1
Chapter 15,
Administrative
Procedures
2
ADMINISTRATIVE
PROCEDURES
?Role of the IRS
?Audits of tax returns
?Requests for rulings
?Due dates
?Failure-to-file/pay-penalties
?Estimated taxes
?Severe penalties
?Statute of limitations
3
Role of the IRS
(1 of 2)
?Enforcement of tax laws
?Collection of taxes due
?Interpretation of Internal Revenue
Code
4
Role of the IRS
Organization of the IRS(2 of 2)
C h i e f C o u n c i l N a t ' l O f f i c e S t a f f
A g e n c y - W i d e
S h a r e d S e r v i c e s
A p p e a l s
T y p e t i t l e h e r e
W a g e & I n v e s t,
I n co m e
S M a l l B u s &
S e l f - E m p l o y e d
L a r g e & M i d - s i z e
B u si n e s s
T a x
E xe m p t
Op e a r t i n g
D i v i s i o n s
C I O
T y p e t i t l e h e r e
N a t ' l T a x p a y e r
A d v o c a t e
C o m m i s s i o n e r /
D e p u t y C o m m,
5
Audits of Tax Returns
(1 of 2)
?1997 statistics of returns audited
–Individual returns,0.99%
–C corporations,2.09%
–Individuals w/ > $100K income,1.66%
–Corps w/ assets > $250M,38.6%
?Returns selected for audit by
discriminant function & other means
6
Audits of Tax Returns
(2 of 2)
?Types of audits
–Correspondence audit
–Office audit
–Field audit
?Appeals process
?Burden of proof
7
Appeals Process
?If taxpayer disagrees w/ findings,
IRS sends thirty-day letter
–Taxpayer has 30 days to request a
conference w/ appeals officer
?If no agreement reached,IRS
issues ninety-day letter
–Taxpayer has 90 days to file petition
w/ Tax Court
8
Burden of Proof
?In civil court cases burden of proof
on factual matters shifts to IRS if
taxpayer does following,
–Introduces,credible evidence”
–Complies w/ recordkeeping &
substantiation requirements of IRC
–Cooperates w/ reasonable requests
–Qualifies as a natural person or legal
person w/ net worth ? $7 million
9
Requests for Rulings
?Allows taxpayer to learn how IRS
will treat a particular transaction
before the transaction is completed
?Request made in writing
?IRS has option whether or not to
respond
10
Due Dates
?Returns for individuals,fiduciaries
and partnerships are due on or
before fifteenth day of fourth month
following year-end of entity
?Extensions for filing deadline
available,but tax must be paid by
original due date to avoid penalties
11
Failure-to-File/Pay-
Penalties
?Failure to file penalty
–5% per month or fraction thereof of net
tax due w/ a 25% maximum
–Fraudulent failure to file is 15% per month
or fraction thereof w/ a maximum of 75%
?Failure to pay incurs a penalty of 0.5%
per month up to 25%
?See Topic Review C15-1
12
Estimated Taxes
?Taxpayers receiving income other
than salaries & wages should pay
quarterly estimated tax installments
–Payments should equal lesser of 90%
of tax due or 100% of last year’s tax
–Penalty for underpayment of ES taxes
based on interest on underpayment
times amount of time outstanding
13
Severe Penalties
(1 of 3)
?Penalty for underpayment due to
negligence or disregard of rules or
regulations is 20% of underpayment
?Penalty for substantial understatement
exceeding greater of 10% of tax
liability or $5,000 is 20%
–Understatement must be at least $5,000
14
Severe Penalties
(2 of 3)
?Civil fraud
–IRS has burden of proof
–Systematic omission from gross income
or fictitious deductions or dependency
claims..,
–Civil fraud penalty is 75% of portion of
underpayment attributable to fraud
15
Severe Penalties
(3 of 3)
?Criminal fraud
–IRS has burden of proof
–Prosecution may result from willful
attempts to evade any tax,willful failure to
file or willfully making returns taxpayer
does not believe to be true and correct,.,
–Maximum penalty is a fine of $100,000,
five years in jail or both,
16
Statute of Limitations
?Normal time limit is three years
from later of due date or date filed
?For substantial omissions,time limit
is six years
?No statute of limitations for fraud
?No statute of limitations if a tax
return is not filed
17
Liability for Tax
?If spouses file a joint return,liability
for taxes is joint and several
–Government can collect from either
spouse regardless of who has income
–Innocent spouse provision may
protect a naive taxpayer
–Tax may be collected from
transferees and fiduciaries
18
Comments or questions about PowerPoint Slides?
