Whittenburg Gerald E., Altus-Buller Martha. Income Tax Fundamentals
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LO 12.5
21. If the IRS owes a taxpayer a refund, the law generally provides that the IRS must pay
interest on the refund if it is not paid within _______ _ days of the date the taxpayer
filed his or her tax return or claim for refund.
a. 30
b. 45
c. 60
d. 90
e. None of the above
GROUP 2:
PROBLEMS
.............................................. .............................................. .
LO 12.3 1. a. Wilson filed his individual tax return on the original due date, but failed to pay $700
in taxes that were due wit h the return. If Wilson pays the taxes exactly 2 months
late, calculate the amount of his failure-to-pay penalty.
$ ____________
b. Joan filed her individual income tax return 4½ months after it was due. She did not
request an extension of time for filing. Along with her return, Joan remitted a check
for $750, which was the balance of the taxes she owed with her return. Disregarding
interest, calculate the total penalty that Joan will be required to pay, assuming the
failure to file was not fraudulent.
$ ____________
c. Jack filed his tax return 2 months and 3 days late and did not request an extension of
time for filing. Jack’s return indicated that he is to receive a $50 refund in taxes.
Calculate the amount of Jack’s penalty for failure to file his tax return on time,
assuming the failure to file was not fraudulent.
$ ____________
LO 12.1 2. Indicate which of the following statements are true or false:
_____ The IRS is a division of the Treasury Department.
_____ The IRS has four major divisions.
_____ The IRS local offices process most individual tax returns.
_____ IRS service centers are the locations that taxpayers should call to obtain tax
information.
_____ Taxpayers should have their CPAs keep their tax records to prevent the IRS
from being able to summon their records.
_____ Most IRS audits are conducted through the mail.
LO 12.3 3. In the 2010 tax year, Michelle paid the following amounts relating to her 2008 tax return:
Tax deficiency $5,000
Negligence penalty 1,000
Interest 500
Underpayment of estimated tax penalty 350
What amount of the above items may be deducted on Miche lle’s 2010 individual
income tax return?
$ ____________
Explain __________________________________________________________________
_________________________________________________ ________________________
Questions and Problems 12-29
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
LO 12.3 4. Linda underpaid her taxes for 2010 by $4,000 due to negligence.
a. Calculate Linda’s accuracy-related penalty for negligence.
$ ____________
b. Assume that the underpayment of taxes by Linda was determined to be fraudulent,
and calculate the total amount of Linda’s fraud penalty.
$ ____________
LO 12.2
LO 12.3
LO 12.5
5. Indicate whether the following statements are true or false:
_____ A field audit by the IRS is an audit conducted at the IRS field office.
_____ A low Discriminant Function System score for a tax return increases the pos-
sibility that the return will be selected for audit.
_____ The IRS charges interest on underpayments of taxes, but never pays interest on
amounts of overpaymen ts of taxes.
_____ If a taxpayer fails to file a tax return on its due date, he or she may be subject to
a failure-to-file penalty.
_____ The tax law includes a penalty for preparing a tax return in a negligent manner.
_____ If a taxpayer fails to file a tax return, the IRS may impose both the failure to file
penalty and the fraud penalty.
LO 12.3 6. For each of the following situations, indicate the nature and amount of the penalty that
could be imposed.
Description
of the Penalty Penalty Amount
a. Larry is a tax protester and files his tax
return in the name of ‘‘Mickey Mouse.’’
_______________ $ ____________
b. Anne writes a check for $900 in pay-
ment of her taxes that she knows will
not clear the bank due to insufficient
funds in her account.
_______________ $ ____________
c. Gerald understated his tax liability by
$10,000. The total amount of tax that
should have been shown on his return
was $70,000.
_______________ $ ____________
LO 12.4 7. Indicate in the blank the date that the statute of limitations would run out on each of
the following individual tax returns:
a. A fraudulent 2010 tax return that was filed April 15, 2011 ____________
b. A 2010 tax return that was filed May 19, 2011 ____________
c. A 2010 tax return that was filed February 12, 2011 ____________
d. A 2010 tax return that was filed March 1, 2011, and omitted
$15,000 in income. The total gross income shown on the tax
return was $50,000.
____________
LO 12.3
LO 12.4
LO 12.5
8. Indicate whether the following statements are true or false:
_____ The tax law includes a penalty for writing a ‘‘bad’’ check in payment of the tax-
payer’s tax liability.
