ACFE Tax Fraud

Question 1

What distinguishes tax evasion from tax avoidance?

Accepted Answer

Evasion is the illegal, willful underpayment of tax, while avoidance uses legal means to reduce tax

Answer

Tax avoidance is lawful planning within the law. Evasion involves deliberate misrepresentation, concealment or omission to reduce tax owed.

Question 2

Which method of proof reconstructs a taxpayer's income by comparing their total spending and asset changes to reported income?

Accepted Answer

Net worth method

Answer

The net worth method establishes an opening net worth, then shows increases in net worth plus living expenses that exceed reported income, indicating unreported income.

Question 3

An employer withholds income and payroll taxes from employees but does not remit them to the government. This is commonly called:

Accepted Answer

Trust fund tax fraud

Answer

Withheld employee taxes are held in trust for the government, so failing to pay them over is a serious offense, often called payroll or trust fund tax fraud.

Question 4

Which is a common badge of fraud in a tax evasion case?

Accepted Answer

Keeping two sets of books

Answer

Badges of fraud include double sets of books, concealment of assets, false documents, cash dealings and implausible explanations, which together show willfulness.

Question 5

In a U.S. criminal tax evasion case, which element must the government generally prove in addition to a tax deficiency?

Accepted Answer

Willfulness, meaning an intentional violation of a known legal duty

Answer

Criminal tax evasion requires a tax due and owing, an affirmative act of evasion, and willfulness, the voluntary and intentional violation of a known legal duty.

(ACFE) Association of Certified Fraud Examiners Practice Test

(ACFE) Association of Certified Fraud Examiners Practice Test

ACFE Tax Fraud