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CPA REGULATION > R5 > Flashcards

R5 Flashcards

1
Q

What are some of the primary authoritative sources for tax return preparers?

A

Internal Revenue Code
Regulations
Revenue rulings and U.S. Treasury Department
Court cases

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2
Q

What is a listed transaction?

A

It is a tax avoidance transaction

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3
Q

What % is more likely than not?
Substantial Authority?
Reasonable basis?

A

Greater than 50%
Between 33% and 50%
Less than 20%

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4
Q

Negligence is generally what?

A

A mistake made in good faith

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5
Q

Ordinary negligence does not equal fraud, fraud is either

A

willfull or reckless (gross negligence)

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6
Q

Definition of tax return preparer?

A

Any person who prepares for compensation, or who employs one to prepare for compensation

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7
Q

What is a tax practitioner?

A

Anyone who practices before the IRS: attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents

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8
Q

When will tax positions be reasonable?

A

Disclosed + reasonable basis (>20%)

Undisclosed + substantial authority (>33% 50%)

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9
Q

What is the penalty for understatement of taxpayer liability?

A

Greater of $1,000 or 50% of the income the PREPARER received

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10
Q

What is the penalty for wilfull or reckless conduct?

A

greater of $5,000 or 50% of the income the preparer received

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11
Q

Remember that all the little failure penalties are how much per return and what maximum per year?

A

50$ and 25,000 maximum

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12
Q

What are the due diligence requirements for the earned income credit?

A

1) eligibility checklists
2) computation worksheets
3) reasonable inquires to the taxpayer
4) record retention

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13
Q

How much is the aiding and abetting understatement of tax liabilities?

A

it is 1,000 for taxpayers except corporations which are 10,000

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14
Q

What is the fine for tax return preparers who have wrongful disclosures of tax return information and what are two of these categories?

A

$250, the two categories of this would be disclosure to enable a third party to solicit business and knowing or reckless disclosure of information

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15
Q

What are allowable disclosures for tax return information?

A

Court order (subpoena)
preparation of state and local tax returns or estimated tax
quality and peer reviews, computer processing, and administrative orders
and client consent

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16
Q

Can a preparer or practitioner endorse and cash refund checks?

A

No

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17
Q

What is the general rule for returns that understate tax liability?

A

the preparer has no affirmative duty to check the veracity of the facts presented by the client, with a possible exception for facts that appear implausible

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18
Q

When can an individual who was a government employee never represent or assist parties?

A

When they personally or substantially participated in a particular matter involving those specific parties, they can never represent them with respect to that matter

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19
Q

What if the government employee had official responsibility for a particular matter involving specific parties?

A

Must wait 2 years before he can represent them to that particular matter

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20
Q

Government employee has to wait one year when he

A

participated in the development of a rule

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21
Q

What happens if a practitioner publishes a written fee schedule?

A

He or she may charge no more than the published fees for the 30-day period

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22
Q

If a tax position lacks a reasonable basis than it is

A

a frivolous position (

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23
Q

What happens if the IRS requests client records?

A

If you don’t have them then you have to notify the IRS the identity of who might have them

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24
Q

Who may sanction a practitioner for incompetence and disreputable conduct?

A

The secretary of the Treasury

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25
Q

What are possible sanctions by the IRS to the practitioners?

A

Censure and suspension or disbarment from practice and also monetary penalties (money too)

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26
Q

How long must a practicioner wait before petitioning for reinstatement?

A

5 years

27
Q

What can only the state boards of accountancy do?

A

Give and revoke license

28
Q

What are the three broad categories of misconduct that state boards use to suspend or revoke licenses?

A

1) Misconduct while performing accounting services (negligence, fraud, dishonesty)
2) Misconduct outside the scope of accounting services (alcohol & drugs or insanity [lack competence])
3) Criminal conviction (felony or misdemeanor related to dishonesty)

29
Q

Do state boards need proof beyond a reasonable doubt?

A

No they need to meet the more likely than not standard

30
Q

Is the accountant entitled to due process of law in a state board formal hearing and can you appeal formal hearings?

A

Yes and yes

31
Q

What are the 5 penalties a state board of accountancy may impose for professional misconduct?

A 
Suspension or revocation of license
Monetary Fine
Censure
Probation
Requirement CPE 
No jail
32
Q

What disciplinary actions can the AICPA and state CPA societies give?

A

They can sanction their members, suspend or terminate membership for failure to pay dues or failure to comply with membership retention requirements
They can also suspend or terminate membership without a hearing for convictions

33
Q

What do possible sanctions include for the AICPA and state CPA societies?

