Chapter 14
After the assessment has been made, the taxes assessed must be collected within: a. 2 years b. 10 years c. 5 years d. 8 years
B
Form 9465 is used by the taxpayer to initiate which of the following? a. Closing Agreement b. Installment Agreement c. Offer in Compromise d. Tax Refund
B
Penalties that are based on a percentage of the delinquent tax are referred to as: a. assessable penalties b. ad valorem penalties c. criminal penalties d. nominal penalties
B
The standard for conviction in a criminal case is establishment of: a. guilt with some reasonable doubt b. guilt beyond reasonable doubt c. any guilt even though highly doubtful d. criminal intent even though not implemented
B
The statute of limitations can be suspended if: a. The taxpayer is outside the United States for three consecutive months. b. The taxpayer's assets are in the custody of the court. c. A fiduciary or receiver is yet to be appointed in a bankruptcy case. d. The taxpayer is ignorant of such a statue.
B
What is the general statute of limitations on assessment of income tax: a. 6 years b. 3 years c. 7 years for criminal tax evasion. d. None of the above.
B
Which of the following would lead to imposition of civil penalties? a. violation of civil protocols b. violation of tax laws as a result of negligence c. violation of tax statues due to reasonable cause d. violation of social rules and norms
B
William, a tax-payer, timely mailed his tax return. However, the same was returned for insufficient postage. IRS imposed a penalty. Can William claim waiver of penalty? a. Yes, William can claim waiver of penalty since it is his first tax return. b. Yes, William can claim waiver since the failure to file tax return is due to a reasonable clause. c. No, William can not claim waiver since it is a case of willful neglect. d. No, William cannot claim waiver of penalty as he is a delinquent tax-payer.
B
A tax return preparer may disclose information obtained from the taxpayer without being subject to civil and criminal penalty if such disclosure is: a. For other than the specific purpose of preparing a tax return. b. Pursuant to fulfillment of his own financial goals. c. Pursuant to any provisions of the code, or to a court order. d. Required for the growth of his profession.
C
The burden of proof in a fraud case is on the: a. tax payer b. tax court c. IRS d. tax practitioner
C
When a taxpayer is subject to both underpayment and overpayment computations for the same time period, which of the following rates of interest applies to the net amount payable to or receivable from the government? a. 4 % b. 6 % c. 0 % d. 5 %
C
Robinson, a calendar-year taxpayer, filed his 2010 income tax return on October 20, 2011, paying an amount due of $2,000. On April 1, 2011, he had obtained a six- month extension of time in which to file his return. However, he could not assert a reasonable cause for failing to file the return by October 15, 2011 (the extended due date), nor did he show any reasonable cause for failing to pay the tax that was due on April 15, 2011. Robinson's failure to file was not fraudulent. The penalty for failure-to-pay tax is: a. $ 35 b. $ 10 c. $ 70 d. $ 40
C 2,000 X .5% = $10/month X 7 months = $70
Smith, a calendar-year taxpayer, filed his 2008 Federal income tax return on October 1, 2011.His return showed an overpayment of $1,200, for which Smith requested a full refund. The IRS refunds the amount without any interest. Which of the following could be the date of refund by the IRS? a. November 17, 2011 b. December, 29 2011 c. November, 12 2011 d. December, 12 2011
C, 45 days
In which of the following cases does a taxpayer hold the right to refuse to answer inquiries that are made by the IRS in a criminal setting? a. The taxpayer would suffer a monetary loss by answering a criminal inquiry. b. The nature of crime is not severe. c. The taxpayer is confident to obtain a conviction. d. The taxpayer would suffer a loss of some constitutional right by answering a criminal inquiry.
D
The civil fraud penalty is: a. 5% b. 20% c. 25% d. 75%
D
The period for filing a claim for refund is extended when overpayment results from: a. Overstatement of incomes in the income statement. b. Ignorance of tax laws on the part of return preparers. c. Negligence on the part of return preparer while filing returns. d. Carryback of a net operating loss, capital loss or certain credits.
D
The statute of limitations refers to a: a. Set of provisions that limits a return preparer's rights. b. Specific period of time within which returns must be filed. c. Set of provisions that limits a taxpayer's rights. d. Specific period of time within which all taxes must be assessed and collected, and all refund claims must be made.
D
When the accuracy-related penalty applies, interest on the penalty accrues from the: a. date on which assessment is made b. date on which the penalty was imposed or December 31 whichever is earlier c. date on which the penalty was imposed d. due date of the return
D
Which of the following entities usually request to have their tax assessed within 18 months? a. Estates. b. Liquidating Corporations. c. Income tax return of a decedent. d. All of the above.
D
What is the procedure for claiming refund or credit for overpayment of tax?
TP must file a timely and valid claim at the service center for the district in which the tax was paid to receive a refund or credit for an overpayment of tax. Individuals: Form 1040X, Individual Amended Income Tax Return Corporations: Form 1120X, Corporation Amended Income Tax Return
If a taxpayer fails to file return due to willful neglect, the minimum penalty is: a. 25 percent or 5 months cumulative penalty b. lesser of $ 125 or the full amount of taxes that are required to be shown on the return c. 15 percent monthly penalty d. lesser of $135 or the full amount of taxes that are required to be shown on the return
D
An individual who is convicted of willfully aiding or assisting in the preparation of a false return is subject to which of the following penalties? a. Imprisonment up to 2 years and /or fine that cannot exceed $10,000. b. Imprisonment up to 5 years and /or fine that cannot exceed $50,000. c. Imprisonment up to 10 years and/or fine that cannot exceed $15,000. d. Imprisonment up to 3 years and/or fine that cannot exceed $100,000.
