Enrolled Agent Part 3 Review Flashcards
What does the phrase “record of the clients” mean?
Record of the clients are electronic financial materials created by the client before the engagement.
If using a practitioner pin, what form must the taxpayer sign?
The taxpayer must sign form 8879 (IRS e-file signature authorization), if using a practitioner pin.
When resubmitting a rejected tax return, the taxpayer’s Total tax, Federal Income tax, or amount owed cannot differ by more than what amount?
When resubmitting a rejected return, the taxpayer’s total tax, federal income tax or amount owed cannot be different by more than $14 dollars if I want to resubmit it without obtaining a new signature.
Is a cash receipt proof of payment?
Yes, a cash receipt is proof of payment.
Is e-file available for income tax returns for years before two prior tax years?
No, e-file is not available for years before two prior tax years.
Is e-file available for income tax returns with a fiscal tax year?
No, e-file is not available for income tax returns with a fiscal tax year.
Is e-file available for amended tax returns for tax years prior to 2019?
No, e-file is not available for tax years prior to 2019, (but it is expected to be available soon)
Is e-file available for returns containing forms or schedules that cannot be processed by IRS e-file other than those forms and schedules that are required to be submitted with Form 8453?
No, e-file is not available for returns containing forms or schedules that cannot be processed by IRS e-file other than those forms and schedules that are required to be submitted with Form 8453.
What is the criminal penalty a preparer may face under section 7216?
The criminal penalty that preparer may face under section 7216 is not more than $1,000 fine or up to 1 year in prison or both.
What section of the IRC prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information?
Section 7216 prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information.
Will an e-file provider receive a preparer penalty for making a non-substantive change due to transposition error, misplaced entry, spelling error, or arithmetic error?
No, an e-file provider will not receive a preparer penalty for making a non-substantive change due to transposition error, misplaced entry, spelling error, or arithmetic error.
Form 8453 Individual Income tax Transmittal for an IRS e-file return must be file by mail by the ERO, what must sent with the form?
The ERO must send all supporting paper documents that are required to complete the filing of particular e-file returns.
If no period is specified, the consent to use or disclose taxpayer information remains valid for how long?
If no period is specified, the consent to use or disclose taxpayer information remains valid for 1 year following the signature of the consent.
The period of limitations for assessment of tax is extended to 6 years if the taxpayer does not report income that should have been reported, and it’s more than how much of the gross income shown on the return?
The period of limitations for assessment of tax is extended to 6 years if the taxpayer does not report income that should have been reported, and it’s more than 25% of the gross income shown on the return.
How long must form 8867 (paid preparers due diligence checklist) and the EIC worksheet (or equivalents) be kept from the due date of the return (not including extensions)?
The preparer must keep form 8867 and EIC worksheet for 3 years from the due date of the return.
A tax return preparer must keep a copy of the tax return, or retain, on a list, the name, taxpayer identification number of the taxpayer for whom the return was prepared, type of return, and tax year for each return prepared. How long must the records be kept?
When tax return preparer keeps a copy of the tax return, or retain, on a list, the name, taxpayer identification number of the taxpayer for whom the return was prepared, type of return, and tax year for each return prepared, the records must be kept for inspection for the 3 year-period following the close of the return period.
A tax shelter is a partnership or other entity, plan, or arrangement, with a significant purpose to avoid or evade federal income tax, what confidence level must the preparer have for the position to not be unreasonable?
Tax shelters, such as a partnership or other entity, plan, or arrangement, with a significant purpose to avoid or evade federal income tax, must have a confidence level of at least more likely than not, (which is greater than 50% likelihood), for the position to not be unreasonable.
Additionally,
more likely than not is higher authority than substantial authority.
Does using taxpayer information to compile list to solicit tax return business require prior consent (ex: statistical info concerning tax return prep)?
No, using taxpayer information to compile list to solicit tax return business does not require prior consent from the taxpayer.
Is an ERO representative permitted to sign an 8879 by using a rubber stamp?
Yes, an ERO representative permitted to sign an 8879 by using a rubber stamp.
Is providing advice on a position that has a one in three or greater likelihood of being sustained on its merit an acceptable standard?
Yes, providing advice on a position that has a one in three or greater likelihood of being sustained on its merit an acceptable standard.
A penalty of $5,000 or 75% of the preparer fee, whichever is greater, is a penalty for what type of conduct?
A penalty of $5,000 or 75% of the preparer fee is a penalty for willful or reckless misconduct. This is a deliberate attempt to understate tax liability.
How long must an ERO retain Form 8879, IRS-e-file signature authorization?
an ERO retain Form 8879, IRS-e-file signature authorization for 3 years from the return due date or the date the IRS received the return, whichever is later.
The penalty for not retaining a copy of a tax return prepared is 60 per occurrence under section 6695, what is the maximum penalty that can be fined?
