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Exam 2: Tax Compliance, the Irs, and Tax Authorities

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Question 61

Multiple Choice

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Circular 230 was issued by:

A) AICPA.
B) State boards of accountancy.
C) American Bar Association.
D) IRS.
E) None of the choices are correct.

F) A) and C)
G) A) and B)

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Question 62

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If the IRS assesses additional tax on a tax return upon audit, a taxpayer may be subject to interest and penalties on the underpayment.

A) True
B) False

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Question 63

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The Internal Revenue Code and tax treaties are examples of statutory authorities.

For the 2020 tax returns, indicate when the statute of limitations expires and why. a. Simon filed his tax return on April 10, 2021. b. Billy and Barbara filed their tax returns late on December 1, 2021. c. Pearson earns a living through various illegal activities. He filed his tax return on March 14, 2021, but did not report his illegal income on his tax return. d. Luther filed his tax return on July 17, 2021, but has accidentally underreported his gross income by 20 percent.

An extension to file a tax return does not extend the due date for tax payments.

As required by the Constitution, all tax bills are supposed to originate in the House of Representatives.

Revenue rulings and revenue procedures are examples of primary authorities.

For the following taxpayers, indicate whether the taxpayer should file a tax return and why. a. Robert earned $50,000 this year as a staff accountant. His estimated tax liability is $4,500, and he expects to receive a $500 tax refund. b. Amy earned $4,000 this year working part-time. She will have no federal tax liability and has not made any federal tax payments. c. Ty earned $2,500 this summer and had $200 of federal taxes withheld from his paycheck. He will have no federal tax liability this year. d. Startup Corporation had a $50,000 loss this year. e. The Walker Family Trust earned $500 of gross income this year.

Kodak is a beginning tax researcher. He knows that the first step of the research process is to get an understanding of the facts surrounding the transaction being researched. Describe the two basic types of facts, the sources of facts for a research project, and any advice that may help Kodak.