CTP IRS Procedures, Audits & Controversy Resolution 2 — Questions and Answers
Question 1: What is the primary function of the IRS Independent Office of Appeals?
- To prosecute taxpayers for criminal tax fraud
- To provide an impartial administrative forum for resolving tax disputes without litigation (Correct answer)
- To issue private letter rulings on proposed transactions
- To conduct random audits of high-income taxpayers
Correct answer: To provide an impartial administrative forum for resolving tax disputes without litigation
The IRS Office of Appeals offers taxpayers a way to resolve disputes with the IRS through an impartial administrative process, avoiding the time and expense of court litigation.
Question 2: Under what circumstances can a taxpayer request a Collection Due Process (CDP) hearing?
- At any time during an IRS examination
- Only after the IRS files a Notice of Federal Tax Lien or issues a levy notice (Correct answer)
- Only before any tax is assessed
- Whenever the taxpayer disagrees with a penalty
Correct answer: Only after the IRS files a Notice of Federal Tax Lien or issues a levy notice
A CDP hearing may be requested within 30 days of a Notice of Federal Tax Lien filing or within 30 days of a final levy notice, giving taxpayers due process rights before collection action.
Question 3: An Offer in Compromise (OIC) allows a taxpayer to settle a tax liability for less than the full amount owed. Which of the following is NOT a valid basis for an OIC?
- Doubt as to liability
- Doubt as to collectibility
- Effective tax administration
- Disagreement with the tax rate applied (Correct answer)
Correct answer: Disagreement with the tax rate applied
Valid OIC bases are doubt as to liability, doubt as to collectibility, and effective tax administration; a mere disagreement with statutory tax rates is not a qualifying basis for an OIC.
Question 4: What is the legal distinction between a federal tax lien and a federal tax levy?
- A lien creates a legal claim against property; a levy is the actual seizure of property (Correct answer)
- A lien seizes property; a levy creates a legal claim against property
- A lien applies only to real estate; a levy applies only to wages
- There is no practical difference between a lien and a levy
Correct answer: A lien creates a legal claim against property; a levy is the actual seizure of property
A federal tax lien is a legal claim the government asserts against a taxpayer's property as security for a tax debt, while a levy is the actual taking (seizure) of property to satisfy the debt.
Question 5: How long does the IRS generally have to collect taxes after they have been assessed?
- 3 years
- 5 years
- 10 years (Correct answer)
- 20 years
Correct answer: 10 years
Under IRC §6502, the IRS has 10 years from the date of assessment to collect taxes through levy or court proceedings.
Question 6: What is an installment agreement, and who has the right to request one from the IRS?
- A court-ordered payment plan available only to businesses
- A voluntary payment arrangement where taxpayers pay their liability in monthly installments (Correct answer)
- An IRS program available only to taxpayers in bankruptcy
- A penalty waiver program for first-time filers
Correct answer: A voluntary payment arrangement where taxpayers pay their liability in monthly installments
An installment agreement is a voluntary arrangement between the taxpayer and the IRS that allows the taxpayer to pay the full tax liability in monthly installments over time rather than in a lump sum.
Question 7: Currently Not Collectible (CNC) status with the IRS means:
- The taxpayer's debt has been legally forgiven
- The IRS temporarily suspends collection efforts because the taxpayer cannot pay without significant hardship (Correct answer)
- The IRS has determined the statute of limitations has expired
- The taxpayer's liability has been transferred to a collection agency
Correct answer: The IRS temporarily suspends collection efforts because the taxpayer cannot pay without significant hardship
CNC status is a temporary hold on IRS collection activity when the taxpayer's financial situation shows that collecting the debt would cause economic hardship; the debt still exists and interest continues to accrue.
CTP IRS Procedures, Audits & Controversy Resolution 2
What is the primary function of the IRS Independent Office of Appeals?