Exam 12: Tax Administration and Tax Planning

Indicate the date that the statute of limitations would run out on the following situations: ​ a.The IRS assesses additional taxes for a 2013 tax return audit on May 5, 2015.How long does the IRS have to collect the tax? b.On April 1, 2015, the IRS asks for and the taxpayer agrees to an additional year to complete an audit for a 2011 tax return which was filed on March 9, 2012. c.Jeremy reported $10,000 of worthless debt on his 2014 tax return which he filed on August 3, 2015. d.Jenny files her 2015 tax return on February 25, 2016. e.James omits 7 percent of his income on his 2013 tax return which he filed on July 12, 2014.

Which of the following taxpayers will benefit most in terms of dollars saved as a result of tax planning to reduce taxes?

Which of the following is the best definition of tax planning?

The tax law contains a penalty for filing a "frivolous" tax return.

The IRS may issue a summons for a taxpayer's bank account records.

Tax practitioners can be assessed a penalty for promoting an abusive tax shelter.

Stephanie has taxable income of $48,200 and a tax liability of $7,913. If Stephanie's income increases by $4,000, her tax liability will be $8,913. ​ a.What is her average tax rate on the $48,200 of income? b.What is her marginal tax rate?

Kendall is considering the purchase of a home. He has saved $22,000 for a down payment on a home and will finance the remainder of the purchase price with a home mortgage loan. Kendall currently rents an apartment for $1,200 per month and does not anticipate an increase in his monthly income. He wants to make sure that the monthly payment on his new home does not exceed $1,200, after-tax. Kendall has a marginal tax rate of 25 percent and an average tax rate of 22 percent. Assuming the monthly mortgage payment (before-tax) will be equal to 1 percent of the initial mortgage balance and the entire amount of each monthly payment will be deductible home mortgage interest, what is the maximum amount that Kendall can spend on a new home?

Taxpayers who are unable to pay their taxes may enter into a payment plan with the IRS if the amount they owe is within certain limits.

The Discriminant Function System is designed to identify tax returns that may contain errors.

Which category of tax preparers may represent their clients in only the most limited situations in front of the IRS?

Which of the following is not a type of IRS audit?

​Which of the following is not a characteristic around which tax planning is organized:

Which of the following statements best describes the purpose of the Taxpayer Bill of Rights?

Interest paid on an underpayment of taxes (other than an underpayment of estimated taxes) is not subject to the consumer interest limitation.

Patricia has taxable income of $40,000 on which she pays income tax of $5,856. If Patricia's taxable income increases by $2,000, she will pay an additional tax of $500. What is Patricia's marginal tax rate?

The statute of limitations for the deduction of a worthless security is 5 years.

The tax law is administered by the Federal Trade Commission.

A "correspondence audit" by the IRS is conducted through the mail.

The IRS determined that John underpaid his 2013 tax liability by $6,000 due to negligence. In 2015, John pays $1,000 of interest related to the underpayment and the full amount of any penalties assessed by the IRS. a.Calculate the amount of the accuracy-related penalty that could be assessed by the IRS in this situation. b.What part of the deficiency, income taxes, interest and penalty, is deductible by John on his current tax return? Explain.