Chapter 14 Tax Practice and Administration

CHAPTER 14

TAX PRACTICE AND ADMINISTRATION

DISCUSSION QUESTIONS

14-1. a. Interest compounds on the amount due to the government in 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 498-501 and Pages 513-516

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 government’s right to pursue them.

Page 516

14-3. The civil fraud penalty is 75 percent of the underpayment of tax that is attributable to fraud. The burden of proof in a fraud case is on the IRS. Fraud entails more than mere negligence by the taxpayer, often including a series of actions over time to evade a tax. Under the all-or-nothing rule, if the IRS establishes that any portion of an underpayment is attributable to fraud, the fraud penalty applies to the entire underpayment.

Underpayments of estimated tax are applied differently to corporate and non-corporate taxpayers. Key differences include the following.

• The “last tax year” exception is available only to large corporation for the first quarter payment.

• The “current tax year” exception is 100 percent of the current tax for corporate taxpayers, but 90 percent for others.

• The “prior tax year” exception applies for corporate taxpayers only if the prior year’s liability was a positive amount. This rule does not apply to other taxpayers.

A frivolous return is one that is blank, unreadable, or takes positions clearly contrary to...