REG 48 - Tax Research and Practice 2 - Procedures/Compliance

Question 1

If a taxpayer receives a 30-day letter from the Internal Revenue Service, the taxpayer:
A. Must pay the tax deficiency or respond to the issues raised through written correspondence to the IRS within 30 days of the date of the letter.
B. May ignore the letter and take no action.
C. Must pay the tax deficiency or file a petition with the Tax Court within 30 days of the date of the letter.
D. Must pay the tax deficiency and file a petition with the District Court within 30 days of the date of the letter.

Answer 1

B. The taxpayer is not required to respond to a 30-day letter, although if there is no response the IRS will follow with a 90-day letter.

Question 2

A corporation’s tax year can be reopened after all statutes of limitations have expired if

I. The tax return has a 50% nonfraudulent omission from gross income.

II. The corporation prevails in a determination allowing a deduction in an open tax year that was taken erroneously in a closed tax year.

Answer 2

II. A corporation’s tax year may be reopened after the statute of limitations has expired if there is a determination for an open year that an earlier treatment was erroneous. The determination must adopt the position of the successful party and be unfavorable for the inconsistent party. The correction must fall under one of the following circumstances: double inclusion or exclusion of an item of income; double allowance or disallowance of a deduction or credit; deduction or inclusions for trusts or estates and beneficiaries; or an item involving basis.

The 50 percent nonfraudulent omission from gross income from a tax return could not lead to the reopening of a corporation’s tax year after the statute of limitations because it does involve a determination for an open year. However, a corporation prevailing in a determination allowing a deduction in an open tax year that was taken erroneously in a closed tax year would meet the requirements for reopening its tax year after the expiration of the statute of limitations.

Question 3

T/F: To electronically file a married file jointly return, only one spouse must submit a PIN.

Answer 3

False.

Both spouses must submit a PIN when filing a tax return.

Question 4

Bass Corp., a calendar year C corporation, made qualifying 2014 estimated tax deposits based on its actual 2013 tax liability.

On March 15, 2015, Bass filed a timely automatic extension request for its 2014 corporate income tax return. Estimated tax deposits and the extension payment totaled $7,600. This amount was 95% of the total tax shown on Bass’ final 2014 corporate income tax return. Bass paid $400 additional tax on the final 2014 corporate income tax return filed before the extended due date. For the 2014 calendar year, Bass was subject to pay

I. Interest on the $400 tax payment made in 2015.

II. A tax delinquency penalty.

Answer 4

I only. Bass Corp. based its estimated payments on its 2013 tax liability, indicating that the corporation used the preceding year method. This method requires that the estimated payments to be equal to the corporation’s tax liability during the preceding year. However, interest is required to be paid on any portion of the corporation’s tax liability exceeding the amount of the estimated payments.

This response is, therefore, correct in stating that Bass Corp. would be required to pay interest on the $400 tax payment made in 2015. The tax delinquency penalty is imposed if the taxpayer fails to promptly file a tax return with a tax liability. As Bass Corp. filed an automatic extension on the original due date of its return, the corporation qualifies for a six month extension and is not viewed as being filed late.

Hence, this response is correct in implying that Bass Corp. would not be subject to the tax delinquency penalty.

Question 5

An individual paid taxes 27 months ago, but did not file a tax return for that year. Now the individual wants to file a claim for refund of federal income taxes that were paid at that time. The individual must file the claim for refund within which of the following time periods after those taxes were paid?
	A.  	One year.
	B.  	Two years.
	C.  	Three years.
	D.  	Four years.

Answer 5

B. The deadline for filing a claim for refund (on form 1040X) is the later of:

1. Two years from the payment of tax, or
2. Three years from the date the return was filed (or April 15 if filed before the original due date).

Question 6

Sam's year 2 taxable income was $175,000 with a corresponding tax liability of $30,000. For year 3, Sam expects taxable income of $250,000 and a tax liability of $50,000. In order to avoid a penalty for underpayment of estimated tax, what is the minimum amount of year 3 estimated tax payments that Sam can make?
	A.  	$30,000
	B.  	$33,000
	C.  	$45,000
	D.  	$50,000

Answer 6

B. No penalty is imposed if the tax payments during the year are at least 90% of current year taxes or 100% of last year’s taxes. If the taxpayer’s AGI exceeds $150,000, then tax payments during the year must be at least 110% of last year’s taxes. $30,000 x 110% = $33,000.

Question 7

T/F: A penalty for failing to file a tax return runs concurrently with the penalty imposed for failing to pay the tax due on the return, meaning that the total for these two penalties will never exceed 5% per month.

Answer 7

True

Question 8

T/F: No penalty can be imposed on failing to remit estimated taxes for this year if an individual with AGI of $100,000 remitted 100% of tax imposed for last year.

Answer 8

True
No penalty is imposed if the tax payments during the year were:
i. At least 90% of current year taxes or
ii. 100% of last year’s taxes. If the taxpayer’s AGI exceeds $150,000, then tax payments during the year must be at least 110% of last year’s taxes