Test Bank for Pearsons Federal

Test Bank for Pearson's Federal Taxation 2025 Corporations, Partnerships, Estates, & Trusts 38 th Edition By Mitchell Franklin, Luke Richardson (All Chapters 1- 15, 100% Original Verified, A+ Grade) All Chapters are Reverse Arranged Corporate Chapters 15-1 1 / 4

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Pearson's Fed. Taxation 2025: Corp., 38e (Richardson et al.)

Chapter C15: Administrative Procedures

LO1: Role of the Internal Revenue Service

1) The Internal Revenue Service is part of the

• Congress.
• Treasury Department.
• Federal Bureau of Investigation.
• U.S. Customs Department.

Answer: B

Explanation: The IRS is part of the Treasury Department.

Page Ref.: C:15-2

Objective: 1

2) Explain how the Internal Revenue Service is organized to be efficient and client-oriented.Answer: The IRS is organized functionally into four divisions: (1) Wage and Investment, (2) Small Business, (3) Middle Market/Large Corporate, and (4) Tax Exempt. Each division is headed by a divisional director.The Wage and Investment Division is responsible for individual taxpayers who report only wage and investment income. Most of these taxpayers file Forms 1040, 1040A, or 1040EZ. The Small Business Division is responsible for sole proprietors, individuals with supplemental income, and small corporations and partnerships. Most of these taxpayers file Forms 1065 and 1120S or Schedules C, E, and

• The Middle Market/Large Corporate Division is responsible for corporations with assets of $5 million

or more. Most of these taxpayers file Form 1120. The tax Exempt Division is responsible for tax-exempt organizations, employee plans, and state and local governments. Most of these entities file forms relating to tax exempt status.The shift to a functional mode of organization reflects Congress's desire to render the IRS more efficient and client-oriented. Through this mode of organization, tax administrators can focus on their areas of technical expertise, and taxpayers can deal with the same technical experts wherever they reside.Page Ref.: C:15-2

Objective: 1

LO2: Audits of Tax Returns

1) The majority of the individual tax returns that are audited are selected under the DIF program.

Answer: FALSE

Explanation: IRS utilizes different methods.

Page Ref.: C:15-3

Objective: 2

2) The IRS will issue a 90-day letter (a Statutory Notice of Deficiency) if the taxpayer does not file a protest letter within 30 days of the date of the 30-day letter.

Answer: TRUE

Explanation: If a taxpayer fails to respond within 30 days, IRS issues a 90 day letter.Page Ref.: C:15-7

Objective: 2

Test Bank Reverse Arranged: Chapter 15 to 1 2 / 4

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3) The 90-day letter (Statutory Notice of Deficiency) gives the taxpayer 90 days to file a petition with the Tax Court or to pay the disputed tax.

Answer: TRUE

Explanation: Taxpayer may pay the tax or petition court.

Page Ref.: C:15-7

Objective: 2

4) If the taxpayer has credible evidence, the IRS bears the burden of proof in a tax dispute.

Answer: TRUE

Explanation: Burden of proof is on the IRS.

Page Ref.: C:15-8

Objective: 2

5) The program specifically designed to identify returns with a high potential for a deficiency assessment is the

A) TCMP.

• DIF program.
• instant audit program.
• 1040 program.

Answer: B

Explanation: DIF Is designed to identify returns with a high potential for deficiency assessment.Page Ref.: C:15-3

Objective: 2

6) Identify which of the following statements is false.

• The majority of the individual tax returns that are audited are selected under the DIF program.
• The TCMP audit program has been temporarily suspended by the IRS and replaced in part by lifestyle

audits.

• The IRS is authorized to pay a reward to individuals who provide information resulting in increased

collections.

• All of the above are false.

Answer: A

Explanation: IRS utilizes multiple methods for audit selection.

Page Ref.: C:15-4

Objective: 2

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3 Copyright © 2025 Pearson Canada Inc.7) Identify which of the following statements is true.

• If a taxpayer has been audited in at least one of the two previous years on the same item and the

earlier audit did not result in any additional tax owed, the taxpayer may qualify for the special audit relief rule.

• A taxpayer can request and always receive an exemption from an audit by the IRS if his return was

audited in at least one of the two previous years and the previous audit did not result in any change to his tax liability.

• The signing of Form 870 allows the taxpayer to wait for 30 interest-free days after the billing date to

pay the tax.

• All of the above are true.

Answer: A

Explanation: The taxpayer may qualify if certain requirements are met.

Page Ref.: C:15-5

Objective: 2

8) Identify which of the following statements is false.

• A Technical Advice Memorandum may be requested by an IRS auditor if the transaction in question

involves an especially complex tax issue.

• If the taxpayer being audited does not concur with the proposed assessment, the Service is required to

send the taxpayer a 30-day letter detailing the proposed changes and the available appeals process.

• During the audit process, if the taxpayer concurs with the assessment of tax by the IRS and signs Form

870 (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax), then the taxpayer is precluded from filing a refund suit.

• Interest on a deficiency accrues from the due date of the return through the payment date.

Answer: C

Explanation: This form indicates that the taxpayer waives any restrictions on the IRS's authority to assess the tax and consents to the IRS's collecting it. However, signing Form 870 does not preclude the taxpayer from filing a refund claim later.Page Ref.: C:15-6

Objective: 2

9) Identify which of the following statements is false.

• Appeals officers usually have the operating authority to settle disputes with taxpayers based on the

"hazards of litigation."

• When an appeals officer is dealing with an "appeals coordinated issue," he has the authority to settle

with the taxpayer based on the "hazards of litigation."

• A Technical Advice Memorandum may be requested by an IRS auditor if the transaction in question

involves an especially complex tax issue.

• If the taxpayer and the appeals officer fail to reach agreement, the IRS issues a 90-day letter.

Answer: B

Explanation: If the matter involves an appeals coordinated issue, the appeals officer must obtain concurrence or guidance from a director of appeals to reach a settlement.Page Ref.: C:15-7

Objective: 2

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