Chapter 2: Tax Compliance, the IRS and Tax Authorities I) Explain how the IRS us

Question

Chapter 2: Tax Compliance, the IRS and Tax Authorities I) Explain how the IRS uses "matching"to identify possible discrepancies in reported income of taxpayers. Provide an example of the type of item that might be matched' by the IRS. 2) You didn't know it until now, but your best friend was audited and she has received a "30 Day" letter. What are your friend's options? What would you tell your friend to do? What would your answer depend on? 3) Define which committees in the House and Senate are responsible for tax legislation. Who are the current leaders of those committees? Do you think it will be easier or more difficult to enact tax legislation if the leaders of each respective committee belong to the same political party? 4) In Ferguson v. Commissioner, did the Court decide that the taxpayer was or was not taxable on the gain in certain stock transferred to a charity? Were penalties assessed? 5) What is the due date for filing an individual income tax return? Can a taxpayer get additional time to file? If so, how and for how long?

Explanation / Answer

1) The IRS uses Taxpayer Identification Matching (TIN) tools to identify possible discrepancies in reported income of taxpayers. They have a variety of ways to verify taxpayers. The businessmen and organizations have to file information returns with IRS when they pay which gives information about the taxpayers to IRS. The IRS uses this information and matches it with the tax return of the taxpayer and when it is not matched they will inquire about the difference. Hence they can find any possible discrepancies in the system. One such method is TIN tools which use taxpayer identification number to verify returns made on taxes.

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