When Is There No Statute of Limitations on a Tax Return - Research Paper Example

Taxation Research Paper When is there no statute of limitations on a tax return? When the taxpayer files a fraudulent return with intention to evade tax liability, the three or six year limitation period does not apply and the tax may be assessed indefinitely as decided in Badaracco v. Comm., 464 U.S. 386 (1984). According to I.R.C., § 6501(c) (3), in case taxpayer fail to file returns whether negligently or innocently the tax remain accessible for the unlimited period (CCH Editors 10,907) 2. When is there a 6-year statute of limitations? In I.R.C. § 6501(e)(1)(A) the tax can be assessed for six years in case the taxpayer fails to report more than 25 percent of the gross income in the gross income report (CCH Editors 10,906) 3. Describe how a statue extension is obtained for a statute of limitations on assessment? Under I.R.C. § 6501(c) (4) the IRS can extend the period of assessing tax beyond the 3-year period in case the taxpayer signs an agreement to extend the statute of limitations before expiry of the original statute period (CCH Editors 10,907). When taxpayer agrees to extend the statute limitation to access income tax for a fixed period, they must sign the Standard IRS Form 872. Also, they can sign form 872-A for Special Consent to extend the access period up to 90 days after the earlier term of limitation upon assessment of income tax. The special consent form extends the statute of limitations on assessment until 90 days after the earliest of IRS mailing notice of terminating the extension; IRS sends a 90 day statutory notice of deficiency; or the taxpayer files the case Form 872-T to terminate Special Consent to extend the time to assess tax (CCH Editors 10,908) 4. What is the difference between a Form 870 and a Form 870AD agreement? Form 870 is about Waiver of Restrictions on Assessment. It is used by Exam and does not prohibit from filing a claim for a tax refund in the future. By signing form 870 the taxpayer consents to waive certain legal restrictions on assessment, including the issuance of the 90-day letter and the right to petition the tax court (CCH 10,910). The form is used when the taxpayer and IRS have reached mutual agreement in the case, and it is effective when signed by the taxpayer and accepted by the IRS. Form 870-AD is about Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and Accept Over-assessment. The form is more final and binding between the parties. By signing this form the taxpayer consents to waive issuance on the 90-day letter and the right to petition the court. The form also limits the taxpayer from pursuing the refund claim with the respect to the taxes assessed. (CCH 10,911) 5. What is AJAC, describe? Appeals Judicial Approach ad Culture (AJAC) refers to IRS Appeals Office policy for handling audit appeals. It is a program of returning appeals to a “quasi-judicial approach” in the way it handles cases and changing it away from a fact finding and raising new issues (CCH 10,909). Also, it enhances the perception that IRS Appeals Office is fair, impartial and independent. 6. What are pre-Appeals conferences? The U.S. Patent and Trademark Office (USPTO) established Pre-Appeal conference that enables patent applicants to request a panel of examiners to review factual and legal basis for rejection of their application prior to filing an application brief (CCH 10,908) 7. What are the Powell requirements? (Page 3-5) The Supreme Court set limitations in the case of States v. Powell.379 U.S. 48 (1964) on the IRS’s authority to compel the production of documentation through administrative summons. The Supreme Court prohibited issuance of a summons for improper reasons such as harassment of taxpayers, forcing the taxpayers into establishing a collateral dispute or any other purpose that is not in “good faith” of the investigation. In addition, it issued that the investigation should be conducted for legitimate purpose, follow the administrative steps required under the I.R.C., the information requested should be relevant and such information should not be already in the possession of IRS (CCH 10,907). 8. What is the difference between a compliance check and an audit? According to I.R.M. 4.90.3.2, involves the review information and tax returns of an entity filed by the customer. It is meant to ensure the client conforms to all rules, regulations and applicable, internal code of conduct policies and procedures (CCH 10,911). On the other hand, audit function is established to monitor and evaluation the adequacy, efficiency and effectiveness of the clients internal control structure. 9. What are the operating Divisions of the Internal Revenue Service and their respective functions? Wage and Investment (W&I) – it focuses mainly on average wage earner whose most of their taxes is paid by money withheld from his paycheck. Its responsibilities include processing of initial returns and payments, educational outreach to taxpayers, and operation of IRS Customer Service operations (CCH 10,913). Small Business / Self-Employed (SB/SE) –This operating division is also in charge of administering employment, estate, and gift taxes. SB/SE is in charge of the compliance operations at the IRS Campuses. Finally, SB/SE is in charge of all IRS collection operations (CCH 10,911). Large Business and International (LB&I)-Formerly known as Large and Midsize Business (LMSB) this operating division focuses on businesses having more than $10 million in assets and exceedingly wealthy individuals (CCH 10,90). Tax Exempt and Government Entities (TE/GE) – This division deals with all sorts and sizes of tax-exempt entities, pension funds and other types of retirement accounts, and participants in complex tax-exempt bond transactions. TE/GE also deals with other governmental entities that have federal tax issues, such as state and local governments, and Native American tribes (CCH 10,909). 10. What are two principal roles of the office of Chief Counsel? The office of the chief counsel represents IRS in legal matters and provides other legal support. Also, it prepares legislative proposals, revenue rulings, regulations and procedures and other public guidance, and legal advice (CCH 10,914). 