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r4 Flashcards

1
Q

Treasury Department Circular 230

A

IRS publication, entitled “Regulations Governing Practice before the Internal Revenue Service”

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2
Q

What does Treasury Department Circular 230 address?

A

Practice before the IRS with regard to
-rules governing the authority to practice before the IRS
-the duties and restrictions relating to practice before the IRS
-the sanctions for violations of the regulations
-the rules applicable to disciplinary proceedings

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3
Q

What does it mean to practice before the IRS?

A

-communicating with the IRS for a taxpayer
-representing a taxpayer
-preparing and filing necessary filings

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4
Q

Who must register with the IRS?

A

Anyone who prepares or assists in preparing a federal tax return for compensation

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5
Q

Information to be furnished includes

A

any IRS requested info or records:
-the practitioner may withhold information or records they believe in good faith and on reasonable grounds to be priviledged
-If they do not possess the info but know who does, they must inform the IRS

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6
Q

What do you do if you become aware of an omission or error?

A

Notify client and the consequences under the law for the noncompliance

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7
Q

A practitioner may not represent a client before the IRS if it involves a conflict of interest unless:

A

-practitioner believes he or she can competently represent each of the clients
-No state or federal law prohibits the representation
-each client waives the conflict of interest

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8
Q

A practitioner must inform the client on:

A

any penalties that are reasonably likely to apply with respect to:
-a position taken on a tax return
-any document submitted

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9
Q

Definition of federal tax matters

A

any matter concerning the application or interpretation of:
- a revenue provision of the internal revenue code
-any provision of law impacting a persons obligations under the internal revenue laws and regs
-any other law or regulation administered by the IRS

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10
Q

Rules for disciplinary hearings (ADS)

A

Authority to practice
Duties as a tax practitioner
Sanctions for violations

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11
Q

What are some potential failures to comply with Circular 230?

A

-pattern or practice of noncompliance through willfulness, recklessness, or gross incompetence

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12
Q

The secretary of the TREASURY may publicly reprimand, suspend, or disbar any practitioner form practice before the IRS if practitioner:

A

-is shown to be incompetent
-fails to comply with regulations in Circular 230
-willfully and knowingly misleads or threatens a client or prospective client with intent to defraud

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13
Q

Incompetence and disreputable conduct for which a practitioner may be sancationed includes:

A

-being convicted of any federal tax law crime, any criminal offense involving dishonesty or breach of conduct, or any felony under federal or state law
-giving false or misleading inform
-carrying out any solicititiaion of business prohibited
-willfully failing to make a tax return

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14
Q

What is the time of reinstatement after suspension

A

5 years

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15
Q

Signing Tax Return Preparer

A

the individual tax return preparer who has the primary responsibility for the overall substantive accuracy of the preparation of such return or claim for refund

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16
Q

Nonsigning Tax Return Preparer

A

Any tax return preparer who is not a signing tax return preparer but who prepares all or substantial portion of a return or claim for refund
-they assist

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17
Q

What are the primary authoritative sources to determine tax treatment?

A

-Provisions of the Internal Revenue Code
-Revenue rulings and revenue procedures, tax treaties and US treasury department
-Court cases

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18
Q

What does the verb disregard include

A

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

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19
Q

What is a listed transaction?

A

means a reportable transaction which is the same as, or similar to, a transaction specifically identified by the Secretary of the US treasury Department

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20
Q

What is a reportable transaction?

A

any transaction with respect to which information is required to be included with a return or statement because such transaction is of a type of having a potential for either tax avoidance or tax evasion. Greater than 50%

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21
Q

What does negligence mean?

A

Includes 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 preparation of a tax return.

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22
Q

What is reasonable basis?

A

Met when there is a greater than 20% likelihood of a tax position being upheld by courts. A high standard of tax reporting

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23
Q

What is Substantial authority standard?

A

Met when there is a greater than 40% but less than 50% likelihood of a tax position being upheld by the courts
-objective

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24
Q

A position is deemed unreasonable unless:

A

-reasonable basis for a disclosed position exists > 20%
-substantial authority for the position, regardless of disclosure exists >40%
-it is reasonable to believe that a tax shelter or reportable transaction position would meet the morel likely than not standard >50%

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25
Q

What is the penalty for ordinary negligence (no intent)

A

Equal to the greater of $1,000 or 50% of income the preparer received for tax return services

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26
Q

What is the penalty due to willful or reckless conduct?

