CTRS Penalty Abatement and Relief Flashcards

What is the civil fraud penalty and when does the IRS assert it?

Answer: A 75% penalty on the portion of underpayment attributable to fraud, asserted when the IRS proves the taxpayer intended to evade tax

The civil fraud penalty under IRC §6663 is 75% of the fraudulent underpayment, and the IRS bears the burden of proving fraud by clear and convincing evidence.

Under what circumstances does the statute of limitations for penalty assessment differ from the standard 3-year assessment period?

Answer: For fraud, there is no statute of limitations; for substantial omissions (more than 25% of gross income), the period is 6 years

While the standard assessment period is 3 years, fraudulent returns have no statute of limitations and returns with substantial omissions (more than 25% of gross income) have a 6-year assessment window.

What is 'administrative appeal' of a penalty and at what stage can it occur?

Answer: Penalties can be appealed to the IRS Office of Appeals after the IRS denies a penalty abatement request, before going to Tax Court

After the IRS denies a formal penalty abatement request, the taxpayer may appeal to the IRS Office of Appeals, which provides an independent review before Tax Court litigation.

What is the IRS's 'Penalty Handbook' and why is it important to CTRS practitioners?

Answer: IRM Section 20.1, the Internal Revenue Manual section governing penalty administration, which provides IRS guidance on asserting and abating penalties

IRM 20.1 (the Penalty Handbook) is the authoritative IRS internal guidance on penalty administration, providing detailed criteria for asserting penalties and the standards for granting abatement.

What is 'erroneous written advice from the IRS' as a basis for penalty relief?

Answer: Under IRC §6404(f), penalties attributable to erroneous written advice the IRS gave the taxpayer in response to a written request must be abated

IRC §6404(f) mandates penalty abatement when the penalty results from the taxpayer's reasonable reliance on incorrect written advice the IRS provided in response to a specific written inquiry.

What is the estimated tax penalty and which taxpayers are most commonly subject to it?

Answer: A penalty under IRC §6654/6655 for underpayment of required quarterly estimated tax payments, commonly affecting self-employed individuals and businesses with variable income

The estimated tax penalty under IRC §6654 (individuals) and §6655 (corporations) applies when taxpayers fail to make sufficient quarterly estimated payments, most commonly affecting self-employed individuals and those with non-wage income.