Please find the enclosed attachment with study material. This assignment doesn't require any reference these are discussion postings . use your own words to explain the material .
Ch 14 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 this questions Book Link is below: This Subject is only about on Federal tax Research https://reader.yuzu.com/#/ Login –
[email protected] Password : Newyork@2018 Q7. Define and illustrate the following terms or concepts (on Page 487) (10points) Qes 7 very important please elaborate the answers with good examples) (c) Reasonable cause (d) Lack of reasonable cause Q5 What is an injunction, and when may the IRS seek an injunction? (5points) Q16 What are the rules for equitable relief? (5points) Chapter 14-Tax Practice and Administration: TAXPAYER PENALTIES 1. To encourage compliance with the self-assessment system, the government has derived a series of penalties to keep the taxpayer from deviating grossly from the government's interpretation of the tax law. Taxpayer and preparer penalties are summarized in Exhibit 14-2. 2. Civil penalties include: a. Failure to file b. Failure to pay c. Accuracy-related penalties d. Failure to pay estimated income taxes e. Failure to deposit taxes f. Giving false information with respect to withholding g. Filing a frivolous return 3. The failure to file penalty is reduced by the failure to pay penalty for any month in which both apply. 4. The accuracy-related penalties can be avoided if adequate disclosure of a position is taken on the return, or if the taxpayer shows reasonable cause or a good-faith effort to comply with the law. a. Over- and under-valuation penalties discourage the most egregious misstatements of asset values used to compute income and transfer tax liabilities. b. If the taxpayer has substantial authority for the position taken on the return, the penalty is waived. 5. Civil fraud requires a willful action to evade the tax. The Code and regulations do not define fraud, but case law indicates that the taxpayer's acts must have been both purposeful and effective. 6. Estimated tax penalties apply when less than 100 percent (110 percent for certain individual taxpayers) of the prior year's tax, or less than 90 percent (100 percent for C corporations) of the current year's tax liability is submitted through withholding and quarterly payments. a. Seasonal computations are available if taxable income is recognized in an uneven manner throughout the year. b. Large corporations are subject to accelerated payment rules. 7. Criminal penalties are proposed when the IRS is highly certain that its case will prevail, and where the taxpayer has been found to have evaded tax payments for a series of years. a. The government must make its case beyond the shadow of a reasonable doubt. b. Taxpayer defenses attempt to reclassify the disputed income and deductions, or to show that the taxpayer could not have formed or executed such a plan of tax evasion. RELIEF FROM JOINT AND SEVERAL LIABILITY Spouses can request relief from joint and several liability in three ways: 1. The innocent spouse provisions under IRC Section 6015(b) 2. An allocation of liability between spouses under 6015(c) or 6015(d) 3. Equitable relief provisions under 6015(f). PENALTIES ON RETURN PREPARERS 1. A tax return preparer is any person who prepares for compensation, or employs one or more persons to prepare for compensation, all or a substantial portion of a tax return or claim for income tax refund. 2. Penalties on tax return preparers can be classified as follows: a. Penalties for such things as not signing returns, keeping copies of returns or failing to give clients copies of returns. b. Penalties for misconduct, such as unlawful disclosure of information, lack or professional quality work procedures, and understatements of tax due to unreasonable positions. c. Tax positions are unreasonable unless there is substantial authority for the position. A more likely than not standard is applicable for tax shelters and reportable transactions. d. Penalties for assisting the taxpayer in evading tax, or for working with or organizing abusive tax shelters. INJUNCTIONS 1. The Service can enjoin preparers from practice for severe violations or misconduct. INTEREST 1. When an adjustment to a tax liability is made after an audit, the offended party is paid interest, compounded daily, computed at a rate related to the prevailing federal short-term rates. 2. The IRS can forgive penalties, but not interest obligations. 3. Corporations with large refunds are paid at a lower interest rate. Large corporations are subject to a higher interest rate on underpayments. C corporations pay a higher interest rate on underpayments than they receive on overpayments. SUMMARY A number of penalties may be assessed by the IRS against both taxpayers and tax preparers. Understanding the scope of those penalties is crucial for tax professionals. Chapter 6 © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Chapter 14 Tax Practice and Administration Roby B. Sawyers Steven L. Gill 1 Chapter 14 - Overview Learning Objectives Identify various penalties that may be applied to taxpayers whose returns reflect improper amounts and related computations of interest charges Identify various penalties that may be applied to tax practitioners who fail to perform as directed by the IRS Understand various provisions providing relief from joint nd several liability available to spouses Topics Taxpayer Penalties Relief from Joint and Several Liability Penalties on Return Preparers Injunctions Interest © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2 Taxpayer Penalties Purpose of penalties Can supplement revenues in a time when raising taxes