Mod 23 Professional And Legal Responsibilities remaining text Flashcards
1 contract law
2 the law of negligence
3 fraud
What kind of laws are these?
Common law and largely judge-made law
Accountant’s civil liability arises primarily from…5 laws
1 contract law 2 the law of negligence 3 fraud 4 Securities Act of 1933 5 Securities Exchange Act of 1934
Securities Act of 1933
Securities Exchange Act of 1934
What kind of laws are these?
Federal statutory law
The accountant has a duty to conduct his or her work with…
The same reasonable care as an average accountant
The CPA’s work papers are retained and confidential and the CPA can’t release information in the work papers…
Without the client’s consent
Workpapers are retained as…
Evidence by the accountant of the work they performed
In general privileged communication between a CPA and the client are…
Not sanctioned under federal statutory or common law
Privileged communications between CPA and client exist in…
Such states that passed statute granting the right
The requirements for education and experience set by the state boards…
Vary across states
To audit public companies, the CPA in charge of the engagement must have…
A license to practice issued by the state board of accountancy
To audit public companies, the individual’s firm must…2
1 have a permit to practice issued by the appropriate state board of accountancy
2 be registered with the PCAOB
State boards have their own codes of…
2) However state boards generally follow…
Professional ethics
2) the AICPA Code of Professional Conduct
Violation of an AICPA rule generally involves violation of…
A state board rule
The AICPA Code of Professional Conduct provides minimum levels of acceptable conduct relating to…
All services performed by CPA’s, unless wording of a standard specifically excludes some members
The AICPA has developed the Uniform Accountancy Act (UAA) to provide state jurisdictions a…
Model act to regulate CPAs
Key Provisions of the Uniform Accountancy Act (UAA) include:
State board of accountancy of the state will issue the “certified public accountant” credential to individuals meeting the…3
Experience, education and examination requirements
Key Provisions of the Uniform Accountancy Act (UAA) include:
A bachelors degree is required for…
The first 5 years after the act becomes effective
Key Provisions of the Uniform Accountancy Act (UAA) include:
After 5 years, how many semester hours are required with a bachelors degree or higher?
150 semester hours
The only professional services for which licensing is required are…2
1 attest services
2 compilation of financial statements under SSARS
The only professional services for which licensing is required are:
4 types of attest services
1 audits
2 reviews
3 examination of prospective FS
4 PCAOB engagements
The only professional services for which licensing is required are attest services of:
Audits of financial statements performed in accordance with…
AICPA Statements on Auditing Standards (SAS)
The only professional services for which licensing is required are attest services of:
Reviews of financial statements performed in accordance with…
AICPA Statements on Standards for Accounting and Review
Services (SSARS)
The only professional services for which licensing is required are attest services of:
An examination of prospective financial statements performed in accordance with the…
AICPA Statements on Standards for Attestation Engagements
SSAE
The only professional services for which licensing is required are attest services of:
An engagement performed in accordance with the standards of the…
Public Company Accounting Oversight Board (PCAOB)
To renew licenses and permits the Uniform Accountancy Act (UAA) includes…
Periodic peer review and continuing education requirements
To facilitate interstate practice and free movement of CPAs between states, the UAA provides that…
Individuals that have met “substantial equivalency” shall be allowed
To be licensed in the state
The state board will regulate and enforce the…
Practice of accountancy In the state
The UAA has ethical provisions that are typically included in the…
Code of ethics of state societies and AICPA
The UAA has ethical provisions that are typically included in the code of ethics of state societies and the AICPA such as the requirements of…2
1 confidentiality
2 working papers
The AICPA Code of Professional Conduct is interpreted and enforced by the…
2) What are they?
Professional Ethics Executive Committee (PEEC)
2) a senior technical committee of the AICPA
State accountancy boards ethics rules are enforced by the…
Various state boards of accountancy
The codes of state societies of CPA’s are very similar to the…
AICPA Code of professional conduct
Virtually all state societies have agreements with AICPA to allow…
Joint enforcement of ethics complaints through the Joint Ethics Enforcement Program (JEEP)
Virtually all state societies have agreements with AICPA to allow join enforcement of ethics complaints through the Joint Ethics Enforcement Program (JEEP). This means a…2
1 Single investigation and if warranted
2 a single settlement agreement or joint trial board hearing
Enforcement of rules regarding competitive bidding is…
Excluded from the JEEP process
Joint trial board may discipline CPAs, 5 possible results
1 no violation/dismissal 2 admonishment 3 corrective action required 4 suspension for up to 2 years 5 expulsion from AICPA
Admonishment, what is mandatory?
