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REG > R5-Pt1 > Flashcards

R5-Pt1 Flashcards

1
Q

True or False: Accountants are responsible for knowing the personal finances of tax preparation clients.

A

Accountants have no way of auditing individual’s personal finances and are not required to do so when preparing a return

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2
Q

When a past error is found in a client’s tax return; what should an accountant do?

A

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

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3
Q

Name the key responsibilities of an accountant when preparing a tax return.

A

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

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4
Q

What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?

A

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)

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5
Q

What is the statute of limitations for a tax audit?

A

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.

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6
Q

How long does an individual taxpayer have to file a claim for refund?

A

Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.

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7
Q

A Listed Transaction is specifically identified by the Sec. of US Treasury as a?

A
  • Tax Avoidance Transaction
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8
Q

The ‘More Likely Than Not’ Standard is greater then what % of likelihood of a tax postion being upheld by the courts?

A
  • Greater then 50%
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9
Q

More Likely Than Not Standard is More Stringent then?

A
  • The Substantial Authority Standard
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10
Q

Any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Laws, is called?

A
  • Negligence
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11
Q

Any Failure to exercise Ordinary & Reasonable care in the preparation of a tax return, is called?

A
  • Negligence
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12
Q

Any failure by the taxpayer to keep adequate books & records or to substantiate items properly is called?

A
  • Negligence
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13
Q

Reasonable Basis is what % Tax Position upheld?

A
  • More then 20%
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14
Q

What is a Reportable Transaction?

A
  • Any transaction Information is required to be included with a return
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15
Q

The Requirement for a Reportable Transaction by the Sec. of US Treasury for having the potential for either:

A
  • Tax Avoidance
    OR
  • Tax Evasion
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16
Q

Substantial Authority % Range for being upheld in court is?

A
  • Greater then 33% but less then 50%
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17
Q

An Objective Standard involving an analysis of the law & application of the law to relevant facts is?

A
  • Substantial Authority
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18
Q

The Substantial Authority Standard is Less Stringent then?

A
  • ‘More likely then not’ Standard
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19
Q

An person who prepares for compensation or who employs one or more persons to prepare any tax return or claim for tax refund is?

A
  • Tax Return Preparer
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20
Q

Who are Individuals who practice before the IRS: Attorneys, CPAs, Enrolled Agents/Actuaries/Retirement Plan Agents

A
  • Tax Practitioner
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21
Q

A Plan or arrangement if a significant purpose of an entity/partnership, etc is the avoidance or evasion of federal income tax

A
  • Tax Shelter
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22
Q

A Position is deemed Unreasonable unless:

A
  • Substantial Authority
  • Position is disclosed, there is Reasonable Basis
  • Tax Shelter or Reportable Transaction with position ‘more likely than not’
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23
Q

A penalty for the Understatement of Taxpayer’s Liability may be imposed on the Preparer if?

A
  • Is due to an unreasonable position
  • Preparer had knowledge or should known
  • Position lacks Reasonable basis
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24
Q

Willful or Reckless conduct is either:

A
  • A Willful attempt to understate tax liability

- A Reckless or intentional disregard of tax rules/regs.

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25
Q

A Preparer is not required to obtain supporting documentation unless?

A
  • The preparer has reason to suspect the accuracy of the information provided by the taxpayer (client)
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26
Q

What is the Penalty for Willful or Reckless Conduct?

A
  • Greater of $5,000 or 50% of income the preparer derived from tax refund/claim
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27
Q

A Tax Preparer is Required to ?

A
  • 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
28
Q

What are the Due Diligence Requirements for determining a Client’s Eligibility for the Earned Income Credit?

A
  • Eligibility Checklists
  • Computation Worksheets
  • Reasonable inquires to the taxpayer
  • Record Retention
29
Q

The penalty for aiding & abetting understatement of tax liability applies to?

A
  • Any person

- Not just to Tax return Preparers

30
Q

The IRS has the Burden of Proof to establish that?

A
  • Any person is liable for this civil penalty
31
Q

Additional Penalties for Wrongful Disclosure are resulted from?

A
  • Disclosure to enable a third party to solicit business
    &
  • Knowing or reckless disclosure of information
32
Q

What are the Exceptions to the penalty for Wrongful Disclosure?

A
  • Allowable Disclosure for Court Order
  • Allowable uses (state/local tax)
  • Use for quality & Peer Reviews, Computer processing & Adms. orders (GAAP/Audits)
33
Q

An Individual while a Gov’t Employee, ‘personally & substantially participated” involving specific parties, that individual?

A
  • NEVER Represent or Assist those parties with respect to that particular matter.
34
Q

An Individual, while a Gov’t Employee had ‘Official Responsibility’ can NOT Represent?

