Mixed Deck — All CTRS Topics Flashcards

Which IRS publication provides the most comprehensive overview of the IRS collection process for practitioners?

Answer: IRS Publication 594 (The IRS Collection Process)

IRS Publication 594 is the primary publication explaining the IRS collection process, including notices, liens, levies, and payment options.

Which IRS Collection Information Statement is used for wage earners and self-employed individuals when requesting Currently Not Collectible status?

Answer: Form 433-A

Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) documents the taxpayer's assets, liabilities, income, and expenses needed to evaluate CNC eligibility.

What is the non-refundable application fee for submitting an Offer in Compromise as of recent IRS guidance?

Answer: $205

The IRS charges a $205 non-refundable application fee for submitting an OIC, though this fee may be waived for low-income taxpayers.

What is a 'Certificate of Discharge' and when would a taxpayer seek one?

Answer: A certificate that removes the federal tax lien from a specific piece of property, commonly sought during a real estate sale to allow the transaction to close

A Certificate of Discharge under IRC §6325(b) removes the federal tax lien from a specific property, allowing the sale to proceed while the lien attaches to the sale proceeds.

What is the difference between a tax lien and a tax levy?

Answer: A lien is a legal claim against property; a levy is the actual seizure of property to satisfy the debt

A federal tax lien is a legal claim that secures the government's interest in a taxpayer's property, while a levy is the actual taking of property to satisfy the tax debt.

What is the significance of tax penalties in tax problem resolution?

Answer: Penalties can be reduced or removed through negotiation or settlement.

Tax penalties, such as those for late filing or late payment, can significantly increase a taxpayer's overall debt. In tax problem resolution, specialists often work to have these penalties reduced or abated by demonstrating reasonable cause for the non-compliance or through specific IRS programs. Successfully negotiating penalty relief can substantially lower the total amount owed, making the tax debt more manageable for the taxpayer.

A client asks their CTRS practitioner to prepare a tax return that claims a deduction the practitioner believes has no legal basis. The practitioner should:

Answer: Only prepare the return if there is at least a reasonable basis for the position

Under Circular 230, a practitioner may only prepare a return with a tax position if there is at least a reasonable basis for that position.

What is the IRS's 'Compliance Roadmap' in the context of collection enforcement?

Answer: A visual guide showing the sequence of IRS notices and collection actions from assessment to levy

The IRS Compliance Roadmap is a publicly available visual guide that shows taxpayers the sequence of notices and actions the IRS takes from assessment through levy and beyond.

What is Reasonable Collection Potential (RCP) and why is it central to the OIC process?

Answer: RCP is the IRS's estimate of the maximum amount it could collect from the taxpayer, and an OIC must generally equal or exceed this amount

RCP represents what the IRS believes it can collect through all available means, and a successful DATC offer must generally meet or exceed the taxpayer's RCP.

A CTRS practitioner is approached by a former client's adversary in a tax dispute involving information the practitioner learned during the prior representation. The practitioner should:

Answer: Decline the engagement due to the conflict created by confidential information from prior representation

Using confidential information obtained during prior representation against a former client creates a conflict of interest that prohibits the new engagement without informed consent.

A CTRS practitioner unknowingly submits an incorrect Form 433-A to the IRS. Upon discovering the error, the practitioner should:

Answer: Promptly notify the client and advise them to correct the submission

Upon discovering an error in a submission, the practitioner must promptly notify the client and advise them of the steps needed to correct it.

Under Circular 230, if a practitioner is the subject of a disciplinary proceeding by the IRS OPR, the practitioner has the right to:

Answer: A conference with the OPR and the opportunity to present evidence and arguments

Practitioners subject to OPR disciplinary proceedings have the right to a conference and the opportunity to present evidence before sanctions are imposed.

What is the IRS Offer in Compromise (OIC)?

Answer: It allows taxpayers to reduce their tax debt to a lower amount based on financial hardship.

The IRS Offer in Compromise (OIC) is a program that allows certain taxpayers to resolve their tax liability with the IRS for a lower amount than what they originally owe. This option is generally available to taxpayers who can demonstrate that they are unable to pay their full tax debt due to their current financial situation. The IRS evaluates the taxpayer's ability to pay, income, expenses, and asset equity to determine an acceptable settlement amount.

What is the standard federal tax lien priority rule under IRC Section 6323?

Answer: A federal tax lien is valid against third parties only after a Notice of Federal Tax Lien is filed

Under IRC §6323, a federal tax lien is not valid against purchasers, holders of security interests, mechanic's lienors, or judgment lien creditors until a Notice of Federal Tax Lien (NFTL) has been properly filed.

Which IRS forms are required to submit a Doubt as to Collectibility OIC for an individual taxpayer?

Answer: Form 656 and Form 433-A (OIC)

An individual DATC OIC requires Form 656 (Offer in Compromise) and Form 433-A (OIC) (Collection Information Statement for Wage Earners and Self-Employed Individuals).

What is the IRS's 'Fresh Start' initiative and how did it affect installment agreement thresholds?

Answer: Fresh Start expanded the Streamlined IA threshold from $25,000 to $50,000 and extended the payment term from 60 to 72 months

The IRS Fresh Start initiative, launched in 2011 and expanded in 2012, raised the Streamlined IA threshold to $50,000 and extended the maximum payment term to 72 months, making installment agreements more accessible.

What is the two-part test for TFRP liability (responsible person + willfulness)?

Answer: A responsible person is someone with authority to direct the payment of funds; willfulness means intentionally disregarding a known legal duty to pay the taxes

TFRP requires proving both elements: the person had authority over company finances (responsibility) and deliberately chose not to pay the trust fund taxes when they had knowledge of the obligation (willfulness).

What is the user fee for establishing a direct debit installment agreement (DDIA) online?

Answer: $31

As of current IRS guidance, the user fee for setting up a direct debit installment agreement online is $31, which is substantially lower than the fee for non-direct debit agreements.

What is a 'pyramiding' tax problem in the context of IRS enforcement?

Answer: A pattern where a business continues to accumulate new payroll tax liabilities while existing ones remain unpaid

Pyramiding occurs when a business consistently fails to deposit payroll taxes and continues to incur new liabilities, causing the debt to grow rapidly.

A CTRS practitioner receives a subpoena for a client's tax records held in the practitioner's file. The practitioner should first:

Answer: Notify the client and seek legal guidance before producing records

Upon receiving a subpoena, the practitioner should notify the client and seek legal guidance to determine what may be protected by privilege before complying.