Publication of admonishment is mandatory
Corrective action required, example
Addition continuing professional education
Violation of state board code can result in…
Revocation of CPA Certificate and loss of ability to practice public accounting
Any member who departs from rulings or interpretations has…
Burden justifying it in any disciplinary proceedings
The SEC can penalize accountants with…2
1 civil fines and
2 mandates to pay profits gained from violations of securities laws
And regulations
When investigations lead to alleged violations…
A hearing will be held by the PCAOB
Disciplinary actions:
A PCAOB hearing may result in…4
1 sanctions being imposed on the firm or the individuals involved
2 suspension or revocation of firm’s registration
3 suspension or bar of individual from associating w/registered
Public accounting firm
4 civil monetary penalties
The PCAOB may also impose other remedial measures such as…2
1 improvements in firm’s quality control or training
2 independent monitoring of audit work of firm or individual within
A firm
Common law is law that has historically been derived from…
Court interpretations of what is fair and equitable
Most of common law has now been…
Codified to state statutes
CPAs have responsibilities to their clients that are…
Codified in common law
Liability to clients for breach of contract
CPA may be held liable to a client if the CPA fails to perform substantially as agreed under contract (engagement letter)
Duties under contract may be either…
Implied or expressed
Implied duties under contract
CPA owes duty in contract to perform in nonnegligent manner
Express duties under contract
CPA owes duty to perform under terms of the contract
4 Terms expressed in the engagement letter that are expressed clearly in writing
1 nature + scope of engagement
2 procedures and tests to be used
3 engagement will not necessarily uncover fraud or error
4 engagement should at least be signed by client
Engagement letter:
The nature and scope of the engagement are expressed to…
Avoid misunderstandings between the CPA and client
Engagement letter:
The engagement will not necessarily uncover fraud, defalcations, errors or illegal acts, unless the CPA…
Agrees to greater responsibility
The CPA will typically sign the engagement letter but…
Oral contract for audit is still enforceable without engagement
Letter
A CPA is said to be in privity of contract with client when…
Contract exists between them
The reverse is true, when a contract exists between them, the client is…
In privity of contract with CPA
An accountant is not normally liable for failure to…
Detect fraud
A CPA is liable for failure to detect fraud if…3
1 normal audit or review would have detected it
2 CPA has undertaken greater responsibility such as fraud audit
3 wording of audit report indicates greater responsibility
In an audit or review of financial statements, the CPA is under duty to investigate when…
He discovers/becomes aware of suspicious items
A CPA firm issues its opinion a few days late because of a client’s failure to supply needed info. The CPA firm is…
Entitled to full agreed upon fee under contract
When a breach of contract occurs the CPA is…
Not entitled to compensation if breach is major
Breach of contract:
The CPA is entitled to compensation if there are…
2) what may the client do?
Minor errors
2) client may deduct from fees any damages caused by breach
Breach of contract:
The client may recover any damages caused by breach even if CPA is…
Not entitled to fee
In general punitive damages are not awarded for…
Breach of contract
The accountant has the duty to perform with same degree of skill and judgment possessed by average (reasonable) accountant. This is the standard used in cases involving…
Ordinary negligence
Standard for accountants is guided by…5
1 state and federal statutes 2 court decisions 3 contract with client 4 GAAS and GAAP 5 customs of the profession
Failure to follow GAAS virtually establishes a…
Lack of due care
Following GAAS does not…
Automatically preclude negligence
But is strong evidence for presence of due care
GAAS and GAAP and customs of the profession are both…
Persuasive but not conclusive
If a CPA issues an unqualified opinion, when included in assets was inventory stated at cost, when market was materially below cost.
What is this an example of?
