CTP IRS Procedures, Audits & Controversy Resolution 1 — Questions and Answers
Question 1: What is the standard statute of limitations for the IRS to assess additional tax on a filed return?
- 2 years from the date the return was filed
- 3 years from the due date or filing date, whichever is later (Correct answer)
- 5 years from the date the return was filed
- 10 years from the date the tax was assessed
Correct answer: 3 years from the due date or filing date, whichever is later
The IRS generally has 3 years from the later of the return's due date or actual filing date to assess additional tax under IRC §6501.
Question 2: Which type of IRS audit is conducted entirely through written correspondence without requiring the taxpayer to appear in person?
- Field audit
- Office audit
- Correspondence audit (Correct answer)
- TCMP audit
Correct answer: Correspondence audit
A correspondence audit is handled entirely by mail, typically for simple issues like unreported income or math errors on a return.
Question 3: A Statutory Notice of Deficiency (90-day letter) issued by the IRS gives the taxpayer the right to do what before paying the disputed tax?
- Appeal directly to the Supreme Court
- Petition the U.S. Tax Court (Correct answer)
- Request a congressional hearing
- File an amended return to nullify the notice
Correct answer: Petition the U.S. Tax Court
Upon receiving a 90-day letter, the taxpayer may petition the U.S. Tax Court within 90 days to contest the deficiency without first paying the tax.
Question 4: When the IRS suspects that a taxpayer has omitted more than 25% of gross income from a return, the statute of limitations for assessment is extended to:
- 4 years
- 5 years
- 6 years (Correct answer)
- 10 years
Correct answer: 6 years
Under IRC §6501(e), the statute of limitations is extended to 6 years when the taxpayer omits more than 25% of gross income from the return.
Question 5: Which IRS audit type is the most comprehensive and typically involves an IRS agent visiting the taxpayer's home or place of business?
- Correspondence audit
- Office audit
- Field audit (Correct answer)
- Random audit
Correct answer: Field audit
A field audit is the most extensive type, with an IRS revenue agent examining records at the taxpayer's location, typically used for complex business returns.
Question 6: What IRS document authorizes a revenue officer to examine a taxpayer's books and records during an examination?
- Form 870 (Waiver of Restrictions on Assessment)
- Form 4564 (Information Document Request) (Correct answer)
- Form 2848 (Power of Attorney)
- Letter 531 (Notice of Deficiency)
Correct answer: Form 4564 (Information Document Request)
Form 4564, the Information Document Request (IDR), is used by IRS examiners to formally request specific records, documents, and information from taxpayers during an audit.
Question 7: A taxpayer who disagrees with IRS audit findings can sign Form 870 to waive the restrictions on assessment. What is the key consequence of signing this form?
- It stops all interest from accruing on the deficiency
- It allows the taxpayer to petition the Tax Court
- It allows the IRS to immediately assess the tax but preserves the right to file a refund claim (Correct answer)
- It extends the statute of limitations by one additional year
Correct answer: It allows the IRS to immediately assess the tax but preserves the right to file a refund claim
Signing Form 870 waives the right to receive a 90-day letter and allows immediate assessment, but the taxpayer can still pay the tax and file a refund claim to contest it later.
CTP IRS Procedures, Audits & Controversy Resolution 1
What is the standard statute of limitations for the IRS to assess additional tax on a filed return?