Professional & Legal

Question 1

Tax Positions:
Substantial Authority
More Likely Than Not
Realistic Possibility
Reasonable Basis

Answer 1

IRC:
Substantial Authority 40% accept
More Likely Than Not 50% accept (Tax Shelter)
AICPA:
Realistic Possibility 33% accept
Reasonable Basis 20-33% accept (if disclosed to IRS)

Question 2

Statements on Standards for Tax Services (1-7)

Answer 2

1: Tax Return Positions
2: Answers to Questions on Returns
3: Procedural Aspects of Preparing Returns
4: Use of Estimates
- disclose if ill, missing K-1, litigation, act of god
5: Departure from previous returns
6: Knowledge of error
7: Form & Content of Advice to taxpayers

Question 3

Types of Malpractice Liability (1-4)

Answer 3

Breach of Contract: (did not perform)
- Accountant: gets fee if minor breach
- Prove: did not perform
- Damages: compensatory & punitive damages
Negligence: (performed carelessly)
- Prove: duty, breach, damages, proximate cause
- Damages:compensatory damages
- Defenses: contributory negligence (prevent from performing or caused situation)
Fraud: (lied)
- Prove: material false representation of fact, knowledge (scienter) aka actual fraud OR reckless disregard/gross negligence aka constructive fraud, plantiff relied & suffered damages
- Damages: compensatory & punitive damages
- Liabile to all injured parties (negligence more limited)
Negligence to 3rd Parties
- “Ultrameres”: only liable to those in privity of contract
- Limited Class: Foreseen users (Primary rule)
- Reasonably Foreseeable (rarely used)