Question 1

Explain what is meant by the statute of limitations.

Accepted Answer

The statute of limitations is the period of time beyond which legal actions or changes to the tax return cannot be made by either the taxpayer or the government. Under most circumstances, the IRS cannot challenge a tax return later than three years after its due date or the date it was filed, if later.

Question 2

A six-year statute of limitations applies if the taxpayer

Accepted Answer

A)  understates adjusted gross income by 25% 
B)  understates taxable income by 25% 
C)  understates gross income by 25% 
D)  overstates deduction by 25% 
A)  understates adjusted gross income by 25% 
B)  understates taxable income by 25% 
C)  understates gross income by 25% 
D)  overstates deduction by 25% C

Question 3

Carol wants to invest in a project that requires a $20,000 investment. She expects a before-tax return of $16,000 in years 1 through 3 from this investment. She uses a 6 percent discount rate for evaluation but is not sure if her marginal tax rate will be 12 percent or 24 percent. What difference does the marginal tax rate make in the after-tax net present value of this investment?

Accepted Answer

$5,132 with the lower tax rate; 24% tax rate: ($16,000 x .76 x .943) + ($16,000 x .76 x .890) + ($16,000 x .76 x .840) = $32,504; 12% tax rate: ($16,000 x .88 x .943) + ($16,000 x .88 x .890) + ($16,000 x .88 x .840) = $37,636; Difference = $37,636 - $32,504 = $5,132 with the lower tax rate.
Present/Future value tables required for solution.

Question 4

What is the penalty for taxpayers who fail to pay their tax liability with a timely filed tax return for the taxes owing?

Accepted Answer

A)  5% per month 
B)  2% per month 
C)  0.5% per month 
D)  $100 per month 
A)  5% per month 
B)  2% per month 
C)  0.5% per month 
D)  $100 per month

Question 5

An offer in compromise is initiated by

Accepted Answer

A)  The Tax Court 
B)  A Revenue agent 
C)  The taxpayer 
D)  IRS General Council 
A)  The Tax Court 
B)  A Revenue agent 
C)  The taxpayer 
D)  IRS General Council

Question 6

What are the steps that are usually required between introduction and passage of a revenue bill?

Accepted Answer

a. A revenue bill is introduced into the

Question 7

If the Supreme Court decides to hear an appeal of a tax case, it will grant a

Accepted Answer

A)  writ of habeas corpus 
B)  writ of stare decisis 
C)  writ of appeal remanding 
D)  writ of certiorari 
A)  writ of habeas corpus 
B)  writ of stare decisis 
C)  writ of appeal remanding 
D)  writ of certiorari

Question 8

The primary source of tax authority that provides explanations, definitions, and examples of tax laws is the

Accepted Answer

A)  Internal Revenue Code 
B)  Revenue rulings 
C)  Regulations 
D)  Letter rulings 
A)  Internal Revenue Code 
B)  Revenue rulings 
C)  Regulations 
D)  Letter rulings

Question 9

Which type of audit is most frequently used for examination of business returns?

Accepted Answer

A)  Correspondence audit 
B)  Office audit 
C)  Noncompliance audit 
D)  Field audit 
A)  Correspondence audit 
B)  Office audit 
C)  Noncompliance audit 
D)  Field audit

Question 10

Explain the Golsen rule.

Accepted Answer

The Golsen rule requires the Tax Court t

Question 11

Explain the difference between tax avoidance and tax evasion.

Accepted Answer

Tax avoidance is the lawful us

Question 12

What is the difference between an interpretive regulation and a legislative regulation?

Accepted Answer

Interpretive regulations provide example

Question 13

What is the first notice of a proposed deficiency that a taxpayer receives?

Accepted Answer

A)  Examination letter 
B)  90-day letter 
C)  60-day letter 
D)  30-day letter 
A)  Examination letter 
B)  90-day letter 
C)  60-day letter 
D)  30-day letter

Question 14

The Internal Revenue Code is divided into

Accepted Answer

A)  Chapters and sections only 
B)  Titles and subtitles only 
C)  Subtitles, chapters, subchapters and sections 
D)  Titles, chapters and sections 
A)  Chapters and sections only 
B)  Titles and subtitles only 
C)  Subtitles, chapters, subchapters and sections 
D)  Titles, chapters and sections

Question 15

The Golsen rule requires the Tax Court to follow all other Federal District Court decisions in the same Circuit.

