Exam 18: The Tax Compliance Process

Mr.and Mrs.Clyde were married for 21 years before Mrs.Clyde divorced her husband in 2017.This year,the IRS determined that the Clydes underpaid their jointly filed 2016 tax by $19,650.In which case would Mrs.Clyde be relieved of liability for the underpayment under the innocent spouse rule?

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

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 30,2019.It filed the return on February 8,2020.The revenue agent who examined the return suspects that Linney may have substantially underreported income for the year.Which of the following is false?

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

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

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

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)?

The revenue agent who audited Mr.and Mrs.Wilke's 2017 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.

The IRS who audited Mr.Kodak's 2016 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.

F&D Inc.ceased operations and dissolved under state law in 2016.Mrs.Herron,a 20% shareholder,received a $490,300 liquidating distribution from F&D.This year,the IRS determined that F&D underpaid its 2015 and 2016 income tax by $967,100.How much of this deficiency can the IRS assess against Mrs.Herron?

Mr.Beale prepared and signed his 2018 tax return on April 3,2019.However,he carelessly forgot to mail the return until May 19.He enclosed his check for the $11,940 balance of tax due with the return.Compute Mr.Beale's late-filing and late-payment penalty.

Gretchen's 2018 tax return,due April 15,2019,was filed on July 9,2019.Her tax due with the return was $1,200.Gretchen owes a late filing penalty of $180.

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

Only one spouse must sign a jointly filed Form 1040.

Mrs.Claire underpaid her current-year 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.

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

The revenue agent who audited Mr.Silver's 2017 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 2017.Which of the following statements is false?

Mr.and Mrs.Lester failed to report a $40,540 capital gain on their 2018 Form 1040.The gross income reported on the return was $169,404,and the return was filed on January 20,2019.What is the last date on which the IRS can assess additional tax for 2018?

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.

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