A

Expulsion, suspension, and requirement for CPE

34
Q

What are the IRS disciplinary actions?

A

Criminal penalties (involve any person and prepares or counsels a tax return in a fraudulent manner) - can be imprisoned for no more than 3 years and fined no more than $100,000 or $500,000 from a corporation

Civil Penalties: may prohibit an accountant from practicing before the IRS and the IRS may impose fines

35
Q

What are the SEC disciplinary actions?

A

SEC may censure, suspend, or permanently revoke an accountant’s right to practice before the SEC. They may also impose fines same as the IRS (100,000 ind. or 500corp.)

36
Q

How many people are in the PCAOB and how many CPAs?

A

5 people, 2 CPAs 3 non CPAs

37
Q

What are the duties of the PCAOB?

A

Register public accounting firms
Establish rules relating to the preparation of audit reports
and Conduct inspections, investigations, and disciplinary proceedings

38
Q

How long must audit documents be maintained for and what else must registered firms do?

A

7 years and provide a concurring or second partner review each audit report

39
Q

When must the PCAOB inspect registered public accounting firms?

A

If they have over 100 audits every year than it must be done annually and for all others its every 3 years

40
Q

The lead audit or coordinating partner and the reviewing partner must rotate off the audit every __ years?

A

5

41
Q

Who do registered firms report directly to?

A

Audit committees

42
Q

How long must an audit firm wait to be able to audit that company before having employed the issuer’s CEO, CFO, Controller, or Chief Accounting officer,?

A

One year

43
Q

Who is responsible for resolving disputes between the auditor and management?

A

Audit Committee

44
Q

Who are the audit committee members?

A

Members of the issuer’s board of directors but are to be otherwise independent. They cannot get compensation beyond compensation as board member.

45
Q

What happens to the CEO and CFO if the issuer is required to prepare an accounting restatement due to material noncompliance?

A

they will have to reimburse the issuer for bonuses or equity-based compensation and gains on sale of securities (stock compensation)

46
Q

What is the rule about disclosing the audit committee financial expert and who qualifies for this position?

A

That you must disclose if they have one or if they don’t then why they don’t have one
Qualifies through education, past experience as CPA, it is a mix

47
Q

What is the statute of limitations for securities fraud and what are the criminal penalties?

A

earlier of two years after the discovery of the facts or five years after the violation
Criminal penalties = fined, imprisoned not more than 25 years, or both.

48
Q

What are the three compensatory damages for whistle-blower protection?

A

reinstatement, back pay, and compensation

49
Q

What is the 8 step order of the Federal legislative process?

A

1) House Ways and Means Committee
2) full house of representatives
3) Senate “Finance Committee”
4) full senate
5) joint conference committee
6) both house and senate
7) President
8) house and senate presidential veto

50
Q

What is the Discriminant Inventory Function System?

A

The system that selects ta returns to audit. (Usually selects gross income with more than $100,000, self employed individuals, and cash businesses)

51
Q

What is an office audit?

A

It is a local IRS office audit

52
Q

What is a field audit?

A

It is in the taxpayers office/home

53
Q

What is the Form 870?

A

Agreement to changes

54
Q

Who has the burden of proof in most litigations?

A

The party bringing the case

55
Q

When can the burden of proof be shifted to the IRS?

A

When the taxpayer has introduced credible evidence, maintained books and records required, and complied with reasonable IRS requests

56
Q

3 things about U.S. Tax court

A

DONT have to pay disputed tax before hearing
No jury trials
Cannot be taken to this court before IRS sends out notice of deficiency

57
Q

2 things about U.S. District Courts

A

Must pay disputed tax liability and sue IRS for refund

One judge and Jury trial is an option

58
Q

2 things about U.S. Court of Federal Claims

A

16 judges, no jury

Follows Federal Court of Appeals, not geographic like the other two courts

59
Q

How much is the failure to file penalty?

A

5% per month based on TAX DUE

60
Q

How much is the failure-to-pay penalty?

A

.5% of unpaid tax per month

61
Q

How much is the negligence penalty with respect to an understatement of tax and what is the best defense for this?

A

20% of understatement of tax

Reasonable basis >20% chance of being upheld

62
Q

What is the penalty for substantial understatement of tax and what is the defense for this?

A

20% and they need a reasonable basis + disclosure for the position or substantial authority without disclosure.

63
Q

What is the penalty for fraud?

A

75% penalty, IRS must prove beyond a reasonable doubt

64
Q

Remember that tax shelters, reportable transactions, covered opinions (listed transaction) usually need ___ to avoid negligence and underpayment penalties.

A

More likely than not standard >50%

CPA REGULATION (6 decks)

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