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REG > R4 - ETHICS > Flashcards

R4 - ETHICS Flashcards

1
Q

5 Parts of Circular 230

A

A: Rules governing authority to practice
B: Duties/Restrictions in practice before IRS
C: Sanctions for violating regulation
D: Rules applicable to disciplinary proceeds
E: General Provisions

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2
Q

Rules on Client Noncompliance

A

Tax Practitioner must notify client of error and penalty and consequences and dont need to withdrawal not let irs know

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3
Q

Rules on Government employees transitioning to private practice

Exception

A

No one in their firm may represent a taxpayer where conflict of ointerest arrives

unless the former government employee is isolated from the representation

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4
Q

When are contingent fees allowed? 3

A
  • IRS examination of an original tax return
  • claim for a refund of interest and/or penalties
  • a judicial proceeeding
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5
Q

Rules about client documentation retention and fees disputes

A

Practioner must return documents attached to the return (or necessary for federal tax obligation) but does not have to return other documents

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6
Q

Conflict of interest exceptions. 3

A
  • practicioner believse they can COMPETENTLY represent client
  • no law prohibits the representation
  • concent by client
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7
Q

Best practice for tax advisor

A
  • highest quality representation
  • Communicate engagement terms
  • Lawful findings (due diligence)
  • Advice on conclusions/penalties
  • be fair
  • ensure everyone acts in compliance
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8
Q

What is a federal tax matter? 3

A

Matter concerning the application or interpretation of:
- Revenue provision of IRC
- person impact by IRC provision
- IRS administered law or regulation

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9
Q

Who sets sanctions for violations of the regulations?

What for?

Rule on petitioning for reinstatement

A

Secretary of the treasury

incompetence, failing to comply with the regulations in Circular 230, willful misleading

5 years following suspension

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10
Q

What qualifies for a preparer?

What additional power can they gain?

Who signs off on the return?

A

Preparers preparing for compensation require a PTIN and must be actively preparing it not simply assisting

CPA, EA, Attorneys can represent their client in court

The person with primary responsibility of the return

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11
Q
A
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12
Q

Three different standards evaluated in court and their % of being upheld in court

A
  • Disclosed position |Reasonable Basis standard | >20%
  • Undisclosed Position | Substantial Authority Standard | 40%-50%
  • List/Reportable transaction (tax shelter, info is already included in return) | More likely than not standard | > 50%
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13
Q

Penalty for unreasonable position without intend (ordinary negligence) or with intent (fruad)

A
  • Penalty 1 no intent = Greater of $1,000 or 50% of income preparer received
  • Penalty 2 fruad = Greater of $5,000 or 75% of income preparer received
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14
Q

Penalties exist to protect the tax payer from preparer unethical behavior. Describe some and what is the penalty

A
  • FAILURE TO provide TR copy to TP, sign return, furnish PTIN, retain records for three years, file correct info of firm
  • $60 per failure, up to $30,000 per year
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15
Q

Penalty for refund check negotiation

A

$600 per check endorsed

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16
Q

What is burden of proof?

who has the burden of proof in an understatement of tax liability?

Penalty?

A
  • Party that provides evidence
  • The irs has the burden of proof
  • apployes to all parties and for civil penalties it is $1,000 for taxpayers and $10,000 for corps.
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17
Q

Penalty for disclosing client tax return information

Exceptions

A
  • $250 for each disclosure up to $10,000 or over a year in prison if its a misdemeanor
  • Court order, allowable use like for state and local returns, quality review with peers, or if client conc

NOT IF SOMEONE BUYS YOUR CPA FIRM

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18
Q

Main power of the state board of accountancy?

A

Grant, Suspend, and Revoke CPA license

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19
Q

Which can impose fines and require due process during investigation?

State Board or AICPA

A

State Board requires due process and can impose fines and revoke or suspend license

AICPA = opposite

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20
Q

Penalties of the State Board

A
  • LIcense suspension
  • monetary fine
  • probation
  • Impose CPE
21
Q

What can the AICPA and State CPA Societies do and not do?

A

CAN revoke AICPA membership, due process not allowed due to it not followign judicial process

CANNOT revoke CPA license (that is only for the STATE BOARD), due process is allowed due to it following judicial process

22
Q

When the irs enforces disciplinary actions, what is the proof needed?

If found guilty, what amount?

Is due process allowed?

