Chapter 2 (Working with the Tax Law)

Question 1

1. statutory
2. administrative
3. judicial

Answer 1

Three Primary Sources of Tax Law

Question 2

These are official interpretations of the Internal Revenue Code (IRC), and give taxpayers insight into how the Code provisions will be enforced by the IRS.

Answer 2

Treasury Regulations

Question 3

Another administrative source of tax law comes from the Internal Revenue Service in the form of:
1. revenue rulings
2. private letter rulings
3. determination letters
4. revenue procedure

Answer 3

IRS

Question 4

These are based on a set of facts that are common to many taxpayers, and are issued to the public to give taxpayers insight into how the IRS will treat certain transactions

Answer 4

Revenue Rulings

Question 5

This is issued at the request of an individual taxpayer who would like to know how the IRS would treat an individual transaction that the taxpayer plans to engage in.

Answer 5

Private Letter Ruling

Question 6

This may be requested from the district director of the IRS if the taxpayer has already engaged in the transaction

Answer 6

Determination Letter

Question 7

This details internal practices and procedures within the IRS, and make important announcements to taxpayers.

Answer 7

Revenue Procedures

Question 8

Defined as an omission of more than 25 percent of the gross income reported on the tax return.

Answer 8

Substantial Omission

Question 9

1. Failure to File - 5% per month or part thereof to 25% maximum
2. Failure to Pay - 0.5% per month or part thereof to 25% maximum
3. Accuracy Related - 20% of underpayment to 30%*
4. Fraud - 75% of underpayment attributable to fraud

Answer 9

Summary of Penalties

Question 10

This is the most common type of audit today, which is a computer generated audit

Answer 10

Discriminant Inventory Function

Question 11

This is a special purpose court – it only hears tax matters.

Answer 11

U.S. Tax Court

Question 12

If the taxpayer would like to have a jury trial, the dispute must be brought to the (x)

Answer 12

U.S. District Court

Question 13

This court sits only in Washington, D.C., and unlike the Tax Court, the judges of the U.S. Court of Federal Claims do not go on circuit. Cases brought in front of this court must be litigated in Washington, D.C.

Answer 13

U.S. Court of Federal Claims