Question 1

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

Accepted Answer

A)  The most probable outcome of an audit is that the taxpayer will be assessed a deficiency. 
B)  An audit can't result in a refund of tax due to the taxpayer. 
C)  If a revenue agent finds no mistakes on a return during an audit, the agent files a report concluding "no change." 
D)  None of the above is false. 
A)  The most probable outcome of an audit is that the taxpayer will be assessed a deficiency. 
B)  An audit can't result in a refund of tax due to the taxpayer. 
C)  If a revenue agent finds no mistakes on a return during an audit, the agent files a report concluding "no change." 
D)  None of the above is false.

Question 2

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

Accepted Answer

A)  Details of the DIF score computation are available on the IRS website. 
B)  The lower the DIF score assigned to a tax return, the higher the probability that the return will be selected for audit. 
C)  The DIF score theoretically measures a tax return's potential for generating additional revenue on audit. 
D)  Taxpayers can contact the IRS to determine their DIF score before filing their annual tax return. 
A)  Details of the DIF score computation are available on the IRS website. 
B)  The lower the DIF score assigned to a tax return, the higher the probability that the return will be selected for audit. 
C)  The DIF score theoretically measures a tax return's potential for generating additional revenue on audit. 
D)  Taxpayers can contact the IRS to determine their DIF score before filing their annual tax return.

Question 3

A person can't be relieved of liability for a tax deficiency under the innocent spouse rule if that person enjoyed significant financial benefit from taxable income omitted from the return.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  Mr. Clarke is self-employed and reported $723,900 net profit on his Schedule C. 
B)  Mr. Clarke has four dependent children under age 17. 
C)  Mr. Clarke is a resident of California. 
D)  None of the above should increase the likelihood of audit. 
A)  Mr. Clarke is self-employed and reported $723,900 net profit on his Schedule C. 
B)  Mr. Clarke has four dependent children under age 17. 
C)  Mr. Clarke is a resident of California. 
D)  None of the above should increase the likelihood of audit.

Question 5

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

Accepted Answer

A)  All litigation of tax cases must begin in the U.S. Tax Court. 
B)  The Tax Court Small Cases division allows taxpayers to plead their case without an attorney. 
C)  After all appeals are exhausted, the IRS may collect the deficiency by whatever means necessary. 
D)  The government's goal is to collect the most feasible amount at the earliest possible time at the least cost to the government. 
A)  All litigation of tax cases must begin in the U.S. Tax Court. 
B)  The Tax Court Small Cases division allows taxpayers to plead their case without an attorney. 
C)  After all appeals are exhausted, the IRS may collect the deficiency by whatever means necessary. 
D)  The government's goal is to collect the most feasible amount at the earliest possible time at the least cost to the government.

Question 6

Which of the following statements about criminal tax fraud is false?

Accepted Answer

A)  Criminal tax fraud is a felony offense. 
B)  A taxpayer must be convicted of criminal tax fraud in federal court. 
C)  Individuals who are convicted of criminal tax fraud may be fined or imprisoned or both. 
D)  None of the above is false. 
A)  Criminal tax fraud is a felony offense. 
B)  A taxpayer must be convicted of criminal tax fraud in federal court. 
C)  Individuals who are convicted of criminal tax fraud may be fined or imprisoned or both. 
D)  None of the above is false.

Question 7

Mr. Bennett is a professional tax return preparer. Three years ago, he prepared the 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?

Accepted Answer

a. $7,500 (greater of $1,000 or 50% of c

Question 8

A taxpayer who wants a jury trial must pay the tax deficiency and then sue the government for a refund in U.S. District Court.

Accepted Answer

A) True 
 B)False

Question 9

A special agent is assigned to a tax investigation to determine if the government has enough evidence to indict the taxpayer for criminal fraud.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  If a taxpayer is assessed a deficiency, the government will charge interest on the deficiency regardless of the reason for the deficiency. 
B)  Individuals who pay interest on a tax deficiency can deduct it as an itemized deduction. 
C)  Individuals who pay interest on a tax deficiency can deduct it as a business expense. 
D)  Statements A. and B. are both true. 
A)  If a taxpayer is assessed a deficiency, the government will charge interest on the deficiency regardless of the reason for the deficiency. 
B)  Individuals who pay interest on a tax deficiency can deduct it as an itemized deduction. 
C)  Individuals who pay interest on a tax deficiency can deduct it as a business expense. 
D)  Statements A. and B. are both true.

Question 11

Corporations are allowed to deduct interest paid on an income tax deficiency as a business expense.

Accepted Answer

A) True 
 B)False

Question 12

Taxpayers should keep all supporting documentation (credit card statements, etc.) for a tax return for at least three years after the return is filed.

Accepted Answer

A) True 
 B)False

Question 13

Mr. and Mrs. Lester failed to report a $40,540 capital gain on their 2015 Form 1040. The gross income reported on the return was $169,404, and the return was filed on January 20, 2016. What is the last date on which the IRS can assess additional tax for 2016?

