Business Income Tax - Chapter 18

late-filing and late-payment penalty

The penalty imposed on taxpayers who fail to file their returns and pay the balance of tax due on a timely basis.

statute of limitations

The statutory limit on the time period after a tax return is filed during which the IRS can audit the return and assess additional tax.

discriminate inventory function (DIF) score

A numeric score assigned to individual tax returns that measures the return’s potential for generating additional tax on audit.

correspondence examination

The simplest type of audit that can be handled entirely by telephone or through the mail.

office examination

An audit conducted by a tax auditor at an IRS district office.

An audit conducted by a revenue agent at the taxpayer’s place of business.

enrolled agent

A tax practitioner certified by the IRS to represent clients in IRS proceedings

deficiency

An underpayment of tax determined on audit and assessed by the IRS.

Taxpayer Bill of Rights

Part of the federal law requiring the IRS to deal with every citizen and resident in a fair, professional, prompt, and courteous manner.

negligence

Failure to make a prudent attempt to comply with the tax law or the intentional disregard of tax rules and regulations.

substantial understatement of income tax

An understatement of individual income tax exceeding the greater of 10 percent of the tax required to be reported on the return, or $5,000.

civil fraud

The intention to cheat the government by deliberately understating tax liability.

special agent

A revenue agent who handles criminal fraud investigations.

criminal fraud

A felony offense involving the willful attempt to evade or defeat any federal tax

tax evasion

The willful and deliberate attempt to defraud the government by understating a tax liability through illegal means; also see criminal fraud.

tax return preparer

Any person who prepares returns (or who employs other people to prepare returns) for compensation, regardless of whether such person is a licensed attorney, certified public accountant, or enrolled agent.

U.S. Tax Court

A federal court that tries only federal income, gift, and estate tax cases

U.S. District Courts

Federal trial courts in which taxpayers can sue the government for a refund of tax.

U.S. Court of Federal Claims

A federal trial court located in Washington, D.C., in which taxpayers can sue the government for a refund of tax.

U.S. Circuit Courts of Appeals

Thirteen federal courts that hear appeals of trial court decisions.

U.S. Supreme Court

The highest federal court. The Supreme Court hears appeals of circuit court decisions.

Small Tax Case Division

A division of the U.S. Tax Court that holds informal hearings of disputes involving tax deficiencies of $50,000 or less.

installment agreement

An agreement with the IRS under which a taxpayer can make monthly payments to settle a tax deficiency over a reasonable period of time.

offer in compromise

A negotiated settlement with the IRS in which the taxpayer pays less than the entire deficiency.

transferee liability

Liability of a recipient of property (transferee) for the unpaid tax of the transferor of the property

innocent spouse rule

The rule of law under which a person who filed a joint return with a spouse is not held liable for any deficiency of tax with respect to the return.