Question 1

Identify which of the following statements is true.

Accepted Answer

The statute of limitations indeed limits the time during which a taxpayer may claim a refund of an overpayment of tax, typically within three years from the time the return was filed or two years from the time the tax was paid, whichever is later. Choices A and C contain inaccuracies regarding the duration of the statute of limitations for tax redeterminations and the specific conditions under which it can be extended.

Question 2

On April 15, 2018, a married couple filed their joint 2017 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?

Accepted Answer

The IRS typically has three years from the date a tax return is filed to audit the return and assert a notice of deficiency. However, if a taxpayer omits more than 25% of their gross income on their tax return, the statute of limitations is extended to six years. In this case, the couple omitted $45,000 out of $120,000, which is more than 25% of their gross income. Therefore, the IRS has until April 15, 2024, to assert a notice of deficiency, which is six years from the original filing deadline of April 15, 2018.

Question 3

The IRS audited the tax returns of Dan Jackson, a gifted painter. It contended that, between 2003 and 2005, Jackson received $500,000 for his paintings, but reported only $75,000. Jackson attributed the shortfall to his receipt of cash at art fairs and street fairs. He allegedly concealed the cash payments in separate bank accounts unbeknownst to his CPA. What tax compliance issues regarding the alleged underreporting are pertinent to the CPA?

Accepted Answer

The answer of The IRS audited the tax returns of...

Question 4

Pablo, a bachelor, owes $80,000 of additional taxes, all due to fraud. What is the amount of the civil fraud penalty? What criminal fraud penalty might be imposed under Sec. 7201?

Accepted Answer

The answer of Pablo, a bachelor, owes $80,000 of additional...

Question 5

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

Accepted Answer

The maximum amount Steve may file a claim for refund is limited to the amount of tax paid within the three-year statute of limitations period, which in this case is $5,000 (tax paid on April 1st of the tax year). Since Steve paid the deficiency of $1,500 two years later, he cannot claim a refund for that amount. Therefore, the maximum amount Steve may file a claim for refund is $5,000 - $0 (cannot include the deficiency paid later) = $5,000. However, since 18 months have passed since the tax return was filed, Steve is already outside the statute of limitations period to claim a refund.

Question 6

You are preparing the tax return for Agre Corporation, which has sales of $50 million. Agre made a $2 million expenditure for which the appropriate tax treatment, deductible or capitalizable, is a gray area. The corporation's Chief Financial Officer wants you to deduct the expenditure. What tax compliance issues should you consider in deciding whether to deduct the expenditure?

Accepted Answer

The answer of You are preparing the tax return for...

Question 7

The IRS audits Kiara's current-year individual return and determines that, among other errors, she negligently did not report dividend income of $10,000. The deficiency with respect to the dividends is $2,800. The IRS argues for an additional $12,000 deficiency for various other errors that do not involve negligence. What is Kiara's negligence penalty for the $14,800 in deficiencies?

Accepted Answer

The answer of The IRS audits Kiara's current-year individual return...

Question 8

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.

Accepted Answer

The general statute of limitations for federal tax returns is 3 years from the date the return was filed or the due date of the return, whichever is later.

Question 9

Kelly, a calendar-year taxpayer, files her 2017 individual return on March 30, 2018, and pays the amount due at the same time. Later, she discovers some deductions that she should have claimed on the return. By what date must she file a claim for refund?

Accepted Answer

The answer of Kelly, a calendar-year taxpayer, files her 2017...

Question 10

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

Accepted Answer

The six-year statute of limitation rule applies if the taxpayer understates gross income by 25%.

Question 11

Latka Novatny gave you the following information to use in the preparation of his current year's tax return:
Salary $120,000
Dividends 20,000
Itemized deductions 35,000
In addition, he received $40,000 from a relative for whom he had worked previously. You have researched whether the $40,000 should be classified as a gift or compensation and are confident that substantial authority exists for classifying it as a gift. What tax compliance issues should you consider in deciding whether to report or exclude the $40,000?

Accepted Answer

The answer of Latka Novatny gave you the following information...

Question 12

Identify which of the following statements is false.

Accepted Answer

The civil fraud penalty is generally 75% of the underpayment of tax attributable to fraud. There is no additional 25% penalty on the interest payable on the underpayment.

Question 13

Richard recently won a popular television reality show and its one million dollar prize. However, he omitted the prize money from his tax return for the year. What penalties can the IRS assess?

Accepted Answer

The answer of Richard recently won a popular television reality...

Question 14

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?

Accepted Answer

Terry must file a claim of refund by the later of three years from the return due date or two years from the date the tax is paid, according to the statute of limitations.

Question 15

Linda's individual tax return for the current year is subject to an IRS audit. The IRS assesses a $10,000 deficiency, $4,000 of which is due to Linda's negligence. What is Linda's negligence penalty?

Accepted Answer

The answer of Linda's individual tax return for the current...

Question 16

How does a taxpayer determine if "substantial authority" exists for a tax treatment the taxpayer desires to adopt?

Accepted Answer

The answer of How does a taxpayer determine if "substantial...

Question 17

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

Accepted Answer

A substantial understatement of tax for individuals occurs when the understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000.

Question 18

Identify which of the following statements is true.

Accepted Answer

Substantial authority for a tax position can indeed be established by a decision from the Court of Appeals for the taxpayer's circuit, reflecting the importance of circuit court rulings in tax law interpretation.

Question 19

What is the difference between the burden of proof for civil and criminal fraud?

Accepted Answer

The answer of What is the difference between the burden...

Question 20

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

Accepted Answer

For tax returns that are never filed, the IRS can technically pursue taxes owed indefinitely because the statute of limitations for assessing and collecting taxes does not begin until a return is filed.

Quiz 15: Administrative Procedures

Identify which of the following statements is true.

Pablo, a bachelor, owes $80,000 of additional taxes, all due to fraud. What is the amount of the civil fraud penalty? What criminal fraud penalty might be imposed under Sec. 7201?

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

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.

Kelly, a calendar-year taxpayer, files her 2017 individual return on March 30, 2018, and pays the amount due at the same time. Later, she discovers some deductions that she should have claimed on the return. By what date must she file a claim for refund?

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

Identify which of the following statements is false.

Richard recently won a popular television reality show and its one million dollar prize. However, he omitted the prize money from his tax return for the year. What penalties can the IRS assess?

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?

Linda's individual tax return for the current year is subject to an IRS audit. The IRS assesses a $10,000 deficiency, $4,000 of which is due to Linda's negligence. What is Linda's negligence penalty?

How does a taxpayer determine if "substantial authority" exists for a tax treatment the taxpayer desires to adopt?

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

Identify which of the following statements is true.

What is the difference between the burden of proof for civil and criminal fraud?

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