Exam 12: Tax Administration and Tax Planning

Linda filed her individual income tax return on its due date,but failed to pay $1,000 in taxes that were due with the return.Linda promptly paid the taxes upon receipt of a notice and demand for payment.If Linda pays the taxes exactly 5 months late,calculate the amount of her failure-to-pay penalty.

Which of the following types of audits was suspended due to protests from taxpayers and lawmakers?

Patricia has taxable income of $40,000 on which she pays income tax of $5,745.If Patricia's taxable income increases by $2,000,she will pay an additional tax of $500.What is Patricia's marginal tax rate?

If a taxpayer has too much income tax withheld from his salary during the tax year,the IRS will pay interest on the excess amount.

A tax preparer may be subject to a penalty for failing to provide a copy of the taxpayer's tax return to the client.

A "correspondence audit" by the IRS is conducted through the mail.

Tax return preparers must enter the annual filing season program (AFSP).

The IRS charges a fixed 10 percent interest rate on underpayments of taxes.

The statute of limitations for a tax return generally is 3 years.

A taxpayer with an average tax rate of 20 percent who receives additional income of $20,000 will pay additional taxes of $4,000.

Tax evasion involves the use of illegal methods to reduce or avoid income tax.

Answer the following: a.​Geoffrey filed his tax return 2 months and 8 days late and had not requested an extension of time for filing.Geoffrey's return indicated that he is to receive a $600 refund in taxes.Calculate the amount of Geoffrey's penalty for failure to file his tax return on time,assuming the failure to file was not fraudulent. b.​John filed his individual income tax return 3 1/2 months after it was due.He had not requested an extension of time for filing.Along with his return,John remitted a check for $1,000,which was the balance of the taxes he owed with his return.Disregarding interest,calculate the total penalty that John will be required to pay,assuming the failure to file was not fraudulent (and that he is not subject to failure-to-pay penalties).

Which of the following is the most common type of audit for an individual taxpayer?

An "office audit" is an audit in which the revenue agent visits the taxpayer's office.

The Wage and Investment Office of the IRS handles small business taxpayers.

Mark with a "Yes" if the following statement is true and is in Publication 1,The Taxpayers Bill of Rights.Mark with a "No" if the following statement is false or is not addressed in Publication 1. a.If you do not agree with the IRS examiner's proposed changes in an audit,you must go directly to the court system to resolve the issue. b.If a taxpayer is due a refund,but did not file a return,then the IRS uses statistics to reconstruct an individual's income in order to compute the refund for the taxpayer. c.The tax law generally provides for interest on your refund if it is not paid within 45 days of the date you filed your return or filed your claim for refund. d.Publication 1 explains how to file an amended tax return.

Tax returns are processed at the IRS national office in Washington,D.C.

The tax law is administered by the Federal Trade Commission.

The IRS may issue a summons for a taxpayer's bank account records.

List three different ways that a tax return may be selected for an audit.