Topic 7 - Administrative Procedures of the IRS Flashcards
If you underestimate your tax payment when filing an extension, what is the penalty?
You are charged interest on the underpayment from the due date of the return until taxes are paid. Interest rate charged is federal short-term rate plus 3% points
What is the IRS’s statute of limitations?
3 years - general limit; from the later of 1) the date the tax return was actually filed or 2) the tax return’s original due date
6 years - if the taxpayer omits items of gross income that exceed 25% of the gross income reported on the tax return
No Time Limit - Indefinite - for fraudulent returns or if taxpayer fails to file a tax return
After an audit, the IRS provides proposed adjustments. What do you do if you agree with the proposed adjustments?
File Form 870, pay the tax owed or get the proposed refund
After an audit, the IRS provides proposed adjustments. What do you do if you do not agree with the proposed adjustments?
Dispute proposed tax changes
IRS gives you a 30 day letter. 30 days to either
1) request a conference with an appeals officer or
2) agree to the proposed adjustment
What happens if you do not respond to a 30-day letter from the IRS regarding your audit?
You will receive a 90 day letter (Statutory Notice of Deficiency)
This gives you 90 days to either:
1) pay the proposed deficiency
2) file a petition in the US Tax Court to hear the case
If you wish to take your audit decision to court, what are the different court options and what are the pros and cons of each?
US Tax Court
Washington DC
Do not need to pay tax obligation until after the court decision
Only handles tax cases - tax experts
US District Court
Must pay tax obligation beforehand
Can get a jury - potentially more sympathetic rather than technical experts
US Court of Federal Claims
Must pay tax obligation beforehand
National court that only hears monetary claims against the federal government
You took the IRS to court and lost. What options do you have now?
Entitled to file an appeal
US District Court and US Tax Court appeals go to US Court of Appeals
US Court of Federal Claims go to US Circuit Court of Appeals
What are the Primary Authorities of tax law? (3)
Legislative Branch - Congress - Internal Revenue Code (1986) - changed yearly by Congress
Judicial Branch - Courts - court decisions - ultimate authority to interpret the Code
Executive/Administrative Branch - Treasury and IRS pronouncements
What is a Treasury Regulation and what are its three forms?
Treasury Regulation are the official interpretation of the Internal Revenue Code
Final - issued in final form, represents the Treasury’s Interpretation of Code
Temporary - limited life of 3 years - same weight as final
Proposed - posted for comment - not same authoritative weight
Where does all tax legislation start?
House of Representatives, usually in the Ways and Means Committee
What is the penalty for not filing your tax return?
5% of tax due per month with maximum penalty 25% on net tax due
What is the penalty for not paying tax (but return filed)
0.5% of tax due per month plus interest
What is the penalty for a substantial understatement of tax?
20% of amount underpaid
What is the penalty for civil fraud on tax return?
75% of the underpayment of tax
