Exam 18: The Tax Compliance Process

Mr. and Mrs. Pitt filed a joint tax return in 2013. The couple divorced in 2014. The IRS audited their 2013 return and determined that the Pitts had underpaid their tax by $38,200. Which of the following statements is true?

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

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

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

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?

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?

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.

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

Mr. and Mrs. Lester failed to report a $40,540 capital gain on their 2014 Form 1040. The gross income reported on the return was $169,404, and the return was filed on January 20, 2015. What is the last date on which the IRS can assess additional tax for 2015?

Ms. Hepp filed her 2014 Form 1040 on February 19, 2015. 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?

Which of the following statements about taxpayer responsibility is false?

Tony Curtis filed her 2014 income tax return on May 2, 2015. Which of the following statements is false?

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

The IRS assessed Ms. Tinlock a $3,050 income tax deficiency. Which of the following steps can the IRS not take to collect the deficiency?

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

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

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

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

Which of the following statements about tax fraud is true?