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IRS Procedures, Audits & Controversy Resolution Flashcards

7 cards from real CTP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 IRS Procedures, Audits & Controversy Resolution flashcards as text

  1. What is the failure-to-file penalty under IRC §6651(a)(1), and how is it calculated?

    Answer: 5% of unpaid tax per month, up to 25%

    The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month the return is late, capped at 25% of the unpaid tax under IRC §6651(a)(1).

  2. The accuracy-related penalty under IRC §6662 is generally imposed at what rate on the portion of underpayment attributable to negligence or substantial understatement?

    Answer: 20%

    The accuracy-related penalty under IRC §6662 is 20% of the underpayment attributable to negligence, disregard of rules, or substantial understatement of income tax.

  3. What is the civil fraud penalty imposed under IRC §6663, and how does it differ from the accuracy-related penalty?

    Answer: 75% of the underpayment attributable to fraud; it requires proof of intentional wrongdoing

    The civil fraud penalty is 75% of the underpayment due to fraud, and unlike the accuracy-related penalty, it requires the IRS to prove by clear and convincing evidence that the taxpayer acted with fraudulent intent.

  4. A taxpayer can avoid IRS penalties by demonstrating 'reasonable cause and good faith.' Which of the following is the BEST example of reasonable cause?

    Answer: The taxpayer relied on erroneous advice from a competent tax professional who was given all relevant facts

    Reasonable cause exists when a taxpayer exercises ordinary business care, such as relying in good faith on the advice of a qualified tax professional who was fully informed of the facts.

  5. What is the legal distinction between tax avoidance and tax evasion?

    Answer: Tax avoidance is the legal use of tax laws to reduce liability; tax evasion is the illegal non-payment or underpayment of taxes through fraud or concealment

    Tax avoidance involves legally reducing tax liability through legitimate planning, while tax evasion involves intentional illegal acts such as hiding income or falsifying records to reduce taxes owed.

  6. A private letter ruling (PLR) issued by the IRS provides what benefit to the taxpayer who requested it?

    Answer: It binds the IRS to the ruling's conclusion with respect to the requesting taxpayer's specific transaction

    A PLR is a written statement issued to a specific taxpayer describing how the IRS will treat a prospective transaction for tax purposes; it is binding only on the IRS with respect to that taxpayer and that specific transaction.

  7. Under the IRS whistleblower program (IRC §7623), what percentage of collected proceeds can a whistleblower receive when the IRS collects more than $2 million based on their information?

    Answer: 15% to 30%

    Under IRC §7623(b), when the IRS proceeds with an action and collects more than $2 million, the whistleblower is entitled to between 15% and 30% of the collected proceeds.