Question

36. LO.5 With regard to the IRS audit process, comment on the following: a. The audit is resolved by mail b. The audit is conducted at the office of the IRS. c. A "no change" RAR results. d. A special agent joins the audit team. 37. LO.5 Aldo has just been audited by the IRS. He does not agree with the agent's findings but believes that he has only two choices: pay the proposed deficiency or resort to the courts. Do you agree with Aldo's conclusion? Why or why no? 38. LO.5 What purpose is served by a statute of limitations? How is it relevant in the case of tax controversies? as 39. LO.5 Regarding the statute of limitations on additional assessments of tax by the IRS, determine the applicable period in each of the following situations. As- 1 sume a calendar year individual with no fraud or substantial omission involved. a. The income tax return for 2017 was filed on February 19, 2018. b. The income tax return for 2017 was filed on June 25, 2018. c. The income tax return for 2017 was prepared on April 4, 2018, but was never filed. Through some misunderstanding between the preparer and the taxpayer each expected the other to file the return. The income tax return for 2017 was never filed because the taxpayer thought no additional tax was due d.

Answer 1

36) a. The audit by the IRS clearly was a correspondence or minor type. The reason behind the audit was probably a minor oversight, such as the omission of some interest or dividend income, and these issues are not complicated enough to necessitate office meetings.

b. The audit by the IRS obviously is a serious type conducted in office, which cannot be easily resolved using mail correspondence.

c. Upon the conclusion of the audit, the examining agent issues a Revenue Agent’s Report (RAR) that summarizes the findings. The RAR may result in-- a refund (if tax was overpaid), a deficiency ( underpaid), or a no change (the tax paid was correct) finding. It shows the tax filed was correct.

d. If, during the course of an audit, a special agent accompanies (or takes over from) the regular auditor, this means the IRS suspects fraud. If the matter has resulted to an investigation for fraud, the taxpayer should retain competent counsel.

37)In many unresolved audit disagreements at the agent level, the taxpayer should consider an appeal to the Appeals Division. It is authorized to resolve audit disputes regardless of the fact that it is part of the IRS.It has better settlement authority than does the agent. In many number of cases, a compromise at the Appeals Division can avoid a costly and time-consuming judicial proceeding.

38)A statute of limitations is a provision in the law that offers a party a defense against a suitbrought by another party after the expiration of a specified time period .The purpose of statute of limitations is to prevent parties from prosecuting stale claims and relevant statues deal with the Federal income tax. The 2 categories involved deal with both the period of limitations applicable to the assessment of additional tax deficiencies by the IRS and the period applicable to taxpayers' claims for refunds .It has become controversial when the statute of limitations starts to run out; those who cheated on tax don’t pay but people who get caught have to pay

***General – IRS may asses additional tax liability within 3 yrs of the filing of the income tax return.

- - If the return is filed early, the 3yr period begins to run from the due date of the return (usually April 15)

- - If the taxpayer files late, the 3yr period begins to run on the date filed.

***<25% omission of income – limitations increased to six years.

***There is NOstatute of limitations if no return is filedor if fraudulent return is filed.

** *Refunds – three years from date filed OR within two years from date tax was paid

- - Whichever is LATER

- - Taxes filed early are deemed to have been filed on date due.

39)a. The state limitation would be 3 years after the filing date or deadline of the tax return, the IRS can assess an additional tax liability against the taxpayer within 3 years.

b. The state limitation would be 3 years after the filing date or deadline of the tax return, the IRS can assess an additional tax liability against the taxpayer within 3 years. Although, the filing date is April of the calendar and the taxpayer filed in June, the taxpayer would be filed a fee for filing late but the statute of limitation is still the same.

c. Through some misunderstanding between the preparer and taxpayer, each expected the other to file the return. There would be no statute of limitations for this situation because the tax return was never filed; failing to file a tax return result into a penalty of 5% per month and up to 25 percent of the tax return due.

d. Again, there would be no statute of limitations because the taxpayer never filed while can resolve to penalty, since the IRS has only part of the information (where the taxpayer didn’t file), the taxpayer is required to file the return in order to provide all the information.

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