Exam 18: The Tax Compliance Process

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

The IRS who audited Mr. Kodak's 2013 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.

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)?

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.

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

For no particularly good reason, Ms. Totter failed to file her current-year Form 1040 by the due date. Which of the following statements is false?

The IRS can't impose a negligence penalty on an individual who relied on the advice of a CPA in preparing his tax return.

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

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

Mr. and Mrs. Dint filed their 2015 Form 1040 on January 28, 2016. Assuming that the return does not contain any significant errors, what is the latest date that the IRS can assess any additional 2015 tax?

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

An individual who did not graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate.

Mr. Braco is an enrolled agent who prepares tax returns for a living. In preparing Mr. and Mrs. Colter's Form 1040, Mr. Braco claimed a deduction based on an unreasonable legal position. Mr. Braco's compensation for the return was $3,800. What is the consequence to Mr. Braco if the IRS disallows the deduction?

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

Ms. Hepp filed her 2015 Form 1040 on February 19, 2016. 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?

The revenue agent who audited Mr. Silver's 2013 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 2013. Which of the following statements is false?

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

Mr. Hepp, a self-employed consultant, failed to include a $38,200 income item on his 2015 Form 1040, which he filed on March 9, 2016. The gross income reported on the return was $102,380. What is the latest date that the IRS can assess any additional 2015 tax?

Mr. and Mrs. Latt use a fiscal year ending October 31 as the taxable year for filing their joint Form 1040. a. What is the last date on which the Latts can apply for an automatic extension of time to file their return for fiscal year ending October 31, 2016? b. Assuming that the Latts make a timely application, what is the extended due date for the return?

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.