Accounting Question

I had to work on question 6 and 8, but i need to fix them because they are. not 100% correct. im adding what i did, can you please help me with this ?

Determining the Statute of Limitations: While the statute of limitations for examination is generally three years from the date a return is filed, the statue can be automatically extended, can be voluntarily extended, or tolled under various provisions provided in the code, regulations, rulings and court cases. Your job is to advise your clients as to the applicable statute of limitations based on the fact pattern to be provided to you below. Remember: the date a return is deemed filed is a question of both fact and law.

It is October 1, 2021. The clients have not filed their joint current year’s tax return. No extension has been filed. Your clients have filed timely in the past and there is no reason to suspect that there is unreported income (once the return is filed). They live in Florida and have been unaffected by a hurricane or other severe weather event. Your team must write a memorandum to the client explaining when a tax return filing will be deemed sufficient to start the statute of limitations for both examination and assessment purposes. In addition, the clients have asked if they should file a joint tax return under the facts above. You should cite, as appropriate, the code, regulations, rulings, court cases… etc. Make sure that the memo addresses all the following questions for both types of returns:

1. What are the elements of a complete return?
2. What is the general limitation on assessment?
3. What are the exceptions to the general statute of limitations on Assessment?
4. When is a return deemed sufficient to start the statute of limitations?
5. What happens if IRS files a return on behalf of taxpayer?
6. Under what circumstances will a statute not start? (Maria Alejandra Garcia)When appointing a client, it is important to emphasize that the statute of limitations for examinations and collections begins with the proper filing of the tax return. A complete return must include all required information by law and tax regulators to assess tax liability. Usually, the three-year time limit does not start from the filing date but could be extended if the return is incomplete. In essence, an invalid return may prevent the statute of limitations from starting if it is not signed correctly, lacks necessary information, or does not follow the required format, delaying the process. The IRS may deem a return inadequate, leading to corrective actions such as amending the return and ensuring proper filing. While an unclaimed property audit is vital to determining limitation periods, it can also provide clarity on examination and assessment rights for both taxpayers and the IRS. According to Brackney, 2019 (Tax Controversy Corner: CCH Journal of Passthrough Entities, May-June 2019) the injunction statutes provide a powerful civil enforcement tool for the Department of Justice and the IRS. In many ways, the injunction action is a much worse consequence for a tax promoter or preparer than civil penalties because the action is part of the public record (unlike the results of a preparer or promoter audit, which would be subject to taxpayer confidentiality under Code Sec. 6103), and the court may shut down the preparer’s practice altogether. Under §6611(g), a return is considered valid if it contains sufficient information to calculate the tax liability reported, including the supporting schedules and/or forms, and if it contains the name, address, or identification number.
7. If the statute is not deemed to start, because of not being deemed to be a complete return, what curative actions may be necessary in order to start the statute of limitations?
8. When is the statutes of limitations tolled from running? For how long?When counseling a client about the tax law rules on time limits for tax return examination and assessment, it is imperative to acknowledge the fundamental events that set these timeframes in force. A tax return becomes complete and begins the statute of limitations if it includes correct income reporting, legal forms, and all the obligatory information. In most cases, the IRS has three years from the filing date to examine the return. Nevertheless, the timeline may stretch out arbitrarily if due payment is available or the agreement of both parties for an extension has been granted. According to a principle outlined in the IRS’s Publication 501 for the year 2023, the statute is not deemed to start as soon as the IRS categorizes the return as incomplete and needs fixing by the taxpayer. Furthermore, random events like the Internal Revenue Service filing returns on behalf of taxpayers will determine when the statute starts. Certain legislators of this regulation may apply, pausing the limitation period at random while waiting for some court’s decision or appeal, until the appellate procedure ends. In Florida, where clients are unlikely to experience dire circumstances like natural disasters, submitting a combined and prompt return could be an option, as this aligns with past compliance and proactively deals with the potential limitation of the statute. Once the return is filed, it may be tolled due to pending tax court proceedings, pending bankruptcy proceedings, the taxpayer being outside of the US, or receiving a Notice of Deficiency from the IRS (26 USC §6503).

THE IRS EXAMINATION PROCESS AND REPRESENTATION
Week 3, part 1
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Lecture Topics
1.
What happens when a return is filed?
2.
Classification of returns.
3.
IRS personnel. Who does what?
4.
What is an examination?
5.
Types of examinations (by letter, office audit or field audit)
6.
IRS examination techniques.
7.
Repetitive examinations, reopening, compliance checks, etc..
8.
Conduct of the exam.
9.
End of the exam – possible results.
10. What is not considered an examination action ( issuance of the CP 2000)
11. Practice notes (how you prepare, how you behave and what are the pitfalls)
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IRS EXAMINATION -IRM
The Internal Revenue Manual contains a number of sections to assist the
examiner in the audit process.
