CTC CTC Tax Controversy & Audit Procedures 2 — Questions and Answers
Question 1: What is the primary purpose of IRS Form 2848 in a tax controversy matter?
- To request an installment agreement
- To authorize a representative to act on a taxpayer's behalf before the IRS (Correct answer)
- To file a claim for refund
- To report foreign financial accounts
Correct answer: To authorize a representative to act on a taxpayer's behalf before the IRS
Form 2848 (Power of Attorney and Declaration of Representative) authorizes a qualified individual such as a CPA or attorney to represent the taxpayer before the IRS.
Question 2: What is a 'closing agreement' under IRC §7121 in IRS practice?
- A consent form to extend the statute of limitations
- A final and conclusive written agreement between the IRS and a taxpayer resolving a tax matter (Correct answer)
- A settlement offer submitted to the Tax Court
- An agreement to close an audit without additional adjustments
Correct answer: A final and conclusive written agreement between the IRS and a taxpayer resolving a tax matter
A closing agreement under IRC §7121 is a binding, final agreement between the IRS and a taxpayer that resolves specific tax matters and is conclusive on both parties.
Question 3: Under the 'hazards of litigation' standard, when will IRS Appeals settle a case?
- Only when the taxpayer is fully compliant with all future filings
- When the case involves amounts under $25,000
- When both parties face uncertainty about the outcome if litigated (Correct answer)
- When the taxpayer provides a sworn affidavit of accuracy
Correct answer: When both parties face uncertainty about the outcome if litigated
IRS Appeals uses the 'hazards of litigation' standard to settle cases by weighing the probability of each side prevailing in court and reaching a mutually acceptable resolution.
Question 4: What is an Offer in Compromise (OIC) and what is its primary purpose?
- A request to extend the collection statute of limitations
- An agreement allowing a taxpayer to settle a tax liability for less than the full amount owed (Correct answer)
- A payment plan for taxes owed over 72 months
- A penalty reduction request for first-time filers
Correct answer: An agreement allowing a taxpayer to settle a tax liability for less than the full amount owed
An Offer in Compromise allows eligible taxpayers to settle their federal tax liability for less than the full amount when full payment would cause financial hardship or there is doubt as to collectibility.
Question 5: Which of the following is NOT a basis for an Offer in Compromise submission?
- Doubt as to collectibility
- Doubt as to liability
- Effective tax administration
- Doubt as to statute of limitations expiration (Correct answer)
Correct answer: Doubt as to statute of limitations expiration
The three valid bases for an OIC are doubt as to collectibility, doubt as to liability, and effective tax administration — statute of limitations expiration is not a recognized OIC basis.
Question 6: What is the 'Collection Due Process' (CDP) hearing and when can a taxpayer request one?
- A hearing to dispute the underlying tax liability before assessment
- A hearing requested within 30 days of a CDP notice to contest IRS collection actions (Correct answer)
- A Tax Court proceeding to review refund claims
- A hearing to appeal audit findings within 60 days
Correct answer: A hearing requested within 30 days of a CDP notice to contest IRS collection actions
A CDP hearing allows a taxpayer to contest IRS collection actions (liens or levies) by filing a request within 30 days of receiving a CDP notice, with the right to petition Tax Court if unsatisfied.
CTC CTC Tax Controversy & Audit Procedures 2
What is the primary purpose of IRS Form 2848 in a tax controversy matter?