Deck 12: Tax Administration and Tax Planning

Question 1

Which of the statements below are true of the failure-to-file penalty?

A)The amount of the penalty is 5 percent of the tax due with the return for every month or portion of a month the return is late.
B)The amount of the penalty is limited to a maximum of 25 percent of the amount of taxes due with the tax return.
C)It will not be assessed if the taxpayer can demonstrate that there was "reasonable cause" for failing to file the return on time.
D)If there are no taxes due with the return,there will be no penalty for failure to file even though the return is late.
E)All of the above.

Answer 1

E

Question 2

Jennifer files her 2011 return on June 10,2012.When does the statute of limitations run out?

A)April 15,2015
B)June 10,2015
C)April 15,2023
D)There is no statute of limitations since she filed her return after April 15.

Answer 2

B

Question 3

IRS service centers perform which of the following activities?

A)Perform field audits
B)Perform office audits
C)Act in an advisory capacity to the Treasury Department on legislative tax matters
D)Provide day-to-day services such as providing information to taxpayers
E)Process tax returns

Answer 3

E

Question 4

Please choose the correct statement.

A)If the IRS examined your return within the last 3 years,then the examination should be discontinued.
B)Returns which are subject to examination always result in changes in the tax liability,usually with more taxes being owed.
C)The IRS may use sources such as the newspaper and public records to determine what returns to examine.
D)If the IRS requests information by mail,then the taxpayer must respond to the examination through the mail.

Question 5

Taxpayers are charged interest on underpayments of taxes and:

A)In some cases,the IRS pays interest to taxpayers when they overpay their taxes
B)The IRS imposes a deductible penalty based on amounts of underpayments of estimated taxes for the current tax year.
C)A taxpayer is paid interest on a refund arising from overpayments of estimated taxes for the current tax year.
D)The interest rate used both on overpayments and underpayments is the federal short-term rate.
E)Interest is compounded daily when calculating the penalty for underpayment of estimated taxes.

Question 6

If a calendar year taxpayer's 2011 individual income tax return is mailed on May 15,2012,the statute of limitations would normally run out on:

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

Question 7

Which of the following is not a right listed in the Taxpayer Bill of Rights.

A)To make sound recordings of any meetings with the examination,appeal or collection personnel.
B)To represent yourself or have someone else (with your proper written authorization)represent you.
C)To waive interest because of errors or delays caused by an IRS employee.
D)To receive the IRS audit working papers.

Question 8

Which of the following types of IRS audits are the most common?

A)Office audits
B)Correspondence audits
C)Field audits
D)Operational audits
E)None of the above

Question 9

In the case of penalties:

A)If both failure-to-file and failure-to-pay penalties apply,the failure-to-file penalty is increased by the amount of the failure-to-pay penalty.
B)There is a 20 percent penalty of the applicable overstatement of income tax due to negligence or disregard of rules or regulations.
C)A substantial valuation overstatement occurs when the value of property is 20 percent more than the correct valuation.
D)The fraud penalty is equal to the amount of the underpayment of taxes attributable to fraud.
E)There is no penalty for failure to file a Form 1040 if the return is filed late,but filed correctly,and the taxpayer has overpaid his/her individual taxes.

Question 10

Which of the following actions are not subject to preparer penalties?

A)Failing to furnish the preparer's identifying number on the tax return.
B)Failing to file the return on time.
C)Failing to keep a copy of the client's prepared return or include the return on a list of taxpayers for whom returns have been prepared.
D)Cashing a refund check issued to a taxpayer.

Question 11

In order to shift the burden of proof to the IRS during tax litigation,the taxpayer must to do all of the following except:

A)Have the tax return completed by a tax preparer.
B)Maintain records.
C)Cooperate with reasonable IRS requests.
D)Have credible evidence of the factual issues.

Question 12

Select all of the audits below which are types of IRS audits.

A)Office audit
B)Field audit
C)Operational audit
D)a and b
E)a,b,and c

Question 13

Which of the following taxpayers will benefit least in terms of dollars saved as a result of the same tax planning to reduce taxes?

A)An individual taxpayer who has a marginal tax rate of 25 percent.
B)An individual taxpayer who has an average tax rate of 25 percent.
C)An individual taxpayer who has a marginal tax rate of 15 percent.
D)An individual taxpayer who has an average tax rate of 33 percent.
E)None of the above.

Question 14

Which of the following cities is not the location of an IRS service center?

A)Los Angeles,CA
B)Fresno,CA
C)Austin,TX
D)Memphis,TN

Question 15

How many of the following will extend 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)Filing a fraudulent tax return
D)Failure to file a tax return
E)All of the above

Question 16

Perry has taxable income of $90,000 on which he pays income tax of $18,824.If Perry's taxable income increases by $3,000,he will pay tax of $19,664.Which of the following is correct about Perry's tax rates:

A)His marginal rate is less than his average tax rate.
B)The marginal rate is 20.02 percent.
C)The marginal rate is 21.14 percent.
D)The marginal rate is 25 percent.
E)The marginal tax rate is higher than the average tax rate.

Question 17

Which of the following does the IRS not do?

A)Enact tax laws.
B)Enforce tax laws.
C)Assess income taxes.
D)Collect income taxes.

Question 18

If tax litigation against an individual taxpayer involves a penalty or an addition to taxes,who has the burden of proof?

A)The IRS
B)The taxpayer
C)The party who initiates the case
D)Both sides have the burden of proof

Question 19

Chad filed his 2011 tax return on April 2,2012.His 2011 return included a capital loss for 100 shares of worthless Globalstar Communications stock.When does the statute of limitations run out for the worthless stock deduction?

A)April 2,2015
B)April 15,2014
C)April 15,2018
D)April 15,2019

Question 20

The IRS is a division of:

A)The Senate.
B)The Federal Trade Commission (FTC).
C)The Treasury Department.
D)The court system.