Structure of IRS
What is the definition of the "Tax Gap"
The difference between the amount of tax that should have been collected and the amount of tax that was collected.
Within what time frame are most individual returns examined?
2 years from the filing date
75% of the tax
What is the general statute of limitations on a tax return?
3 years from the filing date or the unextended due date of the return.
Jackson Jefferson, a single individual taxpayer, is a self-employed electrician. His prior year adjusted gross income (AGI) was $140,000, and his prior year tax liability was $23,500. Jackson expects his current year AGI to be $160,000 and his current year tax liability to be $25,000. Jackson's income is earned evenly throughout the year. What is the minimum amount that Jackson must pay in total quarterly estimated tax payments for the current year to avoid underpayment penalties?
100% of Prior Year = $23,500
90% of Current Year = $22,500
Answer = $22,500
What is the name of the number assigned to tax preparers?
PTIN
Preparer Tax Identification Number
What is the title of the IRS's chief executive officer?
What is the name of the report that an IRS agent writes following an audit?
RAR - Revenue Agent's Report
What is the accuracy related penalty for an underpayment of tax that is attributable to substantial understatement of tax liability?
20%
Initially, who does the burden of proof fall upon during an IRS audit? The taxpayer or the IRS?
The taxpayer
In general, who is allowed to practice before the IRS? (name all 3)
CPAs
Attorneys
Enrolled Agents
What is the title of the IRS's attorney?
Chief Counsel
If the IRS is doubtful about the taxpayer's ability to pay the tax, it may offer a(n) _____________
Offer in Compromise (Form 656)
What is the preparer penalty for taking an unreasonable position on a tax return and not disclosing it?
Greater of $1,000 or 1/2 of the income of the practitioner applicable to the particular return
What is the Statute of Limitations for tax return that involves fraud?
None
Who bears the burden of proof for substantiating expenses deducted on the return?
The taxpayer
Treasury Department Circular 230 provides guidance for doing what kind of activities?
Practicing before the IRS
What is the Statute of Limitations on a return that is not filed?
The Statute of Limitations does not start until the return is filed.
What is the penalty for willful and reckless conduct of tax preparer?
The greater of:
$5,000 or
75% of the income attributable to the return
What is the extended statute of limitations if a taxpayer omits an amount of gross income in excess of 25% of the gross income stated on the return?
6 years from the later of the filing date or the unextended due date of the return
Confidentiality between a CPA/EA and a client applies only to ______________
How many operating divisions is the IRS organized into and what are divisions based upon?
4 operating divisions, based upon the types of tax returns to be processed
In general, a tax must be assessed within what time frame?
3 years from the later of the filing of the return or the unextended due date of the return
What is the penalty for each third party disclosure or improper use of tax return data?
$250 penalty for each up to $10,000 annual maximum
or
$1,000 penalty for each up to $50,000 when criminal identity theft is involved
What is the biggest difference between a Letter Ruling and a Determination Letter? (Besides the name)
A Letter Ruling is issued regarding on uncompleted, actual transactions.
A Determination Letter relates to a completed transaction
Under what circumstances may a CPA take a position that is contrary to that taken by the IRS?
1. Must have a good faith belief that the position has a realistic possibility (i.e., probably a one-in-three chance) of being sustained
2. Fully advise client of the risks involved and the associated penalties