Deck 18: Tax Practice and Procedure

Question 1

Taxpayer D filed his 2011 tax return on April 1, 2012.Absent fraud or a substantial omission from gross income, the statute of limitations will expire on April 1, 2015.

Answer 1

False

Question 2

The IRS allows a taxpayer an appellate conference as a matter of right.

Answer 2

False

Question 3

A tax return preparer that endorses or otherwise negotiates an income tax refund check issued to the taxpayer will be subject to a $500 penalty.

Answer 3

True

Question 4

Generally, an audit must be performed within three years of the due date of the tax return.

Question 5

A refund claim must be filed within the later of three years from the filing (or due date) of the return, or three years from the actual payment of the tax.

Question 6

If a taxpayer recognizes that she is liable for $1,500 of a $3,000 adjustment made by the IRS after an audit, it is probably wise to agree with the adjustment and pay the entire amount, even though she is convinced that she is not liable for the entire $3,000.

Question 7

Taxpayer T, a taxicab operator, filed his 2011 tax return on April 15, 2012.If T inadvertently omitted $1,800 (average gross income for one month) from the return, the statute of limitations is extended to April 15, 2018.

Question 8

The failure-to-file penalty is reduced by the failure-to-pay penalty for any month that both penalties apply.

Question 9

The minimum penalty for failure to file a tax return is the lesser of $135 or 100 percent of the net tax due if the return is more than 60 days late.

Question 10

A tax return preparer who understates the liability of the taxpayer due to reckless or intentional disregard of the rules or regulations will be subject to a flat $500 penalty.

Question 11

Exceeding a "normal" range for itemized deductions at various income levels may trigger an audit by the IRS.

Question 12

A taxpayer that has received an extension of time to file his or her tax return will not be subject to the failure-to-pay penalty for the extension period.

Question 13

A taxpayer can only be represented by an attorney, a CPA, or an enrolled agent during an IRS examination of his or her return.

Question 14

The filing of an amended return within 90 days of the expiration of the original statute of limitations period will automatically extend the limitations period for 180 days from the date the amended return is filed.

Question 15

An example of involuntary taxpayer compliance is found in a sales tax system.

Question 16

There is no statute of limitations barring assessment of additional taxes if the taxpayer either deliberately filed a fraudulent return or failed to file a return for the year.

Question 17

The Secretary of the Treasury has delegated the rule-making authority to the Commissioner of the IRS, subject to the Secretary's approval.

Question 18

A taxpayer who agrees with a revenue agent's proposed audit adjustment and signs Form 870 waives the right to pursue the appeals process within the IRS and the courts.

Question 19

The general period of limitations for tax assessment is three years from the due date of the return or the date the return is filed, whichever is later.

Question 20

Only a small percentage of tax returns are scanned for mathematical errors as well as exclusions, deductions, and credits.

Question 21

Which one of the following statements regarding the statutory notice of deficiency (90-day letter) is false?

A)Issuance of the 90-day letter suspends the running of the statute of limitations.
B)The 90-day letter is automatically issued to taxpayers who do not respond to the 30-day letter.
C)The 90-day letter does not suspend the running of interest on the deficiency.
D)The 90-day letter cannot be issued to a taxpayer until after the Appeals Division has reviewed the agent's proposed adjustments with the taxpayer.
E)A taxpayer cannot petition the Tax Court for relief until the 90-day letter has been issued.

Question 22

Of the issues raised by an IRS audit, generally the most troublesome are

A)Questions of law
B)Questions of fact
C)Mixed questions of law and fact
D)Questions relating to Revenue Rulings

Question 23

On the receipt of a refund check for overpayment of taxes, a taxpayer may assume

A)His or her return is not likely to be audited.
B)His or her return is likely to be audited.
C)His or her return definitely will be audited.
D)His or her return definitely will not be audited.
E)Nothing

Question 24

T, a calendar year taxpayer, determined that his net tax due for 2011 was $800.Unfortunately, T had no money to pay the tax, so he postponed filing and paying the amount due until November 1, 2012.T did not ask for an extension of time to file his return.T's failure-to-file penalty will be

A)$100
B)$180
C)$196
D)$200
E)$220

Question 25

An offer of compromise may be appropriate except

A)When substantial taxes are due
B)When the taxpayer can pay the entire deficiency in a short period of time
C)When there is doubt that the entire amount is collectible
D)All of the above
E)None of the above

Question 26

Under normal circumstances, the statute of limitations for tax assessment for a return filed for 2010 on February 3, 2012, is

A)February 3, 2014
B)February 3, 2015
C)February 3, 2016
D)April 15, 2014
E)April 15, 2015

Question 27

When a taxpayer shows that failure to file a tax return or to pay a tax is due to reasonable cause, no penalty is assessed.While the concept of reasonable cause is not clearly defined by the IRS, it is probable that the IRS and the courts would not allow which one of the following situations?

