Tax Consulting Tax Compliance and Reporting 2 — Questions and Answers
Question 1: A taxpayer who owes taxes but cannot pay in full should consider which IRS program to pay over time?
- Offer in Compromise
- Installment Agreement (Correct answer)
- Currently Not Collectible status
- Penalty Abatement
Correct answer: Installment Agreement
An Installment Agreement allows taxpayers to pay their tax debt in monthly payments over time when they cannot pay the full amount immediately.
Question 2: Under FBAR rules, US persons must report foreign financial accounts when aggregate value exceeds what threshold at any point during the year?
- $5,000
- $10,000 (Correct answer)
- $50,000
- $100,000
Correct answer: $10,000
US persons must file a FinCEN Form 114 (FBAR) if the aggregate value of foreign financial accounts exceeded $10,000 at any time during the calendar year.
Question 3: What IRS program allows taxpayers with unpaid taxes to settle for less than the full amount owed?
- Installment Agreement
- Penalty Abatement
- Offer in Compromise (Correct answer)
- Tax Deferral Election
Correct answer: Offer in Compromise
An Offer in Compromise (OIC) allows qualifying taxpayers to settle their tax debt for less than the full amount when full payment would create financial hardship.
Question 4: Which IRS notice typically initiates an audit by mail for a specific item on a return?
- CP2000 Notice (Correct answer)
- CP501 Notice
- Notice of Deficiency (90-day letter)
- Letter 531
Correct answer: CP2000 Notice
A CP2000 notice is sent when information from third parties doesn't match the amounts reported on a return, proposing changes to income, deductions, or credits.
Question 5: What is the trust fund recovery penalty (TFRP) and who can be held personally liable?
- A penalty equal to 100% of unpaid payroll taxes imposed on responsible persons who willfully fail to pay (Correct answer)
- A 25% penalty on all withheld taxes
- A penalty only applicable to corporations, not individuals
- A fine imposed on banks holding employer trust funds
Correct answer: A penalty equal to 100% of unpaid payroll taxes imposed on responsible persons who willfully fail to pay
The TFRP equals 100% of unpaid payroll taxes and can be assessed personally against any responsible person who willfully fails to collect or pay over trust fund taxes.
Question 6: Which form must employers file to reconcile annual federal income tax withholding and FICA taxes?
- Form 941
- Form 940
- Form W-3 (Correct answer)
- Form 944
Correct answer: Form W-3
Form W-3 is the Transmittal of Wage and Tax Statements that employers file with the SSA to reconcile and summarize all W-2 forms issued to employees.
Tax Consulting Tax Compliance and Reporting 2
A taxpayer who owes taxes but cannot pay in full should consider which IRS program to pay over time?