CTP IRS Procedures, Audits & Controversy Resolution 3

Question 1

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

Accepted Answer

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

Answer

0.5% of unpaid tax per month, up to 25%

Answer

10% of unpaid tax per month, up to 50%

Answer

A flat $500 fee regardless of tax owed

Question 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?

Accepted Answer

20%

Answer

10%

Answer

25%

Answer

40%

Question 3

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

Accepted Answer

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

Answer

10% of the entire tax liability; applies when the return is filed late

Answer

50% of all taxes owed; it applies automatically if any fraud is suspected

Answer

25% of unpaid taxes; it is imposed for simple negligence

Question 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?

Accepted Answer

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

Answer

The taxpayer forgot the filing deadline because they were busy at work

Answer

The taxpayer did not file because they believed they could not afford to pay

Answer

The taxpayer disagreed with the law and chose not to comply

Question 5

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

Accepted 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

Answer

Tax avoidance is always illegal; tax evasion is legal when done through loopholes

Answer

Both are illegal but tax evasion carries harsher penalties

Answer

Tax avoidance applies to businesses; tax evasion applies only to individuals

Question 6

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

Accepted Answer

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

Answer

It establishes binding precedent for all similarly situated taxpayers

Answer

It eliminates all taxes due on the described transaction

Answer

It provides immunity from criminal prosecution related to the transaction

Question 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?

Accepted Answer

15% to 30%

Answer

5% to 10%

Answer

10% to 15%

Answer

30% to 50%