Question 1

Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case:

Accepted Answer

The answer of Lavonda discovered that the U.S. Circuit Court...

Question 2

Greg earned $20,500 this year and had $1,500 of federal income taxes withheld from his salary. Assuming that Greg will have a total tax liability of $1,000 (and thus will receive a $500) refund, he:

Accepted Answer

Greg is required to file a tax return because his income exceeds the minimum threshold for filing, and he had taxes withheld, which entitles him to a refund.

Question 3

Which of the following is not a common method that the IRS uses to select returns for audit?

Accepted Answer

The Tax select system is not a common method used by the IRS to select returns for audit. The DIF system, information matching, and document perfection are all methods used by the IRS to identify potential issues on tax returns.

Question 4

Ramon's tax return was randomly selected for audit. Which IRS program likely selected Ramon's return for audit?

Accepted Answer

The answer of Ramon's tax return was randomly selected for...

Question 5

Henry filed his 2014 tax return on May 15th, 2015. The statute of limitations for IRS assessment on Henry's 2014 tax return should end:

Accepted Answer

The general statute of limitations for the IRS to assess additional taxes on a filed tax return is three years from the actual filing date. Since Henry filed his 2014 tax return on May 15th, 2015, the statute of limitations for IRS assessment should end on May 15th, 2018, making answer choice C the correct answer.

Question 6

Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with an Appeals Officer or (2) agreeing to a proposed tax adjustment. Dan received the:

Accepted Answer

The 30-day letter is also known as a "Notice of Deficiency" and gives the taxpayer the option to either request a conference with an Appeals Officer or agree to the proposed tax adjustment. This closely aligns with the scenario described in the question, making answer choice A the best option. The 90-day letter is also known as a "Statutory Notice of Deficiency" and gives the taxpayer 90 days to petition the Tax Court, which is not mentioned in the question. Answer choices C and D refer specifically to letters related to the appeals process and tax adjustments, respectively, but do not necessarily match the described scenario. Answer choice E is incorrect as a letter was indeed received by Dan.

Question 7

Which of the following audits is the least common, broadest in scope, and typically most complex?

Accepted Answer

Field audits involve examining a company's financial records on location, which can make them more complex and time-intensive than other types of audits. They are typically used for larger and more complex organizations, making them the least common and broadest in scope of the options provided.

Question 8

Bill filed his 2014 tax return on March 15th, 2015. The statute of limitations for IRS assessment on Bill's 2014 tax return should end:

Accepted Answer

The answer of Bill filed his 2014 tax return on...

Question 9

Dominic earned $1,500 this year, and his employer withheld $200 of federal income tax from his salary. Assuming that Dominic will have zero tax liability this year, he:

Accepted Answer

Dominic is not required to file a tax return because he has zero tax liability, but he should file a return to claim a refund of the $200 withheld.

Question 10

Which of the following courts is the only court that provides for a jury trial?

Accepted Answer

The U.S. District Court is the only court among the given options that provides for a jury trial. The Tax Court and U.S. Court of Federal Claims are specialized courts that do not provide for a trial by jury, whereas the U.S. Circuit Court of Appeals is an appellate court that only reviews decisions made by lower courts and does not conduct trials.

Question 11

Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or (2) filing a petition with the U.S. Tax Court. Basu received the:

Accepted Answer

A 90-day letter, also known as a statutory notice of deficiency, is sent by the IRS to inform a taxpayer of a proposed deficiency in their tax. The taxpayer has 90 days from the date of the letter to either pay the proposed deficiency or file a petition with the U.S. Tax Court. Therefore, the situation described in the question matches the criteria of a 90-day letter, and Basu should choose to either pay the proposed deficiency or file a petition with the U.S. Tax Court.

Question 12

Martin has never filed a 2014 tax return despite earning approximately $20,000 providing landscaping work in the community. When does the statute of limitations expire for Martin's 2014 tax return?

Accepted Answer

The statute of limitations does not begin until a tax return is filed. Since Martin never filed a 2014 tax return, the statute of limitations has not started, and therefore, it does not expire.

Question 13

Rowanda could not settle with the IRS at the appeals conference. If she wants to litigate the issue but does not have sufficient funds to pay the proposed tax deficiency, Rowanda should litigate in the:

Accepted Answer

The U.S. Tax Court is a court specifically established to hear tax-related cases, including disputes with the IRS. Taxpayers do not have to pay the proposed deficiency before litigating in the Tax Court, unlike other courts such as the U.S. District Court or U.S. Court of Federal Claims. Therefore, option D is the best choice for Rowanda in this scenario.

Question 14

Andy filed a fraudulent 2014 tax return on May 1, 2015. The statute of limitations for IRS assessment on Andy's 2014 tax return should end:

Accepted Answer

The statute of limitations does not apply to fraudulent tax returns. Therefore, there is no end date for the IRS to assess taxes on Andy's fraudulent 2014 tax return.

Question 15

Which of the following is not considered a primary authority?

Accepted Answer

Tax services, such as CCH or RIA, are considered secondary sources of tax law. Primary authority refers to sources of law that come directly from a legislative or judicial body, such as statutes, regulations, cases, and revenue rulings.

Question 16

Lavonda discovered that the 5th Circuit (where Lavonda resides) has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case:

Accepted Answer

Lavonda should choose either the Tax Court or the U.S. District Court to hear her case because both of these courts have jurisdiction to hear cases involving federal tax issues. The favorable opinion issued by the 5th Circuit would be persuasive authority in either court, so there is no advantage to choosing one court over the other based on the opinion. The U.S. Court of Federal Claims is another option, but it is not necessary for Lavonda to choose this court because the Tax Court and the U.S. District Court have concurrent jurisdiction with the Court of Federal Claims.

Question 17

Which of the following audits is the most common and typically less comprehensive?

Accepted Answer

Correspondence audits are the most common type of audit and are typically less comprehensive, involving communication through mail to resolve minor issues.

Question 18

Tyrone claimed a large amount of charitable contributions as a tax deduction relative to taxpayers with similar levels of income. If Tyrone's tax return is chosen for audit because of his large charitable contributions, which audit program likely identified Tyrone's tax return for audit?

Accepted Answer

The DIF system (Discriminate Function System) is used by the IRS to identify tax returns that are more likely to have errors or discrepancies. It uses an algorithm that assigns each return a score based on various factors, including the level of charitable contributions claimed as a deduction. Returns with scores above a certain threshold are then flagged for audit. Therefore, Tyrone's tax return is likely selected for audit using the DIF system because of his large charitable contributions.

Question 19

Allen filed his 2014 tax return on May 15th, 2015 and underreported his gross income by 30 percent. Assuming Allen's underreporting is not due to fraud, the statute of limitations for IRS assessment on Allen's 2013 tax return should end:

Accepted Answer

The answer of Allen filed his 2014 tax return on...

Question 20

Leslie made a mathematical mistake in computing her tax liability. Which audit program will likely catch Leslie's mistake?

Accepted Answer

The answer of Leslie made a mathematical mistake in computing...

Quiz 2: Tax Compliance, the Irs, and Tax Authorities