R2 Individual Tax - Adj, Ded, Cred Pt 4

Question 1

Who must make ES tax payments?

Answer 1

Taxpayers with:

1. $1,000 or more tax liability and the TP’s withholding is less than the lesser of 90% of current year’s tax, or
2. 100% of last year’s tax ]110% if AGI is > $150,000 ($75,000 for MFS)]

Question 2

The SOL on assessments is the statutory period during which the government can assess an additional tax. How long are these statutory periods?

Answer 2

General: 3 yrs from the later of the due date of the return or the date the return is filed (including amended returns).

25% Understatement of Gross Income: 6 yrs from the later of the due date of the return or the date the return is filed

Reopen Closed Years: If a taxpayer prevails in a finding allowing a deduction in an open tax year that was taken erroneously in a closed tax year, the IRS may disallow the deduction in the closed tax year.

There is no SOL for fraud or filing false returns.

Question 3

What is the SOL on refunds claimed by an individual TP?

Answer 3

Refund claim - The later of:

1) 3 yrs from the date the return was filed or the original due date of the return, or
2) Two years from the time the tax was paid (if not when the return was filed)

Bad debts / Worthless securities - 7 yrs from the later of :

1) The due date of the return or
2) The date the return is filed

Question 4

Describe the IRS requirement to make estimated quarterly tax payments:

Answer 4

A taxpayer is required to make quarterly tax payments if both of the following conditions are met:

1. The amount of taxes owed is expected to be $1,000 or more (owed is the excess of tax liability over withholding)
2. The taxpayer’s withholding is less than the lesser of:

A) 90% of the CY tax or
B) 100% of the PY tax

If estimated payments have been insufficient to avoid a penalty, a TP can increase WH from wages before YE and the WH will be considered to have been paid evenly throughout the year.

Question 5

Who published these standards and what are they?

Answer 5

The AICPA’s Tax Executive Committee published the seven Statements on Standards for Tax Services. The SSTS set forth the ethical tax practice standards for members of the AICPA.

Question 6

List the sections of each standard.

Answer 6

Introduced, statement (often consisting of several paragraphs), and explanation.

Question 7

List the topics covered in the standards.

Answer 7

1. Tax return positions
2. Answers to questions on returns
3. Certain procedural aspects of preparing returns.
4. Use of estimates
5. Departure from a position previously concluded in an administration or court hearing
6. Knowledge of error. return preparation and administrative proceedings
7. Form and content of advice to TP

Question 8

If a tax return position does not have at least a realistic possibility of being sustained, the tax preparer may nevertheless recommend that position under what circumstance?

Answer 8

The tax preparer:

1. concludes that there is a reasonable basis for the position and
2. advises the TP to disclose appropriately that position

Question 9

If a tax return reflects a tax return position which the tax preparer has concluded has only a reasonable basis, under what circumstances may the preparer sign that return?

Answer 9

Sign the return only if that return position is appropriately disclosed.

Question 10

List the levels of support from the least stringent to the most stringent.

Answer 10

1. Reasonable basis standard (least stringent)
2. Realistic possibility standard
3. Substantial authority standard
4. More-likely than not standard (most stringent)

Question 11

What is the tax preparer’s responsibilities with respect to answering questions on the return?

Answer 11

Make a reasonable effort to answer all questions on tax return; there must be reasonable grounds for omission of an answer.

Question 12

Summarize the procedural aspects of preparing a return.

Answer 12

Generally no responsibility to verify information provided by taxpayer.

However, make reasonable inquires if the information appears to be incomplete, incorrect, or inconsistent.

Also determine whether TP (i) maintains appropriate books and records when required by statute or rule and (ii) possesses substantiating documentation when required by statute or rule.

Whenever possible, review one or more return from previous years in order to obtain information concerning the TP.

Question 13

What is the standard regarding the tax practitioner’s use of estimate?

Answer 13

The tax preparer may use estimate provided by the TP and disclosure of estimate is not generally required.

Question 14

When can a tax practitioner depart from a position previously concluded in an administrative proceeding or in a court decision?

Answer 14

A tax preparer may recommend a tax position that is different from the treatment as concluded in an administrative proceeding or in a court decision with respect to a previous year’s return if

(i) the TP is not bound to a specific treatment in the later year and
(ii) the tax return preparer follows statement on standards for tax services no. 1 “tax return position”

Question 15

What is required of the tax return preparer who becomes aware of an error in a previously filed return?

Answer 15

What is required on the tax return preparer who becomes aware that the TP has failed to file a Tax Return.

Question 16

What is required of the TP who while representing the TP in the administrative proceeding, becomes aware of an error or non-filing?

Answer 16

Request the TP’s agreement to disclose to the taxing authority the error or non-filing. If the TP does not agree, the tax preparer should consider whether it is appropriate to continue the professional relationship.

Do not notify any taxing authority regarding the error or non-filing without first obtaining permission from the TP, except when required by law.

Question 17

When must the tax preparer notify the taxpayer about new or changing tax developments occurring after the preparer has given advice to the client?

Answer 17

When assisting a TP in implementing a plan associated with advice previously given, revise the plan if there are new development.

If not assisting in implementing the plan, there is no requirement to notify the TP of subsequent developments that may affect the advice previously given.