Question 1

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 2

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 and assessments is the same, currently set at 3% per year, compounded daily.

Question 3

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 4

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

Accepted Answer

A flat tax system has a simple and straightforward structure where every taxpayer pays the same percentage of their income regardless of their income level or other factors. This simplicity means it is easier to implement and administer, as well as reducing the burden of tax compliance on taxpayers.

Question 5

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 rules, while FICA (Federal Insurance Contributions Act) only requires compliance with Federal rules.

Question 6

A calendar year taxpayer files his 2017 Federal income tax return on March 4, 2018. The return reflects an overpayment of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2018. The refund need not include interest.

Accepted Answer

The prompt states that the refund need not include interest, so it is not included in the refund amount paid on May 16, 2018.

Question 7

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...

Question 8

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

Accepted Answer

If fraud is involved, the IRS can assess a deficiency at any time, meaning there is no time limit.

Question 9

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 for state unemployment insurance programs, not retirement security.

Question 10

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

Accepted Answer

A greater number of no change results from IRS audits could indicate that the audits are not effectively identifying non-compliance, rather than increased compliance by taxpayers.

Question 11

In an office audit, the audit by the IRS takes place at the office of the taxpayer.

Accepted Answer

In an office audit, the IRS conducts the audit at an IRS office, not at the taxpayer's office.

Question 12

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 13

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

Accepted Answer

An RAR (report of examination changes) is issued by the IRS agent after auditing a taxpayer's return, and it may reflect no additional taxes owed by the taxpayer.

Question 14

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

Accepted Answer

If the parent is the sole proprietor of the business and the daughters are under age 18, they are not subject to FICA (Social Security and Medicare) taxes.

Question 15

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 FICA is currently capped at a certain dollar amount each year, which is adjusted annually for inflation. For 2021, the cap is set at $142,800.

Question 16

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

According to the US Internal Revenue Code, if a taxpayer does not file a tax return, there is no time limit for the IRS to assess or collect any tax owed. This means that the statute of limitations does not apply in such cases.

Question 17

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

Accepted Answer

A special agent is an IRS employee who is trained to investigate criminal tax fraud. If they become involved in an audit, it indicates that the IRS believes there is a possibility of intentional fraud or serious violations of tax law.

Question 18

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

Accepted Answer

The value added tax (VAT) has actually had wide acceptance in the international community, with over 160 countries implementing some form of VAT.

Question 19

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 20

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

Accepted Answer

When a taxpayer's itemized deductions are high compared to their income, it could raise a red flag for the IRS and increase the probability of being audited. This is because the higher the deductions, the lower the taxable income, which means the taxpayer's overall tax liability could be reduced significantly. The IRS wants to ensure that taxpayers are claiming legitimate deductions and not fraudulently reducing their tax liability.

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