CHAPTER EIGHT

OVERVIEW OF TAX PROCEDURE

EXPECTED LEARNING OUTCOMES

Appreciate and understand: The voluntary nature of federal tax

reporting The basic tax return filing requirements The IRS audit and appeals process Available court forums The tax penalty provisions Available privileges

THE ADMINISTRATION OF THE FEDERAL TAX LAWS

Compilation of tax statutes enacted by Congress

ADMINISTRATION OF THE FEDERAL TAX LAWS

C h ie f C ou n se l

IR S C om m iss ion e rC ou rt C ases

O vers ig h t B oard

In te rn a l R even u e S ervice

S E C R E TA R Y O F TH E TR E A S U R Y

VOLUNTARY COMPLIANCE BY TAXPAYER - THE TAX RETURN

Requirements: Must use correct form Must include sufficient information

to compute tax liability Must be signed under penalty of

perjury

Filing Return and Payment of Taxes

Must be timely filed

Tax liability must be paid by return due date without regard to extensions

COMPLIANCE VERIFICATION -THE IRS AUDIT PROCESS

Audit must occur within the statute of limitation period

Audit types include• Letter audit• Office audit• Field audit

Procedure When IRS Finds Taxpayer Position Incorrect

Taxpayer signs w aiver

IR S b eg in sC o llec t ion s

Taxpayer takes no action

Tax C ou rtL it ig a t ion

Taxpayer files petition inTax Court w ithin 90

days

N inety-day Letter M ailed by IRS(S ta tu tory N o tice o f D e fic ien cy)

Taxpayer takes no action Taxpayer files protest

Thirty-Day Letter Mailed by IRS

Failure to do the following will result in the imposition of penalties:• Provide copy of return to taxpayer• Sign return• Accurately report amount of tax

liability

TAX RETURN PREPARER PENALTIES

TAXPAYER PENALTIES

Accuracy-Related • Negligence or

disregard• Substantially

understated income tax

Failure to file Failure to pay tax

due

Underpayment due to fraud

Filing a frivolous tax return

Failure to file Failure to pay tax

due

PRIVILEGED COMMUNICATIONS

Who holds privilege

What the privilege protects