Question 1

The statute of limitations for a tax return does not begin to run until the return is filed.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Which of the following is not a legal obligation of an income tax return preparer?

Accepted Answer

A)  A preparer must endorse clients' refund checks. 
B)  A preparer must furnish clients with copies of their returns. 
C)  A preparer must sign clients' tax returns. 
D)  A preparer must include his or her identifying number on clients' tax returns. 
A)  A preparer must endorse clients' refund checks. 
B)  A preparer must furnish clients with copies of their returns. 
C)  A preparer must sign clients' tax returns. 
D)  A preparer must include his or her identifying number on clients' tax returns.

Question 4

The revenue agent who audited Mr. and Mrs. Wilke's 2009 Form 1040 assessed a $40,200 deficiency and concluded that $13,900 of the deficiency resulted from Mr. Wilke's deliberate disregard of the tax rules concerning business entertainment expense. The remaining deficiency resulted from various errors caused by confusing instructions on the tax forms. Compute the negligence penalty that the agent can impose.

Accepted Answer

A)  $8,040 
B)  $3,475 
C)  $2,780 
D)  Only a federal court can impose a negligence penalty. 
A)  $8,040 
B)  $3,475 
C)  $2,780 
D)  Only a federal court can impose a negligence penalty.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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)?

Accepted Answer

A)  About 1% 
B)  About 5% 
C)  Between 10% and 12% 
D)  None of the above 
A)  About 1% 
B)  About 5% 
C)  Between 10% and 12% 
D)  None of the above

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Mr. Boyd is a bookkeeper for a local auto repair company. Several years ago, he began to prepare federal income tax returns for his friends and relatives and has developed this sideline into a profitable business. Which of the following statements is true?

Accepted Answer

A)  Mr. Boyd is considered an income tax return preparer subject to federal penalties because he is compensated for preparing returns. 
B)  Mr. Boyd is not considered an income tax return preparer because he is not an attorney, CPA, or enrolled agent. 
C)  Mr. Boyd must sign the tax returns prepared for his clients. 
D)  Statements A. and C. are true. 
A)  Mr. Boyd is considered an income tax return preparer subject to federal penalties because he is compensated for preparing returns. 
B)  Mr. Boyd is not considered an income tax return preparer because he is not an attorney, CPA, or enrolled agent. 
C)  Mr. Boyd must sign the tax returns prepared for his clients. 
D)  Statements A. and C. are true.

Question 10

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

Accepted Answer

A)  Ms. Piper files as head of household because she maintains a home for her 89-year old mother who has Alzheimer's disease. 
B)  Ms. Piper's AGI is $58,400, and she deducted $17,590 of charitable contribution on her Schedule A. 
C)  Ms. Piper reported $10,200 alimony income from her former spouse. 
D)  None of the above should increase the likelihood of audit. 
A)  Ms. Piper files as head of household because she maintains a home for her 89-year old mother who has Alzheimer's disease. 
B)  Ms. Piper's AGI is $58,400, and she deducted $17,590 of charitable contribution on her Schedule A. 
C)  Ms. Piper reported $10,200 alimony income from her former spouse. 
D)  None of the above should increase the likelihood of audit.

Question 11

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 12

Only one spouse must sign a jointly filed Form 1040.

Accepted Answer

A) True 
 B)False

Question 13

Ms. Dela filed her unextended 2011 Form 1040 on November 2, 2012, and had no reasonable cause for the delinquency. The return showed a $22,840 balance of tax due. Compute Ms. Dela's late-filing and late-payment penalty.

Accepted Answer

A)  $5,710 
B)  $7,994 
C)  $5,938 
D)  $4,568 
A)  $5,710 
B)  $7,994 
C)  $5,938 
D)  $4,568

Question 14

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 15

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 16

Mrs. Lui decided to contest a negligence penalty in federal court. Which of the following statements is true?

Accepted Answer

A)  Mrs. Lui must present a preponderance of evidence establishing that she was not negligent. 
B)  The government must present a preponderance of evidence establishing that Mrs. Lui was negligent. 
C)  The government must present clear and convincing evidence that Mrs. Lui was negligent. 
D)  The government must establish Mrs. Lui's negligence beyond any reasonable doubt. 
A)  Mrs. Lui must present a preponderance of evidence establishing that she was not negligent. 
B)  The government must present a preponderance of evidence establishing that Mrs. Lui was negligent. 
C)  The government must present clear and convincing evidence that Mrs. Lui was negligent. 
D)  The government must establish Mrs. Lui's negligence beyond any reasonable doubt.

Question 17

Mrs. Claire underpaid her 2012 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.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  A corporation with a fiscal tax year ending on September 30 must file its unextended Form 1120 by December 15 following the close of the tax year. 
B)  A corporation may request an automatic extension of time to file Form 1120. 
C)  A corporation may request an extension of time to pay any balance due of its annual income tax if it has reasonable cause for the delay. 
D)  None of the above is false. 
A)  A corporation with a fiscal tax year ending on September 30 must file its unextended Form 1120 by December 15 following the close of the tax year. 
B)  A corporation may request an automatic extension of time to file Form 1120. 
C)  A corporation may request an extension of time to pay any balance due of its annual income tax if it has reasonable cause for the delay. 
D)  None of the above is false.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

An individual taxpayer is not required to give the IRS an explanation for extending the filing date for Form 1040.

Accepted Answer

A) True 
 B)False

The statute of limitations for a tax return does not begin to run until the return is filed.

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

Which of the following is not a legal obligation of an income tax return preparer?

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

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

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)?

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

Mr. Boyd is a bookkeeper for a local auto repair company. Several years ago, he began to prepare federal income tax returns for his friends and relatives and has developed this sideline into a profitable business. Which of the following statements is true?

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

Only one spouse must sign a jointly filed Form 1040.

Ms. Dela filed her unextended 2011 Form 1040 on November 2, 2012, and had no reasonable cause for the delinquency. The return showed a $22,840 balance of tax due. Compute Ms. Dela's late-filing and late-payment penalty.

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?

Mrs. Lui decided to contest a negligence penalty in federal court. Which of the following statements is true?

Mrs. Claire underpaid her 2012 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 statements about federal tax return filing dates is false?

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

An individual taxpayer is not required to give the IRS an explanation for extending the filing date for Form 1040.

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

The statute of limitations for a tax return does not begin to run until the return is filed.

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

Which of the following is not a legal obligation of an income tax return preparer?

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

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

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)?

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

Mr. Boyd is a bookkeeper for a local auto repair company. Several years ago, he began to prepare federal income tax returns for his friends and relatives and has developed this sideline into a profitable business. Which of the following statements is true?

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

Only one spouse must sign a jointly filed Form 1040.

Ms. Dela filed her unextended 2011 Form 1040 on November 2, 2012, and had no reasonable cause for the delinquency. The return showed a $22,840 balance of tax due. Compute Ms. Dela's late-filing and late-payment penalty.

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?

Mrs. Lui decided to contest a negligence penalty in federal court. Which of the following statements is true?

Mrs. Claire underpaid her 2012 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 statements about federal tax return filing dates is false?

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

An individual taxpayer is not required to give the IRS an explanation for extending the filing date for Form 1040.

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