11. When should a taxpayer assistance order (Form 911) be considered appropriate? Taxpayers can fill for assistance order (Form 911) Taxpayer Advocate Service (TAS) in case the IRS office has failed to provide them with a help they requested for in time to avoid perceived harm (CCH 10,914). 12. Under Circular 230 what are a practitioners duties regarding reliance on third party information in taking a position on a tax return? Under Circular 230 10.34 (d), the practitioner can advise a client to take position on tax return document, affidavit, or any other paper submitted to the Internal Revenue Service, or preparing or signing tax return by relying on information furnished by the clients (CCH 10,914). 13. What standard(s) must exist for a practitioner to advocate a position on a tax return? For a practitioner to advocate a position on a tax return by recommending, preparing or signing tax return only when the members believes in good faith that the position has a realistic possibility of being supported administratively or judicially on its merit if challenged (CCH 10,914). The position should not exploit the selection process of the tax authority or serve as a mere arguing position advance solely to obtain leverage in a negotiation with taxing authority. 14. Specifically, can FOIA request help your client? FOIA request can be best initiated when the case at the appeal level. It is very helpful to the clients by providing them with the exact information maintained by IRS (CCH 10,913). 15. Which of the following most protects taxpayer information: FOIA, the Privacy Act, and I.R.C section 6103? I.R.C. ensures I.R.C.s 6103(a) and such information can only be disclosed with permission obtained from within the IRS (CCH 10,911). 16. What is a John Doe Summons and how and or when are they used? (Page 3-7) Doe John summons refer to summons issued by IRS during search for information in an existing investigation without identifying the names of any particular taxpayer. Such summonses are only issued with court’s permission under I.R.C.s 7609 (f) (CCH 10,915). 17. What are summonses to third parties and how do they differ from a summons to a taxpayer? Summons to third party are orders issued by IRS to other parties other than the person whose return of the summons is issued during examination or collection of investigation. On the other hand, taxpayer summons is orders issued to the person whose return of the summons is issued (CCH 10,914). 18. What is an IDR and how is it used? Informal Document Requests (IDRs) are type’s informal requests for information. They are used in larger examinations and encompass written requests specifying the types of documents to be provided. Some IDRs are pre-written to obtain permanent records of what was received or returned to the taxpayers (CCH 10,913). 19. What happens if a party refuses to comply with an IRS summons? In case a person refuses to comply with the summons, the IRS can file a case in a Federal District Court through the Department of Justice in order to have the summons enforced. The court may order for compliance while further denial may lead punishment by fine or imprisonment or both (CCH 10,915). 20. What is the standard statute of limitations (SOL) for assessing tax on an individual’s Form 1040? Form 1040 is a U.S. Individual Income Tax Return used for personal federal income tax returns filed with IRS. It contains the details of the taxpayers, their dependents, annual income tax of the individual allowable deductions, tax due, and funds withheld from wages or estimated payments remitted to the tax liability (CCH 10,916). 21. When is financial status audits performed? The IRS can require the audit of the taxpayer’s financial status in case the taxpayer’s lifestyle fails to correlate with their income. Even in cases where the taxpayer may have acquired additional income from inheritance, or similar sources IRS may examine the past lifestyle of the taxpayer and match it with their incomes (CCH 10,914). 22. How does the IRC define return preparer? How does Circular 230 define return preparer? Under I.R.C. § 7701(a) (36), a tax return preparer is any person authorized to practice before the IRS. It is a person who prepares all or a substantial portion of a return or claim for refund, and is paid for the work done. Under Circular 230 § 10.7, return preparer is a person with limited powers to practice before IRS on their behalf or behalf of their relatives or employers (CCH 10,915). 23. When would someone not file a protest to Appeals? One should not file a protest to appeals when there is insufficient time for IRS to make the adequate review. There is possibility that the docketed cases may be rushed in case of time constraint thus such cases may not be given adequate attention they deserve (CCH 10,914). 24. What is the most thorough type of regular examination done by the IRS? Field audit is the most comprehensive than a correspondence or office audit because it enables complex issues requiring advanced knowledge of internal revenue and accounting skills to be conducted at the taxpayer’s home, place of business or accountant’s office (CCH 10,916). Also, the agent reviews thoroughly the entire taxpayer’s financial operations such as business history, nature, amount and location of taxpayer’s asset, the nature of business operations, internal control systems,, etc. 25. What is the 30-day letter and what is the 90-day letter? The 30-day letter is a formal notification letter from IRS Examination Division providing taxpayers with Revenue Agent planned amendments to the return as filed by the taxpayer along with an appeal that the taxpayer agree with the proposed adjustments. Once the taxpayer is served with 30-day notice, they have 30 days from the date of the letter to request a conference with an Appeals Officer (CCH 10,915). The 90-day letter is a legal notice sent by certified or registered mail giving the taxpayer a statutory 90-day window from the date of notice either to agree to the government’s amendments or file a petition with the U.S. tax court for a redetermination of the deficiency of income or estate and gift tax liability (CCH 10,916). Works Cited CCH (Eds), “Federal Tax Compliance Manual,” (CCH Incorporated, CCH, 2007:10,906-10,916 Read More