D
A 'large corporation' as defined in the Code is one which had a taxable income of: a. $10 million or more in any of the 10 immediately preceding taxable years. b. $2 million or more in any of the two immediately preceding taxable years. c. $5 million or more in any immediately preceding five taxable years. d. $1 million or more in any of the three immediately preceding taxable years.
D
A tax return preparer (TRP) is: a. Necessarily a CPA as required by the IRS. b. Not subject to any kind of penalty as he/she prepares return on behalf of taxpayer. c. Any person who prepares tax returns gratuitously. d. Any person who prepares tax return for compensation.
D
A taxpayer who files a corrected 1040 after filing a fraudulent 1040 will have a statute of limitations on the assessment of that return of: a. 3 years b. 6 years c. 1 and a half years d. None
D
Assessable penalties are subject to review by the Tax Court.
False
If a taxpayer is convicted of criminal fraud, he or she can contest a civil fraud determination.
False
A fraudulent failure to file tax returns is subject to a 25 percent monthly penalty.
False, 15%
Criminal and civil penalties are mutually exclusive.
False, TP may be acquitted of a criminal tax offense, but still be liable for corresponding civil tax penalty
The code provides for payment of interest on underpayments and overpayments of tax at an adjustable rate compounded annually.
False, compounded DAILY
The Employee Withholding Allowance Certificate is required to be given by the employer to the employees.
False, employee to employer, certificate is also known as a W-4
If a taxpayer mistakenly overstates itemized deductions which results in an understatement of adjusted gross income of 25 percent, the IRS has a 6-year Statute of Limitations on assessment.
False, itemized deductions are disclosed to IRS and aren't part of the "Gross Income" definition
The 10-year period of limitations for collection begins from the due date of filing the return.
False, only after an assessment is made
"In case of both civil and criminal frauds, the burden of proof is on the IRS." Explain.
IRS must show fraudulent intent - more than mere negligence. - A plan to defraud the government, often including a series of actions over time to evade the tax. Criminal fraud: IRS must prove 'beyond a shadow of any reasonable doubt' that the taxpayer's actions were fraudulent. Civil fraud: Must be 'clear and convincing evidence' that the taxpayer committed fraud. Ordinarily, evidence is circumstantial, so the court must infer the taxpayer's state of mind from the evidence.
Cite two instances that would lead to imposition of criminal penalties on the return preparers.
If preparer: • aids or assists in the preparation or presentation of a false return, affidavit, claim, or other document, or • discloses or uses information for other than return preparation purposes
List out some of the possible defenses that a tax payer may resort to against a charge of criminal tax offence.
Possible defenses to establish some doubt: • Unreported income would have been fully offset by unreported deductions • Unreported income was in reality a gift or some other excludible receipt • TP was ignorant or confused as to the applicable law • TP relied on the erroneous advice of a competent tax advisor • TP's mental/emotional abilities would not allow TP to form and execute plan to evade tax • The statute of limitations had expired • TP enters a plea bargain and accepts conviction on a lesser offense
When the IRS mails a statutory notice of deficiency to the taxpayer, the assessment and collection period is suspended for 150 days (210 days if the letter is addressed to a person who is outside the United States).
True
A failure to pay penalty is imposed when the taxpayer fails to pay either a tax shown on his or her return or an assessed deficiency within 10 days of an IRS notice or demand.
True
An individual should make a claim for refund or credit in the Form 1040X.
True
Assessment of an internal revenue tax must be made within three years of the later of: - date that the return was actually filed - the actual (i.e., not extended) due date of the return.
True
Generally, an overpayment can be refunded or credited to the person who was subject to the original tax.
True
If a taxpayer never files a tax return then there is an endless Statute of Limitations on assessment.
True
If a taxpayer understates gross income by 25 percent, the IRS has a 6-year Statute of Limitations on assessment.
True
If the Statute of Limitations on assessment is about to expire, the IRS may request an extension, but the taxpayer is not required to agree to such extension.
True
Return preparers are subject to criminal prosecution for willful misconduct.
True
Some taxpayers may request to have their taxes assessed in 18 months.
True
The penalty for a willful failure to pay to the government a tax withheld from an employee's paycheck is one hundred percent of the unpaid tax.
True
The penalty for failure to make payment of quarterly estimated income taxes is computed without any daily compounding and is not deductible.
True
Could a taxpayer make such a small amount of income that a tax return not be filed and still have an unlimited Statute of Limitations on Assessment?
Yes, a taxpayer who innocently fails to file a tax return is subject to an unlimited period of assessment for the tax (§6501(c)(3).
What are the requirements to be satisfied for the issue of an injunction by the IRS against a TRP who is guilty of misconduct to prohibit him or her from engaging in such misconduct or from practicing as a return preparer?
preparer must have (Any one of): • violated a preparer penalty/criminal provision of the Code, • misrepresented eligibility to practice before the IRS, • guaranteed payment of any tax refund/allowance of a credit, • engaged in other fraudulent or deceptive conduct that substantially interferes with the administration of the tax laws.