Question 1

If the IRS assesses additional tax upon audit, a taxpayer may be subject to interest and penalties on the underpayment.

Accepted Answer

A) True 
 B)False

Question 2

Corporations are required to file a tax return annually regardless of their taxable income.

Accepted Answer

A) True 
 B)False

Question 3

For the following tax returns, identify which of the three audit types will most likely be utilized.
a. The IRS selected Don's return for audit because of his high itemized deductions. The IRS would like documentation of these deductions.
b. Large Public Corporation is a very large publicly traded corporation. It is involved in many complex transactions that have significant tax ramifications.
c. George and Barbara operate a small business out of their home. The IRS has identified a couple of issues that may relate to their business.
d. The IRS selected Bill and Hillary's tax return for review because of some of their investment sales. They would like a better understanding of the transactions and parties involved.

Accepted Answer

(a) Correspondence exam (b) Fi

Question 4

Which types of penalties are only imposed after normal due process including a trial?

Accepted Answer

A)  criminal penalties. 
B)  civil penalties. 
C)  criminal and civil penalties. 
D)  tax return. 
E)  None of these. 
A)  criminal penalties. 
B)  civil penalties. 
C)  criminal and civil penalties. 
D)  tax return. 
E)  None of these.

Question 5

Office examinations are the most common type of IRS audit.

Accepted Answer

A) True 
 B)False

Question 6

Temporary Regulations have more authoritative weight than revenue rulings.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not a common tool used in conducting tax research?

Accepted Answer

A)  citator. 
B)  annotated tax service. 
C)  topical tax service. 
D)  keyword search. 
E)  None of these. 
A)  citator. 
B)  annotated tax service. 
C)  topical tax service. 
D)  keyword search. 
E)  None of these.

Question 8

Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or (2) filing a petition with the U.S. Tax Court. Basu received the:

Accepted Answer

A)  30-day letter. 
B)  90-day letter. 
C)  Appeals letter. 
D)  Tax adjustment letter. 
E)  None of these. 
A)  30-day letter. 
B)  90-day letter. 
C)  Appeals letter. 
D)  Tax adjustment letter. 
E)  None of these.

Question 9

A tax practitioner can avoid IRS penalty relating to a tax return position:

Accepted Answer

A)  only if the position has a more likely than not chance of being sustained by the IRS or courts. 
B)  if the position has a realistic possibility of being sustained by the IRS or courts. 
C)  if there is not substantial authority to support the position. 
D)  if the position has a reasonable basis and is disclosed on the tax return. 
E)  None of these. 
A)  only if the position has a more likely than not chance of being sustained by the IRS or courts. 
B)  if the position has a realistic possibility of being sustained by the IRS or courts. 
C)  if there is not substantial authority to support the position. 
D)  if the position has a reasonable basis and is disclosed on the tax return. 
E)  None of these.

Question 10

The three basic types of IRS examinations are computer exams, office exams, and business exams.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is not a source of a tax practitioner's professional responsibilities?

Accepted Answer

A)  AICPA Code of Professional Conduct. 
B)  Statements on Standards for Tax Services. 
C)  Circular 230. 
D)  State Board of Accountancy statutes. 
E)  None of these. 
A)  AICPA Code of Professional Conduct. 
B)  Statements on Standards for Tax Services. 
C)  Circular 230. 
D)  State Board of Accountancy statutes. 
E)  None of these.

Question 12

Proposed and Temporary Regulations have the same authoritative weight.

Accepted Answer

A) True 
 B)False

Question 13

Mel recently received a 30-day letter from the IRS. Although his tax return being audited has several potential large issues (potential tax consequences of $70,000 - $80,000), the IRS agent auditing his return only identified one item that will require a more modest adjustment ($10,000). Mel feels strongly that the $10,000 adjustment would not hold in court and was surprised that the IRS agent did not identify some of the other potential larger issues. What are Mel's choices with the 30 day letter and what factors should influence his decisions?

Accepted Answer

The "30-day letter" instructs the taxpay

Question 14

Which of the following is not considered a primary authority?

Accepted Answer

A)  Tax Court case 
B)  Regulation 
C)  Revenue ruling 
D)  Tax service 
E)  None of these. 
A)  Tax Court case 
B)  Regulation 
C)  Revenue ruling 
D)  Tax service 
E)  None of these.

Question 15

Rebecca is at a loss. A new tax law was recently passed, and she needs to get a better understanding of why the tax law was passed and the intent of the law from an official authority. Describe what authorities may be especially helpful to Rebecca and why she can't find many authorities that discuss the new law.

Accepted Answer

The House Ways and Means Committee, Sena

Question 16

The regulation with the lowest authoritative weight is the:

Accepted Answer

A)  procedural regulation 
B)  interpretative regulation 
C)  proposed regulation 
D)  legislative regulation 
E)  None of these 
A)  procedural regulation 
B)  interpretative regulation 
C)  proposed regulation 
D)  legislative regulation 
E)  None of these

Question 17

If a taxpayer is due a refund, she does not have to file a tax return.

Accepted Answer

A) True 
 B)False

Question 18

In researching a question of fact, the researcher will focus her efforts on identifying authorities with fact patterns similar to her client's facts.

Accepted Answer

A) True 
 B)False

Question 19

An extension to file a tax return does not extend the due date for tax payments.

Accepted Answer

A) True 
 B)False

Question 20

A taxpayer can avoid a substantial understatement of tax penalty:

Accepted Answer

A)  if the position is frivolous and disclosed on the tax return. 
B)  if the position has a realistic possibility of being sustained by the IRS or courts. 
C)  if the position is not frivolous and disclosed on the tax return. 
D)  if the position has a reasonable basis and is disclosed on the tax return. 
E)  None of these. 
A)  if the position is frivolous and disclosed on the tax return. 
B)  if the position has a realistic possibility of being sustained by the IRS or courts. 
C)  if the position is not frivolous and disclosed on the tax return. 
D)  if the position has a reasonable basis and is disclosed on the tax return. 
E)  None of these.

Exam 2: Tax Compliance, the Irs, and Tax Authorities

If the IRS assesses additional tax upon audit, a taxpayer may be subject to interest and penalties on the underpayment.

Corporations are required to file a tax return annually regardless of their taxable income.

Which types of penalties are only imposed after normal due process including a trial?

Office examinations are the most common type of IRS audit.

Temporary Regulations have more authoritative weight than revenue rulings.

Which of the following is not a common tool used in conducting tax research?

Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or (2) filing a petition with the U.S. Tax Court. Basu received the:

A tax practitioner can avoid IRS penalty relating to a tax return position:

The three basic types of IRS examinations are computer exams, office exams, and business exams.

Which of the following is not a source of a tax practitioner's professional responsibilities?

Proposed and Temporary Regulations have the same authoritative weight.

Which of the following is not considered a primary authority?

The regulation with the lowest authoritative weight is the:

If a taxpayer is due a refund, she does not have to file a tax return.

In researching a question of fact, the researcher will focus her efforts on identifying authorities with fact patterns similar to her client's facts.

An extension to file a tax return does not extend the due date for tax payments.

A taxpayer can avoid a substantial understatement of tax penalty:

An Introduction to Tax

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

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