Tax 8-2 Identify characteristics of the audit process.

Question 1

Audit Process

What compares the information on each return to a set of norms, weights each item, and ranks the return for audit-worthiness?

targeted program audit

document matching program audit

Discriminant Functions System Program audit

National Research Program audit
.

8-2

Answer 1

Discriminant Functions System Program audit

Question 2

Audit Process

Briefly discuss the Taxpayer Compliance Measurement Program. What is the primary function of the TCMP?

8-2

Answer 2

The TCMP is designed to compute the norms that the DIF uses, to determine where and how taxpayers are most likely to fail to comply with applicable tax law, and to encourage voluntary compliance.

Question 3

Audit Process

Briefly discuss the document matching program.

8-2

Answer 3

The document matching program allows the IRS to detect discrepancies between the amounts reported on a tax return and the amounts shown on information documents (e.g., W–2 forms, 1099 forms).

Question 4

Audit Process

What is an audit trigger?

8-2

Answer 4

An audit trigger is a tax return line item or combination of line items whose occurrence or amount differs so greatly from the norms that an audit is deemed worthwhile.

Question 5

Audit Process

Module Check

1. Which one of the following is not one of the top 10 audit triggers as discussed in the course materials?
   a. tax returns with tax shelter activity
   b. tax returns with travel and entertainment expenses
   c. tax returns with “hobby” losses
   d. tax returns with self-employment income

(LO 8-2)

Answer 5

d. tax returns with self-employment income

Tax returns with self-employment income are not one of the top 10 audit triggers.

Question 6

Audit Process

Module Check

17. Which one of the following is not part of the IRS audit process?
    a. Discriminant Function System Program
    b. Targeted Programs audit
    c. National Measurement Compliance Research Program

(LO 8-2)

Answer 6

c. National Measurement Compliance Research Program

The Discriminant Function System Program and the Targeted Programs are two of the parts of the IRS audit process. There is no such program as the National Measurement Compliance Research Program.

Question 7

Audit Process

Module Check

18. Which one of the following audit programs is done on a random basis?
    a. Discriminant Function System Program
    b. National Research Program
    c. Targeted Programs audit

(LO 8-2)

Answer 7

b. National Research Program

The National Research Program is the only random audit program that the IRS utilizes. The DIF screens all individual returns. The Targeted Programs audit, as the name implies, targets specific groups of taxpayers or groups of taxpayers in certain situations.

Question 8

Practice Exam 2

1. Which one of the following types of audits is conducted on a random basis?

targeted program audit

document matching program audit

Discriminant Functions System Program audit

National Research Program audit

(LO 8–2)

Answer 8

National Research Program audit

The NRP audit is the only random audit listed here that the IRS conducts. This program essentially replaced the Taxpayer Compliance Measurement Program audit.