Question 1

An individual taxpayer is not required to give the IRS an explanation for extending the filing date for Form 1040.

Accepted Answer

This is true. The IRS does not require a reason for filing an extension for Form 1040. However, it is important to note that an extension only extends the deadline for filing the tax return, not for paying any taxes owed. Interest and penalties may still apply for late payment of taxes.

Question 2

Taxpayers who can't complete their tax return by the filing date can request an automatic extension of time to file the return and pay any balance of tax due.

Accepted Answer

Taxpayers can't request an automatic extension of time to pay any balance of tax due.

Question 3

The IRS selects returns to audit that have the highest probability of generating additional revenue.

Accepted Answer

The IRS selects returns to audit based on factors that indicate a higher chance of error or noncompliance with tax laws, which can result in additional revenue for the government.

Question 4

An individual who did not graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate.

Accepted Answer

The answer of An individual who did not graduate from...

Question 5

The statute of limitations for a tax return does not begin to run until the return is filed.

Accepted Answer

This is true. The statute of limitations for a tax return begins on the date the return is filed or the due date of the return, whichever is later. If a return is never filed, there is no statute of limitations and the IRS can assess taxes at any time.

Question 6

If the IRS requests information during the course of an audit, the taxpayer has the right to know how the information will be used.

Accepted Answer

This is true. Taxpayers have the right to know how any information they provide to the IRS will be used during the course of an audit. This is part of a taxpayer's due process rights. The IRS must provide clear explanations to taxpayers regarding the purpose and relevance of any information requested during an audit.

Question 7

Only attorneys and CPAs may prepare tax returns for compensation.

Accepted Answer

While attorneys and CPAs are often skilled in tax law, they are not the only professionals who may prepare tax returns for compensation. Enrolled agents, tax preparers with a certain level of education and experience, are also authorized by the IRS to prepare tax returns for pay.

Question 8

The fact that a taxpayer receives a refund check indicates that the IRS is satisfied with the accuracy of the taxpayer's return.

Accepted Answer

A refund check simply means that the taxpayer has overpaid their taxes and is entitled to a refund. It does not necessarily indicate the accuracy of their return. The IRS may audit or request further information from the taxpayer even after issuing a refund.

Question 9

A special agent is assigned to a tax investigation to determine if the government has enough evidence to indict the taxpayer for criminal fraud.

Accepted Answer

This scenario describes the role of a special agent in a tax investigation, which is to gather evidence and determine if there is enough evidence to warrant an indictment for criminal fraud.

Question 10

The harshest administrative penalty that the IRS can impose is the civil fraud penalty.

Accepted Answer

The civil fraud penalty is the highest penalty that the IRS can impose on an individual or business for deliberately underreporting or failing to report income and it can be up to 75% of the tax owed.

Question 11

Taxpayers should keep all supporting documentation (credit card statements, etc.) for a tax return for at least three years after the return is filed.

Accepted Answer

The IRS generally has three years to audit or assess additional tax on a filed tax return, so it is recommended to keep supporting documentation for at least that long in case of an audit.

Question 12

Mrs. Claire underpaid her 2014 federal income tax by $11,017. If the entire underpayment was attributable to Mrs. Claire's failure to make a good faith effort to comply with the tax law, the IRS may impose a $2,754 negligence penalty.

Accepted Answer

The answer of Mrs. Claire underpaid her 2014 federal income...

Question 13

Macy filed her 2014 tax return on its extended due date of October 15, 2015. The IRS has until December 31, 2017, to audit this return.

Accepted Answer

The IRS generally has three years from the date a tax return is filed to audit it. Since Macy filed on October 15, 2015, the IRS has until October 15, 2018, to audit her 2014 tax return.

Question 14

Both individual and corporate taxpayers must pay any balance due of their tax by the extended due date of the tax return for the year.

Accepted Answer

The answer of Both individual and corporate taxpayers must pay...

Question 15

The IRS can't impose a negligence penalty on an individual who relied on the advice of a CPA in preparing his tax return.

Accepted Answer

Reliance on professional tax advice is not a guaranteed defense against the negligence penalty.

Question 16

Corporations are allowed to deduct interest paid on an income tax deficiency as a business expense.

Accepted Answer

Corporations can deduct interest paid on an income tax deficiency as a business expense because it is considered an ordinary and necessary expense incurred in carrying on a trade or business.

Question 17

Gretchen's 2014 tax return, due April 15, 2015, was filed on July 15, 2015. Her tax due with the return was $1,200. Gretchen owes a late filing penalty of $180.

Accepted Answer

The late filing penalty for a return filed after the due date (April 15) but before the extended deadline (October 15) is 5% of the tax due per month, up to a maximum of 25%. In Gretchen's case, the return was filed 3 months late (July 15 - April 15 = 3 months), so the penalty would be 15% of the tax due ($1,200 x 0.15 = $180). Therefore, the statement is true.

Question 18

Employees who deliberately have excess income tax withheld from their salaries in order to receive a tax refund are making an interest-free loan of the excess withholding to the government.

Accepted Answer

This is because the government holds onto the excess money until the taxpayer files their tax return and receives a refund. During this time, the government benefits from the use of the extra funds without paying any interest to the taxpayer.

Question 19

The Taxpayer's Bill of Rights prevents the IRS from seizing a taxpayer's assets to satisfy a tax deficiency.

Accepted Answer

The Taxpayer's Bill of Rights does not prevent the IRS from seizing a taxpayer's assets to satisfy a tax deficiency, although there are certain legal procedures and requirements that must be followed by the IRS before doing so.

Question 20

Individuals are allowed to deduct interest paid on an income tax deficiency as a miscellaneous itemized deduction.

Accepted Answer

Interest paid on an income tax deficiency is not deductible as a miscellaneous itemized deduction.

Quiz 18: The Tax Compliance Process