For the Following Tax Returns, Identify the Method the IRS

question 94

Essay

For the following tax returns, identify the method the IRS likely used to select the return for audit.
a. Dan made a mistake in adding his income on his tax return.
b. Juanita failed to report her salary from her 2ⁿᵈ job on her tax return.
c. Michael and Venita deducted a relatively large amount of travel expenses on their tax return for their business. The travel expense is large relative to other taxpayers in similar businesses with similar levels of income.
d. Paul and Melissa recently went through a very nasty divorce. One of the issues was Paul's less than forthright accounting of his income in determining the appropriate level of alimony.

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Definitions:

Labor Rate Variance

The difference between the actual labor rate paid and the standard labor rate expected, multiplied by the actual hours worked.

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the expected quantity, reflecting efficiency in material use.

Variable Overhead Efficiency Variance

The difference between the actual hours taken to produce something and the standard hours expected, multiplied by the variable overhead rate.

Materials Price Variance

The difference between the actual cost of materials and the expected cost multiplied by the quantity of materials used.