The Collection Process Flashcards

Question

Which of the following statements is false with respect to taxpayers’ offers in compromise on unpaid tax liabilities? A. A compromise may be made only when doubt exists as to the liability for the amount owed. B. The Commissioner of Internal Revenue has the authority to compromise all taxes (including any interest, penalty, or addition to the tax) arising under the revenue laws of the United States, except those relating to alcohol, tobacco, and firearms. C. Submission of an offer in compromise will usually extend the statute of limitations on collection of an account. D. Taxpayers have a right by law to submit an offer in compromise on their unpaid tax liability.

Answer 1

A compromise may be made only when doubt exists as to the liability for the amount owed. Answer (A) is correct. Under Sec. 7122, the Commissioner of the Internal Revenue Service has the authority to compromise all taxes, interest, and penalties arising under the internal revenue laws, except those relating to alcohol, tobacco, and firearms. A compromise may be made on one, two, or all three grounds: (1) doubt as to the liability for the amount owed, (2) doubt as to the taxpayer’s ability to make full payment, or (3) promotion of effective administration [Reg. 301.7122-1(a)(b)]. The doubt as to the liability for the amount owed must be supported by the evidence. In the case of inability to pay, the amount offered must exceed the total value of the taxpayer’s equity in all his or her assets and must give sufficient consideration to present and future earning capacity. The IRS may enter into a compromise with a taxpayer at any time before, during, or after collection proceedings.

Answer 2

There is doubt as to the collectibility and/or doubt as to whether or not the assessed tax is correct. Answer (C) is correct. The IRS may accept an offer in compromise to settle unpaid tax accounts for less than the full amount of the balance due when the facts support the likelihood that the IRS will be unable to collect the debt in full. The amount offered must reflect the taxpayer’s maximum ability to pay. An offer in compromise gives consideration to present and future earning capacity. A compromise may be made when there is doubt as to the liability for the amount owed and/or when there is doubt as to the taxpayer’s ability to make a full payment.

Answer 3

Doubt as to the liability for the amount owed must be supported by evidence, and the amount acceptable under the offer in compromise will depend on the degree of doubt found in the particular case. Answer (B) is correct. Under Sec. 7122, the Commissioner of the Internal Revenue Service has the authority to compromise all taxes, interest, and penalties arising under the internal revenue laws, except those relating to alcohol, tobacco, and firearms. A compromise may be made on one, two, or all three grounds: (1) doubt as to the liability for the amount owed, (2) doubt as to the taxpayer’s ability to make full payment, or (3) promotion of effective tax administration [Reg. 301.7122-1(a)]. The doubt as to the liability for the amount owed must be supported by the evidence. In the case of inability to pay, the amount offered must exceed the total value of the taxpayer’s equity in all his or her assets and must give sufficient consideration to present and future earning capacity. A compromise may be entered into by the IRS, whether a suit has been instituted or not, and may be entered into after a judgment has been rendered.

Answer 4

All of the answers are correct. Answer (D) is correct. The IRS may accept an offer in compromise to settle unpaid tax accounts for less than the full amount of the balance due when the facts support the likelihood that the IRS will be unable to collect the debt in full. The amount offered must reflect the taxpayer’s maximum ability to pay. The IRS is also permitted to delay collection actions, and a taxpayer may appeal a rejected offer.

Answer 5

Lump sum cash payments must be paid within 24 months. Answer (B) is correct. The IRS may accept an offer in compromise to settle unpaid tax accounts for less than the full amount of the balance due. The amount offered must reflect the taxpayer’s maximum ability to pay. There are two types of offer in compromise payment terms, as follows: (1) Lump sum cash payments must be paid within 5 or fewer installments within 5 or fewer months after the offer is accepted, and (2) periodic payments must be paid within 24 months in 6 or more monthly installments after the offer is accepted. Thus, lump sum cash payments being paid within 24 months is not a type of offer in compromise payment terms.

