Module 2: Professional Responsibilities and Tax Return Preparer Penalties

Question 1

Tax Return Preparer

Answer 1

Any person who prepares for compensation, or who employs 1+ persons to prepare for compensation, any tax return required under the IRC, or any claim for refund of tax imposed by the IRC

Question 2

Who can prepare federal tax returns?

Answer 2

Any tax preparer with an IRS preparer tax identification number (PTIN)

Question 3

What is not included under “tax return preparer”?

Answer 3

Person who (i) merely furnishes typing, reproducing, or other mechanical assistance; (ii) prepares a return or claim for refund of the employer; or (iii) prepares as a fiduciary a return or claim for refund for any other person

Question 4

Who does not have authority to represent clients before the IRS?

Answer 4

PTIN holders who do not hold a professional credential and do not participate in the annual filing season program

Question 5

Signing Tax Return Preparer

Answer 5

Indiv. tax return preparer who has the primary responsibility for overall substantive accuracy of preparation of return/claim for refund

Question 6

Nonsigning Tax Return Preparer

Answer 6

Any tax return preparer who is not a signing tax return preparer but who prepares all/substantial portion of return/claim or offers advice

Assists

Question 7

What are the primary authority sources?

Answer 7

1. Applicable provisions of IRC/other statutory provisions
2. Proposed, temporary, and final regulations construing such statutes
3. Rev. rulings and rev. procedures
4. Court cases

Question 8

Non-primary authority sources

Answer 8

• Congressional intent as reflected in committee reports
• “General explanations” of tax legislation prepared by joint committee on taxation
• Private letter rulings and technical advice memos
• Actions on decisions and general counsel memoranda
• IRS info and press releases and notices/announcements/other admin pronouncements in Internal Revenue Bulletin

Question 9

Disregard

Answer 9

Any careless, reckless, or intentional disregard of rules or regulations

Question 10

Listed transaction

Answer 10

Reportable transaction which is the same, or substantially similar to, a transaction specifically identified by Secretary of US Treasury Dept. as a tax avoidance transaction

Question 11

More-Likely-Than-Not Standard

Answer 11

When there is > 50% likelihood of tax position being upheld

Question 12

(Ordinary) Negligence

Answer 12

Any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in prep of return

Failure by taxpayer to keep adequate books and records or to sub. items properly

Question 13

Reasonable Basis

Answer 13

> 20% tax position upheld

Question 14

Reportable transaction

Answer 14

Any transaction w/respect to which information is required to be included w/return or statement b/c such transaction is of type that the Secretary of US Treas. Dept. has determined having potential for either tax avoidance or tax evasion

Question 15

Substantial authority standard

Answer 15

> 33% but < 50% tax position being upheld

Question 16

A position is deemed unreasonable unless:

Answer 16

1. Substantial authority for position exists (33-50%)
2. Reasonable basis for disclosed position exists (>20%)
3. Reasonable to believe that a “tax shelter or reportable transaction” position would meet the more-likely-than-not standard (>50%)

Question 17

“Willful or Reckless” Conduct

Answer 17

Conduct that is either:

• willful attempt to understate the tax liability; or
• reckless/intentional disregard of tax rules/regulations in spite of signed declaration of return

Question 18

General Rule for supporting documentation

Answer 18

Preparer not required to obtain supporting documentation unless preparer has reason to suspect accuracy of info provided by taxpayer/client

Preparer must make reasonable inquiries if the info provided by taxpayer appears incorrect/incomplete

Question 19

Tax return preparer penalties for unethical behavior

Answer 19

Failure to provide copy to taxpayer - $50
Failure to sign - $50
Failure to furnish PTIN - $50
Failure to properly retain records (3 years) - $50
MAX - $25,500

Negotiation of IRS Refund Check - $510
Failure to be diligent - $510

Question 20

Due Diligence Requirements

Answer 20

Address:

• eligibility checklists
• computation worksheets
• reasonable inquiries to taxpayer
• record retention

Question 21

Burden of proof rules

Answer 21

In civil action, taxpayer has burden of proof to establish by a preponderance of the evidence (>50%) that law/evidence do not support position of IRS concerning matter (excepts for aiding/abetting understatement – IRS)

In criminal action, gov’t has burden of proof to establish beyond a reasonable doubt that taxpayer is guilty of charges

Question 22

Wrongful disclosure penalty

Answer 22

If tax return preparer discloses/uses info for any purposes other than to prepare tax return - $250

Exceptions:

• Disclosure allowed
• Allowable uses
• Disclosures permitted for quality/peer reviews

Question 23

Who has the sole power to license and revoke CPAs?

Answer 23

State Boards of Accountancy

Question 24

3 categories of misconduct by CPA

Answer 24

1. While performing accounting services
2. Outside the scope of accounting services
3. Criminal conviction

Question 25

5 penalties state boards of accountancy can impose for professional misconduct

Answer 25

1. Suspension/revocation of license
2. Monetary fine
3. Reprimand or censure
4. Probation
5. Requirement for CPE courses

Question 26

Joint Ethics Enforcement Program

JEEP

Answer 26

For enforcement of codes of conduct by means of single investigation and action

Question 27

When can AICPA membership be suspended/terminated w/o a hearing?

Answer 27

• Proof of conviction of a crime punishable by imprisonment >1 yr
• Proof of conviction for willful failure to file any income tax return
• Proof of conviction for filing a false or fraudulent income tax return/aiding in prep of one
• Suspension/revocation of member’s licence to practice public accounting

Question 28

How could suspension/revocation of the right to practice before the SEC occur?

Answer 28

Accountant

• lacks qualification
• lacks character/integrity
• acted unethically/unprofessionally
• willfully violated federal security laws/regulations
• convicted of a felony
• license to practice public accounting suspended/revoked