Income Tax Chapter 2

Under the tax law, taxpayers may be subject to both civil and criminal penalties for underpaying their tax liability (e.g., due to fraud).

True

Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with an Appeals Officer or (2) agreeing to a proposed tax adjustment. Dan received the: A. 30-day letter. B. 90-day letter. C. Appeals letter. D. Tax adjustment letter. E. None of these.

A. 30-day letter.

If Lindley requests an extension to file her tax return, the latest she could pay her tax due without penalty is: A. April 15th. B. October 15th. C. August 15th. D. November 15th. E. None of these.

A. April 15th.

Which of the following audits is the most common and typically less comprehensive? A. Correspondence. B. Random. C. Office. D. Field. E. None of these.

A. Correspondence.

Tyrone claimed a large amount of charitable contributions as a tax deduction relative to taxpayers with similar levels of income. If Tyrone's tax return is chosen for audit because of his large charitable contributions, which audit program likely identified Tyrone's tax return for audit? A. DIF System. B. Deduction Detective. C. Document perfection. D. Information matching. E. None of these.

A. DIF System.

Which of the following committees typically initiates for tax legislation? A. House Ways and Means Committee B. Joint Conference Committee C. Senate Finance Committee D. Senate Tax Committee E. None of these.

A. House Ways and Means Committee

Which of the following has the highest authoritative weight? A. Legislative regulation. B. Private letter ruling. C. Revenue ruling. D. Action on decision. E. Revenue procedure.

A. Legislative regulation.

Which of the following is a false statement? A taxpayer filing a fraudulent tax return: A. is potentially subject to criminal penalties. B. is potentially subject to civil penalties. C. is potentially subject to fines and a prison sentence. D. will have an unlimited statute of limitations for the fraudulent tax return. E. None of these.

E. None of these.

Allen filed his 2016 tax return on May 15th, 2017 and underreported his gross income by 30 percent. Assuming Allen's underreporting is not due to fraud, the statute of limitations for IRS assessment on Allen's 2016 tax return should end: A. May 15th, 2019. B. April 15th, 2019. C. May 15th, 2020. D. April 15th, 2020. E. None of these.

E. None of these. Because Allen underreported his gross income by 30 percent, the SOL ends six years from the later of (1) the date the tax return was filed or (2) the tax return's original due date.

Andy filed a fraudulent 2016 tax return on May 1, 2017. The statute of limitations for IRS assessment on Andy's 2016 tax return should end: A. May 1st, 2019. B. April 15th, 2019. C. May 1st, 2020. D. April 15th, 2020. E. None of these.

E. None of these. There is no statute of limitations for fraudulent tax returns.

Martin has never filed a 2016 tax return despite earning approximately $20,000 providing landscaping work in the community. When does the statute of limitations expire for Martin's 2016 tax return? A. 2019. B. 2020. C. 2023. D. 2024. E. None of these.

E. None of these. There is no statute of limitations if a taxpayer fails to file a tax return.

Corporations are required to file a tax return only if their taxable income is greater than: A. $0. B. $1,000. C. $600. D. $750. E. None of these.

E. None of these. Corporations are always required to file a tax return.

If a taxpayer is due a refund, she does not have to file a tax return

False

If a taxpayer is unable to file a tax return by its original due date, the taxpayer can request an automatic 9-month extension to file the return.

False - 6 month automatic extension

Proposed and Temporary Regulations have the same authoritative weight

False - Proposed Regulations have little authoritative weight

Office examinations are the most common type of IRS audit.

False - correspondence exams

In researching a tax issue, Eric finds that the U.S. Circuit Court of Appeals for the Federal Circuit previously has ruled in favor of his tax position, whereas the 11th Circuit (Eric's circuit) previously has ruled against his tax position. If Eric is contemplating litigating his tax position with the IRS, he should prefer to have his case first tried by the U.S. Tax Court.

False - he would prefer to have the case heard by the U.S. Court of Federal Claims

If a taxpayer loses a case at the Circuit Court level, he is granted an automatic appeal hearing with the Supreme Court

False - not automatic

Because the U.S. District Court hears a broader set of cases, decisions by the U.S. District Court may be considered to have more authoritative weight than the U.S. Court of Federal Claims.

False - same weight

The statute of limitations for IRS assessment generally ends four years after the date a tax return is filed

False - three years

For fraudulent tax returns, the statute of limitations for IRS assessment is ten years

False - unlimited statute of limitations

The "90-day" letter gives the taxpayer the opportunity to pay the proposed tax adjustment or file a petition in the U.S. District Court to hear the case.

False -Tax Court

Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or (2) filing a petition with the U.S. Tax Court. Basu received the: A. 30-day letter. B. 90-day letter. C. Appeals letter. D. Tax adjustment letter. E. None of these.

B. 90-day letter.

If Paula requests an extension to file her tax return, the latest she could file her return without penalty is: A. September 15th. B. October 15th. C. August 15th. D. November 15th. E. None of these.

B. October 15th.

Which of the following has the lowest authoritative weight? A. Legislative regulation. B. Private letter ruling. C. Revenue ruling. D. Interpretative regulation. E. Revenue procedure.

B. Private letter ruling.

Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case: A. Tax Court only. B. U.S. Court of Federal Claims only. C. U.S. District Court only. D. Tax Court or the U.S. District Court. E. Tax Court or the U.S. Court of Federal Claims.

B. U.S. Court of Federal Claims only The U.S. Court of Federal Claims will appeal to the U.S. Circuit Court of Appeals for the Federal Circuit.

