03.01 Federal Tax Procedures Flashcards
Why are tax returns selected for examination?
Due to the probability that they will have an understated tax liability.
What are the most common types of tax audits?
Correspondence audit
Office audit
Field audit
Taxpayer compliance measurement program
Criminal investigation
What is a correspondence audit?
This is an audit conducted via mail. The IRS sends the taxpayer a letter requesting documentation to support the item(s) in question on the tax return.
What is an office audit?
An audit that takes place in the IRS office. The taxpayer is required to bring specific documentation and records for examination by the IRS. These audits are typically broader in scope and more complex than correspondence examinations.
What is a field audit?
A more in-depth review conducted at the taxpayer’s residence/place of business. Generally the broadest in scope and more complex than correspondence or office audits.
What is the taxpayer compliance measurement program?
This type of audit is triggered based on statistical sampling of tax returns to measure compliance with tax laws. Returns are selected for audit based on statistical criteria that may indicate noncompliance.
What is a criminal investigation?
An audit conducted when the IRS suspects fraud or tax evasion.
When will the IRS consider an offer in compromise?
The IRS will consider an offer in compromise if one of the following applies:
1. the amount owed, or whether is its owed, is in doubt
2. the taxpayer’s ability to pay the amount owed is in doubt
3. the taxpayer would suffer an economic hardship if required to pay the entire amount
4. the IRS determines that the case presents compelling reasons that are a sufficient basis for compromise.
What is the IRS tax deficiency appeals process?
IRS audit (finds tax deficiency) > agrees with audit > pay
IRS audit (finds tax deficiency) > disagrees with audit > 30 day letter > appeal hearing (deficiency upheld) > pay
IRS audit (finds tax deficiency) > disagrees with audit > 30 day letter > skip appeals process > notice of deficiency (90 day letter) > then either don’t pay and file petition, or pay and file petition to get refund
What are the three choices of courts that a taxpayer can use to pursue litigation over a tax matter against the IRS?
Tax Court; Court of Federal Claims; District Court.
What cases do the U.S. Tax Court hear?
U.S. Tax Court is composed of tax experts and only hears tax cases.
Hears cases related to income tax, estate tax, gift tax, and certain excise taxes.
Only court with a small claims division ($50k or less), but no appeals allowed.
Not required to pay the disputed amount before judiciary.
What cases do the U.S. District Courts hear?
U.S. District Courts are composed of generalists, not tax experts, and judges hear all types of legal matters.
Only tax trial court where a jury trial can be requested.
Must pay disputed deficiency and sue for refund.
Many different district courts throughout the country.
What cases do the U.S. Court of Federal Claims hear?
U.S. Court of Federal Claims is comprised of generalists, not tax experts.
Must pay disputed deficiency and sue for refund.
Will not hear a case involving a claim for refund of a penalty related to an abusive tax shelter or to aiding and abetting the understatement of tax on someone else’s return.
Only one court of 16 judges located in Washington D.C.
