M6 Flashcards
M6-How to go through the IRS Appeals Process
- You could settle your tax issue with the Revenue Agent. Agent can’t negotiate on hazzards of litigation. Appeals Division does this. If can come to agreement with IRS rev agent sign form 8 70.
- If not copy of rev agent report and 30 day letter. to request a meeting the Appeals Division to come to term if you do sign for 8 70AD.
- If cant work out deal with Appeals division you have 90 day letter to go court. You want to go to a court that will have a better chance in ruling in your favor. a) US Tax Court where tax experts hear only tax cases. Major advantage your case is heard before you pay the disbuted tax liab. b) US District Court or US court of Federal Claim, disadvantage, you have to pay the tax liab first. before case is heard must file for a refund, which will be denied and then get a court date. Major advantage of US District court over US Federal Claim, you can have a jury of your peers. US federal a nationwide court. No jury trial. Just federal experts. if there have been favorable ruling, then go to the federal claim court.
- What if you lose at one of the three courts, you can appeal at either the US Circuit Court of Appeals ( 1-11) for lost from the US tax court and US District court.or the US Court of Appeals for lost at the US Federal Claims court.
- If you lose at one of the Appeals court, that should technically ended and you pay.
- However, you can a appeal to US supreme court but it is highly unlikely they will hear your case.
What are the substantiation and tax position
Tax preparer must support his position on tax issues so that no penalty is assessed.
- Reasonable basis standard: there is a zero to 20% to 30% chance of favorable ruling. It is far more likely that you will lose the ruling. You’ll need disclosurers
- Substantial authority 33%-50% if position is undisclosed or you undersubstantiated the position. you’ll need substantial authority
- More likely than not over 50%: you need that for listed transaction, a tax shelter, tax avoidance, tax evasion. Something that is clearly addressed.
- Frivolous: no basis in law or other authority. Disclosure will not protect tax preparer or taxpayer
Disclosure forms
8275: This form is used to avoid understatment of penalty
Regulation disclosure statement for 8275-r: form use to take a position on a return that is contrary to US Treasury.
Form 8886: reportable transaction disclosure statement:
- listed transactions
-confidential transaction
-transactions with contractual protection
-loss transactions
If you were late file you return and your tax liab is $50K and you tax withholding was $45K. what amount will you be assessed penalty and late fees
The difference $5K. Failure not filed tax due date 5% per month not to exceed 25% and failure to pay additional. 1/2% per month. If tax payer files on 4/15 and pays on august 15. $5,000 * 5 months not paid * .005=
$125.
If taxpayer If tax payer does not to do a 6 month extension an files 8/15. It its failure to file and pay.
5000.05 5 months (starting with April) = 1250
5000.005* 5 months = 125.
If tax payer file six month extension and file and paid Oct 10.
0 failed to file and 5000 .005 6 months ( starting May) = $150
If tax payer files 6 month extension but files and pay on 12/20. partial for 3 months on file and 9 months (starting April)
faile to pay = 5000.0059= 225
fail to file: 5000.15 (3 months)= 750
reduce by three month failure to pay 5000.05*3 =75
750-75= 675
If you want to go to court for tax issue. how many days to you have to petition
90 days
When you get notice of deficiency this mean you did not agree with revenue agent. You have 90 days to petition your US district court and a District Court
A US District court not your local district court is not necessary.
If you have a complex tax transaction and does not want to make you have no Issues with IRS you can
Get a Private letter ruling (PLR) from the IRS to assist you with IRS codes.
M7 What are the 3 Privileged Communications
Rules of evidence protect service and client relationships. Evidentiary Privilege. within the scope of the relationship without the consent of client or privlilege holder.
1. Attorney - Client Privilege :
-communication between lawyer ( who could be a cpa) and client
- must be in confidence
-made for the purpose of securing legal advise
a non lawyer cpa is not covered under the attorney - client privilege. if cpa is engaged by the lawyer to hand accounting issue on that matter then the specific information is part of attorney client privilege.
2. The work product privilege. Protects the material prepared by an attorney to litigate for the client. If some that material is Accounting. such a tax schedule, it is covered as privilege information in anticipation for litigation. Does not extend to communication that you have with attorney.
- Federal tax practitioner privilege:
model after the attorney - client privilege and are a licensed and certified to practice and meet with IRS you have this privilege to specified tax case for your client.
CPA, EA, Enrolled actuary
What are the common law duties and responsibility of a contract
- Don’t breech the contract.
2.Don’t committ a tort ( wrongful act). These are civil wrongful acts or unintentional mistake you failed to do care on a contract.
Fraud is know what you are doing is wrong
Actual fraud
Gross neglegation: reckless.
CPA: falsify documents: Fraud. You are liab to everyone the prove you committed fraud. Sued for compensatory and punitive damages.
CPA: fail to excercise due care but does a brief investigation. Neglegence: Liab client and third party beneficiary
CPA: sign off on client on completed tax return and audit not reviewed : Gross negligence or constructed fraud. It is a type of fraud and standard for suing.
What are the elements of fraud or Gross Negligence
MAIDS
Misrepresentation of material facts
Actual and justifiable reliance by plaintiff on the misrepresentation
An intent to induce the plaintiff’s reliance on the misrepresentation
Intent to deceive (knowing the statement was false)
Damages.
Levels of fualt
- Reasonable care : due care take= no negligence = not liable: Civil
- Lack of reasonable care= ordinary negligence:CPA is liable to anyone that relied on their work: civil
- Lack of even slight care: Gross Negligence: civil
- Actual fraud: Actual intent to deceive. Civil
- Criminal fraud: actual intent to deceive: civil and criminal prosecution.
If third part sues a cpa firm based on there was mistatement of audited f/s. what is cpa firms best defense
The third party must prove the five elements of fraud. MAIDS:
Misrepresentation of material facts
Actual and justifiable reliance by plaintiff on the misrepresentation
An intent to induce the plaintiff’s reliance on the misrepresentation
Intent to deceive (knowing the statement was false)
Damages.
Best defense would be there was lack of intent to deceive.
A husband is preparing his own return and wife is using a cpa firms to prepare returns. They are both filing married filing separately. The wife ask th eCPA firm not to disclore her information to her husband. the husband believe the wife is negligent in her return and retain an attorney. The CPA firm hired an attorney. Can the CPA disclose the wife tax information withiut the wife’s consent.
Only to the CPA’s attorney.
If a cpa firm exercised due care in preparation and a third party claim there was negligence and sue the CPA firm. Will the third party wiln the law suit
No. If the CPA can prove that he exercise due care.
Can the IRS and any agency and private request CPA working papers without a lawful subpoena
No. CPA prohibited from giving working paper without subpoena.
