R5-Pt1 Flashcards
True or False: Accountants are responsible for knowing the personal finances of tax preparation clients.
Accountants have no way of auditing individual’s personal finances and are not required to do so when preparing a return
When a past error is found in a client’s tax return; what should an accountant do?
If a past error is found; accountant should inform client of this error.
Contacting the IRS is NOT required.
If client won’t fix it; then the accountant should reconsider whether they want to do business with the client
Name the key responsibilities of an accountant when preparing a tax return.
Accountant must prepare the return in good faith and ask for more information if something is missing
When recommending a tax position; the accountant should realistically believe that it would stand up under the scrutiny of a court
What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?
The lesser of:
90% of current year’s total tax
100% of prior year’s total tax
110% of prior year’s total tax (if AGI is $150,000 or more)
What is the statute of limitations for a tax audit?
3 years, generally
6 years if 25% or more of gross income was omitted
The clock starts on the LATER of the due date or the filing date of the return.
There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.
How long does an individual taxpayer have to file a claim for refund?
Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.
A Listed Transaction is specifically identified by the Sec. of US Treasury as a?
- Tax Avoidance Transaction
The ‘More Likely Than Not’ Standard is greater then what % of likelihood of a tax postion being upheld by the courts?
- Greater then 50%
More Likely Than Not Standard is More Stringent then?
- The Substantial Authority Standard
Any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Laws, is called?
- Negligence
Any Failure to exercise Ordinary & Reasonable care in the preparation of a tax return, is called?
- Negligence
Any failure by the taxpayer to keep adequate books & records or to substantiate items properly is called?
- Negligence
Reasonable Basis is what % Tax Position upheld?
- More then 20%
What is a Reportable Transaction?
- Any transaction Information is required to be included with a return
The Requirement for a Reportable Transaction by the Sec. of US Treasury for having the potential for either:
- Tax Avoidance
OR - Tax Evasion
Substantial Authority % Range for being upheld in court is?
- Greater then 33% but less then 50%
An Objective Standard involving an analysis of the law & application of the law to relevant facts is?
- Substantial Authority
The Substantial Authority Standard is Less Stringent then?
- ‘More likely then not’ Standard
An person who prepares for compensation or who employs one or more persons to prepare any tax return or claim for tax refund is?
- Tax Return Preparer
Who are Individuals who practice before the IRS: Attorneys, CPAs, Enrolled Agents/Actuaries/Retirement Plan Agents
- Tax Practitioner
A Plan or arrangement if a significant purpose of an entity/partnership, etc is the avoidance or evasion of federal income tax
- Tax Shelter
A Position is deemed Unreasonable unless:
- Substantial Authority
- Position is disclosed, there is Reasonable Basis
- Tax Shelter or Reportable Transaction with position ‘more likely than not’
A penalty for the Understatement of Taxpayer’s Liability may be imposed on the Preparer if?
- Is due to an unreasonable position
- Preparer had knowledge or should known
- Position lacks Reasonable basis
Willful or Reckless conduct is either:
- A Willful attempt to understate tax liability
- A Reckless or intentional disregard of tax rules/regs.
A Preparer is not required to obtain supporting documentation unless?
- The preparer has reason to suspect the accuracy of the information provided by the taxpayer (client)
What is the Penalty for Willful or Reckless Conduct?
- Greater of $5,000 or 50% of income the preparer derived from tax refund/claim
A Tax Preparer is Required to ?
- Provide a Completed copy of the Tax Return for the client
- Sign the tax return or refund claim
- Provide Tax Identification Number
- Retain Records for 3 years
What are the Due Diligence Requirements for determining a Client’s Eligibility for the Earned Income Credit?
- Eligibility Checklists
- Computation Worksheets
- Reasonable inquires to the taxpayer
- Record Retention
The penalty for aiding & abetting understatement of tax liability applies to?
- Any person
- Not just to Tax return Preparers
The IRS has the Burden of Proof to establish that?
- Any person is liable for this civil penalty
Additional Penalties for Wrongful Disclosure are resulted from?
- Disclosure to enable a third party to solicit business
& - Knowing or reckless disclosure of information
What are the Exceptions to the penalty for Wrongful Disclosure?
- Allowable Disclosure for Court Order
- Allowable uses (state/local tax)
- Use for quality & Peer Reviews, Computer processing & Adms. orders (GAAP/Audits)
An Individual while a Gov’t Employee, ‘personally & substantially participated” involving specific parties, that individual?
- NEVER Represent or Assist those parties with respect to that particular matter.
An Individual, while a Gov’t Employee had ‘Official Responsibility’ can NOT Represent?
- The parties with respect to that particular matter within 2 years after leaving the Gov’t.
After an Individual leaves the Gov’t, they can NOT influence the US Treasury Department if?
