6.4 - Professional Responsibilities & Tax Return Preparer Penalties

Question 1

Any person who prepares for compensation, or who employs one or more persons to prep0are for compensation, any tax return required under theIRC, or any claim for refund of tax imposed by the IRC:

Answer 1

Tax return preparer

Question 2

Any tax professional with an IRS preparer tax identification number (PTIN) is authorized to do what?

Answer 2

Prepare federal tax returns

Question 3

A tax return preparer does not include a person who:

Answer 3

1. Types, reproduces, or offers other mechanical assistance
2. Prepares a return or claim for refund of their employer
3. Prepares a return or claim for refund as a fiduciary

Question 4

Who have unlimited representation rights before the IRS?

Answer 4

Enrolled agents, CPAs, and attorneys

Question 5

Preparers who have an active preparer tax identification number but no professional credentials and do not participate in the annual filing season program are authorized to:

Answer 5

Only prepare tax returns

Question 6

The IRS requires all paid tax return preparers to to what?

Answer 6

Register with the IRS and obtain a preparer tax identification number

Question 7

Who sins the tax return as preparer?

Answer 7

The preparer who has the primary responsibility for the overall substantive accuracy of the preparation

Question 8

Who are considered non signing tax return preparers?

Answer 8

Any tax return preparer who is not a signing tax return preparer but who prepares all or a substantial portion of a return or claim for refund or offers advice to a taxpayer when that advice leas to a position or entry that constitutes a substantial portion of the return

Question 9

Only the following are authority for purposes of determining whether there is substantial authority for the tax treatment of an item:

Answer 9

Provisions of the IRC
Proposed, temporary, and final regulations construing such statutes
Revenue rulings
US treasury department
Court cases

Question 10

The verb “disregard” includes:

Answer 10

My careless, reckless, or intentional disregard of rules or regulations

Question 11

The term “listed transaction” means:

Answer 11

A reportable transaction which is the same or substantially similar to a transaction specifically identified by the Secretary of the U.S. Treasury Department as a tax avoidance transaction

Question 12

A more-likely-than-not standard is met when:

Answer 12

There is a greater than 50% chance of the tax position being upheld by the courts

Question 13

This standard is more stringent than the substantial authority standard:

Answer 13

More-likely-than-not standard

Question 14

The term “negligence” includes:

Answer 14

Any failure to make a “reasonable attempt” to comply with the provisions of the internal revenue laws OR to exercise ordinary and reasonable care in the preparation of a tax return. It also includes any failure by the taxpayer to keep adequate books and records.

Question 15

A reasonable basis standard is met when:

Answer 15

There is a greater than 20% chance of the tax position being upheld in court

Question 16

This standard is significantly higher than not frivolous or not patently improper:

Answer 16

Reasonable basis

Question 17

The term portable transaction means:

Answer 17

Any transaction with respect o which information is required to be included with a return or statement because such transaction is of a type that the Secretary of the U.S. Treasury Department has determined as having a potential for either tax avoidance or tax evasion

Question 18

The substantial authority standard is:

Answer 18

An objective standard involving an analysis of the law and application of the law to relevant facts. There has to be between 40% - 50% chance of the tax position being upheld within the court.

Question 19

This standard is less stringent than the more-likely-than-not standard:

Answer 19

Substantial authority standard

Question 20

A position is deemed unreasonable unless 1 of the 3 following exists:

Answer 20

1. Substantial authority for the position exists regardless of disclosure
2. Reasonable basis for a disclosed position exists
3. It is reasonable to believe that a tax shelter or reportable transaction position would meet the more-likely-than-not standard

Question 21

What is the penalty for understatement due to unreasonable position?

Answer 21

The greater of:
$1,000 or 50% of the income the preparer received for the tax return preparation services

Question 22

Willfully or reckless conduct means what two things?

Answer 22

Fraud
Lack of good faith

Question 23

Is a preparer required to obtain supporting documentation?

