Acct. 110 - Ch. 10
What is the penalty for filing a frivolous tax return as a tax protest? a) $5,000 b) $50 c) $100 d) $500
a) $5,000
Which of the following taxpayers will benefit most, in terms of dollars saved, from the same tax planning strategy to increase deductions? a) An individual with an average rate of 25 percent b) An individual with an average rate of 15 percent c) An individual with a marginal rate of 25 percent d) An individual with a marginal rate of 15 percent
a) An individual with an average rate of 25 percent
Which of the following does the IRS not do? a) Enact tax laws b) Enforce tax laws c) Assess income taxes d) Collect income taxes
a) Enact tax laws
Which of the following would best describe tax planning done by a CPA? a) Helping a client structure his financial affairs to minimize tax liability b) Preparation of a complex tax return c) Research on a particularly difficult tax issue d) Interpreting the tax law
a) Helping a client structure his financial affairs to minimize tax liability
Which of the following may the IRS use to facilitate collection of unpaid tax? a) Negotiate an offer in compromise with the taxpayer b) Enter into an installment agreement with the taxpayer c) Grant the taxpayer a short administrative extension of time to pay the tax d) Levy a taxpayer's bank account e) Place a tax lien on the taxpayer's property f) All of these responses listed are means of facilitating collection.
f) All of these responses listed are means of facilitating collection.
If a calendar year taxpayer's 2020 individual income tax return is mailed on May 15, 2021, the statute of limitations would normally run out on: a) May 15, 2022 b) May 15, 2024 c) April 15, 2022 d) May 15, 2023 e) April 15, 2024
b) May 15, 2024
Jennifer files her 2020 return on June 11, 2021. When does the statute of limitations run out? a) June 11, 2024 b) April 15, 2024 c) April 15, 2031 d) There is no statute of limitations since she filed her return after April 15.
a) June 11, 2024
Which of the following is not a right listed in the Taxpayer Bill of Rights? a) To receive the IRS audit working papers. b) To waive interest because of errors or delays caused by an IRS employee. To know when an IRS audit is complete. c) To have the right to know the maximum amount of time they have to challenge the IRS's position. The right to raise objections in response to IRS actions. d) To represent yourself or have someone else (with your proper written authorization) represent you.
a) To receive the IRS audit working papers.
Which of the following actions does not shift the burden of proof to the IRS during tax litigation? a) Maintain records. b) Have the tax return completed by a tax preparer. c) Cooperate with reasonable IRS requests. d) Have credible evidence of the factual issues.
b) Have the tax return completed by a tax preparer.
The IRS determines that Steven owes $6,000 in unpaid tax due to negligence in filing his 2019 tax return. He pays the tax and $1,000 of interest. Calculate the negligence or accuracy-related penalty and determine how much he can deduct on his 2020 tax return? a) $1,500 penalty and $1,000 interest deduction b) $1,500 penalty and $0 miscellaneous deduction c) $1,200 penalty and $0 deduction for the interest or penalty d) $1,200 penalty and $1,000 interest deduction
c) $1,200 penalty and $0 deduction for the interest or penalty
Chad filed his 2020 tax return on April 2, 2021. His 2020 return included a capital loss for 100 shares of worthless Globalstar Communications stock. When does the statute of limitations run out for the worthless stock deduction? a) April 15, 2027 b) April 2, 2024 c) April 15, 2028 d) April 15, 2024
c) April 15, 2028
Which of the following is a true statement? a) The IRS is a division of the Department of Justice. b) The commissioner of internal revenue is an elected position. c) Fresno, California is one of the IRS processing sites. d) The Whistleblower Office comes under Operations Support
c) Fresno, California is one of the IRS processing sites.
The Taxpayer Bill of Rights directs the taxpayer to all the following sources except which of the following? a) Publication 971, Innocent Spouse Relief b) Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund c) Publication 15, Employers' Tax Guide (Circular E) d) Publication 594, The IRS Collection Process
c) Publication 15, Employers' Tax Guide (Circular E)
Which of the following is not part of the Wage and Investment Division (W&I)? a) The return integrity and correspondence office b) Customer account services office c) Specialty tax office d) Customer assistance, relationships, and education office
c) Specialty tax office
Which of the following best answers the question, "what is tax planning"? a) Tax planning is the avoidance of tax traps. b) Tax planning is equivalent to tax evasion. c) Tax planning is the structuring of one's financial affairs so as to minimize one's tax liability. d) Tax planning is all about tax deferral. e) Tax planning is the calculation of the taxpayer's marginal tax rate.
c) Tax planning is the structuring of one's financial affairs so as to minimize one's tax liability.
