Ethics and responsibility in tax practice

Question 1

When can a tax practitioner(TP) charge contingent fee?

Answer 1

2 situations:

1. When a practitioner helps a client in a claim for refund based solely for the purpose of determining statutory interest and penalties.
2. When a practitioner represents a client in judicial proceedings.

Question 2

What are the “best practices” listed in circular 230?

Answer 2

Establishing relevant facts
evaluating the reasonableness of assumptions and representation
arrive at a conclusion supported by the law
and facts in tax memorandum.

Question 3

When is a supervisor allowed to depend on the work of a subordinate?

Answer 3

When supervisors used reasonable care in engaging, supervising, training and evaluating them

Question 4

When is a person with principal authority and responsibility( the employer/supervisor) in the tax practice liable for the action of a subordinate per Circular?

Answer 4

In 2 situations:

1. Subordinates mistake involves use of aggressive tax shelter
2. Supervisor willfully,recklessly or through gross incompetence failed to take corrective actions.

Question 5

What is the exception to providing information promptly to IRS request?

Answer 5

If the practitioner believes in good faith and on reasonable ground that the information is privileged.

Question 6

Is a practitioner allowed to retain a copy of client’s record?

Answer 6

Yes

Question 7

What does circular 230 says about the check that is issued to the client by the government?

Answer 7

The practitioner who prepares the tax return may not endorse or negotiate any check that is issued to the client by the IRS.

Question 8

What should a practitioner do who discovers an error in the tax return that is already mailed to the IRS or in last years return?

Answer 8

0. If the error is immaterial no action required.
1. He should promptly inform the client. It is up to the client to decide whether he want to file an amended tax return.
2. The TP is not required to document the error.
3. The TP may choice to resign if the client does not correct the error but not required.
4. TP should not inform IRS absent client permission

Question 9

What is a realistic possibility of a tax position holding up?

Answer 9

33% likelihood of position being sustained

Question 10

What is a reasonable basis?

Answer 10

20 - 33% likelihood of position being sustained
and
the TP has to inform the IRS that the position is below realistic possibility.

Question 11

What is an unreasonable position?

Answer 11

Less than 40% chance of being sustained and

Question 12

What are SSTS positions?

Answer 12

1.For most federal tax matter: >40% (not unreasonable/lack substantial authority)
2. For tax shelter: > 50% (more likely than not)
3. For other tax matters: >33% (realistic possibility
OR
4. Other tax matter disclosed: 20-33% (reasonable basis)

Question 13

What is the responsibility of the TP regarding Business Travel Expenses

Answer 13

documents are required for business travel expenses
TP shud inquire about the related documents from the client before claiming the deduction
Failure to do so may result in penalty again the TP

Question 14

What is the mode of communication required for giving tax planning advise?

Answer 14

Putting in writing is desirable but not required.

Written advise NOT necessary even when

1. Matter involves large sum of money
2. matter is complicated

Question 15

What is a reasonable ground for omitting to answer a question on tax return?

Answer 15

1. If the answer is voluminous and TP discloses that information will be provided upon request
2. Uncertainty regarding the meaning of the question
3. Ans not readily available and has little impact in determining tax liability

Question 16

When do a taxpayer choose to settle with IRS even though his position is reasonable?

Answer 16

When he wants to minimize cost.

Question 17

What is the independence requirement for TP?

Answer 17

TP need not be independent.

Eg. TP may have 10% voting right in client’s company.