111/4142 study guide

Question 1

4142.01

Answer 1

How much detail should be included in communication with or on behalf of clients, and how technical the communication should be, will be determined by the audience. Communication addressed to a taxpayer with little tax knowledge should obviously be much less detailed and technical than a communication directed toward an IRS agent or a superior within the researcher’s accounting firm.

Question 2

4142.02

Answer 2

Generally, a communication should include the following elements:

• A brief statement of the essential facts necessary to answer the tax question(s)
• The identification of the tax issue(s). If there are multiple tax issues to be researched, each issue should be separately laid out for clarity.
• A clear identification of the conclusion(s) reached by the researcher. A separate conclusion should be stated for each tax issue. Also, if more than one conclusion may exist due to a conflict in the tax authorities, this should be clearly communicated.
• A clear statement of the tax sources on which the conclusion was based and the reasoning that supports the conclusion

Question 3

4142.03

Answer 3

In common law, there is not a privilege that an accountant or client may invoke to prevent disclosures.

Question 4

4142.04

Answer 4

About 36 states have adopted statutes creating an accountant-client privilege. The statutes vary as follows:

• Some apply only to CPAs, while others extend to all public accountants.
• Some provide that the privilege is not applicable to criminal or bankruptcy actions.
• Some exclude certain services such as auditing.
• Some statutes do not state clearly whether the client or the CPA has the benefit of the privilege. Usually, the privilege belongs to the client and the client is in control of whether or not the information is disclosed by the CPA.

Question 5

4142.05

Answer 5

There is no general federal accountant-client privilege.

• Generally, any state-created accountant-client privilege is not recognized for federal law purposes.
• Under Internal Revenue Code (IRC) Section 7525, however, a privilege is available for communication between a federally authorized tax practitioner (e.g., a CPA, attorney, enrolled agent, or enrolled actuary) and a client or potential client.

1. This privilege can only be asserted in either of the following:
   i. Noncriminal tax matters before the Internal Revenue Service
   ii. Noncriminal tax proceedings in federal court brought by or against the United States
2. Tax advice is advice given with respect to a matter that is within the scope of the tax practitioner’s authority to practice before the IRS.
3. The privilege exists only to the extent the communication would be privileged under the attorney-client privilege if the communication had been made between a client and an attorney.
4. The privilege does not apply to any written communication between a tax practitioner and a corporate representative (including a director, shareholder, officer, employee, or agent) concerning the corporation’s participation in any tax shelter (as defined in IRC Section 6662(d)(c)(iii)).

Question 6

4142.06

Answer 6

The AICPA Code of Professional Conduct mandates a confidential relationship but not privileged communication.

Question 7

4142.07

Answer 7

The CPA must generally keep the information in the workpapers confidential. CPAs are independent contractors, not employees; thus, they have legal title to their workpapers. The workpapers do not belong to the client; however, the CPA’s ownership of the workpapers is custodial. This means the accountant cannot generally transfer them to a third party without the client’s permission. Exceptions include subpoena by a federal court or agency or inspection by an AICPA or state society quality review team.

Question 8

4142.08

Answer 8

A seller of an accounting practice has a duty to obtain permission of the client before making workpapers available to a purchaser of the practice. CPAs do not have a common-law lien on client workpapers coming into their possession.

Question 9

4142.09

Answer 9

A deceased partner can convey workpapers to copartners.