Which of the following is a correct statement? a) Returns which are subject to examination always result in changes in the tax liability, usually with more taxes being owed. b) If the IRS examined your return within the last 3 years for the same item and proposed no change, then the examination should be discontinued. c) The IRS may use sources such as the newspaper and public records to determine what returns to examine. d) Correspondence audits typically require the taxpayer to respond in person at an IRS office.
c) The IRS may use sources such as the newspaper and public records to determine what returns to examine.
The IRS is a division of which of the following? a) The Federal Trade Commission (FTC). b) The Senate. c) The Treasury Department. d) The court system.
c) The Treasury Department.
In which of the following cases does the burden of proof not shift to the IRS? a) The "hobby loss" being litigated has shown profit for 3 of the preceding 5 years. b) The court proceeding against an individual taxpayer involves penalty or addition to tax. c) The corporation involved has net worth exceeding $7 million. d) The IRS uses statistics to reconstruct an individual's income.
c) The corporation involved has net worth exceeding $7 million.
Which of the following describe 75 percent of all audits of individual taxpayers? a) office audits b) field audits c) correspondence audits d) TCMP audits
c) correspondence audits
Which of the following taxpayers will benefit least in terms of dollars saved as a result of the same tax planning to reduce taxes? a) An individual taxpayer who has an average tax rate of 33 percent. b) An individual taxpayer who has a marginal tax rate of 25 percent. c) An individual taxpayer who has an average tax rate of 25 percent. d) An individual taxpayer who has a marginal tax rate of 15 percent. e) None of these responses listed are correct.
d) An individual taxpayer who has a marginal tax rate of 15 percent.
Which of the following does not result in a preparer penalty? a) Assisting a taxpayer in understating his or her income b) Failing to include the preparer tax identification number c) Failing to sign a return as a paid preparer d) Failing to pay quarterly estimated tax e) Endorsing or cashing a taxpayer's refund check f) All of these responses listed result in preparer penalties.
d) Failing to pay quarterly estimated tax
Which of the following is not a type of IRS taxpayer audit? a) Office audit b) Correspondence audit c) Field audit d) Internal audit e) All of these responses listed are types of IRS audits.
d) Internal audit
Rosalie mails her 2020 individual income tax return on October 15, 2021. She properly applied for a 6-month extension of time to file her return. When does the statute of limitations run out on her return? a) October 15, 2023 b) April 15, 2023 c) April 15, 2024 d) October 15, 2024
d) October 15, 2024
Which of the following is not true regarding the Annual Filing Season Program (AFSP)? a) Six hours of the continuing education must be directed toward a federal tax refresher course. b) The AFSP requires 18 hours of continuing education. c) Paid preparers, whether participating in the AFSP or not, are required to obtain a PTIN. d) The AFSP is mandatory for all unenrolled tax return preparers. e) All of these responses listed are true.
d) The AFSP is mandatory for all unenrolled tax return preparers.
Perry has taxable income of $80,000 on which he pays income tax of $13,390. If Perry's taxable income increases by $3,000, he will pay tax of $14,050. Which of the following is correct about Perry's tax rates? a) The marginal rate is 16.74 percent. b) The marginal rate is 28 percent. c) The marginal rate is 16.93 percent. d) The marginal tax rate is higher than the average tax rate. e) His marginal rate is less than his average tax rate.
d) The marginal tax rate is higher than the average tax rate.
In the case of penalties, which of the following is true? a) There is a 20 percent penalty of the applicable overstatement of income tax due to negligence or disregard of rules or regulations. b) The fraud penalty is equal to the amount of the underpayment of taxes attributable to fraud. c) A substantial valuation overstatement occurs when the value of property is 20 percent more than the correct valuation. d) There is no penalty for failure to file a Form 1040 if the return is filed late, but filed correctly, and the taxpayer has overpaid his/her individual taxes. e) If both failure-to-file and failure-to-pay penalties apply, the failure-to-file penalty is increased by the amount of the failure-to-pay penalty.
d) There is no penalty for failure to file a Form 1040 if the return is filed late, but filed correctly, and the taxpayer has overpaid his/her individual taxes.
Which of the following is not a method currently used by the IRS to select returns for audit? a) Associated tax returns b) DIF scores c) News items d) Informants e) All of these methods listed are currently used by the IRS.
e) All of these methods listed are currently used by the IRS.
Which of the statements below are true of the failure-to-file penalty? a) The amount of the penalty is limited to a maximum of 25 percent of the amount of taxes due with the tax return. b) The amount of the penalty is 5 percent of the tax due with the return for every month or portion of a month the return is late. c) It will not be assessed if the taxpayer can demonstrate that there was "reasonable cause" for failing to file the return on time. d) If there are no taxes due with the return, there will be no penalty for failure to file even though the return is late. e) All of these statements listed are true.
e) All of these statements listed are true.
