Deck 12: Tax Administration and Tax Planning

Question 1

Beginning in 2011,all paid tax return preparers must sign up with the IRS,pay a fee,and obtain a preparer tax identification number.

Answer 1

True

Question 2

Taxpayers who are unable to pay their taxes may enter into a payment plan with the IRS if the amount they owe is within certain limits.

Answer 2

True

Question 3

As a result of an IRS audit,a taxpayer may be required to pay additional taxes,but he or she is never paid a refund.

Answer 3

False

Question 4

Interest paid on an underpayment of taxes other than an underpayment of estimated taxes)is not subject to the consumer interest limitation.

Question 5

Taxpayers are required by law to maintain records to facilitate an IRS audit.

Question 6

The statute of limitations for a tax return generally is 3 years.

Question 7

The IRS may issue a summons for a taxpayer's bank account records.

Question 8

The tax law is administered by the Federal Trade Commission.

Question 9

The tax law contains a penalty for filing a "frivolous" tax return.

Question 10

If a taxpayer has too much income tax withheld from his salary during the tax year,the IRS will pay interest on the excess amount.

Question 11

An "office audit" is an audit in which the revenue agent visits the taxpayer's office.

Question 12

The IRS charges a fixed 10 percent interest rate on underpayments of taxes.

Question 13

The statute of limitations for the deduction of a worthless security is 5 years.

Question 14

The Discriminant Function System is designed to identify tax returns that may contain errors.

Question 15

The IRS has seven regional offices.

Question 16

Tax penalties are not deductible by taxpayers.

Question 17

Tax returns are processed at the IRS national office in Washington,D.C.

Question 18

A "correspondence audit" by the IRS is conducted through the mail.

Question 19

Tax returns selected for most audits are selected by the Discriminant Function System.

Question 20

A commercial tax preparer must be an enrolled agent.

Question 21

If a calendar year taxpayer's 2013 individual income tax return is mailed on June 15,2014,the statute of limitations would normally run out on:

A)June 15,2016
B)June 15,2017
C)April 15,2016
D)April 15,2017
E)None of the above

Question 22

Which of the following is the most common type of audit for an individual taxpayer?

A)Office audit
B)Telephone audit
C)Correspondence audit
D)Field audit
E)None of the above

Question 23

Craig commits fraud on his tax return.It is found that he was $45,000 deficient in his tax because of the fraud.What would his penalty be?

A)$45,000
B)$33,750
C)$78,750
D)$0

Question 24

Tax evasion involves the use of illegal methods to reduce or avoid income tax.

Question 25

Which of the following is the calculation of the failure-to-file penalties?

A)Half of 1 percent 0.5 percent)of the tax due for each month late,limited to 25 percent of the taxes due
B)5 percent of the tax due for each quarter late,limited to 25 percent of the taxes due
C)5 percent of the tax due for each month or part of the month that it is late,limited to 25 percent of the taxes due
D)20 percent of the tax due
E)5 percent of the tax due

Question 26

A taxpayer's average tax rate is determined by dividing the total tax paid by the total income of the taxpayer.

Question 27

Which of the following types of audits was suspended due to protests from taxpayers and lawmakers?

A)Discriminant Function System selected audit
B)Taxpayer Compliance Measurement Program selected audit
C)Correspondence audit
D)Office audit
E)None of the above

Question 28

At which of the following IRS locations are tax returns processed?

A)Regional offices
B)IRS Campus Processing Sites
C)Local offices
D)National office
E)None of the above

Question 29

If a taxpayer makes all of his income from his job and various investments,which office of the IRS would likely investigate his return if it were audited?

A)Wage & Investment Division W&I)
B)Large & Midsize Business Office
C)Small Business Office
D)Criminal Investigation Office
E)None of the above offices would perform the audit

Question 30

A taxpayer with an average tax rate of 20 percent who receives additional income of $20,000 will pay additional taxes of $4,000.

Question 31

Which of the following will not affect the statute of limitations on a tax return?

A)Omission of a significant amount of gross income
B)Mutual consent of the IRS and the taxpayer
C)Failure to pay the tax due with the tax return
D)Failure to file a tax return
E)Filing a fraudulent tax return

Question 32

Which of the following is not a possible result of an audit by the IRS?

