106 MCQ Flashcards
Some were saved in the 103 deck
At what level must all tax litigation start?
Criminal court
Civil court
Adjudication court
Trial court
Trial court
All tax litigation must start at the trial court level. Tax Court, U.S. District Court, and U.S. Court of Federal Claims are the three courts where federal tax disputes begin.
A routine review of a received return by the IRS looks for all of the following except:
failure to report a 1099.
failure to calculate the math correctly.
failure of the taxpayer to sign the return.
failure to submit a tax return.
failure to submit a tax return.
WATCH OUT. I keep doing the same thing. I figure out the correct answer, but choose te wrong answer, especially when it is an except for question. I also do it when I quickly choose the answer after my decision. I need to slow down and check my chosen answer.
A routine review cannot be performed on a tax return if one has not been submitted to the IRS. Therefore, the IRS looks to make sure the tax return has been signed, all items have been reported, and there are no mathematical or clerical errors.
A statutory notice of deficiency explains that the taxpayer has 90 days to either pay the deficiency or else to file a:
petition with the taxpayer’s U.S. District Court.
protest and request a conference with an appeals officer.
claim for refund.
petition with the U.S. Tax Court.
petition with the U.S. Tax Court.
At the conclusion of an examination by the IRS, the tax auditor or revenue agent provides the taxpayer with any proposed adjustments of tax liability and any tax balance due. If the taxpayer does not agree with the adjustments, the taxpayer will receive a letter notifying them of the right to appeal the proposed adjustment to the IRS Appeals Office within a 30-day period. If an appeal is not requested, the taxpayer is issued a Notice of Deficiency (90-day letter), which gives them 90 days in which to file a U.S. Tax Court petition.
A taxpayer received a notice of deficiency from the IRS. If the tax underpayment is not the result of the taxpayer’s mathematical or clerical error, how long does the taxpayer have to file a petition with the Tax Court for a determination of the deficiency?
A If the notice is addressed to a taxpayer outside of the United States, 120 days from the mailing date of the notice.
B Sixty days from the mailing date of the notice if the notice is not addressed to a taxpayer outside of the United States.
C If the taxpayer has filed for bankruptcy under Chapter 11, 150 days from the mailing date of the notice.
D Ninety days from the mailing date of the notice if the notice is not addressed to a taxpayer outside of the United States.
Ninety days from the mailing date of the notice if the notice is not addressed to a taxpayer outside of the United States.
A taxpayer received a notice of deficiency from the IRS. If the tax underpayment is not the result of the taxpayer’s mathematical or clerical error, the taxpayer has ninety days from the mailing date of the notice to file a petition. The taxpayer’s address must be listed in the US.
A taxpayer received a 90-day letter proposing a deficiency. The taxpayer challenged the proposed deficiency in the Small Cases Division of the U.S. Tax Court. If the taxpayer loses the case, then the decision is:
appealable to the regular division of the U.S. Tax Court.
appealable to the U.S. District Court if the deficiency is paid.
appealable to the U.S. Court of Federal Claims if the deficiency is paid.
not appealable.
not appealable.
A small tax case (“S case”) tax dispute cannot exceed $50,000 for any one tax year. The taxpayer must request the S case specifically when filing in tax court.
There are several advantages in filing an S case:
- Taking the case to court without paying the questioned tax (as opposed to other courts that require payment first)
- Many locations throughout the country (Other tax courts have a minimal presence throughout the United States.)
- Less formal pretrial and trial procedures that allow the taxpayer to represent themselves, saving legal fees
- S case judges are more lenient in the acceptance of evidence provided by the taxpayer.
However, with the advantages, there is a potential disadvantage of not being able to appeal the decision once the case is decided. Neither the taxpayer nor the IRS may appeal.
A taxpayer received a 90-day letter proposing a deficiency of $28,000. The taxpayer’s CPA told the taxpayer that a client with similar circumstances successfully sustained in the U.S. Tax Court having elected the small case procedure. If the taxpayer decides to file a petition with the U.S. Tax Court, what is the significance of the success of the CPA’s other client in sustaining the position under the small case procedure?
There is little significance since decisions in the U.S. Tax Court tried under small case procedures lack precedential value.
The decision is significant because it can be used as a precedent for other taxpayers’ appeals to the Small Claims Division, but not to the formal U.S. Tax Court.
The decision is significant because it can be used as a precedent in an appeal to the U.S. District Court, but only if a taxpayer pays the deficiency prior to commencing an appeal.
The decision is significant because it can be used as a precedent for the taxpayer’s appeal in any proceeding in the U.S. Tax Court provided that the taxpayer pays the deficiency prior to commencing an appeal.
There is little significance since decisions in the U.S. Tax Court tried under small case procedures lack precedential value.
Cases tried in the Small Cases Division of the US Tax Court do not set precedent for other court decisions. Cases tried in other courts may set precedent.
