Tax Compliance Regulations Overview

E-File Mandate for Businesses

• Businesses filing 10 or more returns must e-file.

Due Diligence Preparer Penalty

• $600 for failure to comply.

Form 1099-K

• 2024 threshold: $5,000 (phased to $600).

Modernized E-File Platform

• Allows e-filing for current and two prior tax years—not beyond.

Passport Revocation

• IRS can revoke a passport if delinquent tax balance exceeds $59,000.

Primary Authority

• Internal Revenue Code is the primary authority. Also includes Supreme Court decisions and international agreements.

Treasury Regulations

• IRS's official interpretations of the Internal Revenue Code. Courts generally uphold them.

Legislative Regulations

• Issued when Congress delegates authority to the Treasury Department; more authoritative than interpretive regulations.

Interpretive Regulations

• IRS interprets provisions of the Internal Revenue Code.

IRS Regulations

• The IRS is bound by its regulations, which courts are not. Regulations usually have the force of law.

Treasury Regulation Classification

• Proposed: Public comment period.
• Temporary: Three-year maximum, offering immediate guidance.
• Final: Official Treasury decisions; have legal weight.

Revenue Rulings and Procedures

• Revenue rulings state IRS positions; procedures give instructions. Not legally binding.

Private Letter Ruling

• IRS interprets law for a specific instance. Binding on the IRS for that taxpayer only. Minimum cost: $10,000.

Internal Revenue Manual

• Internal IRS policy, procedures, and delegated authority guide for tax professionals.

Freedom Of Information Act (FOIA)

• Grants public access to IRS records (unless exempt under specific circumstances, like national security).

IRS Divisions

• Large Business and International: Corporations with assets exceeding $10 million.
• Small Business and Self-Employed: Corporations (and partnerships) with assets under $10 million, gift/estate/excise returns, employment tax, and self-employed.
• Wage and Investment: Individual taxpayers with only wages and investment income.
• Tax-Exempt and Government Entities: Employee plans, tax-exempt organizations, and government entities.

Practice Before The IRS

• All matters connected to IRS representation, taxpayer rights, and liabilities.

NOT Practice Before The IRS

• Tax court representation.
• Witness appearances for a taxpayer.
• Tax return preparation and signing.

Enrolled Practitioners

• Authorized to practice before the IRS via licensing. Includes enrolled agents, attorneys, CPAs, certain actuaries/retirement plan agents.

OPR vs RPO

• OPR (Office of Professional Responsibility): Practitioner conduct, discipline, proceedings, sanctions.
• RPO (Return Preparer's Office): PTINs, enrollment applications, AFSP testing (Annual Filing Season Program).

Annual Filing Season Program (AFSP)

• Non-credentialed preparers can voluntarily complete tax training and become qualified to represent clients before the IRS.

Unenrolled Preparers

• Generally restricted in practice before the IRS.

Rules for Limited Practice

• Individuals with special relationships with taxpayers may represent them before the IRS (self-representation, relatives, officers, partners, employees, fiduciaries).

PTIN Requirements

• Nine-digit number required for paid tax preparers preparing and signing tax returns or refunds, not applicable to non-compensated returns.

EA Renewals

• Every 3 years; 72 hours of continuing education. At least 16 hours each year, with 2 hours being ethics.

Power of Attorney

• Written authorization to act on a taxpayer's behalf before the IRS; includes practitioners. Form 2848 is accepted for non-IRS POA but needs the same information.

Form 2848

• Taxpayer authorizes a representative to act on their behalf for specific matters, and for specific time periods.

Form 8821

• Taxpayer authorization form for institutions to receive data.

Centralized Authorization File (CAF)

• IRS database of tax authorizations.

Certified Acceptance Agents (CAA)

• Authorized to assist foreign persons (no SSN) with tax filing. Requires form 13551 application.

Circular 230

• IRS regulations governing the practice of tax professionals, including authority, duties, restrictions, sanctions, and disciplinary procedures.

Best Practices

• Clear communication, fact establishment, reasonable assumptions advice, fairness, and integrity.

Competence

• Required level of knowledge, skill, thoroughness, and preparation.