A)Serious illness of the taxpayer
B)Death of the taxpayer
C)Natural disaster
D)Reliance on an accountant to file the return
E)Unavoidable destruction of the taxpayer's records

Question 28

An accuracy-related penalty is imposed for underpayment of taxes due to the taxpayer's negligence, according to §6662.T files his 2011 return on April 15, 2012, and two years later the IRS assesses an additional $6,000 of tax attributable to failure to report income.Not counting the interest on both the additional tax and the penalty, how much negligence penalty will T have to pay?

A)$300
B)$600
C)$900
D)$1,200
E)$1,500

Question 29

Z, a calendar year self-employed individual, had a $1,600 tax liability for 2011.Because Z had so many itemized deductions and exemptions, this tax liability was due solely to the self-employment tax.Z's 2011 tax liability, including $3,000 of self-employment taxes, totaled $4,000.Z's 2011 A.G.I.was $22,000.In order to avoid a penalty for her 2011 tax year, Z must have made quarterly estimated tax payments of at least

A)$200
B)$400
C)$750
D)$1,000
E)$1,600

Question 30

An IRS agent may not do which of the following?

A)Summon the taxpayer's records.
B)Require the taxpayer to accompany the representative without first issuing an administrative summons.
C)Both of the above may be done by an IRS agent.
D)Neither of the above may be done by an IRS agent.

Question 31

It is always expected that an individual taxpayer facing an audit at the local IRS office must appear in person except when

A)A certified public accountant goes instead.
B)An individual enrolled to practice before the IRS appears instead.
C)An attorney goes in his or her place.
D)Any qualified individual appears with a written power of attorney (Form 2848) executed by the taxpayer.
E)All of the above are valid exceptions.

Question 32

What is the statute of limitations in the event that the taxpayer has filed a false or fraudulent return with the intent to evade taxes?

A)Three years from the date the return is actually filed or the return is due, whichever is later
B)Answer A, plus a 60-day extension
C)Answer A, plus a 90-day extension
D)Answer A, plus a one-year extension
E)There is no statute of limitations in this case.

Question 33

The total penalty for failure to file may not exceed a certain percentage of the net tax due.That amount is

A)10 percent compounded
B)15 percent
C)20 percent
D)25 percent
E)20 percent compounded

Question 34

What is the date of the statute of limitations if the taxpayer files a Form 1040X on March 15, 2013 after having filed his 2011 Form 1040 on February 3, 2012?

A)March 15, 2014
B)March 15, 2015
C)March 15, 2016
D)April 15, 2014
E)April 15, 2015

Question 35

In 2011 Q's A.G.I.was $153,000, and his gross tax liability was $40,000.In 2012 his A.G.I.is $160,000, and his gross tax liability before prepayments is $45,000.What is the lowest required installment that Q can make and avoid a penalty? (Ignore the annualized income installment.)

A)$11,250
B)$11,000
C)$10,125
D)$10,000

Question 36

In terms of procedure, before a taxpayer may file a claim for a tax refund in a federal district court or a federal claims court he or she must

A)Hire a tax lawyer.
B)Exhaust the IRS's administrative remedies.
C)Avoid an IRS Appeals Conference.
D)Settle with the local IRS office.

Question 37

Which of the following statements regarding refund claims is true (assuming that the taxpayer does not wish to file suit in the Tax Court)?

A)If no tax return is filed, a refund claim must be filed within two years of the date the tax was paid.
B)A refund claim must be filed within three years from the date the tax return to which it relates was filed, or if later, within two years of the actual payment of the tax.
C)If a return is filed and tax is paid, the amount of the refund may not exceed the tax paid within the three-year period.
D)If a refund is claimed after three years from the date the return is filed (or was due), but within two years of the payment of the tax, the refund amount may not exceed the amount paid during the last two years.
E)All of the above statements are true.

