Tax Administration

Interest and penalties

- Interest Rates for tax refunds (overpayments) for individual taxpayers are the same as those applicable to assessments (underpayment). - Interest is determined quarterly. - Rate for January 1 to March 31(1st quarter) is 7% for refunds and assessment

Interest for assessments of additional taxes...

- Interest accrues on the taxes due starting from the due date of the return - Returns filed early are determined as being filed on the due date. - interest is paid on refunds if not received within 45 days of when the return was filed. - No interest is allowed if the overpayment is refunded to the taxpayer within 45 days of the date of return.

For a refund claim by taxpayer

- Only for when the taxpayer believes that an overpayment of Federal income tax was made - Generally, must be filed 3 years from date return was filed or 2 years from date tax was paid, whichever is later - Income tax returns filed early are deemed to have been filed on the date the return was due

If a satisfactory settlement is not reached on administrative appeal, the taxpayer can litigate in:

- Tax court - Federal District court - Or Court of Federal Claims Litigations is recommended only as a last resort because of: - Legal cost involved - Uncertainty of the final outcome

Settlement procedures: If an audit results in an assessment of additional tax and no settlement is reached...

- Taxpayer may request an appeal - An appeal is available through the Independent Office of Appeals of the IRS - Independent Office of Appeals is authorized to settle all disputes based on the hazards of litigations (probability of favorable resolution, if litigated)

Statutes of Limitation

- a provision that requires any lawsuit to be brought within reasonable period of time - reword: offers a party a defense against a suit brought by another party after the expiration of a specified period of time - Found at the state and federal level - Such status cover the multitude of both civil and criminal suits

Commissioner of Internal Revenue

- appointed by the President with the advice and consent of the Senate. - The Commission is responsible for establishing policy and supervising the activities of the IRS.

Office audit

= an audit conducted by the IRS in the agent's office - Usually restricted in scope and conducted in IRS offices - Unlike field audit, an office audit is restricted in scope.

Correspondence audit

An audit conducted by the IRS by the U.S. mail. - Typically, the IRS writes to the taxpayer requesting the verification of a particular deduction or exemption. - The remittance of copies of records or other support is requested of the taxpayer. - This type of audit involves a limited number of issues that can be involved.

Field audit

An audit conducted by the IRS on the business premises of the taxpayer or in the office of the tax practitioner representing the taxpayer - Involves examination of numerous items reported on the return and is conducted at the taxpayer's location or that of the taxpayer's representative

Audit process

Only a small # of tax returns are audited each year using mathematical formulas and statistical sampling Note: The probability for audit increases for higher-income taxpayers - To update selection criteria, the IRS selects a cross section of returns, which are subject to various degrees of inspection.

rewards for reporting

The IRS pays rewards to persons who provide info leading to the discovery and punishment of those who violate the tax laws. - The reward may not exceed 30% of the taxes, fines, and penalties recovered.

Internal revenue service (IRS)

The responsibility for administering the Federal tax laws rests with the treasury Department. The IRS is part of the Department of the Treasury and is responsible for enforcing the tax laws.

Fraud

specific intent to evade tax In the case of civil fraud: - Penalty is 75% of the underpayment attributable to fraud In the case of criminal fraud - Penalties can include large fines as well as prison sentences Difference between civil and criminal fraud Criminal fraud: - involves the presence of willfulness on the part of taxpayer Burden of proof, which is on the IRS in both situation, is more stringent for criminal fraud then civil fraud - Negligence penalty is not imposed when the fraud penalty applies

At the end of an audit, a Revenue Agent's Report (RAR) is issued.

summarizing the finding that can result in a - Refund (tax was overpaid) - Deficiency (tax was underpaid) or - No change (tax was correct) finding

For a deficiency assessment by the IRS...

- Generally, 3 years from the later of the due date or the filing date of return (early or late) - If the taxpayers omits an amount of income in excess of more than 25% of gross income, the statutes of limitation increase to 6 years - The 6 year provisions on assessment by the IRS applies only to the omission of income. - There is no Statute of limitation if no return is filed or fraudulent return is filed.

During the curse, if a special agent accompanies the regular auditor...

During the curse, if a special agent accompanies the regular auditor... - The IRS suspects fraud - The taxpayer should retain competent legal counsel

Tax law provides various penalties for lack of compliance including penalties for:

Failure to file a tax return by the due date: - Penalty is 5% per month up to a max of 25% on the account of tax shown as due on the return - Any fraction of a month counts as a full month Failure to pay tax: - Penalty Is 0.5% per month up to a max os 25% - Negligence penalty (up to 20%) may also apply to underpayment for disregard of rules without intent to defraud: - Only applies to the portion attributed to negligence

Preparer Tax Identification Number (PTIN)

Identification number required of tax preparers of most Federal Tax returns - Required by all person who are paid for preparing or assisting in preparing all or substantially all of a Federal tax return