Generally, code sections are arranged (grouped together): A. chronologically B. by topic C. randomly D. by length E. None of these

B. by topic

Edie would like to better understand a new code section enacted four weeks ago. Which of the following authorities will help Edie understand the newly enacted code section? A. IRS regulations B. U.S. Tax Court cases C. Committee reports D. IRS revenue rulings E. None of these.

C. Committee reports Of the authorities listed, only committee reports will be available to aide in understanding a new code section.

Henry filed his 2016 tax return on May 15th, 2017. The statute of limitations for IRS assessment on Henry's 2016 tax return should end: A. May 15th, 2019. B. April 15th, 2019. C. May 15th, 2020. D. April 15th, 2020. E. None of these.

C. May 15th, 2020. The SOL ends three years from the later of (1) the date the tax return was filed or (2) the tax return's original due date.

Which of the following courts is the only court that provides for a jury trial? A. Tax Court. B. U.S. Court of Federal Claims. C. U.S. District Court. D. U.S. Circuit Court of Appeals. E. None of these.

C. U.S. District Court.

If the President vetoes tax legislation, Congress: A. cannot override the President's veto. B. can override the President's veto with a 50 percent positive vote in the House and Senate. C. can override the President's veto with a 2/3rd positive vote in the House and Senate. D. can override the President's veto with a 75 percent positive vote in the House and Senate. E. None of these.

C. can override the President's veto with a 2/3rd positive vote in the House and Senate.

A tax practitioner can avoid IRS penalty relating to a tax return position: A. if the position is frivolous and disclosed on the tax return. B. if the position has a realistic possibility of being sustained by the IRS or courts. C. if there is substantial authority to support the position. D. if the position has a reasonable basis and is not disclosed on the tax return. E. None of these.

C. if there is substantial authority to support the position.

The regulation with the lowest authoritative weight is the: A. procedural regulation B. interpretative regulation C. proposed regulation D. legislative regulation E. None of these

C. proposed regulation

Bill filed his 2016 tax return on March 15th, 2017. The statute of limitations for IRS assessment on Bill's 2016 tax return should end: A. March 15th, 2019. B. April 15th, 2019. C. March 15th, 2020. D. April 15th, 2020. E. None of these.

D. April 15th, 2020. The SOL ends three years from the later of (1) the date the tax return was filed or (2) the tax return's original due date

This year April 15th falls on a Saturday. Individual tax returns will be due on: A. April 14th. B. April 15th. C. April 16th. D. April 17th. E. None of these.

D. April 17th.

Which of the following audits is the least common, broadest in scope, and typically most complex? A. Correspondence. B. Targeted. C. Office. D. Field. E. None of these

D. Field.

Circular 230 was issued by: A. AICPA. B. State Boards of Accountancy. C. American Bar Association. D. IRS. E. None of these.

D. IRS.

Lavonda discovered that the 5th Circuit (where Lavonda resides) has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case: A. Tax Court only. B. U.S. Court of Federal Claims only. C. U.S. District Court only. D. Tax Court or the U.S. District Court. E. Tax Court or the U.S. Court of Federal Claims.

D. Tax Court or the U.S. District Court. The Tax Court and the U.S. District Court will appeal to the 5th Circuit.

Rowanda could not settle with the IRS at the appeals conference. If she wants to litigate the issue but does not have sufficient funds to pay the proposed tax deficiency, Rowanda should litigate in the: A. U.S. District Court. B. U.S. Circuit Court of Appeals. C. U.S. Court of Federal Claims. D. U.S. Tax Court. E. None of these.

D. U.S. Tax Court.

A tax practitioner can avoid IRS penalty relating to a tax return position: A. only if the position has a more likely than not chance of being sustained by the IRS or courts. B. if the position has a realistic possibility of being sustained by the IRS or courts. C. if there is not substantial authority to support the position. D. if the position has a reasonable basis and is disclosed on the tax return. E. None of these.

D. if the position has a reasonable basis and is disclosed on the tax return.

Which judicial doctrine means that a court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction? A. judicial hierarchy B. the Goldman rule C. judicial consistency D. stare decisis E. None of these

D. stare decisis

For which of the following tax violations is a civil penalty not imposed on taxpayers? A. failure to file a tax return. B. failure to pay tax owed. C. fraud. D. failure to make estimated tax payments. E. None of these.

E. None of these.

The "30-day" letter gives the taxpayer the opportunity to request an appeals conference or agree to the proposed IRS adjustment

True

The Internal Revenue Code and tax treaties are examples of statutory authorities

True

The Internal Revenue Code of 1986 is the name of the current tax code

True

A taxpayer can avoid an underpayment penalty if there is substantial authority that supports her tax return position.

True

An acquiescence indicates that the IRS lost a court case and that it has decided to follow the court's ruling in the future

True

An extension to file a tax return does not extend the due date for tax payments

True

As required by the Constitution, all tax bills are supposed to originate in the House of Representatives.

True

Corporations are required to file a tax return annually regardless of their taxable income

True

If April 15th falls on a Saturday, the due date for individual tax returns will be on Monday, April 17th.

True

If a taxpayer has little cash and a very technical tax case that she feels very strongly that the tax rules are "on her side," she should prefer to have her case tried in the U.S. Tax Court.

True

If the IRS assesses additional tax upon audit, a taxpayer may be subject to interest and penalties on the underpayment.

True

Revenue rulings and revenue procedures are examples of primary authorities

True