Chapter 2: Tax Compliance, IRS and Tax Authorities

Question 0

What are the due dates for filing a tax return?

Answer 0

Individual taxpayers and partnerships is April 15th. Corporations filing date is the 15th, 3 months from the corporations year end.

Question 1

What are some of the taxpayer filing requirements?

Answer 1

Gross income
age
filing status

Question 2

What are the extensions that individuals, partnerships and corporations can apply for?

Answer 2

Individuals and corporations may file for a 6 month extension.
Partnerships can only file for a 5 month extension

Question 3

When are penalties and interest assessed against a return?

Answer 3

If an extension is applied for, any payments due to the IRS must be paid by April 15th or interest charges (up to 5% of the tax due) and penalties (up to 25% of the tax owed) are assessed by the IRS

Question 4

What is the statue of limitations?

Answer 4

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.

Question 5

What is the time line for the statute of limitations?

Answer 5

The statute of limitations ends three years from the either the date the tax return was actually filed or the tax returns original due date.

Question 6

Can the statute of limitations be extended past three years?

Answer 6

Yes. A six year statute of limitations applies to IRS assessments if the taxpayer omits items of gross income that exceed 25% of the gross income reported on the tax return. Fraudulent returns, or if the taxpayer fails to file a return, the statute of limitations remains open indefinitely.

Question 7

What is the Discriminant function system (DIF)?

Answer 7

a system that assigns a score to each tax return that represents the probability the tax liability on the tax return has been underreported. The higher the score the more likely underreporting has taken place

Question 8

What is the document perfection program?

Answer 8

a program under which all tax returns are checked for mathematical and tax calculation errors

Question 9

What is the information matching program?

Answer 9

a program that compares the taxpayer’s tax return to information submitted to the IRS from other taxpayers such as banks, employers and mortgage companies

Question 10

What is a correspondence examination?

Answer 10

the most common audit. This audit is conducted by mail and is generally limited to one or two items of interest on the tax return. This is the most common audit for individuals and is the least complex of the three audits

Question 11

What is an office examination?

Answer 11

This is the second most common audit. The taxpayers presence is requested at the local IRS office. These audits are broader in scope and more complex than correspondence examinations. This type of audit is more common for small businesses, sole proprietorships and higher income individuals

Question 12

What are field examinations?

Answer 12

This audit is the most complex but least common audit. This audit takes place at the place where the taxpayers documents are maintained, like their place of business. These audits can take months and even years to complete

Question 13

What is a 30 day letter?

Answer 13

This letter is issued after an audit giving the taxpayer the ability to (1) request a conference with an appeals officer or (2) agree to the proposed adjustment

Question 14

What is a 90 day letter?

Answer 14

This letter is sent out if an agreement is not reached at the appeals conference giving the taxpayer the ability to either (1) pay the proposed deficiency of (2) file a petition in the US Tax Court to hear the case

Question 15

In what courts can the taxpayer sue the IRS for refund of payment of an assessment?

Answer 15

The US District Court or the US Court of Federal Claims

Question 16

What are the significance of the US Tax Court?

Answer 16

This court is the only court whose judges are tax experts and hear only tax cases. The taxpayer does not have to pay the deficiency first for this court to hear the case. Also the taxpayer does not have the ability to appeal the decision made by this court

Question 17

Explain the significance of using either the US District Court of the US Court of Federal Claims?

Answer 17

The US District Court is the only court that provides for a trial jury. Decisions made by both the US District Court and the US Court of Federal claims can be appealed to a US Circuit Court. In order for the taxpayers case to be heard, the tax deficiency must be paid first.

Question 18

What is a writ of certiorari?

Answer 18

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

Question 19

What are primary authorities?

Answer 19

Official sources of the tax law generated by the legislative branch, judicial branch, and executive/administrative branh

Question 20

What are secondary authorities?

Answer 20

Unofficial tax authorities that interpret and explain the primary authorities, such as tax research services, tax articles from professional journals and law reviews, newsletters and textbooks

Question 21

What is the Internal Revenue Code?

Answer 21

The codified tax laws of the US. Code is frequently revised, there have only been three different codes since the Codes creation in 1939. (1939, 1954, 1986)
The internal revenue code is unique in that every other authority except tax treaties and the constitution can be seen as an interpretation of it

Question 22

What are the three legislative or statutory tax authorities?

Answer 22

The US Constitution, specifically the 16th amendment
Internal Revenue Code
Tax Treaties

Question 23

What are tax treaties?

Answer 23

Negotiated agreements between countries that describe the tax treatment of entities subject to tax in both countries. They are a statutory tax authority

Question 24

What does the judicial doctrine stare decisis mean?

Answer 24

States that a court will rule consistently with (a) its previous rulings, unless evolving interpretations of the tax law over time causes the court to overturn an earlier decision and (b) the rulings of higher courts with appellate jurisdiction

Question 25

What is the Golsen Rule?

Answer 25

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.

Question 26

What are regulations?

Answer 26

These are the Treasury Departments official interpretation of the Internal Revenue Code, have the highest authoritative weight and often contain examples of the application of the Code that may be particularly helpful to the tax reasearcher

Question 27

What are final regulations?

Answer 27

Regulations that represent the Treasury’s interpretations of the Code and have the most authoritative weight

Question 28

What are temporary regulations?

