Exam Review SU#13

Question 1

With regard to interest and penalties

Answer 1

If a taxpayer does not pay the additional tax when he signs the agreement he will receive a bill that includes interest. If the taxpayer pays the amount due within 10 business days of billing date, he will not have to pay more interest or penalties. This period is extended to 21 days if the amount due is less than $100,000.

Question 2

A corporation’s tax year can be reopened after all statutes of limitations have expired if

Answer 2

The corporation prevails in a determination allowing a deduction in an open tax year that was taken erroneously in a closed tax year

Question 3

To avoid penalties a taxpayer must pay the

Answer 3

Lesser of 100% of the prior years tax or 90% of the current years tax. (110% for taxpayers whose prior years AGI exceeds $150,000)

Question 4

When communicating tax research findings to clients, it is a good for the tax advisor to

Answer 4

Write good communication includes being clear, correct, concise, consistent, constructive, coherent, and complete. As with other business writing, less is often best. compound sentences should be avoided. The communication should make the point and avoid repeating.

Question 5

Calendar-year taxpayer installments are due by

Answer 5

April 15, June 15, September 15, the following January 15

Question 6

The penalty for underpayment will not be imposed if

Answer 6

1. Actual tax liability on return is less than $1,000
2. No tax liability was incurred in the prior tax year
3. The IRS waives it for reasonable cause shown

Question 7

An individual must file a tax return if

Answer 7

1. Gross income is above a threshold
2. Net earnings from self-employment is $400 or more
3. He is a dependent with more gross income than the standard deduction or unearned income over $1,000

Question 8

A substantial understatement of income tax occurs when the understatement is more than

Answer 8

the larger of 10% of the correct tax or $5,000

Question 9

To adequately disclose relevant facts about a tax treatment of an item

Answer 9

use form 8275 (Disclosure Statement)

Form 8275-R (Regulation Disclosure Statement) is used to disclose items or positions contrary to regulations

Question 10

Employers must keep records on employment taxes up to at least

Answer 10

4 years

Question 11

The statute of limitations for a refund claim relating to worthless securities is

Answer 11

7 years from the date prescribed for filing the return for the year with respect to which the claim is made

Question 12

A claim for refund must be made within the statue of limitations period for refunds

Answer 12

A claim must be filed by the later of 3 years from filing the return or 2 years after the tax was paid

Question 13

The statute of limitations for an omission of items more than 25% of gross income stated on a return is

Answer 13

6 years

Question 14

The goal of Tax planning is

Answer 14

The maximization of after-tax wealth

Question 15

Income Shifting

Answer 15

involves moving income from one taxpayer to another or to another jurisdiction.

Question 16

Timing Technique

Answer 16

Delaying income recognition to take advantage of future tax rates

Question 17

Tax Avoidance

Answer 17

is not illegal and minimizes the tax liability through legal arrangements and transactions. Avoidance maneuvers take place prior to incurring tax liability

Question 18

A substantial underpayment of income tax occurs when the understatement is more than the larger of

Answer 18

10% of the correct tax or $5,000. A substantial understatement is subject to an accuracy-related penalty

Question 19

The IRS will issue Release of the Notice of federal Tax lien within

Answer 19

30 days after the tax due is satisfied

Question 20

Estimated tax is described as

Answer 20

withholding taxes for the self-employed and from nonwage or salary income. Individuals who earn income not subject to withholding must pay estimated tax on that income in quarterly installments.

Question 21

The 6-year statute of limitations apply to omitted gross income in an amount in excess of

Answer 21

25% of Gross income which includes all income

Question 22

The situation in which taxes cannot may assessed without the issuance of statutory notice of deficiency is

Answer 22

failure of the taxpayer to file a return

Question 23

A refund claim for overpayment of tax due to losses from worthless securities may be files up to

Answer 23

7 Years after the year in which they become worthless

Question 24

Shifting

Answer 24

Moving from New York to Florida shifts the taxpayers income from one jurisdiction to another

Question 25

Avoidance

Answer 25

Maximizing of tax liability through legal arrangements and transactions undertaken before tax liability is incurred

Question 26

Conversion

Answer 26

By investing in municipal bonds, the taxpayer is converting future interest from taxable income to nontaxable income

Question 27

Timing

Answer 27

contributing property to a partnership in exchange for partnership interest causes a deferral of the recognition of gain until the partnership interest sells contributed property