Part 4 of The IRM is devoted to the Examination Process.
4.10.3 provides the examiner with examination techniques designed to
produce a quality examination and other guidance, such as location of
examination, interviews, and planning, questioning techniques, listening
skills, tours of business, etc.
Aids to the practitioner:
https://www.irsvideos.gov/SmallBusinessTaxpayer/Resources/ATG2011
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OVERVIEW OF IRS
AUDIT/EXAMINATION PROCESS
Return filed and classified
DIF Scoring
Screen for Audit Potential
Determine to exam or not
Exam/Audit
Exam report
Possible results
No change
Agreed
Unagreed
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Return is filed and processed
❑Returns received by Campus
❑Marked with a DLN (Document Locater Number)
❑Checked to see if tax is due
❑If payment accompanies return the tax is compared to tax due
shown on return
❑Check to see if all required attachments attached
❑Paper return edited and coded for computer processing
❑Then sent to classification
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IRS EXAMINATION – CLASSIFICATION
Why DIF Scoring ? (cost/benefit)
How a return is selected for examination
Classification is the process
by which determined if
return should be examined.
Selected by the use of
mathematical techniques
called Discriminant
Function (DIF)
The Following are DIF
scored
• All individual returns
• S Corps with less than$10
Million of assets
• Partnerships with less
than 10 partners
Returns initially selected by
DIF are then manually
classified
• To determine if to be
examined and Who is to
examine
• Revenue Agent
• Tax Examiner
• Revenue Officer
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Three Types of Examination/Audit
Non-Exam Review
By Mail: Common. Requires the TP to send in documentation in response to a specific
question or request. Mail audits make up 77% of all audits with a 90% change rate.
Office Examination: The purpose is to ensure that the TP is accurately reporting income
and deductions and paying the lawful amount of tax. These audits cover a few specific
issues identified in the written notice to the TP.
Field Examination: An examination conducted at the TP’s place of business or at the
CPA’s office. Very comprehensive type of IRS audit, involving a thorough exam of many
items on the return.
Non-examination review: Another way that the IRS questions a return without an
examination.
◦ CP 2000: “underrepoter inquiry.” Some mismatch between income TP reports on the
return and information in the possession of the IRS. (ie; Form 1099 not reported).
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Here are some numbers that show how common – or
uncommon – the different types of audits can be:
•About 150 million total federal tax returns are filed each year
•The IRS audits less than 1% of filers
•Almost 90% of audits result in a change to the tax return
•For mail audits, the average amount owed is more than $7,000
•For office and field audits, the average amount owed is $65,000
•The IRS sends underreporter notices to about 2.5% of filers
•About 66% of underreporter notices result in additional taxes owed
•For underreporter notices, the average amount owed is about $1,500
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Campus Correspondence Examination
Examination by Letter
❖ Automated Correspondence Exam (ACE)
❖ Initial Contact Letter.
❖ Followed up by an audit report and 30-day letter.
❖ Sometime the Service will mail a contact letter merged with an audit report and a 30day letter (Combo Letter).
❖ Taxpayer may request a transfer to Office Audit. Not always honored.
❖ Taxpayer may respond to contact letter and IRS may not consider or agree to the response.
Generally, IRS takes a pretty hard line on these letters.
❖ Taxpayer may file for Audit Reconsideration (IRS Publication 3598 in Canvas).
❖ The 30-day clock continues to run however.
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Office Examination
Returns are sent to the Office Audit groups. The manager reviews and
assigns returns to Tax Compliance Officers (TCO) in his group.
Generally, examination will be of individuals with itemized deductions,
sometimes rental income, and perhaps simple Schedule C.
Conducted at IRS Office
Issues are generally predetermined
IRS Tax Compliance Officers (TCO) generally have a lower level of
training than Internal Revenue Agents.
Exams are set up to last 2-4 hours
TCOs rarely expand their examination past what has been
predetermined unless they notice something significant.
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Office Examination
Notification to the TP and Practice Pointers
▪ Initiation of Exam
▪ T/P notified either by letter or by phone
▪ Taxpayer provided Publication 1 “Your Rights as a Taxpayer
▪ Auditor has no control over content, preparation, or issuance of letters and questionnaires.
▪ Generally, the auditor is not provided with the file until the day before the meeting.
▪ Typically, TCO will follow a checklist of what has to be reviewed.
▪ Suggestions
▪ Thoroughly prepare.
▪ Understand that the TCO is generally expected to conduct and wrap up the exam at the initial meeting.
▪ Organize the information requested exactly following the request.
▪ Be punctual.
▪ Be courteous and polite.
▪ The TCO is just doing a job.