Question 38

When a taxpayer fails to pay the tax owed at the time it is due, a penalty is imposed; the penalty is normally one-half of one percent of the net tax due for each month the tax is not paid.In what situation may the penalty be increased to one percent per month?

A)If the taxpayer moves out of the country
B)If the IRS notifies the taxpayer of its intent to levy on the taxpayer's assets
C)If the taxpayer is found guilty on a drug charge
D)If the IRS perceives that the taxpayer's nonpayment is intentional fraud
E)Any one of the above situations

Question 39

Signing a Form 870-AD (Offer of Waiver of Restrictions on Assessment and Collection of Deficiency) does all but which one of the following?

A)Settle the case.
B)The case will not be reopened (except if fraud, misrepresentation of fact, or serious mathematical error is found).
C)Does not stop the running of interest until the offer is accepted by the IRS.
D)All of the above statements are true.
E)None of the above statements are true.

Question 40

While the IRS will not publicize the precise factors that determine whether a return will or will not be audited, one can deduce that all of the following may be prime targets except

A)Self-employed persons, especially those in typically high-income businesses
B)Individuals with high gross income
C)Taking a deduction that may be easily abused (business use of an automobile, for example)
D)Activity in sensitive areas, such as salaried government employees, social security recipients, and graduate students on fellowships
E)All of the above

Question 41

The standard of conduct for professionals who practice before the IRS includes all but which one of the following?

A)No practitioner may unreasonably delay the deposition of any matter before the IRS.
B)No practitioner may engage in the practice of using a form of public communication (e.g., advertising) that contains a false or fraudulent statement of claim.
C)No practitioner may engage in direct or indirect, uninvited solicitation of employment regarding tax matters.(This does not include mailings to the general public.)
D)A practitioner must advise a client of any noncompliance or omission he or she knows of with respect to any return or document that the client is required to file.
E)All of the above

Question 42

Taxpayer M defrauded the U.S.Government by understating her tax by $12,000 in 2011.If the IRS is able to prove civil fraud in this case, M may have to pay a penalty of

A)$600
B)$1,000
C)$6,000
D)$9,000
E)$12,000

Question 43

The potentially least severe penalty is imposed for which one of the following criminal tax offenses?

A)Willful attempt to evade or defeat any tax
B)Willful failure to collect or truthfully account for and pay over any tax
C)Willful failure to pay a tax or an estimated tax, to make a required return, to keep required records or to supply required information
D)Willfully furnishing an employee with a false statement regarding tax withholdings on wages
E)Making a declaration under penalty of perjury not believed by the maker to be true, preparing or assisting in preparation of fraudulent returns or other documents, or concealing goods or property in respect of any tax

Question 44

A person who submits a frivolous return (e.g., one with 50 dependents) may face a civil penalty of

A)$500
B)$1,000
C)$2,000
D)$2,500
E)$5,000

Question 45

Which one of the following statements relating to return preparer's penalties is incorrect?

A)$1,000 penalty for willful understatement of tax liability, or for understatement of tax liability due to reckless or intentional disregard of the rules and regulations
B)$50 penalty for failure to furnish a copy of the tax return to the taxpayer
C)$50 penalty for failure to sign a tax return if prepared for compensation
D)$50 penalty for failure to retain a copy or record of a return prepared for compensation

Question 46

To practice as a preparer of tax returns, a person must have appropriate

A)Educational background
B)Competence
C)Experience
D)All of the above
E)None of the above

Question 47

According to the AICPA Statements on Standards for Tax Services, a CPA should do all of the following except

A)The CPA should only recommend to a client that a position be taken or prepare a return with a position that can be sustained administratively or judicially.
B)The CPA should not rely on a third party in preparing a return.
C)A CPA may recommend a tax return position that differs from the way an item was previously treated in an IRS examination, IRS appeal, or a court decision for that taxpayer, unless that taxpayer is bound to a specific treatment for the item in the later year.
D)All of the above
E)None of the above

Question 48

A taxpayer may request that an overpayment (refund) of taxes be credited to a subsequent tax period liability instead of taking payment by check.If this is done,

A)The interest runs from the date of the overpayment to the due date of the amount against which the credit is taken.
B)No interest is accrued.
C)The interest runs from the date of the overpayment but at substantially lower than the Federal short-term rate.
D)The interest is put into a special reserve account that the taxpayer can withdraw at any time.
E)None of the above