Audit Essay

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9) (TCO Which of the following is NOT a characteristic of the audit process? Student Answer: Instructor Explanation: Points Received: The IRS can reward informants when the information provided leads to the collection of additional taxes. Most taxpayer audits do not involve special agents. Self-employed taxpayers are more likely to be selected for audit than employed taxpayers. Less important issues are handled by means of a correspondence audit. If a taxpayer disagrees with the IRS auditor's finding, the only resort is to use the courts. Special agents are assigned to an audit only when fraud might be involved (choice B). Self-employed persons have more flexibility in manipulating income and deductions than do employed taxpayers (choice C). The next step after an initial audit would be the Appeals Division within the IRS (choice E). Settlement at this level could avoid costly litigation. Chapter 1 6 of 6 Comments: 2. Question : (TCO 9) A characteristic of fraud penalties is: Student Answer: Civil fraud can result in a fine and a prison sentence. When negligence and civil fraud apply to a deficiency, both penalties are imposed. The criminal fraud penalty is 75% of the deficiency attributable to the fraud. The IRS has a greater burden of proof in the Instructor Explanation: Points Received: case of criminal fraud than with civil fraud. None of the above Choice A describes criminal fraud, while choice C describes civil fraud. When both negligence and civil fraud exist in regard to the same deficiency, both penalties cannot apply and the civil fraud penalty predominates (choice B). In the case of criminal fraud, the IRS also must show willfulness on the part of the taxpayer (choice D). Chapter 1 6 of 6 Comments: 3. Question : (TCO 1) The Internal Revenue Code was codified for the first time in what year? Student Answer: 1913 1923 1939 1954 1986 Instructor Explanation:

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