Question 1

In a letter ruling, the IRS responds to a taxpayer's request concerning the tax treatment of a proposed transaction.

Accepted Answer

A letter ruling is a written statement issued by the IRS to a taxpayer that interprets and applies tax laws to the taxpayer's represented specific set of facts.

Question 2

After a tax audit, the taxpayer receives the Revenue Agent's Report as part of the "30-day letter."

Accepted Answer

The Revenue Agent's Report (RAR) is indeed part of the "30-day letter" package, which the IRS sends to the taxpayer after an audit, giving them 30 days to agree with the findings or file an appeal.

Question 3

A negligence penalty is assessed when the taxpayer is found not to have made a reasonable attempt to comply with the tax law.

Accepted Answer

A negligence penalty is indeed assessed when a taxpayer fails to make a reasonable attempt to comply with the tax laws, indicating a lack of due care or a failure to do what a reasonable person would do under similar circumstances.

Question 4

When a tax issue is taken to court, the burden of proof is on the IRS to show that its audit adjustments are correct.

Accepted Answer

The burden of proof is on the IRS to show that its audit adjustments are correct because the taxpayer is presumed innocent until proven guilty.

Question 5

The IRS is organized according to the industry classification of the taxpayer. One of the operating divisions of the
IRS deals exclusively with manufacturing and exporting businesses.

Accepted Answer

The IRS is organized into divisions based on the type of tax or taxpayer rather than the industry classification. Its divisions include Wage and Investment, Large Business and International, Small Business/Self-Employed, Tax Exempt and Government Entities, and Criminal Investigation, among others, but none are exclusively for manufacturing and exporting businesses.

Question 6

When the IRS issues a notice of tax due, the taxpayer has 90 days to either pay the tax or file a petition with the Tax
Court. This is conveyed in the "90-day letter."

Accepted Answer

The "90-day letter" is a formal notice from the IRS, officially known as the Notice of Deficiency, giving the taxpayer 90 days to either pay the proposed tax or file a petition with the Tax Court to dispute the IRS's findings.

Question 7

Maria and Miguel Blanco are in the midst of negotiating a divorce. Because both parties are unwilling to share any current financial information, their joint Form 1040 for 2018 is not filed until October 31, 2019, when the respective divorce attorneys forced them to cooperate. The Blancos should not be subject to any Federal late-filing penalties, because the reasonable cause exception applies to their family discord.

Accepted Answer

The reasonable cause exception for avoiding late-filing penalties typically does not apply to situations of family discord or divorce negotiations. The IRS expects taxpayers to file their returns on time, regardless of personal circumstances, unless specific criteria for reasonable cause, such as natural disasters or serious illness, are met.

Question 8

The IRS's attorney is known as the Chief Counsel.

Accepted Answer

The IRS's Chief Counsel serves as the chief legal advisor to the IRS Commissioner on all matters pertaining to the interpretation, administration, and enforcement of the Internal Revenue laws.

Question 9

Recently, the overall Federal income tax audit rate for the Form 1040 has been under 1%.

Accepted Answer

The IRS has reported that the audit rate for individual income tax returns has been under 1% in recent years, reflecting a decrease in audit rates due to various factors, including budget constraints.

Question 10

The IRS targets high-income individuals for an audit rate that is much higher than that of the general populace.

Accepted Answer

The IRS does indeed target high-income individuals for audits at a higher rate than the general populace, as they are more likely to have complex tax returns with opportunities for substantial underreporting of income or overstatement of deductions.

Question 11

An IRS letter ruling might determine that an employee's compensation is unreasonable in amount.

Accepted Answer

The answer of An IRS letter ruling might determine that...

Question 12

The tax professional can do more than just tax compliance work. He or she can work with the client in consultation over the strategy and tactics of dealing with a Federal tax audit.

Accepted Answer

Tax professionals can provide a wide range of services beyond tax compliance, including advising on strategies and tactics for handling federal tax audits, offering representation and guidance throughout the audit process.

Question 13

IRS computers use document matching programs for both individuals and business taxpayers to keep the audit rate low.

Accepted Answer

The IRS uses document matching programs to compare the information reported by taxpayers on their tax returns with information reported by third parties (such as employers and financial institutions) to ensure accuracy and compliance, thereby keeping the audit rate low by identifying discrepancies early.

Question 14

The IRS employs about 75,000 personnel, making it one of the largest Federal agencies.

Accepted Answer

As of my last update, the IRS (Internal Revenue Service) employs around 74,000 to 80,000 personnel, making it one of the largest agencies in the federal government of the United States.

Question 15

An IRS office audit takes place at the headquarters office of the corporate taxpayer.

Accepted Answer

An IRS office audit typically takes place at a local IRS office, not at the taxpayer's place of business or headquarters.

Question 16

Cheng filed an amended return this year, claiming a refund relative to her tax computation on a prior-years return.
When the IRS approves the amended return and issues the refund, it also pays Cheng interest with respect to the overpayment.

Accepted Answer

When the IRS approves an amended return that results in a refund, they also pay interest on the overpayment from the original due date of the return or the date the tax was paid, whichever is later, until the date the refund is issued.

Question 17

The government can appeal a decision of the Tax Court Small Cases Division, but the taxpayer cannot.

Accepted Answer

Both the government and the taxpayer cannot appeal decisions made by the Tax Court's Small Cases Division; these decisions are final and not subject to appeal.

Question 18

The IRS can require that the taxpayer produce its financial accounting records to determine whether taxable income is computed correctly.

Accepted Answer

The IRS has the authority to request and examine a taxpayer's financial accounting records to ensure that taxable income is accurately reported and tax laws are being followed.

Question 19

During any month in which both the failure-to-file and failure-to-pay penalties apply, both penalties are paid in full.

Accepted Answer

The failure-to-file penalty is reduced by the amount of the failure-to-pay penalty for any month both penalties apply.

Question 20

Taxpayer's must pay a significant fee to have a letter ruling issued by the IRS.

Accepted Answer

The IRS charges a fee for issuing letter rulings, which can be significant, depending on the complexity and nature of the request.

Quiz 26: Tax Practice and Ethics