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Unformatted text preview: Federal Tax Research, Eighth Edition Page 14-1 CHAPTER 14 TAX PRACTICE AND ADMINISTRATION: SANCTIONS, AGREEMENTS, AND DISCLOSURES DISCUSSION QUESTIONS 14-1. a. Interest compounds on the amount due to the government in a Tax Court cases, unless the taxpayer pays the liability at a time prior to the commencement of the litigation. b. Late payment penalties are avoided when withholding amounts are supplemented at any time during the year. Adjustments to estimated payment amounts, though, do not avoid underpayment penalties. The higher the prevailing interest rate, the more likely the taxpayer should adjust withholdings late in the tax year. Pages 492 through 496 14-2. Statutes of limitations fix the latest date upon which taxes can be assessed and collected, and all refund claims must be made. Such provisions implement Congress belief that, at a certain point, the right to be free of stale claims must prevail over the governments right to pursue them. Page 496 14-3. a. FALSE. The government is required to pay interest at the applicable federal rate to any taxpayer who has made an overpayment of tax. Interest on the overpayment begins to accrue from the later of forty-five days after the unextended due date of the return or forty-five days after the return actually is filed. However, if the refund is not made within this forty-five day period, interest begins to accrue from the later of the due date of the return or the date on which the return actually was filed. Exhibit 14-3 b. FALSE. Tax penalties may not be deducted as itemized deductions on an individual's income tax return, because the Code characterizes them as additions to tax and federal income taxes are not deductible. Page 471 c. FALSE. The failure to pay and failure to file penalties are separate and distinct. Page 473 d. TRUE. Prior to the time that the case is referred to the Justice Department for prosecution or defense, the IRS can compromise any civil or criminal case that does not involve drugs. However, the Service will not enter into a compromise with a taxpayer if the liability has been established by a valid judgment, and there is no doubt as to the IRS' ability to collect the amounts that are due. Page 502 e. FALSE. Although the general rule is that assessment must be made within three years from the Page 14-2 INSTRUCTORS MANUAL later of the date that the return actually is filed, or the unextended due date of the return, the three year period is extended when: there is a substantial understatement of gross income (greater than 25%); the taxpayer files a false or fraudulent return with the intent to evade tax; the taxpayer files an amended return that shows an additional amount due; the IRS and the taxpayer agree to extend the statute of limitations period with respect to a return that is under audit; or, the three-year period is suspended because the IRS mails a statutory notice of deficiency, the taxpayer files a petition in the Tax Court; the taxpayer submits an offer...
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