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Becker REG > R5 > Flashcards

R5 Flashcards

1
Q

substantial authority

A

> 33% but less than 50%

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2
Q

more likely than not

A

> 50% (most stringent)

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3
Q

reasonable basis

A

> 20% (least stringent)

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4
Q

tax practitioner vs. tax preparer

A

preparer = compensation

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5
Q

listed transaction vs. reportable transaction

A
  • listed transaction = tax avoidance related

* reportable transaction = tax avoidance and tax evasion related

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6
Q

basis or authority to avoid unreasonable position

A

Non Tax Shelters:

  1. undisclosed - substantial authority
  2. disclosed - reasonable basis

Tax Shelters
3. more likely than not

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7
Q

confidence level needed for reliance opinion

A

more likely than not

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8
Q

evidence needed for board to revoke license

A

more likely than not

*not beyond a reasonable doubt as in criminal cases

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9
Q

Form used when taxpayer and revenue agent reach an agreement

A

Form 870

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10
Q

Courts available for a taxpayer with a notice of deficiency

A
  1. U.S. Tax Court
  2. U.S. Court of Federal Claims
  3. U.S. District Court
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11
Q

Who can initiate court proceedings for tax matters?

A

the individual or the IRS

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12
Q

In general, who has the burden of proof for tax court cases?

A

the party bringing the case

bringing = burden

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13
Q

Is payment of tax required when litigating in a U.S. Tax Court?

A

No, it is the only court where you do not have to pay

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14
Q

What does the taxpayer need in order to proceed to the court system?

A

a notice of deficiency

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15
Q

Unique aspects for each court:

  1. U.S. Tax Court
  2. U.S. District Court
  3. U.S. Court of Federal Claims
A
  1. do not have to pay tax liability
  2. one judge, can request jury
  3. must be a federal claim for money damages against the United States (nationwide) (16 judges, no jury) (follows decisions of Federal Court of Appeals, not geographic)
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16
Q

From which courts can you appeal to the U.S. Courts of Appeals?

A
  1. U.S. Tax Court

2. U.S. District Court

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17
Q

From which courts can you appeal to the Federal Court of Appeals?

A

U.S. Court of Federal Claims only

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18
Q

writ of certiorari

A

U.S. Supreme Court has agreed to hear your case

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19
Q

Exceptions to penalty for individual taxpayers on making estimated income tax payments

A
  1. current year’s tax minus withholdings is less than $1,000
  2. estimated payments of at least 90% of the current year’s tax
  3. estimated payments of at least 100% of the prior year’s tax (110% if over $150,000)
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20
Q

Failure-to-file penalty

A

5% per month up to 25% of tax due

decreases for months where both file and pay penalties apply

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21
Q

Failure-to-pay penalty

A

1/2 of 1% per month up to 25% of unpaid tax

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22
Q

Negligence penalty for understatement of tax

A

20%

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23
Q

The failure-to-file, failure-to-pay, and negligence penalties are all assessed on what amount?

A

Tax liability - withheld - paid = tax due

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24
Q

Best defense (in most cases) for negligence

A

reasonable basis

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25
Q

Penalty for substantial understatement of tax

A

20%

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26
Q

Defense basis for penalty for substantial understatement of tax

A
  1. disclosed - reasonable basis
  2. undisclosed - substantial authority
  3. tax shelter - more likely than not
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27
Q

Burden of proof needed in the federal court system for civil tax cases

A

preponderance of the evidence

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28
Q

Fraud penalty

A

75%

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29
Q

Burden of proof needed in the court system for criminal case

A

beyond a reasonable doubt

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30
Q

not frivolous

A

< 20%

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31
Q

Covered Opinion

A 
1. listed transaction 
or
2. tax shelter (avoidance or evasion)
or
3. reliance opinion or marketed opinion
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32
Q

Accuracy-related penalties are made on:

A
  1. negligence

2. substantial understatement of income tax

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33
Q

ordinary negligence

A

failure to exhibit ordinary care

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34
Q

Two guidelines in determining to whom the duty is owed for negligence.