Answer 6

The innocent spouse did not know and had no reason to know of the understatement of tax. Answer (A) is correct. Generally, both spouses are responsible for paying the full amount of tax, interest, and penalties due on a joint return. By requesting innocent spouse relief, a taxpayer can be relieved of the responsibility for tax, interest, and penalties if the taxpayer’s spouse improperly reported items or omitted items on a joint tax return. The innocent spouse may qualify for relief from joint tax liability if there is an understatement of tax because the other spouse omitted income or claimed false deductions or credits, and the innocent spouse did not know and had no reason to know of the understatement.

Answer 7

Collection Statute Expiration Date (CSED). Answer (C) is correct. The CSED is the last date the IRS can collect unpaid tax from the taxpayer and consists of the century, year, month, and day. Certain actions by taxpayers either suspend or extend the collection statute of limitations. Examples include filing a Collection Due Process hearing request and submitting offers-in-compromise or installment agreements.

Answer 8

Review appeals relating to the rejection or termination of installment agreements. Answer (D) is correct. The National Taxpayer Advocate Office performs the following functions: (1) assists taxpayers in resolving problems with the IRS, (2) identifies areas in which taxpayers have problems in dealing with the IRS, (3) proposes changes to IRS administrative practices that would mitigate the problems that exist between the IRS and taxpayers, and (4) identifies possible law changes that might mitigate the problems identified between the IRS and taxpayers. The National Taxpayer Advocate Office does not review appeals relating to the rejection or termination of installment agreements. This function is accomplished by the IRS Office of Appeals.

Answer 9

The taxpayer should not consider the taxpayer’s family to determine whether or not the taxpayer can provide for basic living expenses. Answer (B) is correct. A taxpayer should consider the taxpayer’s family’s health and welfare when determining whether the taxpayer can provide for basic living expenses.

Answer 10

I, II, & III. Answer (D) is correct. National Standards have been established for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous.

Answer 11

$50,000 or less. Answer (A) is correct. For amounts under $50,000, installment agreements do not require the filing of Form 433-F, Collection Information Statement. For amounts between $25,000 and $50,000, however, the agreements require either direct debit information (e.g., routing number and account number of the taxpayer’s bank account) or a completed Form 2159, Payroll Deduction Agreement, be provided.

Answer 12

Form 872-A. Answer (D) is correct. Form 872-A, Special Consent to Extend the Time to Assess Tax, does not relate to Offers in Compromise.

Answer 13

The couple was divorced, widowed, or legally separated or did not live together for the 12 months prior to the innocence claim. Answer (C) is correct. This is not one of the conditions for filing for innocent spouse relief. This is a condition for separation of liability relief.

Answer 14

Innocent spouse relief. Answer (A) is correct. Innocent spouse relief requires that there was a joint return filed, that the return had an understatement of tax due to the taxpayer’s spouse, that the taxpayer can establish ignorance of the understatement, and that the tax would be unfair given the circumstances.

Answer 15

The IRS district problem resolution officer. Answer (B) is correct. The IRS has a Problem Resolution Program for people who have been unable to solve their problems with an IRS employee. A taxpayer should try to resolve the problem with a supervisor before contacting the Problem Resolution Program. The Problem Resolution Office is under the authority of the National Taxpayer Advocate.

Answer 16

The IRS must give individual notices to all of the taxpayer’s creditors. Answer (C) is correct. Before the IRS files a Notice of Federal Tax Lien, three requirements must be met for the statutory lien to attach: 1. The IRS must assess the liability. 2. The IRS must send notice of tax due and demand for payment unless waived by the taxpayer. 3. The taxpayer must neglect or refuse to pay the tax within 10 days. By filing a Notice of Federal Tax Lien, the government is providing a public notice to all creditors.

Answer 17

All fees charged by the state or other jurisdiction for both filing and releasing the lien will be added to the balance the taxpayer owes. Answer (B) is correct. The IRS will issue a Release of the Notice of Federal Tax Lien within 30 days after the tax due is satisfied. The tax due also includes all fees charged by the state or other jurisdiction for both filing and releasing the lien. The fees are added to the balance owed.

