Chapter 5 - Professional Responsibilities and Securities Regulations Flashcards
Under Section D, 1933 Securities Act how can you resale stock?
You may only resale securities as part of another transaction exempt from registration
Anti Fraud provisions 1933 act (11, 12, 17)
Section 11 - civil liabilty for all misstatements
Section 12 - Civil AntiFraud
Section 17 - Criminal AntiFraud (prosecuted by Justice dept)
when can liability be imposed under Anti Fraud provisions of 1933 act?
Where prospectus is issued and contains material misstatement liability can be imposed.
What company does the 1934 securities act apply to?
1) Companies with 500 or more unaccredited shareholders
2) traded on a national exchange
3) > $10M in assets
tombstone advertisement
makes known the availability of a prospectus
what is required to be reported under 1934 securities act
1) insider trading
2) Tender offers
3) Proxy solicitations
what transactions are exempt from full 1933 Sec. Act requirements?
All offerings made under Regulation A
Offering made under Regulation A of 1933 Sec. Act requires that the issuer?
File an offering circular with the SEC
Rule 504, 505, 506: Ask yourself
1) what is the issuance $ limitation
2) what is the investor # and type limitation
3) what are the required disclosure
504 - < $1M in 12 months and no required disclosures
505 - < $5M in 12 months, < 35 unaccredited, ANY amount of accredited, if any unacc. invest ALL investors get an annual report
506 - $UNLIMITED, < 35 unaccredited sophisticated investors, ANY accredited, if any unacc. invest ALL investors get an annual report
Define a security under 1933 Sec. Act
Something you invest in for profit but don’t participate in management
Which act (1934 or 1933) requires scienter and intention
1934
what is constructive fraud (MIGAD) vs Actual Fraud in Common Law?
Constructive Fraud (MIGAD) Actual Fraud requires intent to decieve.
Circular 230 requirements and rules to know (PARP)
P - Prohibits practitioners from endorsing or negotiating refund checks issued to the client.
A - Addresses practice before the IRS of practitioners
R - Requires any compensation/referral agreement to be disclosed
P - Prohibits Practicioners UNCONSCIONABLE fee (unless for audit, refund of penalties, or judicial proceeding
Under Circular 230, who are the practitioners? (CAAs and Enrolled AARps)
C - CPA
A - Attorneys
A - Appraisers
Enrolled A - Agents
Enrolled A - Actuaries
Enrolled Rp - Retirement Plan agents
what is a covered opinion? (tax shelter opinion)
It is an opinion more likely than not to challenge IRS around Tax Avoidance.
What SECURITIES are exempt from 1933 Act registration requirements? (BRINGS)
B - Bank and Savings R - Railroad I - Insurance Policies (not securities) N - Not for profit Orgs G - Government municipalities S - Short term commercial paper
what needs to be proved under section 11?
1) Acquired stock
2) Suffered Loss
3) Material Misstatement
Who is liable under section 11?
Anyone who signs the FS
Difference between Section 11 (1933) and Rule 10b-5 (1934)?
Rule 10b-5 must prove
1) Scienter (Intent to deceive)
2) Reliance
Required reports to file with the SEC under 1934 Act?
10-K, 10-q, 8-k, and 5% TIP 5% or more shareholders Tender Offers Insider Trading Proxy solicitations
How are intrastate security offerings treated under 1933 Act?
They are exempt from 1933 requirements if doing > 80% of business in the exempt state. May not be sold for 9 months
Which registration transaction is exempt from FULL requirements of 1933 act?
ALL Regulation A offerings
INTRAstate Sales(in one state)
Sales NOT with Issuer underwriter or dealer
Exchanges with existing holders or Corp Reorg
Private offering Regulation D
Under Reg A, what must the issuer file?
Offering statement with OFFERING CIRCULAR
Who can be an INSIDER for a corp?
An Attorney (Rule 10b)
Stockholder with > 10% of common stock
Officers and Directors
Ultramares rule applies to what parties? (PI)
1) Parties in PRIVITY
2) Parties INTENDING to use FS
Beside fraud and constructive fraud, when is a CPA liable to a third party?