A
  1. majority rule - clients and limited foreseeable class of persons who will be relying on the CPA’s work
  2. Ultramares decision - persons in privity of contract and intended third-party beneficiaries (similar to breach of contract)
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35
Q

Best defense for negligence

A

due diligence (GAAP and GAAS + workpapers)

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36
Q

To whom is the CPA liable for cases of fraud?

A

Anyone who can prove the elements of fraud; general public

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37
Q

Best defense for fraud

A

lack of scienter

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38
Q

Best defense for breach of contract

A

client hindered performance

39
Q

Constructive Fraud

A

gross negligence

40
Q

3 ways CPAs can be held liable

A
  1. breach of contract
  2. negligence, fraud, constructive fraud
  3. statutory
41
Q

Which element is not required to be sued in federal court?

A

privity

42
Q

What must a plaintiff prove for CPA liability under the 1933 Act?

A

LAM
L oss
A acquired the stock
M aterial misrepresentation

No: intent, negligence, or reliance

43
Q

What must a plaintiff prove for CPA liability under the 1934 Act?

A

10b-5 = FRAUD

LAM + reliance + scienter

L oss
A cquired 
M aterial misstatement 
Reliance
Scienter
Interstate Commerce
44
Q

Who do the auditors report directly to?

A

The Audit Committee

45
Q

Private Securities Litigation Reform Act: Audit Requirements

A
  1. design procedures to detect illegal acts
  2. design procedures to detect related party transactions
  3. evaluate going concern
46
Q

Who owns the workpapers?

A

the accountant

47
Q

Can workpapers be shown to a prospective purchaser?

A

Yes, so long as the prospective purchaser does not disclose the confidential information; REVIEW only

48
Q

Rule of thumb to decide if something is a security

A

If the investor is passive and relies on the management of others to make money, the investment is most likely a security

49
Q

Two exceptions that are not securities

A
  1. CDs

2. general partnership interests

50
Q

Document needed before IPO under 1933 Act

A

prospectus (before or contemporaneous)

51
Q

Who is required to register under the 1933 Act?

A
  1. issuer
  2. underwriter
  3. dealer
52
Q

Two components of the registration statement

A
  1. Prospectus

2. Audited Balance Sheet and P/L Statement + disclosures of material facts

53
Q

Shelf Registration

A

one registration statement for all securities that they will offer now and in the future; disclosures must be updated

54
Q

Blue Sky Laws

A

state laws

55
Q

Securities Exempted under 1933 Act

A 
B anks
R ailroads
I nsurance policies
N ot-for-profit
G overnment
S hort-term commercial paper ( < 9 months)
56
Q

Transactions Exempted under 1933 Act

A
  1. casual sales
  2. exchanges with existing holders (stock dividends)
  3. intrastate sales
  4. Regulation A
  5. Private Offering Regulation D
57
Q

Regulation A - 1933 Act

A
  1. unaudited financial statements
  2. offering statement (notification an offering circular)
  3. may not exceed $5 million in a 12-month period
58
Q

General Conditions that apply to Rules 504, 505, and 506

A
  1. no advertising
  2. no resale to public (2 years)
  3. SEC informed in 15 days after the FIRST SALE
59
Q

Rule 504

A

$1 million limit

60
Q

Actions that can be done thirty days before registration (1933)

A

negotiate with an underwriter

61
Q

Actions that can be done during waiting period (1933)

A
  1. oral offers (NO WRITTEN)
  2. tombstone advertising
  3. red herring (preliminary prospectus)
62
Q

Rule 505

A
  1. $5 million limit
  2. any number of accredited investors and 35 or fewer UNACCREDITED investors
  3. must give at least an annual report if there is AT LEAST ONE unaccredited investor
63
Q

