R5

Question 1

The term “listed transaction” means?

Answer 1

transaction specifically identified by the Secretary of the U.S. Treasury Department as a tax avoidance (legal) transaction.

Question 2

Reportable Transaction?

Answer 2

any transaction with respect to which information is required to be included with a return or statemen because such transaction is of a type which the Secretary of the U.S. Treasury Department has determined as having a potential for either tax avoidance (legal) or tax evasion(illegal)

Question 3

Least stringent to most stringent standard of tax reporting?

Answer 3

not frivolos- less than 20%
Reasonable basis-20%-33%
Substantial authority- 33%-50%
More likely than not- more than 50%

Question 4

Tax preparer’s penallty for understatement of taxpayer’s tax liability?

Answer 4

Good faith and has reasonable basis- no penalty.
Due to unreasonable position- greater of 1000 or 50% income received
DUe to willful or reckless conduct-greater of 5000 or 50% income.

Question 5

Tax preparer’s penallty for failure to sign or give client a copy of tax return? or retain tax return, claims or cliant ID for 3 years?

Answer 5

$50/failure

Question 6

Tax preparer’s penallty for failure to be diligent in Determining a Client’s Eligibility for the Earned Income Credit?

Answer 6

$500/failire

Question 7

What is a reliance opinion?

Answer 7

A written advice with a confidence level of at least more likely than not likelihood that the significant federal tax issue would be resolved in the taxpayer’s favor.

Question 8

Who does Circular 230 apply to?

Answer 8

Tax practitioners

Question 9

What are covered oponions under circular 230?

Answer 9

Written or electronic advice by a practitioner concerning fed tax issues and arising from: listed transaction, tax shelter, or entity having as a significant purpose federal tax avoid/ evasion,if the advice is a reliance opinion, a marketed oponion, subject to conditions of confidentiality, or contractual protection.

Question 10

Who can impose criminal penalties to CPAs? Civil?

Answer 10

The IRS.

Civil- state boards of accountancy; AICPA and state cpa sosciety, IRS, SEC.PCAOB

Question 11

Who has the sole power to license, suspend or revoke CPAs?

Answer 11

State boards of accountancy.

Question 12

Who can impose criminal penalties to CPAs? Civil?

Answer 12

The IRS.

Civil- state boards of accountancy; AICPA and state cpa sosciety, IRS, SEC.

Question 13

Public company accounting oversight board should consist of ?

Answer 13

5 members- 2 CPAs and 3 Non CPAs.

Question 14

How long should auditors retain all audit and review workpapers? Penalty?

Answer 14

7 years.

Criminal - imprison for no more than 10 years and or fine.

Question 15

Statute of Limitations for Securities Fraud?

Answer 15

The earlier of 2 years after discovery or 5 years after fraud.

Question 16

Which one of the three “trial” courts for tax issues has jury trial? Which one does not require payment of tax before litigation?

Answer 16

US district court.

US tax court.

Question 17

Tax appeals process?

Answer 17

IRS administrative appeals (revenue agent)–> IRS appeals division–> Courts (with notice of deficiency from IRS)

Question 18

What confidence level is used to avoid Negligence Penalty With Respect to an Understatement of Tax?

Answer 18

Reasonable basis even if not disclosed.

Question 19

Minimum amount to trigger penalty for substantial understatement of tax or substantial valuation misstatement?

Answer 19

5000

Question 20

What confidence level is used to avoid substantial understatement of tax penalty?

Answer 20

Reasonable basis if disclosed.

Substantial authority if not disclosed.

Question 21

penalty for understatement of tax (not fraud)?

Answer 21

20% of the understatement, substantial or not.

Question 22

penalty for tax return fraud?

Answer 22

civil- at least 75% of understatement;

and, or criminal-as high as $1 00,000; $500,000 for corporations, imprison up to 5 years.

Question 23

Do accountants’ workpapers belong to the accountants or their clients?

Answer 23

Accountants.

Question 24

What’s a security?

Answer 24

Any investment contract, and not actively participate in

running the business.

Question 25

What’s regulation A registration exemption under 1933 act?

Answer 25

Transaction partial exemption- under 5M in 12 months (still can be public). unaudited financials, offering statement instead of registration statement.

Question 26

What’s regulation D registration exemption under 1933 act? Requiements?

Answer 26

Private transaction exemptions.
504 (1 M),505 (5 M, 35 or fewer unaccredited investors) and 506( unlimited, similar to 505 but sophisticated buyers only).
No advertising (private offering only), no immediate resale to public, inform SEC within 15 days.

Question 27

Which private companies must register with SEC under 1934 Act?

Answer 27

10 M assets, and 2000 shareholders or 500 unaccredited shareholder.

Question 28

Who must register with SEC under 1933 act?

Answer 28

Issuers, underwriters, dealers.

Question 29

What’s prospectus?

Answer 29

the 1933 Act defines “prospectus” as any written, radio, or television offer to sell securities.

Question 30

Security exempted from the registration requirements of the 1933 Act?

Answer 30

BRINGS
Bank, Railroad, Insurance policies, Not-for-profit, Government, Short-term comercial papers (note, bond matures under 9 months)

Question 31

What’s section 11 of 1933 Act about?

Answer 31

Imposes civil liability for misstatements, whether or not intentiona1, in registration statements (IPO).
Anyone who signs the registration statements may be liable.
Anyone who can show LAM (loss, aquired stock, material misreprestation) can sue.

Question 32

Antifraud section of 1933 act? 1934?

Answer 32

1933-section 12- civil
1933-section 17- criminal
1934- section 18 and rule 10b-5.

Question 33

Who must register with SEC under 1934 act?

Answer 33

1. Companies whose shares are traded on a national exchange.
2. company with more than 10M asset and 2000 shareholder or 500 unaccredited shareholders.
3. natinal stock exchanges, brokers and dealers.

Question 34

What are reporting companies under 1934 act? Who else must report to SEC?

Answer 34

All issuers and companies required to register under 1933 and 1934 act.
5% TIP.
5% or more owners( including whoever making 5% or more Tender offers). Insiders (officers, directors, 10% shareholders, accoutants, attorneys of 1934 registered companies ). Proxy solicitations.

Question 35

What’s rule 10b-5 of 1934 Act?

Answer 35

Prohibits fraud in connection with the purchase or sale of any security. Civil and or criminal penalty on anyone regarding any security (registered or not). Plantiff need to prove “fraud”-scienter, reliance, +LAM. (MAIDS)

Question 36

Negligence? Gross negligence? Fraud?

Answer 36

Negligence- may have good faith, thus not fraud-can be defended by using “due diligence”.
Gross negligence- same with reckless, is constructive fraud, can be defended by having “good faith”
Fraud- scienter- intentionally and knowingly. defended by lack of intention, good faith.

Question 37

What does the plantiff must show to sue CPA negligence under common law?

Answer 37

owed a duty of care, breached that duty of care (negligence), the negligence caused injury, and damages.

Question 38

What’s a reasonable position?

Answer 38

Tax shelter- more like than not.
non shelter and disclosed- reasonable basis.
Nn shelter and not disclosed- substantial authority.