IRS Tax Compliance and Audit Procedures 1 — Questions and Answers
Question 1: Which IRS notice informs a taxpayer that their return has been selected for examination?
- CP2000
- Letter 2205 (Correct answer)
- CP503
- Letter 531
Correct answer: Letter 2205
IRS Letter 2205 is the initial contact letter notifying a taxpayer their return has been selected for examination.
Question 2: What is the standard statute of limitations for the IRS to assess additional tax on a filed return?
- 2 years from the due date
- 3 years from the later of the filing date or due date (Correct answer)
- 5 years from the filing date
- 6 years from the due date
Correct answer: 3 years from the later of the filing date or due date
The IRS generally has 3 years from the later of when the return was filed or its due date to assess additional tax.
Question 3: When a taxpayer omits more than 25% of gross income from their return, what is the statute of limitations for IRS assessment?
- 3 years
- 4 years
- 6 years (Correct answer)
- 10 years
Correct answer: 6 years
When gross income is understated by more than 25%, the IRS has 6 years to assess additional tax under IRC Section 6501(e).
Question 4: Which type of IRS audit is conducted entirely by mail without requiring the taxpayer to appear in person?
- Field audit
- Office audit
- Correspondence audit (Correct answer)
- Random audit
Correct answer: Correspondence audit
A correspondence audit is conducted by mail, with the IRS requesting specific documentation through written correspondence.
Question 5: What IRS form is used by a taxpayer to formally agree to extend the statute of limitations for assessment?
- Form 872 (Correct answer)
- Form 906
- Form 2848
- Form 1127
Correct answer: Form 872
Form 872, Consent to Extend the Time to Assess Tax, is used to voluntarily extend the statute of limitations for assessment.
Question 6: During an IRS field audit, who typically conducts the examination at the taxpayer's place of business?
- Revenue Officer
- Revenue Agent (Correct answer)
- Special Agent
- Tax Compliance Officer
Correct answer: Revenue Agent
Revenue Agents conduct field examinations (audits) of tax returns, typically at the taxpayer's place of business or representative's office.
Question 7: What is the primary purpose of an IRS CP2000 notice?
- To notify a taxpayer of a balance due from a previous audit
- To propose changes to a return based on information received from third parties (Correct answer)
- To inform a taxpayer their return was accepted as filed
- To request the taxpayer appear for an in-person interview
Correct answer: To propose changes to a return based on information received from third parties
A CP2000 notice proposes changes to a return when information from employers, banks, or other payers does not match what the taxpayer reported.
IRS Tax Compliance and Audit Procedures 1
Which IRS notice informs a taxpayer that their return has been selected for examination?