Question

IRS Practice & Procedure

Briefly describe each of the following:

a. Revenue Agent Report

b. Form 870

c. Thirty-day letter

d. Ninety-day letter

e. Closing Agreement

f. Offer in Compromise

Answer 1

1. Revenue agent report : it is a notice of final determination from the IRS received by the taxpayer. It is in a form of detailed document that states an IRS examiner's audit findings along with the amount of deficiency or refund the examiner finds the taxpayer to owe or be owed, respectively.

2. Form 870: The form that is used to Waiver of Restrictions on Assessment and to Collect Deficiency in Tax as well as to Accept Overassessment of tax.

3. Thirty-day letter : a notice sent to taxpayers providing explanation regarding their computational error in income tax return along with their options if they don't agree with the auditor's findings is referred as the 'Thirty-day letter'. According to it, taxpayers are given 30 days to agree with the finding or file an appeal.

4. Ninety-day letter: it is also referred as a notice of deficiency. It is issued by the Internal Revenue Service (IRS) to a taxpayer indicating a tax deficiency. Taxpayers are informed regarding automatic reassessment of audit deficiencies if they fail to respond in 90 days. It is sent by certified or registered mail. It is generally issued when taxpayers fail to respond to a 30-day letter.

5. Closing agreement : It is a final agreement between IRS and taxpayer on the proper and final settlement of tax issue. It has some characteristics of contract but it is not strictly subject to the law of contracts.

6. Offer in compromise : it is an agreement between a taxpayer and the IRS which allows taxpayers who are qualified individuals with an unpaid tax liabilities to negotiate a settled amount that is less than the full amount owed. Taxpayer who is in position to clear liabilities in installments or any other manner, is not eligible for offer in comprise.