Ch 2: Tax Compliance, the IRS, and Tax Authorities

___ must file a tax return every year, regardless of taxable income

corporations

When are corporate tax returns due

3/15

___ must file a tax return depending on age, income, and filing status

individuals

When are individual tax returns due?

4/15

anyone can file for a 6 month extension to ___. but must pay in full at the orinifal due date or will owe penalties and accruals

file

The interest rate charged for individuals on late payments is the ___ + ____

Federal short term interest rate plus 3 percentage points

The interest rate charged for corporations ( that underpaid over 100,000) on late payments is the ___ + ____

Federal short-term interest rate plus 5 percentage points

length of time the IRS has to issue a deficiency

statute of limitations

The statute of limitation for assessment by the IRS is:

3 years from the later of
1) Date return filed
2) Original due date

What is the exception to the statute of limitation of 3 years

taxpayer omits income greater than 25% of gross income (making statute of limitations 6 years)

If a return was never filed OR the taxpayer commits fraud, the statute of limitation is

forever

What is the limitation for tax payer refunds?

Later of:
1) file claim within 3 years from date the return was filed
2) within 2 years from the date the tax was paid

What is the Form that is signed to extend the IRS statute of limitations (waiver)

Form 872

Why would a taxpayer sign a waiver?

Goodwill with IRS
Becomes a formal audit process if you dont

Why does the government go after celebrities?

make a notable example (deterrant)

audits performed through the mail and often involve mathematical or clerical errors (most common and least comprehensive audit)

correspondence audit

What are the 3 types of IRS audits?

Correspondence
Office
Field

audit performed at an IRS office and typically involves individual tax returns (rather than business tax returns)
ex: substantiate a credit or deduction

Office audit

audits typically performed for corporate taxpayers or other business entities at their place of business (most comprehensive and least common)

Field audits

What % of tax returns does the IRS audit?

<2%

Disagreed audits must go through ___ before going to trial court

informal appeals

What occurs if there is a dispute with the audit after it is performed? (4 steps)

Revenue Agent’s Report
Preliminary Notice (30 day letter)
Appeals division (informal appeals process)
Statutory Notice of Deficiency (90 day letter)

taxpayer must negotiate proposed IRS adjustments from the ___

Revenue Agent’s Report (RAR)

If the taxpayer agrees to the RAR, then they sign Form 870 and stop accrual of interest but this waives the taxpayers right to

receive a 90 day letter (appeal division)

If the taxpayer does not agree to the RAR:

they enter the appeals process

The IRS issues a 30 day letter after the disagreement of the RAR that gives the taxpayer 30 days to request administrative appeal

preliminary notice

If they do not request an appeal during the 330 days, then

a 90 day letter is issued

The administrative appeal is an informal appeals process otherwise called ___ that is an impartial review process with administrative law judge; both the appeals division and the taxpayer have the right to request a TAM from the national office; the taxpayer can agree or disagree with the appeals division decision

appeals division

If the dispute is not resolved by the appeals division, then the IRS

issues a 90 day letter

what are the 3 options with the 90 day letter

pay and sue
dont pay and go to tax courts
pay and go away

What is another name for the 90 day letter

Statutory Notice of Deficiency

How often are corporations audited

about .1% of corps are audited but 10% of the largest ones are

What are the 3 sources of tax law

Legislative (Fed tax codes)
Administrative (Treasury legislation)
Judicial (Case laws and precedence)

What sources of law have more authority over others

primary

because most tax law is in the gray area, tax research often considers the ___ and tax law must be applied to the specific facts and circumstances of each case

intent of congress

What are the 3 primary sources of law examples

Internal Revenue Code
Supreme Court Opinion
Treasury Regulations

What are some examples of secondary sources of law (2)

Articles
RIA

The ___ amendment provides congress the ability to tax income directly, from whatever source derived, without apportionment across the states

16th

When was the last time the internal revenue code was renumbered? (What is out current code called )

IRC of 1986

agreements negotiated between countries that describe the tax treatment of entities subject to tax in both countries

tax treaties

Tax Legislation must start
(Think Boston Tea Party- No taxation without Representation)

in the house of representatives

The Internal Revenue Code Sections are Organized by:

topic

Internal revenue Code = title __

26

Income tax = subtitle

a

If you lose in small claims court, you forfeit

appeals

When you pay and sue after the 90 day letter, what two courts have jurisdiction?

District Court
US Court of Federal Claims

The US District Court is judged by

jury (emotional cases win)

The US Court of Federal Claims is judged by

panel of judges (technical/detailed cases win)

The tax deficiency assessed by the IRS must be paid prior to filing in the:

court of federal claims or district court (you are suing for refund)

What is the drawback of going to tax court?

if the tax is found to be due (you didn’t pay before) then you must pay the interest on the late payment AND statute of limitations suspended for cases petitioning the US tax court

US Tax Courts and District courts appeal to the

US Court of Appeals (Regional Circuit)

US Court of federal claims appeals to the

US Court of Appeals (Federal Circuit)

The ___ party can appeal the trial court decision to the appropriate circuit court of appeals

losing

roll of ___ courts: review the record of the trial to determine whether the trial court applied the proper law in arriving at its decision

appeals

District courts, tax court, and the US Court of Federal Claims must abide by the precedence set by the

court of appeals of jurisdiction

the tax court must follow a decision of the court of appeals of jurisdiction even though it may disagree with the holding, which makes a perfect case to appeal to the supreme court (to set the ultimate precedence)

Golsen Rule

Appeal to the US Supreme Court using

Writ of Centiorari

at least 4 supreme court justices think the issue is important enough

cert granted

99% of all writs are denied and the court rarely hears tax cases

cert denied

out of the 80,000 cases that are sent by writ of certiorari, the supreme court will take

80

Supreme court usually grants cert to resolve conflict among

the court of appeals or where the tax issue is important