Exam 18: The Tax Compliance Process

Linney Corporation, which uses a June 30 fiscal year end for tax purposes, requested an automatic six-month extension of time to file its return for FYE June 30, 2012. It filed the return on February 18, 2013. The revenue agent that examined the return suspects that Linney may have substantially underreported income for the year. Which of the following is false?

A professional tax return preparer must attach his or her signature and identifying number to each return prepared.

Which of the following statements about tax fraud is true?

Mrs. Hepp completed her 2011 Form 1040 on April 13, 2012. The return showed a $923 balance due. Mrs. Hepp needed more time to double check all her computations. What can Mrs. Hepp do to give herself more time?

Tony Curtis filed her 2011 income tax return on May 2, 2012. Which of the following statements is false?

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

If a taxpayer fails to pay a deficiency, the IRS can garnish the taxpayer's salary or wage to settle the liability.

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

Mr. and Mrs. Nestor were assessed a $51,240 income tax deficiency. Which of the following statements is false?

Which of the following statements about taxpayer responsibility is false?

Which type of audit is handled by a revenue agent?

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.

If the IRS requests information during the course of an audit, the taxpayer has the right to know how the information will be used.

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, 2012? b. Assuming that the Latts make a timely application, what is the extended due date for the return?

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

Mr. and Mrs. Clyde were married for 21 years before Mrs. Clyde divorced her husband in 2010. This year, the IRS determined that the Clydes underpaid their 2010 tax by $19,650. In which case would Mrs. Clyde be relieved of liability for the underpayment under the innocent spouse rule?

Mr. Beale prepared and signed his 2012 tax return on April 3, 2013. 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.

Mrs. Jordan applied for an automatic six-month extension of time (until October 15, 2012) to file her 2011 income tax return. She actually filed an accurate return on July 9, 2012. The IRS may audit the return and assess Mrs. Jordan for additional 2011 tax at any time through:

Only attorneys and CPAs may prepare tax returns for compensation.

Only the government may appeal a tax case to the U.S. Supreme Court.