Question 1

When interest is charged on a deficiency, any part of a month counts as a full month.

Accepted Answer

The answer of When interest is charged on a deficiency,...

Question 2

For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS.

Accepted Answer

The statute of limitations for the IRS to assess additional income tax if there is an omission of income in excess of 25% of the amount of gross income stated in the return is 6 years, not indefinite.

Question 3

A parent employs his twin daughters, age 17, in his sole proprietorship.The daughters are not subject to FICA
coverage.

Accepted Answer

According to IRS rules, children who work for their parents in a sole proprietorship are exempt from FICA (Social Security and Medicare) taxes until they reach the age of 18. Therefore, in this scenario, the twin daughters who are age 17 are not subject to FICA coverage.

Question 4

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

Accepted Answer

If a taxpayer does not file an income tax return, the statute of limitations on assessments by the IRS does not apply. This means that the IRS can assess taxes at any time, without time limit.

Question 5

The IRS agent auditing the return will issue an RAR even if the taxpayer owes no additional taxes.

Accepted Answer

The IRS agent will issue an RAR (Report of Examination Changes) even if the taxpayer owes no additional taxes. The RAR lists any changes made to the tax return during the audit, and the taxpayer must agree to the changes or appeal within a certain time frame.

Question 6

For individual taxpayers, the interest rate for income tax refunds (overpayments) is the same as that applicable to assessments (underpayments).

Accepted Answer

The interest rate for income tax refunds (overpayments) and assessments (underpayments) is currently the same and is determined quarterly by the IRS.

Question 7

Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.

Accepted Answer

The tax base for the Social Security component of the Federal Insurance Contributions Act (FICA) is limited to a set dollar amount that is adjusted annually for inflation. This means that income above a certain threshold is not subject to Social Security taxes.

Question 8

An office audit by the IRS takes place at the office of the taxpayer.

Accepted Answer

An office audit by the IRS takes place at an IRS office, not at the taxpayer's office.

Question 9

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

Accepted Answer

The IRS is required to redetermine the interest rates on underpayments and overpayments on a quarterly basis, not annually.

Question 10

If more IRS audits are producing a higher number of no change results, this indicates increased compliance on the part of taxpayers.

Accepted Answer

A higher number of no change results in IRS audits could indicate that the IRS is selecting compliant taxpayers for audits, not necessarily that overall taxpayer compliance has increased.

Question 11

If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS.

Accepted Answer

This is known as the fraud exception to the statute of limitations, and it allows the IRS to assess tax, penalties, and interest at any time upon the discovery of fraud.

Question 12

A major advantage of a flat tax type of income tax is its simplicity.

Accepted Answer

A flat tax system levies a single tax rate on all income earners regardless of their income level, making it simpler to calculate and enforce.

Question 13

The value added tax (VAT) has not had wide acceptance in the international community.

Accepted Answer

The value added tax (VAT) has been widely accepted in the international community and is used in over 160 countries.

Question 14

A calendar year taxpayer files his 2018 Federal income tax return on March 4, 2019.The return reflects an overpayment of $6,000, and the taxpayer requests a refund of this amount.The refund is paid on May 16, 2019.The refund need not include interest.

Accepted Answer

The refund was paid within 45 days of the tax return being filed, so interest does not need to be included.

Question 15

During any month in which both the failure to file penalty and the failure to pay penalty apply, the failure to file penalty is increased by the amount of the failure to pay penalty.

Accepted Answer

The failure to file penalty is not increased by the amount of the failure to pay penalty. Instead, the IRS reduces the failure to file penalty by the amount of the failure to pay penalty for any month both penalties apply.

Question 16

The principal objective of the FUTA tax is to provide some measure of retirement security.

Accepted Answer

The principal objective of the Federal Unemployment Tax Act (FUTA) tax is to provide funds to states for unemployment compensation benefits to eligible workers who have lost their jobs through no fault of their own. It is not directly related to retirement security.

Question 17

Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.

Accepted Answer

FUTA (Federal Unemployment Tax Act) requires employers to comply with both state and federal regulations related to unemployment taxes and benefits, while FICA (Federal Insurance Contributions Act) only requires compliance with federal regulations related to social security and Medicare taxes.

Question 18

If a special agent becomes involved in the audit of a return, this indicates that the IRS suspects that fraud is involved.

Accepted Answer

When a special agent becomes involved in an audit, it typically signifies that the IRS suspects that fraud or another criminal activity is involved. This is because special agents are trained to investigate criminal matters, while regular IRS auditors focus on ensuring compliance with tax laws.

Question 19

The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS.

Accepted Answer

This is because larger itemized deductions can potentially increase the likelihood of discrepancies or errors in tax reporting, triggering red flags for an audit.

Question 20

If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

Accepted Answer

The answer of If a taxpayer files early (i.e., before...

Quiz 1: An Introduction to Taxation and Understanding the Federal Tax Law