Answer 18

Workers’ compensation. Answer (B) is correct. A levy is the seizure of a taxpayer’s property in order to satisfy a tax debt. A levy can be made on property that is held by the taxpayer or property that is held for a taxpayer by third parties. However, a taxpayer has the legal right to keep workers’ compensation.

Answer 19

May be filed after a tax liability is assessed, billed, and the debt is not paid within 10 days of notification. Answer (D) is correct. Before the IRS files a Notice of Federal Tax Lien, three requirements must be met for the statutory lien to attach: 1. The IRS must assess the liability. 2. The IRS must send notice of tax due and demand for payment unless waived by the taxpayer. 3. The taxpayer must neglect or refuse to pay the tax (Publication 594).

Answer 20

The IRS will issue a release of the notice of federal tax lien within 15 business days after the taxpayer satisfies the tax due (including interest and other additions) by paying the debt, by having it adjusted, or if the IRS accepts a bond that the taxpayer submits, by guaranteeing a payment of the debt. Answer (B) is correct. The IRS will issue a Release of the Notice of Federal Tax Lien within 30 days after the tax due is satisfied. The tax due also includes all fees charged by the state or other jurisdiction for both filing and releasing the lien. The fees are added to the balance owed.

Answer 21

If the proceeds of a sale by the IRS are less than the total of the tax bill and the expenses of the levy and sale, the taxpayer will not have to pay the balance. Answer (D) is correct. A levy is one method the IRS uses to collect tax that has not been paid voluntarily. A levy is the seizure of property in order to satisfy a tax debt. If the proceeds from the sale of the property seized are less than the total tax bill, the taxpayer is required to pay the balance.

Answer 22

The IRS cannot levy any state income tax refund checks and apply the state refund to a federal tax debt. Answer (A) is correct. A levy allows the IRS, by legal authority, to take a taxpayer’s property in order to satisfy a tax debt. The IRS may levy on property that is held by the taxpayer or on property belonging to the taxpayer but held by a third party. In most states that have state income taxes, the IRS can levy a state refund check and apply the state refund to a federal tax debt.

Answer 23

If the bill is delayed, he will not be billed for additional interest for more than 60 days from the date he signed the agreement. Answer (C) is correct. Although the IRS may lower the interest on tax owed when the interest is due to an error or delay by an IRS official performing a procedural or mechanical act, it will not suspend the billing of interest until the payment is made.

Answer 24

Tangible personal business property if the collection of tax is in jeopardy. Answer (D) is correct. A levy is the seizure of property by the IRS in order to satisfy a tax debt. Section 6334 and Reg. 301.6334-1 list the items of property that are statutorily exempt from a levy: 1. Necessary clothing and schoolbooks 2. A limited amount of personal belongings, furniture, and business or professional books and tools 3. Unemployment and job training benefits, workers’ compensation, welfare, certain disability payments, and certain pension benefits 4. The income needed to pay court-ordered child support 5. Undelivered mail 6. An amount of weekly income equal to the standard deduction divided by 52 7. Tangible personal business property, unless collection of tax is in jeopardy or the district director (or assistant) approves the levy in writing 8. Principal residence, unless the levy is approved in writing by a judge or magistrate of a U.S. District Court

