01 Ethics and Responsibilities in Tax Practice Flashcards
What is the Internal Revenue Service?
A bureau of the Department of the Treasury. The secretary is authorized by the Internal Revenue Code (IRC) to administer and enforce internal revenue laws.
Who is a tax return preparer?
Anyone who prepares for compensation, or who employs one or more persons to prepare, all or a substantial portion of any tax return or claim for refund.
What is a 90-day letter?
A statutory notice of deficiency giving the taxpayer 90 days to resolve the matter or file a petition with the United States Tax Court.
What is a 30-day letter?
A notification sent by the IRS to a taxpayer after an examination, assuming an agreement has not been reached, that specifies the agent’s proposed tax adjustment and the reasons for it giving the taxpayer the option to do one of the following:
1. Pay the proposed amount
2. Contest the findings with the appeals division within 30 days
3. Wait to receive a statutory notice of deficiency, a 90-day letter.
What is an underpayment for an individual taxpayer and what are the exceptions?
The insufficient payment of taxes by an individual taxpayer, considered to be the case unless one of 4 exceptions apply:
1. The unpaid balance is $1,000 or less.
2. The amount prepaid is at least 100% of the prior year’s liability, or 110% if the prior year’s AGI exceeded $150,000.
3. The annualized method was used and quarterly installments cover the tax on income to date, assuming it was proportionate to annual income.
4. The amount prepaid is at least 90% of the current year’s tax liability.
What is a corporate underpayment and what are the exceptions?
The insufficient payment of taxes by a corporation, considered to be the case unless one of 4 exceptions apply:
1. The unpaid balance is less than $500.
2. The annualized method was used and quarterly installments cover the tax on income to date, assuming it was proportionate to annual income.
3. The seasonal method was used and quarterly installments cover the tax on income to date, assuming the relationship of the quarter’s income to the current year’s total income will be the same as the comparable prior year’s quarter had to the prior year’s total income.
4. The amount prepaid is at least 100% of the prior year’s tax liability.
Describe a sustainable tax position.
A tax position that is considered reasonably likely to be sustained upon examination, requiring various degrees of probability, depending on the basis on which it is being evaluated, ranging from the highest to lowest probability:
1. More likely than not – a greater than 50% probability of being sustained
2. Substantial authority – an approximate 40% probability of being sustained
3. Realistic possibility – a 1/3 probability of being sustained
4. Reasonable basis – a 20% probability of being sustained
Who may practice before the IRS?
Subpart A of Circular 230 sets forth rules governing authority to practice before the IRS. Examples of individuals who may practice before the IRS include attorneys, CPAs, enrolled agents and enrolled actuaries, and enrolled retirement plan agents.
If a practitioner becomes aware of an incident of a client’s noncompliance with tax laws, or of an error or omission on a filing with the IRS, what is the practitioner required to do?
If a practitioner becomes aware of an incident of a client’s noncompliance with tax laws, or of an error or omission on a filing with the IRS, the practitioner is required to:
1. Promptly advise the client of the circumstance (even if the statute of limitations has expired); and
2. Advise the client as to the potential consequences.
Can a practitioner accept assistance from a person who is disbarred or suspended from practice by the IRS?
No. A practitioner should not knowingly accept even indirect assistance from any person disbarred or suspended from practice by the IRS.
When may a practitioner represent a client despite a conflict of interest?
A practitioner may represent a client despite a conflict of interest if all of the following apply:
1. It is reasonable for the practitioner to believe that representation will be competent and diligent;
2. Representation is not prohibited by law; and
3. All affected clients waive the conflict of interest, by giving their written, informed consent.
May a practitioner, in good faith, rely on information obtained from a client without verification?
Yes. A practitioner may, in good faith, rely on information obtained from a client without verification. If information furnished by the client appears incorrect, incomplete, or otherwise unsatisfactory based on information known by, or furnished to the practitioner, that fact may not be ignored by the practitioner.
Who is a signing preparer and what is their primary responsibility?
A signing preparer bears the “primary responsibility” for the overall accuracy of the return or claim for refund even when the non-signing preparer prepared all or a substantial portion of a return.
A tax position (other than a position with respect to a tax shelter or a reportable transaction) is unreasonable unless:
- there is substantial authority for the position, or
- the position was disclosed and there is a reasonable basis for the position.
Describe the substantial authority standard.
The substantial authority standard is an objective standard involving an analysis of the law and application of the law to relevant facts.
Generally, the substantial authority standard is considered to have a 40-percent likelihood of the position being upheld.
Less stringent than the more likely than not standard (the standard that is met when there is a greater than 50-percent likelihood of the position being upheld).
More stringent than the reasonable basis standard (20-percent likelihood of the position being upheld).
