M5 Federal Tax Procedures

Question 1

MCQ-15375
Which of the following types of IRS audit most commonly arises from matching issues, where income reported on the taxpayer’s tax return does not match the taxpayer’s Form W-2 or Form 1099?

Answer 1

Correspondence audit

Question 2

MCQ-14919
An individual taxpayer rejected the IRS examiner’s findings in an audit of the taxpayer’s tax return. What will the IRS do in response to the taxpayer’s rejection?

Answer 2

Issue a 30-day letter.

Question 3

MCQ-06771
An IRS agent has sent a 30-day letter reflecting a proposed adjustment to increase a client’s taxable income in three prior years. The CPA and the client have reviewed the proposed changes and agree with the proposed adjustment. What would be the CPA’s most appropriate recommendation to the
client?

Answer 3

Accept the proposed IRS changes and pay any deficiency.

Question 4

MCQ-06678
Which of the following statements is correct for the judicial process when a taxpayer and the Internal Revenue Service cannot reach agreement on a tax issue using the administrative appeals process?

Answer 4

The U.S. Court of Federal Claims has jurisdiction over most claims for money damages against the United States

Question 5

MCQ-04119
Which of the following is a list of courts that are referred to as courts of original jurisdiction, or trial courts, for tax matters?

Answer 5

The Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.

Question 6

MCQ-06781
A taxpayer received a notice of deficiency from the IRS. If the tax underpayment is not the result of the taxpayer’s mathematical or clerical error, how long does the taxpayer have to file a petition with the Tax Court for a redetermination of the deficiency?

Answer 6

Ninety days from the mailing date of the notice if the notice is not addressed to a taxpayer outside of the United States

Question 7

MCQ-08956
A statutory notice of deficiency explains that the taxpayer has 90 days to either pay the deficiency or else to file a:

Answer 7

Petition with the U.S. Tax Court.

Question 8

MCQ-15376
A taxpayer has just received a 30-day letter from the IRS related to the audit of the taxpayer’s Year 1 federal income tax return. Which of the following is a true statement about the 30-day letter?

Answer 8

The taxpayer has 30 days to either request an administrative appeals conference or agree to the IRS proposed adjustments.

Question 9

MCQ-15377
A taxpayer has just received a 90-day letter from the IRS related to the audit of the taxpayer’s Year 1 federal income tax return. Which of the following is a true statement about the 90-day letter?

Answer 9

The taxpayer has 90 days to either pay the tax deficiency or file a petition with the U.S. Tax Court.

Question 10

MCQ-15374
Which of the following is a correct statement about the Small Cases Division of the U.S. Tax Court?

Answer 10

The decision of the Small Cases Division cannot be relied on as precedent in other courts.

Question 11

MCQ-15824
A taxpayer received a 90-day letter proposing a deficiency. The taxpayer challenged the proposed deficiency in the Small Cases Division of the U.S. Tax Court. If the taxpayer loses the case, then the decision is:

Answer 11

Not appealable.

Neither party can appeal a decision of the Small Cases Division of the U.S Tax Court.

Question 12

MCQ-12530
A taxpayer received a 90-day letter proposing a deficiency of $28,000. The taxpayer’s CPA told the taxpayer that a client with similar circumstances successfully sustained such a position in the Small Claims Division of the U.S. Tax Court. If the taxpayer decides to file a petition with the U.S. Tax
Court, what is the significance of the success of the CPA’s other client in sustaining the position in the Small Claims Division?

Answer 12

There is little significance since decisions in the Small Claims Division of the U.S. Tax Court lack precedential value.

Question 13

MCQ-06673
Dewey Cheatam, Esq. is a leading candidate for the next open seat on the U.S. Supreme Court. He recently addressed the graduating class at The University of Texas Law School on the subject of the judicial process for tax issues. Which of the following statements in his address was correct?

Answer 13

U.S. District Court cases are heard before one judge, not a panel of judges.

Question 14

MCQ-15378
An individual taxpayer’s adjusted gross income (AGI) for the current year is $200,000 and AGI for the prior year is $160,000. The taxpayer had federal income tax withholdings from wages throughout the year. In which of the following independent situations could the IRS impose a penalty for failure to pay sufficient estimated tax payments for the current year?