_____ The statute of limitations for a tax return is normally 4 years.
_____ If a fraudulent tax return is filed, the IRS may assess a deficiency at any time in
the future.
12-30 Chapter 12
Tax Administration and Tax Planning
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
_____ Enrolled agents work for the IRS.
_____ A commercia l tax preparer may represent tax clients in any proceeding with the
IRS.
_____ The IRS is entitled to choose a place and time for an audit, without regard to
the inconvenience to the taxpayer or the reasonableness of the request.
LO 12.5 9. For each of the following situations, indicate the amount of the penalty that could be
imposed on the tax return preparer:
a. A tax return preparer understates the taxpayer’s tax liability
with a frivolous position and does not disclose the position.
$ ____________
b. A tax return preparer fails to furnish his identifying number. $ ____________
c. A tax return preparer aids a taxpayer in understating a tax
liability.
$ ____________
d. A tax return preparer endorses and cashes a client’s tax refund
check.
$ ____________
LO 12.6 10. Indicate whether the following statements are true or false:
_____ Decreasing one’s tax liability through legal methods is called tax avoidance,
while illegally reducing taxes is called tax evasion.
_____ In a ‘‘closed’’ transaction, all tax-significant events have been completed.
_____ The marginal tax rate is computed as the total tax paid divided by the total
income of the taxpayer.
_____ The marginal tax rate is the most important rate for decision making in
tax-planning situations.
_____ One of the primary benefits of qualified pension plans is the deferral of taxation
on the earnings which allows for tax-deferred compounding .
_____ The ‘‘ordinary and necessary test’’ is one of many tax traps facing taxpayers.
_____ For expenses to be deductible for tax purposes, they must be reasonable.
_____ The business purpose test will limit the tax benefit of transactions that are
entered into solely for tax reasons.
11. Go to the IRS Web site (www.irs.gov) and answer the following questions:
a. Who is the commissioner of the IRS?
b. When did he or she take office?
c. What was his or her background before becoming commissioner of the IRS?
12. The IRS maintains a section called ‘‘Tax Pro News and Events.’’ Locate this Web site
and print out the first page of the first item appearing on ‘‘Tax Pro News and Events.’’
Questions and Problems 12-31
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
12-32 Chapter 12
Tax Administration and Tax Planning
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Tax Rate Schedules
and Tax Tables
CONTENTS
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.
2010 Tax Rate Schedules A-2
2010 Tax Table A-3
Appendix A
A-1
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
(1) Married Filing Jointly or Qualifying Widow(er)s
If taxable income is: The tax is:
Not over $16,750 10% of taxable income
Over $16,750 but not over
$68,000
$1,675 plus 15% of the
excess over $16,750
Over $68,000 but not over
$137,300
$9,362.50 plus 25% of the
excess over $68,000
Over $137,300 but not over
$209,250
$26,687.50 plus 28% of the
excess over $137,300
Over $209,250 but not
over $373,650
$46,833.50 plus 33% of the
excess over $209,250
Over $373,650 $101,085.50 plus 35% of the
excess over $373,650
(2) Single Individuals
If taxable income is: The tax is:
Not over $8,375 10% of taxable income
Over $8,375 but not over
$34,000
$837.50 plus 15% of the
excess over $8,375
Over $34,000 but not over
$82,400
$4,681.25 plus 25% of the
excess over $34,000
Over $82,400 but not over
$171,850
$16,781.25 plus 28% of the
excess over $82,400
Over $171,850 but not over
$373,650
$41,827.25 plus 33% of the
excess over $171,850
Over $373,650 $108,421.25 plus 35% of
the excess over $373,650
(3) Head of Household
If taxable income is: The tax is:
Not over $11,950 10% of taxable income
Over $11,950 but not over
$45,550
$1,195 plus 15% of the
excess over $11,950
Over $45,550 but not over
$117,650
$6,235 plus 25% of the
excess over $45,550
Over $117,650 but not
over $190,550
$24,260 plus 28% of the
excess over $117,650
Over $190,550 but not
over $373,650
$44,672 plus 33% of the
excess over $190,550
Over $373,650 $105,095 plus 35% of the
excess over $373,650
A-2 Appendix A
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Tax Rate Schedules and Tax Tables A-3
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
A-4 Appendix A
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Tax Rate Schedules and Tax Tables A-5
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
A-6 Appendix A
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.