CTA Tax Compliance and Procedure 1 — Questions and Answers
Question 1: What is the general statute of limitations for the IRS to assess additional taxes on a filed return?
- 2 years from the date the return was filed
- 3 years from the date the return was filed or due, whichever is later (Correct answer)
- 5 years from the date the return was filed
- 6 years from the date the return was filed
Correct answer: 3 years from the date the return was filed or due, whichever is later
Under IRC Section 6501, the IRS generally has 3 years from the later of the filing date or the due date of the return to assess additional taxes.
Question 2: Which IRS notice is typically the first formal notice that a taxpayer's return has been selected for examination?
- CP2000 Notice
- Notice of Deficiency (90-day letter)
- Letter 525 (Revenue Agent's Report)
- Letter 566 (Initial Contact Letter) (Correct answer)
Correct answer: Letter 566 (Initial Contact Letter)
Letter 566 is the IRS's initial contact letter informing a taxpayer that their return has been selected for examination and identifying the items under review.
Question 3: A taxpayer who disagrees with an IRS examination decision may request an appeal. What is the typical deadline to file a protest for a large case (over $25,000 in dispute)?
- 15 days from the date of the examination report
- 30 days from the date of the examination report (Correct answer)
- 60 days from the date of the examination report
- 90 days from the date of the examination report
Correct answer: 30 days from the date of the examination report
For cases involving more than $25,000 in dispute, taxpayers must file a written protest within 30 days of the date of the examination report to request an Appeals conference.
Question 4: What is the penalty rate for failure to pay taxes by the due date under IRC Section 6651(a)(2)?
- 0.25% per month, up to 25% maximum
- 0.5% per month, up to 25% maximum (Correct answer)
- 1% per month, up to 25% maximum
- 5% per month, up to 25% maximum
Correct answer: 0.5% per month, up to 25% maximum
The failure-to-pay penalty under IRC Section 6651(a)(2) accrues at 0.5% of the unpaid tax per month (or partial month), with a maximum of 25%.
Question 5: Under which circumstance does the IRS statute of limitations extend to 6 years instead of the normal 3 years?
- When the taxpayer files a late return
- When the taxpayer omits more than 25% of gross income from the return (Correct answer)
- When the taxpayer claims a fraudulent deduction
- When the taxpayer fails to report foreign income
Correct answer: When the taxpayer omits more than 25% of gross income from the return
Under IRC Section 6501(e), the statute of limitations extends to 6 years when a taxpayer omits more than 25% of gross income from the return.
Question 6: What IRS program allows taxpayers to voluntarily disclose previously unreported income to reduce penalties and avoid criminal prosecution?
- Offer in Compromise (OIC)
- Voluntary Disclosure Program (VDP) (Correct answer)
- Installment Agreement Program
- Currently Not Collectible (CNC) Status
Correct answer: Voluntary Disclosure Program (VDP)
The IRS Voluntary Disclosure Program (VDP) allows taxpayers to come forward voluntarily to report previously undisclosed income in exchange for reduced penalties and protection from criminal prosecution.
Question 7: What is a 'Notice of Deficiency' (also called a 90-day letter)?
- A notice that the IRS has accepted the taxpayer's return as filed
- A formal IRS notice giving the taxpayer 90 days to petition the U.S. Tax Court before the deficiency is assessed (Correct answer)
- A notice requiring the taxpayer to pay the disputed amount within 90 days
- A notice that the IRS has referred the case to the Department of Justice
Correct answer: A formal IRS notice giving the taxpayer 90 days to petition the U.S. Tax Court before the deficiency is assessed
A Notice of Deficiency is a statutory notice under IRC Section 6212 that gives the taxpayer 90 days (150 days if outside the U.S.) to petition the U.S. Tax Court to dispute the proposed deficiency before it is assessed.
CTA Tax Compliance and Procedure 1
What is the general statute of limitations for the IRS to assess additional taxes on a filed return?