A
  • The parties with respect to that particular matter within 2 years after leaving the Gov’t.
35
Q

After an Individual leaves the Gov’t, they can NOT influence the US Treasury Department if?

A
  • They at any time ‘Participated in the development’ of the Rule
  • Within One year period prior to leaving Gov’t
36
Q

A Practitioner may only Charge? & not Charge?

A
  • Contingent Fee

- NOT: ‘Unconscionable Fee

37
Q

In Advertisement no Practitioner may use?

A
  • False or Misleading Advertising

- Ex. “ get a better result b/c…”

38
Q

Tax Advisors should provide the highest Quality representation by adhering to:

A
  • 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)
39
Q

A Practitioner can NOT advise a client to take a tax return position unless:

A
  • The position is NOT Frivolous
40
Q

Generally, a Practitioner who signs the tax return or other docs. may rely?

A
  • ” In Good Faith without Verification” upon client-furnished information
41
Q

Practitioner must make reasonable inquires if the client-furnished info. appears to be?

A
  • Questionable
    OR
  • Incomplete
42
Q

A Practitioner must advise the client promptly of?

A
  • Any Noncompliance, Errors, or Omissions in tax returns or other Docs.
  • The consequences under the law
43
Q

The Practitioner must exercise Due Diligence regarding:

A
  • Preparing returns & Other documents

- Correctness of their representations to the IRS

44
Q

If a Client Requests a return of their records, is the Practitioner allowed?

A
  • YES

- They Must return all client records, BUT maintain records for 3 yrs.

45
Q

A Covered Opinion is?

A
  • Any Written or Electronic Advice

- Concerning one or more federal tax issues

46
Q

A Covered Opinion Arising from a transaction that the IRS determined to a be a Tax Avoidance Transaction is?

A
  • A Listed Transaction
47
Q

A Covered Opinion Arising from any Arrangment the principal purpose of which is?

A
  • Federal Tax Avoidance or Evasion
48
Q

The Covered Opinion arising from Written Advice is?

A
  • Reliance Opinion
  • Marketed Opinion
  • Subject to Conditions of Confidentiality
    or
  • Contractual Protection
49
Q

What is a Reliance Opinion?

A
  • 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.
50
Q

What is a Marketed Opinion?

A
  • Advice that will be used to promote, market, or sell a partnership, investment plan, arrangement
51
Q

A Marketed Opinion does NOT include ?

A
  • Written advice

- Not about: Listed Trans., Principal purpose of fed. tax avoidance or evasion

52
Q

For the Practitioner opinion to be considered a Covered Opinion:

A
  • Can not be based upon Unreasonable factual assumptions
  • Must relate applicable law to the facts
  • Merits with respect to each Significant Fed. Tax Issue
53
Q

A Covered Opinion’s Evaluation of significant Fed. Tax. Issues can NOT take into account the possibility that:

A
  • A Tax Return will NOT be audited
  • An issue will NOT be raised on audit
  • If Raised, will be resolved through settlement
54
Q

A Limited Scope Opinion may consider less than all the significant Fed. Tax issues if?

A

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

55
Q

A Practitioner must NOT give Written Fed. Tax Advice if they ?

A
  • 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
56
Q

After Conducting a proceeding the Sec. of the Treasury may censure, suspend, or disbar any Practitioner before the IRS if?

A
  • Shown to be incompetent or disreputable
  • Fails to comply with Circular 230
  • Defraud, willingly & Knowingly misleads clients
57
Q

Who has the Sole power to license, revoke, suspend CPAs?

A
  • State Boards of Accountancy
58
Q

What are the 3 Broad Categories of Misconduct?

A
  • While performing accounting Services
  • Outside the scope of accounting services: intoxication/impairs
  • Criminal Conviction: Felony
59
Q

After an investigation of Prof. Misconduct, the State Board must do what in the Formal Hearing for possible disciplinary action?

A
  • More Likely than not that the Actions constituted prof. misconduct
  • Entitled to Due Process of Law
  • State Board Decisions are subject to Judicial Review
60
Q

The Code of Prof. Conduct applies to?

A
  • All Members of the AICPA

- Many State CPA societies have incorporated all or parts of the Code

61
Q

What is the Joint Ethics Enforcement Program?(JEEP)

A
  • Enforcement of their codes of conduct by means of a single investigation & action
62
Q

What Disciplinary Actions can AICPA & State CPA Societies take?

A
  • Suspend or terminate Memberships

- Can without a Hearing for ‘Convictions

63
Q

What are the Disciplinary Actions the SEC can take?

A
  • 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)
64
Q

Circular 230 Prohibits:

A
  • A Practitioner from endorsing or negotiating refund checks issued to the Client
65
Q

Circular 230 for tax returns:

A
  • A Practitioner must return all client records at the request of the client

REG (25 decks)

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