Chapter 2
Statute of Limitations and various types of noncompliance
-If the taxpayer misreports income (not exceeding 25% of gross income) or deductions: 3 years. -If the taxpayer omits items of gross income that exceed 25% of gross income: 6 years. -If the taxpayer commits fraud or doesn't file a tax return: Eligible indefinitely.
The penalty for failing to file a tax return that would have a balance due from the taxpayer is ______% of the tax due for each month or partial month that the return is late. The maximum penalty is generally _____%.
5% and 25%.
What is correct regarding extensions?
An extension to file is granted automatically at the request of the taxpayer.
What is the due date for calendar-year partnership income tax returns, assuming the date does NOT fall on a Saturday, Sunday, or holiday?
April 15
A _________ examination is the most common type of audit. The __________ examination is more comprehensive in scope and takes place at the IRS office. The ________ examination is the most extensive and takes place at the taxpayer's home or place of business.
Correspondence, Office, Field.
What are three computer initiatives that help the IRS identify tax returns that may have an understated tax liability?
Discriminant Function (DIF) System, Information Matching Program, and Document Perfection Program.
All tax returns are checked for mathematical and tax calculations errors with a process referred to as the _________ __________ __________.
Document perfection program.
What is true regarding tax filing requirements for estates and corporations?
Estates are required to file income tax returns if their gross income exceeds $600. All corporations must file regardless of income.
True or false: If a taxpayer discovers that he has a balance due on his tax return, but he does NOT have the money to pay the amount, he should file and extension in order to extend the date at which the payment is required to be made?
False. An "extension" only postpones the due date of the tax return. However, the total tax liability must be paid by the original due date (typically April 15th).
True or false: After the trial court's verdict, the losing party has the right to request the U.S. Supreme Court to hear the case?
False. The losing party can request one of the 13 U.S. Circuit Courts of Appeals to hear the case.
What determines whether an individual must file a tax return?
Filing status, age, and gross income.
All tax returns are compared to data submitted by third parties such as banks, employers, mortgage companies, etc. with a program referred to as the _________ _________ __________.
Information matching program.
What defines the period in which a taxpayer can file an amended tax return pr the IRS can assess a tax deficiency for a specific year?
Statute of Limitations.
Which trial court does NOT require the taxpayer to pay the deficiency before the case is heard?
The U.S. Tax Court.
How are gross income thresholds calculated?
The sum of the STANDARD deduction, additional deductions for taxpayers age 65 or older, and personal exemptions that apply to each respective filing status.
What action does the 90-day letter provide a taxpayer if the taxpayer does NOT agree with an assessment after being audited by the IRS and participating in the appeals conference?
The taxpayer should petition the U.S. Tax Court to hear the case.
True or false: Self-employed individuals have lower gross income thresholds for tax filing than the general filing requirements?
True. Self-employed individuals do have lower gross income thresholds because they are responsible for paying self-employment tax in addition to income tax.
