R4, M3 Federal Tax Procedures and Taxpayer Penalties Flashcards
John S. Loppe has not been particularly careful in preparing his income tax returns and, as a result, has substantially understated his tax. The negligence penalty with respect to understatement of tax might thus be applicable to him. The negligence penalty with respect to understatement of tax:
Is an accuracy-based penalty for negligence or for disregard of tax rules and regulations.
The negligence penalty with respect to understatement of tax defines “disregard” as any careless, reckless, or intentional, not unintentional, disregard of tax rules and regulations.
The negligence penalty with respect to understatement of tax is computed as 20 percent, not 25 percent, of the understatement of tax.
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.
If an individual taxpayer rejects the IRS examiner’s findings in an audit of the taxpayer’s tax return, the IRS will issue the taxpayer a 30-day letter (preliminary notice) notifying the taxpayer of the right to appeal. The taxpayer has 30 days to request an administrative appeals conference with the IRS Office of Appeals.
The IRS does not begin immediate collection action when an individual taxpayer rejects the IRS examiner’s findings in an audit of the taxpayer’s tax return. The taxpayer is first provided with the right to an administrative appeal (30-day letter), then the right to file a petition with the U.S. Tax Court (90-day letter).
The IRS issues a statutory notice of deficiency (90-day letter) if the taxpayer does not request an administrative appeals conference after receipt of the 30-day letter or if the taxpayer and the IRS still do not agree on the revenue agent’s proposed adjustment after the appeals conference.
If an individual taxpayer rejects the IRS examiner’s findings in an audit of the taxpayer’s tax return, the IRS will issue the taxpayer a 30-day letter notifying the taxpayer of the right to appeal. However, the taxpayer does not have to request an administrative appeals conference with the IRS Office of Appeals nor does the IRS refer the case to the IRS Office of Appeals.
Which of the following is a list of courts that are referred to as courts of original jurisdiction, or trial courts, for tax matters?
The Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.
The courts of original jurisdiction for tax cases, i.e., the courts in which a taxpayer would first bring a lawsuit against the IRS, are the Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.
Which of the following is a correct statement about the Small Cases Division of the U.S. Tax Court?
The decision of the Small Cases Division cannot be relied on as precedent in other courts.
A decision of the Small Cases Division of the U.S. Tax Court cannot be relied on as precedent in any other court. The decision only applies to that particular taxpayer in that particular case.
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:
Not appealable.
Neither party can appeal a decision of the Small Cases Division of the U.S Tax Court.
If a taxpayer loses a case in the Small Cases Division of the U.S. Tax Court, the decision is not appealable to the U.S. Court of Federal Claims.
A decision can be appealed to the regular division of the U.S. Tax Court. However, a decision made by the Small Cases Division of the U.S. Tax Court is not appealable.
Dewey Cheatam, Esq. is a leading candidate for the next open seat on the U.S. Supreme Court. He recently addressed the graduating class at The University of Texas Law School on the subject of the judicial process for tax issues. Which of the following statements in his address was correct?
U.S. District Court cases are heard before one judge, not a panel of judges.
An individual taxpayer’s adjusted gross income (AGI) for the current year is $200,000 and AGI for the prior year is $160,000. The taxpayer had federal income tax withholdings from wages throughout the year. In which of the following independent situations could the IRS impose a penalty for failure to pay sufficient estimated tax payments for the current year?
The taxpayer’s current year withholding is 100 percent of the prior year’s tax liability.
If an individual taxpayer’s current year withholding is at least 90 percent of the current year tax liability, no penalty is imposed. The rate is 90 percent regardless of the taxpayer’s AGI amount.
An individual taxpayer must pay taxes throughout the tax year, through withholdings and/or quarterly estimated tax payments, of the lesser of (a) 90 percent of the current year’s tax or (b) 100 percent of the prior year’s tax (110 percent if prior year’s AGI is more than $150,000). This question evaluates each situation independently. Here, the taxpayer’s prior year AGI of $160,000 is more than $150,000, so withholding of 100 percent of the prior year’s tax liability is not sufficient to avoid the penalty for failure to pay estimated tax payments.
The taxpayer’s prior year AGI of $160,000 is more than $150,000, so withholding of 110 percent of the prior year’s tax liability is required to avoid the penalty. Since withholding is 110 percent of prior year’s tax liability, no penalty is imposed.
Which of the following pairs of elements must a client prove to hold an accountant liable for common law fraud?
Scienter and justifiable reliance
Common law fraud requires proof of five elements: (i) a misrepresentation of material fact; (ii) intent to deceive; (iii) actual and justifiable reliance by the plaintiff on the misrepresentation; (iv) an intent (also known as scienter) by the defendant to induce the plaintiff’s reliance on the misrepresentation; and (v) damages.