Knowledge of Client's Omission

• Practitioners must notify clients of errors and their implications but aren't responsible for correcting noncompliance or IRS notifications.

Conflicts of Interest

• Practitioners must disclose and manage conflicts, and clients can waive them.

IRS Information Requests

• Practitioners must respond promptly to requests; not required to verify client information or inquire further.

Return of Client Records

• Must return records promptly, but may keep copies. Keeping copies of all returns, or a list of clients, and returns prepared, is required.

Practitioner fees

• No contingent fees or unconscionable fees.

Advertising Restrictions

• No false, deceptive, or coercive advertising. "Certified" prohibited; can solicit in legal circumstances. Mail and fee schedules allowed with stipulations. Radio/TV recordings kept for 3 years.

Requirements for Written Tax Advice

• Advice based on reasonable assumptions; considering all factors; reasonable efforts in gathering facts.

Form 8275-R

• Used to disclose items or positions on a tax return for potential penalties; reasonable basis and good faith.

Advising Clients on Potential Penalties

• Practitioners must inform clients of penalties if they advised on the position or prepared/signed the return.

Reporting Requirements for Tax Shelter Activities

• Reportable transactions (potential tax avoidance) require Form 8886 disclosure. Penalty potential: 30% understatement penalty/ 75% of tax reduction.

Due Diligence Requirements

• Four requirements for EITC, CTC, ACTC, ODC, AOTC, and HO credits. Form 8867, worksheets, knowledge application, and recordkeeping. Only need to ask for documents when client information is suspect

Penalties for Failure to Exercise Due Diligence

• $600 preparer penalty. Taxpayer limitations on claiming credits (2 years for reckless, 10 years for fraud).

Recordkeeping Requirements

• Documentation of income, expenses, and basis; includes financial, legal, business entity, and expense documents.

Employment Tax Records

• Retain payroll and employment tax records for at least four years.

Statute of Limitations

• Assessment of tax owed: 3 years from due or filed date. Claims for refund: 3 years from filing or 2 years from payment.

Penalty for Substantial Understatement

• For individuals, understatement > 10% correct tax or $5,000.

Penalty For Valuation Misstatement

• Substantial: 150% overstatement of value; $5,000 underpayment. Gross: 200% overstatement

Fraud Penalties

• 75% penalty for underpayment due to fraud.

Frivolous Tax Return

• Insufficient information; up to $5,000 penalty, $25,000 for frivolous arguments in tax court.

Form 14167

• Return preparer complaint form to RPO for initial investigation.

Practitioner Misconduct

• Ethical/legal violations, false opinions, and non-IRS related misconduct.

Misconduct While Representing a Taxpayer

• Unethical or illegal actions while assisting a client.

Disciplinary Sanctions

• Reprimand: Least severe, private letter from OPR.
• Censure: Public reprimand, published in Internal Revenue Bulletin.
• Suspension: 1-60 months, no representation during suspension.
• Disbarment: Permanent; 5-year petition for reinstatement.
• Monetary Penalty: Possible in addition to other sanctions.

Official Complaint Process

• Specific date for practitioner response (at least 30 days after service). Failure to respond, considered admission of guilt. Subsequent hearing.

Disciplinary Hearing

• 180 days to reach a decision. Regular or memorandum decisions, 30-day appeal window. Final agency decision; practitioner can appeal in district court. Disbarred can seek reinstatement.

Tax Refunds

• Options for applying or receiving refund - direct deposit, check, I-Bonds, IRA.

Installment Agreements

• Payment within 30 days, or extensions/installment agreements possible. Must file required tax returns. Form 9465 submission or online application.

Guaranteed Installment Agreements

• Taxpayers owing $10,000 or less can't be denied an installment agreement (meet criteria: timely filing, determination of inability to pay, 3-year agreement, no prior agreement in 5 years).

Electronic Federal Tax Payment System (EFTPS)

• Businesses schedule up to 120 days in advance; individuals up to 365 days in advance.

IRS Collection Process

• Begins with a notice for payment; continues until collection is no longer legal. 10-year collection period.

Substitute For Return (SFR)

• Program for taxpayers that did not file, aiming for compliance. Creates proposed tax assessment where necessary.

