SU 5: The Collection Process

Which of the following statements is false with respect to taxpayers' offers in compromise on unpaid tax liabilities?

-Taxpayers have a right by law to submit an offer in compromise on their unpaid tax liability.
-The Commissioner of Internal Revenue has the authority to compromise all taxes (including any interest, penalty, or addition to the tax) arising under the revenue laws of the US, except those relating to alcohol, tobacco, and firearms.
-A compromise may be made only when doubt exists as to the liability for the amount owed.
-Submission of an offer in compromise will usually extend the statue of limitations on collection of an account.
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Which of the following statements is false with respect to taxpayers' offers in compromise on unpaid tax liabilities?

-Taxpayers have a right by law to submit an offer in compromise on their unpaid tax liability.
-The Commissioner of Internal Revenue has the authority to compromise all taxes (including any interest, penalty, or addition to the tax) arising under the revenue laws of the US, except those relating to alcohol, tobacco, and firearms.
-A compromise may be made only when doubt exists as to the liability for the amount owed.
-Submission of an offer in compromise will usually extend the statue of limitations on collection of an account.
-A compromise may be made only when doubt exists as to the liability for the amount owed.
Which of the following statements in respect to IRS seizure and sale of a taxpayer's property to satisfy his or her federal tax bill is false?

-Before the date of sale, the IRS may release the property to the taxpayer if (s)he pays the amount equal to the amount of the government's interest in the property.
-The taxpayer may request a re-computation if (s)he is in disagreement with the minimum price the IRS has determined it will accept for the property.
-Unless the property is perishable and must be sold immediately, the IRS will wait at least 10 days after seizure before conducting the sale.
-A taxpayer does not have the right to redeem any property seized once the IRS has sold it.
-A taxpayer does not have the right to redeem any property seized once the IRS has sold it.
Which of the following disqualifies a taxpayer's income tax liability from being discharged in bankruptcy?
1. Being charged of tax evasion or fraudulent tax activities
2. Being convicted of tax evasion or fraudulent tax activities

-2 only.
-Neither 1 or 2.
-1 and 2.
-1 only.
-2 only.
When levies are attached, the IRS has the authority to take property to satisfy a tax debt. The IRS may levy all of the following EXCEPT

-Commissions.
-Accounts receivable.
-Rental income.
-Workers' compensation.
-Workers' compensation.
With regard to the IRS filing a Notice of Federal Tax Lien, which of the following statements is NOT a requirement?

-The IRS must assess the tax.
-The IRS must send the taxpayer a notice and demand for payment.
-The IRS must give individual notices to all of the taxpayer's creditors.
-The taxpayer must neglect or refuse to pay the tax or otherwise neglect or refuse to resolve his or her tax liability problems.
-The IRS must give individual notices to all of the taxpayer's creditors.
Which of the following is NOT a legal requirement that must be met before levy action can be taken?

-The taxpayer must have been audited by the IRS.
-An unpaid tax liability must exist.
-A notice and demand for payment must have been sent to the taxpayer's last known address.
-A Final Notice (Notice of Intent to Levy) must be given to the taxpayer at least 30 days in advance.
-The taxpayer must have been audited by the IRS.
The trust fund recovery penalty amount is equal to what percentage of the amount of trust fund taxes that were NOT paid?

-100%
-110%
-90%
-85%
-100%
Which of the following may the Internal Revenue Service settle by accepting an Offer in Compromise for less than the full amount of the balance due?

-A tax deficiency plus accrued interest, but not penalties.
-A tax deficiency, but not penalties and accrued interest.
-A tax deficiency plus penalties, but not accrued interest.
-A tax deficiency plus penalties and accrued interest.
-A tax deficiency plus penalties and accrued interest.
When dealing with IRS employees, taxpayers have certain rights. Which of the following most accurately reflects those rights?

-If you disagree with the IRS employee who handles your case, you must first have the employee's permission before requesting a meeting with the manager.
-A right of representation is only available in audit matters; it is not available collection matters.
-A case may not be transferred to a different IRS office, even if your authorized representative is located in an area different from your residence.
-A right of appeal is available for most collection actions.
-A right of appeal is available for most collection actions.
After agreeing with several proposed changes found during an IRS audit of the taxpayer's income tax return, the taxpayer believes that (s)he will owe an additional $5,000 (excluding interest). The taxpayer deposits a cash bond in that amount with the IRS. What is the resulting effect to the taxpayer's tax liability of depositing this bond with the IRS?

