Question 1

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.

Accepted Answer

The innocent spouse relief provision covers all understatements subject to minimum thresholds, but it does not cover improper deductions, credits or basis.

Question 2

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?
A)the later of two years from the return filing or three years from the date the tax is paid
B)the later of three years from the return due date or two years from the date the tax is paid
C)two years from the payment of tax date,if the IRS mails a notice of deficiency in the third year following the due date of the return
D)four years from the payment of tax date,if the IRS mails a notice of deficiency

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. Since Terry filed his return on March 31, the due date for his return was April 15 of the same year. Therefore, the later of three years from the return due date or two years from the date the tax is paid would be April 15 of the third year after the return was filed.

Question 3

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 4

All of the following requirements must be met in order to establish innocent spouse relief except which of the following?
A)The return contains an understatement of tax attributable to the erroneous item(s)of an individual filing it.
B)The request for innocent spouse relief is made no later than one year after the IRS begins its collection efforts.
C)The requesting individual establishes that he or she neither knew nor had reason to know of any or all of the understatement.
D)Based on all the facts and circumstances,holding the other individual for the deficiency would be inequitable.

Accepted Answer

All of the other requirements listed (A,C,D) must be met in order to establish innocent spouse relief. However, the time limit for requesting innocent spouse relief is two years from the date of the IRS’s first collection activity, not one year as stated in choice B. Therefore, the incorrect answer is B.

Question 5

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?
A)April 15,2024
B)December 31,2018
C)April 15,2021
D)December 31,2024

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 6

A six-year statute of limitation rule applies if the taxpayer
A)understates taxable income by 25%.
B)understates AGI by 25%.
C)understates gross income by 25%.
D)none of the above

Accepted Answer

The six-year statute of limitation rule applies if the taxpayer understates gross income by 25%. This means that the IRS has six years from the date the tax return was filed to assess additional taxes or penalties. If the taxpayer did not purposely underreport their income and the understatement is less than 25%, the statute of limitations is three years. If the IRS finds fraud, there is no time limit for assessing taxes or penalties.

Question 7

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.

Question 8

Identify which of the following statements is true.
A)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 six years after the date on which the return is filed.
B)The statute of limitations limits the time during which a taxpayer may claim a refund of an overpayment of tax.
C)If a taxpayer omits from gross income an amount in excess of 25% of the gross income shown on his return,the statute of limitations is five years.
D)All of the above are 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 9

Identify which of the following statements is true.
A)An individual taxpayer may be subject to a penalty for underpayment of estimated taxes if his balance of tax due when he files is $500.
B)A penalty for substantial understatement will potentially be assessed on an individual if the underpayment of tax exceeds the greater of 15% of the tax shown on the return or $5,000.
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.
D)All of the above are 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 10

Identify which of the following statements is false.
A)If fraud is asserted in a tax transaction,the burden of proof falls on the IRS.
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.
C)The government must prove its case "beyond a reasonable doubt" in order for the court or jury to convict a taxpayer of criminal fraud.
D)The fraud penalty can be imposed with respect to income,gift,and estate tax returns.

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 11

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
A)$6,500.
B)$5,000.
C)$1,500.
D)some other amount.

Accepted Answer

The statute of limitations for filing a claim for refund is generally three years from the date the return was filed or two years from the date the tax was paid, whichever is later. In this case, Steve filed his return and paid the tax on April 1, so the two-year period would end on April 1 of the following year. Thus, the maximum amount he may file a claim for refund for would be the deficiency he paid two years later, which is $1,500. Option C is the correct choice.

Question 12

Identify which of the following statements is true.
A)If a taxpayer fails to file a return,the statute of limitations is extended to 10 years.
B)If a couple files a joint return but only one spouse had income,only the spouse with income is responsible for paying any tax due.
C)Joint and several liability means that each spouse is potentially liable for the full amount of tax due.
D)All of the above are false.

