Question 1

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

Accepted Answer

Interest rates are determined quarterly by the IRS.

Question 2

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

Accepted Answer

This is a major difference between FICA and FUTA.

Question 3

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

Accepted Answer

This is the objective of the FICA tax.

Question 4

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

Accepted Answer

There exists no difference in the applicable interest rates for individual taxpayers.

Question 5

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

Accepted Answer

If the taxpayer has itemized deductions that are unusually large,the chances of being selected for audit increase.

Question 6

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

Accepted Answer

Its use in 100 countries seems to represent "wide acceptance."

Question 7

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

Accepted Answer

According to the IRS, if fraud is involved in a tax return, there is no statute of limitations for the assessment of a deficiency.

Question 8

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

Accepted Answer

An exemption exists for taxpayer's children who are under age 18.

Question 9

A calendar year taxpayer files his 2013 Federal income tax return on March 5,2014.The return reflects an overpayment of $6,000,and the taxpayer requests a refund of this amount.The refund is paid on May 16,2014.The refund need not include interest.

Accepted Answer

Because 45 days have not gone by since the due date of the return,interest need not be paid on the refund.

Question 10

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

If begins on the due date of the return.

Question 11

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 for the IRS to assess tax never begins to run. This means they can assess the tax at any time, without any time limit.

Question 12

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

Accepted Answer

Interest accrues daily.

Question 13

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

Accepted Answer

A flat tax type of income tax has a simple and uniform tax rate applicable to all taxpayers, regardless of their income level. This eliminates the need for complex tax brackets and calculations, making it easier for taxpayers to understand and comply with the tax code.

Question 14

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

Unless fraud is involved,the statute of limitations in this case is six years.

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 reduced by the amount of the failure to pay penalty.

Question 16

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

Accepted Answer

What is described is a field audit.An office audit takes place at the office of the IRS.

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 typically only brought in if the IRS suspects fraud or other criminal activity.

Question 18

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

Accepted Answer

An RAR can result in no change,a deficiency,or a refund.

Question 19

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

Accepted Answer

There is no dollar amount limitation on the Medicare component of FICA.

Question 20

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

Accepted Answer

It indicates that the IRS is not always choosing the right returns to audit (i.e. ,those that contain errors).

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