returns.
C)A preparer must sign clients' tax returns.
D)A preparer must include his or her identifying number on clients' tax returns.

Question 76

Which of the following statements about taxpayer negligence is false?

A)A taxpayer who makes a good faith effort to comply with the tax law is not negligent.
B)A taxpayer who keeps complete and careful tax records is less likely to incur a negligence penalty than a taxpayer with no records.
C)A taxpayer who cooperates with the revenue agent is less likely to incur a negligence penalty than an uncooperative taxpayer.
D)A taxpayer who relies on the advice of a tax professional has a guaranteed defense against the negligence penalty.

Question 77

Mr. and Mrs. Nestor were assessed a $51,240 income tax deficiency. Which of the following statements is false?

A)If the Nestors do not have cash on hand to pay the deficiency, the IRS can't force them to sell assets to raise the cash.
B)If the Nestors do not have sufficient assets to pay the deficiency, the IRS may allow them to pay it off over time under an installment plan.
C)If the Nestors do not have sufficient assets to pay the deficiency, the IRS may negotiate an offer in compromise for a lesser payment.
D)Statements A.and C.are false.

Question 78

Mr. and Mrs. Clyde were married for 21 years before Mrs. Clyde divorced her husband in 2011. This year, the IRS determined that the Clydes underpaid their 2011 tax by $19,650. In which case would Mrs. Clyde be relieved of liability for the underpayment under the innocent spouse rule?

A)Mrs.Clyde did not read through the Form 1040 before she signed it.
B)Mrs.Clyde remarried this year and is now Mrs.Novak.
C)Mr.Clyde was the sole income earner during the entire marriage.
D)None of the above.

Question 79

The IRS assessed Ms. Tinlock a $3,050 income tax deficiency. Which of the following steps can the IRS not take to collect the deficiency?

A)Seize Ms.Tinlock's assets and sell them at auction.
B)Garnish Ms.Tinlock's salary.
C)Assess the deficiency against Ms.Tinlock's children age 21 years or older.
D)The IRS can take all of the above steps to collect the deficiency.

Question 80

Mrs. Lui decided to contest a negligence penalty in federal court. Which of the following statements is true?

A)Mrs.Lui must present a preponderance of evidence establishing that she was not negligent.
B)The government must present a preponderance of evidence establishing that Mrs.Lui was negligent.
C)The government must present clear and convincing evidence that Mrs.Lui was negligent.
D)The government must establish Mrs.Lui's negligence beyond any reasonable doubt.