The maximum penalty that can be fined for not retaining a copy of a tax return prepared is $30,000 under section 6695. (60 dollars per occurrence)
What is the preparer penalty for unauthorized disclosure of or use of taxpayer’s information under section 6713?
The preparer penalty for unauthorized disclosure of or use of a taxpayer’s information is $250 for each disclosure, up to an annual maximum of $10,000 under section 6713.
What is the penalty for endorsing or negotiating a client’s tax return check under section 6695?
The penalty for endorsing or negotiation a client’s tax return check under section 6695 is $600 per check with no maximum penalty.
Substantial authority is an objective standard involving analysis of the law and application of the law to relevant facts, but it is less stringent than what? but more stringent than what?
The substantial authority standard is an objective standard involving an analysis of the law and application of the law to relevant facts,
and
it is less stringent than the more likely than not standard (the standard that is met when there is a greater than 50-percent likelihood of the position being upheld) but more stringent than the reasonable basis standard.
A reasonable basis is a relatively high standard of tax reporting, that is, significantly higher than what?
Reasonable basis is a relatively high standard of tax reporting, that is, significantly higher than not frivolous or not patently improper.
When will a return position satisfy the reasonable basis standard?
If a return position is reasonably based on one or more of the authorities set forth in § 1.6662-4(d)(3)(iii),(taking into account the relevance and persuasiveness of the authorities, and subsequent developments), the return position will generally satisfy the reasonable basis standard even though it may not satisfy the substantial authority standard defined in § 1.6662-4(d)(2).
What percentage is at least a reasonable basis if a position is disclosed?
If a position is disclosed, it should at least have reasonable basis, which is 33%.
When using a tax shelter, what basis must the taxpayer have in the position?
When using a tax shelter, a taxpayer must have a more likely than not position which a 51% or more likelihood.
When a taxpayer e-files his 1040, and the ERO enters the taxpayer PIN, what documents must the ERO sign?
When a taxpayer e-files his 1040, and the ERO enters the taxpayer PIN, the ERO only has to sign form 8879.
What is the tax return preparer penalty for a preparer who fails to comply with due diligence requirements in regard to EIC allowable?
The tax return preparer penalty for a preparer who fails to comply with due diligence requirements in regard to EIC is $600 per occurrence.
If errors on an income does not result in an understatement of tax liability, will the tax return preparer be penalized for the understatement?
No,
if the errors did not result in an understatement of tax liability, then the understatement penalty under section 6694 will not be applied.
If a preparer penalty is likely to be assessed pursuant to title 26 USC sec 6694 (understatement of taxpayer’s liability by tax return preparer), what can the taxpayer do to try and avoid the penalty?
The taxpayer can appeal the penalty before it tis imposed. A return preparer may appeal the imposition of these penalties by timely responding to the 30 -day Letter 1125, Transmittal of Examination Report. If there is no timely response to the letter, the penalty is assessed.
When will the IRS not impose a penalty for understating tax liability?
The IRS will not impose a penalty for understating tax liability if the preparer demonstrates that he acted with reasonable cause.
Theft of information, loss of information,
Natural disaster such as flood, earthquake, or fire that destroys unrecoverable information and
Computer system/network attacks such as malicious code, or denial of service are all what type of incidents?
These are all information security incidents which may require reporting to the IRS or other authorities.
The 12-month period beginning July 1st of each year is called what?
The 12-month period beginning July 1st or each year is called the end of the return period, used when a taxpayer is retaining copies of client returns or a list of returns for a three-year period.
How long must form 8879 be available to the IRS?
Form 8879 must be available for 3 years from the due date of the return or the IRS received date, whichever is later.
Who is the owner of an EFIN?
The firm is the owner of an EFIN.
How long does a taxpayer have to amend a return to claim a refund?
A taxpayer has 3 years from the date the return was filed (or the due date of the return for timely filed return) or 2 years from the date the tax was paid, whichever is later.
When amending a return, 3 years from the filing date, what payments are eligible for a refund?
When amending a return, 3 years from the filing date, only payments made within that 3- year period are eligible for refund.
Can tax returns using a foreign or overseas address be filed electronically?
Yes, tax returns using a foreign or overseas address can be filed electronically.
What is the maximum penalty for filing EIC return without using due diligence and preparing form 8867?
There is no limit to the maximum penalty.
What is the maximum penalty for failure to furnish a copy of a tax return to a tax payer?
The maximum penalty is $30,000 under section 6695(a), failure to furnish a copy of the return to the taxpayer. ($60, per failure).
If a preparer does not keep a copy of a client’s return, what must they keep?
If a preparer does not keep a copy of the return on file, they must retain a record of the taxpayers names, SSN’s, the taxable years, and the type of returns/claims for refund prepared.