Tax Implications of Bankruptcy

• Automatic stay on tax assessments/collections. Discharged tax debts with specific criteria (related to return filed at least three years prior, filed at least two years before, assessment over 240 days old, no tax evasion).

Federal Tax Lien

• IRS legal claim against taxpayer property. Attaches to all current and future property; Notice of Lien after assessment, notice/demand, and failure to pay

IRS Seizure (Levy)

• IRS confiscation of taxpayer property; potential release for severe hardship,

IRS Summons

• Forcing compliance from taxpayers refusing to provide IRS records.

Relief From Joint Liability

• Joint returns, both liable even after separation. Exceptions: Innocent spouse, separation of liability, equitable relief (Form 8379 for injured spouse allocation).

Injured Spouse

• Can recoup one's share of the refund if the taxpayer filed a joint return and their contribution went to past due amounts owed by their spouse.

Offer In Compromise (OIC)

• Agreement to pay less than the full tax liability. Form 656 or 656-L.

OIC grounds

• Doubt of collectibility, liability, or exceptional circumstances

IRS Audit Process

• Audits approximately 1% of returns. Higher rates for incomes over $1 million.

Types Of Audits

• Correspondence: Entirely by mail.
• Office: At an IRS office.
• Field: At taxpayer's home or business.

Audit Selection Process

• Various methods: Tax avoidance, DIF computer scoring, information matching, related examinations, third-party information.

Taxpayer's Representative

• Taxpayers may use qualified representatives or represent themselves.

Audit Determinations

• Closed as no change, agreed, or disagreed.

Audit Reconsideration

• IRS may reconsider prior audit if unpaid tax was assessed or tax credits reversed. Specific requirements.

Centralized Partnership Audit Regime (CPAR)

• Partnership level determination, assessment, collection. Mandatory unless opting out (fewer than 100 eligible partners) using Schedule B-2.

IRS Office of Appeals

• Independent administrative forum for taxpayer disputes; fair and impartial.

Appeals System Overview

• Options to dispute IRS determinations: appeal via IRS, Tax Court, or courts; payment is required first in latter two. Interest and penalties accrue until resolution.

Appealing After an Examination

• 30-day letter notice explaining appeals process post-closing conference.

Notice of Deficiency (90-Day Letter)

• Formal notice if agreement with appeals officer cannot be reached. Taxpayer has 90 days for Tax Court petition submission.

U.S Tax Court

• Federal tax court separate from the IRS, no prepayment needed to file in Tax Court. Regular or memorandum decisions.

U.S Tax Court Representation

• Self-representation or qualified representation (Enrolled agents or CPAs must be admitted).

Small Tax Case Procedure

• Simpler, less formal procedures than regular tax cases. No appeal by either side.

IRS E-File Program

• Paid tax preparers with more than 10 filings must use e-file; aggregate filing counts for firms. Exceptions: foreign preparers, fiduciaries, religious organizations.

Applying to the E-File Program

• Application process; no fee; 45-day maximum for acceptance. Specific requirements (US citizen/legal alien, minimum age, state/local criteria).

Electronic Return Originators

• Authorized providers for originating electronic tax returns to IRS. From ERO preparation or taxpayer's self-prepared returns that need submission help.

E-Signature Requirements

• Two methods. Taxpayer-initiated, or authorized by practitioner.

E-File Rejections

• Immediate notification if rejections occur. Taxpayer choice for paper filing if no correction. Perfection period timelines (business: 10 days; individual: 5 days notification).

Resubmitting Rejected Returns

• Paper filing requirements: explanation for late filing, rejection notice, history of corrections attempted.

Paper Return

• Option for non-e-file returns, including Form 8948 attachment. Exempt returns ineligible for e-filing for reasons.

Data Security Plan

• Data security plan required by law.

IP PINs

• IRS allows taxpayers to request identity protection numbers (IP PINs). Provided on CP01N notices.

This quiz covers key regulations on e-filing, preparer penalties, and the Internal Revenue Code as it pertains to businesses and tax compliance. Learn about forms such as 1099-K and the IRS's authority in tax matters, including passport revocation due to tax delinquencies.