Authority Tax research is the process of locating and interpreting the answers to tax questions. It is important to understand that the answers are obtained from authoritative sources, and to understand that judgment often is essential to research. Authoritative sources may be grouped based on the branch of the government that generates the rules.

Legislative Constitution http://pegasus.cc.ucf.edu/~bandy/constitution.htm Internal Revenue Code   Internal Revenue Code Statutes at Large  Committee Reports  Congressional Record  Treaties  Administrative Treasury Regulations   Income Tax Regulations Revenue Rulings  Revenue Procedures Judicial Tax Court and Board of Tax Appeals  Claims Court and Court of Claims  District Courts  Appeals Courts  Supreme Court

 
 
 

Code and Statutes Citation style and organizational format for tax sources are summarized below.

Below are alternative formats used to cite the Internal Revenue Code. Internal Revenue Code of 1986, Sec. 2 (b)(1)(A)(i).  Sec. 2(b)(1)(A)(i).  § 2(b)(1)(A)(i).  26 USC 2(b)(1)(A)(i).

The Internal Revenue Code is organized as follows: 26 Title--Internal Revenue Code A Subtitle--Income Taxes (A - I)  1 Chapter--Normal Taxes and surtaxes (1 - 98)  A Subchapter--Determination of Tax Liability (A - V) I Part--Tax on Individuals (renumbered in each subchapter)  A Subpart--[none] (renumbered in each part) 2 Section--Definitions and special rules (§1 - §9602)  (b) Subsection--Definition of head of household  (1) Paragraph--In general  (A) Subparagraph--Maintain household for dependent  (i) Clause--Son or daughter does not have to be dependent  (I) Subclause--[none]

 

Regulations Treasury Regulations are also authoritative: Sec. 7805(a) Authorization.--Except where such authority is expressly given by the title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title.  .  . In some cases the Regulations are the principal authority because Congress relegated the rule making responsibility to the Treasury : Sec. 1502 Regulations. The Secretary shall prescribe such regulations as he may deem necessary in order that the tax liability of any affiliated group of corporations making a consolidated return and of each corporation in the group, both during and after the period of affiliation, may by returned, determined, computed, assessed, collected, and adjusted, in such manner as clearly to reflect the income tax liability and the various factors necessary for the determination of such liability, and in order to prevent avoidance of such tax liability.

 

Regulations Citations Reg. § 1.274-2(f)(2)(iv)(b)(1).  1--means income tax. 274--refers to the code section that is being interpreted. 2--indicates regulation number 2 for this section (f)--is paragraph (2)--is subparagraph  Subdivisions below subparagraphs are not consistently referred to by the same names. Treasury Regulations are a part of the Code of Federal Regulations and are sometimes so cited: 26 CFR 1.274 etc.

Significance of first digit 1 Income tax 20 Estate tax 25 Gift tax 31 Employment tax 40's various excise taxes 54 Pension plans 301 Procedures and administration

 

Revenue Rulings

Revenue Rulings are the IRS' answers to specific questions. Permanent cites are to the Cumulative Bulletin. Temporary citations are to the Internal Revenue Bulletin. Weekly IRB's are bound semiannually and identified as the Cumulative Bulletin. Rev. Rul. 2004-2, 2004-1 C. B. 28.  This refers to the second Revenue Ruling issued in 2004.  It can be found in the first volume of the Cumulative Bulletin published in 2004, beginning on page 28.  Prior to 2000, only the last two digits of the year were used in references to the ruling number. For example,  Rev. Rul. 89-1, 1989-1 C. B. 30.  Temporary citations are to the Internal Revenue Bulletin: Rev. Rul. 2004-34, 2000-10 I.R.B.  12. Letter Rulings, sometimes called Private Letter Rulings, are not primary authority.  In the citation Ltr. Rul. 200412345, 2004 refers to year the ruling was issued, 12 refers to the week and 345 refers to the 345th letter ruling during the week.  Prior to 2000, only the last two digits of the year are included in the citation. For example, 9912345 refers to the 345 Letter Ruling issued during the 12 week of 1999.

Revenue Procedures

Revenue Procedures are similar to Rulings, but deal with procedural matters. Rev. Proc. 2004-1, 2004-1 C. B. 40.

