R4 - ETHICS Flashcards
5 Parts of Circular 230
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
Rules on Client Noncompliance
Tax Practitioner must notify client of error and penalty and consequences and dont need to withdrawal not let irs know
Rules on Government employees transitioning to private practice
Exception
No one in their firm may represent a taxpayer where conflict of ointerest arrives
unless the former government employee is isolated from the representation
When are contingent fees allowed? 3
- IRS examination of an original tax return
- claim for a refund of interest and/or penalties
- a judicial proceeeding
Rules about client documentation retention and fees disputes
Practioner must return documents attached to the return (or necessary for federal tax obligation) but does not have to return other documents
Conflict of interest exceptions. 3
- practicioner believse they can COMPETENTLY represent client
- no law prohibits the representation
- concent by client
Best practice for tax advisor
- highest quality representation
- Communicate engagement terms
- Lawful findings (due diligence)
- Advice on conclusions/penalties
- be fair
- ensure everyone acts in compliance
What is a federal tax matter? 3
Matter concerning the application or interpretation of:
- Revenue provision of IRC
- person impact by IRC provision
- IRS administered law or regulation
Who sets sanctions for violations of the regulations?
What for?
Rule on petitioning for reinstatement
Secretary of the treasury
incompetence, failing to comply with the regulations in Circular 230, willful misleading
5 years following suspension
What qualifies for a preparer?
What additional power can they gain?
Who signs off on the return?
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
Three different standards evaluated in court and their % of being upheld in court
- 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%
Penalty for unreasonable position without intend (ordinary negligence) or with intent (fruad)
- 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
Penalties exist to protect the tax payer from preparer unethical behavior. Describe some and what is the penalty
- 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
Penalty for refund check negotiation
$600 per check endorsed
What is burden of proof?
who has the burden of proof in an understatement of tax liability?
Penalty?
- 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.
Penalty for disclosing client tax return information
Exceptions
- $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
Main power of the state board of accountancy?
Grant, Suspend, and Revoke CPA license
Which can impose fines and require due process during investigation?
State Board or AICPA
State Board requires due process and can impose fines and revoke or suspend license
AICPA = opposite
Penalties of the State Board
- LIcense suspension
- monetary fine
- probation
- Impose CPE
What can the AICPA and State CPA Societies do and not do?
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
When the irs enforces disciplinary actions, what is the proof needed?
If found guilty, what amount?
Is due process allowed?
- Beyond Reasonable doubt
- Imprisonement no more than three years and/or no more than $100,000 ($500,000 for corporatoin)
SEC fine
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
Reasons that trigger an IRS Audit 5
- Mathematical calculation
- Prior year audit
- missing info (w2 or audit not matching)
- RANDOM
- Unnormal deductions (specially itemized)
Explain the three types of audits
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
Appeals process options:
- Timelines
- Price
-Location
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
Courts 3, pay?, Jury?, dispute amounts
- 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
What is burden of proof
Burden of proof
Exception
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,
US tax court decisions: difference between a regular and a memorandum decision
Regular: New or unusual point of law
memorandum decision: Existing law or interpretation of facts
Tax payer penalty on claiming the EARNED INCOME CREDIT
Cannot claim the credit for 2-10 years if claim was fraudulent
Tax payer penalty on failure to make estimated tax payments
Exemption
.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)
tax payer penalty for failure to file
5% of amount of tax due for each month up to 25%
Differnce in penalty for substantial vs unsubstantial understatement of tax
substantial: 20% of understatement, harder to avoid the penalty
unsubstantial: 20% of understatement
Fruad Penalty (civil vs criminal)
civil: 75% of understatment
Criminal: penalty and potential prison
Both up to $100,000 for individual and $500,000 for corp
What penalties may accrue interest?
-Failure to file
- Failure to pay
- Negligence/Fraudulent understatement
Different tax positions and their chances of succeeding
Frivolous returns < 20 % change of succeeding
Reasonable Basis Standard > 20 % chance of succeeding
Substantial Authority standard > 40% chance of succeeding
What does FBAR stand for
What is the mission?
Foreign Bank Account Reporting Requirements 114 form
Require us person to report foreign bank accounts for illegal activity’s and unreported income
How much does a us person or entity to to have in foreign bank account to file the fbar?
HOw long to hold records
10,000 minimum any time during the year
5 years
What do you call the follwoing:
- unintentional torts in good fatih
- intentional torts, reckless in bad faith
- Ordinary Negligence
- Constructive fraud/Gross negligence
What are punitive damages?
What type of negligence causes this?
Damages exceeding simple compensations, for the purpose of punishment’s
Gross negligence/fraud
Element of fraud (5)
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)
What is the main diff between constructive fraud from actual fraud
constructive is reckless and may hold the cpa liable to a great amount of parties not just the plaintiff
List levels of fraud from best to worse
- Reasonable care
- lack reasonable care (ordinary negl.)
- lack of even slight care (gross neg./ constrictive fraud)
- Actual fraud (intent)
- criminal fraud (worse)
Communication privileges available to CPAs?
Attorney-client privilege’s: no need to share details to court
Describe tax parcitioner-taxpayer privilege
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
What is the ultramares rule?
Limits the accountants liability for negligence to Unforseen parties (parties in privity and intended third party beneficiaries)
Four elements of Negligence
- Duty of care
- Breach
- Causality
- injury