-The IRS will not accept the cash bond for any amount.
-It will stop the accrual of interest only on the amount sent.
-The cash bond will cover the liability covering the tax owed and the interest portion.
-It will stop the further accrual of interest on both tax and interest accrued to that point.
-It will stop the accrual of interest only on the amount sent.
If the taxpayer cannot resolve a collection problem through discussions with the revenue officer or his or her manager, the taxpayer should contact -The IRS regional appeals office. -An IRS taxpayer service representative. -The IRS area director. -The IRS district problem resolution officer.-The IRS district problem resolution officer.For the IRS to grant a guaranteed installment agreement, a taxpayer must have not failed to file any income tax returns or pay any tax shown on such returns during any of the preceding -6 taxable years. -10 taxable years. -5 taxable years. -3 taxable years.-5 taxable years.Which of the following is true with respect to an offer in compromise? -Collections actions, such as levy, may be delayed. -A rejected offer may be appealed. -The taxpayer may be allowed to pay less than the full amount owed. -All of the answers are correct.-All of the answers are correct.The initial action required in the collection process is -An assessment. -The filing of a Notice of Levy. -The receipt of the fourth notice by certified mail. -A notification of a pending examination audit.-An assessment.Regarding a tax lien, the IRS must notify the taxpayer in writing within how many days after filing the lien? -5 business days. -5 calendar days. -30 calendar days. -10 business days.-5 business days.Generally, how long does the IRS have to collect outstanding federal taxes? -10 years from the date of the notice of deficiency. -Ten years from the due date of the return. -Ten years from the date of the assessment. -Ten years from the date the return is filed.-Ten years from the date of the assessment.If the IRS seizes property that is not perishable, the IRS will -Advertise the sale for 90 days before the sale. -Conduct the sale after the property has been held for 60 days. -Wait at least 10 days after seizure before conducting the sale. -Request sealed bids for the property.-Wait at least 10 days after seizure before conducting the sale.Late payments by a taxpayer on an installment agreement to pay a tax liability will -Generate a 30-day notice as to the cessation of the agreement. -Extend the statute of limitations. -Necessitate payment by certified check. -Generate a Notice of Intent to Levy.-Generate a 30-day notice as to the cessation of the agreement.Jeopardy levies may occur when the IRS waives the 10-day notice and demand period and/or the 30-day Final Notice (Notice of Intent to Levy) period because -A delay would endanger the collection of the tax. -The seized property is perishable in nature. -The IRS is working in conjunction with the Drug Enforcement Administration. -The taxpayer has filed for bankruptcy protection.-A delay would endanger the collection of the tax.With regard to the trust fund recovery penalty assessments for employers, which of the following statements is false? -A person is considered willful if (s)he has free will or choice, yet either intentionally disregards the law or is plainly indifferent to legal requirements. -The penalty also applies to excise taxes. -A federal tax lien may be filed against a responsible person. -The amount of the penalty is equal to the unpaid income taxes withheld.-The amount of the penalty is equal to the unpaid income taxes withheld.All of the following persons may be responsible for the trust fund tax EXCEPT -An officer of a corporation. -An employee in the payroll department. -A corporate director or shareholder. -A member of the board of trustees.-An employee in the payroll department.The collection process begins -At the IRS service center where notices are generated requesting payment. -In an IRS automated collection branch when telephone contact is made with the taxpayer. -Only after the problem resolution officer has acted upon the taxpayer's claim. -With the filing of a Notice of Federal Tax Lien.-At the IRS service center where notices are generated requesting payment.With regard to an installment agreement with the IRS to pay a federal tax debt, which of the following statements is false? -Once an installment payment plan has been approved, the IRS will not continue to charge the taxpayer's account with interest on the taxpayer's unpaid balance of penalties and interest. -Installment payments may be paid by electronic transfers from the taxpayer's bank account. -While the taxpayer is making installment payments, the IRS may require the taxpayer to provide financial information on his or her financial condition to determine any change in his or her ability to pay. -The IRS may file a Notice of Federal Tax Lien to secure the government's interest until the taxpayer makes the final payment.