Accepted Answer

A) True 
 B)False

Question 16

Explain the step transaction doctrine.

Accepted Answer

The step transaction doctrine is normall

Question 17

Which penalty can equal 75 percent of the tax underpayment?

Accepted Answer

A)  Failure to file 
B)  Failure to pay 
C)  Negligence 
D)  Fraud 
A)  Failure to file 
B)  Failure to pay 
C)  Negligence 
D)  Fraud

Question 18

Which of the following has the least weight of authority when deciding a tax issue?

Accepted Answer

A)  Code 
B)  Committee Reports 
C)  Regulations 
D)  Letter ruling 
A)  Code 
B)  Committee Reports 
C)  Regulations 
D)  Letter ruling

Question 19

How much tax can Charles save if he holds stock on which he has a $30,000 short-term gain until he can use the applicable 15 percent long-term capital gains tax rate? He is in the 32 percent marginal tax bracket for individuals.

Accepted Answer

A)  $5,100 
B)  $4,500 
C)  $3,000 
D)  $2,250 
A)  $5,100 
B)  $4,500 
C)  $3,000 
D)  $2,250

Question 20

If a project results in a loss, the tax effect causes a decrease in cash flow.

Accepted Answer

A) True 
 B)False

Explain what is meant by the statute of limitations.

A six-year statute of limitations applies if the taxpayer

What is the penalty for taxpayers who fail to pay their tax liability with a timely filed tax return for the taxes owing?

An offer in compromise is initiated by

What are the steps that are usually required between introduction and passage of a revenue bill?

If the Supreme Court decides to hear an appeal of a tax case, it will grant a

The primary source of tax authority that provides explanations, definitions, and examples of tax laws is the

Which type of audit is most frequently used for examination of business returns?

Explain the Golsen rule.

Explain the difference between tax avoidance and tax evasion.

What is the difference between an interpretive regulation and a legislative regulation?

What is the first notice of a proposed deficiency that a taxpayer receives?

The Internal Revenue Code is divided into

The Golsen rule requires the Tax Court to follow all other Federal District Court decisions in the same Circuit.

Explain the step transaction doctrine.

Which penalty can equal 75 percent of the tax underpayment?

Which of the following has the least weight of authority when deciding a tax issue?

How much tax can Charles save if he holds stock on which he has a $30,000 short-term gain until he can use the applicable 15 percent long-term capital gains tax rate? He is in the 32 percent marginal tax bracket for individuals.

If a project results in a loss, the tax effect causes a decrease in cash flow.

Introduction to Taxation

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters

Exam 2: The Tax Practice Environment

Explain what is meant by the statute of limitations.

A six-year statute of limitations applies if the taxpayer

What is the penalty for taxpayers who fail to pay their tax liability with a timely filed tax return for the taxes owing?

An offer in compromise is initiated by

What are the steps that are usually required between introduction and passage of a revenue bill?

If the Supreme Court decides to hear an appeal of a tax case, it will grant a

The primary source of tax authority that provides explanations, definitions, and examples of tax laws is the

Which type of audit is most frequently used for examination of business returns?

Explain the Golsen rule.

Explain the difference between tax avoidance and tax evasion.

What is the difference between an interpretive regulation and a legislative regulation?

What is the first notice of a proposed deficiency that a taxpayer receives?

The Internal Revenue Code is divided into

The Golsen rule requires the Tax Court to follow all other Federal District Court decisions in the same Circuit.

Explain the step transaction doctrine.

Which penalty can equal 75 percent of the tax underpayment?

Which of the following has the least weight of authority when deciding a tax issue?

How much tax can Charles save if he holds stock on which he has a $30,000 short-term gain until he can use the applicable 15 percent long-term capital gains tax rate? He is in the 32 percent marginal tax bracket for individuals.

If a project results in a loss, the tax effect causes a decrease in cash flow.

Introduction to Taxation

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters