Ch 5 Homework Questions (Doesn’t required any reference please use your own words to answer it . Don’t give the reference it’s a study guide professor wants to see students explanation only. To answer...

1. Under IRC § 7602, IRS authority can summon any taxpayer to inspect his books and records, or can even demand his testimony under oath. IRS authority can also acquire information from any third party, but for this he has to provide notice to the taxpayer under IRC § 7609(c) along with the person to be summoned. Although under special circumstances, IRS authority can summon any third party for investigation without letting the taxpayer know. If the recipient does not comply with the summon, then IRS authority cam demand any document from him or to testify him in the appropriate U.S. District Court under IRC § 7604. The issue is that IRS has been very aggressive in its initiatives of enforcement and the number of cases are increasing.
2. IRS can charge penalties under IRC § 6662(b)(1) and IRC § 6662(b)(2) for the underpayment of tax either due to negligence of the taxpayer or because of a substantial understatement or because of the disrespect of the taxpayer for the rules and regulations. But the total rate of penalty can never exceed 20% of the underpaid amount. But the taxpayers do not need to pay the penalty if he gives valid reason for his underpayment or proves that he acted in good faith. Some errors can be justifiable mistakes and some can be by negligence, so in that case penalty has to be paid only for the negligence. But the issues always arise on ‘good faith’ of the taxpayer.
3. If IRS file any NFTL or propose to levy an action, then the taxpayer can call for independent review of those under IRC §§ 6320 and 6330. Then IRS will have to provide notice to the taxpayer regarding their activities related to collection and a hearing has to be carried out before depriving the taxpayer of their property. The main litigated...