A)Payment of a refund to the taxpayer
B)Payment of a deficiency by the taxpayer
C)An appeal
D)No change in the liability
E)All of the above are possible results

Question 33

A tax return with a large casualty loss would be most likely selected for audit through:

A)The Discriminant Function System
B)Information from an informant
C)Information from another governmental agency
D)The Taxpayer Compliance Measurement Program
E)None of the above

Question 34

A tax preparer may be subject to a penalty for failing to provide a copy of the taxpayer's tax return to the client.

Question 35

Which of the following is false regarding the return audit process?

A)The higher DIF score a return gets,the higher the likelihood for audit.
B)An office audit is performed at an IRS office.
C)50 percent of taxpayers are audited every year.
D)None of the above is false.

Question 36

Which category of tax preparers may represent their clients in only the most limited situations in front of the IRS?

A)Enrolled Agents
B)Registered Tax Return Preparers
C)Attorneys
D)CPAs

Question 37

Mike deducts a bad debt on his 2013 tax return.How many years is the statute of limitations for the bad debt deduction?

A)7 years
B)3 years
C)No limit
D)6 years
E)Zero

Question 38

Tax practitioners can be assessed a penalty for promoting an abusive tax shelter.

Question 39

The Taxpayer Bill of Rights is summarized in IRS Publication 1.

Question 40

Which of the following is not a type of IRS audit?

A)Office audit
B)Field audit
C)Correspondence audit
D)Operational audit
E)All of the above are types of IRS audits

Question 41

Which of the following statements best describes the process of tax planning?

A)Tax planning is equivalent to tax evasion.
B)Tax planning is the avoidance of "tax traps."
C)Tax planning is the process of arranging one's financial affairs to minimize one's overall tax liability.
D)Tax planning is the deferral of tax on income.
E)Tax planning is the calculation of a taxpayer's marginal rate of tax.

Question 42

What is the difference between tax avoidance and tax evasion?

Question 43

A taxpayer made estimated tax payments in excess of the tax due for the year,but failed to file a tax return.Since the taxes were paid in full,would there be a penalty?

Question 44

Stephanie has taxable income of $45,400 and a tax liability of $7,285.If Stephanie's income increases by $2,000,her tax liability will be $7,785.
a.What is her average tax rate on the $45,400 of income?
b.What is her marginal tax rate?

Question 45

Patricia has taxable income of $40,000 on which she pays income tax of $5,935.If Patricia's taxable income increases by $2,000,she will pay an additional tax of $500.What is Patricia's marginal tax rate?

A)15.00 percent
B)14.84 percent
C)15.32 percent
D)25.00 percent
E)None of the above

Question 46

Which of the following statements is the most correct regarding The Taxpayer Bill of Rights?

A)It directs taxpayers to other IRS publications with more details on specific taxpayer rights.
B)It explains the examination,appeal,collection,and refund process.
C)It states that a taxpayer is responsible for payment of only the correct amount of tax due,no more,no less.
D)All of the above statements are correct.
E)None of the above statements are correct.

Question 47

Kendall is considering the purchase of a home.He has saved $20,000 for a down payment on a home and will finance the remainder of the purchase price with a home mortgage loan.Kendall currently rents an apartment for $900 per month and does not anticipate an increase in his monthly income.He wants to make sure that the monthly payment on his new home does not exceed $900,after-tax.Kendall has a marginal tax rate of 28 percent and an average tax rate of 22 percent.Assuming the monthly mortgage payment before-tax)will be equal to 1 percent of the initial mortgage balance and the entire amount of each monthly payment will be deductible home mortgage interest,what is the maximum amount that Kendall can spend on a new home?

Question 48

Which of the following statements best describes the purpose of the Taxpayer Bill of Rights?

A)To provide the IRS with additional enforcement powers
B)To grant to taxpayers the right to choose the time and method of payment of delinquent taxes
C)To inform taxpayers of their rights in dealing with the IRS
D)To inform taxpayers of the methods for properly completing their income tax returns
E)None of the above

Question 49

Which of the following is not a preparer penalty?

A)Tax preparers may be assessed a penalty for failing to give the taxpayer the preparer's workpapers.
B)Tax preparers may be assessed a penalty for failing to keep a copy of the prepared return.
C)Tax preparers may be assessed a penalty for endorsing or cashing a refund check issued to a taxpayer.
D)Tax preparers may be assessed a penalty for failing to sign a tax return.

Question 50

Which of the following is the best definition of tax planning?

A)Preparing a client's tax return
B)Planning taxpayers' financial affairs in an effort to minimize tax liability
C)Planning taxpayers' financial affairs to find the best way to avoid tax by successfully bending tax law
D)Researching complex tax issues
E)None of the above are considered tax planning