Chapters 6&7

Question 1

What is the difference between tax evasion and tax avoidance?

Answer 1

Tax evasion is illegal avoidance of taxes; tax avoidance is the legal minimization of tax liability.

Question 2

Are illegal income sources taxable?

Answer 2

Yes, receipts from embezzlement, fraud, extortion, and other illegal income are taxable in the year stolen.

Question 3

What are the two main forensic audit approaches used by the IRS?

Answer 3

Direct methods and indirect methods.

Question 4

What is the direct method in IRS audits?

Answer 4

Probing missing income using specific evidence like canceled checks, deeds, and public records.

Question 5

What is the indirect method in IRS audits?

Answer 5

Reconstructing finances using circumstantial evidence like lifestyle probes and financial status.

Question 6

When can indirect methods be used?

Answer 6

When records are inadequate, income is omitted, or expenses exceed reported income without clear explanation.

Question 7

What are common clues in lifestyle probes?

Answer 7

Lavish homes, luxury cars, private schools, exotic vacations, expensive clothes/jewelry.

Question 8

What is the Cash T method?

Answer 8

Analysis of all cash received and spent, identifying unexplained excess as potential unreported income.

Question 9

What is the Source and Application of Funds method?

Answer 9

Comparing applications (spending) to sources (income); excess applications may indicate unreported income.

Question 10

What is the Net Worth method?

Answer 10

Comparing beginning and ending net worth, plus living expenses, to identify unreported income.

Question 11

What is the Bank Deposit method?

Answer 11

Examining deposits to reconstruct gross taxable receipts.

Question 12

What are possible explanations for excess income?

Answer 12

Cash hoard, loans, inheritance, gifts.

Question 13

What is contract and procurement fraud?

Answer 13

Fraud when a party knowingly misleads with intent to deceive or defraud in a contract.

Question 14

What is a bribery/kickback scheme?

Answer 14

Exchange of something of value (cash, gifts) for a benefit (contracts, loans, grades, legislation).

Question 15

What is money laundering?

Answer 15

Concealing the origin of funds to make them usable without legal restrictions or penalties.

Question 16

What are the three steps of money laundering?

Answer 16

Placement, layering, integration.

Question 17

What tools do banks use to identify money laundering?

Answer 17

Monitoring software, Currency Transaction Reports (CTR), Suspicious Activity Reports (SAR), know-your-customer policies.

Question 18

What are some money laundering workarounds?

Answer 18

Shell companies, cash-based businesses, smurfing, overseas accounts, charities.

Question 19

What are the main U.S. laws on money laundering?

Answer 19

Title 18 U.S.C. §1956 and §1957.

Question 20

What was the purpose of the USA PATRIOT Act of 2001?

Answer 20

Strengthen anti-money laundering, improve surveillance, tighten immigration laws, and fight terrorism.

Question 21

What are key USA PATRIOT Act requirements for banks?

Answer 21

Anti-money laundering programs, compliance officers, customer identity verification, training, independent audits.

Question 22

What are newer tools used in money laundering?

Answer 22

Cryptocurrency, hawalas, prepaid cards, offshore banks, virtual worlds, black market currency exchanges.

Question 23

IRS agents have unlimited discretion to use an indirect method to determine unreported income

Answer 23

False

Question 24

A taxpayer has the burden of proving the existence of a cash hoard

Answer 24

True

Question 25

IRS agents often use an expenditure approach when a taxpayer is purchasing assets rather than spending lavishly

Answer 25

True

Question 26

One can be convicted of money laundering for laundering money represented to be the proceeds from a specified unlawful activity, even if the funds are not actually proceeds from a specified unlawful activity

Answer 26

True

Question 27

The indirect method should be used when

Answer 27

A taxpayer has inadequate books and records

Question 28

Which federal statute for charging money laundering is easier to prove

Answer 28

Title 18, USC Section 1957

Question 29

All money laundering techniques have the overall objective to disguise the origin of the funds

Answer 29

True

Question 30

A number of universities were caught illegally using money laundering techniques to convert federal grant monies into discretionary spending

Answer 30

False

Question 31

The US department of treasury requires banks to file CTRs about transactions

Answer 31

Above $10,000 and SARS for transactions as noticed by bank personnel

Question 32

Smurfing is

Answer 32

a money laundering technique in which conderates of the money launderer deposit random amounts of less than $10,000 into variously named accounts at a number of different banks

Question 33

A first step in a money laundering operation is to

Answer 33

Deposit illegal money into the banking system

Question 34

Title III of the USA Patriot Act of 2001 amended which statutes?

Answer 34

Bank Secrecy Act of 1970 Money Laundering Control Act of 1986

Question 35

In the money laundering process, layering is

Answer 35

Transferring monies from one bank account to another

Question 36

Structuring can refer to the process of

Answer 36

Sequencing a series of cash withdrawals that fall below the $10,000 criteria to trick the financial institution into not reporting the withdrawals to the federal authorities

Question 37

A hawala is a form of an underground banking system

Answer 37

That allows for the transfer of funds between individuals who record the transactions and which are conducted off the grid

Question 38

Blockchain is essentially a

Answer 38

Ledger system

Question 39

Car washes and casinos are businesses that are attractive operations for money laundering

Answer 39

True

Question 40

Rita Crundwell

Answer 40

Did not serve her entire sentence