Accepted Answer

Joint and several liability means that each spouse is potentially liable for the full amount of tax due. Option A is false because the statute of limitations is typically three years, which may be extended to six years in specific cases. Option B is also false because both spouses are responsible for paying any tax due on a joint return, regardless of who earned the income.

Question 13

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 14

Which of the following is not a reason for relief from the substantial understatement penalty?
A)disclosure of the relevant facts pertaining to the questionable tax return position
B)substantial authority for the tax return position
C)reliance on a tax return preparer
D)reasonable cause and a good faith effort to comply with the tax law

Accepted Answer

Reliance on a tax return preparer alone is not sufficient to avoid the substantial understatement penalty. Taxpayers must also show reasonable cause and good faith, among other possible defenses.

Question 15

What is the requirement for a substantial understatement of tax for individuals?
A)The understatement exceeds 10% of the tax required to be shown on the return.
B)The understatement exceeds $5,000.
C)The understatement exceeds the lesser of 10% of the tax required to be shown on the return or $5,000.
D)The understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000.

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 16

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. $$\begin{array} { | l | r | } 
\hline \text { Last year's tax liability } & \$ 40,000 \
\hline \text { This year's estimated total tax } & 44,000 \
\hline \text { Taxes to be withheld for this year } & 9,000 \
\hline
\end{array}$$
A)$7,650
B)$7,750
C)$8,750
D)$11,000

Accepted Answer

The minimum quarterly estimated tax payment is 25% of the total estimated tax liability for the year, minus any taxes that will be withheld during the year. In this case, the total estimated tax liability is $44,000, and the taxes to be withheld are $9,000. Therefore, the minimum quarterly estimated tax payment is $7,750.

Question 17

Identify which of the following statements is true.
A)The failure-to-pay penalty is waived if the additional tax due with the filing of the extended return does not exceed 15% of the tax owed for the year.
B)If both the failure-to-file and the failure-to-pay penalties are owed,the taxpayer will incur a maximum addition to tax of 5.5% per month.
C)Individuals having substantial income from sources not subject to regular withholding generally should make quarterly estimated tax payments to the IRS.
D)All of the above are false.

Accepted Answer

This statement is true. Individuals who have income from sources not subject to regular withholding are required to make quarterly estimated tax payments to the IRS to avoid the penalty for failure to pay estimated tax. The other statements are false. The failure-to-pay penalty is not waived if the additional tax due with the extended return does not exceed 15% of the tax owed, and the maximum addition to tax for failure to file and failure to pay combined is 5% per month or part of a month.

Question 18

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?
A)$700
B)$1,400
C)$5,600
D)$1,750

Accepted Answer

The negligence penalty is typically 20% of the portion of the tax liability attributable to negligence. In this case, 20% of $7,000 (the amount attributable to negligence) equals $1,400.

Question 19

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
B)underpayment of tax exceeding the greater of 15% of the tax required to be shown on the return or $5,000 for individuals
C)underpayment of tax exceeding the lesser of 25% of the tax required to be shown on the return or $5,000 for individuals
D)$10,000 or more difference between the amount shown on the return and the correct amount due

Accepted Answer

A substantial understatement of tax liability occurs when the understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000 for individuals. This is the definition provided by the IRS. Option B and C are not correct definitions of substantial understatement of tax liability. Option D is incorrect because it provides a specific amount rather than a percentage or threshold.

Question 20

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.
B)owing taxes in the previous year.
C)having a casualty loss.
D)none of the above

Accepted Answer

According to the IRS, a taxpayer can avoid the penalty for underpayment of taxes if they owe less than $1,000 in taxes over and above the taxes withheld from wages. This is known as the "safe harbor" rule. Therefore, choice A is the correct answer. Choices B and C are incorrect as they do not automatically exempt a taxpayer from the penalty for underpayment of taxes. Choice D is incorrect as there is a way to automatically escape the penalty.

Quiz 15: Administrative Procedures

The innocent spouse relief provision from tax liability covers all of the following except

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?

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

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

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

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

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is false.

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

Identify which of the following statements is true.

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.

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

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

Identify which of the following statements is 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?

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

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