1.3 - Tax Return Preparers Flashcards
Tax Return Preparers
Define a tax return preparer
- Any person who prepares for compensation, or employs one or more persons to prepare for compensation a substantial portion (or more) of any return or refund claim
Tax Return Preparers
Is a tax return preparer the same a tax practitioner?
No
Tax Return Preparers
Give 3 examples of a tax practitioner
- CPA
- Enrolled Agent
- Attorney
Tax Return Preparers
Define a “signing preparer”
- Person who has primary responsibility for the overall return or claim for refund
Tax Return Preparers
Define a non-signing preparer
- Prepares all or a substantial portion of a return or claim for refund but does not have primary responsibility for the overall return
Tax Return Preparers
What does “insubstantial portion” mean in the case of a tax return preparer completing a tax return?
- Insubstantial portion
- < $10,000 or
- < $400,000 and also < 20% of GI on return
Tax Return Preparers
Are tax return preparers who are “not compensated” subject to tax return preparer rules?
No
Tax Return Preparers
Identify the parties not subject to tax return preparer rules
- Employee
- Fiduciary (trustee preparing for a trust)
- Person preparing refund claim in response to notice of deficiency
- Person furnishing typing, reproducing or other mechanical assistance
Tax Return Preparers
Are tax return preparers allowed to rely upon information furnished by client when establishing a tax return position?
Yes - but cannot ignore the implications if the information provided
Tax Return Preparers
Are tax preparers allowed to adopt a position without “substantial authority”?
No
Tax Return Preparers
What level of authority is required for “tax shelters”?
- More likely than not standard
Tax Return Preparers
Is the “more likely than not standard” greater than the “substantial authority standard”?
Yes
Tax Return Preparers
Identify the procedural requirements for tax return preparers when filing a return
- Manually sign after completion
- Must have tax preparer ID #
- Must furnish a completed copy to taxpayer
- When taxpayer is required to sign
- Retain returns for 3 years, or keep a list
Tax Return Preparers
What information is a list required to contain if the tax preparer decides to keep a list instead of a copy of the actual return for 3 years?
- Name
- ID #
- Tax years
- Types of returns or claims prepared
Tax Return Preparers
What is the procedural requirement if the initial preparer is unavailable to sign the return?
Another preparer must review the entire preparation of the return and sign
Tax Return Preparers
If a tax return preparer is out of the office for the day is another preparer required to sign the return according to procedural requirements?
No - preparer out of the office for a day is not considered to be unavailable
Tax Return Preparers
When is a tax return preparer excused from being charged a penalty for understating a client’s tax liability?
- Preparer must prove that he / she acted in good faith and reasonable cause for the understatement
Tax Return Preparers
What is the tax preparer penalty for supporting an undisclosed position or understating tax liability of a client?
- Penalty > of $1,000 or 50% of income to be derived
Tax Return Preparers
What is the penalty for willful or reckless conduct?
- Penalty is > of $5,000 or 50% of income to be derived
Tax Return Preparers
What is the tax preparer penalty for endorsing or negotiating any check issued to the taxpayer by the IRS?
$500 penalty per check
Tax Return Preparers
What is the tax preparer penalty for failing to keep a list or a copy of the prepared tax return for 3 years?
- $50 penalty for each return failed to keep a copy of
Tax Return Preparers
What is the penalty imposed for using tax payer information without their consent?
- $250 per disclosure with max = $10,000 a year
Tax Return Preparers
What is the tax preparer penalty for knowing or reckless disclosure of a taxpayer’s information?
- $1,000 in fines & up to 1 year in prison (misdemeanor)
Tax Return Preparers
Identify the exceptions provided to the tax preparer in disclosing tax payer’s information without being penalized.
HINT: 8
- Disclosure made pursuant to other provisions within the code
- To a related taxpayer provided the taxpayer does not prohibit the disclosure
- Pursuant to a court order
- Tax return preparers within the same firm
- For a quality or peer review
- Partners in a partnership
- IRS inquiry
- Bankruptcy filing
- Return made available to court appointed fiduciary
Define a related taxpayer
HINT: 8
- Husband and wife
- Child and parent
- Grandchild and grandparent
- Partner and partnership
- Trust or estate and beneficiary
- Trust or estate and fiduciary
- Corporation and shareholder
- Members of a controlled group of corporations
Tax Return Preparers
Who is required to file the “information return” required to be filed for income tax preparers?
Person employing the income tax preparers
Tax Return Preparers
What information is the person employing the income tax preparers required to provide on the information return of income tax preparers?
- Name
- Identifying #
- Place of work for each preparer
Tax Return Preparers
How long should the information return of income tax preparers be made available?
- Available upon request for 3 years after close of return period
Tax Return Preparers
What is the return period?
- Return period – 12-month period beginning July 1 of each year
Identify other types of tax returns that would qualify a person as a tax return preparer
HINT: (3)
- estate or gift tax returns
- excise tax returns
- withholding tax returns
What does understatement of liability mean?
any understatement of the tax liability or overstatement of the amount to be refunded or credited
When will understating a client’s tax liability not result in the imposition of an IRS penalty?
when it is the result of an error in calculation unless it is the result of gross negligence or a willful attempt to avoid tax liability