A

$5,000 or 75% of the income preparer received

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27
Q

Penalties under IRC Sec 6695

A

Intended to protect the taxpayer from unethical behavior
-$40 for each failure max $31,500
-failure to provide copy of to taxpayer
-failure to sign return
-failure to furnish ID number
-failure to properly retain records (3 years)

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28
Q

What is the penalty for failure to comply with IRS due diligence?

A

$635

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29
Q

What is the penalty for wrongful disclosure and or Use of Tax return information?

A

A tax preparer who discloses or uses information for any purpose other than to prepare a tax return shall pay a civil penalty of $250 for each disclosure max $10,000

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30
Q

What is the role of the state boards of accountancy?

A

Sole authority to grant, suspend, revoke license

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31
Q

What are the 5 penalties that state board can impose?

A

suspension/ revocation, monetary fine, reprimand or censure, probation, requirement

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32
Q

A person found guilty of a felony may be imposed

A

imprisonment for not more than 3 years and or fined not more than $100,000 ($500,000 corporation)

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33
Q

IRS civil penalties

A

-may prohibit the accountant from practicing before the IRS
-monetary fines
-can be civil or criminal case

34
Q

SEC civil penalties

A

-may prohibit the accountant from practicing before the SEC
-monetary fines
SEC only investigates criminal activity and does not prosecute criminal cases

35
Q

How are returns selected for an audit?

A

-statistical models; selects returns that are most likely to contain errors
-random selection
-prior year audit
-information return discrepancy
-deductions that exceed the established norm

36
Q

How long can a return be audited?

A

returns may be audited at any point prior to the expiration of the statute of limitations

37
Q

What is a correspondence audit?

A

Arises from information errors, mathematical errors, matching issues
-no need for formal meeting

38
Q

What is an office audit?

A

Conducted by an IRS revenue agent, either in an IRS office or by correspondence, and is used for individual returns with few or not items of business income.

39
Q

What is a field audit?

A

Conducted by an IRS representative, either at the taxpayers office or home or at the place of business.

40
Q

What form is signed for a resolved issue?

A

Form 870

41
Q

How do unresolved issues work?

A

The taxpayer receivers a copy of the revenue agents report and a 30 day letter for the right to appeal

42
Q

Office of appeals

A

Goal to resolve the tax controversies without litigation
-if no agreement reached, a 90 day letter will be issued

43
Q

What is the 90 day letter

A

Notice of Deficiency
-90 days to pay the deficiency or file petition with the US tax court; No jury trial, do not have to pay deficiency first
-can elect to case be heard in US District Court or federal claims; must pay tax deficiency first and then sue; jury trial

44
Q

US Tax Court

A

do not have to pay first. no jury

45
Q

US District Court

A

pay first and sue for a refund, jury optional

46
Q

US court of federal claims

A

Pay first and sue for a refund, no jury option

47
Q

What a regular decision?

US Tax Court

A

Normally involves a new or unusal point of law

48
Q

What a memorandum decision?

US Tax Court

A

Concerns the application of exisitng law or interpretation of facts

49
Q

If you loose your case where do you appeal for each court?

A

For US Tax court and US District Court: Court of Appeals
For US Court of Federal Claims: US Circuit Court of Appeals

50
Q

Earned Income Credit Penalty

A

-statutory restriction on claiming the credit, rather than a penalty
-may not claim credit for two subsequent years or up to 10 years

51
Q

What are the penalty EXCEPTIONS for failure to make sufficient estimated income tax payments

A

-less than or equal to $1,000 of current year tax
-at least 90% of current year tax
-at least 100% of last years tax (110% if agi > 150k)
-equal estimated current year tax based upon annualized income

52
Q

Failure to file penalty

A

The penalty is 5% of the amount of tax due for each month the return is late, up to a maximum of 25%

53
Q

What is the failure to pay penalty?

