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IRS Audit and Appeals Process Flashcards

1
Q

IRS Service Center -

routine review for errors

A
  1. failure to sign a return
  2. failure to report an item
  3. mathematical error or clerical error
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2
Q

IRS Svc. Center -

mailed a correct tax calculation

A
  1. if a deficiency,
    a. request to pay additional amount
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3
Q

IRS Svc. Center -

no responce from taxpayer

A

correspondence or office audit

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4
Q

IRS Svc. Center -

not considered a formal examination return

A

taxpayer not entitled to administrative remedies available for formal examination

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5
Q

Discriminant Function System

A
  1. use of mathematical formulas
  2. most likely to contain errors and most additional revenue
  3. random selected returns under Nat’l Research Program
  4. specific factors used are not disclosed
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6
Q

Additional ways to random selection of returns

A
  1. information exchanged in programs with states or foreign agencies
  2. from an informant
  3. from return linked to another return being audited
  4. items exceeds certain thresholds
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7
Q

Types of examinations -

Correspondence

A
  1. for few items in question on taxpayer’s return
  2. by letter, ask about questionable items
  3. return must be verified by appropriate documentation
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8
Q

Types of examination -

Office

A
  1. for complex issues
  2. at appropriate IRS District Office by tax auditor
  3. must bring records to support items claimed
  4. only limited to issues stated in the letter
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9
Q

Types of examination -

Field

A
  1. for more complex issues
  2. a revenue agent goes to taxpayer’s place to examine records
  3. authorized to take testimony and administer oaths
  4. is an open-ended examination (investigate any questionable item on return or records)
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10
Q

Audit Process -

IRS required to provide taxpayer

A
  1. explanation of the process
  2. rights available
  3. that interview can be suspended any time to consult a representative
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11
Q

Audit Process -

Representation before IRS

A
  1. himself
  2. CPA
  3. attorney
  4. enrolled agent
  5. preparer who signed the return

***Form 2848 (Power of attorney and declaration representative) (taxpayer written authority for representation)

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12
Q

Audit Process -

if taxpayer agrees with adjustments…

A
  1. Form 870 (Waiver of Restriction on Assessment…)
  2. by signing this form,

a. taxpayer waives his right to receive statutory notice of deficiency (90-day letter)
b. gives up right to go to IRS Appeals Division (30-day letter)

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13
Q

Audit Process -

if taxpayer doesn’t agree with adjustments…

A
  1. a 30-day letter to appeal to IRS Appeals Office
  2. a 90-day letter, Notice of Deficiency, to file Tax Court petition
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14
Q

Appeals Process -

Oral request

A

Can be for,

  1. office examination
  2. correspondence examination
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15
Q

Appeals Process -

Written request for < $25,000

A
  1. for field examination
  2. file a small case for < $25,000, indicate,

a. adjustment in which disagree
b. reason for disagreement

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16
Q

Appeals Process -

Written request for > $25,000

A
  1. list of proposed changes that doesn’t agree and reasons
  2. tax period
  3. statement of facts supporting taxpayer’s position
  4. statement of law or ther authorities that taxpayer relies upon

***Appeals of Division will settle disputes based on hazards of litigating the issues in court

17
Q

Appeals Process -

if taxpayer agrees to settle the case

A
  1. Form 870AD (Offer of Waiver of Restrictions…)
  2. case will not reopened unless,

a. fraud
b. misrepresentation of material fact
c. material mathematical error
d. other administrative wrongdoing

18
Q

Appeals Process -

if agreement not reached,

A
  1. Notice of deficiency (90-day letter)
  2. file a petition with Tax Court
19
Q

Judicial Process - Trial Court

US Tax Court

A
  1. only federal tax disputes
  2. located in Washington, DC

a. judges can travel accross US to hear cases
3. no juries; only one judge
4. deficiency court
a. only hear dispute tax
b. without paying tax deficiency
5. appeals go to US Court Federal Appeals

20
Q

Judicial Process - Trial Court

US Tax Court - Small Tax Division

A
  1. less formal
  2. cases heard by magistrates
  3. < $50,000
  4. no appeal from the decision
21
Q