▪ Should the T/P come with you? NO!!!!!!
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Office Examination
Results
▪ No change no problem.
▪ Change report Form 4549 is provided at the conclusion of the examination.
▪ You may wish to explain issues to client rather than agree on the spot. If the deal is just too good to be true and
you have the client’s authorization, consider signing the agreement.
▪ Agreed Cases
▪ If client agrees then have client sign and send agreement to examiner. Consider having client pay along with
the agreement to stop any interest or penalties from running.
▪ A form 870 Agreement Form will be solicited which permits IRS to assess the deficiency.
▪ If accuracy related penalties are assessed always try to see if the TCO will abate them (may require a letter
from you).
▪ Unagreed Case
▪ There is an immediate opportunity to meet with the group manager to see if it can be resolved.
▪ If no agreement can be reached, then the general unagreed case procedures will be followed
▪ 30-day letter and appeal opportunity.
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Field Examination
1. Letter 2205 sets forth date for appointment or asks
T/P to call and schedule.
2. IRC §7605(a) indicates time and place (must be
reasonable under the circumstances).
3. Generally, appointment at location where T/P books
and records are maintained. Reg. § 301.7605-1(d).
4. Can request to meet at POA’s office or at IRS offices.
5. Appointments should be for the convenience of the
taxpayer Reg. § 301.7605-1(a).
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Field Examination Location
26 CFR §301.705-1(d)(3) Field examinations (i) In general. A field examination will generally take place at the location where the taxpayer’s original books, records,
and source documents pertinent to the examination are maintained. In the case of a sole proprietorship or taxpayer
entity, this will usually be the taxpayer’s principal place of business.
▪Request for on site inspection of Taxpayer’s business. Also see IRM 4.10.3.4.
▪ According to IRS chief counsel advice: the Revenue Agent need not inspect the taxpayer’s facilities “if the questions
she has are easily answered by other means. But if the inspection provides the [Revenue Agent] with a sense of the
business operation (scope, size, complexity) that cannot be obtained elsewhere, the [Revenue Agent] may inspect the
premises”
▪ Request to interview taxpayer. Answer: No
▪IRC 7521: “Any attorney, certified public accountant, enrolled agent, enrolled actuary, or any other person permitted to
represent the taxpayer before the Internal Revenue Service… and who has a written power of attorney executed by the
taxpayer may be authorized by such taxpayer to represent the taxpayer in any interview described in subsection (a). An
officer or employee of the Internal Revenue Service may not require a taxpayer to accompany the representative in the
absence of an administrative summons issued to the taxpayer under subchapter A of chapter 78.
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WHO IS
DOING
THE
EXAM
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IDR Requested Information
▪ Recordkeeping in General
▪ Computer based record keeping
▪ Statistical Sampling
▪ Accountants Workpapers
▪ Tax workpapers
▪ Audit workpapers
▪ U.S. v. Arthur Young & Co. 465 U.S. 805 (1984)
▪ Generally, will request tax reconciliation workpapers but tax accrual
workpapers only under unusual circumstances
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IRS Contact with Third Parties
▪ IRS may contact third parties (Administrative Summons).
▪ Taxpayer First Act: New Rules
IRS may not contact any person other than the taxpayer with respect to the determination or collection of the tax
liability of the taxpayer without providing reasonable notice in advance to the taxpayer that IRS may contact persons
other than the taxpayer. ( Code Sec. 7602(c)(1) )
New law: The Act replaces the above requirement with a requirement that the taxpayer be provided with
notice at least 45 days before the beginning of the period of contact. The period of contact may not be greater
than one year. The Act requires that notice be provided only if there is a present intent at the time such notice
is given for IRS to make such contacts. ( Code Sec. 7602(c)(1) , as amended Act Sec. 1206)
IRS may issue a third-party summons that doesn’t identify the taxpayer (a “John Doe summons”), but only if there
has been a court proceeding in which IRS proves that it meets certain requirements. ( Code Sec. 7609(f) )
New law. The Act prevents IRS from issuing a John Doe summons unless the information sought to be obtained
is narrowly tailored and pertains to the failure (or potential failure) of the person or group or class of persons
referred to in the statute to comply with one or more provisions of the Code which have been identified. ( Code
Sec. 7609(f) , as amended Act Sec. 1204(a))
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An IRS Record of Account Transcript can only be
requested using IRS Form 4506-T. Online Request • Available
on the IRS Web site at www.irs.gov. In the Tools section of
the homepage, click “Order a Return or Account Transcript.” •
Click “Order a Transcript.”
An account transcript provides an overview of TP’s account.
It shows filings, extensions, withholding, credits and any
follow-up transactions on the account, including penalties,
assessments, IRS inquiries and other account activity.
