IRS Tax Compliance and Audit Procedures 2 — Questions and Answers
Question 1: Which IRS document outlines the proposed changes after an audit and gives the taxpayer the right to appeal?
- 30-day letter (Correct answer)
- 90-day letter
- Revenue Agent Report
- Notice of Deficiency
Correct answer: 30-day letter
The 30-day letter, which accompanies the Revenue Agent Report, gives taxpayers 30 days to agree to the changes or request an Appeals conference.
Question 2: What is another name for the IRS 90-day letter?
- Statutory Notice of Deficiency (Correct answer)
- Revenue Agent Report
- Notice of Levy
- Final Partnership Administrative Adjustment
Correct answer: Statutory Notice of Deficiency
The 90-day letter is formally called the Statutory Notice of Deficiency, which gives taxpayers 90 days to petition the Tax Court before assessment.
Question 3: A taxpayer who disagrees with an IRS audit finding can request a conference with which office before going to court?
- Office of Chief Counsel
- IRS Independent Office of Appeals (Correct answer)
- Taxpayer Advocate Service
- Criminal Investigation Division
Correct answer: IRS Independent Office of Appeals
The IRS Independent Office of Appeals provides an impartial review of tax disputes between taxpayers and the IRS without litigation.
Question 4: What is the penalty rate for failing to pay tax shown on a return, per month or part of a month?
- 0.25%
- 0.5% (Correct answer)
- 1%
- 5%
Correct answer: 0.5%
The failure-to-pay penalty is 0.5% of the unpaid tax per month or part of a month, up to a maximum of 25% under IRC Section 6651.
Question 5: What penalty applies when a taxpayer files a return more than 60 days late?
- 5% per month up to 25%
- The lesser of $485 or 100% of unpaid tax (Correct answer)
- 0.5% per month up to 25%
- 20% of the underpayment
Correct answer: The lesser of $485 or 100% of unpaid tax
When a return is filed more than 60 days after the due date, the minimum penalty is the lesser of $485 (adjusted for inflation) or 100% of the tax due.
Question 6: Which IRS program allows taxpayers to come forward voluntarily to correct unreported offshore accounts?
- Offer in Compromise
- Streamlined Filing Compliance Procedures (Correct answer)
- Currently Not Collectible status
- Installment Agreement
Correct answer: Streamlined Filing Compliance Procedures
The Streamlined Filing Compliance Procedures allow eligible taxpayers to voluntarily disclose unreported foreign financial accounts and income with reduced penalties.
Question 7: What is the accuracy-related penalty percentage for a substantial understatement of income tax?
- 10%
- 15%
- 20% (Correct answer)
- 25%
Correct answer: 20%
The accuracy-related penalty for a substantial understatement of income tax is 20% of the underpayment under IRC Section 6662.
IRS Tax Compliance and Audit Procedures 2
Which IRS document outlines the proposed changes after an audit and gives the taxpayer the right to appeal?