A
  • Beyond Reasonable doubt
  • Imprisonement no more than three years and/or no more than $100,000 ($500,000 for corporatoin)
23
Q

SEC fine

A

No more than $100,000 ($500,000 for a firm) for the following infront of the sec: lack integrity, unethically, convicted of felony, if cpa license was suspended

24
Q

Reasons that trigger an IRS Audit 5

A
  • Mathematical calculation
  • Prior year audit
  • missing info (w2 or audit not matching)
  • RANDOM
  • Unnormal deductions (specially itemized)
25
Q

Explain the three types of audits

A

Corresponded audit - just a letter with additional missing amount, simple

Field audit - At personal/office location or representatives office

Office Audit - At the irs office

26
Q

Appeals process options:
- Timelines
- Price
-Location

A

Appeals conference - cost effective manner with no need of litigation/court - 30 days letter

Notice of Deficiency - if appeal conference is ineffective - 90 day letter - 90 days to pay deficiency or file

27
Q

Courts 3, pay?, Jury?, dispute amounts

A
  • US. Tax court - No Pay, no Jury, less than $50,000
  • US district court - pay first sue for refund, jury is an option
  • US court of federal claims - pay first sue for refund - No jury
28
Q

What is burden of proof

Burden of proof

Exception

A

They party has to prove case

Usually on the tax payer since they hold the books and records

Shifts to the IRS: when civil fruad, criminal fruad,

29
Q

US tax court decisions: difference between a regular and a memorandum decision

A

Regular: New or unusual point of law

memorandum decision: Existing law or interpretation of facts

30
Q

Tax payer penalty on claiming the EARNED INCOME CREDIT

A

Cannot claim the credit for 2-10 years if claim was fraudulent

31
Q

Tax payer penalty on failure to make estimated tax payments

Exemption

A

.5% per month up to 25% of unpaid tax

Pay less or equal to $1,000 in currenty year, atleast 90% of current year, or atleast 100% of last year (110% if agi more than 150k)

32
Q

tax payer penalty for failure to file

A

5% of amount of tax due for each month up to 25%

33
Q

Differnce in penalty for substantial vs unsubstantial understatement of tax

A

substantial: 20% of understatement, harder to avoid the penalty

unsubstantial: 20% of understatement

34
Q

Fruad Penalty (civil vs criminal)

A

civil: 75% of understatment
Criminal: penalty and potential prison

Both up to $100,000 for individual and $500,000 for corp

35
Q

What penalties may accrue interest?

A

-Failure to file
- Failure to pay
- Negligence/Fraudulent understatement

36
Q

Different tax positions and their chances of succeeding

A

Frivolous returns < 20 % change of succeeding

Reasonable Basis Standard > 20 % chance of succeeding

Substantial Authority standard > 40% chance of succeeding

37
Q

What does FBAR stand for

What is the mission?

A

Foreign Bank Account Reporting Requirements 114 form

Require us person to report foreign bank accounts for illegal activity’s and unreported income

38
Q

How much does a us person or entity to to have in foreign bank account to file the fbar?

HOw long to hold records

A

10,000 minimum any time during the year

5 years

39
Q

What do you call the follwoing:

  • unintentional torts in good fatih
  • intentional torts, reckless in bad faith
A
  • Ordinary Negligence
  • Constructive fraud/Gross negligence
40
Q

What are punitive damages?

What type of negligence causes this?

A

Damages exceeding simple compensations, for the purpose of punishment’s

Gross negligence/fraud

41
Q

Element of fraud (5)

A

Plaintiff laible to compnesatory and punitive damages

Elements: MAIDS

  • Misrepresentation of material fact
  • actual reliance on the represetnation
  • Induce Plaintiffs reliance on the misrepresentation
  • Damages
  • Scienter (intent)
42
Q

What is the main diff between constructive fraud from actual fraud

A

constructive is reckless and may hold the cpa liable to a great amount of parties not just the plaintiff

43
Q

List levels of fraud from best to worse

A
  1. Reasonable care
  2. lack reasonable care (ordinary negl.)
  3. lack of even slight care (gross neg./ constrictive fraud)
  4. Actual fraud (intent)
  5. criminal fraud (worse)
44
Q

Communication privileges available to CPAs?

A

Attorney-client privilege’s: no need to share details to court

45
Q

Describe tax parcitioner-taxpayer privilege

A

In a civil case between a tax payer and a federally authorized tax practitioner (cpa, EA), tax advice does not need to be disclosed to court

46
Q

What is the ultramares rule?

A

Limits the accountants liability for negligence to Unforseen parties (parties in privity and intended third party beneficiaries)

47
Q

Four elements of Negligence

A
  • Duty of care
  • Breach
  • Causality
  • injury
48
Q
A

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