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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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Please answer the following questions: 1) Under what circumstances

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Please answer the following questions:

1) Under what circumstances would a CPA be found liable for a preparer penalty when he or she has not actually prepared the return?

2) What are the three(3) methods of proof that the IRS would use to show the taxpayer has understated his or her income?

3) Distinguish the statue of limitations for criminal versus civil liability?

4) What is meant by the term "DIF Score".

5) Joe, a resident of Boston, mails his return to the IRS service center in New York on April 15. April 15 is Patriots Day, an official holiday in Massachusetts. Joe pays $1,000 with the return. The return is received by the New York service center on April 18. What is Joe's penalty, if any, for failure to timely file his return.

6) John, a calendar year taxpayer, filed his 2006 income tax return on October 10, 2007,paying an amount due of $1,000. On April 2, 2007 John filed an automatic extension of time in which to file the return. No other extensions were filed. Determine how much return John must pay.

7) Individual X files his form 1040 putting only -000- on the tax return where correct figures should appear. This return is otherwise properly completed. Has X filed an income tax return for purposes of the criminal penalty for failure to file a return?

8) Mr. X is outside the United States on April 15, 2007. As a matter of law, what is the longest extension of time he may receive to file his 2006 return?

9) If a taxpayer has not received her 90 day letter, how might she toll interest on a proposed deficiency while still maintaining her right to sue in Tax court? How would your answer change is she had her 90 day letter in hand?

10) From the perspective of the statue of limitations, why might a taxpayer file Form 1040X to claim a refund rather than file a Form 1045 to obtain the refund?

Robin D :

Hello and thank you for using Just Answer,
#1.Treasury Regulation §(NNN) NNN-NNNN15 generally defines a tax return preparer as, “any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or a substantial portion of any return of tax or any claim for refund of tax under the Internal Revenue Code.”
The specific item method is the preferred method of proving income because it is the easiest to understand, include in a prosecution report. The next is Net Worth. The third is the Expenditures method of proving income, which utilizes circumstantial evidence.
Criminal prosecutions must begin within three years of the alleged crime (IRC Sec. 6531). Evasion of tax though would have 6 years.
#4 The Discriminant Function System is a computer scoring technique where returns are selected for examination on the basis of the IRS’s experience with similar returns. The higher the specific return rates the higher potential for audit.
Joe will not have to pay a failure-to-file or failure-to-pay penalty if he can show that he failed to file or pay on time because of reasonable cause and not because of willful neglect.
#6 $30
If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
IRC Section 6702 provides for an immediate assessment of a $5000 civil penalty against individuals who file frivolous documents. The penalty is not based on tax liability.
The individual has not filed a return in this instance.
#8 After the automatic extension till June the individual can also receive the extension til Oct 2007
#9 File the protest with appeals. With or without the letter the interest and taxes can be paid. If the case is won then refund can be requested.

#10 1045 has a 1 year statute versus the 1040X with 3 year for refund




Hi there


thanks for reviewing these questions


question number 1 is inconclusive


can you please elaborate on it

Robin D :

You are welcome. Had I realized they were homework I would have had them moved. #1 in and of it self is inconclusive. The fact that a preparer completes or even advises on a specific line item on a return (say they advise to enter a specific number based on their calculations and not just general law) would place them in jeopardy of being the preparer of record.




can you please explain the differences between the statue of limitations for criminal versus civil liability? You mentioned about criminal prosecution in your answer above.

Robin D :

The civil offense would have 3 years to 6 years for assessing and applying penalties. Criminal would have no statute of years really to apply depending on the act. If fraudulent omissions of income there would be no statute of limitations if the income was 25% of gross.

Robin D :

IRC Sec. 6501(c)(1) covers the above

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