Filing Requirements & Preparer Penalties

Question 1

Exceptions to the individual tax penalty

Answer 1

1. If WH and estimated payments totaled at least 100% of PY tax liability (unless more than 150,000 of taxable income in PY, then 110%)
2. Annualized income- cumulative payments for each quarter cover tax on income to date (continue at same rate)
3. Payments cover at least 90% of current tax laibility

Question 2

When are corporate estimated tax payments due?

Answer 2

the 15th day of the 4, 6, 9, and 12 month

Question 3

What are the exceptions to tax penalties for corps

Answer 3

Small balance- total underpayment less than 500
Annualized income- installments each quarter cover tax on income to date (total income be in proportion with income to date)
Seasonal method- same as above, assuming total income will bear same relationship to income as it has previous 3 years
Payments = at least 100% of PY tax liability (UNLESS:there was no tax liab in PY, or corp had tax income > $1 million in any of 3 preceding tax years)

Question 4

Accuracy related penaly

Answer 4

20% of the underpayment applies if underpayment of tax is attributable to negligence or disregard of rules/regulations, substantial overstatement, etc

Question 5

Offers in compromise and conditions

Answer 5

When taxpayer doesn’t agree with exam, to obtain reduction in tax owed must satisfy one of following:

1. Amount owed, or whether it’s owed is in doubt
2. Ability to pay is in doubt
3. Would suffer economic hardship if req to pay
4. Compelling reasons for compromise

Question 6

When does IRS send letter after examination?

Answer 6

After exam, taxpayer receives 30-day letter w/ copy of exam (gives taxpayer 30 days to respond)
If no agreement (or response), 90-day notice of deficiency sent

Question 7

The burden of proof on IRS, provided the taxpayer…

Answer 7

1. Introduced creditable evidence supporting position
2. Complied w/ IRS substantiation requirement
3. Maintained required records
4. Cooperated w/ all reasonable requirements for info

Question 8

Percentages for substantial authority, etc.

Answer 8

More likely than not>50% prob of success if challenged
Substantial authority approx. 40% prob of success
Realistic possibility of success approx 33% prob of success
Reasonable basis standard approx 20% prob of success

Question 9

What model is used to allocate income to avoid being taxed in multiple jurisdictions

Answer 9

Uniform Division of Income for Tax Purposes Act (UDITPA)

Question 10

What are the 3 ratios used to allocate business income earned in multiple jurisdictions

Answer 10

Property- avg all real/tangible personal prop owned (cost) or rented (8x net annual rent) divided by avg value of all real/tangible personal prop owned or rented.
Payroll- total paid for comp in state divided by total comp paid everywhere
Sales- total sales in state divided by total sales everywhere
* ratios added and divided by 3 and multiplied by business income to allocate to state