Exam 18: The Tax Compliance Process

Which of the following statements about taxpayer responsibility is false?

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

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

Which type of audit is handled by a revenue agent?

Mr.Bennett is a professional tax return preparer.Three years ago,he prepared Form 1120 for Philly Inc.His fee for the preparation was $15,000.Upon audit of the return,the IRS disallowed a $100,000 deduction,which increased the corporation's tax by $35,000.Compute Mr.Bennett's preparer penalty if the IRS concludes that: a.Mr.Bennett had no reasonable legal basis for claiming the deduction and was not acting in good faith by doing so. b.Mr.Bennett intentionally disregarded the tax law by claiming the deduction in a willful attempt to understate Philly's tax. c.How would your answers to a.and b.change if Mr.Bennett's preparation fee was only $6,000?

Taxpayers who cannot complete their tax return by the filing date can request an extension of time to pay any tax due for the year.

This year,the IRS audited Mr.and Mr.Simon's 2017 income tax return and determined that they underpaid their tax by $13,780.Which of the following statements is true?

Mr.and Mrs.Dint filed their 2018 Form 1040 on January 28,2019.Assuming that the return does not contain any significant errors,what is the latest date that the IRS can assess any additional 2018 tax?

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

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?

After auditing Jayne Morgan's 2017 Form 1040,the IRS assessed a $19,900 deficiency of income tax.Jayne's return reported $218,000 tax so,her correct 2017 income tax was $237,900 ($19,900 deficiency + $218,000 reported tax).Compute Jayne's penalty for a substantial understatement of income tax.

Mr.and Mrs.Chung filed their unextended 2018 Form 1040 on May 30,2019,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.

Ms.Hepp filed her 2018 Form 1040 on February 19,2019.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?

During the audit of Mr.and Mrs.Luce's income tax return,the revenue agent concluded that the couple had claimed a $26,300 deduction that was not allowed by law.The improper deduction reduced the couple's tax by $9,205.The Luces' total tax deficiency was $13,890. a.Compute the penalty that the IRS agent can impose if he concludes that the improper deduction was attributable to negligence. b.Compute the penalty that the IRS agent can impose if he concludes that the improper deduction was attributable to fraud.

Mr.Fiocchi filed his unextended 2018 Form 1040 on July 22,2019,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.

Ms.Dela filed her unextended 2018 Form 1040 on November 2,2019,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.

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

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

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

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.