A violation of GAAP that can be used to establish that auditor was negligent
Liability to clients is based on a CPA breaching a duty owed of…
An average reasonable accountant
Damages or losses that resulted from a breach:
Damages are limited to…
Actual losses that use of reasonable care would have avoided
Damages or losses that resulted from a breach:
Punitive damages are…
Not normally allowed for ordinary negligence
Damages or losses that resulted from a breach:
Defense of CPA
Contributory negligence
Contributory negligence may be a complete defense by CPA in many states if…
Client’s own negligence substantially contributed to the CPA’s
failure to perform audit adequately
A CPA failed to detect a material fraud in an audit of the client’s financial statements. However the CPA had communicated to the client for a number of years a significant deficiency in internal control that allowed the fraud to occur. The client ignored the recommendations and failed to correct the deficiency in internal control. The client’s contributory negligence…2
1 In some states may prevent client from recovering losses from CPA
For negligence
2 In other states it will reduce liability for CPA
A causal relationship must exist between…
2) the cause must be…
Fault of accountant and damages of plaintiff
2) proximate (foreseeable)
If items are stolen during the audit and not detected…
The CPA may be held liable for those items
CPA will only be held liable for items taken before an audit if it is shown that…
The CPA’s detection of stolen items would have resulted in their recovery
The accountant’s liability is not based solely on…
2) liability requires at least…
Honest errors of judgment
2) negligence under common law
Constructive fraud is also known as…
Gross negligence
Constructive fraud (gross negligence) when proving four elements and…
Reckless disregard of truth is established instead of knowledge of falsity
Contributory negligence of client is not a defense available for CPA in cases of…2
1 Fraud or
2 constructive fraud/gross negligence
For a plaintiff to prove fraud, constructive fraud or gross negligence…
Privity of contract is not required
Fraud, constructive fraud or gross negligence:
Punitive damages
Punitive damages may be added to actual damages for these
Types of cases
Privity of contract:
In typical accountant-client relationship, there usually is…
No privity of contract between CPA and third parties who rely on financial statements
Traditionally accountant’s could use the defense of no privity against third parties in…
Contract and negligence cases
Ultramares decision is a leading case in which accountants are…
Held liable for ordinary negligence only to parties who primarily
benefit from the audit or audited FS
Ultramares example:
First Bank requested Goodman Company to obtain an audit to receive a needed loan. Adam CPA audited the FS of Goodman, knowing Goodman was obtaining the audit to satisfy the request of First Bank. In this case, First Bank would be considered…
A primary beneficiary of the audit
A primary beneficiary of an audit would have…
The same rights as the client under common law
Under Ultramares, a third party who can prove…
2) this is a significant…
Fraud or constructive fraud (gross negligence) may recover from
CPA
2) minority rule today
For a foreseeable party to be awarded damages, they must prove…3
1 Losses
2 negligence by CPA (either ordinary or gross depending on state)
3 proximate cause
Proximate cause..
Reliance on work of CPA caused losses
Both accountants and managements are normally…
Named as defendants in cases
Joint liability:
In a state that applies joint liability both…
Accountant and management are liable to full amount of the
obligation
Joint liability:
If management has no funds…
The entire amount may be collected from the accountant
What is another name for several liability?
Proportionate liability
In a state that applies several (proportionate liability) the accountant and management are…
Only obligated to pay their respective share of damages based on
Degree of responsibility for losses
Several liability is included in the…
AICPA Uniform Accountancy Act
In a state that applies joint and several liability…2
1 Each of the parties are responsible for the full amount of the
obligation
2 but may seek reimbursement from other parties
Most state courts apply…
Joint and several liability
1933 Act requires…2
1 Registration of initial issuances of securities with SEC and
2 makes it unlawful for registration statement to contain untrue
material fact or omit material fact
Material fact
One about which average prudent investor should be informed
Most potential account at liability occurs because registration statement (and prospectus) includes…
Audited financial statements
1933 act:
CPAs legal liability arises for…2
1 untrue material fact or
2 omission of material fact in registration statement (or prospectus)
Periodic reports to SEC or annual reports to stockholders are…
In the 1934 Act
1933 Act:
Parties that may sue 2
1 purchaser of registered securities
2 third parties without privity of contract
1933 Act:
Any purchaser of registered securities 2
1 plaintiff need not be initial purchaser
2 purchaser generally must prove that specific security was offered through registration statement