Basically, most IRS actions on TP’s account will appear on
this transcript.
Types of transcripts: account transcript; return transcript,
record of account transcript (a combination of the account
and return transcripts), wage and income transcript
IRS Transaction Codes Pocket Guide offers explanations
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Secure
Secure signed engagement letter and retainer. If the client refuses or does not sign the
engagement letter, consider withdrawing from the engagement. Do not start an
examination engagement without letter.
Secure
Secure a power of attorney – Form 2848. Consider what types of tax and periods to include.
Review
Review IDR to determine probable direction of the examination.
Consider
Consider work program to make sure you do not miss a step.
/
Meet
Meet with client.
Ask
Ask if there is anything that concerns client. But remember, there is no accountant-client
privilege!
Request
Request the client’s assistance in gathering the examination information per the IDR.
IRS FIELD EXAM – PRE-MEETING
PLANNING
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Conducting the Exam – Practitioner Side
Dealing with the Agent
▪ Be candid and truthful. Provide complete and honest answers.
▪ Do not voluntarily provide information not requested.
▪ Treat Agent as a professional.
▪ Discuss and resolve issues one at a time. However, do not try to resolve issues during the exam process unless the
issue can be resolved easily by provision of documents or information.
▪ Cooperate with reasonable meeting requests.
▪ Always consider any peripheral impact of an adjustment to other items on return or on other returns.
▪ Doing work for agent
▪ Like a deposit analysis or a reconciliation of income per return to gross receipts.
▪ Saves agent time and can build trust. This work should be done by Practitioner anyway.
▪ Alternatively, allow agent to do so which requires agent to spend time on this item leaving less time for other.
▪ Unreasonable Delay – the agent can request permission to contact client directly and if not permitted summons
client.
▪ Section 10.23 of circular 230 indicates that delay may result in agent referring practitioner to OPR.
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Important Practice Pointers
▪Instruct the client to not discuss any IRS matters, whether or not related to the
examination with anyone, including:
▪ IRS personnel – Revenue officers, Examiners, Correspondence audit.
▪ Friends and neighbors.
▪ All correspondence verbal or otherwise should go through the POA (you).
▪ If any IRS personnel attempts to discuss any matter directly with client, instruct
client to refer the examiner to you and not to answer any questions, no matter
how innocuous seeming.
▪ Caution client not to provide any information directly to IRS without providing
POA (you) with an opportunity to review the information.
▪ Remind client that issues that are not resolved may be appealed.
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Examination procedures –
Close of Field Audit –Agreed Case
➢Change – agreed case
➢ 4549 issued: Examination/Audit Report
➢ 4549 contains waiver of restrictions as to assessment.
➢ Agent prepares an 886-A (explanation of adjustments) which
practitioner can request.
➢ Waiver
➢ Waives right to receive a Notice of Deficiency.
➢ Permits immediate assessment of tax due.
➢ Precludes filing of a protest with Appeals as well as a tax court petition.
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Examination procedures –
Close of Field Audit –Unagreed
Unagreed
Agent issues a 4549-A
Income Tax
Discrepancy
Adjustments. And a
886-A.
Partial Agreement
30-day letter issued.
Appeals will not consider
case unless there is a
minimum of 1 year left on
the statute of limitations
2 forms 4549-A
issued. One for the
agreed part and one
for the unagreed part.
Agent prepares 4665
(report transmittal)
which states Agent’s
position.
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The Examination – What to watch out for
– Possible Referral to CID
▪ If the Agent disappears for an extended period of time, consider the
possibility that Agent may have referred case to CID of IRS. Good
time to retain legal counsel.
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CAMPUS COMPLIANCE PROGRAMSINFORMATION MANAGEMENT AND
Automated Underreporter Unit (AUR) CP 2000
IRS Matches return against Return Master File (IRMF) aka “Wage and Income Transcript”
If discrepancy sent to one of 6 campus sites
A tax examiner manually reviews and if unable to reconcile a CP2000 is issued
If taxpayer cannot resolve a deficiency letter is mailed to T/P
Some examples:
• Math Error Program: Addition etc.
• Incorrect use of an IRS table
• Inconsistent entries (Self Employed Health Deduction and no income which would permit it)
• Omission of required information
• Entry in excess of statutory limit
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CAMPUS COMPLIANCE PROGRAMSSUBSTITUTE FOR A RETURN (SFR)
❖ Notices are sent to the taxpayer that returns not filed.
❖ Taxpayer ignores notices.
❖ IRS has data from the IRMF that reflects taxable income
❖ IRS will prepare a return based on the information presented
❖ This is not an examination
❖ It is also not a return that starts the statute of limitations
❖ Once a SFR has been filed the statute may never start unless IRS
accepts a return and replaces it for the SFR
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