R5

Question 1

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

Answer 1

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

Question 2

What is a listed transaction?

Answer 2

It is a tax avoidance transaction

Question 3

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

Answer 3

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

Question 4

Negligence is generally what?

Answer 4

A mistake made in good faith

Question 5

Ordinary negligence does not equal fraud, fraud is either

Answer 5

willfull or reckless (gross negligence)

Question 6

Definition of tax return preparer?

Answer 6

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

Question 7

What is a tax practitioner?

Answer 7

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

Question 8

When will tax positions be reasonable?

Answer 8

Disclosed + reasonable basis (>20%)

Undisclosed + substantial authority (>33% 50%)

Question 9

What is the penalty for understatement of taxpayer liability?

Answer 9

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

Question 10

What is the penalty for wilfull or reckless conduct?

Answer 10

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

Question 11

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

Answer 11

50$ and 25,000 maximum

Question 12

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

Answer 12

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

Question 13

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

Answer 13

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

Question 14

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

Answer 14

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

Question 15

What are allowable disclosures for tax return information?

Answer 15

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

Question 16

Can a preparer or practitioner endorse and cash refund checks?

Answer 16

No

Question 17

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

Answer 17

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

Question 18

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

Answer 18

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

Question 19

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

Answer 19

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

Question 20

Government employee has to wait one year when he

Answer 20

participated in the development of a rule

Question 21

What happens if a practitioner publishes a written fee schedule?

Answer 21

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

Question 22

If a tax position lacks a reasonable basis than it is

Answer 22

a frivolous position (

Question 23

What happens if the IRS requests client records?

Answer 23

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

Question 24

Who may sanction a practitioner for incompetence and disreputable conduct?

Answer 24

The secretary of the Treasury

Question 25

What are possible sanctions by the IRS to the practitioners?

Answer 25

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

Question 26

How long must a practicioner wait before petitioning for reinstatement?

Answer 26

5 years

Question 27

What can only the state boards of accountancy do?

Answer 27

Give and revoke license

Question 28

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

Answer 28

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)

Question 29

Do state boards need proof beyond a reasonable doubt?

Answer 29

No they need to meet the more likely than not standard

Question 30

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

Answer 30

Yes and yes

Question 31

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

Answer 31

``` Suspension or revocation of license Monetary Fine Censure Probation Requirement CPE No jail ```

Question 32

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

Answer 32

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

Question 33

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

Answer 33

Expulsion, suspension, and requirement for CPE

Question 34

What are the IRS disciplinary actions?

Answer 34

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

Question 35

What are the SEC disciplinary actions?

Answer 35

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.)

Question 36

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

Answer 36

5 people, 2 CPAs 3 non CPAs

Question 37

What are the duties of the PCAOB?

Answer 37

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

Question 38

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

Answer 38

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

Question 39

When must the PCAOB inspect registered public accounting firms?

Answer 39

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

Question 40

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

Answer 40

5

Question 41

Who do registered firms report directly to?

Answer 41

Audit committees

Question 42

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,?

Answer 42

One year

Question 43

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

Answer 43

Audit Committee

Question 44

Who are the audit committee members?

Answer 44

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

Question 45

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

Answer 45

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

Question 46

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

Answer 46

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

Question 47

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

Answer 47

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.

Question 48

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

Answer 48

reinstatement, back pay, and compensation

Question 49

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

Answer 49

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

Question 50

What is the Discriminant Inventory Function System?

Answer 50

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

Question 51

What is an office audit?

Answer 51

It is a local IRS office audit

Question 52

What is a field audit?

Answer 52

It is in the taxpayers office/home

Question 53

What is the Form 870?

Answer 53

Agreement to changes

Question 54

Who has the burden of proof in most litigations?

Answer 54

The party bringing the case

Question 55

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

Answer 55

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

Question 56

3 things about U.S. Tax court

Answer 56

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

Question 57

2 things about U.S. District Courts

Answer 57

Must pay disputed tax liability and sue IRS for refund | One judge and Jury trial is an option

Question 58

2 things about U.S. Court of Federal Claims

Answer 58

16 judges, no jury | Follows Federal Court of Appeals, not geographic like the other two courts

Question 59

How much is the failure to file penalty?

Answer 59

5% per month based on TAX DUE

Question 60

How much is the failure-to-pay penalty?

Answer 60

.5% of unpaid tax per month

Question 61

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

Answer 61

20% of understatement of tax | Reasonable basis >20% chance of being upheld

Question 62

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

Answer 62

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

Question 63

What is the penalty for fraud?

Answer 63

75% penalty, IRS must prove beyond a reasonable doubt

Question 64

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

Answer 64

More likely than not standard >50%