CTA Tax Compliance and Procedure 2 — Questions and Answers
Question 1: Which IRS collection tool allows the IRS to seize a taxpayer's wages, bank accounts, or other financial assets to satisfy a tax debt?
- Federal Tax Lien
- Tax Levy (Correct answer)
- Notice of Intent to Levy
- Certificate of Discharge
Correct answer: Tax Levy
A tax levy under IRC Section 6331 is the IRS's legal seizure of a taxpayer's property — including wages, bank accounts, and assets — to satisfy an unpaid tax liability.
Question 2: What is the minimum penalty for failure to file a tax return that is more than 60 days late (for returns due after 2015)?
- The lesser of $100 or the amount of tax owed
- The lesser of $485 (indexed for inflation) or 100% of the tax owed (Correct answer)
- The lesser of $1,000 or 5% of the tax owed
- The lesser of $5,000 or 25% of the tax owed
Correct answer: The lesser of $485 (indexed for inflation) or 100% of the tax owed
Under IRC Section 6651, if a return is more than 60 days late, the minimum failure-to-file penalty is the lesser of the indexed minimum amount (approximately $485 for 2024) or 100% of the unpaid tax.
Question 3: An Offer in Compromise (OIC) based on 'Doubt as to Collectibility' is appropriate when:
- The taxpayer believes they do not actually owe the tax assessed
- The taxpayer's assets and future income are insufficient to fully pay the liability (Correct answer)
- There was an error or injustice in the assessment of the tax
- The taxpayer wants to challenge the IRS examination findings
Correct answer: The taxpayer's assets and future income are insufficient to fully pay the liability
An OIC based on Doubt as to Collectibility is filed when a taxpayer's reasonable collection potential (assets plus future income) is less than the full tax liability owed.
Question 4: Under the IRS installment agreement provisions, what type of agreement allows taxpayers who owe $50,000 or less to establish a payment plan without providing detailed financial information?
- Partial Pay Installment Agreement (PPIA)
- Streamlined Installment Agreement (Correct answer)
- In-Business Trust Fund Express Agreement
- Guaranteed Installment Agreement
Correct answer: Streamlined Installment Agreement
The Streamlined Installment Agreement allows taxpayers owing $50,000 or less in combined tax, penalties, and interest to enter a payment plan without providing detailed Collection Information Statements (Forms 433-A or 433-B).
Question 5: What IRS form is used to authorize a tax professional to represent a taxpayer before the IRS?
- Form 8821 (Tax Information Authorization)
- Form 2848 (Power of Attorney and Declaration of Representative) (Correct answer)
- Form 1099-MISC
- Form 4506 (Request for Copy of Tax Return)
Correct answer: Form 2848 (Power of Attorney and Declaration of Representative)
Form 2848, Power of Attorney and Declaration of Representative, authorizes a qualified representative (such as a CPA, attorney, or enrolled agent) to represent a taxpayer before the IRS in examinations, appeals, and collections.
Question 6: What is the accuracy-related penalty percentage imposed under IRC Section 6662 for a substantial understatement of income tax or negligence?
- 10% of the underpayment attributable to the violation
- 20% of the underpayment attributable to the violation (Correct answer)
- 25% of the underpayment attributable to the violation
- 75% of the underpayment attributable to the violation
Correct answer: 20% of the underpayment attributable to the violation
IRC Section 6662 imposes an accuracy-related penalty of 20% of the portion of the underpayment attributable to negligence, disregard of rules, or a substantial understatement of income tax.
Question 7: Which IRS document formally closes an examination at the field level and summarizes proposed adjustments, allowing the taxpayer to agree or disagree?
- Notice of Deficiency
- Revenue Agent's Report (RAR) / Form 4549 (Correct answer)
- CP2000 Notice
- Letter 11 (Final Notice of Intent to Levy)
Correct answer: Revenue Agent's Report (RAR) / Form 4549
The Revenue Agent's Report (RAR), presented on Form 4549, summarizes the IRS examiner's proposed adjustments and is provided to the taxpayer at the close of a field examination, giving them the opportunity to agree or request Appeals.
CTA Tax Compliance and Procedure 2
Which IRS collection tool allows the IRS to seize a taxpayer's wages, bank accounts, or other financial assets to satisfy a tax debt?