-Once an installment payment plan has been approved, the IRS will not continue to charge the taxpayer's account with interest on the taxpayer's unpaid balance of penalties and interest.A guaranteed installment agreement is one of the acceptable methods of paying off a tax debt to the United States Treasury. The IRS must enter into an installment agreement provided all of the following requirements are met, EXCEPT the taxpayer -Must not owe more than $10,000. -Filed income tax returns without fail. -Did not fail to pay any income tax. -Previously entered into a nonguaranteed installment agreement.-Previously entered into a nonguaranteed installment agreement.The Internal Revenue Service may accept an Offer in Compromise to settle unpaid tax accounts for less than the full amount due. A Collection Information Statement (financial statement) is NOT required with the offer when the reason for the offer is -Doubt as to liability. -Doubt as to collectibility. -To promote effective tax administration. -Economic hardship.-Doubt as to liability.Which of the following statements with respect to taxpayers' offers in compromise on unpaid tax liabilities is true? -A taxpayer does not have the right to submit an offer in compromise on his or her tax bill but is given the opportunity in order to increase voluntary compliance with the tax laws. -Doubt as to the liability for the amount owed must be supported by evidence, and the amount acceptable under the offer in compromise will depend on the degree of doubt found in the particular case. -Submission of an offer in compromise automatically suspends the collection of an account. -If the offer in compromise is made on the grounds that doubt exists as to the taxpayer's ability to make full payment on the amount owed, the amount offered must give sufficient consideration only to the taxpayer's present earning capacity.-Doubt as to the liability for the amount owed must be supported by evidence, and the amount acceptable under the offer in compromise will depend on the degree of doubt found in the particular case.Once a notice of federal tax lien has been filed, all of the following are true EXCEPT -The lien applies to all of the taxpayer's real and personal property and to all of his or her rights to property until the tax is paid or the lien is removed. -The IRS will issue a release of the notice of federal tax lien within 15 business days after the taxpayer satisfies the tax due (including interest and other additions) by paying the debt, by having it adjusted, or if the IRS accepts a bond that the taxpayer submits, by guaranteeing a payment of the debt. -By law, a filed notice of tax lien can be withdrawn if withdrawal will speed collecting the tax. -The law requires the IRS to notify the taxpayer in writing within 5 business days after the filing of a lien.-The IRS will issue a release of the notice of federal tax lien within 15 business days after the taxpayer satisfies the tax due (including interest and other additions) by paying the debt, by having it adjusted, or if the IRS accepts a bond that the taxpayer submits, by guaranteeing a payment of the debt.Which of the following taxes may be discharged in bankruptcy? -Gift. -Estate. -Income. -Employment.-Income.With regard to the levy method used by the IRS to collect tax that has not been paid voluntarily, which of the following statements is false? -The IRS cannot levy any state income tax refund checks and apply the state refund to a federal tax debt. -If the IRS levies a taxpayer's bank account, the bank is required to hold the funds the taxpayer has on deposit, up to the amount the taxpayer owes, for 21 days. -Levies can be made on property that is the taxpayer's but is held by third parties. -The IRS will release a levy if the IRS determines the levy is creating an economic hardship for the taxpayer.-The IRS cannot levy any state income tax refund checks and apply the state refund to a federal tax debt.Mr. Alomar's income tax return was examined by the IRS, and he agreed with the proposed changes. He has several ways by which he may settle his account and pay any additional tax that is due. Which of the following statements with respect to this situation is false? -If he pays when he signs the agreement, the interest is generally figured from the due date of the return to the date of his payment. -If he does not pay the additional tax when he signs the agreement, he will receive a bill. The interest on the additional tax is generally figured from the due date of the return to the billing date. -If the bill is delayed, he will not be billed for additional interest for more than 60 days from the date he signed the agreement. -If he pays the amount due within 21 days of the billing date, he will not have to pay more interest or penalties.