CTA Tax Compliance and Procedure 3

Question 1

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

Accepted Answer

75% of the fraudulent underpayment

Answer

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.

Question 2

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?

Accepted Answer

Certificate of Discharge of Federal Tax Lien

Answer

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.

Question 3

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?

Accepted Answer

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

Answer

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.

Question 4

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

Accepted Answer

The date the tax was assessed

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

CTA - Certified Tax Advisor Practice Test

CTA - Certified Tax Advisor Practice Test

CTA Tax Compliance and Procedure 3