Ethics and Responsibility in Tax Practice Flashcards
Circular 230
Contains IRS’s rules of practice governing CPAs and others who practice before the agency; Gov’t may censure, fine, suspend, or disbar tax advisors from practice before IRS if Circular 230’s standards of conduct violated
Who may practice before IRS?
- Attorneys
- CPAs
- Enrolled agents
- Enrolled actuaries
- Enrolled retirement plan agents
10.20: Furnishing Information
Substantive Procedures
Practitioner must promptly submit to IRS any records or info that its agents/officers request properly and lawfully, unless believes in good faith/on reasonable grounds that records/info are priveleged
10.21: Client Omission
Substantive Procedures
Practitioner must promptly notify the client of error and potential consequence, BUT may not notify IRS without client’s permission
10.22: Due Diligence and Reliance on Others
Substantive Procedures
Must exercise due diligence and can rely on work of others if engaged/supervised/trained/evaluated them
10.23: Delays
Substantive Procedures
May not unreasonably delay the prompt disposition of any matters before the IRS
10.24: Assistance from Disbarred
Substantive Procedures
Should not knowingly accept assistance from disbarred/suspended person
10.25: Practice by Former IRS Agents
Substantive Procedures
Extensive rules meant to prevent conflicts of interests
10.26: Notaries
Substantive Procedures
Must not act as a notary with respect to matters before the IRS in which he/she is involved/interested
Unconscionable fees
Not permitted
10.27: Contingent Fees
Substantive Procedures
May not charge contingent feel with the exception of:
- Services rendered in connection with IRS examination/challenge to (i) original tax return or (ii) amended return/claim for refund
- Where claim for refund is filed solely in connection with determination of statutory interest/penalties
- When accountant is representing client in judicial proceedings
10.28: Return of Client Records
Substantive Procedures
Upon client’s request, promptly return any/all recorded needed for client to comply with Federal tax obligations
If state law permits retention b/c fee dispute, need to return only records that must be attached to return
10.29: Conflicts of Interest
Substantive Procedures
May not represent client before IRS if create conflict of interest
10.33: Best Practices
Substantive Procedures
- Communicate clearly with client regarding terms of engagement
- Establish the facts (Do your homework - Facts vs Law)
- Advise client regarding import of conclusions reached
- Act fairly and with integrity
- Exercise any firm supervisory powers
10.34: Tax Return Standards
Substantive Procedures
Not to advise clients to take frivolous positions & inform clients of any penalties that are reasonably likely with positions taken
Subpart C of Circular 230
Sets forth rules/penalties for disciplinary proceedings
10.50: Monetary Penalty
Maximum penalty = 100% of gross income derived from the conduct + other penalties (suspensions/censures) + 50% penalty of gross income authorized by 26 USC Sec. 6694
When is it proper to delay as long as possible in fulfilling an IRS request for records or info under Circ.230?
You have investigated and believe in good faith that the info is privileged
Pursuant Treasury Circ.230, can the practitioner retain copies of the client’s records?
Yes
Who is a Tax Return Preparer (TRP)?
Any person who:
- are paid;
- to prepare, or retain employees to prepare;
- A substantial portion;
- of any federal tax return or refund claim
Subtypes of TRPs
- Signing TRPs
2. Nonsigning TRPs
Signing TRPs
Individual TRPs who bear “primary responsibility” for the overall accuracy of the return/claim for refund
Nonsigning TRPs
Those other than the signing TRP who prepare all or a substantial portion of a return/claim for refund
Substantial portion
Non-signing TRPs may be liable for a “substantial proportion” unless the deduction involves either:
- Less than $10,000 or
- Less than $400,000, which is also less than 20% of gross income indicated on return
Safe harbors
Not a TRP merely b/c:
- Furnishes typing, reproducing, or other mechanical assistance
- Prepares a return for employer, or
- Prepares as a fiduciary a return or claim for refund for any person
When multiple people are working on a return where there is an understatement, who is the one that will be punished?
The one who is primarily responsible for the position giving rise to the understatement
IF UNCLEAR who is responsible, the one with overall supervisory responsibility for return/position will be TRP
IRC Sec 6694(a): Understatement of taxpayer’s liability
imposes a penalty against TRP when an “unreasonable” position causes an understatement of tax liability
Focuses on negligent conduct
When is a position “unreasonable”?
If there is no substantial authority (<40% chance of being sustained) for the position
If it is disclosed yet there is no reasonable basis (<20% chance of being sustained)
If position relates to a tax shelter, it is unreasonable unless is is more likely than not (<50% chance) that the position will be sustained
IRC Sec 6694(b)
Imposes larger penalty if the understatement is due to willful or reckless conduct
IRC Sec 6695
Punishes TRPS for:
- Failure to furnish copy of return to taxpayer;
- Failure to sign return and show own identity;
- Failure to furnish preparer’s identifying number to IRS;
- Failure to keep copy of return
