R5

Question 1

What are Primary Tax Sources?

Answer 1

•IRC, Regulations, Rev Rulings and Rev Procedures, Court Cases.

Question 2

What is Substantial Authority?

Answer 2

•>33%

Question 3

What is a Tax Shelter?

Answer 3

•Any (I) partnership or other entity; (ii) investment plan or arrangement; or (iii) other plan or arrangement if a significant purpose of such activity is avoidance or evasion of tax.

Question 4

When is a tax preparer Liable for positions? In terms of Disclosure.

Answer 4

• Reasonable Basis: Must Disclose.
• Substantial: Do not need to Disclose
• More Likely Than Not: No Need to disclose unless a tax shelter.

Question 5

What is a tax preparer’s penalty for understatement of taxpayer liability?

Answer 5

Greater of 1K or 50% of income received.

Question 6

How long must a tax preparer retain records?

Answer 6

3 Years

Question 7

Who has the burden of proof in a civil penalty?

Answer 7

The IRS.

Question 8

Who does IRS Circular 230 apply to?

Answer 8

Practitioners in front of the IRS.

Question 9

When can a tax practitioner charge a contingent fee?

Answer 9

• IRS examination or audit
• Claim solely for a refund of interest and/or penalties; or
• A judicial proceeding arising under the IRC.

Question 10

What basis is required to sign a position under the IRC?

Answer 10

•Reasonable Basis standard.

Question 11

What organization has the power to revoke licenses?

Answer 11

•State Board of Accountancy.

Question 12

Who makes up the PCAOB? What are their duties?

Answer 12

• 2 CPAs, 3 Non CPAs

* Register Firms, Establish Rules, Conduct Inspections.

Question 13

How often are firms inspected by the PCAOB?

Answer 13

• Large Firms: Annually

* Small Firms: Tri Annually

Question 14

What is the failure to file penalty? Failure to Pay Penalty?

Answer 14

• Failure to File: 5% Per Month

* Failure to Pay: .5% Per Month

Question 15

When are Individual Estimated Income Tax Payments made? When are corporate estimated income tax payments made?

Answer 15

• April 15, June 15, September 15, January 15

* April 15, June 15, September 15, December 15

Question 16

Who has to make estimated tax payments?

Answer 16

-If Tax liability > 1K

• 90% CY
• 100% of PY, 110% PY if AGI >150K

Question 17

How can CPA legal liability arise?

Answer 17

• Breach of Contract
• Tort (Negligence, Fraud, Constructive Fraud
• Violation of a Statute

Question 18

What are the Elements to Negligence?

Answer 18

• Duty of Care
• Breach of the Duty of Care
• Breach Caused Injury
• Damages

Question 19

Who does a CPA owe reasonable care to?

Answer 19

• Majority Rule: To Clients and Limited Foreseeable Class of Persons CPA knows are relying on work.
• Ultramares: CPA narrowly limited to those in privity or named in contract.

Question 20

What is a strong defense to a breach of contract?

Answer 20

•Client Hindered Performance

Question 21

What is a strong defense to negligence?

Answer 21

• Plaintiff is not a client

* Immaterial

Question 22

What must be proven against a CPA to prove Actual Fraud? Constructive Fraud?

Answer 22

-Actual:

• Material Misrepresentation
• Actual Reliance
• Intent
• Damages
• Scienter

-Constructive: No Scienter, Only Reckless disregard

Question 23

To whom is a CPA liable in Fraud?

Answer 23

• Anyone who prove the elements of fraud.

* Privity is not a defense.

Question 24

What is the best defense to Fraud?

Answer 24

• Lack of Scienter

* Acted in Good Faith

Question 25

When is a CPA liable under Section 11 of the 1933 Act?

Answer 25

L oss * A cquired * M aterial Misrepresentation

Question 26

When is a CPA liable under Rule 10b-5 of the 1934 Act?

Answer 26

-CPA Liable for Fraud * L = Loss * A = Acquired * M = Material Misrepresentation * S = Scienter * R =Reliance

Question 27

What are the Audit requirements of the 1934 Act?

Answer 27

* Procedures designed to detect illegal acts. * Procedures designed to identify related party transactions. * Procedures to evaluate going concern.

Question 28

Under SOX, how long must work papers of a public company be stored?

Answer 28

7 Years

Question 29

What is the purpose of the Securities Act of 1933 Act?

Answer 29

-IPO * Provide Investors with sufficient information to make informed investment decisions * Most issuers required to register with SEC

Question 30

What parties are required to register with SEC?

Answer 30

* Issuers * Underwriters * Dealers

Question 31

What is Regulation A?

Answer 31

-Partial Exemption * Simplified form of registration * Offering Statement and an offering circular * Sales may not exceed $5 Million in a 12 Month Period

Question 32

What is included in Regulation D?

Answer 32

* Rule 504, 505, 506. * General Advertisement OK for 504 and 506. * Inform SEC within 15 Days. * Immediate Resale to Public Prohibited.

Question 33

What are the Requirements of Rule 504?

Answer 33

* 1 Million Limit Annually | * No Limit on Number or Types of Purchasers

Question 34

What are the Requirements of Rule 505?

Answer 34

* 5 Million Limit * Up to 35 Unaccredited buyers, unlimited accredited * No General Advertising.

Question 35

What are the Requirements of Rule 506?

Answer 35

* No limit on proceeds. | * Max 35 unaccredited & sophisticated investors, unlimited accredited investors.

Question 36

What companies must register securities under the SEC act of 1934?

Answer 36

* Shares traded on a national exchange * > 10 MM in Assets * 2,000 Shareholders or 500 unaccredited Shareholders

Question 37

What difference between gross negligence and constructive fraud?

Answer 37

There is no difference.

Question 38

When can a corporation begin to make oral offers to sell securities?

Answer 38

Immediately after the filing of the registration statement.

Question 39

What is a plaintiff entitled to receive after successful suing under 10b-5? Under Section 11?

Answer 39

Entitled to the entire amount of loss caused by the fraud. | Monetary Damages Only.

Question 40

Whom is a CPA liable to under fraud?

Answer 40

Any one who suffered a loss.

Question 41

When are disclosures required to investors under Regulation D?

Answer 41

504: No Disclosures. | 505 and 506: Required when there are unaccredited investors.