Question 1

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

Accepted Answer

The field audit is the least common because it involves physically going to the taxpayer's location to conduct the audit. It is also the broadest in scope as it covers all aspects of a taxpayer's financial records and transactions, and can be the most complex due to the need for coordination and communication with various parties involved.

Question 2

Allen filed his 2016 tax return on May 15^th, 2017 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 2016 tax return should end:

Accepted Answer

Since Allen underreported his gross income by 30 percent, the statute of limitations (SOL) ends six years from the later of (1) the date the tax return was filed or (2) the tax return's original due date. It means that the SOL for the IRS assessment on Allen's 2016 tax return would end on October 15, 2023, which is the later of the two dates (May 15, 2017, and April 17, 2017 - the original due date of the return). Therefore, option E - none of the above - is the best choice.

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 that the IRS uses to select returns for audit. The other methods listed (DIF system, information matching, and document perfection) are used by the IRS to identify potential errors or inconsistencies on tax returns.

Question 4

Martin has never filed a 2016 tax return despite earning approximately $20,000 providing landscaping work in the community. In what tax year, will the statute of limitations expire for Martin's 2016 tax return?

Accepted Answer

There is no statute of limitations on tax assessments if a taxpayer fails to file a tax return.

Question 5

Andy filed a fraudulent 2016 tax return on May 1, 2017. The statute of limitations for IRS assessment on Andy's 2016 tax return should end:

Accepted Answer

There is no statute of limitations for fraudulent tax returns, meaning the IRS can assess tax at any time.

Question 6

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...

Question 7

Rowanda could not settle her tax dispute 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

Rowanda should litigate in the Tax Court as it is the only court that allows taxpayers to dispute tax deficiencies without paying the tax owed first. The other courts require payment of the tax deficiency before initiating litigation.

Question 8

Bill filed his 2016 tax return on March 15^th, 2017. The statute of limitations for IRS assessment on Bill's 2016 tax return should end:

Accepted Answer

The statute of limitations for IRS assessment on Bill's 2016 tax return should end on April 15th, 2020. This is because the SOL ends three years from the later of (1) the date the tax return was filed or (2) the tax return's original due date. Since Bill filed his tax return on March 15th, 2017, the later date is the original due date of April 18th, 2017 (since March 15th, 2017 is before the original due date). Therefore, the SOL ends three years from April 18th, 2017, which is April 15th, 2020.

Question 9

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 U.S. Court of Federal Claims will appeal to the U.S. Circuit Court of Appeals for the Federal Circuit.

Question 10

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 the Notice of Deficiency and gives the taxpayer 30 days to either file a petition in Tax Court or agree to the proposed tax adjustment. The letter Dan received offers him the choice of requesting a conference with an Appeals Officer, which is not an option in the 90-day letter, making the 30-day letter the most applicable choice.

Question 11

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

Accepted Answer

The only court that provides for a jury trial is the U.S. District Court, as it is the trial court of the federal court system where most federal cases are heard. The Tax Court and U.S. Court of Federal Claims are specialized courts without jury trials, and the U.S. Circuit Court of Appeals only hears appeals and does not hold jury trials.

Question 12

Lavonda discovered that the 5^th 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

The Tax Court and the U.S. District Court will appeal to the 5^th Circuit.

Question 13

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

Tyrone's tax return was likely identified for audit through the DIF (Discriminant Function) System, as it compares a taxpayer's return to others with similar incomes and flags any discrepancies that stand out, such as a significantly high amount of charitable deductions. The other options (Deduction Detective, Document Perfection, and Information Matching) do not specifically target large charitable contributions as a factor for audit selection.

Question 14

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

The answer of Greg earned $20,500 this year and had...

Question 15

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

Accepted Answer

The answer of Which of the following audits is the...

Question 16

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

Accepted Answer

The National Research Program (NRP) is the IRS program that randomly selects tax returns for audit to gather data and improve the accuracy of the DIF system.

Question 17

Henry filed his 2016 tax return on May 15^th, 2017. The statute of limitations for IRS assessment on Henry's 2016 tax return should end:

Accepted Answer

The statute of limitations for IRS assessment on Henry's 2016 tax return should end on May 15, 2020. This is because the SOL ends three years from the later of (1) the date the tax return was filed or (2) the tax return's original due date, which in this case is April 15, 2017.

Question 18

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, gives the taxpayer the option to either pay the proposed deficiency or file a petition with the U.S. Tax Court within 90 days of the date on the letter. This is the only letter given as a choice between payment or filing with the Tax Court, so the correct answer is B) 90-day letter.

Question 19

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

The answer of Dominic earned $1,500 this year, and his...

Question 20

Which of the following is not considered a primary authority?

Accepted Answer

A tax service is a secondary authority, which includes sources such as tax textbooks, articles, and other reference materials. Primary authorities refer to sources that have direct legal authority, such as court cases, statutes, regulations, and revenue rulings.

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