Tax Compliance and Procedure Flashcards

What is the civil fraud penalty percentage under IRC Section 6663?

Answer: 75% of the fraudulent underpayment

The civil fraud penalty under IRC Section 6663 is 75% of the portion of the underpayment attributable to fraud, reflecting the serious nature of intentional tax evasion.

A taxpayer who has an unpaid tax liability and the IRS has filed a Notice of Federal Tax Lien (NFTL) wants to sell their home. What IRS document would allow the property to be sold free and clear of the lien?

Answer: Certificate of Discharge of Federal Tax Lien

A Certificate of Discharge removes the federal tax lien from a specific property, allowing it to be sold free and clear, even while the underlying tax liability remains and the lien attaches to other property.

Under the Trust Fund Recovery Penalty (TFRP), which individuals can be held personally liable for a corporation's failure to remit payroll taxes to the IRS?

Answer: Any 'responsible person' who willfully failed to collect or pay over the withheld taxes

The TFRP under IRC Section 6672 applies to any 'responsible person' — which can include officers, directors, employees, shareholders, or others with authority over tax payments — who willfully failed to collect or pay over trust fund taxes.

When does the IRS's 10-year collection statute of limitations (CSED) generally begin?

Answer: The date the tax was assessed

Under IRC Section 6502, the IRS has 10 years from the date of tax assessment (not filing) to collect a tax liability, after which the debt generally becomes uncollectible.

What is the penalty for a preparer who understates a taxpayer's liability due to an 'unreasonable position' under IRC Section 6694(a)?

Answer: The greater of $1,000 or 50% of the income derived by the preparer from preparation of the return

Under IRC Section 6694(a), the preparer penalty for an understatement due to an unreasonable position is the greater of $1,000 or 50% of the income the preparer earned for preparing that return.

Which IRS program allows currently uncollectible taxpayers to delay collection activity while their financial situation is monitored?

Answer: Currently Not Collectible (CNC) Status

Currently Not Collectible (CNC) status suspends IRS collection action when a taxpayer demonstrates that paying the tax would prevent them from meeting basic living expenses, though the debt remains and interest continues to accrue.

A taxpayer receives a CP2000 notice from the IRS. What does this notice indicate?

Answer: The IRS has detected a discrepancy between information reported by third parties and the taxpayer's return

A CP2000 notice is an automated underreporter notice indicating that information reported to the IRS by third parties (such as W-2s or 1099s) does not match what the taxpayer reported on their return, proposing an adjustment.