CHAPTER 18—TAX PRACTICE AND PROCEDURE Key
1. An example of involuntary taxpayer compliance is found in a sales tax system.
2. The Secretary of the Treasury has delegated the rule-making authority to the Commissioner of the IRS,
subject to the Secretary’s approval.
3. Only a small percentage of tax returns are scanned for mathematical errors as well as exclusions, deductions,
and credits.
4. Exceeding a “normal” range for itemized deductions at various income levels may trigger an audit by the
IRS.
5. Generally, an audit must be performed within three years of the due date of the tax return.
6. 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.
7. The IRS allows a taxpayer an appellate conference as a matter of right.
8. 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.
9. 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.
10. 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.
11. 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, 2018.
12. 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.
13. 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.
14. 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.
15. 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.
16. The minimum penalty for failure to file a tax return is the lesser of $100 or 100 percent of the net tax due if
the return is more than 60 days late.
17. The minimum penalty for failure to file a tax return is the lesser of $100 or 100 percent of the net tax due if
the return is more than 60 days late.
18. A taxpayer can only be represented by an attorney, a CPA, or an enrolled agent during an IRS examination
of his or her return.
19. A taxpayer can only be represented by an attorney, a CPA, or an enrolled agent during an IRS examination
of his or her return.
20. 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.
21. 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
22. On the receipt of a refund check for overpayment of taxes, a taxpayer may assume
23. It is always expected that an individual taxpayer facing an audit at the local IRS office must appear in
person except when
24. An IRS agent may not do which of the following?
25. Of the issues raised by an IRS audit, generally the most troublesome are
26. If a taxpayer wants a conference with the IRS Appeals Division, a written protest for appeal must be filed
with the request for an appellate conference. The protest is required in all cases except which one of the
following?
27. Signing a Form 870-AD (Offer of Waiver of Restrictions on Assessment and Collection of Deficiency) does
all but which one of the following?
28. Which one of the following statements regarding the statutory notice of deficiency (90-day letter) is false?
29. An offer of compromise may be appropriate except
30. 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
31. Under normal circumstances, the statute of limitations for tax assessment for a return filed for 2011 on
February 3, 2012, is
32. 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?
33. 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?
34. After an assessment has been made which of the following applies?
35. Which of the following statements regarding refund claims is true (assuming that the taxpayer does not wish
to file suit in the Tax Court)?
36. One way to revive a civil charge against a taxpayer after the statute of limitations has run out on the alleged
wrong is to
37. A father reports his 15-year-old daughter’s income on his 2011 return. The daughter’s income was $5,000.
Which of the following describes what could happen if the daughter is audited in 2015?
38. The total penalty for failure to file may not exceed a certain percentage of the net tax due. That amount is
39. 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
40. 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?
41. 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?
42. In 2010 B’s A.G.I, was $36,000, and her gross tax liability was $6,000. In 2011 her A.G.I, is $45,000, and
her gross tax liability before prepayments is $8,000. What is the lowest required installment that B can make
and avoid a penalty? (Ignore the annualized income installment.)
43. 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.)
44. 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
45. 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?
46. 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
47. A difference between finding a taxpayer accountable under a civil fraud count and under a criminal fraud
count is that
48. The potentially least severe penalty is imposed for which one of the following criminal tax offenses?
49. A person who submits a frivolous return (e.g., one with 50 dependents) may face a civil penalty of
50. 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,
51. The standard of conduct for professionals who practice before the IRS includes all but which one of the
following?
52. To practice as a preparer of tax returns, a person must have appropriate
53. Which one of the following statements relating to return preparer’s penalties is incorrect?
54. According to the AICPA Statements on Standards for Tax Services, a CPA should do all of the following
except