When the CPA knows the 3rd party will be relying on the report, CPA is liable for Negligence
What needs to be proved for negligence? (DBCI)
Duty of care
Breach of duty
Cause
Injury
General conditions to Regulation D
NoAd, NoIm, 15, Unlim
1) No Advertising
2) No Immediate resell of securities (2 years)
3) Tell SEC < 15 days
4) Permits Unlimited “OFFERS” to sell
What are the 8 steps of the Federal tax legislative process? (Full house and ottawa senators)
1) House Ways and Means Committee starts and approves
2) Voted on by FULL HOUSE
3) Senate Finance Committee approval
4) Approved by FULL SENATE
5) JOINT CONFERENCE COMMITTEE (JCC) resolves Differences between FULL HOUSE & SENATE
6) FULL HOUSE & SENATE approve resolved bill
7) President vetoes bill (or approves)
8) FULL HOUSE & SENATE override veto with 2/3 vote
Who has burden of proof in Federal Tax judicial process?
Taxpayer unless they provide credible evidence and keep books in order
What are the 5 types of tax courts?
1) US Tax Courts
2) US Districts Courts
3) US Court of Federal Claims
4) US Court of Appeals
5) US SUPREME COURT
What 4 questions to ask about tax courts? (What-How-What-To)
What cases does this court hear?
How many judges and jury does this court have?
What is this court’s geographic jurisdiction?
To whom Can these cases be appealed?
US Tax Courts (What-How-What-To)?
1) Only Federal tax cases; TP hasn’t paid disputed amount in full;
2) 19 judges total; heard by 1 at a time. NO JURY
3) NATIONWIDE
4) Appealed to US Court of Appeals
US District Courts (What-How-What-To)?
1) Criminal and Civil Trial (NOT JUST TAX CASES)
2) One Judge and One Jury
3) Location where TP lives and does business
4) Court of Appeals
US Court of Federal Claims (What-How-What-To)?
1) Most claims for Money Damages against US govt (NOT JUST TAX); TP must pay then sue IRS/Govt
2) 16 judges, No Jury
3) NATIONWIDE
4) FEDERAL Court of Appeals not US Court of Appeals
US Court of Appeals (What-How-What-To)?
1) Cases from US Tax Courts, and US District Courts
2) 3 Judge Panel; NO JURY (13 total courts)- (11 Geographic courts)
3) Geographic Courts handle cases (tax and non-tax) in that area
4) US SUPREME
US Supreme Court (What-How-What-To)
1) Rarely hear tax (eva ra thang)
2) 9 Judge Panel For Life; No jury
3) NATIONWIDE
4) NO ONE- FINAL LEVEL
What is the IRS Audit process (8 steps)
1) Examine return
2) Select returns for Audits (statistical models)
3) Timing (2 years most people; Every year for Corps)
4) Review of Mathematical Errors
5) Formal Examination (Local NOT DC)
6) After the Audit (Issues form 870 - no change report)
7) Unresolved Issues
8) Appeals Process
To whom can a CPA give client information out without client permission?
Voluntary quality peer reviews
Court Subpoena
tax processing
Administrative orders
What are defined as securities under 1934 act?
ANY Investment contract (EXCEPT CODs and INTERESTS IN GENERAL PARTNERSHIPS)
RUle 10b5 applies when?
INTERstate (US postal service, across multiple states) or traded on National securities exchange
State BOARD of Accountancy Disciplinary power
May Conduct formal hearing for possible disciplinary action. ONLY BOARD May revoke and suspend licenses
Five penalties state board of accountancy can impose
1) Suspension or revocation of license
2) Monetary fine
3) Censure (Formal disapproval)
4) Probation
5) CPE unit requirements
3 types of misconduct for state BOARD
1) Misconduct while performing accounting services
2) Misconduct OUTSIDE of performing accounting services
3) Criminal Conviction
What does AICPA and State CPA SOCIETIES have power over?
MEMBERSHIP TO THEM ONLY
NOT CPA licenses
Which TPs are subject to most audits?
Self Employed
Cash basis
Individuals with AGIs > $150+
When information doesn’t match W2 and 1099
Who is not an insider?
Someone who has < 10% of ALL EQUITY (not just voting equity)
