lecture 2 - tax research

Question 1

Professional responsibility

Answer 1

Without obtaining verification, a tax preparer may in good faith rely on information furnished by a taxpayer or third parties when preparing a tax return. The tax preparer should, however, make reasonable inquiries if the information appears to be incomplete, incorrect, or inconsistent.

Question 2

Notice of error

Answer 2

When an AICPA member becomes aware of an error in a previously filed return, he should promptly notify the taxpayer.

Question 3

Hierarchy authority of law

Answer 3

According to the IRS’s website under Tax Code, Regulations and Official Guidance, the “federal tax law begins with the Internal Revenue Code (IRC), [which was] enacted by Congress in Title 26 of the United States Code (26 U.S.C.).” The IRC holds the most authoritative value.
Choice “b” is incorrect. According to the IRS’s website under Tax Code, Regulations and Official Guidance, the IRS regulations or “Treasury regulations (26 C.F.R.)—commonly referred to as Federal tax regulations—pick up where the Internal Revenue Code (IRC) leaves off by providing the official interpretation of the IRS by the U.S. Department of Treasury.” Regulations give directions on how to apply the law outlined in the Internal Revenue Code. Regulations have the second most force and effect, second only to the IRC.
Choice “a” is incorrect. Tax court decisions interpret the Internal Revenue Code. They do not have the authority of the IRC.
Choice “d” is incorrect. The reports of IRS agents are used to report on specific taxpayer situations. IRS agents’ reports apply the Internal Revenue Code, IRS regulations, and other forms of authoritative literature, but they do not hold the value that the IRC, the IRS regulations, or even tax court decisions have.

Question 4

Questionable information

Answer 4

Not all questions on a return are of equal importance. However, Younger must make a reasonable effort to answer all questions because an answer to a question might impact the determination of taxable income or loss and tax liability and the failure to answer a question might result in an incomplete return or a penalty. Reasonable grounds for failure to answer a question are that (1) the answer is not easily obtainable and insignificant, (2) there is uncertainty regarding the meaning of the question, or (3) the answer is voluminous and a statement to that effect is included on the return.

Question 5

Oral vs written

Answer 5

In determining whether to provide advice in writing, the tax preparer should consider, among other factors, the sophistication of the tax client.

Question 6

More likely than note

Answer 6

he CPA should inform the taxpayer of the penalty risks with respect to the tax effects (tax return position) of a transaction unless the transaction, at the minimum, meets the more-likely-than-not standard.

Question 7

client cpa relationship

Answer 7

A CPA is entitled to rely on the client’s representations that adequate documentation exists to support the expenses that the client claims. As long as the CPA asks the client whether the client has documentation, the CPA will not be liable for either a penalty or interest because of the client’s misrepresentation.

Question 8

Tax payer recommendation

Answer 8

In general, a preparer should recommend a tax return position only if the preparer has a good faith belief that the position has a realistic possibility of being sustained administratively or judicially on its merits.

Question 9

tax payer disclosure

Answer 9

According to the AICPA Statements on Standards for Tax Services, which of the following identifies the requirements for a tax advisor who believes that a taxpayer penalty might be assessed related to a position on a tax return?
a.
The tax advisor is responsible for disclosing the position on the tax return, with or without the taxpayer’s permission.
b.
The tax advisor may not sign a return if the possibility of a penalty exists and the tax position is not disclosed.
c.
The tax advisor should not recommend a position that could possibly result in a taxpayer penalty.
d.
The tax advisor should advise the taxpayer to disclose the position on the tax return, but the taxpayer is responsible for deciding whether and how to disclose.