A

1/2 of 1% per month up to a maximum of 25%

54
Q

Penalty for substantial understatement of tax

A

20% of the understatement of tax
-substantial if it exceeds greater of 10% of the correct tax or $5k

55
Q

Fraud Penalties

A

-civil 75% of the understatement
-criminal $100k $500k for corps

56
Q

What is a frivolous tax return?

A

< 20% of succeeding
Have no basis in law or authority

57
Q

What is the reasonable basis standard?

A

> 20% chance of succeeding

58
Q

What is the substantial authority standard?

A

> 40% chance of succeeding
- only analyses and reports issued by the US congress, IRS regulations, rules, and releases

59
Q

Disclosure statement (form 8275)

A

-used to avoid the understatement of penalty
-used to disclose positions taken on tax return that are contrary to revenue rulings

60
Q

Reportable transaction disclosure statement (form 8886)

A

any taxpayer that participates in a reportable transaction is required to file a federal tax return or info return must file form 8886

61
Q

A taxpayer can avoid penalty by showing that the taxpayer:

A
  1. Had reasonable cause to support the tax return position
  2. acted in good faith
  3. did not have willful neglect
    *> 20%
    -do not apply for shelters 50%
62
Q

Who must file the FBAR?

A
  • they have financial interest in, or signature or other authority over, any financial account maintained with a finance institution outside the US
  • maximum aggregate value exceeds $10,000 at any time
63
Q

What are accuracy related penalties?

A

-negligence penalties
-penalty for substantial understatement of tax

64
Q

What is a private letter ruling?

A

is the IRS’s interpretation of the federal tax law as it applies to a specific taxpayer situation. A PLR is issued by the IRS in response to a taxpayers request for guidance as to the federal tax consequences of a proposed transaction

65
Q

For tax law who holds the most authoritative value

A

IRC

66
Q

What is a commission of tort?

A

A tort is a wrongful act
-unintentional torts
-intentional torts (fraud)

67
Q

Fraud types

A

Constructive: also called gross negligence (reckless)
Fraud: CPA acts in bad faith, with intent

68
Q

To make out a case for negligence, the plaintiff must show:

A

-the defendant owed a duty of care to the plaintiff
-the defendant breached that duty by failing to act with due care
-the breach caused plaintiffs injury
-damages

69
Q

What are the 5 elements of fraud (MAIDS)

A

Misrepresentation of material fact
Actual and justifiable reliance by plaintiff
Intent to INDUCE plaintiffs reliance on the misrepresentation
Damages
Scienter -intent to deceive ( acted in bad faith)

70
Q

Who can sue you for negligence?

A

-clients
-any person relying on CPAs work

71
Q

Ultramares decision

A

Limits CPA liability more narrowly to persons in privity of contract with the CPA and intended third party beneficiaries

72
Q

Is privity a fraud defense?

A

No

73
Q

Reasonable Care (due care is taken) =

A

No negligence = not liable

74
Q

Lack of reasonable care =

A

Ordinary negligence
-cpa is liable to anyone he or she knows or reasonably should expect will rely on his or her work

75
Q

Lack of even slight care =

A

gross negligence or constructive fraud

76
Q

Actual fraud =

A

actual intent to deceive
-civil

77
Q

Attorney-client privilege

A

This privilege is potentially available when the CPA has been engaged by the attorney prior to aid the attorney in providing legal services because the expertise of a CPA is needed

78
Q

Work product privilege

A

Can protect tangible materials produced in preparation for litigation as requested by an attorney but not to the communication between the attorney and accountant about the product

79
Q

Tax practitioner - Taxpayer privilege’s

A

applies to tax advice from a tax practitioner that would qualify under the attorney client privilege’s. Only applies to federally authorized tax practitioners

80
Q

Does the tax practitioner privilege apply to areas in connection to tax shelters?

A

No

81
Q

What is the restatement rule?

A

If a cpa performs an audit negligently, the cpa is liable to the client and to any foreseeable class of persons whom the CPA knows will be relying on the audi

82
Q

In what cases can a accountant show the Workpapers without client permission?

A
  1. lawful subpoena
  2. prospective purchasers
  3. quality control panel
  4. AICPA/ State Trial board
  5. Court proceedings
  6. When gaap requires disclosure

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