Exchange and issuance of stock based on a merger…
Counts as a sale
Third parties can sue without having privity of contract with accountant under the…
Federal Securities Act
Liability under Section 11 of the 1933 Act:
This imposes liability on auditors and other experts for…2
1 Misstatements or omissions of material fact in certified financial statements
2 or other info provided in registration statements
The registration statement is the document that is used to…
Sell securities
The registration statement includes:
A description of the company’s…
Properties and business
The registration statement includes:
A description of the…
Security to be offered for sale
The registration statement includes:
Information about the…
Management of the company
The registration statement includes:
Financial statements certified by…
Independent accountants
CPAs defenses against 1933 act
1 due diligence
2 plaintiff knew FS were misstated
3 lack of causation
4 followed GAAS
Lack of causation
Loss was due to factors other than the misstatement or omission
in the financial statements
For the 1933 Act, the plaintiff need not prove reliance on financial statements unless…
Security was purchased at least 12 months after effective date
Of registration statement
Under the 1933 Act, the plaintiff need not prove…
Negligence or fraud
1933 Act damages:
Difference between…
Amount paid and market value at time of suit
1933 Act damages:
If sold, difference between…
Amount paid and sales price
1933 Act damages:
Damages cannot exceed…
Price security was offered to the public
1933 Act damages:
Plaintiff can’t recover…
Decrease in value after the suit is brought
1933 Act damages:
Accountant is given…
The benefit of any increase in market value during the suit
The securities Exchange Act of 1934 regulates…
Securities sold on national stock exchanges
Securities act of 1934:
Includes securities traded over the counter and other equity securities where the corporation has more than…
1 $10 million in total assets and
2 security is held by over 500 persons at end of fiscal year
1934 act section 10 makes it unlawful to…3
1 employ any device, scheme or artifice to defraud
2 make untrue statement of material fact or omit material fact
3 engage in fraud or deceit in connection w/purchase/sale of security
Securities act of 1934:
Section 18 makes it unlawful to make false or misleading statement with respect to…
Material statement unless done in good faith
Under the 1934 Act, the plaintiff can’t recover if he or she is…
Reckless or fraudulent
Proof requirement section 10, rule 10b-5, under the 1934 act:
Plaintiff purchaser must prove damages resulted in connection with…
Purchase or sale of registered security in interstate commerce
Proof requirement section 10, rule 10b-5, under the 1934 act:
Plaintiff must prove there was a…
Material misstatement or omission from issuer’s (public company’s) statements
Proof requirement section 10, rule 10b-5, under the 1934 act:
Plaintiff must prove justifiable…
Reliance on financial info
Proof requirement section 10, rule 10b-5, under the 1934 act:
Plaintiff must prove existence of…
Scienter
Scienter includes…2
1 Reckless disregard of truth or knowledge of falsity
2 lack of good faith
Proof requirement section 10, rule 10b-5, under the 1934 act:
Negligence alone will not…
Subject accountant to liability
Proof requirement section 18 under the 1934 act:
Plaintiff purchaser must prove 3
1 damages were incurred
2 material misstatement or omission on report filed with SEC
3 plaintiff read and relied on defective report
Proof requirement section 10, rule 10b-5, under the 1934 act:
The burden of proof is shifted to the accountant who may escape liability by proving he…
Acted in good faith
Under the 1934 Act, an accountant who has been grossly negligent typically will…
Not be able to establish good faith
Under the 1934 act, an accountant who has only been negligent will…
Probably be able to establish good faith
1934 act:
damages are calculated as the…
Difference between amount paid by plaintiff and market value at
Time of suit
1934 act:
If sold, damages are calculated as the…
Difference between amount paid and sale price
Due diligence is a defense for…
The 33’ act only, not 34
CPAs ownership of work papers has the purpose of…
Preserving confidentiality of client info
Accountant must provide work papers if agreeing to provide access to working papers to a…
Government agency is part of the agreement with the client
For presenting work papers subpoenas should be…
Limited in scope and for specific purpose
The accountant may challenge a subpoena as being…
Too broad or unreasonably burdensome
Privileged communications between accountant and client is…
Generally not provided by state or federal laws
Federal laws do not recognize…
Privileged communications
If an accountant is acting as an agent for an attorney, their communication…
Is privileged
If part of privileged communication is allowed…
All of privilege is lost
AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:
The client…
Consents
AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:
The client consents. If the client is a partner…
Each partner is actually a client and therefore must give consent
AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:
To comply with…
GAAS and GAAP
AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:
To comply with enforceable…
Subpoena (courts where privilege is not recognized)
AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:
Disclosure is made in conjunction with…
A quality (peer) review of CPA firm’s practice
AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:
The AICPA is responding…
An investigation by the AICPA ethics division or trial board
An interpretation of the Code of Professional Conduct allows a CPA to provide confidential client information to a third party service provider (eg tax preparer)…
Without the client’s permission
The CPA must enter into a contractual agreement with the service provider to…2
1 Maintain confidentiality of info
And
2 be reasonably assured 3rd party service provider has appropriate procedures in place to prevent unauthorized release of confidential
Info
US Supreme Court has held that tax accrual files are…
Not protected by accountant-client privilege
Privacy is defined as the…
Rights and obligations of individuals and organizations with respect
to collection, use retention and disclosure of personal info
Accountants that prepare individual tax returns or provide nonbusiness tax or financial advice must be familiar with the provisions of the…
Gramm-Leach Bliley (Financial Modernization) Act of 1999
Gramm-Leach Bliley (Financial Modernization) Act of 1999:
CPAs are prohibited from disclosing to…
No affiliated third party any Nonpublic personal information about
Their clients
Gramm-Leach Bliley (Financial Modernization) Act of 1999:
Related to FTC regulations require CPAs to…
Develop, implement, maintain a comprehensive info security
program that outlines ways to protect client info
Gramm-Leach Bliley (Financial Modernization) Act of 1999:
CPAs are responsible for maintaining the confidentiality of…
Information that is outsourced for processing
Ex. outsourced tax return preparation to a firm in a foreign country
The IRC prohibits tax prepares from knowingly or recklessly disclosing or using…
Tax related info other than in connection with preparation of a
Return
Situations in which there may be a duty to notify parties outside the client:
When a form 8-K is disclosed about a change in auditor’s, securities laws require that…2
1 The client must disclose reason for change and
2 auditor must indicate if they agree or how they disagree
Situations in which there may be a duty to notify parties outside the client:
Disclosure to…
Successor auditor from predecessor auditor after client consent
Situations in which there may be a duty to notify parties outside the client:
Disclosure in response to…
Subpoena
Situations in which there may be a duty to notify parties outside the client:
Disclosure to funding…
Funding agency for entities receiving governmental financial
assistance
Accountant is liable for acts of…
Employees in course of employment
Professional liability insurance typically is used to cover such losses:
Client’s insurance company is…
Subrogate to client’s rights
Ex. Has same rights to recover loss against CPA as client had
Portions of debts incurred in violation of securities laws not covered by insurance are not…
Dischargeable in bankruptcy by the accountant
Principal auditor is still liable for all work unless…
The audit report indicates a division of responsibility
Principal auditor cannot rely on unaudited financial data must…
Disclaim or qualify opinion
The accountant may be held liable in subsequently discovered facts that existed at report date indicate statements that were misleading unless…3
1 immediate investigation is conducted
2 prompt revision of statements is possible
3 SEC and persons known to be relying on statements are notified
By client or CPA
Accountant may be liable for compilation and review engagements if:
Failure to mark each page…
“Unaudited” or “See Accountant’s Compilation Report”
Accountant may be liable for compilation and review engagements if:
Failure to issue…
A disclaimer of opinion or an appropriately worded compilation or review report
Accountant may be liable for compilation and review engagements if:
Failure to follow appropriate…
AICPA Statements on Standards for Accounting and Review
Services
Accountant may be liable for compilation and review engagements if:
Failure to inform client of any…
Discovery of major issues
Securities act of 1933 and 1934:
An accountant can be held criminally liable for…
Willful illegal conduct
2 examples of willful illegal conduct by CPA
1 intentional misleading omission of material facts
2 putting false information in registration statement
Criminal punishments for willful misconduct, subject to fine of up to…
$10,000 and up to 5 years in prison
Criminal violations of IRC 2
1 willfully preparing false return
2 willfully assisting in tax evasion
Perjury
Willfully preparing false return
RICO Act
Racketeer Influenced and Corrupt Organizations Act
Criminal liability under RICO:
Covers individuals affiliated with businesses or associations involved…
In a pattern of racketeering
Racketeering includes organized crime, but also includes…2
1 fraud under federal securities laws
2 mail fraud
Accountants are subject to criminal penalty through affiliation with…
Accounting firm or business involved in racketeering
Pattern of racketeering means…
