For the Following Tax Returns, Identify the Method the IRS

question 85

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 thanforthright accounting of his income in determining the appropriate level of alimony.

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Definitions:

Information Problems

Issues arising from asymmetrical information between buyers and sellers, where one party has more or better information than the other, leading to suboptimal market outcomes.

Inefficient Outcomes

Situations in which resources are not allocated optimally, leading to lost potential value or benefits in an economy or system.

Public Sector

Part of the economy that is controlled by the government, including all public services and government-owned entities.

Principal-Agent Problem

A dilemma in which one party (the agent) may not act in the best interest of another party (the principal) who has delegated some decision-making authority to the agent.