ACCT 218 | Chapter 12 | Review

Multiple Choice 12-21 (Algorithmic) Tax Planning (LO 12.7) Jim has a house payment of $3,270 per month of which $2,780 is interest and real estate taxes with the remaining $490 representing a repayment of the principal balance of the note. Jim's marginal tax rate is 15 percent. What is Jim's after-tax cost of his home mortgage payment? If required, round your final answer to the nearest dollar.

$2,853 Math: 2,780 x 15% = 417 3,270 - 417 = 2,853

Multiple Choice 12-12 Preparers, Proof, and Privilege (LO 12.5) The burden of proof remains on the taxpayer for corporations, trusts, and partnerships with net worth exceeding:

$7 million

Multiple Choice 12-19 Tax Planning (LO 12.7) Glen's taxable income is $50,000 and he pays income tax of $8,300. If his income were $60,000, he would pay taxes of $10,800. What is Glen's marginal tax rate?

25.00% Math: 10,800 - 8,300 = 2,500 60,000 - 50,000 = 10,000 2,500 / 10,000 = 25%

Multiple Choice 12-20 Tax Planning (LO 12.7) Melodie's taxable income is $40,000 and she pays income tax of $5,800. If Melodie's taxable income increases to $41,000, she would pay income taxes of $6,050. What is Melodie's marginal tax rate?

25.00% Math: 6,050 - 5,800 = 250 41,000 - 40,000 = 1,000 250 / 1,000 = 25%

Multiple Choice 12-18 The Taxpayer Bill of Rights (LO 12.6) If the IRS owes a taxpayer a refund, the law generally provides that the IRS must pay interest on the refund if it is not paid within ________ days of the date the taxpayer filed his or her tax return or claim for refund.

45

Multiple Choice 12-8 Preparers, Proof, and Privilege (LO 12.5) Which of the following is NOT required to participate in the Annual Filing Season Program?

A comprehensive oral exam administered by the IRS that tests preparer knowledge. IS Required: - 18 total hours of continuing education from an approved provider. - An annual federal tax refresher course lasting at least 6 hours. - A PTIN if the preparer wishes to prepare and file tax returns.

Multiple Choice 12-16 The Taxpayer Bill of Rights (LO 12.6) Taxpayers have the right to have an IRS examination take place at:

A reasonable time and place

Multiple Choice 12-6 Statute of Limitations (LO 12.4) Which of the following deductions has a 6-year statute of limitations?

A return in which the taxpayer omitted gross income in excess of 25 percent of the gross income shown on the return

Multiple Choice 12-14 The Taxpayer Bill of Rights (LO 12.6) Both spouses are responsible, jointly and individually, for paying the full amount of any tax, interest, or penalties due on a joint return.

Innocent spouses may be relieved of the liability for tax, interest, and penalties.

Multiple Choice 12-21 Tax Planning (LO 12.7) Jim has a house payment of $2,000 per month of which $1,700 is interest and real estate taxes with the remaining $300 representing a repayment of the principal balance of the note. Jim's marginal tax rate is 30 percent. What is Jim's after-tax cost of his home mortgage payment?

$1,490 Math: 1,700 x 30% = 510 2,000 - 510 = 1,490

Multiple Choice 12-1 The Internal Revenue Service (LO 12.1) Which of the following is a responsibility of a local office of the IRS?

None of these choices are correct. Incorrect Options: - Advising the Treasury Department on legislation - Intelligence operations - Appellate procedures - Developing IRS rules and regulations

Multiple Choice 12-15 The Taxpayer Bill of Rights (LO 12.6) A taxpayer's rights are explained in:

Publication 1

Multiple Choice 12-13 The Taxpayer Bill of Rights (LO 12.6) The IRS does NOT have to furnish the taxpayer with information concerning which of the following items?

The way the taxpayer's return was selected for audit

Multiple Choice 12-3 The Audit Process (LO 12.2) In which of the following ways are tax returns selected for most audits?

Through the Discriminant Function System

Multiple Choice 12-17 The Taxpayer Bill of Rights (LO 12.6) If a U.S. Tax Court agrees with the taxpayer on appeal that the IRS position was largely unjustified, which of the following is correct?

To be eligible to recover some of the administrative and litigation costs, the taxpayer must have tried to resolve the case administratively, including going through the appeals process, and must have given the IRS the information necessary to resolve the case.

Multiple Choice 12-11 Preparers, Proof, and Privilege (LO 12.5) Which of the following have privileged communication with a client in a noncriminal tax matter?

CPAs, Enrolled Agents, and Attorneys

Multiple Choice 12-9 (LO 12.5) Which of the following does NOT result in a minimum $50 fine for an income tax preparer?

Cashing a refund check from a customer. Minimum $50 Fine: - Failure to provide a tax preparer identification number. - Failing to keep any record of the returns prepared. - Failing to provide a copy of their prepared return to a customer.

Multiple Choice 12-2 The Audit Process (LO 12.2) Which of the following is the most common type of audit for an individual taxpayer who conducts no significant business activities?

Correspondence audit

Multiple Choice 12-10 Preparers, Proof, and Privilege (LO 12.5) In which of the following situations does the burden of proof in a tax matter NOT automatically shift to the IRS?

A taxpayer who did not maintain records. WILL Automatically Shift: - The IRS uses statistics to reconstruct an individual's income. - A court proceeding against an individual taxpayer involves a penalty or addition to tax. - "The IRS uses statistics to reconstruct an individual's income" and "A court proceeding against an individual taxpayer involves a penalty or addition to tax" are correct. - "The IRS uses statistics to reconstruct an individual's income", "A court proceeding against an individual taxpayer involves a penalty or addition to tax", and "A taxpayer who did not maintain records" are correct.

Multiple Choice 12-7 Preparers, Proof, and Privilege (LO 12.5) Which of the following tax preparers may not represent their clients in all IRS proceedings?

All of these choices may represent their clients in IRS proceedings - An enrolled agent - A certified public accountant - An attorney

Multiple Choice 12-4 Interest and Penalties (LO 12.3) Which of the following is NOT a penalty that may be imposed by the IRS?

All of these penalties may be imposed by the IRS. - Failure-to-file penalty - Failure-to-pay penalty - Penalty for negligence - Fraud penalty

Multiple Choice 12-5 Statute of Limitations (LO 12.4) If a taxpayer's 2015 individual income tax return was filed on March 3, 2016, the statute of limitations would normally run out on:

April 15, 2019 Book: "In general, the statute of limitations for a tax return runs for 3 years from the date the tax return was filed or the return due date, whichever is later."

Multiple Choice 12-5 (Algorithmic) Statute of Limitations (LO 12.4) If a taxpayer's 2015 individual income tax return was filed on March 15, 2016, the statute of limitations would normally run out on:

April 15, 2019 Book: "In general, the statute of limitations for a tax return runs for 3 years from the date the tax return was filed or the return due date, whichever is later."