At least 2 illegal acts of racketeering in previous 10 years
RICO has been expanded to allow…
Civil suit by private parties
RICO has been expanded to allow civil suit by private parties…2
1 Trebel damages allowed
2 it has been applied against CPAs even without criminal indictment
Or conviction
Private Securities Reform Act creates a…
Safe harbor from legal liability for preparation of forward looking statements
Private Securities Reform Act safe harbor includes…2
1 projections of income, revenues, EPS and
2 company plans for products and services
To fall within safe harbor, written or oral forward looking statement should include…
Cautions and identify assumptions and conditions that may cause projections to vary
The Purpose of the Private Securities Reform Act safe harbor is to encourage…
Company to give investors more information without fear of lawsuits
Discouragement of frivolous class action lawsuits relieves accountants for…
Being deep pockets beyond their proportional fault
Joint and several liability is imposed if…
Defendant knowingly caused harm
Under joint and several liability CPAs may be held liable for the proportionate share of damages they actually and knowing caused plus…
An additional 50% if principal defendant is insolvent
PCAOB may regulate the nature and extent of…
Nonaudit services that CPA firms may perform for issuer audit
Clients
The PCAOB may enforce compliance with…2
1 Professional standards
2 securities laws relating to accountants and audits
Material services must receive…
2) fees for those services must be…
Preapproval by audit committee
2) disclosed to investors
SOX prohibits the audit partner from having…
Primary responsibility over the issuer’s audits
SOX prohibits the audit partner who reviews audits from…
Serving more than 5 years, audit partners must be rotated every
5 years
The SEC in disciplining a CPA may censure, temporarily bar or permanently bar him for…3
1 lack of qualifications needed
2 improper professional conduct
3 willful violation of helping another violate securities laws or regulations
Blackout periods were established for issuer’s of certain security transactions types that limit companies’…
Purchase, sale or transfer of funds in individual accounts
SOX requires stiffer fines for other white collar crimes including federal law covering…2
Mail fraud and wire fraud
If taxing authority has no written standard, the following should be applied:
For undisclosed positions…
Realistic possibility of success
If taxing authority has no written standard, the following should be applied:
For disclosed positions…
Reasonable basis
If taxing authority has no written standard, the following should be applied:
In regards to tax shelters…
Inform client of risks in taking those shelters
When reasonable grounds for omitting an answer exist, the CPA is not required to…
Provide an explanation on the return of reason for omission
Reasonable grounds for omission on a tax return include…3
1 info is not readily available and not significant to taxable income
Or liability
2 uncertainty as to meaning of question
3 answer is voluminous and return states data will be supplied
Upon examination
An error on return preparation includes position, omission or method of accounting that…
At the time return is filed fails to meet standards as outlined
An error (in return preparation) does not include an…
Item that has insignificant effect on client’s tax liability
A practitioner may not willfully, recklessly or through gross incompetence sign a tax return or claim for refund that the practitioner reasonably should know contains…
A position that lacks a reasonable basis
Written advice is generally considered to be a covered opinion if it involves…2
1 a listed transactions or a
2 place or arrangement where the principal purpose is tax avoidance
Advice that does not constitute a covered opinion is subject to…
More relaxed standards
Written advice is a reliance opinion if the advice concludes that…
It is more likely than not that one or more significant federal tax
Issues would be resolved in the taxpayer’s favor
Written advice is not treated as a reliance opinion if practitioner prominently discloses I the written advice that it…
2) for purpose of avoiding…
Not intended or written by practitioner to be used by tax payer
2) avoiding penalties that may be imposed on tax payer
A preparer is subject to a penalty equal to the greater of $1,000 or 50% of income derived by the preparer with respect to the return or refund claiming any part of an understatement of liability with respect to the return or claim is due to…
An undisclosed position on the return where there is no substantial authority
Substantial authority exists if the weight of authorities supporting the position is…
Substantial in relation to weight of those contrary to position
Penalty can be avoided by…
Adequate disclosure of questionable position on return or refund
Claim
Penalty can be avoided through a…
Showing that there was a reasonable basis for the position
For avoiding penalty A higher more likely than not standard applies if the position is…
With respect to a tax shelter or reportable transaction
A penalty can also be avoided if the preparer can show there was a…2
1 Reasonable cause for understatement
2 and preparer acted in good faith