Answer 14

The taxpayer’s current year withholding is 100 percent of the prior year’s tax liability.

Question 15

MCQ-02063
A taxpayer filed his income tax return after the due date but neglected to file an extension form. The return indicated a tax liability of $50,000 and taxes withheld of $45,000. On what amount would the penalties for late filing and late payment be computed?

Answer 15

$5,000

The penalty for failure to file a tax return by the due date is 5% per month or fraction of month (up to a maximum of 25%) on the amount of tax shown as due on the return. The penalty for failure to pay by the due date (1/2% per month) is also based on the amount due on the return.

Question 16

MCQ-02093
An accuracy-related penalty applies to the portion of tax underpayment attributable to:
I. Negligence or a disregard of the tax rules or regulations.
II. Any substantial understatement of income tax.

Answer 16

Both I and II

Question 17

MCQ-06595
John S. Loppe has not been particularly careful in preparing his income tax returns and, as a result, has substantially understated his tax. The negligence penalty with respect to understatement of tax might thus be applicable to him. The negligence penalty with respect to understatement of tax:

Answer 17

Is an accuracy-based penalty for negligence or for disregard of tax rules and regulations.

Question 18

MCQ-06671
John R. Fudge is an individual taxpayer in Cut and Shoot, Texas. He has been accused of understating the tax on one of his returns and is concerned about the possibility of imprisonment if he is convicted. The understatement has nothing to do with a tax shelter. Which of the following
statements is correct for his situation?

Answer 18

If John relied on the opinion of a reputable accountant or attorney who prepared his return and furnished all relevant information, in general, he would have a reasonable basis for the tax return position and could avoid the penalties for understatement of tax.

Question 19

MCQ-02064
A civil fraud penalty can be imposed on a corporation that underpays tax by:

Answer 19

Maintaining false records and reporting fictitious transactions to minimize corporate tax liability

Question 20

MCQ-06555
The disclosure of a tax return position will reduce or eliminate an accuracy-related penalty on the taxpayer in which of the following circumstances?

Answer 20

The position does not concern a tax shelter and has a reasonable basis.

Question 21

MCQ-06665
Chatham Corporation is a defendant in a lawsuit by the IRS. Which of the following statements is correct with respect to the various defenses that might be available

Answer 21

The more-likely-than-not standard involves a position that has a more than 50 percent chance of succeeding.

Question 22

MCQ-06666
Which of the following statements is correct with respect to penalties?

Answer 22

The taxpayer can generally avoid penalties if he/she acted in good faith, if there was a reasonable basis to support the tax return position, and if the taxpayer did not have willful neglect.

Question 23

MCQ-14920
Each of the following constitutes substantial authority for a taxpayer to take a tax position, except:

Answer 23

A private letter ruling in which the taxpayer is named and that is inconsistent with a subsequently issued Treasury Regulation.

Question 24

MCQ-14712
In evaluating the hierarchy of authority in tax law, which of the following carries the greatest authoritative value for tax planning of transactions?

Answer 24

Internal Revenue Code.

Question 25

MCQ-15817
Interest on a tax deficiency begins to accrue on the date on which:

Answer 25

The tax was due, without regard to extension of time to file.

Question 26

MCQ-12511
A tax return preparer is researching authorities to support a position of deferral of gain taken on the disposal of an asset. Which of the following will provide the highest authority for this position?

Answer 26

A temporary regulation issued by the Treasury Department.

Question 27

MCQ-12531
When a taxpayer needs guidance with a specific tax issue related to a proposed transaction, the taxpayer can ask the IRS for:

Answer 27

A private letter ruling.

A private letter ruling (PLR) is the IRS’s interpretation of the federal tax law as it applies to a specific taxpayer situation. A PLR is issued by the IRS in response to a taxpayer’s request for guidance as to the federal tax consequences of a proposed transaction. It is binding for that specific taxpayer and transaction, but may not be relied on as precedent by other taxpayers or the IRS.

Question 28

MCQ-08957
A taxpayer contemplates entering into a complex transaction. The taxpayer wants assurance that there will be no adverse tax effects from the transaction. The taxpayer should apply for which of the following?

Answer 28

Private letter ruling (PLR)