Chapter 12-Tax Administration and Planning
Which of the following taxpayers will benefit most in terms of dollars saved as a result of tax planning to reduce taxes?
An individual taxpayer who has an average tax rate of 28 percent.
A taxpayer can pay off their tax owed when they sell their boat which is up for sale
Ask for an extension
On April 1, 2015, the IRS asks for and the taxpayer agrees to an additional year to complete an audit for a 2011 tax return which was filed on March 9, 2012.
Ask for an extension April 1, 2016
The IRS assesses additional taxes for 2013 tax return audit on May 5, 2015. How long does the IRS have to collect the tax?
10 years from date of audit May 5, 2025
The general statute of limitations for a tax return
3 years
A 2015 tax return filed on April 15, 2016
3 years April 15, 2019
Jenny files her 2015 tax return on February 25, 2016
3 years April 15, 2019
Which of the following is the calculation of the failure-to-file penalties?
5 percent of the tax due for each month or part of the month that it is late, limited to 25 percent of the taxes due
Which of the following is false regarding the return audit process?
50 percent of taxpayers are audited each year
The special statute of limitations for a tax return that omits income greater than 25 percent of gross income is
6 years
Mike deducts a bad debt on his 2015 tax return. How many years is the statute of limitations for the bad debt deduction?
7 years
The statute of limitations for a bad debt deductions or worthless securities is
7 years
A 2015 tax return filed on April 15, 2016 which omitted $20,000 of income. The total gross income shown on the tax return was $20,000
7 years April 15, 2022
Jeremy reported $10,000 of worthless debt on his 2014 tax return which he filed on August 3, 2015.
7 years August 3, 2022
A 2015 tax return filed April 15, 2016 which contained a large bad debt deduction
7 years April 15, 2022
One of the things a preparer needs to do in order to participate in the Annual Filing Season Program
Complete 18 hours of continuing education
Susie receives a letter from the IRS asking her to provide documentation to support her charitable contributions on her tax return filed in the prior year
Correspondence audit
Which of the following is the most common type of audit for an individual taxpayer?
Correspondence audit
One of the ways that a tax return may be selected for an audit
Disagreement between the agent and the taxpayer
One of the ways that a tax return may be selected for an audit
Discriminant Function System
Commissioner of Internal Revenue
Establishes policy, supervises the activities of the organization, and acts in an advisory capacity to the Treasury Department on legislative matters
Which of the following will not affect the statute of limitations on a tax return?
Failure to pay the tax due with the tax return
An IRS agent views Microsoft's books and records at the Microsoft headquarters
Field audit
The IRS uses statistics to reconstruct an individual's income
IRS
The tax case involves a penalty
IRS
The taxpayer has credible evidence, maintains records, and cooperates with reasonable IRS requests
IRS
At which of the following IRS locations are tax returns processed?
IRS Campus Processing Sites
Using monthly payments, a taxpayer can afford to pay off the tax owed within 2 years
Installment agreement
Which of the following statements is the most correct regarding The Taxpayer Bill of Rights?
It directs taxpayers to other IRS publications with more details on specific taxpayer rights. It explains the examination, appeal, collection, and refund process. It states that a taxpayer is responsible for payment of only the correct amount of tax due, no more, no less.
If a calendar year taxpayer's 2015 individual income tax return is mailed on June 15, 2016, the statute of limitations would normally run out on
June 15, 2019
Tax planning opportunities can be classified into four categories
Jurisdiction Timing Entity Character
Taxpayer Bill of Rights Only the taxpayer has the right to represent themselves in front of the IRS
No
Taxpayer Bill of Rights If a taxpayer is unable to provide or to verify information, then the IRS may contact a neighbor, bank, employer, or employees in order to obtain the information.
No
Publication 1 explains how to file an amended tax return
No, it simply states our rights as a tax payer.
If a taxpayer is due a refund, but did not file a return, then the IRS uses statistics to reconstruct an individual's income in order to compute the refund for the taxpayer.
No, only if you do not respond
If you do not agree with the IRS examiner's proposed changes in an audit, you must go directly to the court system to resolve the issue
No, you ask for a review
One of the things a preparer needs to do in order to participate in the Annual Filing Season Program
Obtain tax preparer id number
A taxpayer is unlikely to pay the tax amount they owe
Offer to compromise
Mr. and Mrs. John Doe are asked to bring their supporting documents to the downtown IRS office so that an IRS agent may review their tax return which was filed 2 years ago
Office audit
Which of the following is not a possible result of an audit by the IRS?
Payment of a refund to the taxpayer Payment of a deficiency by the taxpayer An appeal No change in the liability
Which of the following is the best definitions of tax planning?
Planning taxpayers' financial affairs in an effort to minimize tax liability
Which category of tax payers may represent their clients in only the most limited situations in front of the IRS?
Preparers enrolled only in the Annual Filing Season Program
IRS Campus Processing Sites
Processes the information from tax documents
One of the things a preparer needs to do in order to participate in the Annual Filing Season Program
Refresher course
One of the ways that a tax return may be selected for an audit
Reported by an informant
Small Business/Self-Employed Division
Services individuals who file Form 1040 Schedules, C, E, or F
Wage & Investment Division
Services taxpayers who pay most of their taxes through withholding
Large Business and International Division
Services taxpayers with assets of $10 million or more
Taxpayer Bill of Rights Publication 1 explains what to do if an IRS employee has not provided prompt, courteous, and professional assistance to the taxpayer.
Yes
Taxpayer Bill of Rights A phone number to call to have questions answered
Yes
The tax law generally provides for interest on your refund if it is not paid within 45 days of the date you filed your return or filed your claim for refund
Yes (true statement in Publication 1)
A taxpayer made estimated tax payments in excess of the tax due for the year, but failed to file a tax return. Since the taxes were paid in full, would there be a penalty?
Yes, if failed to be reported
Which of the following statements best describes the process of tax planning?
c. Tax planning is the process of arranging one's financial affairs to minimize one's overall tax liability.
A 2001 tax return that was never filed
no statute of limitations
A fraudulent 2015 tax return filed April 15, 2016
no statute of limitations
Difference between tax avoidance and tax evasion
tax evasion can subject taxpayer and tax practitioner to fines, penalties, or incarceration. Tax avoidance is tax planning to avoid tax, provided legal methods are used.
The statute of limitations for a fraudulent tax return is
there is no statute of limitations
James omits 7 percent of his income on his 2013 tax return which he filed on July 12, 2014
Amended tax return (3 years) July 12, 2017
The case involves a trust with net worth of $8.3 million
Tax payer
Which of the following is not a preparer penalty?
Tax preparers may be assessed a penalty for failing to give the taxpayer the preparers work papers.
Which of the following types of audits was suspended due to protests from taxpayers and lawmakers?
Taxpayer Compliance Measurement Program selected audit
A tax return with a large casualty loss would be most likely selected for audit through
The Discriminant Function System
Which of the following statements best describes the purpose of the Taxpayer Bill of RIghts?
To inform taxpayers of their rights in dealing with the IRS
if a taxpayer makes all of his income from his job and various investments, which office of the IRS would likely investigate his return if it were audited?
a. Wage & Investment Division (W&I)