Searching Basic research approaches:  Have general knowledge of subject? If not, read handbook, tax guide, textbook, IRS publications, and other sources in order to obtain basic familiarity. May find answer or leads, including paragraph references to tax services.  Know specific authority?  If not, use topical index. This will involve some trial and error with dead ends. Terms such as depreciation are too broad to be very useful. Also, spine of volume. If yes, use finding lists. Use code section number, court case citations, revenue ruling and similar lists to find where in a service a specific authority is discussed. Other authority dealing with the same issue often is discussed at the same location.  Try  key words to search a database.  Try different keywords. Again, common terms such as depreciation are not very useful. Often must use many combinations of words to find relevant authority. Try changing which databases you search and which resources you search within a database.  Determining which precise words work may be one of the most challenging aspects of research. Try multiple services, special services, treatises, etc.  After using likely resources:  Use citator both to check on the status of the authority and to check for additional authority.  Read text of cases, rulings etc. and follow up on the sources.  Do not assume that there is a definitive answer.  The process is time consuming, repetitive, involves false leads, and is inefficient.  Finish with a check on current developments, both in the current developments section of the service and the Citator. Be aware that many case, regulations and other authorities are not based on current law.

Dealing with Uncertainty Not all research projects result in a clear cut answer. What do you do if the answer is not clear even after completing research? The confidence needed depends on the situation.

More likely than not authority § 6662(d)(2)(C)(i)(II) establishes this standard for tax shelters. Applies to taxpayers only.  Disclosure does not enable taxpayer to avoid penalty. Substantial authority § 6662(d)(2)(B)(i) establishes the requirement for cases involving substantial understatements. Establishes a penalty equal to 20% of underpayment attributable to the situation. Underpayment must exceed the greater of 10% of the income tax as determined by the IRS and $5,000 ($10,000 in the case of corporations other than S and PHC). Weight of authority supporting position must be substantial. The type, relevance, and persuasiveness of the authority are considered in determining weight. More than one position may be supported by substantial authority. Applies to taxpayers only. Disclosure can help taxpayer avoid penalty. Realistic possibility Found in both § 6694 and AICPA Professional Standards. Standard applies to taxpayer (if amount is not substantial) for ordinary items on tax returns. Also is the standard prescribed by the AICPA as being applicable to CPA dealing with uncertain tax positions.   Reg. § 1.6694-(2)(b)(1) specifies a one in three chance. AICPA Statement on Standards for Tax Services requires that there must be a good faith belief that the position has a realistic possibility of being sustained administratively or judicially on its merits if challenged.  Disclosure can help in some instances. Reasonable basis § 6662 says that in situations where there is a "substantial underpayment", and there is disclosure, no penalty will apply as long as position has a "reasonable basis". Reasonable basis is a relatively high standard, not one that is merely arguable or a colorable claim. Applies to taxpayer only.  Frivolous Under § 6694 penalty applies even with disclosure if position is frivolous. A frivolous position is one that is patently improper. Applies to taxpayers and tax preparers.

What if you just made a mistake?

According to § 6662(c ), negligence includes any failure to make a reasonable attempt to comply with the provisions of this title.  A taxpayer who disregards authority is negligent. The term disregard includes any careless, reckless, or intentional disregard of authority. Disregard also includes failure to seek out facts and/or authoritative answer.  Under § 6664 (c )(1) neither the taxpayer or tax preparer is negligent if there is reasonable cause for the error and a good faith belief that the position is correct. If you do not have the required degree of confidence then must either forgo the favorable tax treatment or disclose the transaction. Disclosure, however, is not permitted if position is frivolous. Disclosure is made on Form 8275.

Types of Communications Communication is the product. It is not just whether you know the answer, it is whether you can communicate the information. Clients want the job done promptly and correctly.

Memo to File 1. Facts 2. Issue  3. Discussion  4. Conclusion  5. Recommendation

Client letter  1. Introduction.  2. Summarize facts or refer to document containing facts, and include warning on facts.  3. Provide non technical discussion of authority. 4. State conclusion as to law, if law is clear. If not, explanation that law is not clear.  5. Make recommendation, and give warning if not a clear-cut situation.  6. Mention other issues that may need to be addressed.  7. If open facts and answer is unfavorable, suggest possible ways to improve results.  8. Comment on confidential nature of letter, if appropriate.  9. Closing.

Ruling request  1. State that you are requesting a ruling.  2. Give facts: Names, dates, etc. including a detailed description of the specific transaction.  3. State clearly what outcome is being requested--e. g., "We request a ruling allowing taxpayer to deduct the expense in question."  4. Provide grounds for ruling requested--i. e., explain why you think the taxpayer deserves the deduction. This must be based on the relevant authority. Also, explain why contrary authority should not be followed.  5. Required statements. Includes a statement that the facts are accurate. Remember if the facts are not stated accurately and completely, the ruling may be invalid.  6. Attach copies of relevant documents.

