1 Flashcards
Permitted fee communications
- Professional lists
- Telephone directories
- Print media (hand delivered flyers)
- Mailings
- Electronic mail
- Radio
- Television
Who may practice before the IRS?
- Attorneys
- EAs
- CPAs
- Enrolled RETIREMENT AGENTS
- Enrolled Actuaries
- Registered Tax Return Preparers
- 20% probability of being sustained
- More than 50% probability - More likely
- 40% probability - Substantial authority
- 33% - Higher standards
Tax Benefits requiring additional due diligence and Form 8867
- EITC
- CTC
- Additional CTC
- ODC - Credit for other dependents
- AOTC
- HOH filing status
Acc to Treasury dept circular 230, a practitioner may charge a ____________for representing a client in connection with a judicial proceeding.
CONTINGENT FEE
Contingent fee is allowed for
- Admin examination or challenge to an original return, an amended return or a claim for refund
- Services related to a claim for credit or refund in connection with statutory int or penalties charged by IRS
- Services related to a judicial proceeding (successfully concluding an IRS examination)
The UAA (AICPA UNIFORM ACCOUNTANCY ACT) :
- ONLY requires accountants to be licensed who perform attest services or compilations of FS to be licensed
- Issuance of CPA certificates is a requirement
- Continuing education is a provision of UAA
- The UAA contains a substantial equivalency provision to allow for movement between states.
Notice of deficiency is known as __________
90 day letter
Tax Shelter
More than 50% Probablity - applicable for tax shelters
Substantial authority (40% - doesn’t need to be disclosed, that means no substantiation required)
20% - Reasonable basis
Form 8275 - Disclosure statement - used to disclose positions that lack substantial authority
Form 8275-R - Regulation Disclosure statement, is used to disclose a tax position that is contract to Treasury Regulations.
Donations equal to or over $250 -document with receipt
Donations over $5,000 generally require a qualified appraisal
All tax returns for the previous 7 years
All records that pertain to a return for the previous 3 years
Other records, no matter how old to support a tax position on a subsequent return
Under circular 230, practitioners must not act as a notary public with respect to matters before the IRS in which _______________
they are interested
The “7525 privilege” refers to a specific legal protection for communications between a CPA and their client. Under the 7525 privilege, certain communications made in the course of preparing tax returns or providing tax advice may be protected from disclosure in legal proceedings. This privilege is similar to attorney-client privilege but is specifically tailored for tax professionals.
Key Points:
Scope: It generally applies to communications related to tax advice and preparation.
Limitations: This privilege may not apply in all situations, particularly if there’s evidence of fraud or other illegal activities.
Regulation: It was established under the IRS Restructuring and Reform Act of 1998.
This privilege is important for CPAs as it helps maintain confidentiality in their client relationships.
Section 6713 of the Internal Revenue Code (IRC) pertains to the confidentiality of tax return information and the penalties for unauthorized disclosure or use of such information by tax preparers.
Key Points:
Confidentiality: Tax return preparers must keep taxpayer information confidential. Unauthorized disclosure of this information is prohibited.
Penalties: If a tax preparer discloses or uses taxpayer information for purposes other than preparing the tax return, they may face civil penalties. The penalties can be substantial, depending on the nature of the violation.
Exceptions: There are specific circumstances under which disclosure may be permissible, such as when the taxpayer consents to the disclosure.
Impact on CPAs: CPAs must ensure they are aware of and comply with Section 6713 to protect their clients’ confidential information and avoid penalties.
This section underscores the importance of ethical standards and confidentiality in the practice of accounting and tax preparation. If
Section 7216 of the Internal Revenue Code (IRC) addresses the confidentiality and disclosure of tax return information by tax return preparers. Here are the key points relevant for the CPA exam:
Key Points of Section 7216:
General Rule: It prohibits tax return preparers from knowingly or recklessly disclosing, or using, any tax return information for any purpose other than preparing the tax return.
Consent Requirement: A tax preparer may disclose tax return information if they obtain explicit consent from the taxpayer.
Penalties: Violating Section 7216 can result in civil penalties. The penalties can include fines for each unauthorized disclosure or use of tax return information.
Scope: The provision applies not only to individuals who prepare tax returns but also to any entity involved in the preparation process, including firms and their employees.
Exceptions: There are certain exceptions where disclosure may be allowed, such as complying with legal requirements or sharing information within the preparer’s firm.