Email Richard Newmark at Dr.Newmark@PhDuh.com
Chapter 15,
Administrative
Procedures
2
ADMINISTRATIVE
PROCEDURES
?Role of the IRS
?Audits of tax returns
?Requests for rulings
?Due dates
?Failure-to-file/pay-penalties
?Estimated taxes
?Severe penalties
?Statute of limitations
3
Role of the IRS
(1 of 2)
?Enforcement of tax laws
?Collection of taxes due
?Interpretation of Internal Revenue
Code
4
Role of the IRS
Organization of the IRS(2 of 2)
C h i e f C o u n c i l N a t ' l O f f i c e S t a f f
A g e n c y - W i d e
S h a r e d S e r v i c e s
A p p e a l s
T y p e t i t l e h e r e
W a g e & I n v e s t,
I n co m e
S M a l l B u s &
S e l f - E m p l o y e d
L a r g e & M i d - s i z e
B u si n e s s
T a x
E xe m p t
Op e a r t i n g
D i v i s i o n s
C I O
T y p e t i t l e h e r e
N a t ' l T a x p a y e r
A d v o c a t e
C o m m i s s i o n e r /
D e p u t y C o m m,
5
Audits of Tax Returns
(1 of 2)
?1997 statistics of returns audited
–Individual returns,0.99%
–C corporations,2.09%
–Individuals w/ > $100K income,1.66%
–Corps w/ assets > $250M,38.6%
?Returns selected for audit by
discriminant function & other means
6
Audits of Tax Returns
(2 of 2)
?Types of audits
–Correspondence audit
–Office audit
–Field audit
?Appeals process
?Burden of proof
7
Appeals Process
?If taxpayer disagrees w/ findings,
IRS sends thirty-day letter
–Taxpayer has 30 days to request a
conference w/ appeals officer
?If no agreement reached,IRS
issues ninety-day letter
–Taxpayer has 90 days to file petition
w/ Tax Court
8
Burden of Proof
?In civil court cases burden of proof
on factual matters shifts to IRS if
taxpayer does following,
–Introduces,credible evidence”
–Complies w/ recordkeeping &
substantiation requirements of IRC
–Cooperates w/ reasonable requests
–Qualifies as a natural person or legal
person w/ net worth ? $7 million
9
Requests for Rulings
?Allows taxpayer to learn how IRS
will treat a particular transaction
before the transaction is completed
?Request made in writing
?IRS has option whether or not to
respond
10
Due Dates
?Returns for individuals,fiduciaries
and partnerships are due on or
before fifteenth day of fourth month
following year-end of entity
?Extensions for filing deadline
available,but tax must be paid by
original due date to avoid penalties
11
Failure-to-File/Pay-
Penalties
?Failure to file penalty
–5% per month or fraction thereof of net
tax due w/ a 25% maximum
–Fraudulent failure to file is 15% per month
or fraction thereof w/ a maximum of 75%
?Failure to pay incurs a penalty of 0.5%
per month up to 25%
?See Topic Review C15-1
12
Estimated Taxes
?Taxpayers receiving income other
than salaries & wages should pay
quarterly estimated tax installments
–Payments should equal lesser of 90%
of tax due or 100% of last year’s tax
–Penalty for underpayment of ES taxes
based on interest on underpayment
times amount of time outstanding
13
Severe Penalties
(1 of 3)
?Penalty for underpayment due to
negligence or disregard of rules or
regulations is 20% of underpayment
?Penalty for substantial understatement
exceeding greater of 10% of tax
liability or $5,000 is 20%
–Understatement must be at least $5,000
14
Severe Penalties
(2 of 3)
?Civil fraud
–IRS has burden of proof
–Systematic omission from gross income
or fictitious deductions or dependency
claims..,
–Civil fraud penalty is 75% of portion of
underpayment attributable to fraud
15
Severe Penalties
(3 of 3)
?Criminal fraud
–IRS has burden of proof
–Prosecution may result from willful
attempts to evade any tax,willful failure to
file or willfully making returns taxpayer
does not believe to be true and correct,.,
–Maximum penalty is a fine of $100,000,
five years in jail or both,
16
Statute of Limitations
?Normal time limit is three years
from later of due date or date filed
?For substantial omissions,time limit
is six years
?No statute of limitations for fraud
?No statute of limitations if a tax
return is not filed
17
Liability for Tax
?If spouses file a joint return,liability
for taxes is joint and several
–Government can collect from either
spouse regardless of who has income
–Innocent spouse provision may
protect a naive taxpayer
–Tax may be collected from
transferees and fiduciaries
18
Comments or questions about PowerPoint Slides?
Email Richard Newmark at Dr.Newmark@PhDuh.com