Protest  1. Introduction.  2. Protest statement.  3. Support--may include either a different finding of facts or a different finding of law. 4. Request conference, if appropriate.  5. Required statement as to truth.

For information on Florida tax research see http://pegasus.cc.ucf.edu/~bandy/florida.htm
 
 
 

PRACTICE

Practitioner Services

Return preparation Anyone can prepare tax returns. Only California has a registration requirement, and there is no education, examination, etc. required to be registered in California.  Research In general, there seem to be few limitations on who can do tax research, but questions have been raised.

Planning There seem to be few, if any limitations on who can offer tax planning advice. Document preparation (e.g., wills, trust instruments, contracts, etc.) normally must be done by an attorney. Recommending specific investments probably requires registration with the Securities Exchange Commission.  Representation in administrative proceedings Attorneys, CPAs, and Enrolled Agents may represent clients before the IRS in administrative proceedings. Actuaries may represent taxpayers in the case of questions related to their area of expertise. Actual preparer may also represent taxpayer, but representation is limited.  Representation in courts Attorneys and others who pass an examination that is given every two years may represent taxpayers in the Tax Court. Only attorneys may represent clients before other courts.

 

Protection from Penalties and Malpractice Practice Procedures and Controls Limit aggressiveness so as to stay within professional guidelines. Research complex questions. Use engagement letters, check lists, questionnaires, and transmittal letters. Review everyone's work, and cross check related returns. Retain files.  Client Selection and Relations Communicate with client.  Avoid and shed troublesome clients. Includes clients with risky/problem behavior, faultfinding/argumentative personality, questionable integrity, weak accounting controls and incomplete or missing records. Slow paying clients are often risky clients.  Acknowledge errors and correct. Assume responsibility, but see below.  Insurance Coverage Accounting malpractice insurance covers tax work including tax advice (Bancroft v. Indemnity Insurance Company of North America, 309 F2d 959 (5th Cir., 1963) but not investment advice (Mastrom, Inc., v. Continental Casualty Company, 337 SE2d 162 (NCApp., 1985). Malpractice insurance does not cover fraud, but carrier is obligated to cover until fraud is established. Most insurance policies require prompt notification of the carrier when there is a potential claim.  Staff Utilization and Development Even though there is a higher standard imposed on specialists, one is safer in an area where one specializes than attempting to do everything.  Internal and regular staff meeting. Florida Institute and AICPA tax training programs can be helpful.  Organizational Form Some greater protection in Florida for professional associations, limited liability companies, and limited liability partnerships. Generally, all assets of company are available to creditors. Also personal assets are available if served the client and/or were responsible for the errors.

 

Amount of Liability If the IRS assesses additional taxes after a CPA has prepared a return, is the CPA liable for the taxes, interest, penalty, or representation costs? Obviously not, if the client mislead or otherwise causes the problem. Of course, there occasionally may be reason to pay some amounts even if there is no ethical or moral reason to do so in order to preserve a favorable client relationship. What is the liability, if the CPA somehow contributed to the error?  Tax--Yes, if increase in tax because of error.  Interest--Perhaps no, because taxpayer had use of money.  Taxpayer penalty--Yes, if accountant caused the taxpayer to owe the penalty.  Legal fees, etc.--If client incurs legal fees in defending a tax position, the accountant is liable only if the accountant's error caused the taxpayer to have to defend himself or herself.

 

