R5 - IRC Regulations for Tax Return Preparers

Question 1

“More Likely then Not”

Answer 1

greater the 50% position will be upheld in court

Question 2

Substantial authority

Answer 2

33%-50%%

Question 3

reasonable basis

Answer 3

20-50%

avoids most penalties

Question 4

Understatement of liability due to unreasonable position

Answer 4

$1000 or 50% received income

Question 5

Understatement of liability due to unreasonable position

No penalty IF (3)

Answer 5

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

Question 6

Understatement of liability due to willful or reckless conduct

Answer 6

greater of $5000 or 50% received income.

Requires conduct that was willfull/reckless/intentional

Question 7

Failure to provide client with copy of return or failure to sign return PENALTY

Answer 7

$50 per return

Question 8

Failure to List tax ID number of preparer on return

Answer 8

$50/return

Question 9

Failure to retain records for at least 3 years

Answer 9

$50 per failure - must keep copy of return OR taxpayer name + ID#

Question 10

Negotiate client refund check

Answer 10

Cannot negotiate - $500 per failure

Question 11

Aiding and abetting understating of tax liability

Answer 11

$1000 individual / $10000 for corporations

-burden of proof on IRS

Question 12

Wrongful disclosure/use of tax return info PLUS exceptions

Answer 12

$250 per disclosure

Consent
Peer review
Administrative order
subpoena

Question 13

US Tax Court

Types of Cases
Pay appeal
# judges
Jury

Answer 13

-Federal tax cases only
-only court where taxpayer can appeal prior to paying tax in full
1 judge
no jury

Question 14

US District Court

Types of Cases
Pay appeal
# judges
Jury

Answer 14

General federal trial court

• 1 judge
• jury trials permitted
• pay refund first

Question 15

US court of federal claims

Types of Cases
Pay appeal
# judges
Jury

Answer 15

jurisdiction over monetary claims against US
no jury
pay refund first

Question 16

US Courts of Appeals

Answer 16

13 court of appeals

3 judge panel

Question 17

Failure to File Return / Extension

Answer 17

5% of tax due for each month return is not filed

max is 25% of tax due

Question 18

Negligence Penalty for understatement of tax but not substantial

Answer 18

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

Question 19

Substantial understatement of tax penalty

Answer 19

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.

Question 20

4 elements of negligence

Answer 20

Duty of Care
Breach
Damages
Causality

Question 21

“breach”

Answer 21

failure to use due care

Question 22

5 elements of actual fraud

Answer 22

Material misrepresentation
Scienter
Reliance
Intent to Rely
Damages

Question 23

5 elements of constructive fraud/gross negligence

Answer 23

Material misrepresentation
reckless disregard for the truth (intent to deceive)
reliance
intent to rely
damages

Question 24

Section 11 of 1933 - for who?

Answer 24

For issuer, accountants and lawyers

Question 25

Section 10b of 1934

Answer 25

For anyone who bought or sold the stock

Question 26

5 requirements for Sec 11 1933

Answer 26

• 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

Question 27

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?

Answer 27

April 15, Year 6.