Question 1

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

Accepted Answer

The involvement of a special agent in an audit is a sign that the IRS suspects fraud or other criminal activity.

Question 2

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

Accepted Answer

The more itemized deductions a taxpayer claims, the more opportunities there are for errors or fraudulent claims. This increases the likelihood of an audit by the IRS.

Question 3

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 4

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 5

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) is the same as that applicable to assessments (underpayments) for individual taxpayers.

Question 6

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

Accepted Answer

The IRS has no time limit on the assessment of a deficiency if fraud is involved.

Question 7

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

Accepted Answer

The answer of If more IRS audits are producing a...

Question 8

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

Accepted Answer

An RAR (examination report) is issued by the IRS agent regardless of whether or not the taxpayer owes additional taxes. It summarizes the audit findings and explains any changes made to the originally filed tax return.

Question 9

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 the...

Question 10

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,any...

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

A flat tax system is often considered simple because it applies a single tax rate to all income levels. This eliminates the need for complex tax brackets and calculations, making it easier for taxpayers to understand and comply with the tax code.

Question 13

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

Accepted Answer

The principal objective of the FUTA (Federal Unemployment Tax Act) tax is to provide funds for state unemployment insurance programs and not retirement security.

Question 14

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 15

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

The IRS can assess taxes at any time if a taxpayer fails to file a tax return. This is because there is no statute of limitations on assessments if no return is filed.

Question 16

A calendar year taxpayer files his 2016 Federal income tax return on March 4,2017.The return reflects an overpayment of $6,000,and the taxpayer requests a refund of this amount.The refund is paid on May 16,2017.The refund need not include interest.

Accepted Answer

Interest is not required to be paid on a refund if the taxpayer files within three years of the due date of the return or within two years of the payment of the tax, whichever is later. In this case, the taxpayer filed within the three-year period, so interest is not required.

Question 17

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 18

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

Question 19

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 20

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

Accepted Answer

The answer of In an office audit,the audit by the...

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