R5 Flashcards
What are Primary Tax Sources?
•IRC, Regulations, Rev Rulings and Rev Procedures, Court Cases.
What is Substantial Authority?
•>33%
What is a Tax Shelter?
•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.
When is a tax preparer Liable for positions? In terms of Disclosure.
- Reasonable Basis: Must Disclose.
- Substantial: Do not need to Disclose
- More Likely Than Not: No Need to disclose unless a tax shelter.
What is a tax preparer’s penalty for understatement of taxpayer liability?
Greater of 1K or 50% of income received.
How long must a tax preparer retain records?
3 Years
Who has the burden of proof in a civil penalty?
The IRS.
Who does IRS Circular 230 apply to?
Practitioners in front of the IRS.
When can a tax practitioner charge a contingent fee?
- IRS examination or audit
- Claim solely for a refund of interest and/or penalties; or
- A judicial proceeding arising under the IRC.
What basis is required to sign a position under the IRC?
•Reasonable Basis standard.
What organization has the power to revoke licenses?
•State Board of Accountancy.
Who makes up the PCAOB? What are their duties?
- 2 CPAs, 3 Non CPAs
* Register Firms, Establish Rules, Conduct Inspections.
How often are firms inspected by the PCAOB?
- Large Firms: Annually
* Small Firms: Tri Annually
What is the failure to file penalty? Failure to Pay Penalty?
- Failure to File: 5% Per Month
* Failure to Pay: .5% Per Month
When are Individual Estimated Income Tax Payments made? When are corporate estimated income tax payments made?
- April 15, June 15, September 15, January 15
* April 15, June 15, September 15, December 15
Who has to make estimated tax payments?
-If Tax liability > 1K
- 90% CY
- 100% of PY, 110% PY if AGI >150K
How can CPA legal liability arise?
- Breach of Contract
- Tort (Negligence, Fraud, Constructive Fraud
- Violation of a Statute
What are the Elements to Negligence?
- Duty of Care
- Breach of the Duty of Care
- Breach Caused Injury
- Damages
Who does a CPA owe reasonable care to?
- 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.
What is a strong defense to a breach of contract?
•Client Hindered Performance
What is a strong defense to negligence?
- Plaintiff is not a client
* Immaterial
What must be proven against a CPA to prove Actual Fraud? Constructive Fraud?
-Actual:
- Material Misrepresentation
- Actual Reliance
- Intent
- Damages
- Scienter
-Constructive: No Scienter, Only Reckless disregard
To whom is a CPA liable in Fraud?
- Anyone who prove the elements of fraud.
* Privity is not a defense.
What is the best defense to Fraud?
- Lack of Scienter
* Acted in Good Faith
When is a CPA liable under Section 11 of the 1933 Act?
L oss
- A cquired
- M aterial Misrepresentation
When is a CPA liable under Rule 10b-5 of the 1934 Act?
-CPA Liable for Fraud
- L = Loss
- A = Acquired
- M = Material Misrepresentation
- S = Scienter
- R =Reliance
What are the Audit requirements of the 1934 Act?
- Procedures designed to detect illegal acts.
- Procedures designed to identify related party transactions.
- Procedures to evaluate going concern.
Under SOX, how long must work papers of a public company be stored?
7 Years
What is the purpose of the Securities Act of 1933 Act?
-IPO
- Provide Investors with sufficient information to make informed investment decisions
- Most issuers required to register with SEC
What parties are required to register with SEC?
- Issuers
- Underwriters
- Dealers
What is Regulation A?
-Partial Exemption
- Simplified form of registration
- Offering Statement and an offering circular
- Sales may not exceed $5 Million in a 12 Month Period
What is included in Regulation D?
- Rule 504, 505, 506.
- General Advertisement OK for 504 and 506.
- Inform SEC within 15 Days.
- Immediate Resale to Public Prohibited.
What are the Requirements of Rule 504?
- 1 Million Limit Annually
* No Limit on Number or Types of Purchasers
What are the Requirements of Rule 505?
- 5 Million Limit
- Up to 35 Unaccredited buyers, unlimited accredited
- No General Advertising.
What are the Requirements of Rule 506?
- No limit on proceeds.
* Max 35 unaccredited & sophisticated investors, unlimited accredited investors.
What companies must register securities under the SEC act of 1934?
- Shares traded on a national exchange
- > 10 MM in Assets
- 2,000 Shareholders or 500 unaccredited Shareholders
What difference between gross negligence and constructive fraud?
There is no difference.
When can a corporation begin to make oral offers to sell securities?
Immediately after the filing of the registration statement.
What is a plaintiff entitled to receive after successful suing under 10b-5? Under Section 11?
Entitled to the entire amount of loss caused by the fraud.
Monetary Damages Only.
Whom is a CPA liable to under fraud?
Any one who suffered a loss.
When are disclosures required to investors under Regulation D?
504: No Disclosures.
505 and 506: Required when there are unaccredited investors.
