03 Federal Tax Procedures

Question 1

Which has priority, U.S. tax law or treaties?

Answer 1

Treaties between the U.S. and other countries generally override the tax provisions in the U.S. tax law or foreign tax law.

Question 2

What court of original jurisdiction does not require prepayment of the disputed tax?

Answer 2

U.S. Tax Court

Question 3

What types of regulations are specifically authorized by Congress?

Answer 3

Legislative regulations

Question 4

Which committee must tax bills begin with?

Answer 4

House Ways and Means Committee

Question 5

What types of regulations have the weight of law for only three years?

Answer 5

Temporary regulations

Question 6

What is the purpose of a 90-day letter?

Answer 6

The time that the taxpayer has to file a petition with the Tax Court once this letter is received

Question 7

What document describes the rules that one must meet to be eligible to practice before the Internal Revenue Service (IRS)?

Answer 7

Circular 230

Question 8

What is the purpose of tax Form 870-AD?

Answer 8

Provides the settlement of the appellate conference related to a tax dispute

Question 9

Describe the concept of offer in compromise.

Answer 9

Allows a taxpayer to settle a tax liability for less than the actual amount owed

Question 10

Form used to disclose a tax position?

Answer 10

Form 8275 or 8275-R.

Question 11

List the scenarios in which no underpayment penalty is charged for underpayment of taxes owed for individuals.

Answer 11

No penalty is imposed if the tax due with the return is less than $1,000.
No penalty is imposed if the tax payments during the year were at least 90% of current-year taxes or 100% of last year’s taxes. (Watch over $150,000 adjusted gross income exception.)

Question 12

List the various non-filing penalties a taxpayer may face.

Answer 12

5% per month of the tax due with the return
The maximum penalty is 25% of the tax due. The minimum penalty for returns not filed within 60 days of the due date is the lesser of $485 (2023), $510 (2024) or the amount of the tax due.
If the failure to file is fraudulent (intentional), the penalty is increased to 15% per month up to a maximum of 75% of the tax due with the return.

Question 13

A “substantial understatement” for a C corporation’s tax return exceeds:

Answer 13

The lesser of 10% of the tax (or, if greater, $10,000), or $10 million.

Question 14

A “substantial understatement” on an individual return exceeds:

Answer 14

The greater of 10% of the tax, or $5,000.

Question 15

What is the penalty for fraudulent understatement?

Answer 15

75% of understatement

Question 16

What is substantial authority?

Answer 16

Standard for undisclosed positions (≥ 40%)

Question 17

What is reasonable basis?

Answer 17

Standard for disclosed positions (≥ 20%)

Question 18

Form on which tax positions are disclosed?

Answer 18

Form 8275 or 8275-R

Question 19

How long should old tax returns be kept?

Answer 19

Seven years

Question 20

Two types of expenses that should be well documented

Answer 20

1. Charitable contributions
2. Business use of a car

Question 21

Penalty for late filing.

Answer 21

5% of net tax due per month (capped at 25%).

Question 22

Penalty for late paying.

Answer 22

0.5% of net tax due per month (capped at 25%)