- A taxpayer's foreign tax credit carryforward from 10 years ago is now being used. The IRS wants to challenge the carryforward amount. Can the IRS revisit the year the credit originated?
Answer: Generally no - the originating year is closed by the SOL. However, the IRS may challenge the amount being carried forward by auditing the current year return, limiting the carryforward to what would have been allowable in the closed year.
Once a year is closed by the SOL, the IRS cannot assess additional tax for that year. However, the IRS may challenge carryforward amounts by examining the current year - limiting the carryforward to what was actually allowable. Answer B is correct. The IRS cannot freely reopen closed years (A). Carryforwards don't reopen the originating year (C). The IRS may still limit carryforward amounts (D).
- A taxpayer files a return showing a $0 tax liability but has unreported income. The SOL for the IRS to assess tax runs for:
Answer: 3 years from the filing date or due date of the return - even a return showing zero tax starts the SOL running if the return is filed and contains sufficient information for the IRS to calculate the liability.
A return showing zero tax still starts the SOL running if it is properly filed. The 3-year general period applies. The 6-year extension would apply only if the omission exceeds 25% of gross income. Answer C is correct. Zero tax doesn't prevent the SOL from running (A). The 6-year period is not automatic (B). 1 year is not the standard (D).
- A taxpayer and the IRS may agree to extend the statute of limitations for assessment by:
Answer: Executing a written consent on Form 872 (Consent to Extend the Time to Assess Tax), which extends the limitations period for a specific period - this is commonly requested during an audit to allow additional time to resolve issues.
The SOL can be extended by mutual written consent using Form 872. This is a bilateral agreement. Answer B is correct. Amended returns (A) don't extend the SOL. Attorney letters (C) are not the proper form. The IRS cannot unilaterally extend the SOL (D).
- The statute of limitations for assessment is unlimited (i.e., there is no limitations period) when:
Answer: The taxpayer files a false or fraudulent return with intent to evade tax, or fails to file a return at all.
The statute of limitations is unlimited for fraud (filing a false return with fraudulent intent) or for failure to file a return - the IRS may assess tax at any time. Answer B is correct. Tax amounts (A) don't affect the SOL. Foreign status (C) doesn't create an unlimited period. Foreign accounts (D) may extend reporting obligations but don't create unlimited assessment SOL.
- Under Section 32(k), if the IRS determines that a taxpayer's EIC claim was denied due to reckless or intentional disregard of the EIC rules, the taxpayer is prospectively barred from claiming the EIC for:
Answer: 2 years following the year of the denial (or 10 years if the denial is due to fraud).
Under Section 32(k), a taxpayer whose EIC is denied due to reckless or intentional disregard of the EIC rules is barred from claiming the EIC for 2 years following the denial year. If the denial is due to fraud, the bar extends to 10 years. These are prospective bans on future claims - they do not retroactively reopen closed prior-year returns beyond the normal assessment SOL. Answer C is correct. 1 year (A) is not the statutory period. 5 years (B) is not the statutory period. An indefinite ban (D) is not provided under Section 32(k).
- Which of the following suspends or tolls the statute of limitations for assessment?
Answer: The issuance of a statutory notice of deficiency (90-day letter) - the SOL is suspended for the period the taxpayer has to file a Tax Court petition plus 60 days.
Under Section 6503(a), the statute of limitations for assessment is suspended during the period after the IRS mails a statutory notice of deficiency in which the IRS is prohibited from assessing the tax, plus 60 days. Answer B is correct. Filing a Tax Court petition (A) occurs in response to the notice of deficiency and prolongs the prohibition on assessment, but the notice itself is what triggers the tolling. An installment agreement request (C) tolls the collection SOL, not the assessment SOL. Failure to pay (D) does not suspend or toll the assessment statute.
