[cpaswag]

REG CPA question fraud
my two questions : 1) if irs agent opened case in years 1-3 would this case be valid 2) they say if fraud time can be extended but isn’t claiming personal as corporate a form of fraud/ lying?

In Year 6, an IRS agent completed an examination of a corporation’s Year 5 tax return and proposed an adjustment that will result in an increase in taxable income for each of Years 1 through 5. All returns were filed on the original due date. The proposed adjustment relates to the disallowance of corporate jet usage for personal reasons. The agent does not find the error to be fraudulent or substantial in nature. Which of the following statements regarding this adjustment is correct?

A.

The adjustment is improper because an agent may only propose adjustments to the year under examination.

IncorrectB.

The adjustment is proper because there is no statute of limitations for improperly claiming personal expenses as business expenses.

C.

The adjustment is proper because it relates to a change in accounting method, which can be made retroactively irrespective of the statute of limitations.

D.

The adjustment is improper because the statute of limitations has expired for several years of the adjustment.

EXPLANATION : Generally, the statute of limitations for the period to question tax returns is three years after the date the return is filed or the due date, whichever is later. In the case described, only Year 5 and Year 4 are clearly at risk, and Year 3 may be depending on the date the audit is completed. The time may be extended if the return is fraudulent or if unreported income is greater than 25% of the gross income reported. Neither of these conditions is present.