Part 3 Section 2 Circular 230 Flashcards
What does the Principal of a CPA firm do if he can’t physically sign the return . Q 1 GD section 2
He can indicate “Unable to sign” as the signature
Is a fiduciary considered a tax preparer? Q 8 GD (Google Docs) section 2
No. Under Section 770 (a)(36) a tax return preparer is any person who prepares for compensation, or employes other to prepare for compensation, any return or refund of tax imposed by the IRC. A fiduciary is specifically escluded from qualifying as a tax return preparer
How long must information returns of income tax return preparers must be maintained for tax preparers? What are information returns
Information returns are like w-2, 1099s etc. A person who employs one or more tax return preparers to prepare a return or claim for refund must file a return setting fort the name, identifying number, and place of work of each income tax return preparer. Commissioner must be able to inspect for the 3 year period following the close of the return period to which that record relates. The return period means the 12-month period beginning July 1 of each year.
Section 6060 Reporting requirements for tax return preparers, applies to any person who employs how many people?
The term “return period” means the month period beginning when?
Q 14
1 person or more
Begins July 1st of each year
What is the amount that a deduction is considered substantial for someone to be called a tax preparer? Q 14
$10,000
What level of evidence must a tax return preparer have in order to take a position?
What are the other levels? (Where is the description?) q 26
Substantial authority -
Preponderance of the evidence
Clear and convincing Evidence
Certainty
Which entities must file an employer’s informational return reporting the name, identifying number, and pricnipal place of work for each tax return PREPARER?
Corporation with employees who complete tax returns,
Partners in a partnership where only partners prepare returns
Sole proprietor who prepares returns with no employees
Q 25 Section 2
All must report these details
Who can free file? Who cannot
What is the income threshold and what forms must be used if the income is above the threshold.
Q26
Any individual can free file whose income is below $79,000. Individuals above $79,000 must use free File Fillable Forms.
CANNOT: Any taxable entity, Employees of federal government cannot FREE FILE.
By what date must a tax return preparer furnsih a copy of the original return to a taxpayer
q 27
By the date the tax return is presented for the SIGNATURE of the taxpayer. Under title 26
Matt, an EA, provided tax advice to XYZ coporation on a fderal tax matter. The SEC is reviewing a required filing of the XYZ cop and asks to see a copy of Matt’s tax advice. The tax advice is NOT protected by the federally authorized tax practitioner privilege under IRC sec 7525 from disclosure to the SEC because
Q 33
7525 does not protect confidentiality against the SEC.
The confidentiality privilege is extended to certain nonattorneys. In noncriminal tax proceedings before the IRS, a taxpayer is entitled to the same common-law protections of confidentiality, with respect to the tax advice gien any “federally authorized tax practitioner,” as a taxpayer would have if the advising individual were an attorney sec 7525a-1. However, tax advice is not protected from disclosure to the SEC because the privilege protects only against disclosure to the IRS, not the SEC.
What are the penalties for unknowingly and knowingly violating the disclosure rules.
What are three times you must disclose to the client you are sharing their information.
Q 36
Unknowingly = $250 per disclosure, with a maximum of $10,000 per year. Knowingly = $1,000 and 1 year of prison if convicted of recklessly disclosing the information.
You must disclose if you are sharing with third parties, soliciting additional business, and sharing with another person’s return.
To solicit other business from a tax payer, what action must a tax preparer do?
Q38
Obtain formal, written consent from each taxpayer.
What are listed transactions
Q 42 (Main)
Tax avoidance transactions the IRS has identified by notice, regulation, or other forms of published guidance.
What are confidential transactions
Q 42 (A)
Transactions offered under conditions of confidentiality
What are loss transactions
Q 42 (B)
Transactions when taxpayers claim losses under Sec. 165 exceeding certain thresholds - what are the thresholds.
What are transactoins with contractual protection
Q 42 (C)
Transactions when the taxpayer has the right to a full or partial refund of fees paid for tax guidance, if the fees are contingent on realization of tax benefits.
What is form 8886
Q 43 (A)
Form to disclose certain tax shelters potentially improper tax shelter activity
What are the five major categories of reportable transactions on form 8886
Q 44
- Listed transactions - tax AVOIDANCE (Different than tax evasion) transactions that the IRS has listed by notice
- Confidential transactions - transactions offered under conditions of confidentiality. Regulations include a minimum fee requirement of $250,000 for coproations (Excluding S corps) and $50,000 for most other transactions
- Contractual protections - when the taxpayer has the right to a full or partial refund of fees paid to any person who makes or provides an oral or written statement about the potential tax consequences of a transaction if it is not sustained.
- Loss transactionsWhen taxpayer claim losses under Sec 165 exceeding thrsholds
- transactions of interest - same as listed transactions, but lack sufficient information to determine if they should be identified as tax avoidance transactions.
What is the difference between tax avoidance and tax evasion
Tax avoidance = The minimization of tax liability through legal arrangements and transactions. Avoidance takes place prior to incurring a tax liability
Tax evasion = takes place once a tax liability has already been incurred. Intent is key. Indicators include - understatement of income, improper allocation of income, claiming of fictitious deductions, questionable conduct of the taxpayer
