CTC CTC Tax Controversy & Audit Procedures 1 — Questions and Answers
Question 1: What is the standard statute of limitations for the IRS to assess additional tax on a timely filed return?
- 2 years from the filing date
- 3 years from the later of the due date or filing date (Correct answer)
- 5 years from the filing date
- 6 years from the filing date
Correct answer: 3 years from the later of the due date or filing date
Under IRC §6501(a), the IRS generally has 3 years from the later of the return's due date or actual filing date to assess additional tax.
Question 2: When does the IRS have 6 years (instead of 3) to assess tax under the extended statute of limitations?
- When the taxpayer files an amended return
- When the taxpayer omits more than 25% of gross income from the return (Correct answer)
- When any deduction is overstated by more than $10,000
- When the taxpayer changes accounting methods
Correct answer: When the taxpayer omits more than 25% of gross income from the return
IRC §6501(e) extends the statute of limitations to 6 years when a taxpayer omits more than 25% of gross income from a return.
Question 3: What type of IRS audit is conducted entirely by mail, without requiring the taxpayer to appear in person?
- Field audit
- Office audit
- Correspondence audit (Correct answer)
- Desk audit
Correct answer: Correspondence audit
A correspondence audit (also called a mail audit) is conducted entirely through written communication and is used for straightforward issues on a return.
Question 4: What is a 'Notice of Deficiency' (90-day letter) and what right does it give the taxpayer?
- A notice requiring immediate payment of taxes owed
- A formal IRS notice that gives the taxpayer 90 days to petition the Tax Court before assessment (Correct answer)
- A letter offering an installment agreement for tax liabilities
- A notice of a scheduled field audit
Correct answer: A formal IRS notice that gives the taxpayer 90 days to petition the Tax Court before assessment
A Notice of Deficiency is a statutory notice that gives the taxpayer 90 days (150 days if abroad) to petition the U.S. Tax Court before the IRS can assess and collect the deficiency.
Question 5: Which IRS office handles appeals of examination findings before a taxpayer proceeds to court?
- IRS Criminal Investigation Division
- IRS Independent Office of Appeals (Correct answer)
- IRS Taxpayer Advocate Service
- IRS Large Business & International Division
Correct answer: IRS Independent Office of Appeals
The IRS Independent Office of Appeals provides taxpayers an independent review of disputed examination findings to resolve controversies without litigation.
Question 6: What form does a taxpayer file to request an audit reconsideration after an assessment has been made?
- Form 1040X
- Form 656
- Form 12661 (Correct answer)
- Form 433-A
Correct answer: Form 12661
Form 12661 (Disputed Issue Verification) is used to request audit reconsideration when a taxpayer disagrees with an assessment and wants the IRS to reconsider the examination.
CTC CTC Tax Controversy & Audit Procedures 1
What is the standard statute of limitations for the IRS to assess additional tax on a timely filed return?