1.2 INTERNAL REVENUE CODE AND REGULATIONS RELATED TO TAX RETURN PREPARERS Flashcards
WHAT IS A TAX RETURN PREPARER?
A TAX RETURNS PREPARER INCLUDES 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.
PREPARING FOR FAMILY AND FRIENDS FREE OF CHARGE AND PREPARING A RETURN FOR AN ENTITY AS AN EMPLOYEE OF THAT ENTITY IS EXEMPT.
A TAX RETURN PREPARER DOES NOT HAVE TO BE ENROLLED TO PRACTICE BEFORE THE IRS,
GENERALLY, ENROLLING TO PRACTICE BEFORE THE IRS IS RESERVED FOR INDIVIDUALS WHO ARE NOT CPA’S OR ATTORNEY’S
WHAT IS THE TAX RETURN PREPARERS PENALTY ASSOCIATED WITH AN UNREASONABLE TAX POSITION NOT MEETING SUBSTANTIAL AUTHORITY OF 40%?
1) THE PENALTY IS THE GREATER OF 1K, OR 50% OF RETURN PREPARATION FEES FOR “UNDISCLOSED TAX POSITIONS NOT MEETING SUBSTANTIAL AUTHORITY OF 40%”
IF BOTH UNREASONABLE AND RECKLESS PENALTY APPLY THE RECKLESS PENALTY IS REDUCED BY THE UNREASONABLE PENALTY
(RECKLESS - UNREASONABLE)
A TAX POSITION IS UNREASONABLE UNLESS,
1) THEIR IS SUBSCTANTIAL AUTHORITY (40%)
2) THEIR IS REASONABLE BASIS FOR THE POSITION AND IT IS DISCLOSED.
A UNREASONABLE TAX POSITION NOT MEETING 40% IS SUBJECT TO THE FEE, THIS CAN BE MITIGATED IF DISCLOSED
WHAT IS THE TAX RETURN PREPARERS PENALTY ASSOCIATED WITH A PREPARER’S RECKLESS OR WILLFUL DISREGARDS OF RULES OR REGULATIONS” [LESS THAN 20%]
2) THE PENALTY IS THE GREATER OF 5K OR 75% OF RETURN PREPARATION FEE’S FOR THE “PREPARER’S RECKLESS OR WILLFUL DISREGARDS OF RULES OR REGULATIONS” [LESS THAN 20%]
IF BOTH UNREASONABLE AND RECKLESS PENALTY APPLY THE RECKLESS PENALTY IS REDUCED BY THE UNREASONABLE PENALTY
(RECKLESS - UNREASONABLE)
A RECKLESS TAX POSITION NOT MEETING 20% IS SUBJECT TO THE FEE
WHAT ARE THE PENALTIES ASSOCIATED WITH WILLFULLY PREPARING A FRAUDELENT RETURN?
FINED UP TO 10K (50K FOR CORPORATIONS) AND OR IMPRISONED UP TO 1 YEAR.
WHAT ARE THE PENALTIES ASSOCIATED WITH FAILING TO BE DILIGENT IN DETERMINING ELGIBILITY FOR CERTAIN TAX BENEFITS?
$600 (2023) PER FAILURE AT A MAXIMUM OF 2.4K
WHAT ARE THE TAX BENEFITS THAT ARE FREQUENTLY ABUSED, AND WHICH REQUIRE THE TRP TO MEET DUE DILIGENCE REQUIREMENTS IN ORDER TO AVOID PENALTY?
A) EARNED INCOME TAX CREDIT
B) CHILD TAX CREDIT, ADDITIONAL CTC,
C) AMERICAN OPPORTUNITY TAX CREDIT,
D) HEAD OF HOUSEHOLD STATUS
A 600 PENALTY IF NOT MET FYI
WHAT ARE THE PENALTIES ASSOCIATED WITH COMMITTING FRAUD OR MAKING FALSE STATEMENTS ON A T/R TO EVADE TAX?
WILLFULLY PREPARING AND SIGNING A T/R THAT THE TRP BELIEVES NOT TO BE TRUE - WHEN IT CONTAINS A WRITTEN DECLARATION THAT IS MADE UNDER THE PENALTIES OF PERJURY IS GUILTY OF A FELONY.
FINED UP TO 100K (500K FOR CORPORATIONS), AND OR IMPRISONED UP TO 3 YEARS
WHAT ARE THE DISCLOSURE REQUIREMENTS FOR TAX SHELTERS?
THE UNDERSTATEMENT RULES HAVE A SPECIAL PROVISION FOR TAX SHELTERS. THE IRS REQUIRES DISCLOSURE OF CERTAIN ACTIVITIES OR SPECIAL ARRANGEMENTS THAT CHANGE REPORTABLE INCOME BY MORE THAN $10 MIL.
TAX PREPARERS MAY BE SUBJECT TO PENALTIES FOR FAILURE TO DISCLOSE SUCH ACTIVITIES, EVEN WHEN THERE IS NO DETERMINATION OF AN UNDERPAYMENT OF TAXES.
THERE IS NO PENALTY IF THE POSITION IS DISCLOSED TO THE IRS AND THERE IS A MORE THAN LIKELY (GREATER THAN 50%) CHANCE OF THE POSITION BEING UPHELD.
WHAT ARE THE DIFFERENT PROBABILITIES OF SUCCESS?
PLEASE REFERENCE SCREEN SHOT.
WHAT ARE THE TAX RETURN PREPARER PENALTIES ASSOCIATED WITH, RETAINING RECORDS?
FAILURE TO RETAIN A COPY OF A RETURN FOR 3 YEARS OR MAINTAIN A LIST OF NAMES AND TAX IDENTIFICATION #’S OF THE TAXPAYERS FOR WHOM THE RETURNS WERE PREPARED. IS “$60 PER RETURN”
WHAT ARE THE TAX RETURN PREPARER PENALTIES ASSOCIATED WITH FAILURE TO SIGN A RETURN ?
FAILURE TO SIGN RETURN “$60 PER RETURN”
WHAT ARE THE TAX RETURN PREPARER PENALTIES ASSOCIATED WITH ENDORSING OR NEGOATIATING A TAXPAYER’S REFUND CHECK?
ENDORSING OR NEGOATIATING A TAXPAYER’S REFUND CHECK - “600 PER CHECK”
WHAT ARE THE TAX RETURN PREPARER PENALTIES ASSOCIATED WITH AIDING AND ABETTING UNDERSTATEMENT OF TAX LIABILITY.
1K FOR INDIVIDUALS (10K FOR CORPORATIONS)
WHAT ARE THE TAX RETURN PREPARER PENALTIES ASSOCIATED WITH IMPROPER USE OR DISCLOSURE OF TAXPAYER RETURN INFORMATION?
$250 FOR EACH INSTANCE UP TO 10K PER YEAR, AND IF IDENTITY THEFT RELATED 1K UP TO 50K PER YEAR