is politically unpopular Increase tax cost of negotiating with Treasury and may discourage challenges to tax precedents Can bolster self-assessment process Tax professional must incorporate into his/her decision-making model the penalty-based costs of being too aggressive in taking certain positions © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3 Taxpayer Civil Penalties Civil penalties assessed when tax statutes are violated with reasonable cause, or as a result of negligence or fraud Ad valorem penalties = Percentage of the delinquent tax Assessable Penalties = Flat dollar amount Note: assessable penalties are not reviewed by Tax Court © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4 Summary of Taxpayer Civil Penalties Failure to File a Tax Return Failure to Pay Tax Accuracy-Related Penalty Civil Fraud Failure to Make Estimated Tax Payments Failure to Make Deposits of Taxes Giving False Information with Respect to Withholding Filing a Frivolous Return © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5 Failure to File Tax Return Failure to File a Tax Return (IRC §6651) 5% of tax due per month (or fraction thereof) Maximum of 25% Abated for reasonable cause if no willful neglect occurred If fraud asserted, 15% of tax per month to maximum of 75% Minimum Penalty Applies If no return is filed within 60 days of due date (with extensions) the minimum fee = lesser of $205 or 100% of tax due (for 2015) Avoid penalty by filing an extension timely and filing return by extended due date Otherwise penalty begins accruing on extended due date © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6 Examples of Reasonable Cause Possibly reliance on advice of competent tax counsel Return of timely mailed return without sufficient postage or mailed to incorrect IRS address Death/Serious illness of taxpayer or immediate family Destruction of taxpayer’s home-business-records by casualty IRS issues: proper forms unavailable-erroneous information given Unavoidable absence or inability to obtain records needed © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7 Failure-to-Pay Penalty Penalty applies When taxpayer fails to pay tax owed on return without reasonable cause When taxpayer fails to pay assessed deficiency within 10 days after notice and demand from IRS 10 days becomes 21 days if assessment < $100,000="" penalty="" is="" 0.5%="" per="" month="" (or="" fraction="" thereof)="" to="" maximum="" 25%="" equates="" to="" 50="" months="" to="" reach="" maximum="" assessed="" on="" net="" tax="" due="" at="" beginning="" of="" month="" increases="" to="" 1%="" after="" notice="" &="" demand="" from="" the="" irs="" failure-to-pay="" percentage="" reduces="" the="" failure-to-file="" penalty="" where="" both="" apply="" ©="" 2017="" cengage="" learning.="" all="" rights="" reserved.="" may="" not="" be="" copied,="" scanned,="" or="" duplicated,="" in="" whole="" or="" in="" part,="" except="" for="" use="" as="" permitted="" in="" a="" license="" distributed="" with="" a="" certain="" product="" or="" service="" or="" otherwise="" on="" a="" password-protected="" website="" for="" classroom="" use.="" 8="" failure-to-pay="" penalty="" not="" applicable="" when="" reasonable="" cause="" exists="" there="" is="" a="" presumption="" of="" reasonable="" cause="" if="" additional="" tax="" due="" on="" return="" is="">< than or equal to 10% of total tax for the year extension to file does not preclude failure-to-pay penalty © 2017 cengage learning. all rights reserved. may not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9 summary of accuracy-related penalties 20% of tax underpayment attributable to negligence or disregard of applicable federal tax rules and regulations substantial understatement of income tax substantial valuation overstatement substantial overstatement of pension liabilities substantial understatement of estate and gift tax valuation disallowance of claimed tax benefit (irc §7701(o)) any undisclosed foreign-financial-asset understatement can be assessed with audit or litigation even if original return show no tax liability © 2017 cengage learning. all rights reserved. may not be copied, scanned, or duplicated, in whole or in part, except for use as permitted than="" or="" equal="" to="" 10%="" of="" total="" tax="" for="" the="" year="" extension="" to="" file="" does="" not="" preclude="" failure-to-pay="" penalty="" ©="" 2017="" cengage="" learning.="" all="" rights="" reserved.="" may="" not="" be="" copied,="" scanned,="" or="" duplicated,="" in="" whole="" or="" in="" part,="" except="" for="" use="" as="" permitted="" in="" a="" license="" distributed="" with="" a="" certain="" product="" or="" service="" or="" otherwise="" on="" a="" password-protected="" website="" for="" classroom="" use.="" 9="" summary="" of="" accuracy-related="" penalties="" 20%="" of="" tax="" underpayment="" attributable="" to="" negligence="" or="" disregard="" of="" applicable="" federal="" tax="" rules="" and="" regulations="" substantial="" understatement="" of="" income="" tax="" substantial="" valuation="" overstatement="" substantial="" overstatement="" of="" pension="" liabilities="" substantial="" understatement="" of="" estate="" and="" gift="" tax="" valuation="" disallowance="" of="" claimed="" tax="" benefit="" (irc="" §7701(o))="" any="" undisclosed="" foreign-financial-asset="" understatement="" can="" be="" assessed="" with="" audit="" or="" litigation="" even="" if="" original="" return="" show="" no="" tax="" liability="" ©="" 2017="" cengage="" learning.="" all="" rights="" reserved.="" may="" not="" be="" copied,="" scanned,="" or="" duplicated,="" in="" whole="" or="" in="" part,="" except="" for="" use="" as="">