ACC250 Chapter 2

Question 1

The IRS letter received after an audit that instructs the taxpayer that he has 30 days to either 1. request a conference with an appeals officer or 2. agreed to the proposed adjustment.

Answer 1

30-day letter

Question 2

The IRS letter received after an audit & receipt of the 30 -day letter that explains that the taxpayer has 90 days to either 1. pay the proposed deficiency or 2. file a petition in the U.S. Tax Court to hear the case. AKA statutory notice of deficiency.

Answer 2

90-day letter

Question 3

Issued after the IRS loses a trial-level or circuit court case when the IRS has decided to follow the court’s adverse ruling in the future. It does not mean that the IRS agrees w/ the ruling - just that IRS will no longer litigate issue.

Answer 3

acquiescence

Question 4

An IRS pronouncement that explains the background reasoning behind an IRS acquiescence or nonacquiescence.

Answer 4

action on decision

Question 5

A tax service arranged by code section. For each code section, this svc includes the code section’ a listing of the code section history; copies of congressional committee reports that explain changes to the code section; a copy of all the regulations issued for the specific code section; the svc’s unofficial explanation of the code section; and brief summaries (annotations) of relevant court cases, revenue rulings, revenue procedures, and letter rulings that address issues specific to the code section.

Answer 5

annotated tax service

Question 6

Regulations issued by the IRS that govern tax practice and apply to all persons practicing before the IRS. Three parts: Subpart A: describes who may practice before IRS & what that means, Subpart B: describes duties & restrictions applying to individuals governed by the circular, Subpart C: explains disciplinary proceedings for practitioners violating its provisions.

Answer 6

Circular 230

Question 7

A research tool allowing one to check the status of several types of tax authorities. This can be used to review the history of a case to find out its outcome & what other cases cite the initial case. Can also be used to check the status of revenue rulings, revenue procedures, and other IRS pronouncements.

Answer 7

citator

Question 8

Monetary penalties imposed when tax practitioners or taxpayers violate tax statutes without reasonable cause (ex. negligence, intentional disregard, willful disobedience, outright fraud).

Answer 8

civil penalties

Question 9

An IRS audit conducted by mail & generally limited to one or two items on the taxpayer’s return. Generally the most common among audits, narrowest in scope, and least complex. Typically a request for supporting documentation.

Answer 9

correspondence examination

Question 10

Penalties commonly charged in tax evasion cases. They are imposed only after normal due process, incl. trial. Standard of conviction is beyond a reasonable doubt. Penalties up to $100,000 plus prison sentences.

Answer 10

criminal penalties

Question 11

Rulings requested by the taxpayer, issued by local IRS directors & generally not controversial.

Answer 11

determination letters

Question 12

Assigns a score to each tax return that represents the probability that the tax liability on the return has been underreported (higher score = higher likelihood). IRS derives weights assigned to specific tax return attributes from historical IRS audit adjustment data. These weights are used to score tax returns. Higher scores are reviewed to determine if audit is best course of action.

Answer 12

DIF (Discriminant Function) System

Question 13

A program under which all tax returns are checked for mathematical & tax calculation errors.

Answer 13

document perfection program

Question 14

The least common audit. IRS conducts these at a taxpayer’s place of business or location of books/records. Generally broadest in scope, most complex. Can tax months & usually limited to business returns or most complex individual returns.

Answer 14

field examination

Question 15

Regulations that have been issued in final form, and thus, until revoked, represent the Treasury’s interpretation of the Code.

Answer 15

final regulations

Question 16

The rule that states that the U.S. Tax court will abide by the circuit court’s rulings that has appellate jurisdiction for a case.

Answer 16

Golsen Rule

Question 17

A program that compares the taxpayer’s tax return to information submitted to the IRS from other taxpayers. Includes items such as wages, dividend income, interest income, etc.

Answer 17

information matching program

Question 18

The codified tax laws of the US. Although it is frequently revised, there have only been three different ones since it was created in 1939.

Answer 18

Internal Revenue Code of 1986

Question 19

The most common regulation. Represent the Treasury’s interpretation of the Code and are issued under the Treasury’s general authority to interpret the Code.

Answer 19

interpretative regulations

Question 20

The rarest type of regulation. Issued when Congress specifically directs the Treasury to create regulations to address an issue in an area of law. Treasury is actually writing the law in these cases instead of interpreting Code. More authoritative weight than interpretative and procedural regulations.

Answer 20

legislative regulations

Question 21

Issued after the IRS loses a trial-level or circuit court case when the IRS has decided to continue to litigate this issue.