If you are an ERO and you must mail form 8453 to IRS how long do you have to mail it after receiving acknowledgment from the IRS that the return has been accepted?
If you are an ERO, you must mail Form 8453 to the IRS within 3 business days after receiving acknowledgement that the IRS has accepted the electronically filed tax return.
What is form 1098-C?
Form 1098-C is used for contribution of motor vehicles, boats, and airplanes.
If a taxpayer is using his own pin to file a tax return and the ERO is not using the practitioner pin method, does a form 8879 have to be filed?
No,
If a taxpayer is using his own pin to file a tax return and the ERO is not using the practitioner pin method, then a form 8879 does not need to be filed.
How long does a taxpayer have to claim a loss for worthless securities?
A taxpayer can file a claim to report a loss for worthless securities for the seven years that follow the date the return was due.
Each person who employs (or engages) one or more income tax return preparers must retain a record of the name, taxpayer identification number, and place of work of each income tax return preparer employed (or engaged) by him. How long must the employer retain the record for inspection?
The record must be retained and made available for inspection for a 3-year period following the close of the return period to which it relates. The term “return period” means the 12-month period beginning on July 1st of each year.
The FTC financial privacy rule requires financial institutions, including tax return preparers, to give their customers what?
The FTC financial privacy rule requires financial institutions, including tax return preparers, to give their customer privacy notices.
Is the standard of authority required to avoid penalties with respect to a disclosed position vs an undisclosed position higher, lower or the same?
The standard of authority required to avoid penalties with respect to a disclosed position relative to an undisclosed position is lower.
A return where the election has been made to exclude transactions from the electronic short-term capital gain (loss) or long-term capital gain (loss) records requires what form to be filed by an ERO?
A return where the election has been made to exclude transactions from the electronic short-term capital gain (loss) or long-term capital gain (loss) records is a return that requires Form 8453 (US ind. Tax Transmittal for an IRS e-file return).
A list of returns that require form 8453 (US individual Tax Transmittal for an IRS e-file return) can be found under what publication.
A comprehensive list of the particular returns that require Form 8453 can be found in Pub 1345, under Submission of Paper Documents to the IRS.
A practitioner who encounters a questionable form W-2 should take what action?
A practitioner who encounters a questionable form W-2 (appears forged or altered) should contact the IRS.
A tax preparer retains copies of client returns or a list of returns prepared. For how long must the preparer retain this documentation?
When a tax preparer properly retains copies of client returns or a list of returns prepared, the tax preparer must keep a copy for three years following the end of the return period.
Both an electronic return originator and an intermediate service provider who processes information and returns it to the ERO are considered what?
Both an electronic return originator and an intermediate service provider who processes information and returns it to the ERO are considered to be e-file providers.
Under penalties of perjury, a tax preparer who submits a return without amending falsified information that they are aware of could face what type of penalty?
The tax return preparer could be guilty of a felony and, upon conviction thereof: Imprisoned not more than 3 years: fined not more than $250,000 for individuals ($500,000 for Corporations); or both, together with the cost of prosecution.
Which authority may censure or suspend or impose monetary penalties upon a practitioner?
The Secretary of Treasury may censure or suspend or impose monetary penalties upon a practitioner.
Will a pattern of conduct be taken into account in determining whether a practitioner acted willfully, recklessly, or through gross incompetence?
Yes, A pattern of conduct is a factor that will be taken into account in determining whether a practitioner acted willfully, recklessly, or through gross incompetence.
A practitioner who willfully did not sign a tax return will be sanctioned under what IRS sanction?
The IRS will sanction the tax preparer under Incompetence and disreputable conduct.
A practitioner generally may rely in good faith without verification of a document provided by a client. But if a document appears to be counterfeit or otherwise fraudulent, what must a tax practitioner do?
A practitioner generally may rely in good faith without verification of a document provided by a client. But if a document appears to be counterfeit or otherwise fraudulent, a practitioner cannot rely upon it without making further inquiries.
Can a tax practitioner ignore the implications of information furnished that may be fraudulent?
The practitioner may not ignore the implications of information furnished to, or actually known by, the practitioner.
and,
must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete.
Reasonably relying on the work of others is considered what by a tax practitioner?
A practitioner will be presumed to have exercised due diligence when relying on the work product of another person.
Before the Office of Professional Responsibility commences a proceeding for censure, suspension, or disbarment of a practitioner, will the practitioner be given an opportunity to dispute the facts that will form the basis for the proceeding?
Yes, will be given an opportunity to dispute the facts in all but unusual circumstances.
What is the definition of enrollment cycle per Treasury Circular 230?
The definition of enrollment cycle per Treasury Circular 230 is the three successive enrollment years preceding the effective date of renewal.
What is a contingent fee?
A contingent fee is a fee that depends on whether the presentation avoids challenge by the IRS.
Can tax practitioner charge a contingent fee?
