REPRESENTATION - REPRESENTATION BEFORE THE IRS Flashcards
AUDITS, APPEALS, and the JUDICIAL PROCESS
Most tax returns are accepted by the IRS as they are submitted.
However, some tax returns are identified or selected for an audit.
Audits and Examinations - IRS Rules of the Road
In most cases, the IRS has three years from the due date of the return or the date actually filed (whichever is later) to assess any additional taxes.
The IRS generally has 10 years from the date of assessment to collect a timely assessed tax liability. There is no statute of limitations for fraud.
IRS Authority to Investigate
The Commissioner of the IRS, designated officers, and employees have the authority to examine any books, papers, records, or memoranda bearing upon the matters required to be included in the returns, to summon persons liable for tax and take testimony, and to administer oaths.
Taxpayer Rights
- Disagree with his tax bill
- Meet with an IRS manager if there is a disagreement with the IRS employee who handles his tax case
- Appeal most IRS collection actions
- Transfer his case to a different IRS office if a valid reason exists (e.g. the taxpayer moves)
- Be represented by someone when dealing with IRS matters
- Receive a receipt for any payment made
What is the Taxpayer Advocate Service (TAS) and what do they do?
The TAS is an independent organization within the IRS whose goal is to help taxpayers resolve problems.
Contact of Third Parties by IRS
The IRS must give reasonable notice in advance that, in examining or collecting a tax liability, it may contact third parties such as neighbors, banks, employers, or employees.
The TP has a right to receive a record of people contacted.
This does not apply under any of the following circumstances:
- To any pending criminal investigation.
- When providing notice would jeopardize collection of any tax liability.
- Where providing notice may result in reprisal against any person.
- When the taxpayer authorized the contact.
Examination of Returns by the IRS Rules of the Road.
The IRS examines (audits) returns for a variety of reasons, and examinations occur in different ways.
An “IRS Examination Officer” may conduct correspondence examinations by MAIL.
A FIELD examination is one conducted by an “Internal Revenue Agent”, usually at the taxpayer’s place of business.
IRS Form CP 2000
If information the taxpayer reported to the IRS does not match what his employers, banks, and other payers reported, the IRS sends Form CP 2000 to inform the recipient of changes the IRS is proposing to the tax return and what to do if the taxpayer agrees or disagrees with the proposal.
For example, if the amount on the W-2 from your employer differs from what you report on your Tax Return, you will get a Form CP 2000 from the IRS telling you their findings and what they propose must be done.
When Examinations by Mail are made:
If the IRS conducts the examination by mail, the taxpayer will receive a letter from the IRS asking for additional information about certain items shown on his return, such as income, expenses, and itemized deductions.
Taxpayers can:
- Respond Directly
- Have someone represent him in correspondence with the IRS.
Form 4828 is used to inform the IRS of your wish to have representation.
Examination in Person by the IRS Rules of the Road
INTERNAL REVENUE AGENTS conduct field examinations, which officially begin when the IRS notifies a taxpayer that his return is selected for review.
The IRS will tell the taxpayer what information to have available for the examination.
The examiner will try to schedule a time and place convenient for the taxpayer (or representative) that is reasonable under the circumstances considering both the convenience of the taxpayer and the requirements of sound and efficient tax administration.
In the opening conference, the IRS agent explains the audit plan and the reason for the examination selection.
Taxpayer Possible Responses to an In-Person Examination:
The Taxpayer can:
- Act on his own behalf.
- Have someone accompany to support his/her position, or as witness to the proceedings.
- Accompany someone who will represent the taxpayer.
- Not attend the audit personally, but have someone represent him or her. Form 2848 (Power of Attorney)
Results of the Filed Examination
A field examination typically concludes with a CLOSING CONFERENCE.
If the IRS accepts the return as filed, the taxpayer will receive a letter stating that the examiner proposed no changes to his return. (KEEP THIS DOC in your records)
If the IRS does not accept the return as filed, the IRS will explain any proposed changes. The TP can agree or can appeal the decision.
