Tax Compliance - Answer Key

1. C

A prior IRS audit that did not result in any additional tax deficiency would not be a red flag for increasing your chance of another audit.

2.
A

The three types of audits are field, office and correspondence. The field audit is the only audit where the IRS will come to your home or place of business.

3.
D

Failure to file and fraudulent filings have NO statute of limitations.

4.
C

The interest rate charged by the IRS on underpayments is the federal short-term rate plus 3%.

5.
D

Larry will be assessed a late payment fee of 0.5% on the net amount of tax due not paid by the due date, with a 25% maximum. This penalty is in addition to the normal interest charge.

6.
B

An estimated tax liability payment must be made when you apply for a tax filing extension on Form 4868, on or before April 15. Once the actual tax deficiency is calculated, a payment received that is 90% or less of the actual payment will be subject to a late-payment fee. Interest occurs on the tax due date, starting on April 15.

Introduction


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RELATED TERMS
  1. Field Audit

    An audit is an investigation conducted by the Internal Revenue ...
  2. Correspondence Audit

    Tax audits that the IRS performs by mail. Correspondence audits ...
  3. Office Audit

    An examination of a taxpayer's records by the Internal Revenue ...
  4. Continuous Audit

    An auditing process that examines accounting practices continuously ...
  5. IRS Notice 433 - Interest and Penalty ...

    A document published by the Internal Revenue Service that outlines ...
  6. Deficiency

    Conceptually, the numerical difference between the amount of ...
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