In most situations, tax practitioners may not charge a contingent fee, which is a fee that depends on whether the presentation avoids challenge by the IRS.
What are two officials that have the authority to censure, suspend, or disbar a practitioner from the IRS practice?
The Secretary of Treasury and an Administrative law Judge has the authority to censure, suspend or disbar a practitioner from IRS practice.
The secretary of treasury, or delegate has what type of authority?
After notice and an opportunity for a proceeding, the Secretary of the Treasury, or delegate, has the authority to censure, suspend, or disbar a practitioner and/or impose a monetary penalty.
The Director of the Office of professional Responsibility has what type of authority?
The Director of the Office of Professional Responsibility has prosecutorial authority and can initiate complaints against practitioners and can also accept settlements in lieu of proceedings.
The Director of the Office of Professional Responsibility can reprimand a practitioner but what can’t they do?
The Director of the Office of Professional Responsibility can reprimand a practitioner but cannot impose a harsher penalty on his own.
An Administrative Law Judge hears the cases brought by the Office of Professional Responsibility, what type of authority do they have?
An Administrative Law Judge hears the cases brought by the Office of Professional Responsibility and has the authority to enter orders of censure, suspension, disbarment, imposition of a monetary penalty, and dismissal.
A practitioner may charge no more than the rates published in a schedule of fees, how long must the practitioner honor the rates?
A practitioner may charge no more than the rates published in a schedule of fees for at least 30 calendar days following the last date of publication.
An unenrolled preparer can only appear as a taxpayer’s representative, whose return they prepared, before what three people?
An unenrolled preparer can only appear as a taxpayer’s representative only before IRS customer service representatives, revenue agents, and examination officers, regarding the return he or she prepared.
Are unpaid preparers who participate in VITA considered tax preparers?
No, Unpaid preparers, such as volunteers who assist low-income individuals, are not considered to be preparers for purposes of preparer penalties.
Does an employee who prepares the return of his employer meet the definition of an income tax preparer?
No,
An employee who prepares the return of his/her employer does not meet the definition of an income tax preparer.
Is the preparation of a substantial portion of a return for compensation treated as the preparation of that return?
Yes, the preparation of a substantial portion of a return for compensation is treated as the preparation of that return.
Circular 230, §10.21 provide that a practitioner must advise a client of the consequences of non-compliance, error, or omission only when what?
Circular 230, §10.21 provides that a practitioner must advise a client of the consequences of non-compliance, error, or omission only when the practitioner knows that the client has not complied with the revenue laws.
T/F, A practitioner must exercise due diligence in determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.
True, A practitioner must exercise due diligence in determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.
When is a CAF number assigned to a tax practitioner?
A CAF number is assigned to a tax practitioner when a Form 2848 or Form 8821 is filed.
What form should a spouse who reasonably did not know about income her spouse did not report?
The taxpayer should file form 8857 (request for innocent spouse relief) as soon as the taxpayer is aware of a tax liability for which the taxpayer believes only her spouse or former spouse should be held liable for.
If a tax balance due is not more than $50,000, can the taxpayer apply online for a payment agreement?
Yes, if the balance due is not more than $50,000 the taxpayer can apply online for a payment agreement instead of filing form 9465 (Installment agreement request).
A taxpayer does not have to complete a financial statement when utilizing a streamlined installment agreement if the balance due is what amount?
If the total amount the taxpayer owes (tax liability, including penalties and interest) is $25,000 or less, the taxpayer does not have to complete a financial statement.
If the total amount the taxpayer owes (tax liability, including penalties and interest) is greater than $25,000 but not more than $50,000, what must the taxpayer agree to in regard to a streamlined installment agreement?
the taxpayer must agree to make automatic monthly payments or must complete a financial statement (Form 433-F, Collection Information Statement).
What forms do Direct Debit Installment agreements (DDIA) require?
DDIAs require Form 433-D, Installment Agreement.
What forms do Payroll Deduction installment agreement (PDIAs) require?
PDIAs require form 2159 (payroll deduction Agreement)
What are the two methods to designate someone to receive confidential information only?
By filing form 8821 (tax information authorization) or Oral Tax Information Authorization (verbal equivalent of Form 8821).
A taxpayer must specifically grant the authority to disclose returns when appointing a representative, what other powers require specific authorization on form 2848?
Other powers that require specific authorization include signing the taxpayer’s return, and substituting or adding representatives.
How can a taxpayer terminate a filed tax information authorization?
By a filing a new form 8821 (Tax information authorization form)
How is form 8453 (US Individual Income tax Transmittal for an IRS e-file Return) filed?
Form 8453 is filed by mail.
What form should a preparer with a SSN that has been compromised file?
The form that a preparer with SSN that has been compromised should file is form 14039, and it should be faxed or mailed to the IRS.