Answer 25

``` A taxpayer does not have the right to redeem any property seized once the IRS has sold it. Answer (A) is correct. Section 6331(b) authorizes the seizure and sale of any property upon which the IRS may levy. Section 6337(a) provides a right of redemption by paying the amount due, together with expenses, at any time prior to sale of the property. For real property, the right of redemption continues until 180 days after the sale [Sec. 6337(b)]. ```

Answer 26

Interest Started----------------Interest Ended 4/16/18------------------------------11/7/19 Answer (A) is correct. Under Sec. 6601(a), interest on any underpayment of tax begins to accrue on the date prescribed for payment, which is generally the due date of the return computed without regard to extensions. The interest generally continues to accrue until the date the tax is paid. However, Sec. 6601(c) provides that, if a taxpayer files an agreement waiving the restrictions on assessment of deficiency, and notice and demand for payment are not made within 30 days after filing such waiver, interest will be suspended 30 days after signing of the waiver. Once the demand for payment is made, interest does not accrue after the date of demand if the tax is paid within 21 days after the date of such demand [Sec. 6601(e)(3)]. Mr. Smith will be billed for interest from April 16, 2018, through November 7, 2019. The interest charge stopped on the date the notice and demand for payment was made since such document was issued within 30 days of Smith’s agreeing to the deficiency, and payment was made within 21 days of the notice and demand. The interest rate charged for underpayments of tax by individuals is the short-term federal rate plus three percentage points (Sec. 6621).

Answer 27

A levy on salary or wages will end when the time expires for legally collecting the tax. Answer (B) is correct. A levy is a legal seizure of a taxpayer’s property to satisfy a tax debt. The levy on salary or wages will end when 1. The levy is released, 2. The tax debt is paid, or 3. The time expires for legally collecting the tax. A levy must be released if any of the following occur: 1. The taxpayer pays the tax, penalty, and interest owed. 2. The IRS discovers that the time for collection ended (the statute of limitations) before the levy was served. 3. The taxpayer provides documentation proving that releasing the levy will help the IRS collect the tax. 4. The taxpayer has, or is about to enter into, an approved, current installment agreement, unless the agreement says the levy does not have to be released. 5. The IRS determines that the levy is creating a significant economic hardship for the taxpayer. 6. The expense of selling the property would be more than the tax debt. Among items that may not be levied or seized are school books and certain clothing (Pub. 594).

Answer 28

A delay would endanger the collection of tax. Answer (D) is correct. Under Sec. 6331(a), a taxpayer has 10 days to pay the tax after receiving a Notice and Demand for Tax. If the taxpayer neglects or refuses to pay the tax within that time, the IRS may issue a Final Notice (Notice of Intent to Levy) giving the taxpayer 30 days to pay the tax. If the tax is not paid within that period, the IRS may proceed to collect the tax by levy upon the taxpayer’s property. If the IRS makes a finding that the assessment or collection of the tax deficiency is in jeopardy, the IRS may waive the 10-day notice and demand period and/or the 30-day Final Notice (Notice of Intent to Levy) period. Jeopardy levies may occur when delay would endanger collection of the tax, interest, penalties, etc. (Sec. 6861).

Answer 29

The IRS must wait 30 days after seizure before conducting a sale. Answer (C) is correct. After seizure of property, the IRS gives notice of sale to the public and to the taxpayer from whom the property was seized. Under Sec. 6335(d), the time of sale must be not less than 10 days nor more than 40 days from the time of giving public notice. Section 6336 provides an exception to this rule in the case of perishable goods, which must be returned to the taxpayer if (s)he pays the appraised value of the goods or posts a bond. If the taxpayer does not pay such amount or post a bond, the goods must be sold immediately.

Answer 30

After the sale, the IRS uses the proceeds first to satisfy the tax debt. Answer (B) is correct. The sale proceeds are applied first against the expenses of the proceedings, next against any federal excise tax imposed directly on the property, and then against the tax liability for which the levy was made, including a separate supporting statement containing the basis for the taxpayer’s explanation.

Answer 31

