1.13 Tax Procedures

1. Assessments

Three years from later of
(a) original due date of the return or
(b) date of return is filed.

2. Claims for Refund

Later of
(a) three years from the return was filed or
(b) two years from the tax was paid
*Bad debts, worthless securities: seven years

3. IRS Audit and Appeal Process

1) Selection of return for audit
(1) Statistical models (DIF)
(2) Random (manual) selection

2) Types of audits
(1) Direct correspondence audit
(2) Office or field audit (formal examination)

3) Appeals process
(1) Preliminary notice (30-Day Letter) and administrative appeal request
(2) Notice of deficiency (90-Day Letter)

4. Federal Judicial Process

(1) U.S. Tax Court
(2) U.S. District Court
(3) U.S. Court of Federal Claims
(4) U.S. Court of Appeal
(5) U.S. Supreme Court

5. Penalties Imposed on Taxpayers

1) Failure-to-file (Late filing) penalty: 5%
2) Failure-to-pay (Late payment) penalty (tax delinquency penalty): 0.5%
* Interest on penalties: federal short-term interest rate

3) Accuracy-Related Penalty: 20%
i) Negligence penalty with respect to an understatement of tax
ii) Penalty for substantial understatement of tax
iii) Penalty for a substantial valuation misstatement

4) Fraud Penalty: 75%

5) Taxpayer's Defense
(1) Reasonable basis standard: 20% chance of succeeding (Form 8275)
(2) Substantial authority standard: a one-in-three chance of succeeding
(3) More likely than not standard