R5 - IRC Regulations for Tax Return Preparers Flashcards
“More Likely then Not”
greater the 50% position will be upheld in court
Substantial authority
33%-50%%
reasonable basis
20-50%
avoids most penalties
Understatement of liability due to unreasonable position
$1000 or 50% received income
Understatement of liability due to unreasonable position
No penalty IF (3)
listed transaction/tax shelter + more likely then not
Disclosed position (not listed/tax shelter) + reasonable basis
Undisclosed position (not listed/tax shelter) and substantial authority
Understatement of liability due to willful or reckless conduct
greater of $5000 or 50% received income.
Requires conduct that was willfull/reckless/intentional
Failure to provide client with copy of return or failure to sign return PENALTY
$50 per return
Failure to List tax ID number of preparer on return
$50/return
Failure to retain records for at least 3 years
$50 per failure - must keep copy of return OR taxpayer name + ID#
Negotiate client refund check
Cannot negotiate - $500 per failure
Aiding and abetting understating of tax liability
$1000 individual / $10000 for corporations
-burden of proof on IRS
Wrongful disclosure/use of tax return info PLUS exceptions
$250 per disclosure
Consent
Peer review
Administrative order
subpoena
US Tax Court
Types of Cases
Pay appeal
# judges
Jury
-Federal tax cases only
-only court where taxpayer can appeal prior to paying tax in full
1 judge
no jury
US District Court
Types of Cases
Pay appeal
# judges
Jury
General federal trial court
- 1 judge
- jury trials permitted
- pay refund first
US court of federal claims
Types of Cases
Pay appeal
# judges
Jury
jurisdiction over monetary claims against US
no jury
pay refund first
US Courts of Appeals
13 court of appeals
3 judge panel
Failure to File Return / Extension
5% of tax due for each month return is not filed
max is 25% of tax due
Negligence Penalty for understatement of tax but not substantial
penalty is 20% of tax understatement for negligence or disregard of tax rules and regulations
- negligence - failure to use due care
no penalty if taxpayer had a reasonable basis (20-50) for a tax position even if undisclosed
Substantial understatement of tax penalty
Penalty is 20% of tax understatement for substantial understatement
-no penalty if taxpayer had reasonable basis of tax position and position was disclosed
if position undisclosed then no penalty only if taxpayer had substantial authority for tax position.
4 elements of negligence
Duty of Care
Breach
Damages
Causality
“breach”
failure to use due care
5 elements of actual fraud
Material misrepresentation Scienter Reliance Intent to Rely Damages
5 elements of constructive fraud/gross negligence
Material misrepresentation reckless disregard for the truth (intent to deceive) reliance intent to rely damages
Section 11 of 1933 - for who?
For issuer, accountants and lawyers
Section 10b of 1934
For anyone who bought or sold the stock
5 requirements for Sec 11 1933
- Must show acquired the stock
- must show suffered a loss
- must show a material misrepresentation or a material omission of fact
- no need to prove scienter or reliance or negligence
- issuers are strictly liable for any material misrepresentation
A calendar-year taxpayer files an individual tax return for Year 2 on March 20, Year 3. The taxpayer neither committed fraud nor omitted amounts in excess of 25% of gross income on the tax return. What is the latest date that the Internal Revenue Service can assess tax and assert a notice of deficiency?
April 15, Year 6.