- They at any time ‘Participated in the development’ of the Rule
- Within One year period prior to leaving Gov’t
A Practitioner may only Charge? & not Charge?
- Contingent Fee
- NOT: ‘Unconscionable Fee
In Advertisement no Practitioner may use?
- False or Misleading Advertising
- Ex. “ get a better result b/c…”
Tax Advisors should provide the highest Quality representation by adhering to:
- Communicating with the client regarding Terms of Engagement
- Establishing the facts & arriving at a conclusion supported by the law & facts
- The importance of the conclusions reached (Avoid penalties)
A Practitioner can NOT advise a client to take a tax return position unless:
- The position is NOT Frivolous
Generally, a Practitioner who signs the tax return or other docs. may rely?
- ” In Good Faith without Verification” upon client-furnished information
Practitioner must make reasonable inquires if the client-furnished info. appears to be?
- Questionable
OR - Incomplete
A Practitioner must advise the client promptly of?
- Any Noncompliance, Errors, or Omissions in tax returns or other Docs.
- The consequences under the law
The Practitioner must exercise Due Diligence regarding:
- Preparing returns & Other documents
- Correctness of their representations to the IRS
If a Client Requests a return of their records, is the Practitioner allowed?
- YES
- They Must return all client records, BUT maintain records for 3 yrs.
A Covered Opinion is?
- Any Written or Electronic Advice
- Concerning one or more federal tax issues
A Covered Opinion Arising from a transaction that the IRS determined to a be a Tax Avoidance Transaction is?
- A Listed Transaction
A Covered Opinion Arising from any Arrangment the principal purpose of which is?
- Federal Tax Avoidance or Evasion
The Covered Opinion arising from Written Advice is?
- Reliance Opinion
- Marketed Opinion
- Subject to Conditions of Confidentiality
or - Contractual Protection
What is a Reliance Opinion?
- Written Advice
- Confidence level of a LEAST 50%
(‘ More likely than not’) - That likelihood that the significant Fed. tax issue would be resolved in the taxpayer’s favor.
What is a Marketed Opinion?
- Advice that will be used to promote, market, or sell a partnership, investment plan, arrangement
A Marketed Opinion does NOT include ?
- Written advice
- Not about: Listed Trans., Principal purpose of fed. tax avoidance or evasion
For the Practitioner opinion to be considered a Covered Opinion:
- Can not be based upon Unreasonable factual assumptions
- Must relate applicable law to the facts
- Merits with respect to each Significant Fed. Tax Issue
A Covered Opinion’s Evaluation of significant Fed. Tax. Issues can NOT take into account the possibility that:
- A Tax Return will NOT be audited
- An issue will NOT be raised on audit
- If Raised, will be resolved through settlement
A Limited Scope Opinion may consider less than all the significant Fed. Tax issues if?
Practitioner & taxpayer agree that both:
- The scope of the opinion & Taxpayer’s reliance on the opinion:
~Are limited to the issues addressed in the opinion
A Practitioner must NOT give Written Fed. Tax Advice if they ?
- Base the advice on Unreasonable factual or legal assumptions
- Unreasonably relies upon statements
- Does Not consider all relevant facts
- Takes into account the possibility that a tax return will not be audited
After Conducting a proceeding the Sec. of the Treasury may censure, suspend, or disbar any Practitioner before the IRS if?
- Shown to be incompetent or disreputable
- Fails to comply with Circular 230
- Defraud, willingly & Knowingly misleads clients
Who has the Sole power to license, revoke, suspend CPAs?
- State Boards of Accountancy
What are the 3 Broad Categories of Misconduct?
- While performing accounting Services
- Outside the scope of accounting services: intoxication/impairs
- Criminal Conviction: Felony
After an investigation of Prof. Misconduct, the State Board must do what in the Formal Hearing for possible disciplinary action?
- More Likely than not that the Actions constituted prof. misconduct
- Entitled to Due Process of Law
- State Board Decisions are subject to Judicial Review
The Code of Prof. Conduct applies to?
- All Members of the AICPA
- Many State CPA societies have incorporated all or parts of the Code
What is the Joint Ethics Enforcement Program?(JEEP)
- Enforcement of their codes of conduct by means of a single investigation & action
What Disciplinary Actions can AICPA & State CPA Societies take?
- Suspend or terminate Memberships
- Can without a Hearing for ‘Convictions
What are the Disciplinary Actions the SEC can take?
- Censure, suspend, or permanently revoke a accountant’s right to practice before the SEC
- Revoke the right to sign docs.
- Impose Fines of not more the $100k
( $500k for a firm)
Circular 230 Prohibits:
- A Practitioner from endorsing or negotiating refund checks issued to the Client
Circular 230 for tax returns:
- A Practitioner must return all client records at the request of the client