A Final Notice of Intent to Levy is not enforceable unless this notice is given to the taxpayer in person. Answer (C) is correct. Section 6331 authorizes the IRS to collect unpaid taxes by levying upon the taxpayer’s property. A tax liability must be assessed. Within 60 days after making the assessment, the IRS is required to give a notice and demand for payment to the taxpayer. This notice must be left at the taxpayer’s dwelling or usual place of business, or sent by mail to the taxpayer’s last known address [Sec. 6303(a)]. If the taxpayer neglects or refuses to pay the tax within 10 days after notice and demand, a Final Notice (Notice of Intent to Levy) must be provided to the taxpayer at least 30 days in advance [Sec. 6331(d)]. This notice must be given in person, left at the taxpayer’s dwelling or usual place of business, or sent by certified or registered mail to the taxpayer’s last known address.

Answer 32

The IRS area director or assistant area director. Answer (C) is correct. A levy is one method the IRS uses to collect tax that has not been paid voluntarily. A levy is the seizure of property in order to satisfy a tax debt. A levy cannot be made on tangible personal property or nonrental real property used in a trade or business unless the levy is approved in writing by an area director or assistant area director of the IRS, or unless the collection is in jeopardy.

Answer 33

A taxpayer cannot sue the federal government for damages if the IRS knowingly or negligently fails to release a Notice of Federal Tax Lien when a release is warranted. Answer (D) is correct. Section 6343 directs the IRS to release the levy on a taxpayer’s property under certain circumstances. Section 6325 directs the IRS to issue a certificate of release of lien within 30 days after the tax liability is satisfied (or becomes unenforceable) or after a bond guaranteeing payment of the liability is accepted. Section 6326 provides for administrative appeal to the IRS for release of a lien. Section 7432(a) provides that a taxpayer may bring a civil action for damages against the U.S. if the IRS knowingly or negligently fails to release a lien under Sec. 6325.

Answer 34

The taxpayer must have been audited by the IRS. Answer (A) is correct. Section 6331 authorizes the Internal Revenue Service to collect unpaid taxes by levying upon the taxpayer’s property. Before levy action can be taken, it must first be determined that a tax liability exists. Within 60 days after making the assessment, the IRS is required to give a notice and demand for payment to the taxpayer. This notice must be left at the taxpayer’s dwelling or usual place of business or must be sent by mail to the taxpayer’s last known address [Sec. 6303(a)]. If the taxpayer neglects or refuses to pay the tax within 10 days after notice and demand, a Final Notice (Notice of Intent to Levy) must be given to the taxpayer at least 30 days in advance [Sec. 6331(d)]. There is no requirement that a taxpayer first be audited.

Answer 35

A levy does not apply to wages and salaries received after the date of levy. Answer (C) is correct. A levy generally does not apply to property acquired after the date of levy. However, there is an exception for salaries and wages.

Answer 36

Wait at least 10 days after seizure before conducting the sale. Answer (D) is correct. After seizure of property, the IRS gives notice of sale to the public and to the taxpayer from whom the property was seized. Under Sec. 6335(d), the time of sale must be not less than 10 days nor more than 40 days from the time of giving public notice. Section 6336 provides an exception to this rule in the case of perishable goods, which must be returned to the taxpayer if (s)he pays the appraised value of the goods or posts a bond. If the taxpayer does not pay the appraised amount or post a bond, perishable goods must be sold immediately.

Answer 37

Levy. Answer (B) is correct. If a taxpayer neglects or refuses to pay a deficiency after demand, the IRS will take certain actions. Before the IRS takes any enforced collection actions, it will contact the taxpayer to give the taxpayer a chance to voluntarily pay the tax liability. If the taxpayer does not pay the taxes in full and does not contact the IRS, enforced collections will begin. The IRS will attach a lien to all the person’s property. A lien gives the IRS a legal claim to the taxpayer’s property as security for payment of a tax liability. The IRS also may levy the taxpayer’s property to collect unpaid taxes. A levy is defined as the power of distraint and seizure by any means.

Answer 38

