Question 1

The revenue agent who audited Mr. and Mrs. Wilke's 2018 Form 1040 assessed a $40,200 deficiency and concluded that $13,900 of the deficiency resulted from Mr. Wilke's deliberate disregard of the tax rules concerning business entertainment expense. The remaining deficiency resulted from various errors caused by confusing instructions on the tax forms. Compute the negligence penalty that the agent can impose.

Accepted Answer

A)   $8,040
B)   $3,475
C)   $2,780
D)   Only a federal court can impose a negligence penalty. C

Question 2

F&D Inc. ceased operations and dissolved under state law in 2018. Mrs. Herron, a 20% shareholder, received a $490,300 liquidating distribution from F&D. This year, the IRS determined that F&D underpaid its 2017 and 2018 income tax by $967,100. How much of this deficiency can the IRS assess against Mrs. Herron?

Accepted Answer

A)   -0-
B)   $193,420
C)   $490,300
D)   $967,100

Question 3

Taxpayers who win their case in court are automatically entitled to recover litigation expenses from the government.

Accepted Answer

A) True 
 B)False

Question 4

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) True 
 B)False  False

Question 5

In which of the following is not a condition for relief of liability under the innocent spouse rule?

Accepted Answer

A)   The deficiency must be attributable to erroneous items of the person's spouse.
B)   The person must establish that in signing the return he or she did not know, and had no reason to know, that the return understated the correct tax.
C)   Taking into account all the facts and circumstances, it is inequitable to hold the person liable for the deficiency.
D)   The person is divorced from or in the process of divorcing their spouse.84)  Mr. and Mrs. Latt use a fiscal year ending October 31 as the taxable year for filing their joint Form 1040.What is the last date on which the Latts can apply for an automatic extension of time to file their return for fiscal year ending October 31, 2020?Assuming that the Latts make a timely application, what is the extended due date for the return?

Question 6

Mrs. Lui decided to contest a negligence penalty in federal court. Which of the following statements is true?

Accepted Answer

A)   Mrs. Lui must present a preponderance of evidence establishing that she was not negligent.
B)   The government must present a preponderance of evidence establishing that Mrs. Lui was negligent.
C)   The government must present clear and convincing evidence that Mrs. Lui was negligent.
D)   The government must establish Mrs. Lui's negligence beyond any reasonable doubt.

Question 7

The IRS determined that Ernie Bledsoe underpaid his 2018 income tax by $11,200. Ernie's Form 1040 for that year reported an income tax liability of $31,800, so his correct 2018 income tax was $43,000 ($11,200 deficiency + $31,800 reported tax) . Compute Ernie's penalty for a substantial understatement of income tax.

Accepted Answer

A)   $0
B)   $1,240
C)   $1,380
D)   $2,240

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about the tax litigation process is false?

Accepted Answer

A)   Taxpayers can begin the litigation process in the U.S. Tax Court, a U.S. District Court, or the U.S. Court of Federal Claims.
B)   A taxpayer can receive a jury trial only in a U.S. District Court.
C)   If the government loses a tax case at the trial level, it can appeal the case to the U.S. Supreme Court.
D)   A decision in a tax case by the Supreme Court is final.

Question 10

Which of the following should increase the likelihood that Ms. Piper's Form 1040 will be selected for audit by the IRS?

Accepted Answer

A)   Ms. Piper files as head of household because she maintains a home for her 89-year old mother who has Alzheimer's disease.
B)   Ms. Piper's AGI is $58,400, and she deducted $27,590 of charitable contributions on her Schedule A.
C)   Ms. Piper reported $10,200 alimony income from her former spouse.
D)   None of these choices should increase the likelihood of audit.

Question 11

Mrs. Jordan applied for an automatic six-month extension of time (until October 15, 2020)  to file her 2019 income tax return. She filed an accurate return on July 9, 2020. The IRS may audit the return and assess Mrs. Jordan for additional 2019 tax at any time through:

Accepted Answer

A)   April 15, 2023
B)   July 9, 2023
C)   October 15, 2023
D)   December 31, 2023

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Mr. Boyd is a bookkeeper for a local auto repair company. Several years ago, he began to prepare federal income tax returns for his friends and relatives and has developed this sideline into a profitable business. Which of the following statements is false?