Statements on Standards for Tax Services

These statements provide standards of service.  1. Tax return positions in cases of uncertainty Tax recommendations and positions should be based on a good faith belief that the recommendation/position has a realistic possibility of being sustained administratively or judicially on its merits if challenged. May recommend a position that is not frivolous if disclosed. Advise client of potential penalty.  2. Answers to questions on returns Should make a reasonable effort to obtain from the client, and provide appropriate answers to all questions on a tax return before signing. 3. Certain procedural aspects of preparing returns May rely without verification upon information furnished by the client or third parties, but should make reasonable inquires if the information appears incorrect, incomplete, or inconsistent. Where law requires records or documentation, should make appropriate inquires.  4. Use of estimates May use estimates if it is impracticable to obtain exact data and reasonable estimates are made. Estimates should not be presented in such a manner as to suggest greater accuracy than exists.  5. Departure from a position previously concluded Unless bound by formal agreement or court decision, may depart from the treatment of an item on a prior return. 6. Knowledge of error: Return preparation Upon becoming aware of an error on a previously filed return or becoming aware of a client's failure to file a required return, should inform client of the error and recommend appropriate corrective measures. May not inform IRS without client's permission, except where required by law. 7. Knowledge of error: Administrative proceedings Should promptly inform client and recommend the measures to be taken. May not inform IRS without permission, except where required by law.  8. Form and content of advice to clients Use judgment to ensure that advice given reflects professional competence and appropriately serves the client's needs. May be written or oral. May communicate with client when subsequent developments affect previous advice, but normally are not obligated to do so. 9.  Quality control (draft)                                                                                                                                                       Identifies five components to quality control. Advocate client's position with integrity and objectively. Manage personnel to assure quality of work. Establish and maintain policy regarding the acceptance and continuance of clients and engagements.  Establish policies relating to the  performance of professional services including evaluation of risk, review of work, meeting of deadlines, and file retention.  Should monitor quality control plan and inspection of work.

 

Other Professional Issues

Confidential information--information relating to clients is confidential. Some feel this means you cannot even indicate whether someone is a client.  Privileged communication--can IRS obtain access to a CPA's records? Are they protected? In the past there has been practically no protection even in states that provide for accountant and client privileged communications (U.S. v Arthur Young & Co.,  53 AFTR2d 84-866, 84 USTC ¶9305 (USSC, 1984)). Perhaps there was some very limited relief under authority of U.S. v. Coopers & Lybrand, 39 AFTR2d 77-809, 77-1 USTC ¶9216 (10th Cir., 1977). § 7525(a)(1) added in 1998 provides CPAs with the same privileged communications as attorneys with respect to "tax advice."  The privilege may be asserted only in non criminal tax matters and is limited to tax advice. It does not extend directly to tax return preparation, tax fraud, or corporate tax shelters. The IRS has obtained the names of tax clients who participated in "tax shelters" since the privilege was established (USA v. BDO Seidman, 92 AFTR2d 2003-5443, 2003-2 USTC ¶50,582 (CA-7, 2003)).  The privilege does not prevent other government agencies, such as the SEC, from obtaining such information. When the IRS requests information, accountants should discuss the matter with client, and advise client as to whether the requested information should be turned over. Information need not be turned over in absence of a subpoena, but delaying the process is forcing the IRS to resort to subpoenas is not necessarily effective. If you conclude that an IRS request is invalid, you should contact an attorney.  Probably, would not turn over records to IRS without client approval without a court order. One area of conflict between CPAs and the IRS is when advice given constitutes a tax shelter. As noted above, the IRS has been successful in compelling firms to provide the names of clients who have utilized tax savings advice they have provided. §7609(a)(3)(E) indicates that records in the possession of an attorney are available to the IRS if they were obtained in connection with tax return or similar work. See U. S. v. J. Martin Lawless, 52 AFTR2d 83-5818, 83-1 USTC ¶9414 (7th Cir., 1983). So, don't let anyone suggest that the attorney-client privilege means that a taxpayer should use an attorney for tax return work.  Right to an accountant--Miranda warning (Miranda v. Arizona 384 US 436 (USSC, 1966)) perhaps includes right to accountant. See U.S. v. Walter Tarlowski, 24 AFTR2d 69-5433, 69-2 USTC ¶9554 (EDNY, 1969).  Discovery of errors--confidential relationship prohibits disclosure to IRS. Should contact client and advise client of steps needed to correct error. May not be able to continue as CPA, especially if dealing with IRS, because IRS often asks questions such as, is income underreported? Obviously cannot lie. May have to withdraw which is a signal to the IRS that there is a problem. Subsequent developments--generally no responsibility to inform client of new developments such as court cases, but may take that on as a specific assignment.  Advice as a defense--client generally can rely on advice received as a defense against penalty, but not if rule is clear (e.g., U.S. v. Boyle, Executor, 55 AFTR2d 1535, 85-1 USTC ¶13602 (USSC, 1985).  Due diligence--In John Brockhouse v. U.S., 55 AFTR2d 85-445, 84-2 USTC ¶10005 (7th Cir., 1984), an accountant who overlooked a client's interest income was penalized because he failed to ask about the income. Is tax work the practice of law?--New York County Lawyers' Association in re: Bercu 373 App.Div. 524, 78 NYS2d 209 (1949) says yes, but it is probably obsolete.  Consider Sperry v. Florida, 373 US 379, 83 SCt 1322 (USSC, 1963).  It is still possible that in some case, there could be a question. The fact that there is no reported losses by CPAs since 1948 and that Sperry was decided in the 1960's seems to indicate that it is not an everyday problem. In Grace v. Allen, 407 SW2d 321(CCA-Texas, 1966) advice was approved when it was a part of accounting service.  In Sperry v. Florida the Supreme Court stated, "A State may not enforce licensing requirements. . . which impose upon the performance of activity sanctioned by federal license additional conditions not contemplated by Congress. No State Law can hinder or obstruct the free use of a license granted under the act of Congress." Audit and tax services--the Sarbanes-Oxley Act of 2002 restricts tax and other services that can be provided to publicly-traded audit clients. The Act does not restrict the services that can be provided to other clients including audit clients that are not publicly traded. Specifically, CPA firms may not recommend tax shelters with no business purpose other than tax avoidance to publicly-traded audit clients nor may they serve as counsel to such clients in court cases.   Other tax services may be provided to publicly-traded audit clients with approval of the audit committee.  Tax services that are permitted with approval include compliance, planning , representation before IRS and other tax agencies, and requesting rulings. CPA firms may provide appraisal and other valuation services to publicly-traded audit clients if the work is related  to taxes (e.g., Sec. 482 inter-company pricing).

