Chapter C15 Administrative Procedures

If Brad files his last year's individual tax return on July 5 of the current year after having requested an extension, what is the amount of his failure-to-pay penalty if his total tax is $10,000 and he paid $9,500 through timely withholding and $500 with the return?

A) $0

How long does a taxpayer have to file a petition with the U.S. Tax Court following the date of the Statutory Notice of Deficiency?

A) 90 days

What is the IRS guideline for determining whether a tax return position has substantial authority?

A) A person knowledgeable in the tax law concludes that the position has a something less than 50% likelihood of being supported.

Which of the following statements regarding Circular 230 is false?

A) Circular 230 applies to all tax return preparers.

Gerald requests an extension for filing his last year's individual income tax return. His tax liability is $10,000, of which $8,000 was withheld, leaving a balance due of $2,000 when he files on August 1 of the current year. His penalty for failure to pay the tax on time is

B) $40.

What is the penalty for a tax return preparer who lacks substantial authority to take a return position?

C) $1,000

On April 15, 2010, a married couple filed their joint 2009 tax return showing gross income of $120,000. Their return was prepared by a professional tax preparer who mistakenly omitted $45,000 of income, which the preparer in good faith considered to be nontaxable.

No information with regard to this omitted income was disclosed on the return or attached statements. By what date must the IRS assert a notice of deficiency before the statute of limitations expires? Answer: A) April 15, 2015

A letter ruling is a written determination that interprets and applies the tax laws to the taxpayer's specific set of facts.

TRUE

A taxpayer who fails to file and fails to pay taxes is subject to a combined 5% monthly penalty on the underpayment.

TRUE

If the taxpayer has credible evidence, the IRS bears the burden of proof in a tax dispute.

TRUE

The 90-day letter (Statutory Notice of Deficiency) gives the taxpayer 90 days to file a petition with the Tax Court or to pay the disputed tax.

TRUE

The IRS will issue a 90-day letter (a Statutory Notice of Deficiency) if the taxpayer does not file a protest letter within 30 days of the date of the 30-day letter.

TRUE

The maximum failure to file penalty is a total of 25% of the underpayment.

TRUE

The statute of limitations is unlimited for a tax return that is never filed.

TRUE

Treasury Department Circular 230 regulates the practice of attorneys, CPAs, enrolled agents, and enrolled actuaries before the IRS.

TRUE

A taxpayer's return is audited and additional taxes are assessed. The IRS also asserts that a negligence penalty should be assessed. The taxpayer concurs with the additional $15,000 tax liability; $7,000 of this amount is attributable to negligence.

What is the amount of the penalty for negligence? Answer: B) $1,400

Identify which of the following statements is true.

B) The statute of limitations limits the time during which a taxpayer may claim a refund of an overpayment of tax.

The Internal Revenue Service is part of the

B) Treasury Department.

Identify which of the following statements is true.

A) Form 870-AD is used if the taxpayer and IRS representative agree to a lesser tax liability than that originally proposed by the Service.

Identify which of the following statements is true.

A) If a taxpayer has been audited in at least one of the two previous years on the same item and the earlier audit did not result in any additional tax owed, the taxpayer may qualify for the special audit relief rule.

Which one of the following statements about letter rulings is false?

A) If a taxpayer requests and pays for a ruling, the IRS must respond to his request by issuing a ruling.

Identify which of the following statements is true.

A) The 90-day letter offers the taxpayer the choice of paying the tax assessed or filing a petition refuting the tax assessment with the Tax Court.

Identify which of the following statements is false.

A) The majority of the individual tax returns that are audited are selected under the DIF program.

A taxpayer can automatically escape the penalty for underpayment of taxes by

A) owing less than $1,000 in taxes over and above the taxes withheld from wages.

A substantial understatement of tax liability involves which of the following?

A) understatement of tax exceeding the greater of 10% of tax required to be shown on the return or $5,000 for individuals

Identify which of the following statements is false.

B) When an appeals officer is dealing with an "appeals coordinated issue," he has the authority to settle with the taxpayer based on the "hazards of litigation."

Identify which of the following statements is false.

B) A taxpayer does not have to pay the tax assessment before filing suit in a U.S. district court or the U.S. Court of Federal Claims.

Identify which of the following statements is false.

B) A taxpayer may want to avoid using the Tax Court to litigate an issue because decisions from this court cannot be appealed.

In which of the situations below will a taxpayer not be assessed interest on the tax remitted? D) NONE OF THE FOLLOWING A) An extension is obtained and the tax is paid within the extension period.

B) A timely return is filed but the taxpayer must delay payment of the taxes. C) The return is audited and additional tax is owed.

The program specifically designed to identify returns with a high potential for a deficiency assessment is the

B) DIF program.

According to Circular 230, what should a CPA do upon discovery of an error in a client's prior-year return?

B) Inform the client of the error and its tax consequences.

Identify which of the following statements is false.

B) Interest is charged on underpayments, or paid on overpayments, at a rate of three percentage points higher than the federal short-term rate.

Identify which of the following statements is false.

B) Tax returns for all taxpayers must be filed on or before the fifteenth day of the fourth month following the year-end.

Identify which of the following statements is false.