-If the bill is delayed, he will not be billed for additional interest for more than 60 days from the date he signed the agreement.Which of the following statements with respect to IRS seizure and sale of a taxpayer's property to satisfy the taxpayer's tax bill is false? -A seizure may not be made on any property if the estimated cost of the seizure and sale exceeds the fair market value of the property to be seized. -A taxpayer has the right to an administrative review of a seizure action when the IRS has taken personal property that is necessary to the maintenance of the taxpayer's business. -The IRS must wait 30 days after seizure before conducting a sale. -After the sale, proceeds are applied first to the expenses of the levy and sale.-The IRS must wait 30 days after seizure before conducting a sale.With respect to the IRS's seizures and sales of personal property to satisfy a federal tax debt, which of the following statements is false? -After the notice of sale has been given to the taxpayer, the IRS must wait 10 days before conducting the sale unless the property is perishable and must be sold immediately. -After the sale, the IRS uses the proceeds first to satisfy the tax debt. -If real estate was sold, the taxpayer, or anyone with an interest in the property, may redeem it at any time within 180 days after the sale by paying the purchaser the amount paid for the property plus a certain percentage of interest. -Before the date of sale, the IRS computes a "minimum bid price," which is the lowest amount the IRS will accept for the sale of that property to protect the taxpayer's interest in that property.-After the sale, the IRS uses the proceeds first to satisfy the tax debt.With regard to the trust fund recovery penalty assessments for employers, which of the following statements is false? -The penalty can be applied regardless of whether a taxpayer is out of business or without assets. -The penalty is computed on unpaid income taxes withheld plus the employee's and the employer's portion of the FICA taxes. -The two key elements that support an assessment of the penalty against an individual are responsibility and willfulness. -The amount of the penalty is equal to the unpaid trust fund tax.-The penalty is computed on unpaid income taxes withheld plus the employee's and the employer's portion of the FICA taxes.With regard to the trust fund recovery penalty assessments for employers, which of the following statements is false? -A federal tax lien may be filed against a responsible person. -A person is considered willful if (s)he has free will or choice, yet either intentionally disregards the law or is plainly indifferent to legal requirements. -The penalty also applies to excise taxes. -The amount of the penalty is equal to the unpaid income taxes withheld.-The amount of the penalty is equal to the unpaid income taxes withheld.With regard to the trust fund recovery penalty assessments for employers, which of the following statements is false? -The penalty can be applied regardless of whether a taxpayer is out of business or without assets. -The two key elements that support an assessment of the penalty against an individual are responsible and willfulness. -The amount of the penalty is equal to the unpaid trust fund tax. -The penalty is computed on unpaid income taxes withheld plus the employee's and the employer's portion of the FICA taxes.-The penalty is computed on unpaid income taxes withheld plus the employee's and the employer's portion of the FICA taxes.Which of the following is NOT a requirement for the IRS to file a Notice of Federal Tax Lien? -Assessment of the taxpayer's ability to pay the liability. -The taxpayer must neglect or refuse to pay the tax within 10 days after notification. -Assessment of the liability. -Sending notice of tax due and demand for payment, unless waived by the taxpayer.-Assessment of the taxpayer's ability to pay the liability.Which of the following statements with respect to a levy is false? -The IRS must release a levy if the fair market value of the property exceeds the levy and its release would not hinder the collection of tax. -Generally, court authorization is not required before levy action is taken. -A Final Notice of Intent to Levy is not enforceable unless this notice is given to the taxpayer in person. -A levy can be made on property in the hands of third parties or in the taxpayer's possession.-A Final Notice of Intent to Levy is not enforceable unless this notice is given to the taxpayer in person.When appealing the filing of a Notice of Federal Tax Lien, which of the following is true? -In order to appeal, Form 12153, Request for a Collection Due Process or Equivalent Hearing, must be completed and returned within 30 days. -Taxpayers may not directly appeal the filing of a Notice of Federal Tax Lien even if the taxpayer believes the IRS filed in error. -Liens may be filed while a taxpayer is in bankruptcy and subject to the automatic stay during bankruptcy. -The outcome of a Collection Due Process hearing is final and may not be overturned.-In order to appeal, Form 12153, Request for a Collection Due Process or Equivalent Hearing, must be completed and returned within 30 days.After assessment, as a general rule, the Internal Revenue Service has the authority to collect outstanding federal taxes for which of the following? -Five years. -Twenty years. -Ten years. -Three years.