Which would not be a direct IRS method for reconstructing taxable income?
E. All the above are examples of Direct Method
Which of the following explains the Expenditure Approach?
B. Taxpayer’s applications exceeds his or her known cash receipts
Which of the following methods is not considered an indirect method of spotting unreported income?
E. All of the above are indirect methods
Is knowing the amount of cash on hand an important aspect of using indirect methods?
B. Yes, it is needed to verify the taxpayer’s stated cash contributions
To use the net worth method, an IRS agent or forensic accountant must:
C. Account for any difference between reported income and the increase in net worth during the year as nontaxable income and unidentified differences
Which of the following is NOT an example of a Procurement Fraud technique?
A. Lifestyle Probes
The use of indirect methods to reconstruct income by the IRS is limited by Code ____?
A. Section 7602(e)
What method may an agent use to determine the understatement of income for a taxpayer who files Schedule C or F?
D. Cash-T analysis
Among major techniques for engaging in a procurement fraud scheme, which are the most damaging of theses corrupting schemes?
Which of the following statements is false?
A. During the initial interview, the taxpayer who are interviewed may fill out the Form 4822.
Which of the following is not an actual method of valuation:
D. All above are valid methods of valuation
How much of a connection is there between the IRS and states regarding lifestyle audits and income reconstruction?
C. they communicate with each other both ways
What kind of evidence do the indirect methods of reconstructing income use?
D. circumstantial evidence
Which method is more preferable for IRS Agents to determine unreported income?
A. Direct method.
What kind of lifestyle change may give clues of fraud?
D. All of the above
Which of the following is NOT an indirect method used by the IRS to reconstruct a taxpayer’s income?
A. Out-of-pocket approach
Under which of the below methods would an IRS agent look at the increases and decreases in a taxpayer’s accounts at the end of the year, and is generally used when a taxpayer is spending income lavishly rather than purchasing assets or investments?
B. Source and application of funds method
Which would be a red flag of Bribery and Kickbacks:
D. All of above are red flags of Bribery and Kickbacks.
In indirect methods, the agents use conventional auditing techniques such as looking for:
E. None of the above.
What information does a Cash-T provide?
C. Understatement of income
When is the bank deposit method appropriate?
C. When most of the income is deposited in banks and expenses are paid by check
If represented by an attorney, an individual in question must be present at interviews with IRS. (T/F?)
False: Individual does not have to be present if attorney is present.
An indirect method should be used in all of the following situations except:
B. ) Looking for canceled checks of customers uses the direct method.
Direct methods of forensic audit approaches used by the IRS involve all of the following except:
D. Use economic reality and financial status techniques in which taxpayer’s finances are constructed through circumstantial evidence
The net worth method is a common indirect balance sheet method approach to estimating income. To use the net worth method, an IRS agent or forensic account must do all of the following except:
B. List the applications of funds first and then subtract the sources
Which of the following refers to indirect methods in Forensic Audit Approaches used by the IRS?
A. Use of economic reality and financial status techniques in which the taxpayer’s finances are reconstructed through circumstantial evidence.
Which of the following does not indicate obvious lifestyle changes that may indicate fraud and unreported income?
C. Eating Ramen Noodles everyday
Which is one of the major direct methods:
E. None of the above
Which is one of the six requirements for a valid contract?