Regulatory Considerations - Review Questions Flashcards
Which of the following best describes a revenue ruling? (Check all that are true.)
1) Published by the IRS as general guidance to all taxpayers.
2) Addressed only to the specific taxpayers who requested the rulings.
3) Initiated from an IRS agent in the field during a taxpayer audit.
4) Binding on IRS personnel on the issues covered in them.
1) Published by the IRS as general guidance to all taxpayers.
4) Binding on IRS personnel on the issues covered in them.
Revenue rulings are published by the IRS as general guidance to all taxpayers. The IRS publishes its Revenue Rulings in IRS Bulletins and is binding on IRS personnel on the issues covered in them.
The penalty for negligence if a taxpayer fails to make a reasonable attempt to comply with the tax law is ___ percent of the underpayment.
20%
If a taxpayer fails to make a reasonable attempt to comply with the tax law, the penalty is 20% of the underpayment when they are negligent.
Which of the following is considered a welfare plan under ERISA? (Check all that are true.)
1) Hospital care
2) Overtime premiums
3) Day care centers
4) Holiday gifts
1) Hospital care
4) Holiday gifts
A welfare plan is any plan, fund or program created or maintained by an employer or by an employee organization, or both. It usually provides its participants or beneficiaries items such as hospital or medical care, vacation benefits, training programs, day care services or prepaid legal services, to name a few.
Bill, a fiduciary of the CAP pension plan, took $10,000 of the pension plan and invested it in his own account. The $10,000 grew to $15,000 and then Bill’s breach was discovered. What will Bill be responsible for?
Choose the best answer.
1) He has no liability for the $10,000.
2) He must return the $10,000 to the plan.
3) He must return the $10,000 and the $5,000 profits to the plan.
4) He must return the $5,000 of earnings to the plan only.
3) He must return the $10,000 and the $5,000 profits to the plan.
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries shall be personally liable to make good to such plan any losses to the plan resulting from each breach. They will have to restore to such plan any profits which have been made through use of assets of the plan by the fiduciary.
You are working with a startup company who will be hiring five new employees over the next several months. The founder wants to make sure she remains in compliance with all applicable rules and regulations when hiring and developing benefit programs. Which of the following might you include in a response to the founder?
I) A number of rules protect job applicants and employees from discrimination on the basis of factors such as
race, sex, age, religion, and disability.
II) Rules against discriminatory hiring practices are codified in Department of Labor regulations.
III) Rules against discriminatory hiring practices are contained in statutory employment laws.
IV) Non-discrimination laws apply primarily to public employers, as a private startup you will be exempt from
compliance with these rules.
Choose the best answer.
1) II and IV
2) I and II
3) I and III
4) I, III, and IV
3) I and III
Which of the following are areas of regulation often governed by state-level regulations rather than specific provision of ERISA?
I) Group term life insurance
II) Prepaid legal services plans
III) Mandated short-term disability coverage requirements
IV) Creditors’ rights to pension assets
Choose the best answer.
1) II and III
2) I, III, and IV
3) II and IV
4) All of the above
2) I, III, and IV
Prepaid legal services plans are considered a welfare benefit plan under ERISA
As discussed, the IRS issues a range of communications interpreting and expanding the laws contained in the Internal Revenue Code. Which of the following correctly describes the most common types of communications in order from most authoritative and far-reaching to least?
Choose the best answer.
1) General Counsel Memorandum → Revenue Rulings → Private Letter Rulings → Field Service Advice
2) General Counsel Memorandum → Revenue Rulings → Field Service Advice → Private Letter Rulings
3) Revenue Rulings → General Counsel Memorandum → Private Letter Rulings → Field Service Advice
4) Revenue Rulings → Private Letter Rulings → General Counsel Memorandum → Field Service Advice
4) Revenue Rulings → Private Letter Rulings → General Counsel Memorandum → Field Service Adv
You are approached by a business client who is fond of very aggressive tax planning. While preparing his prior year’s tax return he has a moment of doubt regarding how the IRS may interpret several of his tax reduction strategies. What might you include in a conversation with this client in a conversation regarding penalties most commonly assessed by the IRS?
I) Tax evasion can result in criminal penalties
II) In many instances taxpayers will owe only the amount of the underpayment plus interest
III) Penalties, when assessed, commonly include prison time.
IV) Penalties, when assessed, commonly consist solely of a percentage the underpayment
Choose the best answer.
1) I, II, and IV
2) II and IV
3) I, II, and III
4) All of the above
1) I, II, and IV
A business owner client of yours with an established 401(k) plan has just had a new employee enroll. It has been some time since the business owner had a new hire and she has asked you if there are any documents she is required to provide to the newly enrolled employee. Which of the following documents does ERISA require your client to provide to the new 401(k) participant at enrollment?
Choose the best answer.
1) Summary Annual Report
2) Summary Plan Description
3) Copy of Form 5500
4) Prospectus
2) Summary Plan Description
In addition to retirement plans, ERISA regulates a number of additional employee benefits programs, described as “welfare plans” under the act. Which of the following would NOT be covered under the ERISA definition of a welfare plan?
Choose the best answer.
1) Apprenticeship and training programs
2) Employer-sponsored daycare centers
3) Overtime and holiday premium pay plans
4) Employer-sponsored healthcare plans
3) Overtime and holiday premium pay plans
ERISA prohibits certain transactions between covered retirement plans, parties of interest, and fiduciaries in order to safeguard plan participants and assets. All of the following are examples of transactions prohibited by ERISA except:
Choose the best answer.
1) A plan fiduciary process a participant loan at the participant’s request
2) A plan sponsor structures a loan to itself from the retirement plan to cover a short-term cash flow shortfall
3) A fiduciary uses plan assets to invest in a real estate fund for which she received a 4% sales commission.
4) The investment manager for a pension plan uses 10% of plan funds to purchase stock of the sponsoring
employer.
1) A plan fiduciary process a participant loan at the participant’s request
