Exam 18: The Tax Compliance Process

The revenue agent who audited Mr. and Mrs. Wilke's 2018 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 fact that a taxpayer receives a refund check indicates that the IRS is satisfied with the accuracy of the taxpayer's return.

Which of the following statements about the tax deficiency appeals process is false?

Which of the following should increase the likelihood that Ms. Piper's Form 1040 will be selected for audit by the IRS?

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 statements about tax fraud is true?

F&D Inc. ceased operations and dissolved under state law in 2018. Mrs. Herron, a 20% shareholder, received a $490,300 liquidating distribution from F&D. This year, the IRS determined that F&D underpaid its 2017 and 2018 income tax by $967,100. How much of this deficiency can the IRS assess against Mrs. Herron?

Mrs. Jordan applied for an automatic six-month extension of time (until October 15, 2020) to file her 2019 income tax return. She filed an accurate return on July 9, 2020. The IRS may audit the return and assess Mrs. Jordan for additional 2019 tax at any time through:

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

Mr. and Mrs. Clyde were married for 21 years before Mrs. Clyde divorced her husband in 2018. This year, the IRS determined that the Clydes underpaid their jointly filed 2017 tax by $19,650. In which case would Mrs. Clyde be relieved of liability for the underpayment under the innocent spouse rule?

Mr. Boyd is a bookkeeper for a local auto repair company. Several years ago, he began to prepare federal income tax returns for his friends and relatives and has developed this sideline into a profitable business. Which of the following statements is false?

Which of the following statements about the tax litigation process is false?

This year, the IRS audited Mr. and Mr. Simon's 2018 income tax return and determined that they underpaid their tax by $13,780. Which of the following statements is true?

In which of the following is not a condition for relief of liability under the innocent spouse rule?

An individual who didn't graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate.

The IRS determined that Ernie Bledsoe underpaid his 2018 income tax by $11,200. Ernie's Form 1040 for that year reported an income tax liability of $31,800, so his correct 2018 income tax was $43,000 ($11,200 deficiency + $31,800 reported tax). Compute Ernie's penalty for a substantial understatement of income tax.

The IRS can't imposean accuracy-related penalty on an individual who relied on the advice of a CPA in preparing his tax return.

Ms. Hepp filed her 2019 Form 1040 on February 19, 2020. The return showed a $2,730 overpayment of tax, and Ms. Hepp received her refund check from the IRS on April 30, 2020. Which of the following statements is true?

Taxpayers who win their case in court are automatically entitled to recover litigation expenses from the government.