-Ten years.Which of the following properties is NOT exempt from levy? -Unemployment benefits. -Certain annuity and pension benefits. -State income tax refunds. -Tools of a trade.-State income tax refunds.A married couple files a joint return but is subsequently unable to pay the taxes. The spouse not responsible for incurring the liability can reduce his or her personal liability through which of the following? -Tax Court review relief. -Innocent spouse relief. -Equitable treatment relief. -Separation of liability relief.-Innocent spouse relief.With regard to an installment agreement with the IRS to pay a federal tax debt, which of the following statements is false? -Failure to pay an installment can result in the termination of the agreement. -Installment payments may be paid by payroll deductions from the taxpayer's employer. -Installment plans are set up so that tax liability due will be paid off in four equal installments. -While that taxpayer is making installment payments, the IRS may require the taxpayer to provide financial information on his or her financial condition to determine any change to his or her ability to pay.-Installment plans are set up so that tax liability due will be paid off in four equal installments.All of the following are conditions for a taxpayer's qualifying for innocent spouse relief EXCEPT -Establishment of the fact that the taxpayer did not know and had no reason to know that there was an understatement of tax. -The return was jointly filed and had an understatement of tax due to erroneous items of the taxpayer's spouse (or former spouse). -The couple was divorced, widowed, or legally separated or did not live together for the 12 months prior to the innocence claim. -It would be unfair to hold the taxpayer liable for the understatement of tax, taking into account the facts of the case.-The couple was divorced, widowed, or legally separated or did not live together for the 12 months prior to the innocence claim.An employee performs the function of paying various company bills. The employee's supervisor directs them as to which bills to pay and in what amount. In the event of the company's failure to pay a trust fund tax bill, the trust fund penalty is like to be imposed upon -The employee responsible for paying the bills. -The CFO of the company. -The company's board of trustees. -The supervisor.-The supervisor.Employee A works in the accounts payable department. A's job duties include making timely payments of any outstanding balances, company supplies, and any soon-to-be due bills. Payment is made once A's supervisor has approved the purpose of the payment. A is aware of a recently received bill for trust fund taxes due by the end of the week. However, the payment is never made, as A never received approval. Any trust fund recovery penalty would most likely be assessed upon -A's supervisor. -The company's payable department. -The treasurer of the company. -Employee A.-A's supervisor.A levy on wages ends under all of the following circumstances, EXCEPT -The penalties and interest on the tax liability are satisfied. -The IRS determines the levy is creating an economic hardship for the taxpayer. -The levy becomes unenforceable due to lapse of time. -The levy is released.-The penalties and interest on the tax liability are satisfied.What is the name given to the last date the IRS can collect unpaid tax from the taxpayer? -Return due date. -Date of sale resulting from the exercise of a tax levy. -Collection Statute Expiration Date (CSED). -Assessment date.-Collection Statute Expiration Date (CSED).Form 9423, Collection Appeal Request, can be used to appeal all of the following collection actions EXCEPT -Request for a Collection Due Process Hearing. -Denial or termination of an installment agreement. -Notice of Federal Tax Lien. -Final Notice of Intent to Levy.-Request for a Collection Due Process Hearing.A taxpayer with an outstanding tax liability has filed for bankruptcy under Title 11 of the U.S. Code. Which of the following statements about this tax liability is correct as a result of the bankruptcy filing? -The liability is automatically discharged. -The IRS may impose a jeopardy levy on the taxpayer for the unpaid liability. -Filing for bankruptcy automatically stays assessment and collection of the liability. -A notice of Federal Tax Lien filed during the bankruptcy period will be effective.-Filing for bankruptcy automatically stays assessment and collection of the liability.The IRS may accept an offer in compromise filed by the taxpayer or their representative under which of the conditions below? -All of the taxpayer's liabilities have been referred to the Department of Justice for prosecution or defence. -The taxpayer's tax debt might not be accurate. -The taxpayer has filed Chapter 13 bankruptcy. -The taxpayer failed to file all legally required tax returns before the offer is submitted.-The taxpayer's tax debt might not be accurate.The trust fund recovery penalty was enacted to encourage prompt payment of which taxes? -Gift taxes. -Collected excise taxes. -Estate taxes. -Accumulated earnings taxes.