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  1. 1. McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 02Tax Compliance, the IRS, and TaxAuthorities
  2. 2. 2-2Learning Objectives1. Identify the filing requirements for income taxreturns and the statute of limitations forassessment2. Outline the IRS audit process, how returns areselected, the different types of audits, and whathappens after the audit3. Evaluate the relative weights of the various tax lawsources4. Describe the legislative process as it pertains totaxation
  3. 3. 2-3Learning Objectives (Cont.)5. Perform the basic steps in tax research andevaluate various tax law sources whenfaced with ambiguous statutes6. Describe tax professional responsibilities inproviding tax advice7. Identify taxpayer and tax professionalpenalties
  4. 4. 2-4Taxpayer Filing Requirements Corporations: all must file regardless oftaxable income Estates and Trusts: required to file if grossincome exceeds $600 Individuals: filing is determined by taxpayer’sfiling status, age, and gross income
  5. 5. 2-5Tax Return Due Date Individuals: 15thday of 4thmonth followingend of tax year. Corporations: 15thday of the 3rdmonthfollowing end of tax year. Due dates on a Saturday, Sunday, or holidayare extended to next business day Individuals and corporations are allowed toapply for an automatic 6 month extensions
  6. 6. 2-6Statute of Limitations The time in which the taxpayer can file anamended return or the IRS can assess a taxdeficiency. Generally ends 3 years from the later of (1) thedate the tax return was actually filed, or (2) the taxreturn’s original due date.
  7. 7. 2-7IRS Audit Selection In general a taxpayer’s return is selected foraudit because the IRS believes the tax returnhas a high probability of being incorrect. IRS uses computer programs to identify taxreturns which might have an understated liability. Discriminant Function (DIF) system Document perfection Information matching programs
  8. 8. 2-8Types of Audits Correspondence examinations Office examinations Field examinations
  9. 9. 2-9Trial Level Courts Tax Court U.S. District Court U.S. Court of Federal Claims
  10. 10. 2-10Tax Law Sources Primary Authorities: Official sources of taxlaw Statutory sources Judicial sources Administrative sources Secondary Authorities: Unofficial taxauthorities Tax services Tax articles
  11. 11. 2-11Statutory Authorities U.S. Constitution Tax Treaties Internal Revenue Code
  12. 12. 2-12Judicial Sources: The Courts Supreme Court Court of Appeals Trial Level Courts US District Court US Court of Federal Claims US Tax Court stare decisis & Golsen rule
  13. 13. 2-13Administrative Sources: TheUS Treasury Regulations – 3 different forms & 3 differentpurposes Revenue Rulings Revenue Procedures Letter Rulings
  14. 14. 2-14Tax Research 5 Steps Types of tax services Questions of fact vs. questions of law Conflicting authority Checking status of authority Tax memo format
  15. 15. 2-15Tax ProfessionalResponsibilities Tax professionals are subject to various statutes,rules and codes of conduct: AICPA Code of Professional Conduct AICPA Statement on Standards for Tax Services IRS’ Circular 230 State Board of Accountancy Statutes Failure to comply with statutes can result in beingadmonished, suspended, or barred from practicing
  16. 16. 2-16Taxpayer andTax Practitioner Penalties Civil Penalties Criminal Penalties Substantial Authority vs. Reasonable Basis