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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.

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