Answer 23

No, unless the preparer has reason to suspect the accuracy of the information provided by the taxpayer

Question 24

What is the penalty for willful or reckless conduct?

Answer 24

The greater of: $5,000 or 75% of the income the preparer received for the tax return or refund claim

Question 25

Penalties assessed under IRC Section 6695 are intended to protect:

Answer 25

The taxpayer from unethical behavior of the tax preparer

Question 26

What is the penalty for the tax preparer to do the following:
Fail to provide copy of return to taxpayer
Fail to sign return
Fail to furnish Identification number of preparer
Fail to properly retain records
And fail to file correct information returns?

Answer 26

$55 for each failure

Question 27

What is the penalty for a tax return preparer endorsing or otherwise negotiating an IRS refund check?

Answer 27

$560 for each check

Question 28

What is the penalty for the tax preparer failing to comply with the IRS’s “due diligence” requirements with respect to determining eligibility for, or the amount of, the earned income credit?

Answer 28

$560 for each failure

Question 29

What does the due diligence requirements address?

Answer 29

1. Eligibility checklist
2. Computation worksheets
3. Reasonable inquiries to the taxpayer
4. Record retention

Question 30

The penalty for aiding an abetting understatement of tax liability applies to:

Answer 30

Any person, not just a tax return preparer

Question 31

Who has the burden of proof to establish that an person is liable for civil penalties unless the law clearly states otherwise?
Who has the burden of proof to establish that a person is liable or criminal penalties (fines/imprisonment) unless the law clearly states otherwise?

Answer 31

The taxpayer
The government

Question 32

What is the penalty for aiding and abetting understatement of tax liability?

Answer 32

A civil penalty of $1,000 for tax payers and $10,000 for corporations

Question 33

What is the penalty for a tax return prepare who discovers or uses information for any purpose other than to prepare the tax return - otherwise called “wrongful disclosure and use of tax return information”?

Answer 33

Civil penalty of $250 for each disclosure or use

Question 34

What are some exceptions to the wrongful disclosure and or use of tax return information that would not result in a penalty?

Answer 34

1. If disclosure pursuant to a court order
2. If used to prepare state and local tax returns
3. If used for quality and peer reviews and administrative orders

Question 35

Who has the sole power to license and revoke CPAs?

Answer 35

The state boards of accountancy

Question 36

What are the three state board categories of misconduct?

Answer 36

1. Misconduct while performing accounting services
2. Misconduct outwits the scope of accounting services
3. Criminal conviction (felony)

Question 37

What are the 5 penalties that a state board of accountancy may impose for professional misconduct?

Answer 37

1. Suspension or revocation of license
2. Monetary fine
3. Reprimand or censure
4. Probation
5. Requirements for CPE

Question 38

Who does the code of professional conduct apply to?

Answer 38

All members of the AICPA

Question 39

What is the joint ethics enforcement program (JEEP)?

Answer 39

Created by the AICPA for enforcement of their codes of conduct by means of a single investigation and action.

Question 40

What actions can cause the AICPA to suspend or terminate a members membership without a hearing?

Answer 40

Conviction of a crime
Conviction for willful failure to file an income tax return
Conviction for filing a false or fraudulent tax return
Suspension or revocation of a member’s license

Question 41

A person found guilty of making a false or fraudulent statement in connection with. Return is guilty of a felony and may be:

Answer 41

Imprisoned for a max of 3 years
And/or
Fined a max of $100,000

Question 42

What are civil penalties the IRS may impose?

Answer 42

Prohibit an accountant from practicing before the IRS
Impose fines for various infractions

Question 43

Suspension or revocation of the right to practice before the SEC can occur if the accountant:

Answer 43

1. Lacks the qualifications
2. Lacks character or integrity
3. Acted unethically
4. Willfully violated federal security laws
5. Convicted a felony
6. License to practice public accounting was suspended or revoked

Question 44

What can the SEC impose/issue to an accountant?

Answer 44

Impose fines up to $100,000 for individuals or $500,000 for firms
Issue a cease and desist order