B) The civil fraud penalty consists of 75% of the tax underpayment attributable to fraud plus 25% of the interest payable on the portion of the underpayment resulting from the fraud.

All of the following requirements must be met in order to establish innocent spouse relief except which of the following?

B) The request for innocent spouse relief is made no later than one year after the IRS begins its collection efforts.

If a return's due date is extended, a taxpayer

B) still should pay the tax by the original return due date.

Terry files his return on March 31. The return shows taxes of $6,000, and Terry pays this entire amount when he files his return. By what time must he file a claim of refund?

B) the later of three years from the return due date or two years from the date the tax is paid

Steve files his return on April 1 and pays the entire amount of tax for the year at that time, $5,000. He is audited and pays the deficiency of $1,500 two years later. The maximum amount Steve may file a claim for refund for eighteen months later is

C) $1,500.

A calendar-year individual taxpayer files last year's income tax return on October 17 of the current year. No extension was requested, and there is not a reasonable cause for the late filing. The return shows a balance due of $1,500 of tax. The late filing penalty is

C) $375.

What is the penalty for a tax return preparer who willfully attempts to understate taxes, or intentionally disregards the tax rules and regulations?

C) $5,000

Identify which of the following statements is false.

C) As a practical consideration, taxpayers always find it preferable to obtain an advance ruling on questionable tax situations.

Identify which of the following statements is false.

C) During the audit process, if the taxpayer concurs with the assessment of tax by the IRS and signs Form 870 (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax), then the taxpayer is precluded from filing a refund suit.

Your client wants to avoid any penalty for underpayment of estimated taxes by making timely deposits. Determine the amount of the minimum quarterly estimated tax payments required to avoid the penalty. Assume your client's adjusted gross income last year was $140,000.

Last year's tax liability $40,000 This year's estimated total tax 44,000 Taxes to be withheld for this year 9,000 Answer: A) $7,650

Identify which of the following statements is true.

C) Individuals and corporations may obtain six-month extensions for paying taxes and filing their returns for the taxable year by filing the appropriate extension requests.

Identify which of the following statements is true.

C) Individuals having substantial income from sources not subject to regular withholding generally should make quarterly estimated tax payments to the IRS.

Identify which of the following statements is true.

C) Joint and several liability means that each spouse is potentially liable for the full amount of tax due.

Identify which of the following statements is false.

C) Only the taxpayer can appeal the decision of a court of original jurisdiction to the next higher court.

Identify which of the following statements is true.

C) Substantial authority exists for a position that is supported by a decision rendered by the Court of Appeals for the taxpayer's own circuit.

The court in which the taxpayer does not have to pay the tax and then litigate for a refund is the

C) Tax Court.

Identify which of the following statements is false.

C) The failure-to-pay penalty is imposed at a rate of 5% per month (or fraction of a month) with a maximum penalty of 25%.

Identify which of the following statements is true.

C) Treasury Department Circular 230 regulates the practice of attorneys, CPAs, enrolled agents, and enrolled actuaries before the IRS.

The IRS provides advice concerning an issue that arises during an audit by issuing

C) a technical advice memorandum.

Tax return preparers can be penalized for the following activities except

C) failure to maintain IRS continuing education requirements.

In order to appeal to the Appeals Division, a taxpayer must submit a protest letter to the IRS

C) in a field audit involving a assessment of taxes, interest, and penalties in excess of $25,000.

A taxpayer will receive a 30-day letter

C) only if the taxpayer does not sign Form 870.

Which of the following is not a reason for relief from the substantial understatement penalty?

C) reliance on a tax return preparer

The "Statement on Practice in the Field of Federal Income Taxation" includes all of the following areas of mutual competence except

C) representing clients in criminal investigations.

Which of the following items can be omitted from a taxpayer's request for a ruling?

C) the particular conclusion desired by the taxpayer

A six-year statute of limitation rule applies if the taxpayer

C) understates gross income by 25%.

A calendar-year individual taxpayer files last year's income tax return on July 1 of the current year. No extension was requested, and there is not a reasonable cause for the late filing. The return shows a balance due of $800 of tax. The late filing penalty is

D) $120.

An automatic extension of time from the regular filing date for an individual tax return may be received, without giving the IRS a reason, for

D) 6 months.

The innocent spouse relief provision from tax liability covers all of the following except A) improper deductions. B) improper credits. C) improper basis. D) All are understatements subject to minimum thresholds.

D) All are understatements subject to minimum thresholds.

What is the requirement for a substantial understatement of tax for individuals?

D) The understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000.

Which of the following activities is protected by accountant-client privilege?

D) advice given regarding tax issues in a divorce

Which, if any, of the following could result in penalties against an income tax return preparer? I. Knowing or reckless disclosure or use of tax information obtained in preparing a return. II. A willful attempt to understate any client's tax liability on a return or claim for a refund.

D) both I and II

The IRS will issue a ruling

D) to clarify the tax treatment of a transaction.

Anyone who prepares a tax return is subject to the provisions of Circular 230.

FALSE

The "automatic" extension period for filing an individual return is seven months.

FALSE

The majority of the individual tax returns that are audited are selected under the DIF program.

FALSE

The statute of limitations, which stipulates the time frame within which either the government or the taxpayer may request a redetermination of tax due, usually expires 6 years after the date on which the return is filed.

FALSE