The Small Claims Division of the U.S. Tax Court handles tax disputes for an amount less than $50,000. The Small Claims Division results in speedy judgments with simplified procedures and taxpayers can represent themselves without an attorney. However, the decisions of the Small Claims Division are not precedents. As such, if the taxpayer decides to file a petition with the U.S. Tax Court there is a chance that the U.S. Tax Court can reject the position even if similar circumstances resulted in the position being sustained by Small Claims Division because their decisions lack precedential value.
In certain tax disputes involving $50,000 or less, taxpayers may elect to have their case conducted under the Court’s simplified small tax case (“S case”) procedure. Trials using the small tax case election generally are less formal and result in a speedier disposition.
However, small tax cases are not appealable. IRC Section 7463(b) provides that a decision in an S case “shall not be reviewed in any other court.” Neither the taxpayer nor the IRS can appeal a decision in an S case.
Surgent did not address the question.
CHATGPT
When it is stated that decisions in the U.S. Tax Court tried under small case procedures lack precedential value, it means that the outcomes and rulings in these cases do not set a legal precedent that must be followed in future tax cases. In other words, these decisions do not serve as authoritative guidance or established legal principles that other taxpayers or the IRS must adhere to in similar situations.
Small case procedures in the U.S. Tax Court are typically used for relatively simple and straightforward cases involving smaller amounts of money. These cases are resolved more informally and are not intended to create binding legal precedents. As a result, the decisions made in small case procedure cases do not have the same level of importance or influence on future tax cases as decisions made in regular U.S. Tax Court cases.
In contrast, decisions in regular U.S. Tax Court cases can have precedential value and may be cited as legal authority in other tax disputes, providing guidance on how similar issues should be resolved.
An IRS agent has just completed an examination of a corporation and issued a “no change” report. Which of the following statements about that situation is correct?
The IRS may not examine any other tax return of the corporation for a period of one year.
The taxpayer may not amend the tax return for that taxable year.
The IRS may not reopen the examination.
The IRS generally does not reopen the examination except in cases involving fraud or other similar misrepresentation.
The IRS generally does not reopen the examination except in cases involving fraud or other similar misrepresentation.
The IRS examines some federal tax returns to determine if income, expenses, and credits are being reported accurately. Once an examination is concluded and the taxpayer agrees, the case will generally not be reopened unless there has been fraud or misrepresentation of a material fact.
When an IRS agent completes an examination of a corporation and issues a “no change” report, it means that, after reviewing the corporation’s tax return, the IRS did not find any significant errors, discrepancies, or issues that require adjustments to the reported tax liability. In such cases, the IRS typically accepts the tax return as filed.
While the IRS generally does not reopen examinations after issuing a “no change” report for routine compliance matters, they may do so in exceptional circumstances, such as if there is evidence of fraud or significant misrepresentation on the part of the taxpayer. In cases involving fraud or other similar issues, the IRS may reopen the examination and take further action.
It’s important to note that the IRS has certain time limits for conducting examinations and making adjustments to tax returns, which can vary depending on the circumstances and the type of taxes involved. Taxpayers should always ensure that their tax returns are accurate and complete to avoid potential issues with the IRS.
IRS Publication 3498
An individual taxpayer rejected the IRS examiner’s findings in an audit of the taxpayer’s tax return. What will the IRS do in response to the taxpayer’s rejection?
Issue a 30-day letter
Begin immediate collection action
Issue a statutory notice of deficiency
Refer the case to the IRS Independent Office of Appeals
Issue a 30-day letter
Federal income taxes to IRS are paid based on the voluntary self-assessment of taxes.
IRS audit process is part of the enforcement system which ensure that this voluntary assessment and payment is actually occurring.
Once the IRS Audit is completed, IRS examiner may accept the return as is or recommend changes, If changes are recommended and agreement is reached, the taxpayer would receive a bill for any additional taxes and interest, or a check for any refund.
However, if the agreement is not reached and the individual taxpayer rejected the IRS examiner’s findings, IRS will send the taxpayer copy of the examination report and a Preliminary Notice i.e. 30-day letter which implies that the taxpayer has 30 days to accept the deficiency or request an administrative appeal with an appeals officer.
“Issue a 30-day letter” is correct. The first step in the process entails the taxpayer receiving a letter that explains the balance due and demands payment in full. This letter will include the amount of the tax, plus any penalties and interest accrued on the taxpayer’s unpaid balance from the date the tax was due. The unpaid balance is subject to interest that compounds daily and a monthly late payment penalty.
“Begin immediate collection action” is incorrect. The system is designed to afford the taxpayer due process and an opportunity to appeal the decision before the IRS or Tax Court.
“Issue a statutory notice of deficiency” is incorrect. This step would only be undertaken, if necessary, after the 30-day letter has been issued.
“Refer the case to the IRS Independent Office of Appeals” is incorrect. This action would only occur after the 30-day letter has been issued and other criteria have been met.
Authorities
IRS Topic 201
An IRS agent has sent a 30-day letter reflecting a proposed adjustment to increase a client’s taxable income in three prior years. The CPA and the client have reviewed the proposed changes and agree with the proposed adjustment. What would be the CPA’s most appropriate recommendation to the client?