Answer 21

nonacquiescence

Question 22

The second most common audit. IRS conducts these at the local IRS office. Small business, taxpayers operating sole proprietorships, middle-to high- income individual taxpayers most likely candidates.

Answer 22

office examination

Question 23

Official sources of the tax law generated by the legislative branch, judicial branch, or executive/administrative branch.

Answer 23

primary authority

Question 24

IRS pronouncements issued in response to a taxpayer request for a ruling on specific issues for the taxpayer. Common for proposed transactions w/ potentially larger tax implications. Very high authority for requesting taxpayer. Little authoritative weight for other taxpayers.

Answer 24

private letter rulings

Question 25

Regulations that explain Treasury Department procedures as they relate to administering the Code.

Answer 25

procedural regulations

Question 26

Regulations issued in proposed form; they do not carry the same authoritative weight as temporary or final regulations. All regulations are first issued in this form to allow public comment on them.

Answer 26

proposed regulations

Question 27

A research question that hinges upon the facts and circumstances of the taxpayer’s transaction.

Answer 27

question of fact

Question 28

A research question that hinges upon the interpretation of the law, such as interpreting a particular phrase in a code section.

Answer 28

question of law

Question 29

The Treasury Department’s official interpretation of the IRS Code. The highest authority issued by the IRS.

Answer 29

regulations

Question 30

Second in administrative authoritative weight after regulations. These are much more detailed than regulations and explain in greater detail IRS practice and procedures in administering the tax law. These have same authoritative weight as revenue rulings.

Answer 30

revenue procedures

Question 31

Second in administrative authoritative weight after regulations. These address the specific application of the Code and regulations to a specific factual situation. Same authoritative weight as revenue rulings.

Answer 31

revenue rulings

Question 32

Unofficial tax authorities that interpret and explain the primary authorities (ex. tax research svcs, tax articles, newsletters, and textbooks). May be very helpful in understanding a tax issue, but hold little weight in a tax dispute (unofficial authorities).

Answer 32

secondary authority

Question 33

A doctrine meaning that a court will rule consistently with (a) its previous rulings (unless overturning previous decision) and (b) the rulings of higher courts with appellate jurisdiction.

Answer 33

stare decisis

Question 34

Standards of practice for tax professionals issued by the AICP. There are currently seven describing tax professional standards.

Answer 34

Statements on Standards for Tax Services (SSTS)

Question 35

Defines the period in which the taxpayer can file an amended tax return or the IRS can assess a tax deficiency for a specific tax year. Generally ends three years from the later of 1. the date the tax return was actually filed or 2. the tax return’s original due date.

Answer 35

statute of limitations

Question 36

The standard used to determine whether a tax practitioner may recommend and a taxpayer may tax a tax return position w/out being subject to IRS penalty under IRC6694 and IRC6662, respectively. Suggests that the probability that the taxpayer’s position is sustained upon audit or litigation is in the 35 to 40% range or above.

Answer 36

substantial authority

Question 37

Agreements negotiated between countries that describe the tax treatment of entities subject to tax in both countries.

Answer 37

tax treaties

Question 38

Ruling issued by the IRS national office, requested by an IRS agent, and generally for a completed transaction.

Answer 38

technical advice memorandum

Question 39

Regulations issued with a limited life (three years). Carrying same authoritative weight as final regulations.

Answer 39

temporary regulations

Question 40

A tax service arranged by subject. For each subject, these services identify tax issues relating to each subject and then explain and cite authorities relevant to the issue.

Answer 40

topical tax service

Question 41

The first level of appeals courts after the trial-level courts. There are 13 of these - 1 Federal and 12 Circuit.

Answer 41

U.S. Circuit Courts of Appeal

Question 42

The founding law of the United States, ratified in 1789.

Answer 42

U.S. Constitution

Question 43

One of the 3 trial-level courts. It is a national court that only hears monetary claims against the federal government.

Answer 43

U.S. Court of Federal Claims

Question 44

One of three trial-level courts. It is the only court that allows a jury trial. At least one of these in each state.

Answer 44

U.S. District Court

Question 45

The highest court in the U.S. Hears only a few tax cases a year with great significance to a broad cross-section of taxpayers. Most of the time, they refuse to hear tax cases.

Answer 45

U.S. Supreme Court

Question 46

A national court that only hears tax cases and where the judges are tax experts. The only court that allows tax cases to be heard BEFORE the taxpayer pays the disputed liability and the only court with a small claims division ($50k or less).

Answer 46

U.S. Tax Court

Question 47

A document filed to request the U.S. Supreme Court to hear a case.

Answer 47

writ of certiorari