- A taxpayer (subject to pre-TCJA law or otherwise eligible for a carryback) claims a loss on a tax return that generates a net operating loss carried back to a prior year. The statute of limitations for the IRS to assess tax for the carryback year is:
Answer: The later of 3 years from the due date of the return for the loss year or 3 years from the due date of the carryback year return, as the loss year return effectively reopens the carryback year.
Under Section 6501(h), when an NOL carryback is claimed, the SOL for the carryback year is extended. The IRS has the longer of 3 years from the due date (including extensions) of the return for the loss year or 3 years from the due date of the return for the carryback year to make adjustments arising from the carryback. Note: post-TCJA, most taxpayers cannot carry NOLs back, so this rule primarily applies to taxpayers eligible for carrybacks (e.g., farming losses). Answer D is correct. 3 years from the loss year (A) or carryback year (B) alone each miss the extended rule. 6 years (C) applies to 25% omissions from gross income, not NOL carrybacks.
- The statute of limitations for the IRS to collect tax after assessment is:
Answer: 10 years from the date of assessment - the IRS has 10 years to collect through levy, seizure, or court proceeding.
Under Section 6502, the IRS has 10 years from the date of assessment to collect the tax through enforcement actions. Answer A is correct. 3 years (B) is the assessment SOL, not collection. 6 years (C) is not the collection period. Collection is not unlimited (D) - the 10-year period applies.
- The statute of limitations for estate tax assessment is generally:
Answer: 3 years from the filing date of Form 706 or its due date (whichever is later) - with extensions to 6 years for omission of more than 25% of the gross estate.
Estate tax follows the same 3-year general SOL (from Form 706 filing or due date) and 6-year extended SOL for omissions exceeding 25% of the gross estate. Answer A is correct. 5 years from death (B) is not the standard. 10 years (C) is the collection SOL. Estate tax SOL is not unlimited (D).
- Which of the following actions by a taxpayer can restart or extend the statute of limitations?
Answer: Executing Form 872-A (Special Consent to Extend the Time to Assess Tax), which provides an open-ended extension that continues until terminated by either party.
Form 872-A is an open-ended consent that extends the SOL indefinitely until terminated - stronger than Form 872's fixed extension. Answer D is correct. Paying taxes (A) doesn't affect the SOL. Superseding returns (B) replace the original but don't generally extend the SOL. Voluntary disclosure (C) may affect penalties but doesn't restart the SOL.
- A taxpayer is audited and the 3-year SOL is about to expire. The IRS requests that the taxpayer sign a Form 872 to extend the SOL. The taxpayer may:
Answer: Refuse to sign - the IRS cannot force a taxpayer to consent to an extension. However, refusing may prompt the IRS to issue a notice of deficiency before the SOL expires to preserve its assessment rights.
Taxpayers are not required to sign Form 872 - consent is voluntary. However, refusing may cause the IRS to issue a deficiency notice before the SOL expires to protect its rights. Answer B is correct. Signing is not mandatory (A). The IRS doesn't need to agree to limit the audit for the taxpayer to sign (C). Ignoring has consequences (D) - the IRS will protect its rights.
- Under IRC Section 6501(a), the general statute of limitations for the IRS to assess additional tax is:
Answer: 3 years from the later of the date the return was filed or the return's original due date.
The general assessment period is 3 years from when the return was filed or its due date, whichever is later. Answer A is correct. 2 years (B) is not the standard assessment period. 5 years from payment (C) is not the general rule. 4 years from year-end (D) is not the standard.
- What is the effect of a taxpayer signing Form 872 (Consent to Extend the Time to Assess Tax) on the taxpayer's rights?
Answer: The taxpayer agrees to extend the assessment period to a specified date - the taxpayer retains all other rights including the right to contest the assessment in Tax Court or refund litigation.
Signing Form 872 only extends the assessment period - it does not waive the taxpayer's right to dispute the assessment, does not automatically extend refund rights, and does not require immediate payment. Answer B is correct. All other rights are retained (A). Refund SOL is separate (C). No payment is required upon signing (D).