 

Circular 230  Circular 230 is the IRS regulations regarding tax practitioners. Some additional rules include: Meet continuing education requirement (generally, 72 hours of tax education every three years).  Prohibits contingent fees associated with original tax return. Requires practitioners to turn over information to IRS unless reasonably believe information is protected. Must advise taxpayer of consequences of tax return errors Inform IRS if disbarred or license is suspended.  Exercise due diligence  Not unreasonably delay prompt disposition of tax matters  Fees must not be unconscionable  Disclose conflict of interest and obtain consent or withdraw. I am not sure what this means, but could be an issue if giving tax advice and negotiating a contract in which you have an interest.  Do not accept assistance from disbarred or suspended person.  Advertise ethically.

 

Audit and Appeals Procedures

The IRS relies on two primary enforcement methods: computer matching of information which is extensive and various types of examination procedures which are selective.

Types of  Enforcement Efforts Information Document Matching Program--IRS computers match income and deductions shown on returns with information reported on W-2's, 1099, and similar forms. Mathematical/Clerical Error Program--Mathematical and clerical errors are handled by the Service center.  Unallowables Program--Obvious errors such as deducting the federal income tax or deducting the wrong amount for the standard deduction are also handled by the Service center. Correspondence audit--taxpayer is asked to provide copies of receipts, canceled checks, and other documents in connection with specific items such as charitable contributions or medical expenses. Office examination--taxpayer takes records to IRS office and a specific items such as business automobile expense and rental income are examined. Usually a 1040 return, without Schedule C income. Field examination--usually a business return, Schedule C, 1065 or 1120. More intensive, but usually not exhaustive. Similar to but usually less extensive than a financial accounting audit. The IRS concentrates on items that are likely to result in an addition to taxes--e. g., entertainment, travel, business automobile, etc.  The field examination is used when the documentation to be examined is so extensive that it is impractical for the taxpayer to bring the information to the IRS. Research audit--National Research Program (NRP) which replaces the Taxpayer Compliance Measurement Program (TCMP) is used to determine what items should be audited. The focus of the examination is on whether the taxpayer filed the appropriate returns, paid the tax, and reported the correct items. Criminal investigation--conducted by Special Agents. Often leads to criminal charges being brought against the taxpayer. Result of audits: revenue agent report (RAR): No adjustment--reviewed by supervisor and accepted as filed (15%)  Adjustment (addition to tax)--reviewed, and either taxpayer must pay or appeal (80%) Refund--in most cases the result of information from taxpayer rather that IRS determination (5%).  Notification and appeal: Agent provides taxpayer with an Revenue Agents Report which informs taxpayer of planed adjustments. A taxpayer who accepts the findings can sign Form 870--Waiver of Restrictions on Assessment and Collection of Tax.  Taxpayers who do not agree with the findings are sent a 30 Day letter which states that the taxpayer has 30 days to either accept the findings or appeal.    Taxpayers who wish to appeal must provide a formal protest  if a field examination was involved and the addition to tax is greater than $2,500.  Otherwise, the appeal can take place without  a formal protest.  Assuming the appeal does not resolve the issues, the taxpayer is sent a  90 day letter which gives the taxpayer the option of paying the tax or taking the issue to the Tax Court.  If  the tax  is paid the, taxpayer has the option  requesting a refund from the IRS or taking the issue to either the District Court or Claims Court.

