CTC Documentation & Legal Requirements 2 — Questions and Answers
Question 1: Under IRC Section 6001, how long must a taxpayer generally retain records supporting a filed return?
- 1 year after filing
- 3 years from the filing date or due date, whichever is later (Correct answer)
- 5 years from the transaction date
- Indefinitely for all records
Correct answer: 3 years from the filing date or due date, whichever is later
IRC §6001 requires records be kept as long as they may be material to the administration of tax law, which the IRS interprets as at least 3 years (matching the standard assessment statute).
Question 2: A client claims a home office deduction. Which document is most critical to substantiate the exclusive-use requirement?
- Utility bills showing the home address
- A floor plan or diagram with measurements of the dedicated workspace (Correct answer)
- The mortgage statement for the property
- Receipts for home office furniture purchases
Correct answer: A floor plan or diagram with measurements of the dedicated workspace
A floor plan or diagram with square footage measurements directly proves the space is used exclusively and regularly for business, satisfying IRC §280A requirements.
Question 3: Which form must a taxpayer file to request additional time to pay a tax liability after an IRS assessment?
- Form 9465 (Correct answer)
- Form 2210
- Form 4506-T
- Form 8822
Correct answer: Form 9465
Form 9465 (Installment Agreement Request) is used to request a payment plan with the IRS when a taxpayer cannot pay the full amount owed.
Question 4: When a business converts a personal asset to business use, what documentation is required to establish the depreciable basis?
- Only the original purchase receipt
- Fair market value at the date of conversion and original cost documentation (Correct answer)
- The insurance appraisal at time of purchase
- A signed letter from the taxpayer stating the conversion date
Correct answer: Fair market value at the date of conversion and original cost documentation
Depreciable basis for converted assets is the lesser of FMV or adjusted basis at conversion, so both FMV evidence and original cost records are needed.
Question 5: A tax practitioner signs a return as a paid preparer. What is the practitioner's primary legal obligation regarding document retention?
- Retain a copy of the return or a list of taxpayers for 3 years from the return due date (Correct answer)
- Keep all source documents provided by the client for 7 years
- Submit copies of all returns to the IRS within 60 days
- Retain records only if the return includes Schedule C
Correct answer: Retain a copy of the return or a list of taxpayers for 3 years from the return due date
IRC §6107(b) requires paid preparers to retain a completed copy of each return or a record of taxpayer name, TIN, and tax year for 3 years.
Question 6: Which IRS publication provides guidance on what business records small business owners should keep?
- Publication 15
- Publication 334
- Publication 583 (Correct answer)
- Publication 946
Correct answer: Publication 583
IRS Publication 583 (Starting a Business and Keeping Records) explains recordkeeping requirements for small businesses.
Question 7: An employee receives a non-cash fringe benefit. What documentation must the employer maintain to properly exclude the benefit from wages under IRC §132?
- A written policy describing the benefit program and evidence of business purpose (Correct answer)
- Only the employee's W-2 showing the benefit value
- A notarized statement from the employee confirming receipt
- Annual IRS approval letters for each excluded benefit
Correct answer: A written policy describing the benefit program and evidence of business purpose
Employers must document a written benefit plan and demonstrate that the benefit meets statutory requirements (e.g., de minimis, working condition) to exclude it from taxable wages.
CTC Documentation & Legal Requirements 2
Under IRC Section 6001, how long must a taxpayer generally retain records supporting a filed return?