Accepted Answer

The unreported income does not exceed 25

Question 14

Who of the following can't represent a taxpayer during an interview with the IRS?

Accepted Answer

A)  An enrolled agent 
B)  A certified public accountant 
C)  An attorney 
D)  All of the above can represent the taxpayer. 
A)  An enrolled agent 
B)  A certified public accountant 
C)  An attorney 
D)  All of the above can represent the taxpayer.

Question 15

Taxpayers who can't complete their tax return by the filing date can request an automatic extension of time to file the return and pay any balance of tax due.

Accepted Answer

A) True 
 B)False

Question 16

If the IRS assesses additional tax against a corporation after it has liquidated, the shareholders can't be held liable for the tax due.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A)  They may request that a different revenue agent conduct a second audit. 
B)  They must appeal the result of the audit to the regional Appeals Office of the IRS. 
C)  They must pay the deficiency and sue the federal government for a refund. 
D)  They must file a petition with the U.S. Tax Court. 
A)  They may request that a different revenue agent conduct a second audit. 
B)  They must appeal the result of the audit to the regional Appeals Office of the IRS. 
C)  They must pay the deficiency and sue the federal government for a refund. 
D)  They must file a petition with the U.S. Tax Court.

Question 18

Employees who deliberately have excess income tax withheld from their salaries in order to receive a tax refund are making an interest-free loan of the excess withholding to the government.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  Mrs. McNut is self-employed and reported a $112,000 loss on her Schedule C. 
B)  The McNuts claim two additional standard deductions because they are both over age 65. 
C)  The McNuts reported a $12,600 nonbusiness bad debt for a loan to their grandchild as a capital loss on Schedule D. 
D)  Both A. and C. should increase the likelihood of audit. 
A)  Mrs. McNut is self-employed and reported a $112,000 loss on her Schedule C. 
B)  The McNuts claim two additional standard deductions because they are both over age 65. 
C)  The McNuts reported a $12,600 nonbusiness bad debt for a loan to their grandchild as a capital loss on Schedule D. 
D)  Both A. and C. should increase the likelihood of audit.

Question 20

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

Accepted Answer

A)  Correspondence examination 
B)  Office examination 
C)  Field examination 
D)  All of the above 
A)  Correspondence examination 
B)  Office examination 
C)  Field examination 
D)  All of the above

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

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

A person can't be relieved of liability for a tax deficiency under the innocent spouse rule if that person enjoyed significant financial benefit from taxable income omitted from the return.

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

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

Which of the following statements about criminal tax fraud is false?

A taxpayer who wants a jury trial must pay the tax deficiency and then sue the government for a refund in U.S. District Court.

A special agent is assigned to a tax investigation to determine if the government has enough evidence to indict the taxpayer for criminal fraud.

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

Corporations are allowed to deduct interest paid on an income tax deficiency as a business expense.

Taxpayers should keep all supporting documentation (credit card statements, etc.) for a tax return for at least three years after the return is filed.

Mr. and Mrs. Lester failed to report a $40,540 capital gain on their 2015 Form 1040. The gross income reported on the return was $169,404, and the return was filed on January 20, 2016. What is the last date on which the IRS can assess additional tax for 2016?

Who of the following can't represent a taxpayer during an interview with the IRS?

Taxpayers who can't complete their tax return by the filing date can request an automatic extension of time to file the return and pay any balance of tax due.

If the IRS assesses additional tax against a corporation after it has liquidated, the shareholders can't be held liable for the tax due.

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?

Employees who deliberately have excess income tax withheld from their salaries in order to receive a tax refund are making an interest-free loan of the excess withholding to the government.

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

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

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

Filters

Exam 18: The Tax Compliance Process

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

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

A person can't be relieved of liability for a tax deficiency under the innocent spouse rule if that person enjoyed significant financial benefit from taxable income omitted from the return.

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

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

Which of the following statements about criminal tax fraud is false?

A taxpayer who wants a jury trial must pay the tax deficiency and then sue the government for a refund in U.S. District Court.

A special agent is assigned to a tax investigation to determine if the government has enough evidence to indict the taxpayer for criminal fraud.

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

Corporations are allowed to deduct interest paid on an income tax deficiency as a business expense.

Taxpayers should keep all supporting documentation (credit card statements, etc.) for a tax return for at least three years after the return is filed.

Mr. and Mrs. Lester failed to report a $40,540 capital gain on their 2015 Form 1040. The gross income reported on the return was $169,404, and the return was filed on January 20, 2016. What is the last date on which the IRS can assess additional tax for 2016?

Who of the following can't represent a taxpayer during an interview with the IRS?

Taxpayers who can't complete their tax return by the filing date can request an automatic extension of time to file the return and pay any balance of tax due.

If the IRS assesses additional tax against a corporation after it has liquidated, the shareholders can't be held liable for the tax due.

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?

Employees who deliberately have excess income tax withheld from their salaries in order to receive a tax refund are making an interest-free loan of the excess withholding to the government.

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

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

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

Filters