Exam 2: Tax Compliance, the Irs, and Tax Authorities

Nolene suspects that one of her new clients may be intentionally underreporting his taxable income.What are the potential ramifications to her client for this behavior? What are the consequences to Nolene if she assists the client in underreporting income? Any advice for Nolene?

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Question 1

Correct Answer:

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There are serious ramifications for committing fraud for both the taxpayer and the tax practitioner.First, there is no statute of limitations on assessing tax due to fraudulent reporting.Thus, Nolene's client will be at risk for additional tax, interest, penalties, etc., for the period of time he commits fraud.Second, the penalties associated with fraud are substantial.In addition to having to pay the assessed tax and interest on the assessed tax (which can be quite substantial), the client may be subject to both civil and criminal penalties for fraud.Both penalties carry potentially substantial monetary fines, and the criminal penalty may include a prison term.
For Nolene, assisting in fraud will clearly violate her professional responsibilities established by the Statements on Standards for Tax Services, Circular 230, and her state board of accountancy.She will also be subject potentially to both civil and criminal penalties.
Nolene should discuss the severe negative consequences of committing tax fraud (civil and criminal penalties)as well as her own professional standards with her client.If Nolene suspects that her client is not fully reporting his income, she should carefully consider terminating the client relationship.

For the following tax returns, identify the method the IRS likely used to select the return for audit. a.Dan made a mistake in adding his income on his tax return. b.Juanita failed to report her salary from her second job on her tax return. c.Michael and Venita deducted a relatively large amount of travel expenses on their tax return for their business.The travel expense is large relative to other taxpayers in similar businesses with similar levels of income. d.Paul and Melissa recently went through a very nasty divorce.One of the issues was Paul's less than forthright accounting of his income in determining the appropriate level of alimony.

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Question 2

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(a)Document perfection (b)Information matching (c)DIF system (d)Spousal tip.

The Internal Revenue Code and tax treaties are examples of statutory authorities.

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(True/False)

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Question 3

Correct Answer:

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True

Rebecca is at a loss.A new tax law was recently passed, and she needs to get a better understanding of why the tax law was passed and the intent of the law from an official authority.Describe what authorities may be especially helpful to Rebecca and why she can't find many authorities that discuss the new law.

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Question 4

Secondary authorities are official sources of the tax law with a lesser "weight" than primary authorities.

(True/False)

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Question 5

Which of the following is a false statement? A taxpayer filing a fraudulent tax return:

(Multiple Choice)

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Question 6

The tax return filing requirements for individual taxpayers only depend on the taxpayer's filing status.

(True/False)

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Question 7

Office examinations are the most common type of IRS audit.

(True/False)

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Question 8

If Paula requests an extension to file her individual tax return in a timely manner, the latest she could file her return without a failure-to-file penalty is:

(Multiple Choice)

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Question 9

Kim has decided to litigate a tax issue with the IRS.Describe the trial - level courts that Kim may use to litigate the case.

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Question 10

Temporary regulations have more authoritative weight than revenue rulings.

(True/False)

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Question 11

For the 2019 tax returns, indicate when the statute of limitations expires and why. a.Phoenix filed his tax return on February 28, 2020. b.Jill and Randy filed their tax return on August 16, 2020. c.Although required to file, Catherine chose not to file a tax return this year because she was expecting a tax refund and could not pull together all the information needed to file the return. d.Jerry filed his tax return on May 22, 2020, but has accidentally underreported his taxable income by 30 percent.

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Question 12

Which of the following has the lowest authoritative weight?

(Multiple Choice)

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Question 13

Jaime recently found a "favorable" trial-level court opinion directly on point for her tax question.Which trial-level court would she prefer to have issued the opinion?

(Multiple Choice)

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Question 14

The IRS DIF system checks each tax return for mathematical mistakes and errors.

(True/False)

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Question 15

Josephine is considering taking a six-month rotation in Paris for her job.Which type of authority may be especially helpful in determining the tax consequences of Josephine's job in Paris?

(Multiple Choice)

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Question 16

Lakeisha, a first-year staff accountant, was researching a tax issue and found what appears to be the answer to her question in her introductory tax textbook that she bought three years ago.She is thrilled because she thought it would take much longer to find her answer.What type of authority is the textbook? What are other examples of this type of authority? Can Lakeisha base her research conclusion on the textbook or similar authorities? Any suggestions for Lakeisha?

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Question 17

In researching a question of fact, the researcher should focus her efforts on identifying authorities with fact patterns similar to her client's facts.

(True/False)

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Question 18

In general, a CPA will satisfy his professional responsibilities under the Statements on Standards for Tax Services when recommending a tax return position if he complies with the standards imposed by the applicable tax authority.

(True/False)

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Question 19

Which of the following is not a source of a tax practitioner's professional responsibilities?

(Multiple Choice)

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Question 20

Showing 1 - 20 of 112

Nolene suspects that one of her new clients may be intentionally underreporting his taxable income.What are the potential ramifications to her client for this behavior? What are the consequences to Nolene if she assists the client in underreporting income? Any advice for Nolene?

The Internal Revenue Code and tax treaties are examples of statutory authorities.

Secondary authorities are official sources of the tax law with a lesser "weight" than primary authorities.

Which of the following is a false statement? A taxpayer filing a fraudulent tax return:

The tax return filing requirements for individual taxpayers only depend on the taxpayer's filing status.

Office examinations are the most common type of IRS audit.

If Paula requests an extension to file her individual tax return in a timely manner, the latest she could file her return without a failure-to-file penalty is:

Kim has decided to litigate a tax issue with the IRS.Describe the trial - level courts that Kim may use to litigate the case.

Temporary regulations have more authoritative weight than revenue rulings.

Which of the following has the lowest authoritative weight?

Jaime recently found a "favorable" trial-level court opinion directly on point for her tax question.Which trial-level court would she prefer to have issued the opinion?

The IRS DIF system checks each tax return for mathematical mistakes and errors.

Josephine is considering taking a six-month rotation in Paris for her job.Which type of authority may be especially helpful in determining the tax consequences of Josephine's job in Paris?

In researching a question of fact, the researcher should focus her efforts on identifying authorities with fact patterns similar to her client's facts.

In general, a CPA will satisfy his professional responsibilities under the Statements on Standards for Tax Services when recommending a tax return position if he complies with the standards imposed by the applicable tax authority.

Which of the following is not a source of a tax practitioner's professional responsibilities?

An Introduction to Tax

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Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

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Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

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