Describe FAST TRACK MEDIATION offered by the IRS
Most cases that are not docketed in any court qualify for fast track mediation.
The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from the following:
- Examinations (audits)
- Offers in compromise
- Trust fund recovery penalties
- Other collection actions
The goal here is to keep it out of the courts (extra cost).
Post In-Person Examination 30-DAY LETTER Contents
A notice of the right to appeal the proposed changes within 30 days (known as a 30-day letter)
A copy of the examination report explaining the examiner’s proposed changes
An agreement or waiver form
A copy of PUBLICATION 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree
The TP has 30 days from the receipt of the letter to tell the IRS if they will accept or appeal.
Appeals Conference
Upon receipt of the 30-day letter, the taxpayer may elect to appeal at a conference with the IRS.
The parties can settle most differences within this system without expensive and time-consuming court trials.
A taxpayer’s reason for disagreeing must come within the scope of the tax laws.
Note: You can’t base an appeal on moral, religious, or political reasons.
Note: The APPEALS OFFICE is the ONLY level of appeal within the IRS. After an appeals conference, the TPs next recourse is to go to court.
Written Protest or Small Case Request
When requesting an appeals conference, the taxpayer may also need to file a formal written protest or a small case request.
WRITTEN PROTEST - this is required in certain situations. Examples are: an employee plan in an exempt organization case. Or if it’s about an S-Corp or Partnership regardless of the dollar amount.
SMALL CASE REQUEST - this can be made in situations when the total amount is not more than $25K in any tax period, in lieu of a WRITTEN PROTEST. This is different than a SMALL TAX CASE PROCEDURE. Don’t confuse the two.
90-Day Letter
If the IRS does not receive a response to the 30-day letter, or if the taxpayer and an Appeals Officer cannot reach an agreement, the IRS will send a 90-day letter, also known as a NOTICE OF DEFICIENCY. This then is resolved in the courts.
4 Reasons that Civil Penalties can be levied Against the Taxpayer
- Underpayment of taxes
- Late payment of taxes
- Not filing a Return
- Late filing of a Return
Taxpayers may incur civil or criminal penalties, and in some cases both. True or False?
True.
Note: Any fines that are paid as a penalty are not deductible for tax purposes.
What are the attributes of Civil Tax Penalties?
Civil tax penalties are usually a monetary fine.
AD VALOREM PENALTIES are additions to taxes that are based on the percentage of the owed tax.
ASSESSABLE PENALTIES are a flat dollar amount, such as the $5,000 tax penalty that is imposed for a frivolous return.
Why are Criminal Tax Penalties rarely imposed?
Criminal tax penalties are rarely imposed, and only in extreme circumstances, because the TP is entitled to the same Constitutional guarantees as a criminal defendant.
Note: Criminal penalties may include imprisonment.
Seven Civil Penalties
- Filing late (failure-to-file)
- Paying tax late (failure-to-pay)
- Combined penalties
- Accuracy-related penalties
- Frivolous tax submission
- Fraud
- Failure to supply Social Security Number
Filing Late (Failure-to-File) - Civil Penalty 01
5% for each month or part of a month that a return is late, but not more than 25%.
The penalty is based on the tax not paid by the due date (without regard to extensions).
With Fraud, the penalty is 15% per month up to 75%.
If more than 60 days late (after due date or extended due date) the penalty is $215 for any return required to be filed in 2020 (generally 2019 tax returns filed in 2020).
Paying Tax Late (Failure-to-Pay) - Civil Penalty 02
Failure-to-pay penalty = one-half of 1% (.50%) of the unpaid taxes for each month, or part of a month, the tax is not paid.
This penalty does not apply to the automatic 6 month extension of the time to file period IF the TP paid at least 90% of the actual tax liability on or before the due date of the return, and the balance due when filing the return.
This penalty cannot be more than 25% of the unpaid tax.