 

Important Documents

Power of Attorney and Declaration of Representation Usually prepared by practitioner and signed by taxpayer. Gives holder authority to represent taxpayer before the IRS. Required unless taxpayer is present. Form 2848 is used.  Tax Information Authorizations Grants IRS the authority to provide taxpayer information to persons other than the taxpayer. Form 8821 is used.  General or Durable Power of Attorney Grants holder the power to act in taxpayer's place and includes power to sign tax returns and to execute other documents including Forms 2848 and 8821.  Revenue Agent's Report Agent's finding regarding additions to tax.  Waiver Agreements (§  6213) Form 870 "Waiver of Statutory Notice" is a non-binding agreement to settle. Saves time, reduces interest, and  may reduce penalties.  Form 870AD "Waiver of Restrictions on Assessment' is a binding version of Form 870.  Closing Agreement (§ 7121) Binding agreement except in cases of fraud or misrepresentation. May cover multiple years, taxpayers, returns, etc.--e. g., agree to a new accounting method. Form 866 closes the entire return while Form 906 only closes specified items.  Collateral Agreement Not a technical term. Binds taxpayer as to treatment of a specific item--e. g., inventory valuation method.  Notice of Deficiency or 90 Day Letter (§  6212) Starts the 90 days that taxpayer has to either accept IRS finding or go to Tax Court.  Compromise Agreement (§  7122) A binding agreement except in cases of fraud. Based on doubt as to liability or collectibilitiy. Generally use Form 656. May include penalty, interest, and tax.  Application for Taxpayer Assistance Order Taxpayers may seek emergency relief from IRS actions using Form 911. Separate forms are available in cases where the dispute relates to the collection of taxes.  Form 9423 Collection Appeals Request is used where the taxpayers does not agree with process being utilized to collect taxes. Form  12153 Request for a Collection Due Process Hearing is used where the taxpayer does not agree with with specific actions such as a jeopardy levy.  Extensions to File (§  6081) Taxpayers may extend return due date.  Individuals may obtain an automatic extension of six months by filing Form 4868 (Application for Automatic Extension of Time to File U. S. Individual Income Tax Return).  C corporations, S corporations, and partnerships may obtain an automatic extension of six months by filing Form 7004. Additional extensions are no longer available.  This does not extend time to pay tax. Taxpayers must project their tax liability to the best of their ability and remit with the extension any amount that has not been prepaid through withholding or estimated payments. Form 1127 can be used when funds are unavailable,  but requires security. Extensions to Pay Tax Installment Agreement Request (§  6161) Extensions to file returns do not extend the due date for the tax.  Form 1127 can be used, but requires security. Taxpayers may offer to pay taxes on an installment basis using Form 9465. Agreements to Extend Time to Assess Taxes or Bring Suit  Taxpayers may agree to give the IRS more time to assess taxes (Form 872) and may request more time to bring suit (Form 907). Taxpayers may decline to extend the time, but may face quick assessments. Prompt Assessment Taxpayers may request prompt assessment.  Sometimes utilized by personal representatives and agents who are responsible for paying taxes owed by others. Form 4810 is used.

 
 

Statute of Limitations and Mitigation Rules

Assessment §6501(a)*--Generally: 3 years §6501(e)--Omit gross receipts of  equal to 25% or more of reported gross income: 6 years §6511(d)(1)*--Bad debts and worthless securities: 7 years  §6501 (c )--False or fraudulent return: none  * Also applies to changes initiated by the taxpayer  Collection §6502(a)--Assessment to collection: 10 years  Extensions of assessment period §6501(c)(4)--If mutually agreed then assessment period may be extended.  Mitigation rules §§1311 - 1315--Prevents either taxpayers or the IRS from taking unfair advantage of the statute of limitations.  For example, a subsidiary corporation deducts as interest a payment made to its parent, and the parent reports the payment as interest income. The IRS audits the subsidiary and disallows the interest deduction claiming that the payment is, in fact, a dividend.  The subsidiary fights the IRS position in court but loses. By the time the case is decided, the statute of limitations has passed.  Nevertheless, the the parent corporation can amend its return to claim the dividend received deduction.