C237 Taxation 1 Review master quiz with precise ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
detailed answers ||//\\||
The largest source of revenues for the federal government comes from - ✔✔individual
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
income taxes. ||//\\||
Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
$12,000 on $120,000. The tax is a - ✔✔proportional tax. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Which of the following taxes is regressive? - ✔✔Federal Insurance Contributions Act
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
(FICA)
Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her average
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
tax rate is 25%. After considering her tax savings, Sarah's contribution costs - ✔✔$16,250.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
25 000 x 35% marginal rate= $8750 savings
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
25 000 - 8750 = 16 250 contribution cost
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
The marginal tax rate is of greater significance in measuring the tax effect for sarah's
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
decision. ||//\\||
The marginal tax rate is the percentage that is applied to an incremental amount of taxable
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
income that is added to or subtracted from ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
the tax base. ||//\\|| ||//\\|| ||//\\||
If her marginal tax rate is 35%, she will save 35
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
cents for every $1 contributed to her church. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
The average tax rate is simply the total tax liability divided by taxable income.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
,a- marginal tax rate is the tax rate applied to an incremental amount of taxable income that
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
is added to the tax base. The marginal tax rate concept is useful for planning because it
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
measures the tax effect of a proposed transaction. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
b- The average tax rate is computed by dividing the total tax liability by the amount of
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
taxable income. This represents the average rate of tax for each dollar of taxable income. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
c- The effective tax rate is the total tax liability divided by total economic income.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
All of the following statements are true except - ✔✔LLCs are generally taxed as
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
partnerships.
the net income of C corporation is subject to double taxation because it is taxed at the entity
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
level and dividends paid from the C corporation to individual shareholders is also taxed.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
the net income earned by a sole proprietorship is reported on the owner's individual income
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
tax return.
||//\\|| ||//\\||
Not ture: ||//\\||
the net income of an S corporation is subject to double taxation because it is taxed at the
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
entity level and dividends paid from the S corporation to individual shareholders are also
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
taxed.
The term "tax law" includes - ✔✔judicial decisions.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Treasury Regulations. ||//\\||
Internal Revenue Code. ||//\\|| ||//\\||
,Which of the following serves as the highest authority for tax research, planning, and
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
compliance activities? - ✔✔Internal Revenue Code ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
All of the following are executive (administrative) sources of tax law except - ✔✔Revenue
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Rulings.
Income Tax Regulations. ||//\\|| ||//\\||
Revenue Procedures. ||//\\||
Not:
Internal Revenue Code.---> legislative ||//\\|| ||//\\|| ||//\\||
When returns are processed, they are scored to determine their potential for yielding
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
additional tax revenues. This program is called - ✔✔Discriminant Function System ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Selection of Returns for Audit ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
The U.S. tax system is based on self-assessment and voluntary compliance. However,
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
enforcement by the IRS is essential to maintain the integrity of the tax system. The IRS uses ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
both computers and experienced personnel to select returns for examination. With respect
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
to the use of the computer, a Discriminant Function System (DIF) is used to classify returns
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
to be selected for audit. The DIF system generates a "score" for a return based on the
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
potential for the return to generate additional tax revenue. After returns are scored under ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
the DIF system, the returns are manually screened by experienced IRS personnel who
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
decide which returns warrant further examination. In the aggregate, less than 1% of all
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
individual returns are selected for examination each y ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Which of the following individuals is most likely to be audited? - ✔✔Correct: ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
, Marvella has a $145,000 net loss from her unincorporated business (a horse farm). She also ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
received $950,000 salary as a CEO of a corporation. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
NOT:
Jerry is a school teacher with two children earning $55,000 a year. He also receives $200 in
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
interest income on a bank account. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Lola has AGI of $35,000 from wages and uses the standard deduction.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Melvin is retired and receives Social Security benefits. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
||//\\|| NOTE:Some examples of situations where individuals are more likely to be audited include ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
||//\\|| the following:||//\\||
-Individuals who are sole proprietors and claim expenses in connection with their trade or ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
businesses, especially if significant tax losses are incurred. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
-Itemized deductions exceeding an average amount for the person's income level ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
-Filing of a refund claim by a taxpayer who has been previously audited, where substantial
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
tax deficiencies have been assessed
||//\\|| ||//\\|| ||//\\|| ||//\\||
-Individuals who are self-employed with substantial business income or income from a ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
profession (e.g., a medical doctor) ||//\\|| ||//\\|| ||//\\|| ||//\\||
Alan files his 2015 tax return on April 1, 2016. His return contains no misstatements or
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
omissions of income. The statute of limitations for changes to the return expires - ✔✔April ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