Accepted Answer

A)   Mr. Boyd is considered an income tax return preparer subject to federal penalties because he is compensated for preparing returns.
B)   Mr. Boyd is not considered an income tax return preparer because he is not an attorney, CPA, or enrolled agent.
C)   Mr. Boyd must sign the tax returns prepared for his clients.
D)   Mr. Boyd must provide his clients with a copies of their completed tax returns.

Question 14

Mr. and Mrs. Clyde were married for 21 years before Mrs. Clyde divorced her husband in 2018. This year, the IRS determined that the Clydes underpaid their jointly filed 2017 tax by $19,650. In which case would Mrs. Clyde be relieved of liability for the underpayment under the innocent spouse rule?

Accepted Answer

A)   Mrs. Clyde did not read through the Form 1040 before she signed it.
B)   Mrs. Clyde remarried this year and is now Mrs. Novak.
C)   Mr. Clyde was the sole income earner during the entire marriage.
D)   None of these choices are correct.

Question 15

The IRS can't imposean accuracy-related penalty on an individual who relied on the advice of a CPA in preparing his tax return.

Accepted Answer

A) True 
 B)False

Question 16

An individual who didn't graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate.

Accepted Answer

A) True 
 B)False

Question 17

This year, the IRS audited Mr. and Mr. Simon's 2018 income tax return and determined that they underpaid their tax by $13,780. Which of the following statements is true?

Accepted Answer

A)   If the revenue agent concludes that the Simons made a reasonable attempt to compute their tax, they will not pay anything as a result of the audit.
B)   If the revenue agent concludes that the Simons made a reasonable attempt to compute their tax, they will pay a total of $13,780 as a result of the audit.
C)   In addition to the $13,780 deficiency, the Simons must pay interest to the government regardless of the reason for the deficiency.
D)   If the revenue agent concludes that the deficiency is attributable to the Simons' negligence in preparing their return, the agent may assess a $10,335 penalty.

Question 18

Which of the following statements about the tax deficiency appeals process is false?

Accepted Answer

A)   All litigation of tax cases must begin in the U.S. Tax Court.
B)   The Tax Court Small Cases division allows taxpayers to plead their case without an attorney.
C)   After all appeals are exhausted, the IRS may collect the deficiency by whatever means necessary.
D)   The government's goal is to collect the most feasible amount at the earliest possible time at the least cost to the government. A

Question 19

Which of the following statements about tax fraud is true?

Accepted Answer

A)   A revenue agent can assess a civil fraud penalty in the course of an audit.
B)   A revenue agent can charge a taxpayer with criminal fraud in the course of an audit.
C)   A taxpayer can be imprisoned for committing either civil fraud or criminal fraud.
D)   The IRS's burden of proof in establishing fraud is identical for civil and criminal fraud.

Question 20

Ms. Hepp filed her 2019 Form 1040 on February 19, 2020. The return showed a $2,730 overpayment of tax, and Ms. Hepp received her refund check from the IRS on April 30, 2020. Which of the following statements is true?

Accepted Answer

A)   The government will not pay Ms. Hepp any interest on her refund.
B)   The government must pay Ms. Hepp interest on her refund for the period from February 20 until April 30.
C)   The government must pay Mrs. Hepp interest on her refund for the period from April 18 until April 30.
D)   The government must pay Mrs. Hepp interest on her refund for the period from January 1 through April 30.

Exam 18: The Tax Compliance Process

Correct Answer
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C

Correct Answer
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Taxpayers who win their case in court are automatically entitled to recover litigation expenses from the government.

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

Correct Answer
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False

In which of the following is not a condition for relief of liability under the innocent spouse rule?

Correct Answer
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Mrs. Lui decided to contest a negligence penalty in federal court. Which of the following statements is true?

