Exam 18: The Tax Compliance Process

The IRS selects returns to audit that have the highest probability of generating additional revenue.

The Taxpayer's Bill of Rights prevents the IRS from seizing a taxpayer's assets to satisfy a tax deficiency.

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

The revenue agent who audited Mr. Silver's 2018 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 2018. Which of the following statements is false?

Who of the following cannot represent a taxpayer during an interview with the IRS?

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 should increase the likelihood that Mr. Clarke's Form 1040 will be selected for audit by the IRS?

Tony Curtis filed her 2019 income tax return on May 2, 2020. Which of the following statements is false?

Which of the following statements about the DIF score is true?

Mr. Hepp, a self-employed consultant, failed to include a $38,200 income item on his 2019 Form 1040, which he filed on March 9, 2020. The gross income reported on the return was $102,380. What is the latest date that the IRS can assess any additional 2019 tax?

Which type of audit can be handled entirely by telephone or through the mail?

Which type of audit takes place at the taxpayer's place of business?

Mr. Beale prepared and signed his 2019 tax return on April 3, 2020. 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.

Which of the following statements about a tax deficiency is true?

After auditing Jayne Morgan's 2018 Form 1040, the IRS assessed a $19,900 deficiency of income tax. Jayne's return reported $218,000 tax, her correct 2018 income tax was $237,900 ($19,900 deficiency + $218,000 reported tax). Compute Jayne's penalty for a substantial understatement of income tax.

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.Compute the penalty that the IRS agent can impose if he concludes that the improper deduction was attributable to negligence.Compute the penalty that the IRS agent can impose if he concludes that the improper deduction was attributable to fraud.

If a taxpayer has insufficient financial means to pay a deficiency, the IRS may accept the taxpayer's offer in compromise to settle the deficiency for a lesser amount.

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

Which of the following should increase the likelihood that Mr. and Mrs. McNut's Form 1040 will be selected for audit by the IRS?

A person can't be relieved of liability for a tax deficiency under the innocent spouse rule unless that person was forced to sign the tax return under duress.