15, 2019. ||//\\||
detailed answers ||//\\||
The largest source of revenues for the federal government comes from - ✔✔individual
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
income taxes. ||//\\||
Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
$12,000 on $120,000. The tax is a - ✔✔proportional tax. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Which of the following taxes is regressive? - ✔✔Federal Insurance Contributions Act
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
(FICA)
Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her average
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
tax rate is 25%. After considering her tax savings, Sarah's contribution costs - ✔✔$16,250.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
25 000 x 35% marginal rate= $8750 savings
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
25 000 - 8750 = 16 250 contribution cost
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
The marginal tax rate is of greater significance in measuring the tax effect for sarah's
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
decision. ||//\\||
The marginal tax rate is the percentage that is applied to an incremental amount of taxable
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
income that is added to or subtracted from ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
the tax base. ||//\\|| ||//\\|| ||//\\||
If her marginal tax rate is 35%, she will save 35
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
cents for every $1 contributed to her church. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
The average tax rate is simply the total tax liability divided by taxable income.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
,a- marginal tax rate is the tax rate applied to an incremental amount of taxable income that
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
is added to the tax base. The marginal tax rate concept is useful for planning because it
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
measures the tax effect of a proposed transaction. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
b- The average tax rate is computed by dividing the total tax liability by the amount of
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
taxable income. This represents the average rate of tax for each dollar of taxable income. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
c- The effective tax rate is the total tax liability divided by total economic income.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
All of the following statements are true except - ✔✔LLCs are generally taxed as
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
partnerships.
the net income of C corporation is subject to double taxation because it is taxed at the entity
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
level and dividends paid from the C corporation to individual shareholders is also taxed.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
the net income earned by a sole proprietorship is reported on the owner's individual income
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
tax return.
||//\\|| ||//\\||
Not ture: ||//\\||
the net income of an S corporation is subject to double taxation because it is taxed at the
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
entity level and dividends paid from the S corporation to individual shareholders are also
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
taxed.
The term "tax law" includes - ✔✔judicial decisions.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Treasury Regulations. ||//\\||
Internal Revenue Code. ||//\\|| ||//\\||
,Which of the following serves as the highest authority for tax research, planning, and
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
compliance activities? - ✔✔Internal Revenue Code ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
All of the following are executive (administrative) sources of tax law except - ✔✔Revenue
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Rulings.
Income Tax Regulations. ||//\\|| ||//\\||
Revenue Procedures. ||//\\||
Not:
Internal Revenue Code.---> legislative ||//\\|| ||//\\|| ||//\\||
When returns are processed, they are scored to determine their potential for yielding
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
additional tax revenues. This program is called - ✔✔Discriminant Function System ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Selection of Returns for Audit ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
The U.S. tax system is based on self-assessment and voluntary compliance. However,
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
enforcement by the IRS is essential to maintain the integrity of the tax system. The IRS uses ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
both computers and experienced personnel to select returns for examination. With respect
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
to the use of the computer, a Discriminant Function System (DIF) is used to classify returns
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
to be selected for audit. The DIF system generates a "score" for a return based on the
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
potential for the return to generate additional tax revenue. After returns are scored under ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
the DIF system, the returns are manually screened by experienced IRS personnel who
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
decide which returns warrant further examination. In the aggregate, less than 1% of all
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
individual returns are selected for examination each y ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Which of the following individuals is most likely to be audited? - ✔✔Correct: ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
, Marvella has a $145,000 net loss from her unincorporated business (a horse farm). She also ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
received $950,000 salary as a CEO of a corporation. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
NOT:
Jerry is a school teacher with two children earning $55,000 a year. He also receives $200 in
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
interest income on a bank account. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Lola has AGI of $35,000 from wages and uses the standard deduction.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Melvin is retired and receives Social Security benefits. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
||//\\|| NOTE:Some examples of situations where individuals are more likely to be audited include ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
||//\\|| the following:||//\\||
-Individuals who are sole proprietors and claim expenses in connection with their trade or ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
businesses, especially if significant tax losses are incurred. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
-Itemized deductions exceeding an average amount for the person's income level ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
-Filing of a refund claim by a taxpayer who has been previously audited, where substantial
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
tax deficiencies have been assessed
||//\\|| ||//\\|| ||//\\|| ||//\\||
-Individuals who are self-employed with substantial business income or income from a ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
profession (e.g., a medical doctor) ||//\\|| ||//\\|| ||//\\|| ||//\\||
Alan files his 2015 tax return on April 1, 2016. His return contains no misstatements or
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omissions of income. The statute of limitations for changes to the return expires - ✔✔April ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
15, 2019. ||//\\||
