Module 3: Federal Tax Procedures Flashcards
(30 cards)
Ways for selection of returns for audit?
- statistical models
- random selection
- prior year audit
- info return “discrepancy”
- deductions that exceed established norms
What kind of tax returns do the statistical models select?
tax returns that are most likely to contain errors and yield significant amounts of additional tax revenue upon audit
When would a return be audited?
most will be audited within 2 years from date of filing, but may be audited at any point prior to expiration of statute of limitations
Correspondence audit (review for mathematical errors) arises as a result of what?
As a result of IRS review for the following: - info errors or - matching issues or - mathematical errors
What is Form 870?
Waiver of Restrictions on Assessment and Collection of Deficiency in Tax
What happens if an agreement cannot be reached after the audit?
The individual receives a 30-day letter notifying taxpayer of right to appeal. Taxpayer had 30 days to request administrative appeal w/ an appeals officer
Fast-track remediation
Can be done by small business owners ad self-employed individuals
Goal for resolution is 50 days
What is the goal of the appeals process (administrative) which is handled by the IRS office of appeals?
To resolve the tax controversies w/out litigation
90-day letter
Notice of Deficiency
Taxpayer has 90 days to pay the deficiency or file a petition w/the US Tax Court
If want to use US District Court or US Court of Federal Claims, must first pay the tax deficiency and then sue the IRS for refund
In the Federal Judicial Process what courts are considered the trials courts and what courts are considered the appellate courts?
Trial: US Tax Court, US District Court, US Court of Federal Claims
Appellate: US Court of Appeals, Federal Court of Appeals, US Supreme Court
When would the IRS have the burden of proof?
In any court proceeding on income, gift, estate, or generation-skipping tax w/respect to factual issues provided
What types of decisions does the US Tax Court issue?
- Regular - involves a new or unusual point of law
2. Memorandum - concerns only the application of existing law/interpretation of facts
How many judges are in the US Court of Federal Claims?
16 judges
If you lose at the US Tax Court or District Court, which appellate court would your case go to?
US Court of Appeals
If you lose at the US Federal Claims Court, which appellate court would your case go to?
US Court of Appeals for Federal Circuit
What are the exceptions to the penalty for failure to make sufficient estimated income tax payments?
Withholding and timely estimated payments that are:
- less than or equal to $1,000 of current year tax
- at least 90% of the current year’s tax
- at least 100% of last year’s tax
- equal to estimated current year tax based on annualization of income method
What is the penalty for failure-to-file a return?
5% of amount of tax due for each month return is late (max 25%)
What is the penalty for failure-to-pay tax?
one-half of 1% per month up to a max of 25% of the unpaid tax
What is the penalty for negligence/disreard with repect to an unsubstantial understatement of tax?
20% of understatement of tax
Negligence
Failure to make reasonable attempt to comply with the provisions of the IRC
Disregard
Careless, reckless, or intentional disregard
What is the penalty for substantial understatement of tax?
20% of the understatement of tax
Substantial
exceeds the greater of 10% of the correct tax or $5,000
What is the penalty for a substantial valuation misstatement?
20% of the understatement of tax with respect to a valuation for tax purposes to the extent the understatement exceeds $5,000