Answer 28

These regulations have a limited life (usually 3 years) but carry the same authoritative weight as final regulations

Question 29

What are proposed regulations?

Answer 29

All regulations start out as these. They allow for the public to comment on them. They do not carry the same authoritative weight as the other two regulations

Question 30

What is the purpose of interpretive regulations?

Answer 30

Represent the Treasury’s interpretation of the Code

Question 31

What is the purpose of procedural regulations?

Answer 31

These explain Treasury Department procedures as they relate to administering the Code

Question 32

What is the purpose of legislative regulations?

Answer 32

These regulations are issued when Congress specifically directs the Treasury Department to create regulations to address an issue in an area of law. In this case the Treasury is actually writing the law, not just interpreting the Code.

Question 33

What are revenue rulings?

Answer 33

second in authoritative weight after regulations. These rulings address the specific application of the COde and regulations to a specific factual situation.

Question 34

What are Revenue procedures?

Answer 34

second in administrative authoritative weight after regulations. Much more detailed than regulations and explain in greater detail IRS proactivce and procedures in administering the tax law.

Question 35

What are private letter rulings?

Answer 35

IRS pronouncements issued in response to a taxpayer request for a ruling on specific issues for the taxpayer. These are common for proposed transactions with potentially large tax implications. For the requesting taxpayer these rulings have very high authority.

Question 36

What are determination letters?

Answer 36

These are rulings requested by the taxpayer, issued by local IRS directors and are generally not controversial

Question 37

What are technical advice memorandums?

Answer 37

These are IRS rulings that are requested by an IRS agent usually during an audit for a completed transaction

Question 38

What is an issuance of acquiescence?

Answer 38

These are 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 with the court’s ruling, it simply means that the IRS will no longer litigate this issue

Question 39

What is an issue of nonacquiescence?

Answer 39

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

Question 40

What happens when the IRS losses a case in a district court?

Answer 40

They issue either an acquiescence (states the IRS will no longer litigate the issue) or nonacquiescence (IRS will continue to litigate the issue). Neither implies that the IRS agrees with the court’s findings, just that they will or will not continue to litigate the issue.

Question 41

What are the 5 steps in tax research?

Answer 41

(1) Understanding the facts
(2) Identify the Issues
(3) Locate Relevant authorities
(4) Analyze the tax authorities
(5) Document & Communicate research results

Question 42

What are the two basic types of facts and what do they mean?

Answer 42

Open facts: have not occurred yet, therefore can be altered resulting in very different tax consequences

Closed facts: have already occurred

Question 43

How do you determine the facts for a research questions?

Answer 43

Interview clients, speak with third parties such as attorneys and brokers, and review client documents such as contracts, prior tax returns, wills, trust documents, deeds, and corporate minutes. Also consider nontax factors, such as a clients personal values or objectives, as these often put constraints on tax planning strategies

Question 44

Whats the best method to identify tax issues?

Answer 44

Get a good understanding of the client’s facts. Then, combine your understanding of the facts with your knowledge of the tax law.

Question 45

What the the two basic types of tax services?

Answer 45

Annotated and Topical tax services

Question 46

What is an annotated tax service?

Answer 46

This tax service is arranged by Internal Revenue Code Sections. Two examples of these types of annotated tax services are the Commerce Clearing House’s Standard Federal Tax Reporter and Research Institute of America’s United States Tax Reporter

Question 47

What is a topical tax service?

Answer 47

This tax service is arranged by topic, such as taxable forms of income, tax-exempt income, and trade or business expenses. Examples of this type of tax service is BNA’s Tax Management Portfolios, CCH’s Tax Research Consultant, and RIA’s Federal Tax Coordinator

Question 48

What the two basic types of issues researchers will encounter when researching a problem?

Answer 48

Question of fact and Question of Law

Question 49

Question of fact hinges upon what?

Answer 49

The facts and circumstance of the taxpayers transactions

Question 50

Question of law hinges on what?

Answer 50

the interpretation of the law, such as interpreting a particular phrase in a code section

Question 51

What is a citator?

Answer 51

A research tool that allows you to check the status of several types of tax authorities; will review the history of the case to find out if it was appealed or overturned and to identify subsequent cases that cite the case

Question 52

What are the Statements on Standards for Tax Services (SSTS)?

Answer 52

standards of practice for tax professionals issued by the AICPA. There are 7 SSTS that describe the tax professional standards.

Question 53

What is substantial authority?

Answer 53

the standard used to determine whether a tax practitioner may recommend and a taxpayer may take a tax return position without being subject to IRS penalty under IRC 6694 and IRC 6662. Suggests that the probability that the taxpayer’s position is sustained upon audit or litigation is in the 35-40 percent range or above

Question 54

What is Circular 230?

Answer 54

Regulations issued by the IRS that govern tax practice and apply to all persons practicing before the IRS. There are three parts to this circular.

Question 55

What are civil penalties?

Answer 55

monetary penalties imposed when tax practitioners or taxpayers violate tax statutes without reasonable cause

Question 56

What are criminal penalties?

Answer 56

penalties commonly charged in tax evasion cases. they are imposed only after normal due process, including a trial. The standard of conviction and penalties are much higher