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Exam 2: Tax Compliance, The IRS and Tax Authorities

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Question 31

Multiple Choice

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Which of the following is not a common method that the IRS uses to select returns for audit?

A) DIF system.
B) Tax Select system.
C) Information matching.
D) Document perfection.
E) None of the choices are correct.

F) A) and C)
G) A) and E)

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Question 32

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Under the tax law,taxpayers may be subject to both civil and criminal penalties for underpaying their tax liability (e.g.,due to fraud).

A) True
B) False

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Question 33

Multiple Choice

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Which of the following has the highest authoritative weight?

Raul was researching an issue and found two Tax Court decisions issued within 6 months of each other,one for a taxpayer residing in California and the other for a taxpayer residing in New York whose rulings were inconsistent.Raul knows that the federal tax law does not differ by state and the issue was exactly the same in both cases.Raul is confused because he thought that a basic judicial doctrine was that a court is supposed to rule consistently.Name and describe this judicial doctrine that requires judicial consistency and discuss why the Tax Court may have intentionally ruled inconsistently in this example.

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:

The "30-day" letter gives the taxpayer the opportunity to request an appeals conference or agree to a proposed IRS adjustment on the taxpayer's income tax return.

For the following tax returns,identify which of the three audit types will most likely be utilized. a.The IRS selected Don's return for audit because of his high itemized deductions.The IRS would like documentation of these deductions. b.Large Public Corporation is a very large publicly traded corporation.It is involved in many complex transactions that have significant tax ramifications. c.George and Barbara operate a small business out of their home.The IRS has identified a couple of issues that may relate to their business. d.The IRS selected Bill and Hillary's tax return for review because of some of their investment sales.They would like a better understanding of the transactions and parties involved.

Which of the following is not considered a secondary authority?

Revenue rulings and revenue procedures are examples of primary authorities.

Of the two basic types of tax services,beginning tax researchers often prefer topical tax services.

If an individual taxpayer is unable to file a tax return by its original due date,the taxpayer can request an automatic 9-month extension to file the return.

In general,a CPA will satisfy his professional responsibilities under the Statement on Standards for Tax Services when recommending a tax return position if he complies with the standards imposed by the applicable tax authority.

Tina has a very complex tax return and it looks like she will not be able to file her tax return by its due date.When is her tax return due? What are Tina's options for paying her tax due and filing her tax return this year? What are the consequences if Tina does not file or pay her tax timely? Be specific.

Mel recently received a 30-day letter from the IRS.Although his tax return being audited has several potential large issues (potential tax consequences of $70,000 − $80,000),the IRS agent auditing his return only identified one item that will require a modest adjustment of $10,000.Mel feels strongly that the $10,000 adjustment would not hold up in court and was surprised that the IRS agent did not identify some of the other potential larger issues.What are Mel's choices with respect to the 30-day letter and what factors should influence his decisions?

Rebecca is at a loss.A new tax law was recently passed,and she needs to get a better understanding of why the tax law was passed and the intent of the law from an official authority.Describe what authorities may be especially helpful to Rebecca and why she can't find many authorities that discuss the new law.

Caitlin is a tax manager for an accounting firm,and Duff is a first year staff accountant.Describe the differences in the manner in which Caitlin and Duff may identify research issues and in general how one may identify research questions.

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

Which of the following types of tax services are arranged by code section?

Carey was researching a tax issue and located what appears to be a favorable IRS regulation.He knows that regulations serve different purposes and are issued in different forms.Which purpose and which form of regulation would provide Carey the most confidence that he has found an authority that carries a lot of weight for the long term? How could Carey check the status of this regulation?

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?