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

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Question 61

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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.

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(a) Because his gross income exceeds the...

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Question 62

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If an individual taxpayer is unable to file a tax return by its original due date, the taxpayer can request an automatic 9-month extension to file the return.

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B) False

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Question 63

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Which of the following is not a source of a tax practitioner's professional responsibilities?

Kodak is a beginning tax researcher. He knows that the 1ˢᵗ 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.

Nolene suspects that one of her new clients may be intentionally underreporting his taxable income. What are the potential ramifications to her client of this behavior? What are the consequences to Nolene if she assists the client in underreporting income? Any advice for Nolene?

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

Rebecca is at a loss. A new tax law was recently passed, and she needs to get a better understanding of why the tax law was passed and the intent of the law from an official authority. Describe what authorities may be especially helpful to Rebecca and why she can't find many authorities that discuss the new law.

Dominic earned $1,500 this year, and his employer withheld $200 of federal income tax from his salary. Assuming that Dominic is single, 30 years old, and will have zero tax liability this year, he:

Because the U.S. District Court hears a broader set of cases, decisions by the U.S. District Court may be considered to have more authoritative weight than the U.S. Court of Federal Claims.

Revenue rulings and revenue procedures are examples of primary authorities.

The "90-day" letter gives the taxpayer the opportunity to pay a proposed IRS tax adjustment or file a petition in the U.S. District Court to contest the adjustment and hear the case.

Mary Ann is working on a pretty big research project. Her manager has alerted her to the possibility that some of her research questions are likely to be questions of fact, whereas others are likely to be questions of law. Explain the difference between the two types of questions and how this would influence her research.