Accept the proposed IRS changes and pay any deficiency
Pay the tax, then file an appeal with the IRS Appeals Division
File an offer in compromise
File an amended federal tax return along with payment of any deficiency
Accept the proposed IRS changes and pay any deficiency
The term “30-day letter” refers to a notice sent to taxpayers explaining proposed audit adjustments to their income tax return, as well as their options if they don’t agree with the auditor’s findings. The letter is referred to as a 30-day letter because taxpayers have 30 days to agree with the finding or file an appeal. An IRS appeals officer will contact the taxpayer to set a time and place for an appellate conference in response to an appeal.
If the taxpayer agrees with the adjustments, he or she will sign an IRS Form 870 (Waiv Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment) and pay the deficiency. By signing this form, the taxpayer waives the right to go to the IRS Appeals Division.
In the U.S. Tax Court, where may cases be heard?
In Washington, D.C., only
In the state of the defendant only
In various cities across the United States
In the state of the IRS office to which the defendant mailed the original tax forms
In various cities across the United States
Although the U.S. Tax Court is located in Washington, D.C., judges travel to different locations. There is a “Request for Place of Trial” form that must be submitted.
Some of the 104 MCQs are in the 103 deck.
WORK ON THIS
What is the Appeals Division of the IRS?
A division of the IRS which settles cases only if the amount in dispute is more than $25,000
A division of the IRS which settles disputes based on the hazards of litigation
A division of the IRS which settles cases only if the amount in dispute is $25,000 or less
There is no Appeals Division of the IRS.
A division of the IRS which settles disputes based on the hazards of litigation
The Appeals Division has the discretion to settle cases based on the hazards of litigation, recognizing that all cases cannot go to court. If the proposed tax deficiency is $25,000 or less, the taxpayer only has to file a small case request; if the total amount of proposed adjustment is over $25,000, a formal written brief is required.
IRS Publication 556
What is the Appeals Division of the IRS?
A division of the IRS which settles disputes based on the hazards of litigation
A division of the IRS which settles cases only if the amount in dispute is $25,000 or less
A division of the IRS which settles cases only if the amount in dispute is more than $25,000
There is no Appeals Division of the IRS.
A division of the IRS which settles disputes based on the hazards of litigation
The Appeals Division has the discretion to settle cases based on the hazards of litigation, recognizing that all cases cannot go to court. If the proposed tax deficiency is $25,000 or less, the taxpayer only has to file a small case request; if the total amount of proposed adjustment is over $25,000, a formal written brief is required.
The Appeals Division of the IRS, often referred to simply as IRS Appeals, is a separate and independent branch within the Internal Revenue Service (IRS). Its primary function is to resolve tax disputes between taxpayers and the IRS in a fair and impartial manner, without the need for costly and time-consuming litigation in the courts.
Reference
4131.07
Authorities
IRS Publication 556
What is the definition of a writ of certiorari?
A petition for the Supreme Court to review a lower court’s decision
A petition for a lower court to review the Supreme Court’s decision
The Supreme Court’s decision to hear an appeal from a lower court
The Supreme Court’s denial to hear an appeal from a lower court
**A petition for the Supreme Court to review a lower court’s decision
**
A writ of certiorari is a petition from the taxpayer or government asking the Supreme Court to review the decision of a lower court. In a tax case, such a decision will usually involve a case in which the Courts of Appeals have issued conflicting opinions about the case, or a case that concerns a large number of taxpayers or a large amount of tax revenue.
A writ of certiorari is a legal order issued by a higher court to a lower court to review the lower court’s judgment for legal errors and to examine the record of the lower court’s proceedings. This term is most commonly associated with the United States Supreme Court, where it serves as a discretionary tool allowing the Supreme Court to choose which cases it will hear. The process involves the higher court (Supreme Court) reviewing and potentially overturning the lower court’s decision if it finds that errors were made that could have affected the outcome of the case.
The issuance of a writ of certiorari means that the Supreme Court has agreed to hear the appeal. However, obtaining a writ does not imply that the court has made any decision regarding the merits of the case. Instead, it only means that the Court has decided to review the decisions of the lower courts. The criteria for granting a writ of certiorari include resolving conflicting decisions among different lower courts, addressing an important question of federal law, or correcting a serious injustice. The Supreme Court receives thousands of petitions for a writ of certiorari each year but grants and hears only a small percentage of them, making the process highly selective.
Question #100734
What is the extent of the hearing authority of the United States Tax Court?
Only federal tax disputes
Only federal tax disputes of $50,000 or less
Only federal tax disputes of more than $50,000
Only income tax disputes
Only federal tax disputes
The United States Tax Court has broad jurisdiction over federal tax disputes only. It is a deficiency court, meaning that the taxpayer does not have to pay the tax and sue for a refund. The taxpayer pays only if he loses (and must pay, in addition to the tax, interest and sometimes penalties).