Unaccredited investors

A
  1. $1 million net worth
    or
  2. $200,000 annual income
64
Q

Rule 506

A
  1. unlimited
  2. any number of accredited investors and 35 or fewer unaccredited but SOPHISTICATED investors
  3. must give at least an annual report if there is AT LEAST ONE sophisticated investor
65
Q

Section 12 and Section 17 of 1933 Act

A
  • anti-fraud applies even if issuer is unregistered and exempt
  • 12 = civil
  • 17 = criminal
66
Q

_______ is not required under the 1933 and 1934 Act

A

privity

67
Q

1934 Act regulates the following:

A
  1. transactions after securities are issued
  2. reporting provisions
  3. anti-fraud provisions
68
Q

Who must register under the 1934 act?

A
  1. companies whose shares are traded on a national exchange
    or
  2. companies that have more than (i) $10 million in assets (ii) 2,000 shareholders or (iii) 500 shareholders who are not accredited
69
Q

Elements of Actual Fraud

A 
M isrepresentation of material facts
A ctual and justifiable reliance
I ntent to induce reliance
D amages 
S cienter
70
Q

Reporting Requirements under 1934 Act

A
  1. Business reports (10-K, 10-Q, 8-K)
    5% TIP

5% or more owners
T ender offers ( > 5%) (person giving tender offer)
I nsider (officer, director, > 10% shareholder) (the insiders themselves)
P roxy solicitations (disclose all facts w/ annual report

71
Q

Insider Trading

A
  • information is material, nonpublic information

* any gains made within 6 months, assumed to be insider trading

72
Q

How often must lead partners rotate?

A

every 5 years

73
Q

Minimum time period to avoid conflict of interest for key executive that has come to work at the firm.

A

1 year

74
Q

_________ is insufficient to prove scienter

A

negligence

75
Q

If a third party is a known user of the financial statements and there was a material misstatement, the third party must prove:

A

negligence & reliance

76
Q

4 elements of negligence

A
  1. duty of care
  2. breach
  3. causality
  4. injury
77
Q

Actual Fraud vs Constructive Fraud

A
  • Actual fraud requires INTENT

* constructive fraud = gross negligence

78
Q

Can you resell securities purchased under Regulation D?

A

Normally no, unless they are under another exemption

79
Q

collateral trust certificate

A

bond secured by collateral

80
Q

What is the maximum time period during which an exempt offering under the 1933 Act can be made?

A

12 months

81
Q

Best defense to Section 11 of 1933 Act

A

due diligence (GAAP/GAAS)

82
Q

What are successful plaintiffs entitled to under Section 10(b)-5?

A

the amount of any loss caused by the fraud

83
Q

What are successful plaintiffs entitled to under Section 11?

A

monetary damages

84
Q

Elements of Cause of Action under Section 10(b)-5:

A 
L oss
A cquired security
M aterial misstatement
S cienter
R eliance
\+ INTERSTATE COMMERCE
85
Q

Statute of limitations for Section 11 of 1933 Act

A

1 year after discovery is made and 3 years after initial offering

86
Q

% of business that must be made within the state in order to qualify for exclusion under Rule 147 of the 1933 Act.

A

80%

87
Q

Section 12 of the 1933 Act

A

purchaser can rescind the sale if the issuer fails to meet the exemption

88
Q

Section 11 imposes a civil liability for what reason?

A

misstatements, whether or not intentional

89
Q

Practice by Former Government (Circular 230)

A

involved specific parties = never
official responsibility = 2 years
participated in the development = 1 year

90
Q

Audit Documentation Retention Period
vs.
Tax Return Documentation Retention Period

A 
Audit = 7 years 
Tax = 3 years
91
Q

% stockholders that must file reports

A 
SEC = 10%
1934 = 5%
92
Q

Where are changes to the corporate ethics code reported?

A

Form 8-K

93
Q

One of the primary concerns of Circular 230

A

*practitioners exercise due diligence

Becker REG (9 decks)

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