CPA Liabilities

Question 1

Primary authority:

Answer 1

IRC, regulations constructing IRC, revenue ruling, court cases

Question 2

What is not a primary source of authority:

Answer 2

IRS publications

Question 3

Standards for tax prepares positions:

Answer 3

Can never take a frivolous position
More likely Thant not >50%
Substantial authority 33-50
Reasonable bases 20-50. Avoids most penalties.

Question 4

Understatement of liability due to unreasonable position. Penalty

Answer 4

$1000 or 50%received penalty

Question 5

Understatement of liability due to unreasonable position. Penalty won’t apply if:

Answer 5

Listed transaction/ tax shelter is more likely than not to be sustained
Disclosed position and reasonable basis
Undisclosed position and substantial authority.

Question 6

Understatement of liability due to willful or reckless conduct. Penalty

Answer 6

5,000 or 50% received income.

Question 7

Understatement of liability due to willful or reckless conduct. Prove

Answer 7

Willful, intentional, fraud
No to: negligee or math error
Supporting documents are not required

Question 8

Prepared returns for a fee, penalties for:

Answer 8

Providing to client the copy of return
Failure to sign, list tax id, retain records for 3 years
Can not negotiate the refund check
Failed to due diligence: checklist, worksheets, injuries, records retention.
Wrongful disclosure of tax return: except CPA COT

Question 9

Wrongful disclosure of tax return. Penalty

Answer 9

250 per disclosure

Question 10

Treasure department 230. Practice before who, fees for.

Answer 10

Practice before: CPA, enrolled agents, actuaries, retirement plan agents
Contingent Fees for: irs examinations and audit, claim for refund of interest, penalty or court case under IRc.

Question 11

Best practice for tax preparer:

Answer 11

FACE

Question 12

Standards regarding tax returns and other documents for tax preparer according to Treasury Circular 230.

Answer 12

Advise about penalties
Rely on clients info
If know omissions must inform the client 
Must exercise due diligence 
Must return clients records

Question 13

Treasury Dept. can sanction tax preparer for:

Answer 13

Incompetent 
Disreputable
Violation of Circular 230
Fraud
Impose criminal conviction for false info, sue by tax tribunal, advise for tax evasion.

Question 14

State Boards of Accountancy has the right to revoke and issue the license. To revoke the license CPA has to commit one of 3 misconduct:

Answer 14

In performing accounting services
Outside of scope of accounting
Criminal conviction
Failure to file tax returns

Question 15

BOA after the investigation of CPA misconduct can conduct:

Answer 15

Formal hearing for disciplinary action - due process required.

Question 16

BOA when conducting hearing for CPA misconduct must prove:

Answer 16

Most likely than not that CPA actions are must be viewed by judicials.

Question 17

BOA 5 sanctions:

Answer 17

Suspension or revocation of license
Fine
Censure 
Probation
Additional CPE

Question 18

AICPA follow what code:

Answer 18

The Code of Conduct

Question 19

AICPA: Joint Trial Board of AICPA due to violation of The Code of Ethics can:

Answer 19

Suspend the membership
Discipline without hearing felony conviction
Expel member by 2/3
No fines or criminal actions

Question 20

IRS sanctions.

Answer 20

Prohibition of practice

Criminal penalties for fraud Understatement of liability due to willful or reckless conduct. Penalty

Question 21

SEC penalties:

Answer 21

Suspend or revoke right to practice before SEC

Can impose fines 100,000

Question 22

Audit standards for registered firms:

Answer 22

Maintain audit doc for 7 years
Provide second partner review 
Internal control testing 
Lead audit partner changes every 5 years
Can not have key employees issuer within a year
No services before SEC allowed if it was not approved by audit comm. expect tax return 
Resolve disputes between AC and board
1 member is financial expert 
Members: board but not employee

Question 23

PCAOB sanctions:

Answer 23

Revocation of registration
Bar a person with registered firms
Fines
Censure
CPE

Question 24

CEO and CFO responsibilities:

Answer 24

Reviewed report
Approved the numbers
Fairly represents the operations 
Assumed internal responsibility 
Disclosed all significant deficiency 
Assessed internal control its effectiveness. 
Enhanced disclosures in FR 
Corrected material omissions

Question 25

Statue of limitation for security fraud (CFO, CEO).

Answer 25

2 years from discovery and 5 years from violation.

Question 26

IRS agent can resolve the issue then:

Answer 26

No change: agent and taxpayer sign the form 870
If not agreement: 30 days to request appeals, otherwise 90 days notice if deficiency to appeal:fed tax court, fed claims , us district.

Question 27

Taxpayer penalties

Answer 27

20% understatement for negligence, disregards of tax regulations- no penalty if reasonable basis or If position is undisclosed - substantial base

Fraud penalties- 75% civil penalties and criminal penalties

Penalties can be avoided if reasonable cause, acted in good faith, no willful neglect

Question 28

Element of negligence:

Answer 28

Failure Duty due care
Damages 
Material omissions 
Reliance intent to rely 
If can be foreseen 3 party liable 
Failure to follow GAAP

Question 29

Accountant fraud and negligence: a

Answer 29

MSRID, MRRID

Question 30

Liability 11

Answer 30

Acquired stock, suffered loss, material misrepresentation, no need to prove scienter or reliance. Due diligence as a defense.

Question 31

Liability 10b

Answer 31

Bough or sold stock
Suffered losses
Material misrepresenting 
Scienter 
Reliance 
No need due diligence as a defense.

Question 32

Act 33

Answer 32

PANS
20 days
Exemption: I DANCE - BRINGS

Question 33

Act 34

Answer 33

10 k
10 q
8k
5%tip