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

Correct Answer
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Which of the following statements about the tax litigation process is false?

Correct Answer
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Which of the following should increase the likelihood that Ms. Piper's Form 1040 will be selected for audit by the IRS?

Correct Answer
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Mrs. Jordan applied for an automatic six-month extension of time (until October 15, 2020) to file her 2019 income tax return. She filed an accurate return on July 9, 2020. The IRS may audit the return and assess Mrs. Jordan for additional 2019 tax at any time through:

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

Correct Answer
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Mr. Boyd is a bookkeeper for a local auto repair company. Several years ago, he began to prepare federal income tax returns for his friends and relatives and has developed this sideline into a profitable business. Which of the following statements is false?

Correct Answer
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Mr. and Mrs. Clyde were married for 21 years before Mrs. Clyde divorced her husband in 2018. This year, the IRS determined that the Clydes underpaid their jointly filed 2017 tax by $19,650. In which case would Mrs. Clyde be relieved of liability for the underpayment under the innocent spouse rule?

Correct Answer
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The IRS can't imposean accuracy-related penalty on an individual who relied on the advice of a CPA in preparing his tax return.

Correct Answer
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An individual who didn't graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate.

Correct Answer
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This year, the IRS audited Mr. and Mr. Simon's 2018 income tax return and determined that they underpaid their tax by $13,780. Which of the following statements is true?

Correct Answer
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Which of the following statements about the tax deficiency appeals process is false?

Correct Answer
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A

Which of the following statements about tax fraud is true?

Correct Answer
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Ms. Hepp filed her 2019 Form 1040 on February 19, 2020. The return showed a $2,730 overpayment of tax, and Ms. Hepp received her refund check from the IRS on April 30, 2020. Which of the following statements is true?

Correct Answer
verified

Exam 18: The Tax Compliance Process

Correct AnswerverifiedC

Correct AnswerverifiedShow Answer

Taxpayers who win their case in court are automatically entitled to recover litigation expenses from the government.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedFalse

In which of the following is not a condition for relief of liability under the innocent spouse rule?

Correct AnswerverifiedShow Answer

Mrs. Lui decided to contest a negligence penalty in federal court. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements about the tax litigation process is false?

Correct AnswerverifiedShow Answer

Which of the following should increase the likelihood that Ms. Piper's Form 1040 will be selected for audit by the IRS?

Correct AnswerverifiedShow Answer

Mrs. Jordan applied for an automatic six-month extension of time (until October 15, 2020) to file her 2019 income tax return. She filed an accurate return on July 9, 2020. The IRS may audit the return and assess Mrs. Jordan for additional 2019 tax at any time through:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mr. Boyd is a bookkeeper for a local auto repair company. Several years ago, he began to prepare federal income tax returns for his friends and relatives and has developed this sideline into a profitable business. Which of the following statements is false?

Correct AnswerverifiedShow Answer

Mr. and Mrs. Clyde were married for 21 years before Mrs. Clyde divorced her husband in 2018. This year, the IRS determined that the Clydes underpaid their jointly filed 2017 tax by $19,650. In which case would Mrs. Clyde be relieved of liability for the underpayment under the innocent spouse rule?

Correct AnswerverifiedShow Answer

The IRS can't imposean accuracy-related penalty on an individual who relied on the advice of a CPA in preparing his tax return.

Correct AnswerverifiedShow Answer

An individual who didn't graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate.

Correct AnswerverifiedShow Answer

This year, the IRS audited Mr. and Mr. Simon's 2018 income tax return and determined that they underpaid their tax by $13,780. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following statements about the tax deficiency appeals process is false?

Correct AnswerverifiedA

Which of the following statements about tax fraud is true?

Correct AnswerverifiedShow Answer

Ms. Hepp filed her 2019 Form 1040 on February 19, 2020. The return showed a $2,730 overpayment of tax, and Ms. Hepp received her refund check from the IRS on April 30, 2020. Which of the following statements is true?

Correct AnswerverifiedShow Answer

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C

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False

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A

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