Question

1. Filing an Extension for your individual tax return before April 15th provides for what ability?

  

A. 6 month delay of tax audit

   

B. 12 month delay of tax reporting and Form 1040

   

C. 6 month delay of tax reporting of tax Form 1040 calculation

   

D. 6 month delay of tax due

   

E. 6 month delay of tax penalties

2. The constructive receipt doctrine:

  

A. causes income to be recognized after it is actually received.

   

B. causes income to be recognized before it is actually received.

   

C. is particularly restrictive for accrual-basis taxpayers.

   

D. applies equally to income and expenses.

Answer 1

1) The correct answer is C. 6 month delay of tax reporting of tax Form 1040 calculation.

If an individual wants to apply for extension, form 4868 is required to be filed by 15th april to seek extension of 6 months in filing the form 1040. This does not give an extension of tax payment, but only the filing of the return, which implies that tax has to be paid by due date otherwise interest penalties would be levied.

Reasons for other options to be incorrect:

A. Filing an extension does not mean delay of tax audit.

B. Extension can be for the maximum period of 6 months, 12 months extension is not allowed.

D. Tax due has to be padi by the due date, there is no extension for the payment of taxes.

E. Tax penalties would be levied if there is late payment of taxes, no relief from the tax payment or tax penalties.

2) The correct answer is B. causes income to be recognized before it is actually received. The Doctrine of Constructive Receipt is a taxation principle which implies that constructive income should be taxable even before it is actually received. Constructive receipt means amount which is made available to a person without any restrictions, that person has the ability to control or utilise the funds even if they are not actually received him.

Reasons for other options to be incorrect:

A. Constructive receipt doctrine causes income to be recognised before they are not received not after they are received.

C. Constructuve receipt Doctrine generally applies to people that uses the cash basis of accounting. It does not apply to the accrual method of accounting.

D. This doctine is applied on the income only.