It will stop the accrual of interest only on the amount sent. Answer (C) is correct. The IRS is authorized to levy on a person’s property to collect unpaid assessed taxes. Before levy action can begin, the IRS must make a determination of tax liability and assess it. Interest is assessed from the date the taxes are required to be paid, usually the due date of the return. Within 60 days after making the assessment, the IRS is required to provide a notice and demand for payment to the person. A deposit of cash by the taxpayer may stop the further accrual of interest if the taxpayer believes additional tax is owed. However, the deposit will stop the accrual of interest only on the amount that is sent. Because of compounding rules, interest will accrue on accrued interest, even if the taxpayer has paid the underlying tax. To stop the accrual of interest on both tax and interest, a deposit must be made for both the tax and interest that has accrued as of the date of deposit or payment.

Answer 39

Interest is figured from the return due date to the billing date, if paid within 21 days. Answer (C) is correct. Interest is generally figured from the due date of the return to either the date payment is made, if paid when agreement of assessment is signed, or the billing date, if paid within 21 days.

Answer 40

5 business days. Answer (B) is correct. If a person neglects or refuses to pay a deficiency after demand, a lien attaches to all the person’s property. When the IRS files a Notice of Federal Tax Lien, all creditors of the taxpayer are notified of the lien. The IRS must notify the taxpayer in writing within 5 business days after filing a lien. Recording the notice provides constructive notice to potential purchasers and creditors that the government has a claim against the property.

Answer 41

Upon the conclusion of the CDP hearing, the IRS will issue a determination. Answer (B) is correct. A taxpayer may appeal the filing of a Notice of Federal Tax Lien if the taxpayer believes the IRS filed in error. Upon the conclusion of the CDP hearing the IRS will issue a determination stating whether the lien will be removed or will continue its existence.

Answer 42

Jeopardy levy. Answer (C) is correct. If the IRS makes a finding that assessment or collection of a tax deficiency is in jeopardy, the IRS may waive the 10-day Notice and Demand for Tax period and/or the 30-day Notice of Intent to Levy period. A jeopardy levy is based on the collection of tax, interest, penalties, etc., being endangered by delay.

Answer 43

State income tax refunds. Answer (C) is correct. The IRS is authorized to seize and sell property of persons with unpaid assessed liability after proper notice. Certain property is exempt from levy. In most states that have state income taxes, the IRS can levy a state refund check and apply the state refund to a federal tax debt.

Answer 44

All of the answers are correct. Answer (D) is correct. Before levy action can begin, the IRS must make a determination of tax liability and assess it. Within 60 days after making the assessment, the IRS is required to provide a notice and demand for payment to the person. It must be left at the person’s home or usual place of business. The notice is accompanied by a publication outlining the taxpayer’s rights. The IRS has a Problem Resolution Program for taxpayers who are unable to solve their problems with an IRS employee.

Answer 45

The penalties and interest on the tax liability are satisfied. Answer (A) is correct. A levy on wages begins from the date the levy is enacted until (1) the tax liability assessed is satisfied, (2) the levy is released, or (3) the levy becomes unenforceable due to lapse of time. The IRS will also release a levy if the IRS determines the levy is creating an economic hardship for the taxpayer. A levy on wages will not end even if the penalties and interest on the tax liability are satisfied.

Answer 46

Income. Answer (C) is correct. The IRS will not discharge taxes through bankruptcy unless certain conditions are met. These conditions are applicable to tax returns and tax assessments independently. One of the conditions is that the tax to be discharged must be an income tax. Therefore, gift tax, estate tax, and employment taxes do not qualify for bankruptcy.

Answer 47

II only. Answer (B) is correct. The IRS will not discharge taxes through bankruptcy unless certain conditions are met. These conditions are applicable to tax returns and tax assessments independently. One of the conditions is that the taxpayer must not have a conviction of tax evasion or fraudulent tax activities. Simply being charged with evasion or fraudulent tax activities does not disqualify the taxpayer from relief through bankruptcy.

Answer 48

If the CDP request is deemed frivolous, the taxpayer will be given 30 days to withdraw or amend the CDP request in order to avoid a frivolous submission penalty. Answer (A) is correct. Upon the conclusion of the CDP hearing, the IRS will issue a determination stating whether the lien will be removed or will continue its existence. If the taxpayer disagrees with the outcome of the hearing, (s)he has 30 days from the receipt of the letter to bring a suit to contest the determination (Publication 594).

Answer 49