-Collected excise taxes.Which statement is true about the IRS providing notice and demand relating to a tax levy? -The notice must be left at the person's home or place of business. -Taxpayers may use the IRS Problem Resolution Program to solve problems with an IRS employee. -The notice is accompanied by a publication outlining the taxpayer's rights. -All of the answers are correct.-All of the answers are correct.Which of the following penalties is the highest (as determined by the percentage of unpaid taxes)? -Frivolous tax position penalty. -Failure-to-pay penalty. -Failure-to-file penalty. -Trust fund recovery penalty.-Trust fund recovery penalty.Installment agreements may require that a Collection Information Statement be filled out with pertinent financial information about the taxpayer. However, the statement need not be filled out if the dollar amount of the installment agreement is -$10,000 or less. -At least $15,000 for the current year but less than $20,000 for all years. -$20,000 or less for joint returns. -$50,000 or less.-$50,000 or less.Which of the following statements regarding the use of the national and local expense standards to determine whether the taxpayer can provide for basic living expenses is false? -Taxpayers must prove that using national and local expense standards would leave them an inadequate means of providing for basic living expenses. -The necessary expense test is met by expenses that are necessary to provide for a taxpayer's health and welfare and/or production of income. -The IRS may allow actual expenses to be used. -The taxpayer should not consider the taxpayer's family to determine whether or not the taxpayer can provide basic living expenses.-The taxpayer should not consider the taxpayer's family to determine whether or not the taxpayer can provide basic living expenses.Which of the following best describes a levy when it relates to a tax debt? -A levy on salary or wages will end when the time expires for legally collecting the tax. -A levy does not apply to wearing apparel and school books. -A levy is not a legal seizure of property. -A levy can only be released by the filing of a lien.-A levy on salary or wages will end when the time expires for legally collecting the tax.What is the type of collection that allows the IRS to waive the 10-day period of Notice and Demand for Tax? -Lien. -Levy. -Jeopardy levy. -Installment agreement.-Jeopardy levy.When filing an Offer in Compromise, all of the following forms may be used EXCEPT -Form 433-A. -Form 656. -Form 872-A. -Form 433-B.-Form 872-A.If the IRS must seize (levy) a taxpayer's property, the taxpayer has the right by federal law to keep all of the following EXCEPT -A limited amount of personal belongings, furniture, and business or professional books and tools. -Tangible personal business property if the collection of tax is in jeopardy. -Salary or wages that have been included in a judgment for court-ordered child support payments. -Unemployment and job training benefits and workers' compensation.-Tangible personal business property if the collection of tax is in jeopardy.Select the correct statement concerning a taxpayer's appeal of the filing of a Notice of Federal Tax Lien. -The taxpayer may appeal the filing of a Notice of Federal Tax Lien for any reason. -The taxpayer has 60 days to bring a suit to contest the determination of the CDP hearing. -Upon the conclusion of the CDP hearing, the IRS will issue a determination. -A tax lien may be filed while a taxpayer is in bankruptcy.-Upon the conclusion of the CDP hearing, the IRS will issue a determinationWhich of the following statements is false in respect to a Notice of Federal Tax Lien? -It is a public notice to the taxpayer's creditors that the government has a claim against all of the taxpayer's real, personal, and/or business property, including property that was acquired after the lien came into existence. -A taxpayer cannot sue the federal government for damages if the IRS knowingly or negligently fails to release a Notice of Federal Tax Lien when a release is warranted. -All fees charged by the state or other jurisdiction for both filing and releasing the lien will be added to the balance owed. -The IRS will issue a Release of the Notice of Federal Tax Lien within 30 days after acceptance of a bond guaranteeing payment of the liability.-A taxpayer cannot sue the federal government for damages if the IRS knowingly or negligently fails to release a Notice of Federal Tax Lien when a release is warranted.Which function is NOT performed by the National Taxpayer Advocate Office? -Reviews appeals relating to the rejection or termination of installment agreements. -Propose changes to IRS administrative practices that would mitigate the problems that exist between IRS and taxpayers. -Identify possible law changes that might mitigate the problems identified between the IRS and taxpayers. -Identify areas in which taxpayers have problems dealing with the IRS.-Reviews appeals relating to the rejection or termination of installment agreements.