Bcom Bachelor of Commerce Bachelor of Commerce: Income Tax Laws 5

Question 1

What is the statute of limitations for the IRS to assess additional federal income tax in a standard case?

Accepted Answer

3 years from the later of the return's due date or filing date

Answer

Generally, the IRS has 3 years from the later of the return's due date or the actual filing date to assess additional tax; this period extends to 6 years if income is omitted by more than 25%.

Question 2

Which method of accounting generally results in the most accurate matching of income and expenses for a business?

Accepted Answer

Accrual basis

Answer

Accrual basis accounting recognizes income when earned and expenses when incurred, providing better matching of revenues and costs regardless of cash flow timing.

Question 3

A taxpayer who fails to file a tax return by the due date (without an extension) faces which IRS penalty?

Accepted Answer

Failure-to-file penalty of 5% per month up to 25%

Answer

The failure-to-file penalty is 5% of unpaid tax per month (or fraction thereof), capped at 25% of unpaid tax, which is typically much larger than the failure-to-pay penalty.

Question 4

Under the MACRS system, which recovery period applies to residential rental real property?

Accepted Answer

27.5 years

Answer

Residential rental real property is depreciated over 27.5 years using the straight-line method under MACRS, while nonresidential real property uses a 39-year period.

Question 5

Which of the following income items is generally excluded from a taxpayer's gross income under the IRC?

Accepted Answer

Proceeds from a life insurance policy paid upon the insured's death

Answer

Under IRC §101, life insurance proceeds paid by reason of the insured's death are generally excluded from the beneficiary's gross income.

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Bachelor of Commerce: Income Tax Laws 5