UCF Tax 6065

1
UCFTax 6065

• Tax Practice and Administration
• Text Chapter Fourteen

2
Common Taxpayer Civil Penalties

• Failure to File 6651(a)(1)
• 5 of balance due per month (up to 25)
• Minimum of 100 or 100 of tax if return gt 60
  days late
• This penalty is reduced by any penalty for
  failure to pay on time in months where both apply
• Failure to Pay on Time 6651(a)(2)
• ½ of balance due per month (up to 25)
• Tax is timely paid if paid by un-extended due
  date unless there is reasonable cause (or by
  extended due date if balance due does not exceed
  10 of total tax)
• Also applies to assessed deficiencies that are
  not paid within 21 days of an IRS notice or
  demand

3
Common Taxpayer Civil Penalties

• Failure to Make Estimated Payments on time
• Individuals 6654
• Required payment is lesser of
• 90 of amount tax on current years return
• 100 (110 for t/ps with AGI gt150,000) of prior
  years tax
• Payments must be made by quarterly due dates
  (4/15, 6/15, 9/15, and 1/15)
• Amounts withheld from paycheck are considered
  remitted to IRS in equal quarterly installments
• Penalty is based on the duration of the
  underpayment and interest rate ( 6621)

4
Common Taxpayer Civil Penalties

• Failure to Make Estimated Payments on time
• Corporations 6655
• Required payment is lesser of
• 100 of current years tax
• 100 of prior years tax (only for small
  corporations)
• Payments must be made by quarterly due dates
  (calendar year t/p 4/15, 6/15, 9/15, and 1/15)
• Penalty is based on the duration of the
  underpayment and interest rate ( 6621)

5
Failure to Make Payroll Tax Deposits

• Penalty Rate 6656
• Corrected by 5th day 2 penalty
• Corrected from 6th 15th day 5 penalty
• More than 15 days but less than 40 days 10
• More than 40 days 15
• Willful Failure 6672
• Penalty is 100 of tax due
• Corporate employee/officer may be held personally
  liable

6
Accuracy-Related Penalties

• Accuracy-Related Penalties 6662
• 20 (or more) of tax underpayment due to
• Negligence or disregard of laws
• negligence includes any failure to make a
  reasonable attempt to comply
• disregard includes any careless, reckless, or
  intentional disregard
• Substantial understatement of income tax
• Substantial valuation overstatement
• Substantial overstatement of pension liabilities
• Substantial understatement of estate and gift
  valuation

7
Substantial Understatement

• Definition of substantial understatement
• C Corps - lesser of 10 of tax (or 10,000 if
  greater) OR 10 million
• All other taxpayers - Greater of 10 of tax OR
  5,000
• Can avoid penalty if
• Supported by substantial authority OR
• Adequately disclosed has a reasonable basis
• What is substantial authority?
• Types of authority
• Conclusion reached

8
Other Accuracy-Related Penalties

• Substantial valuation overstatement
• Valuation of 150 or more of actual value
  resulting in underpayment of 5,000 (10,000 for
  C Corps)
• Penalty is increased to 40 if there is a gross
  misstatement 200 or more
• Substantial overstatement of pension liabilities
• Valuation of 200 or more of correct amount
• Penalty is increased to 40 if there is a gross
  misstatement 400 or more
• Substantial estate or gift valuation
  understatement
• Valuation of 65 or less of correct value
• Penalty is increased to 40 if there is a gross
  misstatement 40 or less

9
Civil Fraud 6663

• Civil Fraud penalty is 75 of the part of
  underpayment that is attributable to fraud
• IRS has burden of proving fraud by clear and
  convincing evidence
• Accuracy related penalties do not apply to
  portion of underpayment for which fraud penalty
  is imposed
• Fraud implies intentional wrong-doing

10
Criminal Penalties - Examples

• Willful attempt to evade or defeat tax
• 100,000 (500,000 for corps) max fine
• Reimbursement of cost of prosecution
• Imprisonment for up to 5 years
• Willful failure to collect, account for, remit
  tax by any person required to do so
• 10,000 max fine
• Reimbursement of cost of prosecution
• Imprisonment for up to 5 years

11
Preparer Penalties

• Disclosure Penalties 6695
• Conduct Penalties - examples
• Negligence Penalty 5,000 or 50 of fees
  penalty for willful attempt to understate, or
  reckless or intentional disregard of IRS
  rules or Regulations
• 500 penalty for endorsing/negotiating a tax
  refund check
• Organizing Abusive Tax Shelters
• Aiding and Abetting Understatement
• Aiding or Assisting Preparation of False Return
• Criminal Fraud

12
Preparer Penalties

• OLD 6694(a) 250 penalty for taking a position
  that does not meet the realistic possibility
  standard
• Penalty also applied if preparer did not make
  adequate inquires when t/p info appeared
  incomplete or incorrect
• Could be avoided by disclosing a non-frivolous
  position

13
Preparer Penalties Iraq Funding Bill

• All tax return preparers must disclose any
  position that the tax return preparer does not
  reasonably believe is more likely than not
  correct 6694(a)
• Penalty is the greater of 1,000 or 50 of fees
  for the return if
• Position was not disclosed and return preparer
  did not have a reasonable basis that the position
  was more likely than not correct OR
• Position was disclosed but did not have a
  reasonable basis

14
Preparer Penalties 2008 Act

• Penalty described in 6694(a) applies to the
  following positions
• Position was not disclosed and return preparer
  took an unreasonable position
• An unreasonable position is a position for which
  there is not substantial authority
• Position was disclosed but did not have a
  reasonable basis
• More likely than not standard still applies to
  tax shelter advice

15
Statute of Limitations

• Assessment
• 3 years from the later of the date the return was
  filed or the un-extended due date of return
• Increases to 6 years if t/p omits gross income
  gt25 (substantial understatement)
• False or Fraudulent Return or Failure to File
• No statute of limitations
• There are some special rules for amended returns,
  special requests by t/p or IRS

16
Statute of Limitations

• Collection
• Taxes must be collected within 10 years of timely
  assessment
• Or the IRS must obtain a judgment against the t/p
• Claim for Refund or Credit
• 3 years from time return is filed OR
• 2 years from date tax was paid
• 7 years in special circumstances
• Bad debts/worthless securities
• Carry backs increase statute of limitation also

17
Statutory Agreements

• Closing Agreement
• Offer in Compromise
• Collateral Agreement