Chapter 1 - Ethics, Professional Responsibilities and Federal Tax Procedures Flashcards
In what circumstance may a tax preparer charge a contingent fee?
- in representing a client in connection with an IRS examination of an original return, or an amended return/claim for refund or credit
- for services rendered in connection with any judicial proceeding arising under the Code
What amount is a substantial understatement of tax for INDIVIDUALS? and what penalty percentage does one have to pay?
the greater of
- $5,000
- 10% of the total tax due
20% penalty
what amount is a substantial understatement of tax for CORPORATIONS? and what % penalty?
the lesser of:
- 10% of the tax due (or, if greater, $10k) or
- 10
20% penalty
what amount is more likely than not (for a tax shelter position)?
> 50%
what is a 90 day letter?
sent after a 30 day letter.
The time a TP has to file a petition with the tax court once this letter is received
There is no underpayment penalty for INDIVIDUALS if the total tax payments are at least how much?
the lower of:
- 90% of the CY tax due
- 100% of PY tax
No penalty is tax amount is under $1,000
Individuals must make quarterly tax payments to the IRS if their tax amount due (after credits/withholdings) is at least how much?
$1,000
Corporations must make quarterly tax payments to the IRS if their tax amount due (after credits/withholdings) is at least how much?
$500
There is no underpayment penalty for CORPORATIONS if the total tax payments are at least how much?
the lower of:
- 100% of CY tax due
- 100% of PY tax due
For individuals, a non-FILING penalty is imposed if the return is not filed by the due date. How much of a penalty is imposed? max?
5% of the tax due for every month not filed
maximum of 25% of tax due
For individuals, a non-FILING penalty is imposed if the return is not filed by the due date. How much of a penalty is imposed IF IT IS FRAUDULENT? max?
15% of tax due per month.
maximum of 75% of tax due
For individuals, a non-PAYING penalty is imposed if the return is not filed by the due date. How much of a penalty is imposed? max?
0.5% of tax due per month.
maximum of 25%
a self-employed TP must file an income tax return if net earnings from self-employment are at least how much?
$400
scienter
intent or knowledge of wrongdoing. purposely deceitful
will a tax return preparer have to pay punitive damages?
no. only if they gave RECKLESS tax advice (not careless tax advice)
A client in privity of a contract with the accountant must prove what in their case against the accountant?
at least ordinary negligence
what 4 elements are needed to establish fraud against an accountant?
- misrepresentation of the accountants expert opinion
- scienter shown by either the accountants knowledge of falsity or reckless disregard for the truth
- reasonable reliance by injured party
- actual damages
lawsuits by clients for negligence are under which portion of the law?
Common Law
can a mere foreseeable party recover in most states?
no
what is an acct - client privilege and who has recognized it?
approx. 15 states
(not federal or state courts)
Privilege belongs to the client
An accountant is prohibited from sharing work papers with anyone without the client’s permission (except in certain situations) and may not disclose information obtained during work performed in testimonials unless subpoenaed and relevant to a court case.
can a CPA share client documents with another CPA who has purchased the CPA’s practice?
no, not without client permission
Special agent definition
an agent who is limited in time/scope of agency. could be agent for a specific task
What is a power of attorney
a name for a written document that creates an agency relationship
what are the requirements for the creation of an agency relationship?
the principal with capacity, and if the agent’s contracts must be evidenced by a record, a record of creation
when is an agent liable to a third party?
when the principal is either undisclosed or partially disclosed.
when is an employer also liable to an injured customer for a negligent employee?
if the employee was acting within the scope of his employment
does the principal have the right to control the method and manner of the agent’s work?
- yes, if master/servant relationship exists (principal has resp for agent’s torts)
- no, if independent contractor relationship exists
in what circumstances does the principal have liability for the torts of their agent?
- if principal directs the tort
- failure to properly supervision
- negligent hiring/retention
- scope of employment
Express contract
a contract formed wholly by oral and/or written words
implied in fact contract
a contract formed at least in part based on the conduct of the parties
Unilateral contract
a promise in exchange for an act.
Ex. Mow my yard and I’ll pay you $20
bilateral contract
a promise in exchange for a promise
Ex. car dealership offers you car in exchange for you promise to pay monthly pmts. Mortgage from bank in exchange for promise to make pmts
Executory contract
a contract not fully performed by both sides
Void contract
a contract that violates the law, or lacks an element necessary for a court to enforce the agreement.
Ex. a contract entered into by a party that has been declared incompetent
Voidable contract
a valid contract in which a party has the option to avoid liability
Unenforceable contract
a valid contract that cannot be enforced due to a legal defense
Quasi contract
a contract imposed by law, even when no contract was formed, to prevent unjust enrichment
Common Law
Real Estate, Services
UCC
Goods
What is the sale of a mobile home governed under?
Even though it appears as real estate, it is a good, and therefore governed under UCC
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what are the methods of perfection
- attachment (auto upon creation of a security interest)
- possession - control
- filing
- automatic
- temporary
When does a creditor have temporary perfection
when the debtor has moved to another state, the creditor has four months of perfection in the new state, which can be continued with filing a financing statement in the debtors new state
List the two situations in which perfection by attachment is automatic upon creation of a security interest.
- Purchase money security interest in consumer goods
- Security interest created by assignment of a beneficial interest in a decedent’s estate
what types of buyers take precendence over perfected secured interests
buyers in the ordinary course of business
The statute of frauds only requires a writing for contracts for
sale of goods of $500 or more, real estate, contracts impossible to perform in one year, a promise to answer the debt of another, and an executor’s promise to be personally liable for the debt of an estate. An agency to purchase land would require a writing.
what must a client suing a CPA for negligence prove?
breach of duty of care
proximate cause
injury
