Tax Compliance and Audit Procedures Flashcards

How long does the IRS generally have to collect tax after assessment?

Answer: 10 years

Under IRC Section 6502, the IRS has 10 years from the date of assessment to collect unpaid tax through levy or court proceedings.

Which IRS form does a taxpayer use to request an installment agreement to pay a tax liability over time?

Answer: Form 9465

Form 9465, Installment Agreement Request, is used by taxpayers to apply for a monthly payment plan to pay off their tax debt.

What is the fraud penalty percentage applied to the portion of underpayment attributable to civil fraud?

Answer: 75%

The civil fraud penalty under IRC Section 6663 is 75% of the underpayment attributable to fraud.

A taxpayer who cannot pay their full tax liability and has no prospect of doing so may qualify for which IRS program?

Answer: Offer in Compromise

An Offer in Compromise allows qualifying taxpayers to settle their tax debt for less than the full amount owed based on doubt as to collectibility.

Which basis does the IRS use to reconstruct income when a taxpayer has no books or records during an audit?

Answer: Indirect methods such as bank deposits or net worth analysis

When records are unavailable, the IRS may use indirect methods like the bank deposit method or net worth method to reconstruct a taxpayer's income.

What is the Trust Fund Recovery Penalty (TFRP) based on?

Answer: 100% of the unpaid trust fund taxes

The TFRP equals 100% of the unpaid trust fund taxes (employee withholding and FICA) and is assessed against responsible persons who willfully failed to pay.

Which IRS notice is typically the first contact in an automated underreporter (AUR) case and proposes a change to a tax return?

Answer: CP2501

CP2501 is typically the initial IRS contact in an AUR case, informing the taxpayer that income or payment information doesn't match and requesting clarification.