Importance for CPAs:
CPAs must be aware of Section 7216 to maintain client confidentiality and avoid penalties. This regulation emphasizes the ethical obligation to protect client information, which is a crucial aspect of the CPA profession.
Although tax preparer’s responsibilities inlcude the CONFIDENTIALITY of TP’S INFO, there are certain situations in which a preparer may share the information WITHOUT a taxpayer’s consent.
A QUALITY CONTROL PEER REVIEW CONDUCTED by other CPAs is an example of one of the exceptions. Therefore, the preparer’s action does not constitute misconduct.
Punitive damages are not available to plaintiffs in either ___________________
negligence or breach of contract lawsuits. (only available in case of Fraud)
Unreasonable position penalty
$1000 or 50% of CPA’s fee
Wilfully attempts to understate the tax liability or recklessly disregards rules or regulations
Penalty = $5,000 or 75% of CPA’s income
FBAR depends on the PHYSICAL LOCATION of the bank and not the nationality of the fin institution for FBAR purposes:
e.g. an Account maintained with a branch of a U.S. Bank physically located in Italy is a foreign account.
An a/c maintained with a branch of a Mexican bank physically located in TX is not a foreign account
FBAR goes to Treasury using the FinCEN
Financial Crimes Enforcement Network
Need to check FBAR rules, as per Uworld e.g. if a US taxpayer holds crypto in an offshore a/c and the value of crypto is greater than $10k. The taxpayer______________
is not required to file FBAR unless it holds other accounts. Crypto is not a reportable account as of now.
Tax Evasion Sec 7201
Max punishment for individuals is a fine of $100,000 and/or 5 years in jail
Tax Fraud Sec 7206
- Creating or subscribing any doc under penalty of perjury that the TP does not believe to be true
- Aiding the prep of any tax related matter that is fraudulent
- Removing or concealing property to defeat taxes
TPs can ask the IRS to interpret and apply tax laws to the TP’s specific tax situation. The Tax situation usually involves a proposed complex transaction that lacks definitive tax treatment. The resulting IRS interpretation is called ____________
PLR (Private Letter Ruling) Once the PLR is issued, the TP can proceed with the transaction knowing how it will be taxed. e.g. a TP contemplates a complex series of corporate Mergers and acquisitions. e.g. A TP contemplates entering into a complex transaction, the TP wants assurance that there will be no adverse tax effects from the transaction.
Late filing penalty
Capped at 25% of the unpaid taxes or 5% of unpaid taxes per month
C corp IRC 6655 - underpayment penalty
C corp must generally pay estimated taxes equal to the lesser of 100% of its PY tax liability or 100% of its CY tax liability.
Note: PY Tax liability will not suffice to eliminate an underpayment penalty if the corp had no tax liability in the PY or had taxable income exceeding $1million in any of the preceding 3 tax years.
A reportable transaction is any transaction the IRS and/or Treasury dept determines as having a potential for _______________. Reportable transactions must be disclosed annually on Form ______
tax avoidance or tax evasion.
Form 8886 (Reportable Transaction DIsclosure Statement).
Late payment penalty = 0.05% per month
Late filing penalty = 5% per month
If failure to file has been fraudulent, 15% per month
True
Punitive charges for _______ cases
fraud
Rescission - act of rescinding a contract and ___________the parties to their positions before the contract was formed.
restoring
Reliance is for ___________and not for breach of contract.
FRAUD
Negligence - OBID
O=Obligation of duty of care
B=Breach of standard of care
I= Injury
D=Damages
Fraud=MIADS
M=Misrepresentation of a material fact
I= Induce reliance
A= Actual and Justifiable reliance
D= Damages (suffered a loss))
S= Scienter (intent of fraud)
Statute of limitations is generally for a long term such as
15 years , 4-6 years from date of breach
Constructive fraud or gross neligence or reckless
Scienter is actual fraud and not constructive fraud
L - legal
O - Offer
C - Consideration (not required for agency)
A - Acceptance
L- legal capacity (only required for principal)
Agency Relationship
The Statute of Frauds _____________-
is a legal principle that requires certain types of contracts to be in writing to be enforceable. Its purpose is to prevent fraud and misunderstandings in contractual agreements by ensuring there is clear evidence of the terms and conditions.
Applies to 4 situations where it must be in writing : (GROS)
1. Sale of goods $500 or more
2. Real Estate
3. Impossible to complete within 1 year
4 Surety - promise to be liable to debt of another.
Apparent authority also known as ______
Estoppel or Ostensible Authority