``` A taxpayer does not have the right to redeem his or her property prior to sale by the IRS. Answer (C) is correct. Section 6331(b) authorizes the seizure and sale of any property upon which the IRS may levy. Section 6337(a) provides a right of redemption by paying the amount due, together with expenses, at any time prior to sale of the property. For real property, the right of redemption continues until 180 days after the sale [Sec. 6337(b)]. ```

Answer 50

Assessment of the taxpayer’s ability to pay the liability. Answer (B) is correct. Before the IRS files a Notice of Federal Tax Lien, three requirements must be met for the statutory lien to attach: the IRS must assess the liability, the IRS must send notice of tax due and demand for payment, unless waived by the taxpayer, and the taxpayer must neglect or refuse to pay the tax within 10 days after notification.

Answer 51

In order to appeal, Form 12153, Request for a Collection Due Process or Equivalent Hearing, must be completed and returned within 30 days. Answer (C) is correct. In appealing the filing of a Notice of Federal Tax Lien, Form 12153, Request for a Collection Due Process or Equivalent Hearing, is completed and sent to the address from which the lien came. The request must be received within 30 days.

Answer 52

The penalty is computed on unpaid income taxes withheld plus the employee’s and the employer’s portion of the FICA taxes. Answer (B) is correct. When a person is responsible for collection and payment of trust fund taxes, (s)he is assessed a penalty equal to the amount of the delinquent trust fund taxes. Trust fund taxes are the taxes an employer is required to withhold from employees. The employer is required to pay FICA taxes equivalent to the amount withheld from the employee, but these are non-trust fund taxes and are not included when determining the amount of the penalty.

Answer 53

An employee in the payroll department. Answer (B) is correct. A person who has a responsibility to collect withholding taxes imposed on another person may be liable for a penalty equal to the amount of such taxes that (s)he willfully fails to remit to the IRS. The primary factor considered in determining responsibility is the control of funds and the authority to sign or co-sign checks. Included among responsible persons are the officers, employees, directors, and shareholders of a corporation and members of the board of trustees. An employee in the payroll department generally does not have control over funds.

Answer 54

The amount of the penalty is equal to the unpaid income taxes withheld. Answer (D) is correct. When a person is responsible for collection and payment of trust fund taxes, (s)he is assessed a penalty equal to the amount of the delinquent trust fund taxes. Trust fund taxes are the taxes an employer is required to withhold from employees, including income taxes withheld and the employee’s share of FICA taxes.

Answer 55

Collected excise taxes. Answer (C) is correct. The trust fund recovery penalty was enacted to encourage the prompt payment of withheld income and employment taxes, including Social Security and collected excise taxes. These taxes are called trust fund taxes because the employer actually holds the employee’s money in trust until the employer makes a federal tax deposit in the amount held.

Answer 56

Trust fund recovery penalty. Answer (B) is correct. The trust fund recovery penalty was enacted to encourage the prompt payment of withheld income and employment taxes, including Social Security and collected excise taxes. The penalty amount is 100% of the amount of trust fund taxes that were not paid.

Answer 57

I and III. Answer (D) is correct. Trust fund taxes are composed of income taxes withheld plus the employee’s portion of FICA taxes withheld.

Answer 58

100% Answer (C) is correct. The penalty amount is equal to 100% of the amount of trust fund taxes that were not paid.

Answer 59

The supervisor. Answer (B) is correct. The supervisor has both the duty to perform and the power to direct the payment of the trust fund taxes. The supervisor should direct the employee to pay the trust fund tax bill on time in the appropriate amount.

Answer 60

Encourage the payment of collected excise taxes. Answer (B) is correct. The trust fund recovery penalty was enacted to encourage the prompt payment of withheld income and employment taxes, including Social Security and collected excise taxes.

Answer 61

A’s supervisor. Answer (D) is correct. A’s supervisor will most likely be assessed the penalty, as they had a responsibility of authorizing specific payments. Without authorization, A was never able to make the tax payment.