Tax 650 2-1

You are a revenue agent for the Internal Revenue Service. In November 2014, you audit Dan’s 2011 tax return. During the course of the audit, you come to believe that Dan’s deductions for business travel and entertainment in 2011 are unsubstantiated, and you propose a $6,000 deficiency assessment for that year. You also examine some prior-year returns. You believe that Dan failed to report $40,000 of gross business income on his 2008 federal tax return. Dan had reported gross income of $60,000 on his 2008 return. You also discover that Dan failed to file a federal tax return in 2005. 

Assuming Dan does not agree with your proposed assessments, will the statute of limitations prevent the IRS from issuing, in November 2014, a statutory notice of deficiency for 2011, 2008, or 2005? 

Research the applicable section(s) of the Internal Revenue Code for each of the three returns. How would you apply these sections to Dan’s situation? Be clear, thorough, and analytical in your initial post. 

In responding to your classmates’ initial posts, which are written from the IRS auditor’s point of view, take the position of Dan’s personal CPA. What arguments, if any, would you raise to the auditor in defending against the issuing of the deficiency notice?

Aloha Class,

Dan will be responsible for the 2005 filing, along with penalties. Also the 2008 failure to report, and

penalties will be his responsibility. Finally, the 2011 deductions will need to have proper evidence to

persuade there validity. If not then the 2011 error and penalties will also be his responsibility. Beyond

this his ability to conduct business in the US, may be reviewed and revoked if this is a constant

continuum. The 2005 filing error has no statute of limitations assessed to its timeframe. The 2008, has a

six year timeframe, but it is also a stipulation of a 25 percent clause relating to the amount of

misstatement. The 2011 case has a three year statute of limitation, thus if Dan was not contacted prior

to April of 2015 he may have been in the clear. However, tax court may have seen this multiple violation

case as a reason for reform and then could utilize prejudice to ensure safety of citizens. The statute of

limitations are set a guidelines but with a three form system there are ways to maintain justice among

companies conducting business.

I personally think the IRS wishes to work diligently within the timeframes indicated but from time to

time will need to review the process (especially with more online or technology being introduced to the

market and the profession). Do you think it is important to review the statues and especially statues of

limitation with the advancements introduced to the market and profession?

Mahalo Nui Loa,

Koka Hurst