- A taxpayer filed their 2020 Form 1040 on March 15, 2021, before the April 15, 2021 due date. The general 3-year assessment period expires on:
Answer: April 15, 2024 - the assessment period runs from the later of the filing date or the due date, so the due date of April 15, 2021 controls.
The 3-year period runs from the later of the filing date or the due date. Since the due date (April 15, 2021) is later than the filing date (March 15, 2021), the period expires April 15, 2024. Answer D is correct. The filing date (A, C) is earlier and therefore not controlling. Year-end (B) is not the correct starting point.
- If a taxpayer files an amended return (Form 1040-X) showing additional tax owed, the effect on the statute of limitations is:
Answer: The SOL remains based on the original return's filing date - an amended return does not restart the limitations period, although it may affect the scope of items the IRS can examine.
Filing an amended return does not reset the SOL - the period continues to run from the original return's filing or due date. However, new items disclosed on the amended return may be subject to assessment within the remaining SOL. Answer D is correct. The SOL is not reset (A, B). The amended return can affect the scope of examination even though the period runs from the original (C is partially correct but D is more complete).
- A taxpayer omits income from their tax return. The 6-year extended SOL under Section 6501(e) applies only to omissions that exceed:
Answer: 25% of gross income reported on the return - adequate disclosure of an item on the return prevents the 6-year SOL from applying to that item.
The 6-year SOL requires an omission of more than 25% of gross income reported on the return. Adequate disclosure on the return prevents the 6-year rule from applying to that item. Answer C is correct. Dollar thresholds (A, D) and 10% (B) are not the standard.
- The statute of limitations for the IRS to assess tax is extended to 6 years when:
Answer: The taxpayer omits from gross income an amount exceeding 25% of the gross income reported on the return.
Under Section 6501(e), the 6-year limitations period applies when a taxpayer omits more than 25% of gross income from the return. Answer C is correct. Estimated tax failures (A) don't extend the SOL. Criminal investigations (B) have separate rules. Refund disallowance (D) doesn't extend the assessment SOL.
- The collection SOL under Section 6502 may be extended when:
Answer: The taxpayer submits an offer in compromise - the 10-year collection SOL under Section 6502 is suspended while the offer is pending, for 30 days after a rejection, and while any Tax Court challenge to the rejection is pending.
Under Section 6331(i) and (k), submitting an offer in compromise suspends the 10-year collection SOL while the offer is pending, for 30 days after rejection, and while any Tax Court proceeding challenging the rejection is pending. Answer A is correct. Answer B is incorrect because an installment agreement does not automatically suspend the collection SOL merely by being in effect - the 10-year period continues to run unless a waiver is executed or the agreement is entered into before the collection period would otherwise expire under Section 6502(a)(2). Issuing a levy (C) is a collection action that must occur within the 10-year period - it does not extend it. Partial payment (D) does not extend the collection SOL.
- A taxpayer made a substantial gift but failed to report it on Form 709. How long does the IRS have to assess gift tax?
Answer: Indefinitely - the SOL for gift tax assessment never begins to run if no Form 709 is filed for a taxable gift.
The gift tax SOL only starts running when Form 709 is filed. If no return is filed for a taxable gift, the IRS can assess gift tax at any time. Answer D is correct. SOL doesn't run from the gift date without a filed return (A, B, C).
- The statute of limitations for a taxpayer to file a claim for refund is:
Answer: The later of 3 years from the date the return was filed (with a return filed before the due date treated as filed on the due date) or 2 years from the date the tax was paid.
Under Section 6511(a), the statute of limitations for a refund claim is the later of: (1) 3 years from the date the return was filed (a return filed before its due date is treated as filed on the due date for this purpose), or (2) 2 years from the date the tax was paid. Answer C is correct. 1 year (A) is too short and not the statutory period. 3 years from the payment date alone (B) omits the 'later of' component and the filing-date starting point. 5 years from year-end (D) is not the standard.