Judicial Process - Trial Court

US District Court

A
  1. must pay the tax
  2. then sue government for a refund
  3. one judge; taxpayer may request a jury trial
  4. has both tax and nontax cases
  5. appeals go to US Court of Federal Appeals
22
Q

Judicial Process -

US Federal Court of Appeals

A
  1. file by taxpayer or government
  2. 3 judges; hear the case and take part in decision
  3. trial courts are bound to follow the decision
  4. one Court of Appeals not bound to follow a decision of another Court of Appeals for same issue
  5. both tax and nontax cases
  6. appeals to US Supreme Court
23
Q

Judicial Process -

US Supreme Court

A
  1. taxpayer or government
  2. no appeal as a matter of right in a federal tax case
  3. file a writ of certiorari
  4. cases involving,

a. conflict in opinions
b. tax issue impacts large number of taxpayers
c. tax issue involving large amount tax revenue
5. the decision is the final word (unless Cogress acts legislatively)

24
Q

Tax Return Position - Required Disclosure

Schedule UTP

A
  1. when taken a tax position on Inc. Tax return for current or prior tax year
  2. when recorded a reserve regarding that tax position on audited F/S
  3. when didn’t reserve for that position because it’s expected to litigate the position
  4. must be reported, the tax position, regarding whether audited F/S are prepared using GAAP, IFRS, or other version
25
Q

Tax Return Position - Required Disclosure

Who must file Sched. UTP, a corporation…

A
  1. filing IRS forms 1120, 1120L, or 1120PC
  2. has assets = or > $10M (2014 and after)
  3. related party issued audited F/S reporting all or portion of corp.’s operations for all or a portion of corp.’s tax year
  4. has one or more tax positions
  5. must be attached to inc. tax return
26
Q

Tax Return Position - Required Disclosures

Policy of Restraint

A

IRS will use it and forgo seeking certain documents relating uncertain tax positions and the workpapers that document completion of Sched. UTP

27
Q

Tax Return Position - Req. Disclosure

Policy of Restraint

When document is privileged under

A
  1. attorney-client privilege
  2. tax advice privilege under Sec. 7525 IRC
  3. work product doctrine

and document provided to independent auditor to audit taxpayer’s F/S,

a. IRS will not assert during examination privilege has been waived by such disclosure

28
Q

Tax Ret. Position - Req. Disclosure

Policy of Restraint

when privilege not apply…

A
  1. taxpayer has engaged in an activity or taken any action that would waive the privilege
  2. unusual circumstances exist
  3. taxpayer claimed benefits on one or more listed transactions
29
Q

Tax Ret. Position - Req. Disclosure

Policy of Restraint

examiners procedures

A
  1. request from taxpayer a tax reconciliation of WP as a matter of course
  2. includes,

a. concise description of tax position reported
b. amount of any reserve of tax position
c. computations to determine that tax position or why that tax position designed as Major Tax Position
3. the requirement of filing Sched. UTP doesn’t affect policy of restraint

30
Q

Substantiation Requirements

A

taxpayer must be able to substantiate any item in the tax return

31
Q

Substantiation Requirements -

Business expenses

A
  1. travel away (meals and lodging)
  2. entertainment
  3. business gifts
  4. expenses in connection with use of “listed property” (cars, computers, etc)

***only deducted if adequate records

32
Q

Substantiation Requirements -

Adequate records

A
  1. amount of expense
  2. time and place of travel, entertainment, or day of gift
  3. business purpose of expense
  4. for entertainment or gifts,

a. business relationship

33
Q

Substantiation Requirements -

Documentary evidence

A
  1. not required for expenses < $75
  2. required for all lodging expenses
34
Q

Substantiation Requirements -

Per diem allowance

A
  1. amount of expense is substantiated if = or < of federal per diem rate for area of travel
  2. per diem rate is only to substantiate amount of expense; taxpayer must still substantiate place, time and business purpose of expense
35
Q

Substantiation Req. -

Charitable Contributions

A
  1. cancelled check
    a. name of charity
    b. date and amount

REG (3 decks)

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