NEW YORK TAX AUDITOR LICENSING EXAM
QUESTIONS AND CORRECT ANSWERS (VERIFIED
ANSWERS) Q&A 2026|INSTANT DOWNLOAD PDF
1. What is the primary purpose of a tax audit?
A. Increase taxpayer refunds
B. Ensure compliance with tax laws
C. Reduce government spending
D. Eliminate tax preparation services
Correct answer: B
Rationale: A tax audit verifies accuracy and compliance with tax
laws.
2. Which organization enforces federal tax laws in the U.S.?
A. FBI
B. IRS
C. SEC
D. FDIC
Correct answer: B
Rationale: The Internal Revenue Service enforces tax
regulations.
3. What is taxable income?
,A. Gross income only
B. Income before deductions
C. Income after allowable deductions
D. Only wages earned
Correct answer: C
Rationale: Taxable income is gross income minus deductions.
4. Which form is commonly used for individual income tax
filing?
A. W-2
B. 1099
C. 1040
D. 941
Correct answer: C
Rationale: Form 1040 is the standard individual tax return.
5. What does an audit trail provide?
A. Marketing history
B. Record of financial transactions
C. Employee attendance
D. Bank loan history
Correct answer: B
Rationale: It tracks all financial activity for verification.
,6. Which is considered a red flag in tax audits?
A. Proper documentation
B. Consistent income reporting
C. Large unexplained deductions
D. Timely filing
Correct answer: C
Rationale: Large unexplained deductions may indicate fraud.
7. What is the statute of limitations for most IRS audits?
A. 1 year
B. 3 years
C. 5 years
D. 10 years
Correct answer: B
Rationale: Typically 3 years from filing date.
8. What is depreciation?
A. Increase in asset value
B. Tax penalty
C. Allocation of asset cost over time
D. Interest expense
Correct answer: C
Rationale: Depreciation spreads asset cost over useful life.
, 9. Which tax is based on income earned?
A. Sales tax
B. Excise tax
C. Income tax
D. Property tax
Correct answer: C
Rationale: Income tax is based on earnings.
10. What is a W-2 form?
A. Business tax return
B. Employee wage statement
C. Contractor invoice
D. Bank statement
Correct answer: B
Rationale: Reports employee wages and tax withholdings.
11. What is materiality in auditing?
A. Physical weight of documents
B. Importance of financial information
C. Tax payment deadline
D. Audit location
QUESTIONS AND CORRECT ANSWERS (VERIFIED
ANSWERS) Q&A 2026|INSTANT DOWNLOAD PDF
1. What is the primary purpose of a tax audit?
A. Increase taxpayer refunds
B. Ensure compliance with tax laws
C. Reduce government spending
D. Eliminate tax preparation services
Correct answer: B
Rationale: A tax audit verifies accuracy and compliance with tax
laws.
2. Which organization enforces federal tax laws in the U.S.?
A. FBI
B. IRS
C. SEC
D. FDIC
Correct answer: B
Rationale: The Internal Revenue Service enforces tax
regulations.
3. What is taxable income?
,A. Gross income only
B. Income before deductions
C. Income after allowable deductions
D. Only wages earned
Correct answer: C
Rationale: Taxable income is gross income minus deductions.
4. Which form is commonly used for individual income tax
filing?
A. W-2
B. 1099
C. 1040
D. 941
Correct answer: C
Rationale: Form 1040 is the standard individual tax return.
5. What does an audit trail provide?
A. Marketing history
B. Record of financial transactions
C. Employee attendance
D. Bank loan history
Correct answer: B
Rationale: It tracks all financial activity for verification.
,6. Which is considered a red flag in tax audits?
A. Proper documentation
B. Consistent income reporting
C. Large unexplained deductions
D. Timely filing
Correct answer: C
Rationale: Large unexplained deductions may indicate fraud.
7. What is the statute of limitations for most IRS audits?
A. 1 year
B. 3 years
C. 5 years
D. 10 years
Correct answer: B
Rationale: Typically 3 years from filing date.
8. What is depreciation?
A. Increase in asset value
B. Tax penalty
C. Allocation of asset cost over time
D. Interest expense
Correct answer: C
Rationale: Depreciation spreads asset cost over useful life.
, 9. Which tax is based on income earned?
A. Sales tax
B. Excise tax
C. Income tax
D. Property tax
Correct answer: C
Rationale: Income tax is based on earnings.
10. What is a W-2 form?
A. Business tax return
B. Employee wage statement
C. Contractor invoice
D. Bank statement
Correct answer: B
Rationale: Reports employee wages and tax withholdings.
11. What is materiality in auditing?
A. Physical weight of documents
B. Importance of financial information
C. Tax payment deadline
D. Audit location
